On May 29, 2020, Shell Energy North America (US), L.P. (“Shell”) filed a petition asking FERC to interpret PJM Interconnection, L.L.C.’s (“PJM’s”) Tariff provisions regarding bilateral transfers of Financial Transmission Rights (“FTRs”). Shell’s petition stems from a pending breach of contract claim brought by GreenHat Energy, LLC (“GreenHat”) against Shell in Texas. Shell’s petition asks FERC to assert primary jurisdiction over GreenHat’s contract claim to allow Shell to seek dismissal of GreenHat’s suit.
Shell’s May 29 petition is the latest filing to arise from GreenHat’s 2018 default on a large portfolio of FTRs in the PJM market (see also June 11, 2020 edition of the WER, addressing PJM’s changes to its credit risk evaluation criteria as a result of GreenHat’s default). FTRs are financial instruments that allow the holder to hedge congestion risk associated with delivering electricity along a certain path where the price at the source may differ from the price at the sink. PJM members may buy and sell FTRs through PJM-administered auctions, or may transfer FTRs to other market participants through bilateral transactions. PJM requires that bilateral transactions be reported on its FTR Center. Once PJM consents to a bilateral transfer, the FTR is assigned a new identification number and will appear in the transferee’s portfolio in the FTR Center.
Shell and GreenHat entered into three written agreements for three bilateral transactions between August 2016 and February 2017. In its May 29 petition, Shell stated that, although it performed all its obligations under those agreements and issued a final, lump sum payment to GreenHat in June 2017, GreenHat began to send Shell additional invoices. Shell’s petition states that it refused to pay these invoices, and states that the total amount of these additional invoices matches an agreement between GreenHat and PJM under which GreenHat assigned alleged future proceeds of $62.2 million to PJM.
Shell’s petition also explains that GreenHat filed a state law breach of contract suit against Shell in Texas in November 2018, alleging that Shell failed to pay approximately $68 million on approximately 3,879 FTRs. According to Shell, GreenHat alleges that the parties entered into thousands of separate, standalone agreements to purchase individual FTRs when they entered data reflecting the FTR transfers in the FTR Center—i.e., that by entering data into PJM’s FTR Center to report the bilateral transactions, GreenHat and Shell created new contracts, separate and apart from the parties’ three written agreements.
Shell’s petition argues that it has already fulfilled all of its obligations to GreenHat, and that GreenHat’s state court claim is ultimately rooted in Shell’s obligation to adhere to the requirements of PJM’s Tariff. In addition to asking FERC to assert primary jurisdiction, Shell’s petition also asks FERC to interpret PJM’s Tariff to confirm that the parties’ written bilateral agreements control; that the FTR Center is merely a reporting mechanism for the bilateral transfers; and that entering data into FTR Center to report the transfer of FTRs does not create a separate, standalone contract between the parties to the bilateral agreement, or modify the parties’ bilateral agreements.