Following some significant financial defaults by participants in its markets, PJM engaged Market Reform to provide advice concerning how it could improve its management of credit risk. A benchmarking study of credit risk management practices in a range of spot electricity and other markets was also conducted. This work also helped to inform subsequent rule-making by FERC. Normally our client work is confidential, but in this instance PJM has placed it in the public domain, allowing it to be made available here.
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Recent years have seen a growing awareness of credit issues in the energy industry, and improved efforts to manage these risks. Despite this trend, however, the credit risk protections employed by most electricity spot markets remain rudimentary, placing participants at risk of receiving a socialized share of large, unpredictable and unhedgeable losses. Spot Market Clearing offers a comprehensive solution to this problem, leveraging the proven clearing house infrastructure of futures markets, and extending it, to provide robust counter-party credit protection for spot markets in electricity. read more →
Energy markets are experiencing a period of unprecedented upheaval. Deregulation is driving competition and trading into previous monopoly domains, leading to a fundamental redistribution of risk from end-consumers to market participants. Recent reassessment of these risks has resulted in an industry-wide credit crunch, significantly impacting share values and market liquidity, and forcing a renewed focus on risk management in all its guises. read more →