In response to recent bankruptcy court rulings, PJM will no longer incorporate billing line item transfers when calculating member credit requirements, RTO officials told the Market Implementation Committee last week.
A billing line item transfer allows a member to partially offset its accounts payable with a receivable owed them by another member. The netting of charges from these counterparty transactions are reflected in PJM’s invoices: one invoice increases by the same amount as the second decreases.
Reason for Change: Because PJM uses net invoice values in determining credit requirements, the practice can create a “three-party setoff” between PJM and the two members involved in the transfer. Recent bankruptcy court rulings have restricted the allowance of three-party setoffs, meaning PJM might be precluded from seizing assets in the event of a member bankruptcy.
Impact: PJM will continue to allow line item transfers but will exclude the netting from credit calculations in cases that could increase the RTO’s credit exposure. The change will be effective late in the second quarter. Recalculation of credit requirements will be prospective only.
PJM contact: Hal Loomis
