Task Force Proposed to Study Financial Risk Management

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PJM on Wednesday recommended that members create a Financial Risk Management Senior Task Force to study potential rule changes to mitigate risk in the Financial Transmission Rights Market.

The proposal, presented to the Market Implementation Committee, is part of a package of reforms PJM is undertaking following an independent review of the June 2018 default of Financial Transmission Rights (FTR) trader GreenHat Energy, LLC. That review recommended improvements to PJM’s internal risk management-related capabilities, as well as improvements to PJM’s credit policies and market rules.

President and CEO Andy Ott reviewed his plan to address organizational and process changes, including the creation of a chief risk officer position. Ott said members could expect progress updates, beginning with the April 25 Members Committee meeting. He also sent a letter to stakeholders Wednesday afternoon.

Members will be tasked with identifying market rule changes and either implementing the rule changes or devising a plan for their implementation before the December meeting of the Board of Managers.

Dave Anders, director – Stakeholder Affairs, proposed a process that would begin with members being asked to endorse a charter for the new group at the April 25 Markets & Reliability Committee meeting.

An education session on current market rules is set for May 2, when stakeholders will identify additional education needs.

The items to be addressed by the task force fall into four categories:

  • Credit and risk management rules updates
  • Market rules updates
  • Membership qualifications and processes updates
  • Stakeholder process changes

To streamline the process, PJM staff will provide observations on the report’s recommendations by May 15, Anders said. Members also would be asked to consider foundational questions and provide comments by the end of May.

PJM, working with external expertise, would then develop initial proposals for each category. Members would participate in evolving these proposals and have the opportunity to add their own. The goal is to address all of the recommendations in the review by deciding whether each should be adopted, modified and adopted, or rejected (with stated justification), Ott said.