The Federal Energy Regulatory Commission has accepted the PJM Interconnection's new requirements for PJM Market Participants to show proof of financial health to be eligible to participate in PJM markets.
Companies that cannot meet minimum capitalization thresholds can still qualify to participate by demonstrating other evidence of financial health, including posting collateral, providing a letter of credit or supplying a corporate guaranty.
“We find it reasonable to require Market Participants be solvent to participate in PJM markets,” the FERC order stated.
The new minimum capitalization thresholds are reasonable in order to demonstrate proof of Market Participants’ financial health, FERC found, and “has the effect of encouraging Market Participants to have stronger balance sheets and disciplined debt management.”
The changes approved by FERC’s July 26 order received nearly unanimous support from stakeholders and align with similar requirements approved by FERC for other grid operators nationwide.
“These changes allow reasonable access to PJM for both established and developing business entities,” said Lisa Drauschak, PJM Sr. Vice President, Chief Financial Officer and Treasurer. “The new framework meaningfully reduces risk for PJM markets and all Market Participants and is designed to keep step with inflation to remain durable in the future.”
The new rules institute minimum capitalization requirements high enough to enhance Market Participants’ ability to absorb losses and decrease likelihood of insolvency. The approved rules were also found to not present an unreasonable barrier to entry.
Effective July 27, Market Participants must demonstrate through their audited financial statements:
• Increase tangible net worth required of Financial Transmission Rights Market Participants to $2 million.
• Grow tangible net worth required of all other Market Participants to $2 million via a phased approach.
• Provide alternative means to gain market access ranging from posting of collateral, letter of credit, surety bond or corporate guaranty.
• Institute a 3% annual increase to these thresholds to account for inflation, beginning five years after implementation.
• Result in more uniform requirements for minimum capitalization for all Market Participants.
