United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 24, 2023 Decided July 14, 2023

No. 22-1096

XO ENERGY MA, LP AND XO ENERGY LLC,

PETITIONERS

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

MONITORING ANALYTICS, LLC,

INTERVENOR

On Petition for Review of Orders

of the Federal Energy Regulatory Commission

Peter B. Siegal argued the cause and filed the briefs for 

petitioners.

Matthew J. Glover, Attorney, Federal Energy Regulatory 

Commission, argued the cause for respondent. With him on 

the brief were Matthew R. Christiansen, General Counsel, and 

Robert H. Solomon, Solicitor.
2

Jeffrey Whitefield Mayes argued the cause for intervenor 

for respondent Independent Market Monitor for PJM 

(Monitoring Analytics, LLC).

Before: CHILDS and PAN, Circuit Judges, and ROGERS, 

Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge 

ROGERS.

ROGERS, Senior Circuit Judge: XO Energy petitions for 

review of the Federal Energy Regulatory Commission’s 

approval of filings implementing a regional transmission 

organization’s (“RTO”) revised Forfeiture Rule for Financial

Transmission Rights (“FTRs”). It contends that the 

Commission erred as a matter of law in declining to issue 

refunds to market participants who incurred forfeitures under 

the unapproved interim Rule. It further contends that the 

Commission’s approval of the revised 2021 Rule was arbitrary 

and capricious because the Rule captures competitive 

transactions and burdens legitimate hedging activities in ways 

that do not deter potentially manipulative transactions.

Specifically, according to XO Energy, the Commission erred 

by failing to require that the RTO consider traders’ entire FTR 

portfolios and whether a transaction is “leveraged,” that is, 

whether it creates net profit for the FTR holder. For the 

following reasons, the court affirms the Commission’s orders 

denying refunds and remands for further explanation of the 

Commission’s decision to exclude consideration of “leverage”

as a required element of the Rule.

I.

Section 205(a) of the Federal Power Act mandates that 

“[a]ll rates and charges” within the Commission’s jurisdiction, 
3

as well as “all rules and regulations” pertaining to those rates 

and charges, be “just and reasonable.” 16 U.S.C. § 824d(a); see 

also Towns of Concord, Norwood, & Wellesley v. FERC, 955 

F.2d 67, 68 (D.C. Cir. 1992). Section 205(c) of the Act requires 

regulated utilities to file with the Commission all jurisdictional 

rates and charges, as well as the practices affecting such rates 

and charges. 16 U.S.C. § 824d(c). Section 206 of the Act, in 

turn, requires the Commission to ensure that any rates charged 

are just and reasonable. Id. § 824e. 

One way the Commission ensures that these filed rates are 

compliant is by guarding against sellers’ abuse of market 

power. See Pub. Citizen, Inc. v. FERC, 7 F.4th 1177, 1183–84 

(D.C. Cir. 2021). In so doing, the Commission can initiate 

enforcement proceedings either unilaterally or upon a 

complaint from a third party. 16 U.S.C. § 824e(a). If the 

Commission finds that any rate demanded by a utility within 

its jurisdiction is “unjust, unreasonable, unduly discriminatory 

or preferential,” the Commission must set aside that rate and 

impose its own just and reasonable rate. Id. The burden of 

proof lies with the party initiating the proceeding. Id.

§ 824e(b).

A.

PJM Interconnection, L.L.C. (“PJM”) is an RTO that 

exercises operational control over all transmission facilities 

located within its region, spanning thirteen states and the 

District of Columbia. NRG Power Mktg., LLC v. FERC, 862 

F.3d 108, 110–11 (D.C. Cir. 2017). In addition to coordinating 

transmission service, RTOs run auction markets for electricity 

and capacity sales. Morgan Stanley Cap. Grp. v. Pub. Util. 

Dist. No. 1, 554 U.S. 527, 537 (2008). Because these auctions 

determine the wholesale rates of energy in interstate 

commerce, they are subject to Commission oversight. FERC 
4

v. Elec. Power Supply Ass’n, 577 U.S. 260, 266 (2016); see 16 

U.S.C. § 824(b)(1). 

In the PJM market, electricity is allocated through dayahead and real-time auctions, which enable suppliers to meet

demand from the utilities and other “load-serving entities” that 

buy power at wholesale for resale to users. Elec. Power Supply 

Ass’n, 577 U.S. at 268. When market participants purchase 

electricity, they pay a “Locational Marginal Price,” which 

reflects the cost of production and delivery to a particular 

location on the electrical grid. See, e.g., Sacramento Mun. Util. 

Dist. v. FERC, 616 F.3d 520, 524–25 (D.C. Cir. 2010). That

price includes any costs associated with congestion on the 

transmission path, which occurs during periods of high demand 

when the limitations of the grid require electricity to be 

dispatched through pathways that are more costly. PJM

INTERCONNECTION, L.L.C., FTRS: PROTECTION AGAINST 

CONGESTION CHARGES (2020), https://perma.cc/7VUP-8CEB.

Because congestion is unpredictable, PJM allows market

participants to hedge congestion risks in its day-ahead market 

using FTRs, a long-term financial contract that entitles the 

holder to profit or creates liability based on the hourly dayahead congestion prices between the starting and ending

locations on a transmission path. If the price is higher at the 

end point than at the source, the FTR is a benefit to the holder; 

if lower, the FTR is a liability. See id.

PJM also offers “virtual” transactions, which allow market 

participants to buy (or sell) electricity in the day-ahead market, 

and then sell (or buy) an equal quantity in the real-time market.

PJM Interconnection, L.L.C., Report on the Impact of Virtual 

Transactions 1, FERC Docket No. ER13-1654-000 (Feb. 7, 

2014). Virtual transactions financially benefit the trader if the

price differential between the real-time and day-ahead markets 

is favorable. Id. Because virtual transactions can increase the 
5

amount of congestion in the day-ahead market, they may create

the potential for cross-product manipulation by market 

participants that also hold FTRs. According to PJM and the 

Commission, such participants may have an incentive to make 

virtual trades they otherwise would not make in order to affect 

congestion and thereby benefit an FTR position. See PJM 

Interconnection, L.L.C., 178 FERC ¶ 61,079, at ¶ 2 (Jan. 31, 

2022) (“Compliance Order”).

To counter potential manipulation, PJM added the FTR

Forfeiture Rule to its tariff filed with the Commission in 2000. 

Id. The Rule is intended to deter manipulative conduct by 

preventing virtual traders from “creat[ing] congestion that 

benefits their related FTR positions.” PJM Interconnection, 

L.L.C., 158 FERC ¶ 61,038, at ¶ 25 (Jan. 19, 2017). As initially 

adopted, the Rule required an FTR holder to forfeit the profits

from its rights when it submitted a related virtual transaction

resulting in higher day-ahead prices than real-time prices for

that transmission path. Id. Petitioners XO Energy MA, LP and 

XO Energy LLC (together, “XO Energy”) participate in the 

PJM energy markets affected by the Rule. 

B.

In 2013, PJM filed tariff revisions expanding the definition 

of virtual transactions to include “Up-to Congestion” 

transactions, and the Commission launched a Section 206 

investigation of the Rule’s application. In a 2017 order, the 

Commission determined that PJM’s “application of its FTR 

Forfeiture Rule to virtual transactions [was] no longer just and 

reasonable,” and directed PJM to issue a compliance filing in 

accordance with the Commission’s findings. Id. ¶¶ 2, 4 (“2017 

Order”); Compliance Order ¶ 3; see also 16 U.S.C. § 824d(a).
6

In April 2017, PJM proposed a new Forfeiture Rule (the 

“2017 Proposed Rule”), which it began applying retroactively 

to January 2017. PJM Interconnection, L.L.C., 175 FERC 

¶ 61,137, at ¶ 109 (May 20, 2021) (“2021 Order”). Under the 

2017 Proposed Rule, forfeiture would be triggered when the 

trader’s virtual transaction (1) had an “appreciable impact,” 

which in most circumstances would mean it increased 

congestion by more than 10%, and (2) increased the value of 

the trader’s FTR by one cent or more. Id. ¶ 18. 

XO Energy filed a Section 206 complaint against PJM in 

April 2020, arguing that the Forfeiture Rule was unjust and 

unreasonable because it captured competitive market conduct 

and “could not detect financial leverage or assess intent to 

profit from illegitimate trading activity.” 2021 Order ¶ 2; see 

16 U.S.C. § 825e. It sought refunds of FTR forfeitures dating

back to the implementation of the 2017 Proposed Rule. In May 

2021, the Commission determined that certain aspects of the 

2017 Proposed Rule were not just and reasonable. 2021 Order

¶¶ 27, 35. It found that the one-cent trigger threshold would 

penalize transactions with only “de minimis, incidental effects” 

on FTR values, and ordered PJM to “strike[] a more 

appropriate balance between deterring manipulative behavior 

and not burdening legitimate hedging activity.” Id. ¶¶ 51, 27.

It also ordered PJM to report on the feasibility of ordering 

refunds for the period during which the 2017 Proposed Rule 

had been in effect. Id. ¶ 111.

PJM thereafter proposed a new Forfeiture Rule in July 

2021 (the “2021 Rule”), which was also challenged by market 

participants, including XO Energy. Compliance Order ¶ 1;

Pet’rs’ Br. 15. The Commission approved PJM’s revised 

compliance filing in the orders challenged here, finding that the 

2021 Rule was just and reasonable. Compliance Order ¶ 1; 

PJM Interconnection, L.L.C., 179 FERC ¶ 61,010, at ¶¶ 1–2
7

(May 5, 2022) (“Reh’g Order”). It declined to order refunds 

for losses incurred due to PJM’s implementation of the 

unapproved interim Rule, despite finding that rate unlawful. 

2021 Order ¶¶ 110–11. It also rejected two other protests from 

XO Energy: that PJM should be required to evaluate the net 

financial effect on an FTR holder’s portfolio, and to exempt 

non-leveraged positions from the Rule because they provide no 

economic incentive to engage in manipulative conduct. 

Compliance Order ¶ 43; Reh’g Order ¶¶ 10, 19; see also 2021 

Order ¶ 76. XO Energy petitions for review of the 

Commission’s orders denying refunds and approving the 2021 

Rule. PJM’s Independent Market Monitor intervened on 

behalf of the Commission.

II.

The scope of this court’s review is limited. It will reverse

Commission action only if it is “arbitrary, capricious, an abuse 

of discretion, or otherwise not in accordance with law.” 5 

U.S.C. § 706(2)(A); Hoopa Valley Tribe v. FERC, 913 F.3d 

1099, 1102 (D.C. Cir. 2019). “[G]reat deference” is accorded 

to the Commission’s expertise under this standard, and the 

court “may not substitute [its] own judgment for that of the 

Commission,” particularly in “technical area[s] like electricity 

rate design.” Elec. Power Supply Ass’n, 577 U.S. at 292. “[I]n 

rate-related matters, the court’s review of the Commission’s 

determinations is particularly deferential because such matters 

are either fairly technical or involve policy judgments that lie 

at the core of the regulatory mission.” Ameren Ill. Co. v. FERC, 

58 F.4th 501, 505 (D.C. Cir. 2023) (citing S.C. Pub. Serv. Auth. 

v. FERC, 762 F.3d 41, 54–55 (D.C. Cir. 2014) (internal 

quotation marks omitted)). In fashioning remedies, the 

Commission’s discretion is at its “zenith.” See Sacramento 

Mun. Util. Dist., 616 F.3d at 541 (quoting Towns of Concord, 

955 F.2d at 76).
8

A.

XO Energy’s challenge to the Commission’s denial of 

refunds to market participants that incurred forfeitures under 

the 2017 Proposed Rule is ultimately unpersuasive. XO 

Energy maintains that the Commission lacked discretion not to 

order refunds and therefore erred as a matter of law in denying 

them here. Pet’rs’ Br. 21–26. But that argument is contrary to 

settled law. The Commission has broad discretion to determine 

remedies for violations of the statutes it administers, see, e.g., 

Towns of Concord, 955 F.2d at 72–76, and that discretion 

extends to denying refunds, see Keyspan-Ravenswood, LLC v. 

FERC, 474 F.3d 804, 812 (D.C. Cir. 2007). In Towns of 

Concord, this court explained that “examination of the Federal 

Power Act reveals no statutory command mandating refunds 

when the rate charged exceeds that filed,” 955 F.2d at 72, and 

that Section 309 affords the Commission general remedial 

discretion to effectuate each provision of the Act, including 

Sections 205 and 206, id. at 71–73 (citing 16 U.S.C. § 825h). 

The use of “may” in each of these provisions indicates that the 

Commission has the authority, but not the obligation, to 

provide a remedy for a statutory violation, including a filedrate violation. See id. at 72–73 (citing 16 U.S.C. § 824d(e) and 

16 U.S.C. § 824e(b)); Anglers Conservation Network v. 

Pritzker, 809 F.3d 664, 671 (D.C. Cir. 2016); see also 

Compliance Order ¶ 57 & n.101; Reh’g Order ¶ 14 & n.33.

XO Energy persists that, even assuming the Commission 

has such discretion, its stated justifications for refusing to order 

a refund are arbitrary. Specifically, it maintains the 

Commission erred in invoking the difficulty of calculating 

refunds as a rationale; in considering the passage of time as a 

reason to deny relief; and in stating that any repayments would 

need to be limited to amounts in excess of the Pre-2017 Rate, 

which was itself unlawful. Pet’rs’ Br. 27–35. But “[a] court 
9

is not to ask whether a regulatory decision is the best one 

possible or even whether it is better than the alternatives.” 

Elec. Power Supply Ass’n, 577 U.S. at 292. Rather, the court 

“simply ensures that the agency has acted within a zone of 

reasonableness and, in particular, has reasonably considered 

the relevant issues and reasonably explained the decision.” 

FCC v. Prometheus Radio Project, 141 S. Ct. 1150, 1158 

(2021); see also Ky. Mun. Energy Agency v. FERC, 45 F.4th 

162, 174 (D.C. Cir. 2022).

The Commission adequately justified its decision not to 

order refunds. It considered record evidence submitted by 

PJM, which explained that calculating refunds would be a 

difficult task requiring “considerable software development 

and testing work that would take months to complete.” Reh’g

Order ¶ 14. Without that software development, PJM would 

not be able to determine whether and when a given market 

participant would have violated the Pre-2017 Rule. See

Compliance Order ¶ 15; see also PJM Interconnection, L.L.C., 

FTR Forfeiture Rule Compliance Filing 13–14, FERC Docket 

No. ER17-1433-003 (July 19, 2021) (“2021 Compliance 

Filing”). Undertaking this process would be unavoidable, the 

Commission explained, because the Pre-2017 Rule used an 

entirely different software code that PJM had not maintained. 

See Compliance Order ¶¶ 15, 59. The Commission recognized, 

moreover, that “[t]hese efforts would come at considerable 

expense, which would presumably be passed on to 

transmission ratepayers.” Id. ¶ 59.

Further, the Commission explained that changes to market 

participants’ ownership and structure during the four-and-ahalf-year period in which the interim Rule was in effect would 

render it difficult to ensure that the correct parties received 

refunds, which would lessen the refunds’ remedial value. Id. 

The issuance of refunds would depend on “what reasonable 
10

assumptions to make about” market participant behavior, 

which would involve extensive discretionary judgment and 

implicate the accuracy of resulting refunds. 2021 Compliance 

Filing 14; Compliance Order ¶ 59 & n.103. It also pointed to

the reasonable reliance interest of market participants, which

“weigh[ed] against granting refunds in this case” because

market participants likely adjusted their behavior to avoid 

forfeiture under the 2017 Proposed Rule when those same 

actions may have resulted in forfeiture under the Pre-2017 

Rule. Compliance Order ¶ 61. The Commission therefore 

acted within a “zone of reasonableness” and “reasonably 

explained [its] decision” not to issue refunds to the affected 

traders. Prometheus Radio Project, 141 S. Ct. at 1158. And 

although the Commission had determined that the Pre-2017 

Rate was no longer just and reasonable, that rate remained the

effective rate on file during the interim Rule period, and so the 

Commission did not abuse its discretion in stating that any 

refund issued would be limited to charges in excess of those

covered under the Pre-2017 Rate. Reh’g Order ¶¶ 16–18; see 

Sacramento Mun. Util. Dist., 616 F.3d at 541.

B.

XO Energy challenges the 2021 Rule as overbroad, 

contending that it burdens legitimate hedging activity in the 

course of deterring potentially manipulative transactions. 

Compliance Order ¶¶ 108–10. It maintains that the 2021 Rule

fails to account for market participants’ entire portfolios and

punishes non-leveraged sets of transactions, which XO Energy 

contends cannot possibly be manipulative. Pet’rs’ Br. 35–41.

PJM’s Independent Market Monitor, as intervenor, argues 

that neither of these arguments are within the proper scope of 

the appeal because the orders on review “do not revisit the 

findings of the 2021 Order” on the portfolio and leverage issues 
11

previously rejected by the Commission. Intervenor Br. 1–3. 

But the 2021 Order was conditioned on a future compliance 

filing by PJM. See 2021 Order ¶¶ 108, 111. And regardless, 

the orders on review affirmed the Commission’s previous 

findings on the portfolio and leverage issues, and in so doing 

permitted XO Energy to challenge the Commission’s approval 

of the 2021 Rule on those grounds. Compliance Order ¶ 43; 

Reh’g Order ¶¶ 10, 19; cf. Pub. Citizen v. Nuclear Regul. 

Comm’n, 901 F.2d 147, 150–52 (D.C. Cir. 1990). 

1.

XO Energy contends that the Commission abused its 

discretion by failing to instruct PJM to consider the entirety of 

market participants’ FTR portfolios in its revised Rule. It 

maintains that this requirement might reveal that the trader has 

other FTR positions that resulted in no overall profit. See 2021 

Order ¶ 76; Compliance Order ¶ 43; Reh’g Order ¶ 19. The

Commission explained, however, that PJM focused its Rule on 

virtual transactions impacting particular FTRs and not on the

net effect to FTR portfolios, because it is virtual transactions 

that facilitate manipulative conduct by affecting congestion on 

the grid. 2021 Order ¶ 76. FTRs themselves “have no impact 

on the dispatch or energy flow on the system either individually 

or cumulatively,” and furthermore, consideration of an entire 

FTR portfolio “would create opportunities to mask the 

manipulation of individual FTRs.” Id. The Commission also 

endorsed the analysis of PJM’s Independent Market Monitor, 

finding that a portfolio rule “would result in discriminatory 

treatment” of particular FTR paths “based on whether or not 

they were part of a portfolio.” 2021 Order ¶ 75. 

The Commission recognized in the 2017 Order that 

considering a trader’s entire virtual transaction portfolio was 

necessary to “accurately reflect the net impact of a market 
12

participant’s overall portfolio of virtual transactions on a 

constraint related to an FTR position.” 2017 Order ¶ 57. But 

it explained in its 2021 Order that the same is not true of entire 

FTR portfolios, because whether a trader is making a net profit 

from its total FTRs has no bearing on whether its virtual 

transactions are causing or alleviating congestion in a manner 

benefiting a particular FTR. See 2021 Order ¶ 76; Compliance 

Order ¶ 45; Reh’g Order ¶ 19. XO Energy shows no error. 

Because the Rule’s objective was to deter manipulation in the 

form of targeted virtual transactions that would affect grid 

congestion and benefit particular FTRs, it was not 

unreasonable for the Commission to omit a requirement for 

PJM to take traders’ entire FTR portfolios into account in 

addition to their virtual transaction portfolios.

2.

Still, XO Energy contends that the Commission erred 

when it failed to require PJM to exempt non-leveraged 

positions from the 2021 Rule, because they provide no 

economic incentive to engage in manipulative conduct. Pet’rs’

Br. 40–41. If a trader’s FTR gains exceed the losses incurred 

from that trader’s virtual transactions, that trading position is, 

according to XO Energy, “leveraged.” If losses from virtual 

transactions exceed the trader’s gains from FTRs, the trade is 

not “leveraged.” See 2017 Order ¶ 74 n.60. In XO Energy’s 

view, the required balance between preventing manipulative 

conduct and not burdening legitimate hedging activity can be 

achieved only if non-leveraged positions are exempted from 

the 2021 Rule. Pet’rs’ Br. 40–41. Essentially, XO Energy 

maintains that “leverage” is a necessary condition to market 

manipulation, and the Commission erred in not requiring PJM 

to consider it.
13

The arbitrary and capricious standard requires that an 

agency’s decision be both “reasonable and reasonably 

explained.” Nw. Corp. v. FERC, 884 F.3d 1176, 1181 (D.C. 

Cir. 2018). The Commission offers a brief, but inadequate, 

explanation of why it declined to order a forfeiture exemption 

for non-leveraged transactions. Compliance Order ¶ 43; Reh’g

Order ¶¶ 10, 19; see also 2017 Order ¶ 80. Although the 

Commission acknowledges that leverage might be one way to 

determine cross-product manipulation, it states that it opted to 

allow PJM to employ other means to detect this conduct rather 

than require exemptions based on leverage. 2017 Order ¶ 80; 

see also Compliance Order ¶¶ 43, 48; Reh’g Order ¶ 19. That 

is the extent of the Commission’s explanation. It does not 

address XO Energy’s position that market manipulation cannot 

occur when the net losses of a trader’s virtual transaction 

portfolio exceed the net profits from its FTR portfolio. Nor

does it explain why the exclusion of this requirement strikes 

the appropriate balance between preventing manipulative 

conduct and not hindering legitimate hedging activity. Absent 

such explanation of its decision, the Commission’s failure to 

order a leverage exemption appears arbitrary and capricious.

Vacatur of the 2021 Rule is, nonetheless, not appropriate 

here. Although “vacatur is the normal remedy” for an unlawful 

agency decision, Allina Health Servs. v. Sebelius, 746 F.3d 

1102, 1110 (D.C. Cir. 2014), this court employs a two-factor 

test to determine whether vacatur is appropriate: (1) “the 

likelihood that ‘deficiencies’ in an order can be redressed on 

remand”; and (2) “the ‘disruptive consequences’ of 

vacatur.” Black Oak Energy, LLC v. FERC, 725 F.3d 230, 244 

(D.C. Cir. 2013) (quoting Allied-Signal, Inc. v. U.S. Nuclear 

Regul. Comm’n, 988 F.2d 146, 150 (D.C. Cir. 1993)). Both 

factors weigh against vacatur. On remand, the Commission 

can redress the deficiency of its reasoning by providing a more 

fulsome explanation for its decision not to order PJM to 
14

account for leverage. Given “a significant possibility that the 

Commission may find an adequate explanation for its actions” 

on remand, vacatur is less proper. See Williston Basin 

Interstate Pipeline Co. v. FERC, 519 F.3d 497, 504 (D.C. Cir. 

2008). Vacatur of the order approving the 2021 Rule would

unduly disrupt PJM’s markets as well. Because market 

participants have relied on the Commission’s approval of the 

2021 Rule, preservation of the status quo is appropriate 

pending the Commission’s further explanation of its reasoning.

Accordingly, the court grants the petition in part and 

denies it in part. The court affirms the Commission’s denial of 

refunds and remands without vacating the 2021 Rule for further 

explanation of the Commission’s decision to exclude 

consideration of leverage as a required element of the Rule.