Commissioner Mark C. Christie Statement
May 20, 2021
Docket No. ER17-1433-001
I agree with the parts of this order accepting PJM’s compliance filing. I dissent in part because I would also have accepted PJM’s “FTR Impact Test” that today’s order rejects.[1]
PJM’s FTR Impact Test limits FTR forfeitures to transactions resulting in an increase to FTR value of at least $0.01. The order rejects the one-cent FTR Impact Test on the theory that it “represents only an immaterial, de minimis increase in the value of the FTR, rather than any measure of meaningful increase in FTR value as was contemplated in the January 2017 Order.”[2] The January 2017 Order, however, did not direct PJM to test for a “meaningful increase” in FTR value, but rather for trades in the “direction” of increasing FTR value.[3] In my view, PJM’s one-cent FTR Impact Test complies with this Commission’s original directive and should be approved for that reason.
Moreover, as PJM’s Independent Market Monitor explains it:
The goal of the rule is to ensure that when a participant has a significant impact on a constraint and that constraint makes an FTR more valuable, the resultant FTR profits are forfeited. The goal of the rule is to prevent manipulation. The reason that a de minimis value is added to define the impact of the constraint on the FTR is to ensure that a participant’s FTR profits are not subject to forfeiture when there is no measurable impact on the FTR. There is and should be no lower bound on acceptable manipulation. No manipulation is acceptable. . . . .
The $0.01 rule [i.e., the one-cent FTR Impact Test] is part of a framework of screens designed to prevent manipulation. All the screens must be failed before a triggering constraint causes a forfeiture of a related FTR’s profit. The virtual portfolio must have a significant impact on a constraint, greater than or equal to ten percent. The impact of the portfolio on the constraint must be in the direction that increases the value of the FTR. The value of the FTR in the day-ahead market must be greater than in the real-time market.[4]
The one-cent FTR Impact Test is one part of a rule that is prophylactic in nature. This is one more aspect of the complex balancing act PJM must undertake to manage its markets.
PJM developed and implemented a test compliant with the directive in the January 2017 Order and which it reasonably thought struck an appropriate balance between the relevant interests. It may be appropriate for PJM to continue to refine this particular instrument, but I would not have found it unjust or unreasonable at this time and would instead have asked PJM to seek to make further refinements to the test.
For these reasons, I respectfully dissent in part.
[1] See Order at P 27 (“we cannot accept PJM’s Compliance Filing as the just and reasonable replacement rate because the one-cent FTR Impact Test, a major component of the Compliance Filings, is unjust and unreasonable as it fails to strike a reasonable balance between deterring manipulative behavior and not burdening legitimate hedging activity.”)
[2] Order at P 51.
[3]PJM Interconnection, L.L.C., 158 FERC ¶ 61,038 at P 60 (January 2017 Order) (“the net flow must be in the direction to increase the value of an FTR”) (emphasis added).
[4] Independent Market Monitor May 31, 2017 Answer at 3-4.