By Rory D. Sweeney

A public advocacy group is urging the Commodity Futures Trading Commission to start overseeing PJM’s embattled financial transmission rights market after a massive default that could saddle stakeholders with more than $180 million in costs.

Public Citizen Energy Program Director Tyson Slocum made the request both in a letter to CFTC Chairman J. Christopher Giancarlo and a filing in the docket of a DC Energy complaint before FERC seeking immediate changes to PJM’s credit requirement (EL18-170).

In the complaint, DC Energy seeks to fast-track changes to PJM’s FTR credit policy to forestall what has become a historic portfolio default by GreenHat Energy, causing substantial tension between the RTO and its stakeholders and prompting an investigation by its Board of Managers. (See “GreenHat Default Update,” PJM Market Implementation Committee Briefs: Nov. 7, 2018.)

On Sept. 25, FERC accepted a PJM filing to impose a 10-cent/MWh minimum monthly requirement on FTR portfolios (ER18-2090) and established a paper hearing in the complaint “to determine whether the Tariff is unjust and unreasonable even with PJM’s new Tariff revision in place.” Comments on the hearing were due Nov. 9.

CFTC Exemption

Slocum argues that CFTC’s 2013 decision to exempt FTRs from its jurisdiction was made on the condition that it could “suspend, terminate or otherwise modify or restrict” its order as conditions warranted. GreenHat’s default coupled with PJM’s subsequent handling and FERC’s inaction means CFTC must get involved, according to Slocum.

“It appears PJM’s catastrophic failure to properly oversee its FTR market, combined with PJM’s misrepresentation of key facts in its [request for the CFTC exemption], should result in the CFTC suspending the exemption it granted,” he wrote. “Furthermore, FERC’s refusal to take minimum steps to assert regulatory control over the situation forces Public Citizen to conclude that only the CFTC is in a position to protect consumers from abuses in FTR markets going forward.”

Calling PJM’s staff “incompetent” and “clearly unprepared and overmatched” to handle FTRs, Slocum said any FERC effort to revise credit requirements “will be meaningless” under PJM’s “lax” oversight, which is “by design.” He noted several examples of what critics have seen as PJM’s mishandling of the situation, including failing to increase credit requirements and apparent bungling attempts to seek additional collateral from GreenHat.

Slocum said the conditions of the CFTC exemption appear to have been broken on several counts. First, Public Citizen could find no clear evidence that PJM’s Independent Market Monitor was “directly involved” in the negotiations seeking additional collateral as CFTC’s order requires. Additionally, GreenHat was purely a financial trader that could not be categorized as among the “commercial participants that are in the business of generating, transmitting and distributing electric energy” that the exemption allows.

No Transparency

Slocum also pointed out that while companies seeking to participate in PJM’s competitive energy markets must seek FERC approval to do so and subject themselves to public scrutiny and comment, FTR market participants need only register with the RTO.

“PJM does not offer public notice and comment of FTR applications, and it does not condition their approval by first offering the public an opportunity to inspect the applications,” he wrote. “Had Greenhat been required to submit its ownership structure to public notice and comment at FERC, then groups like Public Citizen would have had an opportunity to raise serious concerns about a firm owned by two former JP Morgan traders directly implicated in one of the most brazen market manipulation schemes in history obtaining authorization to trade FTRs.” (See GreenHat: (Some of) the Rest of the Story.)

Slocum noted that another former trader in PJM’s FTR markets, Tokamak Energy Partners, was founded by the head of power trading for Deutsche Bank during the period the company was caught manipulating the California power market.

“Who knows how many frauds and market manipulators have set up shop to trade FTRs. FERC doesn’t know, because FERC effectively has ceded regulatory jurisdiction to PJM, and PJM operates its FTR market with little to no public transparency,” he wrote.

A PJM spokesperson confirmed that the RTO will be filing a response to the Public Citizen complaint, but the content of that response has not been finalized.