{"document":{"slug":"filing-er26-3380-pjm-original-attachment-4","title":"Attachment D - Kelly Affidavit.pdf","issued":"2026-07-31","accession":"20260731-5214","docket":"ER26-3380-000","group":"PJM filings","filer":"PJM Interconnection, L.L.C.","kind":"attachment","file":"sources/originals/20260731-5214_05.pdf","url":"https://elibrary.ferc.gov/eLibrary/filelist?accession_Number=20260731-5214","parent":"filing-er26-3380-pjm-original","text_file":"20260731-5214_05.txt","sha256":"e210f4ebfb3a8e3798e5c6c100d42daab64040c66f0ebb5f38d4d453228bd276","pages":8,"tokens":2384,"emptyPages":[]},"pages":[{"page":1,"startToken":0,"endToken":21,"text":"Attachment D \n \n \n \n \n \n \n \nAffidavit of Ms. Gwen Kelly, \nSenior Director in Credit Risk and Collateral Management \nof PJM Interconnection, L.L.C."},{"page":2,"startToken":21,"endToken":363,"text":"UNITED STATES OF AMERICA \nBEFORE THE \nFEDERAL ENERGY REGULATORY COMMISSION \n \n \n) \nPJM Interconnection, L.L.C. \n) \nDocket No. ER26-____-000 \n \n) \n \nAFFIDAVIT OF GWEN KELLY \nON BEHALF OF PJM INTERCONNECTION, L.L.C. \n \n1. \nMy name is Gwen Kelly.  I hold a Bachelor of Business Administration from the \nUniversity of Hartford.  My background includes more than 34 years of experience \nin credit and collateral management, including 29 years in credit, treasury, and \nfinance functions at various subsidiaries in Public Service Enterprise Group, Inc.  \n2. \nSince March 2021, I have served as 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.  \n3. \nIn this role, I am responsible for overseeing PJM’s credit risk management \nprogram, including the development and administration of collateral requirements, \nthe evaluation of participant creditworthiness, and the management of credit \nexposures arising from participation in PJM-administered markets. \n4. \nThis affidavit supports PJM’s filing to implement a Reliability Backstop \nProcurement (“RBP”) and the related credit provisions required to support the \ncredit requirements of the RBP Sellers and Load Serving Entities (“LSE”) that are \nallocated RBP Charges.  \n5. \nI participated in the development of the proposed RBP credit provisions.  The \nstatements contained in this affidavit are based upon my personal knowledge, my \nreview of the analyses performed in developing the proposed RBP credit \nframework, and my experience administering PJM’s credit program. \nDevelopment of Proposed RBP Credit Methodology \n6. \nIn developing the proposed RBP credit framework, PJM evaluated the financial \nrisks associated with the proposed RBP design.  Based on those evaluations, PJM \ndeveloped collateral methodologies intended to mitigate the distinct financial \nexposures created by the RBP design for both generation resources seeking RBP \ncommitments and LSEs that become responsible for payment of RBP Charges. \n7. \nPJM determined that the proposed RBP creates two fundamentally distinct \ncategories of financial exposure.  RBP Sellers present payment risk associated with \nRBP Shortfall Charges for delayed or non-delivery of new generation resources to \nsatisfy their RBP commitments.  LSEs present payment risk associated with their"},{"page":3,"startToken":363,"endToken":769,"text":"3 \nallocated responsibility for RBP Charges.  As these exposures differ in both \ncharacter and duration, PJM developed separate collateral requirements tailored to \neach type of obligation. \n8. \nIn developing the proposed RBP credit framework, PJM sought to calibrate the \namount and duration of required collateral so that collateral remains commensurate \nwith the financial exposure.  The proposed RBP credit provisions are intended to \nprovide protection against non-payment by RBP Sellers and applicable LSEs, while \navoiding collateral requirements that exceed the underlying exposure being \nsecured. \nAnalysis Supporting the Proposed RBP Credit Requirements for RBP Sellers \n9. \nThe proposed Open Access Transmission Tariff (“Tariff”) language establishes an \nRBP credit requirement applicable to RBP Sellers who plan to submit a bid in the \nRBP.1  An RBP credit requirement will be determined for each RBP Resource for \nwhich an RBP Sell Offer is submitted.  The total RBP credit requirement for each \nRBP Seller is the sum of each credit requirement for each RPB Sell Offer.2  For \nexample, if an RBP Seller has five RBP Resources, a credit requirement would be \ndetermined for each RBP Resource.  This approach ensures that adequate collateral \nis provided in the event not every offered RBP Resource receives an RBP \ncommitment, i.e., discrete RBP Collateral tied to each RBP commitment.   \n10. \nPJM aligned the credit requirement to mitigate the non-payment risk of RBP \nShortfall Charges associated with requiring new generation resources to undertake \nlong-term commitments through the RBP.  Unlike many existing generation \nresources participating in PJM’s Reliability Pricing Model (“RPM”), resources \nseeking RBP commitments may require additional financing, permitting, \nequipment procurement, construction, and other development activities before \nachieving commercial operation. \n11. \nPJM concluded that resources seeking RBP commitments present risks that a \ncommitted resource may fail to achieve commercial operation or experience delays \nin reaching commercial operation.  PJM therefore concluded that RBP Shortfall \nCharge risk warrants a customized credit approach for those charges.  Accordingly, \nPJM developed a methodology requiring an RBP Seller to post RBP Collateral prior \nto or contemporaneously with submission of an RBP Sell Offer. \n12. \nSpecifically, PJM developed an RBP Seller collateral methodology using the RBP \nSell Offer price, the quantity of committed megawatts (“MW”), and the first three \nDelivery Years associated—mirroring the fact that RBP Shortfall Charges may \nonly be assessed for the resource’s first three Delivery Years of expected operation \n \n1 Proposed Tariff Section, Attachment DD, section 18.8(a). \n2 Proposed Tariff Section, Attachment DD, section18.8."},{"page":4,"startToken":769,"endToken":1153,"text":"4 \nbefore the RBP commitment is rescinded—to determine the RBP Seller’s collateral \nrequirement. \n13. \nPJM found that, for each RBP Sell Offer, a credit requirement to cover the RBP \nShortfall Charges equivalent to the sum of 20% of the RBP Sell Offer Price * RBP \nUnforced Capacity (“UCAP”) MW for each of the first three Delivery Years \noffered would adequately mitigate the risk.  This requirement is expressed \nformulaically in the proposed Tariff as  \n∑0.2 × (𝑅𝐵𝑃 𝑆𝑒𝑙𝑙 𝑂𝑓𝑓𝑒𝑟 𝑃𝑟𝑖𝑐𝑒 𝑖𝑛\n$\n𝑀𝑊𝐷𝑎𝑦) 𝑛× (𝑈𝐶𝐴𝑃 𝑖𝑛 𝑀𝑊)𝑛× 365\n3\n𝑛=1\n \n𝑤ℎ𝑒𝑟𝑒 𝑛= 𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑌𝑒𝑎𝑟𝑠 \n14. \nAs such, the RBP credit requirement reflects and matches (i) the seller’s ability to \noffer an RBP Resource at a different price and different UCAP commitment level \nfor each Delivery Year for the first three years; and (ii) the requirement that an RBP \nResource must reach commercial operation within three Delivery Years of its target \nin-service date.  Further, given that the RBP Shortfall Charges are keyed to the \nresource’s committed offer price and MW level, the RBP Seller credit requirement \nproperly covers the risk. \n15. \nPJM also evaluated how long RBP Seller collateral should remain posted.  \nConsistent with PJM’s objective of aligning collateral with the underlying financial \nexposure, PJM concluded that collateral should remain in place only while the \nassociated performance risk continues to exist. \n16. \nAccordingly, PJM developed an approach under which collateral associated with \nRBP Sell Offers that do not receive commitments is returned because the associated \nperformance risk no longer exists.  For RBP Resources with RBP commitments, \nPJM determined that collateral should remain posted until commercial operation \nhas been achieved and should continue to be maintained for an additional one-year \nperiod to permit PJM to confirm sustained commercial operation before the \nremaining collateral may be released.  A full 12-month cycle ensures that the asset \ncan reliably operate across all four seasons. \n17. \nPJM also evaluated ownership transfers of committed RBP Resources prior to \ncommercial operation.  PJM concluded that a transfer of a committed resource does \nnot eliminate the underlying performance risk associated with that resource.  \nAccordingly, PJM developed a methodology under which the transferring RBP \nSeller remains financially responsible until the receiving party independently \ndemonstrates the financial capability to support the transferred commitment by \nposting the required collateral and affirmatively assuming responsibility for the \nassociated obligations."},{"page":5,"startToken":1153,"endToken":1567,"text":"5 \n18. \nHere is an example of the RBP Seller credit requirement based on a 100 MW \ncommitment, $555/MW-Day RBP Sell Offer price, 15-year commitment starts in \nthe 2028/2029 Delivery Year: \nShortfall Charge Year 1 (2028/2029):  0.2 * $555/MW-Day * 100 MW * 365 = $4,051,500 \nShortfall Charge Year 2 (2029/2030):  0.2 * $555/MW-Day * 100 MW * 365 = $4,051,500 \nShortfall Charge Year 3 (2030/2031):  0.2 * $555/MW-Day * 100 MW * 365 = $4,051,500 \nCredit Requirement = $4,051,500 + $4,051,500 + $4,051,500 = $12,154,500 \nAnalysis Supporting the Proposed RBP Credit Requirements for LSEs Responsible \nfor Payment of RBP Charges \n19. \nPJM separately evaluated the financial risks associated with LSEs that become \nresponsible for payment of RBP Charges, allocated pursuant to the RBP cost \nallocation methodology.  Specifically, PJM evaluated the credit tools needed to \nmitigate potential defaults from non-payment of RBP Charges.  PJM did so because \nit has the obligation to appropriately mitigate risk of default.  PJM found that its \ncurrent credit tools do not contemplate the long-term nature of RBP and the risk of \nfuture non-payment that results.   \n20. \nBased upon that evaluation, PJM determined that only those LSEs allocated \nresponsibility for RBP Charges should be required to provide RBP Collateral.  \nConversely, LSEs not allocated responsibility for RBP Charges do not present the \npayment exposure the proposed credit provisions are intended to address and \ntherefore are not subject to the RBP credit requirement. \n21. \nPJM evaluated methodologies for determining the amount of collateral required \nfrom LSEs.  PJM considered that the relevant financial exposure is created by the \nportfolio of committed RBP resources rather than by any individual LSE in \nisolation. \n22. \nBased upon that evaluation, PJM developed a methodology that first determines the \naggregate collateral necessary to address the payment exposure associated with the \nportfolio of committed RBP Resources and then allocates that collateral \nrequirement among the LSEs responsible for payment of RBP Charges. \n23. \nPJM further determined that applying a uniform credit rate to each LSE’s allocated \nRBP UCAP MW level (i.e., the portion of the overall RBP commitment costs \nallocated to the LSE, and the basis for an LSE’s RBP Charges) provides an \nobjective, transparent, and consistent means of allocating the aggregate collateral \nrequirement among the LSEs responsible for the underlying payment obligations. \n24. \nPJM evaluated the appropriate initial credit rate applicable to all committed RBP \nUCAP MW.  In developing that rate, PJM sought to establish an initial level of"},{"page":6,"startToken":1567,"endToken":1957,"text":"6 \ncollateral that provides commensurate protection against non-payment while \navoiding full collateralization of the entire 15-year contractual commitment. \n25. \nAs part of that evaluation, PJM estimated the contractual value associated with a \n1-MW RBP commitment using conservative assumptions, including a 15-year \ncommitment term application of the RBP price throughout that commitment period.  \nUnder those assumptions, the estimated contractual value of a 1-MW RBP \ncommitment is approximately $3.04 million, assuming the RBP clearing price at \nthe price cap of $555/MW. \n26. \nBased upon that analysis, PJM concluded that an initial credit rate of $1.5 million \nper committed RBP MW would collateralize approximately 50% of the estimated \ncontractual value associated with the commitment. \n27. \nPJM also evaluated the present value of the expected payment stream associated \nwith RBP commitments through application of a discounted cash flow analysis.  \nFor a 1-MW 15-year committed resource from the 2028/2029 Delivery Year to the \n2042/2043 Delivery Year, RBP Sell Offer price of $555/MW-day, each year’s \npayment is $202,575 (=$555/MW-Day * 1 MW * 365).  We discounted the \ncashflow back to September 2026, using discount rate of 9.5%:  \n2028/2029 notional payment - $202,575, Net Present Value (“NPV”) in September \n2026 = $172,841  \n2029/2030 notional payment - $202,575, NPV in September 2026 = $157,850  \n. . .  \n2042/2043 notional payment - $202,575, NPV in September 2026 = $48,514  \nAll the NPV added together is $1,481,569. \n28. \nThe 9.5% discount rate was used, as it is the capacity market Weighted Average \nCost of Capital developed by The Brattle Group (“Brattle”) as part of PJM’s 2025 \nperiodic review of the Cost of New Entry of Capacity Resources into the PJM \nRegion.3  Given Brattle’s thorough analysis in arriving at 9.5%, it represents a well-\nsupported discount rate to “check” the validity of PJM’s proposed RBP credit \nrequirement.  \n29. \nPJM further considered how the payment exposure with the portfolio of committed \nRBP Resources changes over the 15-year commitment term.  PJM concluded that \nthe remaining payment exposure naturally declines as remaining, forward RBP \npayment obligations are satisfied and as committed RBP Resources are removed \n \n3 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-\n1-02-revised-cone-report-final.pdf [https://perma.cc/B3VN-EY34]."},{"page":7,"startToken":1957,"endToken":2223,"text":"7 \nfrom the portfolio through rescinded commitments or other changes affecting the \nremaining payment obligations. \n30. \nAccordingly, PJM developed a provision permitting reductions to the RBP credit \nrate when changes in the underlying RBP commitment portfolio demonstrate that \npreviously required collateral exceeds the remaining expected payment exposure.  \nPJM concluded that this approach aligns required collateral with the remaining \nfinancial exposure through the commitment term. \n31. \nPJM also evaluated how collateral should be determined before an Electric \nDistributor reports any actual RBP Obligation MW cost allocations for a Delivery \nYear.  Consistent with the “default” cost allocation approach, PJM will look to each \nLSE’s allocated Daily Unforced Capacity Obligation (which is used to allocate \nRPM capacity payments), as it provides an objective and administratively practical \nproxy until actual RBP Obligation MW allocations have been established.  Once \nany RBP Obligation MW are reported, PJM determined that collateral should \ninstead be based upon those actual allocated RBP Obligation MW because they \nprovide the most accurate measure of each LSE’s corresponding payment exposure. \n32. \nPJM also evaluated transfers of LSE obligations during the commitment term.  PJM \nconcluded that the underlying payment exposure associated with transferred RBP \npayment obligations remains until the receiving LSE independently satisfies the \napplicable collateral requirements and assumes responsibility for the transferred \nobligations.  Accordingly, PJM proposes that the transferring LSE remains \nfinancially responsible until the receiving LSE has posted the required collateral \nand assumed responsibility for the transferred obligations. \n33. \nHere is an example:  RBP credit requirement for LSEs based on a 100 MW \ncommitment = $1,500,000 * 100 MW = $150,000,000 \n34. \nThis concludes my affidavit."},{"page":8,"startToken":2223,"endToken":2384,"text":"UNITED STATES OF AMERICA\nBEFORE THE\nFEDERAL ENERGY REGULATORY COMMISSION\nPJM Interconnection, L.L.C.\nDocket No. ER26-\n_-000\nVERIFICATION\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.\nAen) Felly\nSr. Manager, Underwriting\nCredit Risk & Collateral Management\nRisk Management\nPJM Interconnection, L.L.C.\nof July 2026.\nSubscribed and sworn to before me, the undersigned notary public, this 31st day\nNekih DMettich\nNotary Public\nMy Commision expires: /2/23/3027\nCommonwealth of Pennsylvania - Notary Seal\nMICHELE A MATTICOLA - Notary Public\nMontgomery County\nMy Commission Expires December 23, 2027\nCommission Number 1249359"}],"sections":[{"p":1,"at":0,"title":"Attachment D","method":"printed heading","endPage":8,"endAt":1016,"startToken":0,"endToken":2384}]}