XO Energy MA, LP v. FERC, 77 F.4th 710

Background

PJM, a regional transmission organization, runs day-ahead and real-time electricity markets and offers Financial Transmission Rights (FTRs) to hedge congestion risk; PJM also permits "virtual" transactions that can affect day-ahead congestion.
To deter cross-product manipulation (virtual trades that create congestion to benefit related FTRs), PJM adopted an FTR Forfeiture Rule in 2000; PJM expanded virtual transactions in 2013 and the Commission later opened a Section 206 review.
In 2017 FERC found PJM’s prior application of the Rule no longer just and reasonable and directed a compliance filing; PJM implemented a 2017 Proposed Rule (applied retroactively to Jan. 2017) that triggered forfeiture based on appreciable congestion impact and a one-cent FTR-value increase.
XO Energy challenged the 2017 Proposed Rule as overbroad and unable to detect "leverage," seeking refunds for forfeitures incurred under the interim rule; FERC in 2021 found parts of the 2017 Rule unjust and ordered changes and a report on refund feasibility.
PJM filed a revised 2021 Rule; FERC approved it and declined to order refunds for losses under the unapproved interim rule, and rejected XO Energy’s proposals that PJM must consider holders’ entire FTR portfolios or exempt non‑leveraged positions.
The D.C. Circuit affirmed FERC’s denial of refunds, upheld omission of a portfolio requirement, but remanded (without vacatur) for FERC to better explain its refusal to require an exemption for non‑leveraged positions.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Refunds for forfeitures under the unapproved interim rule	XO Energy: FERC lacked discretion to deny refunds or its reasons were arbitrary	FERC: Has broad remedial discretion; denial justified by calculation difficulty, reliance interests, and administrative costs	Affirmed — FERC acted within discretion and reasonably explained denial
Requirement to assess entire FTR portfolios	XO Energy: PJM must evaluate net effect across all FTRs to avoid false positives	FERC/PJM: Manipulation is driven by virtual trades affecting specific FTR paths; FTRs don’t affect dispatch so portfolio review is unnecessary and could mask manipulation	Affirmed — omission of portfolio requirement was reasonable
Exemption for non‑leveraged positions (leverage requirement)	XO Energy: Non‑leveraged trades (net loss from virtuals > FTR gains) cannot be manipulative, so they should be exempt	FERC: Leverage may help detect manipulation but can be addressed by other means; did not require exemption	Remanded — FERC’s brief explanation for excluding leverage was inadequate; further explanation required, but no vacatur
Remedy (vacatur of 2021 Rule)	XO Energy: Defective reasoning warrants vacatur	FERC: Vacatur would disrupt markets; correction on remand is feasible	Denied vacatur — court remands for clarification but preserves the Rule pending FERC’s explanation

Key Cases Cited

Towns of Concord, Norwood, & Wellesley v. FERC, 955 F.2d 67 (D.C. Cir. 1992) (Commission has remedial discretion and no statutory mandate to order refunds)
Keyspan-Ravenswood, LLC v. FERC, 474 F.3d 804 (D.C. Cir. 2007) (Commission may deny refunds; remedial discretion upheld)
Electric Power Supply Ass’n v. FERC, 577 U.S. 260 (2016) (courts give deference to FERC on technical rate‑design and policy judgments)
Prometheus Radio Project v. FCC, 141 S. Ct. 1150 (2021) (agency must act within a zone of reasonableness and reasonably explain decisions)
Allina Health Servs. v. Sebelius, 746 F.3d 1102 (D.C. Cir. 2014) (vacatur is the normal remedy for unlawful agency action)
Black Oak Energy, LLC v. FERC, 725 F.3d 230 (D.C. Cir. 2013) (two‑factor test for vacatur: remediability on remand and disruptive consequences)
Williston Basin Interstate Pipeline Co. v. FERC, 519 F.3d 497 (D.C. Cir. 2008) (remand appropriate where agency may supply adequate explanation)
Sacramento Mun. Util. Dist. v. FERC, 616 F.3d 520 (D.C. Cir. 2010) (Commission’s remedial discretion in rate matters is at its zenith)