PJM Seeks To Change Rules To Give Non-Performing Capacity Sellers More Time To Pay Penalties ($1-2 Billion From Winter Storm Elliott)

PJM filed a proposal with the Federal Energy Regulatory Commission to amend PJM’s Tariff to allow the option for a Member to extend the billing schedule from three to nine months for any Non-Performance Charges that will be assessed stemming from the Performance Assessment Intervals during Winter Storm Elliott.

"The proposed revisions represent a proactive and prudent measure to mitigate against the potential risk of Member defaults due to large Non- Performance Charges that may be billed over a short period of time that may arise from future Performance Assessment Intervals, as well as those charges stemming from Winter Storm Elliott," PJM said

"[T]he proposed amendments will help to reduce cash-flow and liquidity issues for certain PJM Members in the event large Non- Performance Charges are invoiced near the end of a Delivery Year," PJM said

However, any penalty amounts owed due to defaults from the non-payment of Non-Performance Charges would not be socialized, and thus PJM's filing isn't mitigating a risk of uplift of such charges

PJM stated, "To be clear, because Non-Performance Charges are fully allocated to pay for bonus performance payments, any potential defaults stemming from the non-payment of Non- Performance Charges would not be socialized across the PJM Membership body. It would, however, decrease the overall pool of bonus performance payments that would be allocated to PJM Members that over-performed during the Performance Assessment Interval."

Based on preliminary generator performance data during the Winter Storm Elliott Performance Assessment Intervals, PJM estimates that the aggregate Non-Performance Charge will be between one to two billion dollars.

PJM noted, "Winter Storm Elliott caused historic arctic weather patterns across the PJM region, driving up electricity demand coupled with high levels of generator outages."

However, capacity sellers were not the only market participants to bear the impacts of such historic weather (or prior instances of similar weather). LSEs, such as competitive retail suppliers, have been equally (or more) financially challenged (now or in past polar vortexes) from the market outcomes. And unlike capacity sellers, LSEs didn't make a specific commitment to PJM to pay penalties under a schedule in the tariff and known to all members

Even though the potential defaults stemming from the non-payment of Non- Performance Charges would not be socialized across the PJM Membership body, PJM said that its proposal is appropriate because, "a default of a Member triggered by the non-payment of Non-Performance Charges creates a reliability risk for the PJM load. This is because it is possible that a defaulting PJM Member may no longer honor prior capacity commitments for the previously committed Capacity Resource. As a result, PJM may not be able to rely on such previously committed Capacity Resources as capacity for the remainder of the Delivery Year. Consequently, such Member defaults increase the risk that PJM may not have sufficient capacity to meet peak load conditions for the remainder of the Delivery Year. In addition, exacerbating the liquidity issues caused by the timing of the underlying event can potentially drive premature retirements, which then translates into potentially higher capacity costs for customers in the next capacity auction. As a result, it is in the best interest of both suppliers and load interests to allow Non-Performance Charges to be invoiced over a longer period of time to minimize the risk of Member defaults."

PJM would apply interest to amounts owed by capacity sellers electing the longer payment period