XO Energy LLC filed at FERC a complaint against PJM Interconnection, L.L.C. alleging that the Financial Transmission Right (“FTR”) forfeiture rule (the “FTR Forfeiture Rule”), "is unjust and unreasonable, and the rule has been implemented in a manner that is inconsistent with Commission orders and the existing tariff."

"The current implementation is so broad that it captures competitive market conduct and leads to less efficient market outcomes," XO alleged

Among other things, XO alleged that the FTR forfeiture rule cannot detect financial leverage or assess intent

"A leveraged portfolio exists when the net benefits to a market participant’s portfolio of FTRs exceeds the net losses of its portfolio of virtual transactions on a given constraint. A critical defect of the FTR Forfeiture Rule is that, at the very outset, it fails to consider whether a market participant has financial leverage, rendering the rule unjust and unreasonable ... if financial leverage does not exist, further scrutiny of a market participant’s activity is unnecessary," XO alleged

"Any forfeiture rule must also be coupled with a structured market monitoring function that can assess whether sufficient credible evidence of intent exists. There is no such thing as a properly designed automatic forfeiture rule; any forfeiture rule should only relinquish profits from conduct that, if combined with sufficient credible evidence of intent, would constitute a potential violation," XO alleged

XO alleged that, "PJM’s forfeiture rule is based simply on the fact that a market participant holds both FTR and virtual portfolios[.]"

XO quoted the rule as stating, "Market participants must recognize that, regardless of motives, virtual transactions can and do have an impact on the value of FTRs . . . The FTR forfeiture rule ensures that no party can increase FTR profits by using virtuals."

XO alleged that, "It is impossible for a market participant to measure (even retrospectively) the negative impact of the rule and modify its behavior accordingly: market participants do not have access to the data upon which forfeiture determinations are made and, worse yet, are subject to assessments more than two months after the activity in question."

XO also alleged that PJM’s FTR forfeiture rule captures legitimate hedging activity

See the complaint here for more details

Docket EL20-41

Tags:
FTRs   Transmission   Wholesale   FERC  

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