162 FERC 61,019 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION

Transcription

1 162 FERC 61,019 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: Kevin J. McIntyre, Chairman; Cheryl A. LaFleur, Neil Chatterjee, Robert F. Powelson, and Richard Glick. PJM Interconnection, L.L.C Docket No. ER ORDER ADDRESSING PROPOSED TARIFF CHANGES (Issued January 12, 2018) 1. On October 17, 2017, PJM Interconnection, L.L.C. (PJM) submitted for filing, pursuant to section 205 of the Federal Power Act (FPA), 1 revisions to its Amended and Restated Operating Agreement (Operating Agreement) at Schedule 1, and the parallel provisions of the PJM Open Access Transmission Tariff (OATT) at Attachment K Appendix. 2 PJM proposes to revise its allocation of day-ahead Operating Reserves and real-time balancing Operating Reserves. 3 Specifically, PJM proposes to allocate uplift to Up-to-Congestion transactions (UTC), 4 a type of virtual transaction, in the same manner that uplift is currently allocated to other virtual transactions, namely, incremental offers of supply (INC) 5 and decrement demand bids (DEC). 6 PJM also proposes to discontinue 1 16 U.S.C. 824d (2012). 2 For convenience, we cite to the PJM Operating Agreement alone when referring to provisions that appear in both the Operating Agreement and the OATT. 3 PJM explains that uplift is paid to different classes of market participants, under specified conditions, to ensure that resources do not operate at PJM s direction at a financial loss. PJM Transmittal at 6. 4 A UTC is a bid to purchase transmission congestion and losses at or below a stated price spread between two specified nodes in the PJM day-ahead market. See PJM Operating Agreement at Schedule 1, section A(c-1). 5 An INC is an offer to sell electricity at or above a stated price at a specified node in the PJM day-ahead market. See PJM Operating at Schedule 1, sections 1.3.9A.

2 Docket No. ER the netting of bilateral transactions for the purpose of uplift allocation, and change the calculation of uplift payments to ensure that resources are no worse off for following PJM s dispatch instructions. PJM seeks waiver of the Commission s prior notice requirement to make the changes effective April 1, For the reasons discussed below, we reject PJM s filing as unjust and unreasonable. I. Background 3. PJM states that its proposed tariff changes are designed to allocate the costs associated with uplift in a more equitable manner. 7 PJM adds that it has been pursuing these objectives since 2013, as summarized below. A. Evolution of UTCs 4. PJM states that UTC transactions were originally created as a mechanism to hedge exposure to real-time congestion charges between the source and sink of physical energy imports, exports, or wheel-through transactions. 8 However, PJM adds that beginning in 2010, UTCs were increasingly used by financial marketers as virtual transactions. PJM states that, accordingly, on June 10, 2013, in Docket No. ER , PJM proposed to define UTC transactions as virtual transactions and clarify the rules concerning the use of such transactions. 9 6 A DEC is a bid to buy electricity at or below a stated price at a specified node in the PJM day-ahead market. See PJM Operating Agreement at Schedule 1, section 1.3.1E. 7 PJM Transmittal at 2. 8 Id. at 7. 9 PJM also proposed changes addressing the interplay between virtual transactions and Financial Transmission Rights (FTR). Specifically, PJM proposed that its FTR forfeiture rule (a rule addressing the submission of certain bids at or near the source or sink of the market participant s FTR), as applicable to INCs and DECs, should also apply to UTCs.

3 Docket No. ER In an order issued August 9, 2013, the Commission accepted PJM s revisions, subject to the submission of: (i) tariff language addressing PJM s proposed source and sink paths on which UTC transactions may be submitted and the maximum spread for UTC transactions; and (ii) an informational filing addressing whether PJM s treatment of UTC transactions should differ from the treatment accorded to INCs and DECs. 10 PJM subsequently submitted a compliance filing, a response to a Commission Staff data request, and its informational filing on uplift. 6. In an order issued August 29, 2014, in Docket No. EL , the Commission found that PJM s filing, as supplemented, raised, but did not resolve, issues concerning its proposed treatment of UTCs as virtual transactions, including how uplift is, or should be, allocated to virtual transactions. 11 Accordingly, the Commission instituted a section 206 proceeding, to address: (i) whether PJM s FTR forfeiture rule, as it applies to UTCs, is just and reasonable; and (ii) how uplift is, or should be, allocated to virtual transactions. 12 A technical conference was held on January 7, In an order issued January 19, 2017, the Commission addressed PJM s FTR forfeiture rule as it applies to UTCs. 13 With respect to the issue of how uplift is, or should be, allocated to virtual transactions, the January 2017 Order cited to the Commission s contemporaneous issuance of a Notice of Proposed Rulemaking in Docket No. RM addressing uplift cost allocation and transparency practices in markets operated by Regional Transmission Organizations (RTO) and Independent System Operators (ISO). 14 The January 2017 Order therefore held the uplift issues raised in Docket No. EL in abeyance, pending the outcome of any final rule resulting from the Uplift NOPR. 15 Order). Order). 10 See PJM Interconnection, L.L.C., 144 FERC 61,121 (2013) (August PJM Interconnection, L.L.C., 148 FERC 61,144 (2014) (August 2014 Order). 12 Id. P PJM Interconnection, L.L.C., 158 FERC 61,038, at P 23 (2017) (January See Uplift Cost Allocation and Transparency in Markets Operated by Regional Transmission Organizations and Independent System Operators, FERC Stats. & Regs. 32,721 (2017) (Uplift NOPR). 15 January 2017 Order, 158 FERC 61,038 at P 3.

4 Docket No. ER B. Uplift NOPR 8. In June 2014, the Commission initiated a proceeding in Docket No. AD , Price Formation in Energy and Ancillary Services Markets in Regional Transmission Organizations and Independent System Operators. 16 As part of that proceeding, in November 2015, the Commission issued an order that directed each RTO/ISO to report on several price formation topics, including uplift allocation. 17 This record was the primary basis for the Uplift NOPR, which the Commission issued in January The Uplift NOPR preliminarily found that some RTO/ISO practices of allocating real-time uplift costs to deviations that could not reasonably be expected to have caused those uplift costs can distort market outcomes by inappropriately penalizing behavior that can improve price formation To remedy these concerns, the Uplift NOPR proposed to require RTOs/ISOs that allocate real-time uplift to deviations to do so based on cost causation, using practices including the following. The Uplift NOPR proposed that RTOs/ISOs should categorize real-time uplift costs allocated to deviations into at least two categories based on the reason the uplift was incurred: a system-wide capacity category and a congestion management category. In addition, the Uplift NOPR proposed that each RTO/ISO distinguish between deviations that are helping to address system needs, by converging the day-ahead scheduled unit commitment with the dispatch needed to meet real-time requirements, and those that are harming efforts to address system needs. Within each uplift category, costs would be allocated to a market participant s net harming deviations. 20 C. PJM s Existing Rules 10. PJM states that, under its existing rules, uplift is allocated in one of two ways. PJM explains that, first, all withdrawals in the day-ahead market are allocated an equal share of the uplift incurred in the day-ahead market, with day-ahead withdrawals defined 16 Price Formation Notice, Docket No. AD , at 1, 3-4 (June 19, 2014). 17 Price Formation in Energy and Ancillary Services Markets Operated by Regional Transmission Organizations and Independent System Operators, 153 FERC 61,221 (2015). 18 Uplift NOPR, FERC Stats & Regs. 32, Id. P Id. P 35.

5 Docket No. ER to include fixed demand bids, cleared price sensitive demand bids, DECs, and export transactions. 21 PJM states that real-time uplift is allocated to transactions that deviate between their day-ahead and real-time positions. PJM notes that, under these rules, a DEC will receive an allocation of day-ahead uplift because it is essentially a load in the day-ahead market, and an allocation of real-time uplift because it is deviating from its day-ahead position in real-time. PJM adds that, by contrast, an INC receives only realtime uplift. UTCs are currently exempt from uplift allocation. 22 D. Proposed Tariff Revisions 11. PJM says it proposes to allocate uplift to UTCs in the same manner in which uplift is currently allocated to INCs and DECs. 23 PJM states that UTCs are not currently allocated any uplift because UTCs were originally created as a way for market participants wheeling power through PJM to hedge against real-time congestion. PJM states that UTCs evolved into a purely financial product through a series of market rule changes, as summarized above. 24 PJM asserts, however, that there is no rational reason why UTCs should continue to be exempt from uplift allocation. 25 PJM adds that this exemption means that UTCs cost comparatively less per transaction than do INCs and DECs, and may be unduly discriminatory. 26 PJM also notes that UTCs are not exposed to the same energy pricing risk as INCs and DECs PJM asserts that it is effectively impossible to determine cost causality at the level of an individual transaction. PJM argues that its proposal strikes a reasonable balance 21 PJM Transmittal at 6-7 (citing PJM Operating Agreement at Schedule 1, section 3.2.3(d)). 22 PJM Transmittal at See proposed PJM Operating Agreement at Schedule 1, section 3.2.3(d) and section 3.2.3(h). 24 PJM Transmittal at 7 (citing PJM Interconnection, L.L.C., 132 FERC 61,244 (2010) (accepting PJM s proposal to exempt UTC transactions from PJM s transmission service reservation requirement)). 25 Id. at Id. at 4, Id. at 8.

6 Docket No. ER

7 Docket No. ER between cost-causation and beneficiary pays principles, and will operate as a remedy to the undue discrimination concern, outlined above PJM argues that it is appropriate to treat a UTC as an INC and a DEC for the purpose of uplift allocation because UTCs, like INCs and DECs, can impact the commitment and dispatch of resources in the day-ahead market, transmission flows, and prices, and can therefore influence the amount of uplift incurred. 29 PJM further asserts that, on the withdrawal side, UTCs benefit from the minimization of bid production cost performed by PJM when it clears the day-ahead market PJM states that, under its proposal, a UTC would be treated as a separate INC and DEC at the same locations as the UTC source and sink. The energy withdrawal side of the UTC would be treated like a DEC and receive an allocation of day-ahead Operating Reserves, as well as an allocation of balancing Operating Reserves. The energy injection side of the UTC would be treated like an INC and receive an allocation of balancing Operating Reserves. 31 PJM adds that, under its proposal, market participants would not be permitted to net the injection and withdrawal sides of a UTC. PJM argues that this is necessary because netting would be inconsistent with the way INCs and DECs are currently allocated uplift and would therefore continue the preferential treatment of UTCs relative to INCs and DECs. 32 PJM states that, [f]rom a scheduling, dispatch and impact to uplift perspective, it makes no difference whether the position is taken by a UTC or an INC and a DEC, and that, as such, it may be unduly discriminatory, relative to INCs and DECs, to allow UTCs, but not INCs and DECs, to reduce their uplift allocation through netting Id. at Id. at Id. at Id. at Id. at Id. at 10.

8 Docket No. ER PJM also proposes to exclude bilateral transactions from the calculation of supply and demand deviations for the purposes of uplift allocation. 34 PJM states that bilateral transactions do not affect day-ahead commitment or, by extension, uplift, and therefore should not be considered when determining a market participant s deviations Finally, PJM proposes to modify the methodology used to calculate balancing Operating Reserve credits in order to ensure that resources are not economically incentivized to ignore real-time dispatch instructions. 36 PJM states that it currently calculates a resource s balancing Operating Reserve credits using the resource s dayahead revenue for its entire day-ahead commitment period. 37 In this filing, PJM proposes to calculate these credits using only the portion of day-ahead revenues earned in hours that correspond to hours in which the resource is operated in real-time pursuant to PJM s direction. 38 II. Notice of Filing and Responsive Pleadings 17. Notice of PJM s filing was published in the Federal Register, 82 Fed. Reg. 49,204 (2017), with interventions and protests due on or before November 7, Timely-filed motions to intervene were filed by the entities noted in the appendix to this order. In addition, a motion to intervene out-of-time was filed by PSEG Companies (PSEG) on November 9, Protests and/or comments were filed jointly by Appian Way Energy Partners (Appian Way); American Municipal Power, Inc., Direct Energy Services, et al., and Old Dominion Electric Cooperative (collectively, LSE Representatives); Bartram Lane LLC (Bartram Lane); jointly by Duke Energy Corporation, East Kentucky Power Cooperative, Inc., and FirstEnergy Service Company (collectively, Joint Commenters); Falcon Energy, LLC (Falcon Energy); Financial Marketers Coalition (Financial Marketers); Monitoring Analytics, LLC, acting as PJM s Independent Market Monitor (Market Monitor); PJM 34 Id. at and proposed PJM Operating Agreement at Schedule 1, section 3.2.3(h). 35 Id. at Id. at Id. at Id. at and proposed Operating Agreement at Schedule 1, section 3.2.3(e).

9 Docket No. ER

10 Docket No. ER Power Providers Group (P3); SESCO Enterprises LLC (SESCO); and XO Energy, LLC (XO Energy). 19. Answers were filed by the Market Monitor, on November 22, 2017, PJM, on December 11, 2017, Financial Marketers, on December 12, 2017, and XO Energy, on December 13, A. Comments 20. Comments generally supportive of PJM s filing were submitted by Joint Commenters, the Market Monitor, LSE Representatives, and P3. Joint Commenters argue that PJM s proposed changes will enhance the efficient operation of PJM s energy markets while eliminating the opportunity for virtual transactions to profit from the market without providing a commensurate benefit. 39 Joint Commenters explain that, while virtual transactions can provide market benefits, changes to the scope and function of UTCs over time have resulted in transactions with lower levels of risk bearing fewer costs. 40 Joint Commenters claim that PJM s proposal constitutes a reasonable balance between cost causation principles and beneficiary pays principles The Market Monitor argues that PJM s proposal appropriately corrects for a prior oversight, i.e., the conversion of UTCs into a virtual product without a commensurate allocation of uplift. 42 The Market Monitor contends that UTCs are virtual injections and withdrawals in the day-ahead market which, like other virtual transactions, create deviations in the real-time market and should therefore be allocated uplift. 43 The Market Monitor also supports PJM s proposal to exclude bilateral transactions from the calculation of supply and demand deviations. 44 The Market Monitor, however, states that it does not agree with PJM s approach to modify the calculation of Operating Reserve credits. 45 The Market Monitor argues that more comprehensive changes should be made. In addition, the Market Monitor requests that PJM be required to clarify its proposal by 39 Joint Commenters November 7, 2017 Comments at Id. at Id. at Market Monitor November 7, 2017 Comments at Id. at Id. at Id. Comments at 3.

11 Docket No. ER providing examples of how the proposed allocation would work LSE Representatives argue that PJM has sufficiently supported its position that its current uplift cost allocation is unduly discriminatory, given that UTCs can impact the dispatch of PJM s system but are not allocated uplift costs. 47 LSE Representatives also assert that, because PJM cannot determine whether congestion is caused by INCs, DECs, or UTCs, it is equitable to allocate uplift costs to each of these transactions. 48 LSE Representatives assert that they support the use of financial transactions as long as they do no harm to the market, but also agree with PJM that UTCs can actually cause harm. 49 LSE Representatives also support PJM s revisions to the balancing Operating Reserve credit calculation methodology, asserting that PJM s proposal will remedy instances when a resource is not made whole when it deviates from its day-ahead market position in response to PJM s dispatch instructions Finally, P3 generally supports PJM s filing, arguing that PJM s proposal corrects an oversight in PJM s current uplift cost allocation rules by more equitably allocating uplift costs to all virtual transactions. 51 P3 argues that the current rules provide UTCs with an inequitable market advantage over other virtual transaction because they do not allocate UTCs uplift costs, thus lowering the transaction costs borne by UTCs. P3 also states it is no longer rational to exclude UTCs from uplift cost allocation because they are now purely financial products. 52 B. Protests 24. Protests were filed by XO Energy, Appian Way, SESCO, and Financial Marketers. Several protestors contend that PJM s filing should be rejected as inconsistent with the Commission s prior findings in Docket Nos. EL and/or RM Id. at LSE Representatives November 7, 2017 Comments at Id. at Id. at Id. at P3 November 7, 2017 Comments at Id. at Appian Way November 7, 2017 Comments at 4; Financial Marketers (continued...)

12 Docket No. ER XO Energy, Appian Way, and SESCO note that both of these proceedings remain pending,and argue that the instant filing is an improper attempt to bypass those processes. 54 XO Energy urges that any action the Commission does take in this proceeding reflect the principles of the Uplift NOPR Appian Way claims the Commission has already ruled in Docket No. EL that it is insufficient to treat virtual supply/demand and UTCs comparably, and that the Uplift NOPR found that schedule deviations should only be allocated uplift based on cost causation. 56 XO Energy contends that PJM s proposal is in conflict with the Uplift NOPR, because it would allocate uplift to UTCs broadly, without considering whether a given transaction converges or diverges the day-ahead and real-time markets. 57 Financial Marketers and XO Energy further argue that allocating real-time uplift to transactions which could not have caused it can distort market outcomes by penalizing behavior that would otherwise improve price formation, as well as inappropriately rewarding behavior that dampens price formation with an inappropriately low allocation of uplift Protestors argue that PJM s proposal would fail to allocate costs consistent with the principles of cost causation. Some contend that load should bear the cost of uplift payments because load is the ultimate beneficiary of uplift, 59 or because uplift is a part of the cost of serving load. 60 Some protestors argue that PJM has not demonstrated that November 7, 2017 Protest at 18; XO Energy November 7, 2017 Protest at 18; SESCO November 7, 2017 Protest at XO Energy November 7, 2017 Protest at 6; Appian Way November 7, 2017 Comments at 3-4; SESCO November 7, 2017 Protest at 10, XO Energy November 7, 2017 Protest at Appian Way November 7, 2017 Comments at XO Energy November 7, 2017 Protest at Financial Marketers November 7, 2017 Protest at 21 (citing Uplift NOPR, FERC Stats. & Regs. 32,721 at P 4); XO Energy November 7, 2017 Protest at 17 (citing Uplift NOPR, FERC Stats. & Regs. 32,721 at P 31). 59 Appian Way November 7, 2017 Comments at 3; Financial Marketers November 7, 2017 Protest at 18 (citing the Uplift NOPR, FERC Stats. & Regs. 32,721 at P 13); XO Energy November 7, 2017 Protest at Appian Way November 7, 2017 Comments at 2.

13 Docket No. ER UTCs cause uplift, 61 or benefit from the incurrence of uplift. 62 Financial Marketers also claim that PJM s proposal has no basis in cost causation, given that the intent of virtual transactions is to reduce total costs, 63 and that capacity-related uplift charges are not caused by congestion-based products such as UTCs XO Energy, Financial Marketers, and SESCO also argue that PJM s proposal fails to consider the differences between UTCs and the two other types of virtual transactions. XO Energy and SESCO argue that PJM s proposal would treat UTCs as energy deviations, even though they are not, given that INCs and DECs are offers to sell or buy electricity, while a UTC is a transmission position, and does not have an energy component. 65 XO Energy adds that, while a market participant could replicate the financial position of a UTC with an INC and a DEC at the same locations, INCs and DECs are fundamentally energy products, while UTCs are fundamentally transmission products. SESCO argues that PJM s mischaracterization of UTCs as two capacity products is inconsistent with the underlying purpose and intended operation of UTCs as congestion management transactions Several protestors also contend that the proposal is unduly discriminatory because it assesses a double real-time energy deviation charge to UTCs, while only assessing a single charge to INCs and DECs. 67 Financial Marketers contend that PJM has failed to demonstrate how UTCs are substantially different from INCs and DECs, such that they should be allocated twice as much uplift, or that UTCs cause twice as much uplift as 61 XO Energy November 7, 2017 Protest at 4; SESCO November 7, 2017 Protest at 14; Financial Marketers November 7, 2017 Protest at XO Energy November 7, 2017 Protest at Financial Marketers November 7, 2017 Protest at 26-27, citing Attachment C, Hogan, Dr. William W., Virtual Bidding and Electricity Market Design at 44 (May 25, 2016). 64 Financial Marketers November 7, 2017 Protest at XO Energy November 7, 2017 Protest at 4-5, 15-16; SESCO November 7, 2017 Protest at SESCO November 7, 2017 Protest at SESCO November 7, 2017 Protest at 11-12; XO Energy November 7, 2017 Protest at 5; Financial Marketers November 7, 2017 Protest at 14, 16.

14 Docket No. ER INCs and DECs. 68 Financial Marketers assert that PJM does not quantify the impact of UTCs on uplift, or compare this impact to that of other virtual transactions. 69 Financial Marketers argue that, as such, PJM has not supported its claim that UTCs should get the same uplift allocation as a cleared INC and DEC pair Financial Marketers and XO Energy contend that PJM s proposal will inappropriately shift the majority of real-time uplift charges to UTCs, 71 as well as 25 percent of all day-ahead uplift charges to UTCs. 72 XO Energy contends that this shift will make UTCs uneconomic, potentially eliminating a valuable hedging tool from the markets. 73 XO Energy argues that such an allocation is unwarranted, given that uplift incurrence is primarily a function of a generator s daily energy market offers Protestors argue that many of the asserted market benefits attributable to UTCs could be lost under PJM s proposal. Appian Way contends that PJM s filing, if implemented, will impede the ability of market participants to settle imbalances via the spot market and disincentivize efficiency enhancing transactions. 75 SESCO argues that UTCs can provide valuable congestion hedging relief. 76 XO Energy argues that virtual transactions benefit the wholesale energy markets by improving price convergence, providing liquidity, and promoting competitive forces. 77 XO Energy asserts that, because of these benefits, virtual transactions should be allocated uplift in a 68 Financial Marketers November 7, 2017 Protest at Id. at Id. at Financial Marketers November 7, 2017 Protest at 14; See also XO Energy November 7, 2017 Protest at Financial Marketers November 7, 2017 Protest at 14; XO Energy November 7, 2017 Protest at XO Energy November 7, 2017 Protest at Id. at Appian Way November 7, 2017 Comments at SESCO November 7, 2017 Protest at XO Energy November 7, 2017 Protest at 19.

15 Docket No. ER way that does not deter these transactions. 78 Specifically, XO Energy argues that uplift costs should be allocated to load, which is price insensitive, because this additional cost will not impact load s behavior in the market Financial Marketers also argue that allocating uplift to UTCs is inappropriate because it would deter trading in UTCs, which could, in turn, increase uplift as virtual transactions, which can promote market convergence, exit the market. 80 SESCO similarly argues that UTCs have small margins that could disappear if uplift is misallocated, and netting is prohibited Some protestors also raise procedural concerns with the filing. Specifically, Financial Marketers and XO Energy argue the filing is deficient under section 205 of the FPA because it is does not contain enough numerical evidence to be sufficiently supported. 82 Financial Marketers and XO Energy also argue that there were irregularities in the stakeholder process which culminated in this filing, amounting to an attack on virtual transactions and financial market participants Finally, Financial Marketers request that the record compiled to date, in Docket Nos. EL and RM , be made a part of the record in this proceeding. 84 C. Answers 34. The Market Monitor, in its answer, responds to Financial Marketers argument that load, because it is the sole beneficiary of a least cost dispatch market, should be responsible for paying the uplift generated by that market, and Appian Way s argument 78 Id. at Id. at 20, citing Attachment C at Financial Marketers November 7, 2017 Protest at SESCO November 7, 2017 Protest at Financial Marketers November 7, 2017 Protest at 30-33; XO Energy November 7, 2017 Protest at 1, Financial Marketers Coalition November 7, 2017 Protest at 9-13, 35-37; XO Energy November 7, 2017 Protest at 6. See also Financial Marketers Coalition November 7, 2017 Protest at Financial Marketers November 7, 2017 Protest at 34.

16 Docket No. ER that uplift is part of the cost of serving load. The Market Monitor argues that not all uplift in PJM is attributable to PJM s market pricing system. The Market Monitor asserts that uplift can also be caused by real world operator actions, lumpiness in the system, forecasting errors, commitment decisions, and dispatch directives The Market Monitor also responds to protestors argument that PJM s proposal would be unduly discriminatory, to the extent it singles out one transaction and one subclass of market participants. The Market Monitor argues that PJM s proposal does not discriminate against any entity or type of market participant, because any entity will be eligible to use a UTC, and uplift will be allocated to all holders of UTCs comparably. The Market Monitor adds that a deviation from a UTC has no less impact than a deviation from an INC or a DEC, and thus they should be treated on a comparable basis The Market Monitor also challenges protestors argument that PJM s proposal violates the Commission s cost causation principles. The Market Monitor asserts that UTCs contribute to uplift to the same extent as any other injection or withdrawal in the day-ahead market, or any deviation between the day-ahead and real-time markets. 87 The Market Monitor also responds to protestors assertion that PJM s proposal will render UTCs infeasible. The Market Monitor argues that if allocating uplift to UTCs renders certain low-margin bidding strategies unprofitable, the market will be helped, not hurt PJM, in its answer, argues that it has met its section 205 burden. 89 PJM also argues that the Financial Marketers allegations that the proposal would shift the majority of real-time uplift charges and 25 percent of day-ahead uplift charges to UTCs are unsupported. However, PJM contends that, because UTCs have accounted for approximately 80 percent of the total volume of virtual transactions in recent years, it is both logical and reasonable that these transactions would be allocated approximately 80 percent of the charges associated with the uplift they have caused Market Monitor November 22, 2017 Answer at Id. at Id. at Id. at PJM December 11, 2017 Answer at Id. at 6.

17 Docket No. ER Further, PJM reiterates its argument that a UTC has the same impact as an INC and a DEC at the same locations. 91 PJM then avers that, because of this symmetry, a market participant should be indifferent between submitting a UTC and submitting an INC and a DEC with the same source and sink points. PJM contends that there is therefore no rational reason why these identical transactions should not receive identical uplift allocations. 92 PJM argues that UTCs impact the amount of transmission system losses in the day-ahead market, and that, as losses change, more or less supply is scheduled to cover the changes and maintain power balance. PJM explains that these changes in losses create energy deviations in real-time PJM also refutes several other arguments made by protestors. PJM contends that load is not always the ultimate beneficiary of uplift-causing auctions. 94 In addition, PJM notes that the Commission s action in Docket No. EL remains pending, and that, as such, it was appropriate to submit its proposal in this proceeding. 95 PJM reiterates that it did not support the Uplift NOPR, and notes that a NOPR is not binding on future Commission action. 96 Finally, PJM argues that, contrary to protesters claims, more virtual transactions do not necessarily lead to improved market outcomes. PJM contends that decreases in UTC volumes have not necessarily coincided with less efficient markets, and that decreases in the profitability of certain transactions do not always drive them out of the markets. 97 Finally, PJM contends that it followed its 91 Id. at Id. at Id. at Id. at Id. at Id. at Id. at 20.

18 Docket No. ER stakeholder process and that the Financial Marketers arguments related to alleged deficiencies in its process are baseless Financial Marketers, in their answer, contend that PJM s answer fails to note several voting irregularities and challenges which often prevent Financial Marketers from properly casting their votes. 99 XO Energy, in its answer, argues that the Market Monitor s answer misrepresents key facts. 100 XO Energy agrees with the Market Monitor that there are multiple causes of uplift and that virtual transactions can be contributors, but argues that load is the single largest cause of uplift, and that virtual transactions are only a minor contributor to uplift costs, relative to load. 101 In addition, XO Energy contends that virtual transactions may actually reduce total system costs, including uplift. 102 XO Energy also disagrees with PJM s argument in its answer that UTCs make up 80 percent of virtual transactions and thus it is just and reasonable to allocate 80 percent of uplift to them. 103 XO Energy argues that PJM is conflating the volume of transactions with the causation of uplift, and reiterates that PJM has not demonstrated that UTCs cause 80 percent of uplift. 104 Further, XO Energy disagrees with arguments by the Market Monitor and PJM that UTCs are not fundamentally different from INCs and DECs. XO Energy also alleges that the Market Monitor s answer in this docket is inconsistent with the Market Monitor s answer in Docket No. ER18-88, in which the Market Monitor asserts that: While UTCs act as both an injection and a withdrawal, UTCs do not clear in PJM s optimization like separate injections and withdrawals. INCs and DECs clear on the basis of their designated node strike prices. UTCs clear as a matched injection and withdrawal based on a designated spread between node prices. UTCs 98 Id. at Financial Marketers December 12, 2017 Answer at XO Energy December 13, 2017 Answer at Id. at Id. at XO Energy December 13, 2017 Answer at 3-4 (citing PJM December 11, 2017 Answer at 6). 104 XO Energy December 13, 2017 Answer at 4.

19 Docket No. ER are a unique virtual product with unique characteristics in how they affect the market clearing. 105 III. Discussion A. Procedural Matters 41. Pursuant to Rule 214 of the Commission s Rules of Practice and Procedure, 18 C.F.R (2017), 106 the timely, unopposed motions to intervene serve to make the entities that filed them parties to this proceeding. Pursuant to Rule 214(d) of the Commission s Rules of Practice and Procedure, 107 we will grant PSEG s late-filed motion to intervene given its interest in the proceeding, the early stage of the proceeding, and the absence of undue prejudice or delay. 42. Rule 213(a)(2) of the Commission s Rules of Practice and Procedure 108 prohibits an answer to a protest or an answer unless otherwise ordered by the decisional authority. We will accept the answers filed by the Market Monitor, PJM, Financial Marketers, and XO Energy because they have provided information that assisted us in our decisionmaking process. B. Substantive Matters 43. We find PJM has failed to demonstrate that its proposal is just and reasonable, 109 as discussed below, and therefore we reject PJM s proposed method of allocating uplift to UTCs. 44. PJM fails to demonstrate in the instant filing why it would be appropriate to allocate uplift to a UTC, a single transaction, as though it were multiple transactions. We find that PJM has not adequately justified its supposition that UTCs behave in the markets with sufficient similarity to paired INCs and DECs to support allocating uplift to UTCs in the same way it allocates uplift to INCs and DECs, as proposed in the instant 105 XO Energy December 13, 2017 Answer at 4, quoting Market Monitor, Docket No. ER , at 2 (filed November 22, 2017) C.F.R (2017). 107 Id (d). 108 Id (a)(2) U.S.C. 556(d) (2012); accord 16 U.S.C. 824d(e) (2012).

20 Docket No. ER filing. While PJM claims that its proposal treats UTCs equivalently to INCs and DECs, we find that the proposal essentially allocates uplift to a UTC twice, because the proposed allocation methodology would allocate uplift to a UTC as if it were instead a separate INC transaction and a separate DEC transaction. Further, we are not persuaded that a UTC is identical to a combined INC at the UTC source and DEC at the UTC sink. 110 For example, INCs and DECs clear separately, allowing for the possibility that one side of a pair may not clear, while a UTC clears the market as a whole. 45. While PJM has stated that UTCs can change which resources are committed in the day-ahead market and therefore can affect uplift, it has not attempted to quantify the approximate magnitude of UTCs impact on commitment decisions or uplift costs, nor shown that this amount justifies the proposed allocation of costs to UTCs. As noted above, under PJM s proposal, a UTC would essentially be allocated uplift twice, compared to an individual INC or DEC, and PJM has not shown that the amount of uplift caused by UTCs justifies this allocation. 46. While we find PJM has not justified the instant proposal, we recognize that it may be appropriate to allocate some uplift costs to UTCs. Therefore, our rejection in this docket is without prejudice to PJM proposing an alternative uplift allocation method for UTCs. The Commission orders: order. PJM s filing is hereby rejected, without prejudice, as discussed in the body of this By the Commission. ( S E A L ) Nathaniel J. Davis, Sr., Deputy Secretary. 110 PJM December 11, 2017 Answer at 8.

21 Docket No. ER Appendix List of Intervenors Alphataraxia Palladium LLC American Municipal Power, Inc. (LSE Representatives) * Appian Way Energy Partners (Appian Way) * Bartram Lane LLC (Bartram Lane) * Blackout Power Trading Inc. Boston Energy Group, Inc. DC Energy, LLC Delaware Division of the Public Advocate Direct Energy Services, et al. (LSE Representatives) * Dominion Energy Services, Inc. Dufossat Capital Duke Energy Corporation (Joint Commenters) * ETC Endure Energy L.L.C. East Kentucky Power Cooperative, Inc. (Joint Commenters) * Exelon Corporation Falcon Energy LLC (Falcon Energy) * Financial Marketers Coalition (Financial Marketers) * FirstEnergy Service Company (Joint Commenters) * Macquarie Energy LLC Monitoring Analytics, LLC, acting as PJM s Independent Market Monitor (Market Monitor) * Monterey Enterprises, LLC, et al. NRG Power Marketing LLC and GenOn Energy Management, LLC Old Dominion Electric Cooperative (LSE Representatives) * PJM Industrial Customer Coalition PJM Power Providers Group (P3) * PSEG Companies # Pure Energy, Inc. Red Wolf Energy Trading SESCO Enterprises LLC (SESCO) * Solios Power Mid-Atlantic Trading, LLC, et al. TPC Energy, LLC VECO Power Trading, LLC Vitol Inc. Wabash Valley Power Association, Inc. XO Energy, LLC (XO Energy) * / # late-filed intervention

22 Docket No. ER * protest and/or comments