ER27-454-000 · 2026-11-09 · PJM

Attachment C - Gwen Kelly Affidavit

Attachment C 
 
 
Affidavit of Gwen Kelly

UNITED STATES OF AMERICA 
BEFORE THE 
FEDERAL ENERGY REGULATORY COMMISSION 
 
 
 
PJM Interconnection, L.L.C. 
) 
Docket No. ER27-____-000 
 
 
 
AFFIDAVIT OF GWEN KELLY 
ON BEHALF OF PJM INTERCONNECTION, L.L.C. 
 
1. 
My name is Gwen Kelly.  I am the Senior Director, Credit Risk and Collateral 
Management at PJM Interconnection, L.L.C. (“PJM”).  My business address is 
2750 Monroe Boulevard, Audubon, Pennsylvania 19403. 
2. 
I hold a Bachelor of Business Administration from the University of Hartford.  I 
have more than 34 years of experience in credit and collateral management, 
including approximately 29 years in credit, treasury, and finance functions at 
subsidiaries of Public Service Enterprise Group, Inc.  I have served in my current 
position at PJM since March 2021. 
3. 
In my current position, I am responsible for overseeing PJM’s credit risk 
management program, including the development and administration of collateral 
requirements and the evaluation of financial risks associated with participation in 
PJM-administered markets. 
4. 
The purpose of this affidavit is to explain and support PJM’s revised proposal for 
determining the credit requirements applicable to Load Serving Entities (“LSE”) 
allocated responsibility for charges associated with the Reliability Backstop 
Procurement (“RBP”).  Specifically, I explain the credit risk considerations 
underlying the proposal, the economic analysis used to determine the proposed 
collateral level, and the manner in which the resulting credit requirements will be 
calculated and administered. 
5. 
I participated in the development and evaluation of the revised methodology.  My 
statements are based on my experience in credit risk management, my 
responsibilities at PJM, and my review of the analyses underlying the proposal. 
I. 
Credit Risks Associated with Long-Term RBP Commitments 
6. 
The RBP provides for the procurement of capacity resources through commitments 
that may extend for up to 15 years.  LSEs allocated responsibility for RBP Charges 
will have payment obligations associated with those commitments.  The purpose of 
the buyer-side requirements is to mitigate the risk that an LSE will fail to satisfy 
those obligations, potentially resulting in unpaid amounts that may be allocated to 
other LSEs.

2 
7. 
In developing the proposed credit methodology, PJM considered the long-term 
nature of RBP commitments.  Although RBP Charges are calculated and settled 
periodically, the underlying procurement commitments extend over a substantially 
longer period.  From a credit risk management perspective, PJM must establish 
appropriate protection against the financial exposure associated with those 
commitments over their terms. 
8. 
Assessing credit exposure over the term of an RBP commitment is not the same as 
estimating an LSE’s payment obligations for an individual Delivery Year.  The 
periodic calculation of payment obligations does not necessarily mean that 
collateral requirements should be based primarily on expected payment exposure 
for each individual Delivery Year. 
9. 
Under the RBP settlement provisions, RBP Charges are calculated using a contract-
for-differences mechanism.  The RBP clearing price is established through the 
procurement process, but the Reliability Pricing Model (“RPM”) clearing prices 
used to calculate future settlement amounts are not known when the RBP 
commitments are established.  Although RPM clearing prices affect RBP Charges, 
they are not inputs to PJM’s proposed calculation of the RBP LSE credit 
requirement. 
10. 
As a result, the actual RBP Charges payable over the commitment term may be 
substantially lower than the gross payment obligation calculated using the RBP 
clearing price.  However, the amount of those future settlement obligations cannot 
be determined with certainty when the RBP commitments are established.  
11. 
One alternative approach to determining collateral requirements, which PJM is not 
proposing, would be to forecast future RPM clearing prices and use the estimated 
differences between those prices and the RBP clearing price to calculate expected 
payment exposure.  Although such an approach could more closely reflect 
anticipated settlement obligations, it would depend on forecasts of RPM clearing 
prices extending many years into the future. 
12. 
Another approach would be to periodically adjust collateral requirements as future 
RPM clearing prices become known.  Such adjustments could account for changes 
in expected payment exposure, but their effectiveness would depend on PJM’s 
ability to obtain additional collateral when needed.   
13. 
An increase in payment exposure may occur at a time when an LSE’s financial 
condition has deteriorated or when the LSE is otherwise unable to satisfy an 
additional collateral requirement.  Under those circumstances, PJM could be left 
with insufficient collateral to secure the LSE’s payment obligations. 
14. 
Accordingly, PJM favors a methodology that establishes meaningful credit 
protection based on long-term RBP commitments rather than making that 
protection substantially dependent on forecasts of future RPM clearing prices or on 
the ability to obtain additional collateral over time.

3 
15. 
This does not mean that PJM assumes LSEs will ultimately pay the full gross value 
of their allocated RBP commitments, nor does it mean that collateral must equal the 
full gross value of those commitments.  Instead, the RBP weighted-average clearing 
price provides a known and objectively determinable basis for calculating collateral 
requirements, while the appropriate level of collateral is determined through a 
separate economic analysis. 
II. 
Objective of the Revised LSE Credit Methodology 
16. 
 PJM’s revised proposal is designed to establish a collateral requirement that 
balances the cost of providing collateral against the expected cost of socialized 
losses resulting from LSE payment defaults. 
17. 
In evaluating the appropriate amount of collateral, PJM considered two principal 
categories of costs.  The first is the cost incurred by LSEs in posting the required 
collateral.  The second is the expected cost of socialized default amounts that may 
be borne by non-defaulting LSEs if an LSE fails to satisfy its RBP payment 
obligations. 
18. 
These costs generally move in opposite directions as the amount of collateral 
changes.  As the proportion of the gross RBP payment obligation secured by 
collateral increases, the cost of posting collateral increases, while the expected cost 
of socialized default amounts decreases. 
19. 
Accordingly, PJM sought to identify the collateral percentage at which the 
combined expected costs of posting collateral and socialized default amounts are 
minimized. 
20. 
This approach recognizes that requiring collateral equal to the entire gross RBP 
payment obligation would not necessarily produce the most economically 
reasonable result.  Although additional collateral reduces the amount of unsecured 
exposure, it also imposes costs on the LSEs required to provide it. 
21. 
Similarly, a collateral requirement based primarily on minimizing the cost of 
posting collateral could result in insufficient protection against payment defaults, 
potentially leaving other LSEs to bear the resulting losses. 
III. 
Economic Analysis Supporting the Proposed Collateral Requirement 
22. 
To determine the appropriate collateral percentage, PJM performed an economic 
analysis evaluating the cost of posting collateral and the expected cost of socialized 
default amounts at different collateral levels, expressed as percentages of the net 
present value of the total RBP payment obligation. 
23. 
The principal inputs to this analysis include the weighted-average RBP clearing 
price, the credit quality of the LSE portfolio, the probability of default, the loss 
given default, and the cost of posting collateral.

4 
24. 
 As noted in PJM’s July 31, 2026 transmittal letter and my supporting affidavit for 
that filing, PJM has used a discount rate of 9.5%, based on the capacity market 
Weighted Average Cost of Capital developed by The Brattle Group as part of PJM’s 
2025 periodic review of the Cost of New Entry of Capacity Resources into the PJM 
Region.  PJM considers this rate appropriate for purposes of calculating the net 
present value of the total RBP payment obligation.1  
A. 
Weighted-Average RBP Clearing Price 
25. 
The RBP clearing price is used to calculate the gross payment obligation that serves 
as the reference for determining collateral requirements.  Because different RBP 
Resources may clear at different prices and have different quantities of committed 
capacity over their respective commitment terms, PJM proposes to use a weighted-
average RBP clearing price. 
26. 
The weighted-average RBP clearing price is calculated by summing, for each RBP 
Seller and each Delivery Year of its commitment, the product of the applicable RBP 
clearing price and the committed RBP UCAP MW, and dividing that sum by the 
total RBP UCAP MW-years associated with those commitments. 
27. 
For purposes of the economic analysis and illustrative calculations, PJM assumed 
a weighted-average RBP clearing price of $555/MW-day.  The actual RBP Credit 
Rate will be calculated using the weighted-average RBP clearing price determined 
from the procurement results rather than the illustrative $555/MW-day assumption. 
B. 
LSE Credit Quality and Probability of Default 
28. 
PJM also considered the overall credit quality of the LSEs serving load in the PJM 
Region in developing its economic analysis.  The weighted-average credit rating of 
this portfolio is BBB, which PJM used as an input to the analysis.  A portfolio-level 
approach is appropriate because potential losses resulting from LSE payment 
defaults may be shared among non-defaulting LSEs, and the LSEs responsible for 
RBP payment obligations, as well as their credit quality, may change over the RBP 
commitment term, which can extend for up to 15 years.  Accordingly, PJM’s 
methodology establishes a uniform collateral requirement based on the RBP 
obligations being secured rather than the individual credit ratings of the LSEs 
responsible for those obligations. 
29. 
The analysis uses the current LSE portfolio’s UCAP MW obligation weighted-
average credit rating to determine the probability-of-default assumption.  PJM used 
historical default information published by S&P Global in its Default, Transition, 
and Recovery: 2025 Annual U.S. Corporate Default and Rating Transition Study, 
particularly Table 11 (Average 10-Year Corporate Transition Rate (1981-
2025)(%)), to inform that assumption.  Based on this historical default information 
 
1 The Brattle Group, Brattle 2025 CONE Report for PJM, PJM Interconnection, L.L.C., 26-34 (Apr. 9, 2025), 
https://www.pjm.com/-/media/DotCom/committees-groups/committees/mic/2025/20250411-special/item-1-
02-revised-cone-report-final.pdf [https://perma.cc/B3VN-EY34].

5 
and the assumed portfolio credit rating of BBB, PJM’s economic analysis uses a 
probability-of-default assumption of 4.05%.  
30. 
Using a portfolio-wide credit rating assumption is consistent with PJM’s objective 
of establishing a uniform collateral methodology for LSEs assigned responsibility 
for RBP Charges.  This does not mean that every LSE has a BBB credit rating or 
the same probability of default, but a uniform methodology is appropriate for the 
reasons discussed above. 
C. 
Loss Given Default 
31. 
Another input is loss given default, which represents the percentage of the relevant 
payment exposure that PJM would not expect to recover following an LSE default. 
32. 
PJM’s economic analysis assumes a loss given default of 100% with respect to 
unsecured exposure, based on PJM’s historical experience with socialized losses 
resulting from LSE defaults.  In those circumstances, PJM has generally not 
recovered amounts beyond the collateral available to secure the defaulting LSE’s 
obligations.  Accordingly, the analysis assumes that any exposure remaining after 
application of available collateral would not be recovered following a default. 
D. 
Cost of Posting Collateral 
33. 
The analysis also considers the cost incurred by LSEs in posting collateral.  
34. 
PJM’s analysis estimates the cost of posting collateral using a bank facility pricing 
approach based on the five-year historical trend in the 30-day average Secured 
Overnight Financing Rate (“SOFR”), plus an indicative credit spread associated 
with the assumed BBB credit rating of the LSE portfolio. 
35. 
PJM’s economic analysis uses an assumed cost-of-collateral rate of 4.93%, 
consisting 
of 
(a) 
a 
SOFR 
rate 
of 
3.73% 
(https://www.newyorkfed.org/markets/reference-rates/sofr); and (b) an indicative 
average BBB bank facility spread of 1.20%.  
36. 
To calculate the cost of posting collateral, PJM applied the assumed 4.93% annual 
cost of collateral to the gross RBP payment obligation associated with one MW of 
committed capacity over a 15-year term, multiplied by the applicable collateral 
percentage.  PJM used a 40% collateral level because, as discussed below, its 
economic analysis identified that level as minimizing the combined cost of posting 
collateral and expected socialized default amounts.  At that collateral level, using 
the illustrative weighted-average RBP clearing price of $555/MW-day, the 
calculated cost of posting collateral is approximately $59,962.  This calculation is 
reflected as Point A in Figure 1 below.

6 
E. 
Cost of Socialized Default Amounts 
37. 
The cost of socialized default amounts represents the losses that may be borne by 
non-defaulting LSEs if an LSE fails to satisfy its RBP payment obligations.  For 
illustrative purposes, PJM calculated the expected cost of socialized default 
amounts using the methodology shown in Table 1 below:  
Table 1: Cost of Socialized Default Amounts
 
38. 
In Table 1: 
a) 
LSE Credit Ratings represents the LSE portfolio’s UCAP MW obligation 
weighted-average credit rating. 
b) 
Probability of Default is 4.05%, based on the historical 10-year corporate 
default rate for BBB rated entities reported by S&P Global. 
c) 
Loss Given Default is assumed to be 100%, reflecting the assumption that 
PJM would not recover any unsecured losses from LSEs. 
d) 
Expected default % represents the assumed probability of default after 
accounting for the effect of collateral posted to PJM.  For purposes of its 
economic analysis, PJM assumes that the probability of default decreases 
proportionately as the percentage of the RBP payment obligation secured 
by collateral increases, from 4.05% with no collateral to zero with full 
collateralization.  This simplifying assumption reflects PJM’s judgment that 
posting collateral can reduce the risk of default.  At the proposed 40% 
collateral level, the resulting expected default percentage is approximately 
2.4%.  
e) 
Defaulted Amount is calculated by multiplying the gross RBP payment 
obligation by the Expected default %.  For illustrative purposes, the gross 
RBP payment obligation is calculated using the assumed weighted-average 
RBP clearing price of $555/MW-day, 1 MW of committed capacity, 365 
days per year, and a 15-year commitment term.   
a) LSE Credit Ratings (weighted average)
BBB
b) Probability of Default
4.05%
c) Loss Given Default
100%
d) expected default %
2.4%
adjusted by the amount 
posted to PJM
e) Defaulted Amount
$73,839 =$555 x 1 x 365 x 15 x 2.4%
f) Collateral Held
$29,535 =$73,839 x 40%
g) Socialized Amount (=Defaulted Amount- Collateral Held)
$44,303 =$73,839 - $29,535
h) Socialized Cost to Non Default LSEs
$45,407 =$44,303 / (1-2.4%)

7 
f) 
Collateral Held represents the LSE collateral requirement calculated using 
the applicable collateral percentage. 
g) 
Socialized Amount represents the Defaulted Amount less the Collateral 
Held. 
h) 
Socialized Cost to Non Default LSEs represents the Socialized Amount 
allocated among non-defaulting LSEs.  
The Socialized Cost to Non Default LSEs of $45,407 is reflected as Point B in 
Figure 1 below.  
F. 
Determination of the Optimal Collateral Percentage 
39. 
Using these inputs, PJM evaluated the combined expected costs of posting 
collateral and socialized default amounts at different collateral levels, expressed as 
percentages of the total RBP payment obligation (see Table 2 below). 
40. 
Based on the assumptions used in PJM’s economic analysis, the combined cost of 
posting collateral and expected socialized default amounts is minimized at a 
collateral level equal to 40% of the net present value of the total RBP payment 
obligation.

8 
Table 2: Total Cost 
 
Collateral Held %
Cost of Posted 
Collateral
Cost of Socialized 
Default Amount
Total Cost
0%
-
                          
128,259
                               
128,259
        
5%
7,495
                     
115,510
                               
123,005
        
10%
14,991
                   
103,453
                               
118,443
        
15%
22,486
                   
92,084
                                 
114,570
        
20%
29,981
                   
81,398
                                 
111,380
        
25%
37,476
                   
71,392
                                 
108,869
        
30%
44,972
                   
62,061
                                 
107,033
        
35%
52,467
                   
53,400
                                 
105,867
        
40%
59,962
                   
45,407
                                 
105,369
        
45%
67,457
                   
38,075
                                 
105,532
        
50%
74,953
                   
31,402
                                 
106,355
        
55%
82,448
                   
25,383
                                 
107,831
        
60%
89,943
                   
20,015
                                 
109,958
        
65%
97,438
                   
15,292
                                 
112,731
        
70%
104,934
                 
11,212
                                 
116,146
        
75%
112,429
                 
7,770
                                   
120,199
        
80%
119,924
                 
4,963
                                   
124,887
        
85%
127,419
                 
2,786
                                   
130,205
        
90%
134,915
                 
1,236
                                   
136,150
        
95%
142,410
                 
308
                                       
142,718
        
100%
149,905
                 
-
                                        
149,905

9 
Figure 1: Optimal Collateralization 
 
41. 
PJM therefore proposes to use a 40% factor in determining the RBP Credit Rate. 
42. 
The 40% factor does not represent the percentage of gross RBP payments that PJM 
expects LSEs to pay through contract-for-differences settlements.  Rather, it is the 
collateral percentage identified by PJM’s economic analysis as minimizing the 
combined cost of posting collateral and expected socialized default amounts. 
IV. 
Calculation of the RBP LSE Credit Requirement 
43. 
Under PJM’s proposed methodology, each LSE allocated responsibility for RBP 
Charges must maintain RBP Collateral sufficient to satisfy its RBP LSE credit 
requirement. 
44. 
Each LSE’s RBP LSE credit requirement is calculated by multiplying the RBP 
Credit Rate established following the applicable RBP auction by the LSE’s 
Allocated RBP Credit MW. 
RBP LSE Credit Requirement = RBP Credit Rate x Allocated RBP Credit MW 
45. 
The RBP Credit Rate is an amount per MW calculated by applying the 40% factor 
to the net present value of the total RBP payment obligation per MW over the 
applicable RBP commitment term, using the weighted-average RBP clearing price 
of all RBP UCAP MW committed through the RBP.

10 
46. 
Allocated RBP Credit MW means the RBP UCAP MW for which the LSE has been 
allocated responsibility for RBP Charges in accordance with the applicable Tariff 
provisions. 
47. 
The RBP Credit Rate therefore establishes a uniform dollar-per-MW amount based 
on the weighted-average RBP clearing price and the proposed collateral 
methodology.  Each LSE’s total collateral requirement depends on the quantity of 
its Allocated RBP Credit MW. 
48. 
For example, at an assumed weighted-average RBP clearing price of $555/MW-
day, the proposed methodology produces an illustrative RBP Credit Rate of 
approximately $686,000 per MW.  This amount is equivalent to approximately 3.4 
years of undiscounted RBP payments per MW at the assumed clearing price. 
49. 
The approximately $686,000-per-MW amount is illustrative and does not represent 
a fixed RBP Credit Rate under the proposed Tariff provisions.  The actual RBP 
Credit Rate will be calculated using the weighted-average RBP clearing price 
determined from the procurement results. 
50. 
The proposed methodology establishes the RPM Credit Rate by applying the 40% 
factor to the net present value of the total RBP payment obligation, rather than by 
requiring collateral equal to a specified number of years of payments. 
V. 
Administration of the RBP LSE Credit Requirement 
A. 
Posting of Collateral 
51. 
The proposed Tariff provisions establish procedures for identifying the LSEs 
responsible for RBP Charges and requiring those LSEs to provide the applicable 
collateral before the beginning of each Delivery Year. 
52. 
Electric Distributors will provide PJM with the information necessary to identify 
the LSEs responsible for RBP Charges and their respective Allocated RBP Credit 
MW.   
53. 
LSEs responsible for RBP Charges must post or maintain the required RBP 
Collateral no later than 45 days before the beginning of the applicable Delivery 
Year. 
54. 
The annual identification and collateral posting process recognizes that 
responsibility for serving load, and consequently responsibility for RBP Charges, 
may change over the RBP commitment term.  This annual process does not alter 
the long-term nature of the underlying RBP commitments or the long-term 
economic basis for determining the RBP Credit Rate. 
55. 
The proposed Tariff provisions also address circumstances in which an LSE is 
responsible for RBP Charges, but the information necessary to determine its 
Allocated RBP Credit MW has not been reported for the applicable Electric

11 
Distributor zone or area.  In those circumstances, PJM may determine the LSE’s 
Allocated RBP Credit MW using its proportional share of the Daily Unforced 
Capacity Obligation for the zone or area, as specified in the Tariff. 
56. 
In addition, the proposed Tariff provisions preserve PJM’s authority to evaluate an 
LSE under the Unreasonable Credit Risk provisions of Attachment Q.  
B. 
Acceptable Forms of Collateral 
57. 
PJM proposes to accept RBP Collateral in the form of cash, letters of credit, or 
surety bonds, subject to PJM’s acceptance of the provider, form, and amount of 
such collateral.  Consistent with PJM’s existing credit requirements, these forms of 
collateral are intended to provide reliable financial protection that PJM can access 
promptly when necessary, without conditions that could delay or impair its ability 
to obtain payment. 
C. 
Relationship to Other PJM Credit Requirements 
58. 
The RBP LSE credit requirement addresses payment exposure associated with RBP 
commitments and is separate from the credit requirements applicable to other PJM 
market activities.  
59. 
PJM proposes that settlement during any Delivery Year of cleared positions 
resulting from, or expected to result from, the RBP, including payments and 
Locational Reliability Charges associated with the capacity commitments of RBP 
Resources, as well as RBP Charges, shall not be considered in Peak Market Activity 
under Tariff, Attachment Q, section VII.A.  This treatment is intended to avoid 
duplicative collateral requirements for RBP-related exposure while preserving the 
application of other PJM credit requirements. 
VI. 
Review of the RBP Credit Rate 
60. 
Over the RBP commitment term, the inputs used to determine the RBP Credit Rate, 
including the overall credit quality of the LSE portfolio, may change. 
61. 
Following the commencement of commercial operation of all capacity resources 
with RBP commitments, PJM shall review the RBP Credit Rate, including inputs 
used to determine that rate. 
62. 
If PJM identifies material changes that would affect the RBP Credit Rate, PJM will 
reassess the RBP Credit Rate and present any resulting recommendations to PJM 
stakeholders through the Members Committee. 
63. 
A change in the credit characteristics of an individual LSE does not, by itself, 
trigger an adjustment to the RBP Credit Rate.

12 
VII. 
Reasonableness of the Revised Methodology 
64. 
In my opinion, the revised RBP LSE credit methodology represents a reasonable 
approach to managing the financial risks associated with long-term RBP 
commitments. 
65. 
Using the known weighted-average RBP clearing price as the basis for determining 
collateral allows PJM to establish meaningful credit protection without relying on 
forecasts of future RPM clearing prices or on the ability to obtain additional 
collateral later in the commitment term. 
66. 
By considering both collateral costs and expected socialized default amounts, the 
methodology balances the interests of LSEs required to post collateral against those 
of LSEs that may bear losses resulting from another LSE’s payment default. 
67. 
Although alternative collateral methodologies are possible, including approaches 
based on projected contract-for-differences settlement exposure, PJM’s proposed 
methodology reflects a reasonable credit risk management judgment that balances 
the need for long-term credit protection against collateral costs and expected 
socialized default amounts. 
VIII. Conclusion 
68. 
For the reasons explained above, I believe the proposed methodology represents a 
reasonable approach to establishing the RBP LSE credit requirement. 
69. 
This concludes my affidavit.

UNITED STATES OF AMERICA 
BEFORE THE 
FEDERAL ENERGY REGULATORY COMMISSION 
 
 
 
PJM Interconnection, L.L.C. 
) 
Docket No. ER27-____-000 
 
 
 
 
VERIFICATION 
 
I, Gwen Kelly, pursuant to 28 U.S.C. § 1746, state, under penalty of perjury, that I 
am the Gwen Kelly referred to in the foregoing document entitled “Affidavit of Gwen 
Kelly, Senior Director Credit Risk and Collateral Management at PJM Interconnection, 
L.L.C.,” that I have read the same and am familiar with the contents thereof, and that the 
facts set forth therein are true and correct to the best of my knowledge, information, and 
belief. 
 
/s/ Gwen Kelly  
 
Gwen Kelly  
Sr. Director,  
Credit Risk & Collateral Management 
Risk Management 
PJM Interconnection, L.L.C.