{"document":{"slug":"attachment-er27-454-c","title":"Attachment C - Gwen Kelly Affidavit","issued":"2026-11-09","accession":"20261109-5216","docket":"ER27-454-000","group":"PJM Reliability Backstop Procurement","filer":"PJM","kind":"attachment","file":"sources/originals/attachment-er27-454-c.pdf","url":"https://elibrary.ferc.gov/eLibrary/filelist?accession_number=20261109-5216","parent":"refiling-er27-454-pjm-backstop","sha256":"04053d2b35875f820234c0fba30b3bfdf0352bba47dcaa194f269611e887c9c7","pages":14,"tokens":3851,"emptyPages":[]},"pages":[{"page":1,"startToken":0,"endToken":6,"text":"Attachment C \n \n \nAffidavit of Gwen Kelly"},{"page":2,"startToken":6,"endToken":341,"text":"UNITED STATES OF AMERICA \nBEFORE THE \nFEDERAL ENERGY REGULATORY COMMISSION \n \n \n \nPJM Interconnection, L.L.C. \n) \nDocket No. ER27-____-000 \n \n \n \nAFFIDAVIT OF GWEN KELLY \nON BEHALF OF PJM INTERCONNECTION, L.L.C. \n \n1. \nMy name is Gwen Kelly.  I am the Senior Director, Credit Risk and Collateral \nManagement at PJM Interconnection, L.L.C. (“PJM”).  My business address is \n2750 Monroe Boulevard, Audubon, Pennsylvania 19403. \n2. \nI hold a Bachelor of Business Administration from the University of Hartford.  I \nhave more than 34 years of experience in credit and collateral management, \nincluding approximately 29 years in credit, treasury, and finance functions at \nsubsidiaries of Public Service Enterprise Group, Inc.  I have served in my current \nposition at PJM since March 2021. \n3. \nIn my current position, I am responsible for overseeing PJM’s credit risk \nmanagement program, including the development and administration of collateral \nrequirements and the evaluation of financial risks associated with participation in \nPJM-administered markets. \n4. \nThe purpose of this affidavit is to explain and support PJM’s revised proposal for \ndetermining the credit requirements applicable to Load Serving Entities (“LSE”) \nallocated responsibility for charges associated with the Reliability Backstop \nProcurement (“RBP”).  Specifically, I explain the credit risk considerations \nunderlying the proposal, the economic analysis used to determine the proposed \ncollateral level, and the manner in which the resulting credit requirements will be \ncalculated and administered. \n5. \nI participated in the development and evaluation of the revised methodology.  My \nstatements are based on my experience in credit risk management, my \nresponsibilities at PJM, and my review of the analyses underlying the proposal. \nI. \nCredit Risks Associated with Long-Term RBP Commitments \n6. \nThe RBP provides for the procurement of capacity resources through commitments \nthat may extend for up to 15 years.  LSEs allocated responsibility for RBP Charges \nwill have payment obligations associated with those commitments.  The purpose of \nthe buyer-side requirements is to mitigate the risk that an LSE will fail to satisfy \nthose obligations, potentially resulting in unpaid amounts that may be allocated to \nother LSEs."},{"page":3,"startToken":341,"endToken":758,"text":"2 \n7. \nIn developing the proposed credit methodology, PJM considered the long-term \nnature of RBP commitments.  Although RBP Charges are calculated and settled \nperiodically, the underlying procurement commitments extend over a substantially \nlonger period.  From a credit risk management perspective, PJM must establish \nappropriate protection against the financial exposure associated with those \ncommitments over their terms. \n8. \nAssessing credit exposure over the term of an RBP commitment is not the same as \nestimating an LSE’s payment obligations for an individual Delivery Year.  The \nperiodic calculation of payment obligations does not necessarily mean that \ncollateral requirements should be based primarily on expected payment exposure \nfor each individual Delivery Year. \n9. \nUnder the RBP settlement provisions, RBP Charges are calculated using a contract-\nfor-differences mechanism.  The RBP clearing price is established through the \nprocurement process, but the Reliability Pricing Model (“RPM”) clearing prices \nused to calculate future settlement amounts are not known when the RBP \ncommitments are established.  Although RPM clearing prices affect RBP Charges, \nthey are not inputs to PJM’s proposed calculation of the RBP LSE credit \nrequirement. \n10. \nAs a result, the actual RBP Charges payable over the commitment term may be \nsubstantially lower than the gross payment obligation calculated using the RBP \nclearing price.  However, the amount of those future settlement obligations cannot \nbe determined with certainty when the RBP commitments are established.  \n11. \nOne alternative approach to determining collateral requirements, which PJM is not \nproposing, would be to forecast future RPM clearing prices and use the estimated \ndifferences between those prices and the RBP clearing price to calculate expected \npayment exposure.  Although such an approach could more closely reflect \nanticipated settlement obligations, it would depend on forecasts of RPM clearing \nprices extending many years into the future. \n12. \nAnother approach would be to periodically adjust collateral requirements as future \nRPM clearing prices become known.  Such adjustments could account for changes \nin expected payment exposure, but their effectiveness would depend on PJM’s \nability to obtain additional collateral when needed.   \n13. \nAn increase in payment exposure may occur at a time when an LSE’s financial \ncondition has deteriorated or when the LSE is otherwise unable to satisfy an \nadditional collateral requirement.  Under those circumstances, PJM could be left \nwith insufficient collateral to secure the LSE’s payment obligations. \n14. \nAccordingly, PJM favors a methodology that establishes meaningful credit \nprotection based on long-term RBP commitments rather than making that \nprotection substantially dependent on forecasts of future RPM clearing prices or on \nthe ability to obtain additional collateral over time."},{"page":4,"startToken":758,"endToken":1145,"text":"3 \n15. \nThis does not mean that PJM assumes LSEs will ultimately pay the full gross value \nof their allocated RBP commitments, nor does it mean that collateral must equal the \nfull gross value of those commitments.  Instead, the RBP weighted-average clearing \nprice provides a known and objectively determinable basis for calculating collateral \nrequirements, while the appropriate level of collateral is determined through a \nseparate economic analysis. \nII. \nObjective of the Revised LSE Credit Methodology \n16. \n PJM’s revised proposal is designed to establish a collateral requirement that \nbalances the cost of providing collateral against the expected cost of socialized \nlosses resulting from LSE payment defaults. \n17. \nIn evaluating the appropriate amount of collateral, PJM considered two principal \ncategories of costs.  The first is the cost incurred by LSEs in posting the required \ncollateral.  The second is the expected cost of socialized default amounts that may \nbe borne by non-defaulting LSEs if an LSE fails to satisfy its RBP payment \nobligations. \n18. \nThese costs generally move in opposite directions as the amount of collateral \nchanges.  As the proportion of the gross RBP payment obligation secured by \ncollateral increases, the cost of posting collateral increases, while the expected cost \nof socialized default amounts decreases. \n19. \nAccordingly, PJM sought to identify the collateral percentage at which the \ncombined expected costs of posting collateral and socialized default amounts are \nminimized. \n20. \nThis approach recognizes that requiring collateral equal to the entire gross RBP \npayment obligation would not necessarily produce the most economically \nreasonable result.  Although additional collateral reduces the amount of unsecured \nexposure, it also imposes costs on the LSEs required to provide it. \n21. \nSimilarly, a collateral requirement based primarily on minimizing the cost of \nposting collateral could result in insufficient protection against payment defaults, \npotentially leaving other LSEs to bear the resulting losses. \nIII. \nEconomic Analysis Supporting the Proposed Collateral Requirement \n22. \nTo determine the appropriate collateral percentage, PJM performed an economic \nanalysis evaluating the cost of posting collateral and the expected cost of socialized \ndefault amounts at different collateral levels, expressed as percentages of the net \npresent value of the total RBP payment obligation. \n23. \nThe principal inputs to this analysis include the weighted-average RBP clearing \nprice, the credit quality of the LSE portfolio, the probability of default, the loss \ngiven default, and the cost of posting collateral."},{"page":5,"startToken":1145,"endToken":1607,"text":"4 \n24. \n As noted in PJM’s July 31, 2026 transmittal letter and my supporting affidavit for \nthat filing, PJM has used a discount rate of 9.5%, based on the capacity market \nWeighted Average Cost of Capital developed by The Brattle Group as part of PJM’s \n2025 periodic review of the Cost of New Entry of Capacity Resources into the PJM \nRegion.  PJM considers this rate appropriate for purposes of calculating the net \npresent value of the total RBP payment obligation.1  \nA. \nWeighted-Average RBP Clearing Price \n25. \nThe RBP clearing price is used to calculate the gross payment obligation that serves \nas the reference for determining collateral requirements.  Because different RBP \nResources may clear at different prices and have different quantities of committed \ncapacity over their respective commitment terms, PJM proposes to use a weighted-\naverage RBP clearing price. \n26. \nThe weighted-average RBP clearing price is calculated by summing, for each RBP \nSeller and each Delivery Year of its commitment, the product of the applicable RBP \nclearing price and the committed RBP UCAP MW, and dividing that sum by the \ntotal RBP UCAP MW-years associated with those commitments. \n27. \nFor purposes of the economic analysis and illustrative calculations, PJM assumed \na weighted-average RBP clearing price of $555/MW-day.  The actual RBP Credit \nRate will be calculated using the weighted-average RBP clearing price determined \nfrom the procurement results rather than the illustrative $555/MW-day assumption. \nB. \nLSE Credit Quality and Probability of Default \n28. \nPJM also considered the overall credit quality of the LSEs serving load in the PJM \nRegion in developing its economic analysis.  The weighted-average credit rating of \nthis portfolio is BBB, which PJM used as an input to the analysis.  A portfolio-level \napproach is appropriate because potential losses resulting from LSE payment \ndefaults may be shared among non-defaulting LSEs, and the LSEs responsible for \nRBP payment obligations, as well as their credit quality, may change over the RBP \ncommitment term, which can extend for up to 15 years.  Accordingly, PJM’s \nmethodology establishes a uniform collateral requirement based on the RBP \nobligations being secured rather than the individual credit ratings of the LSEs \nresponsible for those obligations. \n29. \nThe analysis uses the current LSE portfolio’s UCAP MW obligation weighted-\naverage credit rating to determine the probability-of-default assumption.  PJM used \nhistorical default information published by S&P Global in its Default, Transition, \nand Recovery: 2025 Annual U.S. Corporate Default and Rating Transition Study, \nparticularly Table 11 (Average 10-Year Corporate Transition Rate (1981-\n2025)(%)), to inform that assumption.  Based on this historical default information \n \n1 The Brattle Group, Brattle 2025 CONE Report for PJM, PJM Interconnection, L.L.C., 26-34 (Apr. 9, 2025), \nhttps://www.pjm.com/-/media/DotCom/committees-groups/committees/mic/2025/20250411-special/item-1-\n02-revised-cone-report-final.pdf [https://perma.cc/B3VN-EY34]."},{"page":6,"startToken":1607,"endToken":1987,"text":"5 \nand the assumed portfolio credit rating of BBB, PJM’s economic analysis uses a \nprobability-of-default assumption of 4.05%.  \n30. \nUsing a portfolio-wide credit rating assumption is consistent with PJM’s objective \nof establishing a uniform collateral methodology for LSEs assigned responsibility \nfor RBP Charges.  This does not mean that every LSE has a BBB credit rating or \nthe same probability of default, but a uniform methodology is appropriate for the \nreasons discussed above. \nC. \nLoss Given Default \n31. \nAnother input is loss given default, which represents the percentage of the relevant \npayment exposure that PJM would not expect to recover following an LSE default. \n32. \nPJM’s economic analysis assumes a loss given default of 100% with respect to \nunsecured exposure, based on PJM’s historical experience with socialized losses \nresulting from LSE defaults.  In those circumstances, PJM has generally not \nrecovered amounts beyond the collateral available to secure the defaulting LSE’s \nobligations.  Accordingly, the analysis assumes that any exposure remaining after \napplication of available collateral would not be recovered following a default. \nD. \nCost of Posting Collateral \n33. \nThe analysis also considers the cost incurred by LSEs in posting collateral.  \n34. \nPJM’s analysis estimates the cost of posting collateral using a bank facility pricing \napproach based on the five-year historical trend in the 30-day average Secured \nOvernight Financing Rate (“SOFR”), plus an indicative credit spread associated \nwith the assumed BBB credit rating of the LSE portfolio. \n35. \nPJM’s economic analysis uses an assumed cost-of-collateral rate of 4.93%, \nconsisting \nof \n(a) \na \nSOFR \nrate \nof \n3.73% \n(https://www.newyorkfed.org/markets/reference-rates/sofr); and (b) an indicative \naverage BBB bank facility spread of 1.20%.  \n36. \nTo calculate the cost of posting collateral, PJM applied the assumed 4.93% annual \ncost of collateral to the gross RBP payment obligation associated with one MW of \ncommitted capacity over a 15-year term, multiplied by the applicable collateral \npercentage.  PJM used a 40% collateral level because, as discussed below, its \neconomic analysis identified that level as minimizing the combined cost of posting \ncollateral and expected socialized default amounts.  At that collateral level, using \nthe illustrative weighted-average RBP clearing price of $555/MW-day, the \ncalculated cost of posting collateral is approximately $59,962.  This calculation is \nreflected as Point A in Figure 1 below."},{"page":7,"startToken":1987,"endToken":2329,"text":"6 \nE. \nCost of Socialized Default Amounts \n37. \nThe cost of socialized default amounts represents the losses that may be borne by \nnon-defaulting LSEs if an LSE fails to satisfy its RBP payment obligations.  For \nillustrative purposes, PJM calculated the expected cost of socialized default \namounts using the methodology shown in Table 1 below:  \nTable 1: Cost of Socialized Default Amounts\n \n38. \nIn Table 1: \na) \nLSE Credit Ratings represents the LSE portfolio’s UCAP MW obligation \nweighted-average credit rating. \nb) \nProbability of Default is 4.05%, based on the historical 10-year corporate \ndefault rate for BBB rated entities reported by S&P Global. \nc) \nLoss Given Default is assumed to be 100%, reflecting the assumption that \nPJM would not recover any unsecured losses from LSEs. \nd) \nExpected default % represents the assumed probability of default after \naccounting for the effect of collateral posted to PJM.  For purposes of its \neconomic analysis, PJM assumes that the probability of default decreases \nproportionately as the percentage of the RBP payment obligation secured \nby collateral increases, from 4.05% with no collateral to zero with full \ncollateralization.  This simplifying assumption reflects PJM’s judgment that \nposting collateral can reduce the risk of default.  At the proposed 40% \ncollateral level, the resulting expected default percentage is approximately \n2.4%.  \ne) \nDefaulted Amount is calculated by multiplying the gross RBP payment \nobligation by the Expected default %.  For illustrative purposes, the gross \nRBP payment obligation is calculated using the assumed weighted-average \nRBP clearing price of $555/MW-day, 1 MW of committed capacity, 365 \ndays per year, and a 15-year commitment term.   \na) LSE Credit Ratings (weighted average)\nBBB\nb) Probability of Default\n4.05%\nc) Loss Given Default\n100%\nd) expected default %\n2.4%\nadjusted by the amount \nposted to PJM\ne) Defaulted Amount\n$73,839 =$555 x 1 x 365 x 15 x 2.4%\nf) Collateral Held\n$29,535 =$73,839 x 40%\ng) Socialized Amount (=Defaulted Amount- Collateral Held)\n$44,303 =$73,839 - $29,535\nh) Socialized Cost to Non Default LSEs\n$45,407 =$44,303 / (1-2.4%)"},{"page":8,"startToken":2329,"endToken":2471,"text":"7 \nf) \nCollateral Held represents the LSE collateral requirement calculated using \nthe applicable collateral percentage. \ng) \nSocialized Amount represents the Defaulted Amount less the Collateral \nHeld. \nh) \nSocialized Cost to Non Default LSEs represents the Socialized Amount \nallocated among non-defaulting LSEs.  \nThe Socialized Cost to Non Default LSEs of $45,407 is reflected as Point B in \nFigure 1 below.  \nF. \nDetermination of the Optimal Collateral Percentage \n39. \nUsing these inputs, PJM evaluated the combined expected costs of posting \ncollateral and socialized default amounts at different collateral levels, expressed as \npercentages of the total RBP payment obligation (see Table 2 below). \n40. \nBased on the assumptions used in PJM’s economic analysis, the combined cost of \nposting collateral and expected socialized default amounts is minimized at a \ncollateral level equal to 40% of the net present value of the total RBP payment \nobligation."},{"page":9,"startToken":2471,"endToken":2631,"text":"8 \nTable 2: Total Cost \n \nCollateral Held %\nCost of Posted \nCollateral\nCost of Socialized \nDefault Amount\nTotal Cost\n0%\n-\n                          \n128,259\n                               \n128,259\n        \n5%\n7,495\n                     \n115,510\n                               \n123,005\n        \n10%\n14,991\n                   \n103,453\n                               \n118,443\n        \n15%\n22,486\n                   \n92,084\n                                 \n114,570\n        \n20%\n29,981\n                   \n81,398\n                                 \n111,380\n        \n25%\n37,476\n                   \n71,392\n                                 \n108,869\n        \n30%\n44,972\n                   \n62,061\n                                 \n107,033\n        \n35%\n52,467\n                   \n53,400\n                                 \n105,867\n        \n40%\n59,962\n                   \n45,407\n                                 \n105,369\n        \n45%\n67,457\n                   \n38,075\n                                 \n105,532\n        \n50%\n74,953\n                   \n31,402\n                                 \n106,355\n        \n55%\n82,448\n                   \n25,383\n                                 \n107,831\n        \n60%\n89,943\n                   \n20,015\n                                 \n109,958\n        \n65%\n97,438\n                   \n15,292\n                                 \n112,731\n        \n70%\n104,934\n                 \n11,212\n                                 \n116,146\n        \n75%\n112,429\n                 \n7,770\n                                   \n120,199\n        \n80%\n119,924\n                 \n4,963\n                                   \n124,887\n        \n85%\n127,419\n                 \n2,786\n                                   \n130,205\n        \n90%\n134,915\n                 \n1,236\n                                   \n136,150\n        \n95%\n142,410\n                 \n308\n                                       \n142,718\n        \n100%\n149,905\n                 \n-\n                                        \n149,905"},{"page":10,"startToken":2631,"endToken":2819,"text":"9 \nFigure 1: Optimal Collateralization \n \n41. \nPJM therefore proposes to use a 40% factor in determining the RBP Credit Rate. \n42. \nThe 40% factor does not represent the percentage of gross RBP payments that PJM \nexpects LSEs to pay through contract-for-differences settlements.  Rather, it is the \ncollateral percentage identified by PJM’s economic analysis as minimizing the \ncombined cost of posting collateral and expected socialized default amounts. \nIV. \nCalculation of the RBP LSE Credit Requirement \n43. \nUnder PJM’s proposed methodology, each LSE allocated responsibility for RBP \nCharges must maintain RBP Collateral sufficient to satisfy its RBP LSE credit \nrequirement. \n44. \nEach LSE’s RBP LSE credit requirement is calculated by multiplying the RBP \nCredit Rate established following the applicable RBP auction by the LSE’s \nAllocated RBP Credit MW. \nRBP LSE Credit Requirement = RBP Credit Rate x Allocated RBP Credit MW \n45. \nThe RBP Credit Rate is an amount per MW calculated by applying the 40% factor \nto the net present value of the total RBP payment obligation per MW over the \napplicable RBP commitment term, using the weighted-average RBP clearing price \nof all RBP UCAP MW committed through the RBP."},{"page":11,"startToken":2819,"endToken":3198,"text":"10 \n46. \nAllocated RBP Credit MW means the RBP UCAP MW for which the LSE has been \nallocated responsibility for RBP Charges in accordance with the applicable Tariff \nprovisions. \n47. \nThe RBP Credit Rate therefore establishes a uniform dollar-per-MW amount based \non the weighted-average RBP clearing price and the proposed collateral \nmethodology.  Each LSE’s total collateral requirement depends on the quantity of \nits Allocated RBP Credit MW. \n48. \nFor example, at an assumed weighted-average RBP clearing price of $555/MW-\nday, the proposed methodology produces an illustrative RBP Credit Rate of \napproximately $686,000 per MW.  This amount is equivalent to approximately 3.4 \nyears of undiscounted RBP payments per MW at the assumed clearing price. \n49. \nThe approximately $686,000-per-MW amount is illustrative and does not represent \na fixed RBP Credit Rate under the proposed Tariff provisions.  The actual RBP \nCredit Rate will be calculated using the weighted-average RBP clearing price \ndetermined from the procurement results. \n50. \nThe proposed methodology establishes the RPM Credit Rate by applying the 40% \nfactor to the net present value of the total RBP payment obligation, rather than by \nrequiring collateral equal to a specified number of years of payments. \nV. \nAdministration of the RBP LSE Credit Requirement \nA. \nPosting of Collateral \n51. \nThe proposed Tariff provisions establish procedures for identifying the LSEs \nresponsible for RBP Charges and requiring those LSEs to provide the applicable \ncollateral before the beginning of each Delivery Year. \n52. \nElectric Distributors will provide PJM with the information necessary to identify \nthe LSEs responsible for RBP Charges and their respective Allocated RBP Credit \nMW.   \n53. \nLSEs responsible for RBP Charges must post or maintain the required RBP \nCollateral no later than 45 days before the beginning of the applicable Delivery \nYear. \n54. \nThe annual identification and collateral posting process recognizes that \nresponsibility for serving load, and consequently responsibility for RBP Charges, \nmay change over the RBP commitment term.  This annual process does not alter \nthe long-term nature of the underlying RBP commitments or the long-term \neconomic basis for determining the RBP Credit Rate. \n55. \nThe proposed Tariff provisions also address circumstances in which an LSE is \nresponsible for RBP Charges, but the information necessary to determine its \nAllocated RBP Credit MW has not been reported for the applicable Electric"},{"page":12,"startToken":3198,"endToken":3555,"text":"11 \nDistributor zone or area.  In those circumstances, PJM may determine the LSE’s \nAllocated RBP Credit MW using its proportional share of the Daily Unforced \nCapacity Obligation for the zone or area, as specified in the Tariff. \n56. \nIn addition, the proposed Tariff provisions preserve PJM’s authority to evaluate an \nLSE under the Unreasonable Credit Risk provisions of Attachment Q.  \nB. \nAcceptable Forms of Collateral \n57. \nPJM proposes to accept RBP Collateral in the form of cash, letters of credit, or \nsurety bonds, subject to PJM’s acceptance of the provider, form, and amount of \nsuch collateral.  Consistent with PJM’s existing credit requirements, these forms of \ncollateral are intended to provide reliable financial protection that PJM can access \npromptly when necessary, without conditions that could delay or impair its ability \nto obtain payment. \nC. \nRelationship to Other PJM Credit Requirements \n58. \nThe RBP LSE credit requirement addresses payment exposure associated with RBP \ncommitments and is separate from the credit requirements applicable to other PJM \nmarket activities.  \n59. \nPJM proposes that settlement during any Delivery Year of cleared positions \nresulting from, or expected to result from, the RBP, including payments and \nLocational Reliability Charges associated with the capacity commitments of RBP \nResources, as well as RBP Charges, shall not be considered in Peak Market Activity \nunder Tariff, Attachment Q, section VII.A.  This treatment is intended to avoid \nduplicative collateral requirements for RBP-related exposure while preserving the \napplication of other PJM credit requirements. \nVI. \nReview of the RBP Credit Rate \n60. \nOver the RBP commitment term, the inputs used to determine the RBP Credit Rate, \nincluding the overall credit quality of the LSE portfolio, may change. \n61. \nFollowing the commencement of commercial operation of all capacity resources \nwith RBP commitments, PJM shall review the RBP Credit Rate, including inputs \nused to determine that rate. \n62. \nIf PJM identifies material changes that would affect the RBP Credit Rate, PJM will \nreassess the RBP Credit Rate and present any resulting recommendations to PJM \nstakeholders through the Members Committee. \n63. \nA change in the credit characteristics of an individual LSE does not, by itself, \ntrigger an adjustment to the RBP Credit Rate."},{"page":13,"startToken":3555,"endToken":3735,"text":"12 \nVII. \nReasonableness of the Revised Methodology \n64. \nIn my opinion, the revised RBP LSE credit methodology represents a reasonable \napproach to managing the financial risks associated with long-term RBP \ncommitments. \n65. \nUsing the known weighted-average RBP clearing price as the basis for determining \ncollateral allows PJM to establish meaningful credit protection without relying on \nforecasts of future RPM clearing prices or on the ability to obtain additional \ncollateral later in the commitment term. \n66. \nBy considering both collateral costs and expected socialized default amounts, the \nmethodology balances the interests of LSEs required to post collateral against those \nof LSEs that may bear losses resulting from another LSE’s payment default. \n67. \nAlthough alternative collateral methodologies are possible, including approaches \nbased on projected contract-for-differences settlement exposure, PJM’s proposed \nmethodology reflects a reasonable credit risk management judgment that balances \nthe need for long-term credit protection against collateral costs and expected \nsocialized default amounts. \nVIII. Conclusion \n68. \nFor the reasons explained above, I believe the proposed methodology represents a \nreasonable approach to establishing the RBP LSE credit requirement. \n69. \nThis concludes my affidavit."},{"page":14,"startToken":3735,"endToken":3851,"text":"UNITED STATES OF AMERICA \nBEFORE THE \nFEDERAL ENERGY REGULATORY COMMISSION \n \n \n \nPJM Interconnection, L.L.C. \n) \nDocket No. ER27-____-000 \n \n \n \n \nVERIFICATION \n \nI, Gwen Kelly, pursuant to 28 U.S.C. § 1746, state, under penalty of perjury, that I \nam the Gwen Kelly referred to in the foregoing document entitled “Affidavit of Gwen \nKelly, Senior Director Credit Risk and Collateral Management at PJM Interconnection, \nL.L.C.,” that I have read the same and am familiar with the contents thereof, and that the \nfacts set forth therein are true and correct to the best of my knowledge, information, and \nbelief. \n \n/s/ Gwen Kelly  \n \nGwen Kelly  \nSr. Director,  \nCredit Risk & Collateral Management \nRisk Management \nPJM Interconnection, L.L.C."}],"sections":[{"p":1,"at":0,"title":"Attachment C","method":"printed heading","endPage":2,"endAt":1814,"startToken":0,"endToken":267},{"p":2,"at":1814,"title":"I. Credit Risks Associated with Long-Term RBP Commitments","method":"printed heading","endPage":4,"endAt":456,"startToken":267,"endToken":825},{"p":4,"at":456,"title":"II. Objective of the Revised LSE Credit Methodology","method":"printed heading","endPage":4,"endAt":2081,"startToken":825,"endToken":1059},{"p":4,"at":2081,"title":"III. Economic Analysis Supporting the Proposed Collateral Requirement","method":"printed heading","endPage":5,"endAt":474,"startToken":1059,"endToken":1227},{"p":5,"at":474,"title":"A. Weighted-Average RBP Clearing Price","method":"printed heading","endPage":5,"endAt":1517,"startToken":1227,"endToken":1380},{"p":5,"at":1517,"title":"B. LSE Credit Quality and Probability of Default","method":"printed heading","endPage":6,"endAt":490,"startToken":1380,"endToken":1680},{"p":6,"at":490,"title":"C. Loss Given Default","method":"printed heading","endPage":6,"endAt":1173,"startToken":1680,"endToken":1778},{"p":6,"at":1173,"title":"D. Cost of Posting Collateral","method":"printed heading","endPage":7,"endAt":3,"startToken":1778,"endToken":1988},{"p":7,"at":3,"title":"E. Cost of Socialized Default Amounts","method":"printed heading","endPage":8,"endAt":414,"startToken":1988,"endToken":2389},{"p":8,"at":414,"title":"F. Determination of the Optimal Collateral Percentage","method":"printed heading","endPage":10,"endAt":456,"startToken":2389,"endToken":2697},{"p":10,"at":456,"title":"IV. Calculation of the RBP LSE Credit Requirement","method":"printed heading","endPage":11,"endAt":1282,"startToken":2697,"endToken":3015},{"p":11,"at":1282,"title":"V. Administration of the RBP LSE Credit Requirement","method":"printed heading","endPage":11,"endAt":1336,"startToken":3015,"endToken":3023},{"p":11,"at":1336,"title":"A. Posting of Collateral","method":"printed heading","endPage":12,"endAt":390,"startToken":3023,"endToken":3258},{"p":12,"at":390,"title":"B. Acceptable Forms of Collateral","method":"printed heading","endPage":12,"endAt":869,"startToken":3258,"endToken":3330},{"p":12,"at":869,"title":"C. Relationship to Other PJM Credit Requirements","method":"printed heading","endPage":12,"endAt":1640,"startToken":3330,"endToken":3439},{"p":12,"at":1640,"title":"VI. Review of the RBP Credit Rate","method":"printed heading","endPage":13,"endAt":4,"startToken":3439,"endToken":3556},{"p":13,"at":4,"title":"VII. Reasonableness of the Revised Methodology","method":"printed heading","endPage":13,"endAt":1124,"startToken":3556,"endToken":3706},{"p":13,"at":1124,"title":"VIII. Conclusion","method":"printed heading","endPage":14,"endAt":745,"startToken":3706,"endToken":3851}]}