FERC Sets PJM's Sought Clarification Of Order Relating To Liquidation Of GreenHat FTR Portfolio For Hearing

Allows Broader Settlement Discussions Concerning All Disputed Issues Related To GreenHat FTR Liquidation Waivers

June 6, 2019

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Reporting by Paul Ring • ring@energychoicematters.com

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FERC has set for a paper hearing process a motion from PJM for clarification concerning FERC's prior order denying PJM's requested waivers relating to liquidation of the GreenHat Energy, LLC Financial Transmission Rights (FTR) portfolio, as FERC in its prior order denied waivers which would have resulted in the modification to the rules governing the previously commenced July 2018 FTR auction

FERC encouraged settlement discussions prior to the hearing.

Although the paper hearing is limited to PJM’s motion for clarification, FERC is not establishing similar limitations on the scope of the settlement discussions, "and the parties are encouraged to address all disputes arising out of this proceeding [ER18-2068, relating to waivers sought by PJM concerning the GreenHat FTR liquidation."

As previously reported, FERC denied waivers sought by PJM concerning the liquidation. PJM had stated that it closely monitored the July 2018 monthly auction and observed market illiquidity and large risk premiums in the FTR auction for the positions that might be liquidated. PJM had stated that, based on the recent offers and bids for the FTR auction conducted in July 2018, PJM expects that the liquidation of GreenHat’s entire FTR portfolio in the manner required by the Tariff would result in significant losses to PJM members, and sought waivers of the tariff process

As a result, PJM paused aspects of the already-commenced July 2018 auction and proposed to waive four discrete tariff provisions

FERC declined to grant a waiver from the tariffed liquidation process, and said that the July 2018 auction should have been conducted under the tariff as it then existed (see more background here)

PJM filed a motion for clarification of FERC's order denying the waiver, seeking guidance regarding the FERC's directive.

"Specifically, PJM asserts that inserting the defaulted FTRs into the July auction at their various paths and quantities will: (1) change the FTR capabilities and cleared FTRs on other paths; (2) potentially oversubscribe some FTR paths, creating retroactive violations of the Simultaneous Feasibility Test in the July auction; and (3) potentially push subsequent month auction results into retroactive Simultaneous Feasibility Test violations, as a consequence of interactions between the revised July auction results and the later month auction clearing solutions. PJM requests that the Commission provide clarification on six different matters to implement the Waiver Order Directive," FERC noted

First, PJM requests that the Commission confirm that for purposes of implementing the then-existing provisions of Attachment K-Appendix, section 7.3.9(e), if any of the GreenHat FTRs for any month or quarter in the Planning Period Balance sets the price, then 50 percent of all Planning Period Balance GreenHat FTRs are removed from the July auction; and if any of the remaining FTRs in any month or quarter again sets the price, 100 percent of all Planning Period Balance GreenHat FTRs are removed from the July auction

Second, PJM requests that the Commission clarify that bids in the July auction submitted from accounts that, based on tentative results, have an FTR Credit Requirement in excess of their FTR Credit Limit at the time the July auction bid window closed, are properly removed from the auction, rather than affording the account holders an unfair option, exercised by choosing either to provide, or not provide, additional collateral, to retroactively negate their awarded FTRs based on the FTRs’ known settlement value

Third, PJM requests that the Commission confirm that the Waiver Order did not direct, and does not require, PJM to re-run or change clearing solutions in any auction subsequent to the July auction, irrespective of any Tariff requirements, including but not limited to Tariff requirements governing Simultaneous Feasibility Test violations, collateral, and FTR ownership

Fourth, PJM requests that the Commission provide clarification in order to reconcile the Tariff requirement that market participants can sell only FTRs they own (FTR ownership rule). PJM states that, after re-running the July auction, some market participants will no longer own FTRs they thought they did. PJM argues that the FTR ownership rule will be violated to the extent these market participants offered to sell positions that they no longer own in subsequent auctions. PJM states that some of the 1,782 bilateral FTR trades since the July auction may have involved FTRs that would no longer exist after re-running the July auction. PJM therefore proposes that the Commission clarify that PJM should fully annul such FTRs and unwind any PJM market settlements, but not re-run any auctions after the July auction. Specifically, PJM requests that the Commission clarify that: (1) a sale into a subsequent FTR auction, or a bilateral sale, of an FTR that, as a result of re-running the July auction, the selling party does not own, should be annulled; (2) PJM should revise the affected party’s auction charges or payments to reflect such annulment; (3) PJM should not change the clearing solution of any auction into which such annulled FTR was offered; (4) PJM should unwind any charges or revenues from the annulled FTR to the extent it went to settlement; and (5) the parties to a bilateral sale of an FTR so annulled are responsible for addressing any financial adjustments between those parties warranted by such annulment

Fifth, PJM requests that the Commission clarify that PJM has no obligation to attempt to reapply the FTR forfeiture rule for past periods, where revised July auction rules would retroactively award FTRs to energy market traders who could not have engaged in trades to increase the value of FTRs they did not know they owned

Sixth, PJM requests guidance on when to apply the two credit rule changes that are now in effect - i.e., the volumetric minimum and the PROMOD revisions - but that were not in full effect during the July auction. PJM requests clarification that market participants will be obligated to comply with the volumetric minimum requirement one business day after the close of the re-run July auction (based upon their portfolio as it then exists recognizing many positions would have gone to settlement or expired). PJM states that the transition period of the PROMOD adjustments is not expired and PJM requests that the Commission clarify that market participants will be obligated to comply fully with those new credit requirements

FERC noted that, "The issues raised in the PJM Motion for Clarification and the subsequent answers demonstrate that there are multiple complexities associated with implementing the Waiver Order Directive that should be addressed in a paper hearing where all parties will have an opportunity to present written evidence and argument."

"While we are setting these matters for a paper hearing, we encourage the parties to make every effort to settle their disputes before the paper hearing commences. To aid the parties in their settlement efforts, we will hold the paper hearing in abeyance to give the parties the opportunity to settle. Although the paper hearing is limited to PJM’s Motion for Clarification, we are not establishing similar limitations on the scope of the settlement discussions and the parties are encouraged to address all disputes arising out of this proceeding," FERC said

ER18-2068

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