PJM manages uncertainty by advancing risk management principles, governed by an enterprise risk management approach. In 2022, risk management at PJM continued to grow as a discipline embedded in every function and division.
In the wake of the Hill Energy default in January 2022, PJM analyzed open positions to assess exposure. Analysis showed that a portfolio subset experienced volatile congestion losses due to short positions on a Dominion transmission zone constraint on the Greys Point-Harmony Village line. Liquidation of the Financial Transmission Rights (FTR) portfolio mitigated financial impact to PJM members.
Continued outage coordination became a focus topic in the PJM stakeholder process to better align market efficiency outcomes.
In April 2022, FERC accepted PJM's request to make changes to its FTR auction rules that FERC said will
"result in reduced financial
risk to PJM and its members."
Endorsed by an overwhelming majority of stakeholders and approved by the PJM Board of Managers, the FTR auction rules are central to a broader package of enhanced risk mitigation practices.
Revisions increase the frequency of PJM’s long-term FTR auctions from
3x per Planning Period
(June, September and December)
to 5x per Planning Period
(June, August, October, December and March)
New rules reduce the amount of transmission system capability offered during each long-term FTR auction round from
to one-fifth (20%)
Revisions modify the available periods for monthly FTR Balance of Planning Period auctions from any three individual months and any fully remaining quarter in the Planning Period, to any remaining individual month in the Planning Period.
FERC found that new FTR auction rules will allow PJM to:
PJM leveraged enterprise risk management practices across all 11 PJM divisions to identify, rank and mitigate risks. This information was presented to the PJM Board of Managers Risk & Audit Committee.
In August 2022, high energy prices prompted unprecedented increases in the volume and tenor of collateral calls. The Risk Management Committee took up a problem statement and issue charge with stakeholders to explore process reforms.
Work continues on this issue, known as a
Peak Market Activity Credit Requirement.
To help reduce the risk of default and ensure Market Participants hold adequate collateral, PJM completed Historical Simulation for Initial Margin (HSIM) calculation in the FTR Market.
This effort included extensive testing and back testing.
Following an August ruling by FERC, PJM implemented HSIM in September at the 97% confidence interval in the FTR Market.