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PJM says financial transmission rights deal reduces market uncertainty

Increase font size  Decrease font size Date:2019-10-21   Views:426
A pending settlement between PJM Interconnection and multiple parties about a financial transmission rights market default would provide "market certainty" and "closure with no outstanding litigation risk," a PJM attorney said Thursday.

"From PJM's perspective this settlement is clear and joined by a cross section of the industry which shows it's a settlement a lot of parties could get behind," Jennifer Tribulski, PJM associate general counsel, said during a conference call conducted from Federal Energy Regulatory headquarters in Washington. "Our perspective is this settlement provides certainty for FTR markets and provides closure with no outstanding litigation risk."

PJM found GreenHat Energy to be in default on its FTR market positions in June 2018. PJM began liquidating GreenHat's large volume of FTR positions in the August 2018 planning period balance FTR auction, conducted in July 2018, but the substantial boost to FTR clearing prices and the financial hit it posed to PJM members led the grid operator to halt the liquidation process.

Ultimately, PJM let the portfolio consisting of positions for the 2018-19, 2019-20 and 2020-21 planning years go to settlement. Default allocation assessments have reached $130.7 million for GreenHat positions held through September 2019.

The settlement (ER18-2068) between PJM and multiple parties provides compensation up to $17.5 million. The settlement provides for payments to July auction participants that assert a claim of economic harm from the manner in which PJM addressed liquidation of the GreenHat FTRs in the July auction, according to the settlement submitted to FERC October 9.

"Rather than engage in complex and extended litigation about each method, practice, and assumption that might be used to re-run or resettle the July Auction," the parties have reached agreement on payment levels, the settlement says.

The settlement provides for a credit of $5 million to Apogee Energy Trading and $7.5 million to Boston Energy Trading and Marketing, the only two firms thus far to have presented claims of economic harm.

The funds will be distributed in the form of credits in those amounts to Apogee and BETM respectively in their first monthly billing statement from PJM issued at least 15 calendar days after the settlement effective date, which would be the date of FERC approval.

The settlement says that although no other claimants have yet come forward, that does not necessarily imply there are no other claimants. However, the settling parties assess that it is unlikely that there are "large claims outstanding."

As a result, PJM will establish a payee fund, capitalized through default allocation assessments in the "amount of the aggregate economic harm," but not to exceed $5 million, according to the settlement.

If a market participant claims they were economically harmed by the July FTR auction they will have 30 days to submit a claim once notified by PJM that FERC has accepted the settlement, Tribulski said.

MARKET REACTION
Since all PJM market participants have been paying for the default regardless of whether they are active FTR traders, one stakeholder asked Thursday why they should be happy with the settlement.

Based on PJM's interpretation of the tariff, estimated costs could be as high as $60 million, so being allocated a portion of the $17.5 million is better than a portion of $60 million, Tribulski said.

Additionally, through litigation it is possible other parties could argue tariff interpretations higher than $60 million which would represent "substantial upside risk," a PJM representative said.

Trade group Energy Trading Institute commends "PJM staff for their diligent work with stakeholders to reach this settlement in an effort to bring closure to the regulatory and financial uncertainty faced by market participants related to this matter," according to a Wednesday statement.

Noting their support and desire for FERC to quickly approve it, ETI said the alternative to settlement could "result in many years of unacceptable uncertainty for the PJM market."

The comment deadline is October 29. If no negative comments are received, the settlement requests the reply comment period be waived in order to swiftly resolve the matter.

"I hope people think long and hard before filing negative comments ... I don't know how much better an outcome of this case we could have gotten," Tribulski said.
 
 
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