D.C. Circuit Upholds FERC's Changes To PJM's FTR And ARR Designs

On June 12, 2018, the U.S. Court of Appeals for the District of Columbia Circuit ("D.C. Circuit") rejected challenges to FERC orders modifying PJM's financial transmission right ("FTR") and auction revenue right ("ARR") designs. FERC had ordered changes to PJM's FTR/ARR designs to address PJM's inability to make all of the payments owed to FTR owners.

In PJM, market participants can purchase FTRs at auction to hedge against transmission congestion costs. FTRs entitle their holders to receive a payment from PJM if a "source" node in PJM specified in the FTR is more congested, and thus higher priced, than a "sink" node, based on day-ahead pricing. Alternatively, if the "sink" node is more congested than the "source" node, the FTR holder must pay PJM. In addition, PJM allocates ARRs to load-serving entities ("LSEs"), which allow the LSEs to receive a portion of FTR auction revenue. Between 2010 and 2014, PJM could only pay between 69 and 85 percent of the amounts