FERC accepted tariff revisions from PJM that require defaulted FTR portfolios to go to settlement rather than being liquidated through auction.
The revisions were prompted by the default of GreenHat Energy, LLC
PJM had said that its proposal to permanently require defaulted FTR portfolios to go directly to settlement will avoid distortions of the FTR market triggered by forced liquidations of FTR portfolios when there are not enough willing buyers to rationally absorb the supply in an economically efficient manner. PJM also said that the proposal will avoid the need to pay potential FTR buyers high risk premiums associated with the liquidation of undesirable money-losing positions. PJM also said that the proposal provides a simple, practical and transparent process for valuing a loss resulting from a member’s ongoing default. PJM also said that the proposal reflects an approach chosen by PJM members to address current member defaults as well as providing a resolution process for future member defaults in the FTR markets
Shell Energy North America had filed a protest, stating that, without the ability to liquidate a defaulting member’s FTR positions, PJM will have no ability to mitigate losses associated with the default, and PJM members will be exposed to settlement risks associated with holding the positions.
FERC generally accepted PJM's proposal, conditioned on certain language changes due to pending matters in other FTR tariff revisions proceedings.
"We find that PJM’s proposal in Docket No. ER19-19-000 to permanently require defaulted FTR portfolios to go directly to settlement is just and reasonable. The revised proposal may prevent potentially large risk premiums that result from a lack of liquidity in the FTR auction in which an FTR default liquidation occurs. We acknowledge that inherent in these revisions, PJM stakeholders are exchanging one set of risks for another. By adopting an approach that may prevent a potential risk premium on liquidation, PJM stakeholders may in exchange experience increased periods of uncertainty associated with potential exposure to congestion risk. The Commission recognizes that PJM, on behalf of the stakeholders who ultimately bear the cost of default, assessed such trade-offs, including the risk tolerance of its stakeholders, and this proposal is the result of such an assessment. While we acknowledge that there are potential downsides to not liquidating defaulted portfolios through the FTR auctions, we cannot find that PJM’s choice to allow FTR positions to go to settlement is unjust and unreasonable," FERC said