ER26-3380-000 · 2026-07-31 · PJM Interconnection, L.L.C.

Attachment D - Kelly Affidavit.pdf

Attachment D 
 
 
 
 
 
 
 
Affidavit of Ms. Gwen Kelly, 
Senior Director in Credit Risk and Collateral Management 
of PJM Interconnection, L.L.C.

UNITED STATES OF AMERICA 
BEFORE THE 
FEDERAL ENERGY REGULATORY COMMISSION 
 
 
) 
PJM Interconnection, L.L.C. 
) 
Docket No. ER26-____-000 
 
) 
 
AFFIDAVIT OF GWEN KELLY 
ON BEHALF OF PJM INTERCONNECTION, L.L.C. 
 
1. 
My name is Gwen Kelly.  I hold a Bachelor of Business Administration from the 
University of Hartford.  My background includes more than 34 years of experience 
in credit and collateral management, including 29 years in credit, treasury, and 
finance functions at various subsidiaries in Public Service Enterprise Group, Inc.  
2. 
Since March 2021, I have served as 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.  
3. 
In this role, I am responsible for overseeing PJM’s credit risk management 
program, including the development and administration of collateral requirements, 
the evaluation of participant creditworthiness, and the management of credit 
exposures arising from participation in PJM-administered markets. 
4. 
This affidavit supports PJM’s filing to implement a Reliability Backstop 
Procurement (“RBP”) and the related credit provisions required to support the 
credit requirements of the RBP Sellers and Load Serving Entities (“LSE”) that are 
allocated RBP Charges.  
5. 
I participated in the development of the proposed RBP credit provisions.  The 
statements contained in this affidavit are based upon my personal knowledge, my 
review of the analyses performed in developing the proposed RBP credit 
framework, and my experience administering PJM’s credit program. 
Development of Proposed RBP Credit Methodology 
6. 
In developing the proposed RBP credit framework, PJM evaluated the financial 
risks associated with the proposed RBP design.  Based on those evaluations, PJM 
developed collateral methodologies intended to mitigate the distinct financial 
exposures created by the RBP design for both generation resources seeking RBP 
commitments and LSEs that become responsible for payment of RBP Charges. 
7. 
PJM determined that the proposed RBP creates two fundamentally distinct 
categories of financial exposure.  RBP Sellers present payment risk associated with 
RBP Shortfall Charges for delayed or non-delivery of new generation resources to 
satisfy their RBP commitments.  LSEs present payment risk associated with their

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allocated responsibility for RBP Charges.  As these exposures differ in both 
character and duration, PJM developed separate collateral requirements tailored to 
each type of obligation. 
8. 
In developing the proposed RBP credit framework, PJM sought to calibrate the 
amount and duration of required collateral so that collateral remains commensurate 
with the financial exposure.  The proposed RBP credit provisions are intended to 
provide protection against non-payment by RBP Sellers and applicable LSEs, while 
avoiding collateral requirements that exceed the underlying exposure being 
secured. 
Analysis Supporting the Proposed RBP Credit Requirements for RBP Sellers 
9. 
The proposed Open Access Transmission Tariff (“Tariff”) language establishes an 
RBP credit requirement applicable to RBP Sellers who plan to submit a bid in the 
RBP.1  An RBP credit requirement will be determined for each RBP Resource for 
which an RBP Sell Offer is submitted.  The total RBP credit requirement for each 
RBP Seller is the sum of each credit requirement for each RPB Sell Offer.2  For 
example, if an RBP Seller has five RBP Resources, a credit requirement would be 
determined for each RBP Resource.  This approach ensures that adequate collateral 
is provided in the event not every offered RBP Resource receives an RBP 
commitment, i.e., discrete RBP Collateral tied to each RBP commitment.   
10. 
PJM aligned the credit requirement to mitigate the non-payment risk of RBP 
Shortfall Charges associated with requiring new generation resources to undertake 
long-term commitments through the RBP.  Unlike many existing generation 
resources participating in PJM’s Reliability Pricing Model (“RPM”), resources 
seeking RBP commitments may require additional financing, permitting, 
equipment procurement, construction, and other development activities before 
achieving commercial operation. 
11. 
PJM concluded that resources seeking RBP commitments present risks that a 
committed resource may fail to achieve commercial operation or experience delays 
in reaching commercial operation.  PJM therefore concluded that RBP Shortfall 
Charge risk warrants a customized credit approach for those charges.  Accordingly, 
PJM developed a methodology requiring an RBP Seller to post RBP Collateral prior 
to or contemporaneously with submission of an RBP Sell Offer. 
12. 
Specifically, PJM developed an RBP Seller collateral methodology using the RBP 
Sell Offer price, the quantity of committed megawatts (“MW”), and the first three 
Delivery Years associated—mirroring the fact that RBP Shortfall Charges may 
only be assessed for the resource’s first three Delivery Years of expected operation 
 
1 Proposed Tariff Section, Attachment DD, section 18.8(a). 
2 Proposed Tariff Section, Attachment DD, section18.8.

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before the RBP commitment is rescinded—to determine the RBP Seller’s collateral 
requirement. 
13. 
PJM found that, for each RBP Sell Offer, a credit requirement to cover the RBP 
Shortfall Charges equivalent to the sum of 20% of the RBP Sell Offer Price * RBP 
Unforced Capacity (“UCAP”) MW for each of the first three Delivery Years 
offered would adequately mitigate the risk.  This requirement is expressed 
formulaically in the proposed Tariff as  
∑0.2 × (𝑅𝐵𝑃 𝑆𝑒𝑙𝑙 𝑂𝑓𝑓𝑒𝑟 𝑃𝑟𝑖𝑐𝑒 𝑖𝑛
$
𝑀𝑊𝐷𝑎𝑦) 𝑛× (𝑈𝐶𝐴𝑃 𝑖𝑛 𝑀𝑊)𝑛× 365
3
𝑛=1
 
𝑤ℎ𝑒𝑟𝑒 𝑛= 𝐷𝑒𝑙𝑖𝑣𝑒𝑟𝑦 𝑌𝑒𝑎𝑟𝑠 
14. 
As such, the RBP credit requirement reflects and matches (i) the seller’s ability to 
offer an RBP Resource at a different price and different UCAP commitment level 
for each Delivery Year for the first three years; and (ii) the requirement that an RBP 
Resource must reach commercial operation within three Delivery Years of its target 
in-service date.  Further, given that the RBP Shortfall Charges are keyed to the 
resource’s committed offer price and MW level, the RBP Seller credit requirement 
properly covers the risk. 
15. 
PJM also evaluated how long RBP Seller collateral should remain posted.  
Consistent with PJM’s objective of aligning collateral with the underlying financial 
exposure, PJM concluded that collateral should remain in place only while the 
associated performance risk continues to exist. 
16. 
Accordingly, PJM developed an approach under which collateral associated with 
RBP Sell Offers that do not receive commitments is returned because the associated 
performance risk no longer exists.  For RBP Resources with RBP commitments, 
PJM determined that collateral should remain posted until commercial operation 
has been achieved and should continue to be maintained for an additional one-year 
period to permit PJM to confirm sustained commercial operation before the 
remaining collateral may be released.  A full 12-month cycle ensures that the asset 
can reliably operate across all four seasons. 
17. 
PJM also evaluated ownership transfers of committed RBP Resources prior to 
commercial operation.  PJM concluded that a transfer of a committed resource does 
not eliminate the underlying performance risk associated with that resource.  
Accordingly, PJM developed a methodology under which the transferring RBP 
Seller remains financially responsible until the receiving party independently 
demonstrates the financial capability to support the transferred commitment by 
posting the required collateral and affirmatively assuming responsibility for the 
associated obligations.

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18. 
Here is an example of the RBP Seller credit requirement based on a 100 MW 
commitment, $555/MW-Day RBP Sell Offer price, 15-year commitment starts in 
the 2028/2029 Delivery Year: 
Shortfall Charge Year 1 (2028/2029):  0.2 * $555/MW-Day * 100 MW * 365 = $4,051,500 
Shortfall Charge Year 2 (2029/2030):  0.2 * $555/MW-Day * 100 MW * 365 = $4,051,500 
Shortfall Charge Year 3 (2030/2031):  0.2 * $555/MW-Day * 100 MW * 365 = $4,051,500 
Credit Requirement = $4,051,500 + $4,051,500 + $4,051,500 = $12,154,500 
Analysis Supporting the Proposed RBP Credit Requirements for LSEs Responsible 
for Payment of RBP Charges 
19. 
PJM separately evaluated the financial risks associated with LSEs that become 
responsible for payment of RBP Charges, allocated pursuant to the RBP cost 
allocation methodology.  Specifically, PJM evaluated the credit tools needed to 
mitigate potential defaults from non-payment of RBP Charges.  PJM did so because 
it has the obligation to appropriately mitigate risk of default.  PJM found that its 
current credit tools do not contemplate the long-term nature of RBP and the risk of 
future non-payment that results.   
20. 
Based upon that evaluation, PJM determined that only those LSEs allocated 
responsibility for RBP Charges should be required to provide RBP Collateral.  
Conversely, LSEs not allocated responsibility for RBP Charges do not present the 
payment exposure the proposed credit provisions are intended to address and 
therefore are not subject to the RBP credit requirement. 
21. 
PJM evaluated methodologies for determining the amount of collateral required 
from LSEs.  PJM considered that the relevant financial exposure is created by the 
portfolio of committed RBP resources rather than by any individual LSE in 
isolation. 
22. 
Based upon that evaluation, PJM developed a methodology that first determines the 
aggregate collateral necessary to address the payment exposure associated with the 
portfolio of committed RBP Resources and then allocates that collateral 
requirement among the LSEs responsible for payment of RBP Charges. 
23. 
PJM further determined that applying a uniform credit rate to each LSE’s allocated 
RBP UCAP MW level (i.e., the portion of the overall RBP commitment costs 
allocated to the LSE, and the basis for an LSE’s RBP Charges) provides an 
objective, transparent, and consistent means of allocating the aggregate collateral 
requirement among the LSEs responsible for the underlying payment obligations. 
24. 
PJM evaluated the appropriate initial credit rate applicable to all committed RBP 
UCAP MW.  In developing that rate, PJM sought to establish an initial level of

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collateral that provides commensurate protection against non-payment while 
avoiding full collateralization of the entire 15-year contractual commitment. 
25. 
As part of that evaluation, PJM estimated the contractual value associated with a 
1-MW RBP commitment using conservative assumptions, including a 15-year 
commitment term application of the RBP price throughout that commitment period.  
Under those assumptions, the estimated contractual value of a 1-MW RBP 
commitment is approximately $3.04 million, assuming the RBP clearing price at 
the price cap of $555/MW. 
26. 
Based upon that analysis, PJM concluded that an initial credit rate of $1.5 million 
per committed RBP MW would collateralize approximately 50% of the estimated 
contractual value associated with the commitment. 
27. 
PJM also evaluated the present value of the expected payment stream associated 
with RBP commitments through application of a discounted cash flow analysis.  
For a 1-MW 15-year committed resource from the 2028/2029 Delivery Year to the 
2042/2043 Delivery Year, RBP Sell Offer price of $555/MW-day, each year’s 
payment is $202,575 (=$555/MW-Day * 1 MW * 365).  We discounted the 
cashflow back to September 2026, using discount rate of 9.5%:  
2028/2029 notional payment - $202,575, Net Present Value (“NPV”) in September 
2026 = $172,841  
2029/2030 notional payment - $202,575, NPV in September 2026 = $157,850  
. . .  
2042/2043 notional payment - $202,575, NPV in September 2026 = $48,514  
All the NPV added together is $1,481,569. 
28. 
The 9.5% discount rate was used, as it is the capacity market Weighted Average 
Cost of Capital developed by The Brattle Group (“Brattle”) as part of PJM’s 2025 
periodic review of the Cost of New Entry of Capacity Resources into the PJM 
Region.3  Given Brattle’s thorough analysis in arriving at 9.5%, it represents a well-
supported discount rate to “check” the validity of PJM’s proposed RBP credit 
requirement.  
29. 
PJM further considered how the payment exposure with the portfolio of committed 
RBP Resources changes over the 15-year commitment term.  PJM concluded that 
the remaining payment exposure naturally declines as remaining, forward RBP 
payment obligations are satisfied and as committed RBP Resources are removed 
 
3 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].

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from the portfolio through rescinded commitments or other changes affecting the 
remaining payment obligations. 
30. 
Accordingly, PJM developed a provision permitting reductions to the RBP credit 
rate when changes in the underlying RBP commitment portfolio demonstrate that 
previously required collateral exceeds the remaining expected payment exposure.  
PJM concluded that this approach aligns required collateral with the remaining 
financial exposure through the commitment term. 
31. 
PJM also evaluated how collateral should be determined before an Electric 
Distributor reports any actual RBP Obligation MW cost allocations for a Delivery 
Year.  Consistent with the “default” cost allocation approach, PJM will look to each 
LSE’s allocated Daily Unforced Capacity Obligation (which is used to allocate 
RPM capacity payments), as it provides an objective and administratively practical 
proxy until actual RBP Obligation MW allocations have been established.  Once 
any RBP Obligation MW are reported, PJM determined that collateral should 
instead be based upon those actual allocated RBP Obligation MW because they 
provide the most accurate measure of each LSE’s corresponding payment exposure. 
32. 
PJM also evaluated transfers of LSE obligations during the commitment term.  PJM 
concluded that the underlying payment exposure associated with transferred RBP 
payment obligations remains until the receiving LSE independently satisfies the 
applicable collateral requirements and assumes responsibility for the transferred 
obligations.  Accordingly, PJM proposes that the transferring LSE remains 
financially responsible until the receiving LSE has posted the required collateral 
and assumed responsibility for the transferred obligations. 
33. 
Here is an example:  RBP credit requirement for LSEs based on a 100 MW 
commitment = $1,500,000 * 100 MW = $150,000,000 
34. 
This concludes my affidavit.

UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
PJM Interconnection, L.L.C.
Docket No. ER26-
_-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.
Aen) Felly
Sr. Manager, Underwriting
Credit Risk & Collateral Management
Risk Management
PJM Interconnection, L.L.C.
of July 2026.
Subscribed and sworn to before me, the undersigned notary public, this 31st day
Nekih DMettich
Notary Public
My Commision expires: /2/23/3027
Commonwealth of Pennsylvania - Notary Seal
MICHELE A MATTICOLA - Notary Public
Montgomery County
My Commission Expires December 23, 2027
Commission Number 1249359