On September 6, 2018, FERC mostly denied rehearing of its February 20, 2018 order ("Proposal Order") that accepted PJM Interconnection, L.L.C.'s ("PJM") proposal to reduce the number of bidding points at which virtual transactions may be submitted by market participants ("Virtual Transactions Proposal"), finding PJM's Virtual Transactions Proposal just and reasonable. However, FERC did grant rehearing with respect to PJM's request to modify the effective date of the revisions accepted in the Proposal Order to February 22, 2018.

In the Proposal Order, FERC approved PJM's Virtual Transactions Proposal to, among other things, (1) eliminate biddable points at zone nodes, certain generator nodes, certain aggregate nodes, and individual load zones for Increment Offers ("INCs") and Decrement Bids ("DECs") and instead align the eligible trading points for INCs and DECs with nodes where generation, load, or interchange transactions are settled, or at trading hubs where forward positions can be taken; and (2) allow trading of Up-to-Congestion transactions ("UTCs") at hubs, residual metered load, and interfaces, but not at individual nodes (see February 26, 2018 edition of the WER).

On rehearing, the Financial Marketers Coalition ("Financial Marketers") and XO Energy, LLC ("XO Energy") argued that PJM did not meet its burden under section 205 of the Federal Power Act to support the proposal and the Commission failed to respond meaningfully in the Proposal Order to protestors' legitimate objections. Specifically, Financial Marketers and XO Energy each asserted that the Commission erred in the Proposal Order by disregarding the potential benefits of virtual transactions and failing to require PJM to demonstrate that the Virtual Transactions Proposal presented a targeted solution to the problems PJM had identified. Financial Marketers also alleged that the Commission failed to address arguments that the Virtual Transactions Proposal has an unduly discriminatory impact on UTCs and virtual transactions. Additionally, PJM sought clarification that the January 16, 2018 effective date established in the Proposal Order did not require PJM to implement the directed changes as of that date or, in the alternative, rehearing to modify the effective date to February 22, 2018.

In denying Financial Marketers' and XO Energy's requests for rejection of the Virtual Transactions Proposal, FERC first explained that the fact that virtual transactions can provide certain benefits does not, standing alone, prohibit PJM from limiting the locations at which they may be submitted. Rather, according to FERC, these benefits were one factor the Commission considered in accepting the Virtual Transactions Proposal. In addition, FERC found that the totality of record evidence supported acceptance of the Virtual Transactions Proposal. Further, FERC affirmed its determination that PJM presented credible evidence that the Virtual Transactions Proposal would address the negative impacts of virtual transactions and that PJM reasonably justified the specific reductions to bidding locations that it proposed to make. Finally, FERC concluded that the Proposal Order provided a substantive and sufficient response to allegations that the Virtual Transactions Proposal results in undue discrimination.

FERC did, however, grant rehearing with respect to PJM's request to modify the effective date of the revisions accepted in the Proposal Order to February 22, 2018. The Commission accepted the January 16, 2018 effective date originally requested by PJM in the Proposal Order because PJM failed to request a new effective date. On rehearing, PJM asserted, and Financial Marketers and XO Energy agreed, that implementing the Virtual Transactions Proposal as of January 16, 2018 would be difficult and disruptive to the market, as it would require PJM to remove all virtual transactions at points no longer eligible for bidding and re-execute day-ahead market solutions back to January 16, 2018. The Commission granted rehearing to make the Virtual Transactions Proposal effective as of February 22, 2018, the date on which PJM stated that it was able to implement the changes

In a separate partial dissent to the rehearing order, Commissioner LaFleur explained that while she generally supported a proposal to reduce the eligible bidding points for INCs and DECs, she continued "to find that PJM did not demonstrate that eliminating certain types of biddable points is a targeted solution to address the problematic usage of UTC transactions that motivates PJM's filing."

A copy of FERC's order is available here.

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