PJM’s Markets and Reliability Committee (MRC) and Members Committee have endorsed revisions to credit and market rules, which generally tighten the rules

The revised credit rules, which will now be filed at FERC, include new and/or modified reporting requirements, the use of internal credit scores by PJM, and adjusted collateral requirements

PJM will use credit risk scoring methodologies as a tool in determining an Internal Credit Score for each Applicant and/or its Guarantor. The Internal Credit Score will be used to determine eligibility and capitalization requirements listed herein and to determine an Unsecured Credit Allowance. The model will be quantitative, based on financial data found in the income statement, balance sheet, and cash flow statement, and it will be qualitative based on relevant factors that may be internal or external to a particular Applicant and/or its Guarantor

PJM will also evaluate a member's "unreasonable credit risk"

Unreasonable credit risk shall be determined by the likelihood that an Applicant will default on a financial obligation arising from its participation in any PJM Markets. Indicators of potentially unreasonable credit risk include, but are not limited to, a history of market manipulation based upon a final adjudication of regulatory and/or legal proceedings, a history of financial defaults, a history of bankruptcy or insolvency within the past five (5) years, or a combination of current market and financial risk factors such as low capitalization, a reasonably likely future material financial liability, a low Internal Credit Score and/or a low externally derived credit score. PJM’s determination will be based on, but not limited to, information and material provided to PJM during its initial risk evaluation process, information and material provided to PJM in the Officer’s Certification, and/or information gleaned by PJM from public and non-public source

The changes also seek to prevent the re-entry of an entity -- such entity's affiliate -- which previously defaulted

The changes provide that an Applicant who previously defaulted on any obligations owed to PJM and/or PJMSettlement that resulted in a loss to any PJM Market which was never cured, or who is not eligible for reinstatement to PJM membership pursuant to Operating Agreement, section 15.1, shall not be allowed to re-enter the PJM Markets.

"In addition, PJM will evaluate relevant factors to determine if an Applicant seeking to participate in the PJM Markets under a different name, affiliation, or organization should be treated as the same Market Participant that experienced a previous default that resulted in a loss to the PJM Markets under this provision. Such factors may include, but are not limited to, the interconnectedness of the business relationships, overlap in relevant personnel, similarity of business activities, overlap of customer base, and the business engaged in prior to the attempted re-entry," the changes provide

Among other things, each Market Participant will now be responsible for informing PJM, in writing, of any Material Adverse Change in its financial condition (or the financial condition of its Guarantor) since the date of the Market Participant or Guarantor’s most recent annual financial statements provided to PJM

Among other things, a Material Adverse Change includes

• a revocation of a license or other authority by any Federal or State regulatory agency; where such license or authority is necessary or important to the Participant’s continued business, for example, FERC market-based rate authority, or State license to serve retail load

• the filing of a lawsuit or initiation of an arbitration, investigation, or other proceeding that would likely have a material adverse effect on any current or future financial results or financial condition or increase the likelihood of nonpayment

The changes require various annual reporting and certifications by market participants

Tags:
PJM   FERC   Credit   Wholesale  

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