Dive Brief:

• PJM Interconnection announced Friday it has reached an "agreement in principle" with a broad range of stakeholders to address the June 2018 default of financial transmission rights (FTR) trading company GreenHat Energy and the $160 million in related losses.
• Details of the agreement remain confidential. The grid operator has until Oct. 9 to submit a settlement package to the Federal Energy Regulatory Commission (FERC) for approval.
• GreenHat amassed a portfolio of more than 800 million MWh of FTR, which became unprofitable and led the company to default. ​FTRs are hedges against price swings when transmission is congested.

Dive Insight:

PJM is working to resolve the GreenHat debacle and in particular wants to avoid re-running multiple financial transmission rights auctions — an approach suggested by federal regulators that could increase the total default default allocation among PJM members, according to the grid operator.

PJM explained in a blog post Friday that its concern relates to a FERC directive for the grid operator to re-run its July 2018 FTR auction to include liquidation offers from the defaulted GreenHat Energy portfolio for August 2018 through May 2019, and not just August 2018.

PJM in turn said it "requested clarification before attempting to revise multiple months of settled results." The latest estimate of current and future default liability, based on recent auction prices, is approximately $160 million. Re-running multiple months of auctions could increase that, according to the grid operator.

FERC ultimately granted the request for clarification, set a paper hearing and encouraged settlement talks. 

PJM said its agreement in principle follows settlement talks among a "diverse set of market participants and stakeholders" that included generation companies, load-serving entities, FTR trading firms, state commissions and consumer advocates.

"It is expected that the settlement will be supported, or at least not opposed, by all the parties," PJM Associate General Counsel Jen Tribulski told the grid operator's Market Implementation Committee last week.

GreenHat defaulted after it amassed a large position in the FTR market, which had low associated credit requirements. Earlier this year, an independent review of GreenHat's default and the grid operator's response concluded PJM personnel were "naive" about the company's assurances of creditworthiness and future revenue

GreenHat's congestion hedges appeared profitable, based on historical data, but transmission upgrades changed the fundamentals of the trades. The company defaulted in June 2018 when a net realized loss payment came due.