On October 31, 2014, the Commission announced that it will hold a technical conference on January 7, 2015 concerning the justness and reasonableness of PJM Interconnection, L.L.C.’s
(“PJM”) existing tariff provisions related to the Financial Transmission Rights (“FTR”) forfeiture rule and uplift allocations as applied to Up-to Congestion (“UTC”) transactions.
FERC Staff will be convening the technical conference in response to a Commission directive, issued in an August 29, 2014 order in Docket No. EL14-37-000. In that proceeding, PJM filed, in June 2013, revisions to its Open Access Transmission Tariff and its Amended and Restated Operating Agreement to define UTC transactions as “virtual transactions” and clarify the rules concerning their use. A UTC bid permits market participants to specify how much they are willing to pay for congestion by bidding a certain limit for the spread between the locational marginal prices (“LMPs”) at the transaction’s source and sink. If the LMP spread is equal to or within the bid limit, the transaction will be scheduled in the day-ahead market. According to PJM, while UTC transactions were originally created as a mechanism to hedge exposure to real-time congestion charges, they have increasingly been used by financial market participants as virtual transactions and less by physical market participants as a congestion management tool.
In its June 2013 initial filing, PJM stated that the number of UTC transactions that cleared its market had significantly increased from 85,000 in January 2010 to 680,000 in September 2012. PJM proposed, among other things, to explicitly define UTC transactions as virtual transactions and make them subject to the FTR forfeiture rule, which requires market participants to forfeit their profits on FTRs that are in excess of the auction price when virtual positions increase congestion so as to increase a participant’s FTR profits, while also increasing the divergence between Day-ahead/Real-time market prices.
In its August 2014 order, the Commission found, among other things, that PJM’s filing raised, but did not resolve, issues concerning its proposed treatment of UTCs as virtual transactions and PJM’s corresponding application of the FTR forfeiture rule. In particular, the Commission found that PJM had not resolved issues relating to its proposal to apply the FTR forfeiture rule to UTCs differently than how the rule is applied to “INCs” and “DECs”—two other kinds of “virtual transactions” in the PJM market—or how uplift payments should be allocated across all virtual transactions.
In its October 2014 notice, FERC Staff stated that the technical conference will explore: 1) whether PJM’s FTR forfeiture rules as they apply to UTC transactions and INCs/DECs are just and reasonable; and 2) whether PJM’s current uplift allocation rules associated with UTC transactions and INCs/DECs are just and reasonable.
The conference will be held on Wednesday, January 7, 2015 from 9:00 AM to 4:30 PM EST in the Commission Meeting Room. A copy of FERC Staff’s notice may be found here.