Common use of FERC Order on FTR Forfeitures Clause in Contracts

FERC Order on FTR Forfeitures. On January 19, 2017, FERC determined that the application of the current FTR forfeiture rule to INCs, DECs and UTCs was unjust and unreasonable.40 In their determination, FERC ordered that a method should be developed to consider the net impact of a participant’s entire portfolio of virtual bids on a constraint related to an FTR position. The new rule will be more transparent and will depend on an individual participant’s net impact on a constraint. FERC also explicitly ordered counter flow FTRs to be considered for FTR forfeiture. In response to this, PJM determined that no FTR forfeitures will be billed to participants after January 19, 2017, under the prior rules. Instead, participants will be retroactively billed their FTR forfeiture amounts based on the new FTR forfeiture rule once it is in place. Until January 19, 2017, an FTR Holder may be subject to forfeiture of any profits from an FTR if it meets the criteria defined in Section 5.2.1 (b) of Schedule 1 of the PJM Operating Agreement. If a participant has a cleared increment offer or decrement bid for an applicable hour at or near the source or sink of any FTR they own and the day-ahead congestion LMP difference is greater than the real-time congestion LMP difference the profits from that FTR may be subject to forfeiture for that hour. An increment offer or decrement bid is considered near the source or sink point if 75 percent or more of the energy injected or withdrawn, and which is withdrawn or injected at any other bus, is reflected on the constrained path between the FTR source or sink. This rule only applies to increment offers and decrement bids that would increase the price separation between the FTR source and sink points. After January 19, 2017, participants will be subject to the new FTR forfeiture rule. PJM began retroactively billing forfeitures back to January 19, 2017, and billing for the prompt month FTR forfeitures, starting with the September bill. PJM will continue billing one retroactive month concurrently with the prompt month until all retroactive months are billed. This rule considers the impact of a participant’s net virtual transaction portfolio on all constraints. If a participant’s net virtual portfolio impacts a constraint by the greater of 0.1 MW or 10 percent or more of the line limit, and that constraint affects an individual FTR’s target allocation by $0.01, the FTR is subject to FTR forfeiture if the net virtual portfolio increased the value of the FTR. FTR forfeitures do not result from net virtual portfolios that decrease the value of their affiliates’ FTRs. The forfeiture amount calculation is the hourly profit of the FTR and an FTR cannot forfeit more than once per hour.

FERC Order on FTR Forfeitures. On January 19, 2017, FERC determined that the application of the current FTR forfeiture rule to INCs, DECs and UTCs was unjust and unreasonable.40 unreasonable.53 In their determination, FERC ordered that a method should be developed to consider the net impact of a participant’s entire portfolio of virtual bids on a constraint related to an FTR position. The new rule will be more transparent position and will depend on an individual participant’s net impact on a constraint. FERC also explicitly ordered that counter flow FTRs to be considered for included in FTR forfeitureforfeiture calculations. In response to this, FERC ordered a retroactive effective date and PJM determined that no FTR forfeitures will would be billed to participants after January 19, 2017, under the prior rules. Instead, participants will be Participants were retroactively billed their FTR forfeiture amounts based on the new FTR forfeiture rule once it is was in place. Until January 19, 2017, an FTR Holder may be holder was subject to forfeiture of any profits from an FTR if it meets met the criteria defined in Section 5.2.1 (b) of Schedule 1 of the PJM Operating Agreement. If a participant has a cleared increment offer or decrement bid for an applicable hour at or near the source or sink of any FTR they own and the day-ahead congestion LMP difference is greater than the real-time congestion LMP difference the profits from that FTR may be subject to forfeiture for that hour. An increment offer or decrement bid is considered near the source or sink point if 75 percent or more of the energy injected or withdrawn, and which is withdrawn or injected at any other bus, is reflected on the constrained path between the FTR source or sink. This rule only applies to increment offers and decrement bids that would increase the price separation between the FTR source and sink points. After January 19, 2017, participants will be were subject to the new FTR forfeiture rule. PJM began retroactively billing forfeitures back to January 19, 2017, and billing for the prompt month FTR forfeitures, starting with the September bill. PJM will continue billing one retroactive month concurrently with the prompt month until all retroactive months are billed. This rule considers the impact of a participant’s net virtual transaction portfolio on all constraints. If a participant’s net virtual portfolio impacts a constraint by the greater of 0.1 MW or 10 percent or more of the line limit, and 53 See 158 FERC ¶ 61,038. that constraint affects an individual FTR’s target allocation by $0.01, the FTR is subject to FTR forfeiture if the net virtual portfolio increased the value of the FTR. FTR forfeitures do not result from net virtual portfolios that decrease the value of their affiliates’ FTRs. The forfeiture amount calculation is the hourly profit of the FTR and an FTR cannot forfeit more than once per hour.. Figure 13-8 shows the monthly FTR forfeitures under the newly established FTR forfeiture rule from January 19, 2017 through September 30, 2018. PJM began retroactively billing FTR forfeitures with the September 2017 bill. In the interim period from January 2017 through September 2017 participants did not know what behaviors were causing FTR forfeitures, so they had no way to modify their bidding behavior to avoid FTR forfeitures. After September 2017, FTR forfeitures were down significantly, and stabilized, as participants could now see the effect of their activities on FTR forfeitures. For the period of January 19, 2017, through September 30, 2018, total FTR forfeitures were $12.5 million. Figure 13-8 Monthly FTR forfeitures for physical and financial participants Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 2016/2017 2017/2018 2018/2019 Financial Physical $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000

FERC Order on FTR Forfeitures. On January 19, 2017, FERC determined that the application of the current FTR forfeiture rule to INCs, DECs and UTCs was unjust and unreasonable.40 In their determination, FERC ordered that a method should be developed to consider the net impact of a participant’s entire portfolio of virtual bids on a constraint related to an FTR position. The new rule will be more transparent and will depend on an individual participant’s net impact on a constraint. FERC also explicitly ordered counter flow FTRs to be considered for FTR forfeiture. In response to this, PJM determined that no FTR forfeitures will would be billed to participants after January 19, 2017, under the prior rules. Instead, participants will be were retroactively billed their FTR forfeiture amounts based on the new FTR forfeiture rule once it is was in place. Until January 19, 2017, an FTR Holder may be was subject to forfeiture of any profits from an FTR if it meets met the criteria defined in Section 5.2.1 (b) of Schedule 1 of the PJM Operating Agreement. If a participant has a cleared increment offer or decrement bid for an applicable hour at or near the source or sink of any FTR they own and the day-ahead congestion LMP difference is greater than the real-time congestion LMP difference the profits from that FTR may be subject to forfeiture for that hour. An increment offer or decrement bid is considered near the source or sink point if 75 percent or more of the energy injected or withdrawn, and which is withdrawn or injected at any other bus, is reflected on the constrained path between the FTR source or sink. This rule only applies to increment offers and decrement bids that would increase the price separation between the FTR source and sink points. After January 19, 2017, participants will be were subject to the new FTR forfeiture rule. PJM began retroactively billing forfeitures back to January 19, 2017, and billing for the prompt month FTR forfeitures, starting with the September bill. PJM will continue billing one retroactive month concurrently with the prompt month until all retroactive months are billed. This rule considers the impact of a participant’s net virtual transaction 40 See 158 FERC ¶ 61,038 (2017). portfolio on all constraints. If a participant’s net virtual portfolio impacts a constraint by the greater of 0.1 MW or 10 percent or more of the line limit, and that constraint affects an individual FTR’s target allocation by $0.01, the FTR is subject to FTR forfeiture if the net virtual portfolio increased the value of the FTR. FTR forfeitures do not result from net virtual portfolios that decrease the value of their affiliates’ FTRs. The forfeiture amount calculation is the hourly profit of the FTR and an FTR cannot forfeit more than once per hour.. Figure 13-9 shows the monthly FTR forfeitures under the newly established FTR forfeiture rule from January 19, 2017 through March 31, 2018. PJM began retroactively billing FTR forfeitures with the September 2017 bill. In the interim period from January 2017 through September 2017 participants did not know what behaviors were causing FTR forfeitures, so they had no way to modify their bidding behavior to avoid FTR forfeitures. After September 2017, FTR forfeitures were down significantly, and stabilized, as participants could now see the effect of their activities on FTR forfeitures. For the period of January 19, 2017, through March 31, 2018, total FTR forfeitures were $11.1 million. Figure 13-9 Monthly FTR forfeitures for physical and financial participants Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 2016/2017 2017/2018 Financial Physical $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000

FERC Order on FTR Forfeitures. On January 19, 2017, FERC determined that the application of the current FTR forfeiture rule to INCs, DECs and UTCs was unjust and unreasonable.40 unreasonable.62 In their determination, FERC ordered that a method should be developed to consider the net impact of a participant’s entire portfolio of virtual bids on a constraint related to an FTR position. The new rule will be more transparent position and will depend on an individual participant’s net impact on a constraint. FERC also explicitly ordered that counter flow FTRs to be considered for included in FTR forfeitureforfeiture calculations. In response to this, PJM determined FERC ordered a retroactive effective date meaning that no FTR forfeitures will be billed to participants after January 19, 2017, under the prior rules. Instead, participants will would be retroactively billed their FTR forfeiture amounts based on the new FTR forfeiture rule once it is was in place. Until January 19, 2017, an FTR Holder may be holder was subject to forfeiture of any profits from an FTR if it meets met the criteria defined in Section 5.2.1 (b5.2.1(b) of Schedule 1 of the PJM Operating AgreementOA. If a participant has a cleared increment offer or decrement bid for an applicable hour at or near the source or sink of any FTR they own and the day-ahead congestion LMP difference is greater than the real-time congestion LMP difference the profits from that FTR may be subject to forfeiture for that hour. An increment offer or decrement bid is considered near the source or sink point if 75 percent or more of the energy injected or withdrawn, and which is withdrawn or injected at any other bus, is reflected on the constrained path between the FTR source or sink. This rule only applies to increment offers and 61 For a more complete discussion, see: “Answer and Motion for Leave to Answer of the Independent Market Monitor for PJM,” Docket No. ER19-24 (November 27, 2018). 62 See 158 FERC ¶ 61,038. decrement bids that would increase the price separation between the FTR source and sink points. After January 19, 2017, participants will be were subject to the new FTR forfeiture rule. PJM began retroactively billing forfeitures back to January 19, 2017, and billing for the prompt month FTR forfeitures, starting with the September bill. PJM will continue billing one retroactive month concurrently with the prompt month until all retroactive months are billed. This rule considers the impact of a participant’s net virtual transaction portfolio on all constraints. If a participant’s net virtual portfolio impacts a constraint by the greater of 0.1 MW or 10 percent or more of the line limit, and that constraint affects an individual FTR’s target allocation by $0.01, the FTR is subject to FTR forfeiture if the net virtual portfolio increased the value of the FTR. FTR forfeitures do not result from net virtual portfolios that decrease the value of their affiliates’ FTRs. The forfeiture amount calculation is the hourly profit of the FTR and an FTR cannot forfeit more than once per hour. Figure 13-13 shows the monthly FTR forfeitures under the newly established FTR forfeiture rule from January 19, 2017 through December 31, 2018, except for November 2018 which is not yet settled. PJM began retroactively billing FTR forfeitures with the September 2017 bill. In the interim period from January 2017 through September 2017 participants did not know what behaviors were causing FTR forfeitures, so they had no way to modify their bidding behavior to avoid FTR forfeitures. After September 2017, FTR forfeitures were down significantly, and stabilized, as participants could now see the effect of their activities on FTR forfeitures. For the period of January 19, 2017, through December 31, 2018, except November 2018, total FTR forfeitures were $13.1 million.