PJM presented its Markets and Reliability Committee with a first read on a proposal to increase the minimum capitalization requirements to participate in its markets.

It was supported by 84% of stakeholders in the RTO’s Risk Management Committee in an October poll.

Under existing policy, entities participating in financial transmission rights markets must have either $1 million in tangible net worth (TNW) or $10 million in tangible assets. For those not involved in FTRs, the requirement is $500,000 in TNW or $5 million for tangible assets.

The proposal would increase the TNW threshold to $2 million for all participants with a 3% fixed rate escalation annually. It includes a transition period in which the TNW for non-FTR participants would first increase to $1 million and double over five years.

The TNW and tangible asset minimums have not been changed since they were instituted in 2011. PJM’s Ryan Jones said minimum capitalization requirements are meant to ensure that market participants can handle the risk associated with their activities and reduce the risk of default shifting costs to others.

An earlier version of the proposal would have required $5 million in TNW, but PJM decreased that after stakeholders voiced concern that it would create too big a barrier to participation, increase market concentration and reduce competition.

Independent Market Monitor Joe Bowring said he views the proposal as a modest requirement which would protect members against defaults by market participants who cannot meet their obligations.