PJM Says FERC Denial Of Waiver Related To July FTR Auction Likely Places A "Number" Of Members In Breach Of Collateral Requirements

PJM in a January 31 market notice said that FERC's denial of a waiver related to the liquidation of certain Financial Transmission Rights will likely place a number of members in breach of their collateral requirements under PJM’s credit policy.

As previously reported, FERC denied a waiver concerning the July FTR auction. After the auction had commenced, PJM said that it observed market illiquidity and large risk premiums in the auction, calling the auction, "dysfunctional." PJM sought a waiver to stop liquidation under such process

However, FERC ruled that the auction, as it had already commenced, should have been conducted pursuant to the then-existing tariffs, and that PJM's stated concerns did not justify departure from the then-governing tariff and the attendant disruption in settled expectations

In the market notice, PJM said, "PJM is disappointed in FERC’s decision that almost certainly fails to appreciate fully the magnitude of the impact to our members and to consumers."

PJM noted that FERC's order requires PJM to rerun the cleared July 2018 FTR auction and to replace the July 2018 results with the auction results that would have included the liquidation of a significant portion of the FTR positions from the GreenHat portfolio for September 2018 through May 2019 at what PJM called, "unreasonable premiums over the previous months’ FTR auction clearing prices for those positions." The order also directed PJM to unwind the default allocation and related settlements made for GreenHat FTRs that went to settlement during the period of September 2018 through January 2019.

PJM said that the projected impact of this order would:

• "Materially and unnecessarily increase the total default allocation assessments to members by a preliminarily estimated range of $250 - $300 million, resulting in a revised total default reference of at least $430 million, based on comparing (a) the revised July 2018 auction results that would result from implementing the order with (b) the sum of the actual default charges for June 2018 through December 2018 plus the most recent auction prices for the January 2019 through May 2021 positions"

• "Likely place a number of members in breach of their collateral requirements of PJM’s credit policy and require them to fulfill a collateral call within two business days based on the unanticipated changes in the positions in members’ FTR portfolios that would result from changing the cleared results of the July 2018 FTR auction"

• "Require PJM to resettle every FTR portfolio impacted by rerunning and revising prior cleared FTR auction results"

"PJM intends to promptly file (1) a request for rehearing and/or clarification to ensure all evidence is placed on the record to communicate the gravity of the denial of the waiver request, as well as (2) a motion to stay the order," PJM said in the market notice