Electricity Markets

PJM board launches independent review of FTR trader’s default

The PJM Interconnection Board of Managers has launched an independent review of the June 2018 default of GreenHat Energy LLC, a financial transmission rights trader in the PJM markets, PJM said on Oct. 16.

The board has formed a special committee of three board members to direct the review.

The special committee will examine the facts and circumstances associated with GreenHat’s participation in the FTR market and its subsequent default, conduct an assessment of PJM’s actions in connection with GreenHat, review lessons learned and make recommendations for the future of FTR markets, PJM said.

The special committee will also address questions raised by the members concerning the circumstances of the default. “Examiners will have complete access to PJM records and staff for interviews and documentation review,” PJM said.

To assist the committee in its examination, independent third party experts have been retained, including Robert Anderson, executive director of the Committee of Chief Risk Officers, an independent non-profit organization of companies focused on best risk-management practices.

 Joining Anderson will be Neal Wolkoff, CEO of Wolkoff Consulting Services, LLC. Wolkoff is the former chairman and CEO of the American Stock Exchange and former chief operating officer of the New York Mercantile Exchange. This team will be supported by counsel from Schnader Harrison Segal & Lewis LLP in Philadelphia.

PJM said that since the GreenHat default on June 21, 2018, it has worked with stakeholders to strengthen credit rules, including collateral requirements.

As directed by members, PJM has also petitioned the Federal Energy Regulatory Commission to amend liquidation requirements to minimize the impact to members of this and other defaults.

PJM said its staff has also developed a lessons learned document and, in consultation with outside experts, conducted a workshop with recommendations to further protect members from defaults in the FTR market.

Association’s Kelly says FTR practices need to be looked at in wake of losses

Noting the “eye-popping losses” resulting from the default of GreenHat and the fact that load-serving entities including public power utilities are on the hook for losses from FTR-related defaults, Sue Kelly, President and CEO of the American Public Power Association, recently said that there is a strong argument to be made that financial entity participation in the wholesale markets, including FTR markets, should be investigated.

“I am personally very offended when financial players place losing FTR bets and then walk away and let load pay off the losses,” Kelly said on Sept. 5 at the Future Power Markets Summit, which took place in Washington, D.C.

Kelly said that the Association is concerned about rules for the trading and funding of FTRs, which are intended to allow load-serving entities and other market participants to hedge the costs of day-ahead transmission congestion.