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22 Mar 2011
New York, March 22, 2011 -- Moody's Investors Service has assigned a Aa3 Issuer Rating to PJM
Settlement, Inc. (Settlement) Concurrent with this rating
assignment, Moody's affirmed PJM Interconnection LLC's (PJM)
Aa3 Issuer Rating. The rating outlooks for Settlement and PJM are
Settlement is a newly formed not-for-profit affiliate of
PJM created to clarify and define who is doing business with whom when
market participants transact in the PJM marketplace.
Specifically, Settlement will act as the counterparty to market
participants with respect to all "pool" transactions in the
markets operated by PJM and for transmission services. Historically,
PJM acted as the counterparty in these transactions, though it did
not explicitly identify itself as a party to such transactions,
making it potentially vulnerable in the event of customer defaults.
PJM has been advised that by clarifying Settlement as a counterparty,
it will provide a clearer ability to collect funds owed it in the event
of customer's defaults.
Settlement's Issuer Rating considers structural enhancements between
it and PJM, including unconditional and irrevocable guarantees provided
by each entity to the other. The terms and conditions of the guarantees
allow for the substitution of credit among the parties. Moreover,
the rating considers lines of credit between Settlement and PJM that will
facilitate efficient cash flow management, permitting either entity
to use cash that is available to its affiliate.
PJM's Issuer Rating reflects the transmission grid operator's low business
risk profile, the uniqueness of its rate tariff, the creditworthiness
of its members and the vital function it plays within the PJM service
territory. Importantly, the rating considers PJM's
ability to assess and collect from its members any payments due from other
members that are in default, such as was the case with the bankruptcy
of Lehman Brothers in 2008.
PJM manages its budget within limits defined and agreed upon in advance
and recovers those costs through a monthly FERC-approved service
fee tariff currently set at approximately 30 cents per megawatt hour.
In addition, PJM is permitted to build up a financial reserve equal
to 6% of its annual revenues. PJM also has the right to
file with FERC for prospective changes to its service fee at any time.
This option is viewed positively as it provides protection against the
unlikely scenario of the service fee not providing for full cost recovery.
Effective January 1, 2011, Settlement took over certain functions
previously performed by PJM, including (i) billing and settlement
functions for the PJM markets; (ii) issuing invoices to, and
receiving payments from, market participants; and (iii) serving
as the entity with which market participants establish credit.
Settlement will not retain any of its own employees, assets or offices.
Instead, it will conduct its business operations by way of a Support
Services Contract with PJM. No additional costs will be assessed
to PJM members as a result of the establishment of Settlement.
Moody's Issuer Ratings are opinions of the ability of the entities to
honor senior unsecured financial obligations. Specific debt issues
may be rated differently and are considered unrated unless rated by Moody's.
The principal methodology used in this rating was Regulated Electric and
Gas Utilities published in August 2009.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings and public information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
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and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Assigns Aa3 Issuer Rating to PJM Settlement; Outlook Stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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