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FERC Opens Investigation of PJM Up-to Congestion Charges, FTR Forfeiture Rule

September 2,2014

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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

FERC has opened a Section 206 investigation regarding PJM Up-to Congestion (UTC) charges, including their treatment as virtual transactions, and the method of application of the Financial Transmission Rights (FTR) forfeiture rule to UTCs.

PJM had previously filed tariff revisions to define Up-to Congestion (UTC) transactions as virtual transactions. While PJM, as part of the filing, said it would apply the FTR forfeiture rule to UTCs, it informed FERC that UTCs are not subject to the same "worst case" analysis under the FTR forfeiture rule as INCs and DECs.

Under the FTR forfeiture rule, market participants forfeit the profits on FTRs in excess of the auction price when virtual positions increase congestion so as to increase a participant's FTR profits while increasing Day-ahead/Real-time price divergence.

PJM's FTR forfeiture rule has been in place since 2000 for INCs and DECs. FERC noted that, unlike INCs and DECs, which occur at a single point and for which PJM must hypothesize an associated sink or source under PJM's current FTR forfeiture rule, UTC transactions explicitly identify both the source and sink. PJM has posited that this distinction alone supports a difference in treatment between UTC transactions and INCs and DECs.

"We are unpersuaded based on the record before us," FERC said in opening the 206 investigation

"The recent growth in UTC transactions, and the corresponding decrease in other virtual transactions, strongly suggests that many UTC transactions may be used in place of virtual transactions. To the extent that a UTC transaction is simply the combination of two virtual transactions that have been connected, it may not be appropriate to treat UTC transactions differently than INCs and DECs in applying the FTR forfeiture rule. For instance, where a UTC is submitted in combination with INCs and /or DECs and the associated flows on the constrained paths of the combined transaction may be different from those assumed when considering the transactions individually, the tariff may not protect against manipulative transactions," FERC said.

"The various pleadings also raise questions concerning the broader issue of whether PJM's current FTR forfeiture rule is designed and implemented in a way that makes it meaningfully effective. For example, the current FTR forfeiture rule does not assess the combined impact a market participant's portfolio may have on its FTR positions. A portfolio, for example, could consist of multiple UTC transactions and INC/DEC positions. Finally, the FTR forfeiture rule does not consider trading of INCs/DECs and UTC transactions for the purpose of preventing congestion in order to benefit a short FTR position," FERC said.

"Further, PJM states that both INCs and DECs and UTC transactions affect uplift; however, only INCs and DECs are currently subject to uplift charges. Since PJM now proposes to treat UTCs as virtual transactions, this section 206 proceeding should also examine how uplift is, or should be, allocated to all virtual transactions. We conclude that the information provided to date is insufficient to determine whether differences exist between UTC transactions and INCs/DECs which justify a difference in the application of the FTR forfeiture rule, or to determine whether the current forfeiture rule continues to be just and reasonable when applied to INCs, DECs, and UTCs. Further, our review of PJM's informational filing on uplift indicates that an examination of how uplift is allocated to all virtual transactions is warranted," FERC said.

Docket EL14-37

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