By Christen Smith

Following nearly a year of internal changes, PJM is now backing off previous indications that it would reconsider the nature of its periodically fraught relationship with its Independent Market Monitor.

The issue bubbled back to the surface last month after FERC reaffirmed the Monitor’s authority to initiate regulatory proceedings against PJM over fuel-cost policy disputes. (See Another Win for PJM Monitor on Fuel-cost Policies.)

In its request to dismiss a separate IMM complaint over fuel-cost policy in January, PJM argued that Order 719 established the Market Monitor as an “element of a jurisdictional RTO/ISO.” Thus, if the commission allowed the IMM to file complaints under Federal Power Act Section 206, a new governance structure was needed that provides “complete independence” for the Monitor and no longer mandates reporting to the Board of Managers (EL19-27).

The commission’s August ruling denying PJM a rehearing opened the door for the RTO to take action on the issue. But interim CEO Susan J. Riley has signaled a softening of PJM’s position, releasing a joint statement with Monitor Joe Bowring on Thursday that reaffirmed their “relationship of mutual respect.”

“We both have a commitment to fair and competitive markets, even though from time to time we have differences of opinion,” the statement reads. “PJM values the Market Monitor, and we are both committed to our contractual relationship. The FERC’s decision in no way changes that relationship.”

Long-simmering Debate Put to Rest — for Good?

Members said PJM’s perceived frustration with its Monitor dates back at least a decade, as their disagreements, few as they may be, became more public.

In September 2016, the Monitor complained that PJM’s plan for evaluating fuel-cost policies usurped its authority and contradicted the Tariff’s specification of their respective roles (ER16-372). PJM, in its defense, said the Monitor’s complaint crossed the line and muddied their contractual relationship, as overseen by the Board of Managers. In its request for rehearing, the RTO said that Attachment M of the Tariff permits the Monitor to file complaints against market sellers over fuel-cost policy violations, but not against the RTO itself. It also said that its board’s oversight of the Monitor’s budget creates a conflict of interest.

The tension came to a head when the Monitor filed a separate complaint in December 2018 over PJM’s decision not to assess a penalty against a market seller that did not follow its approved fuel-cost policy. The RTO responded the following month by suggesting FERC “revisit” Order 719 and “reform PJM’s governance structure so that PJM’s Market Monitor is no longer accountable to the PJM board and establish it as truly independent from PJM with clear standing to bring complaints.”

FERC has not issued a ruling on the 2018 complaint. But it rejected both the Monitor’s and PJM’s arguments in the earlier docket. It also found “unconvincing” PJM’s conflict-of-interest argument.

“There is no conflict,” Monitor Joe Bowring said during an interview with RTO Insider on Wednesday. “The board can’t tell us what to file. It’s not part of their authority over us.”

Bowring also noted that the board can’t sever ties with his firm, Monitoring Analytics, under the contract terms to which they both recently agreed.

“We can’t ‘cut off’ PJM board oversight of Monitoring Analytics — and nor would we want to, without a different and better governance construct in place,” Jeff Shields, PJM spokesperson, said in an email to RTO Insider on Thursday. “We believe there are better options, but this is a policy choice bound by legal considerations that FERC and the courts respectively would have to embrace.”

Still, PJM gave no indication it would pursue further legal action on the issue. “The board does not have substantive oversight over the positions of the Market Monitoring Unit,” Bowring said. “There is nothing in the FERC order that contradicts anything in the Market Monitoring Plan or in the contract between PJM and the Market Monitoring Unit.”

States Prioritize Stronger PJM/IMM Bond

Jackie Roberts, director of the West Virginia Public Service Commission’s Consumer Advocate Division, said the Monitor plays a crucial role through its independence and “ability to discharge its responsibilities to members.”

“If PJM is sincere about changing the culture, they need to see the Market Monitor as part of the solution, not part of the problem,” she told RTO Insider. “The Monitor needs to be brought into issues early on.”

Indeed, change has swept through PJM throughout the last year. Longtime CFO Suzanne Daugherty resigned in April, CEO Andy Ott retired in June and Nigeria Poole Bloczynski came aboard as the organization’s first chief risk officer in July. She will lead the credit and market reforms anticipated in the wake of the GreenHat Energy default. (See Report: ‘Naive’ PJM Underestimated GreenHat Risks.)

Other stakeholders echoed Roberts’ desire for a stronger partnership between PJM and the Monitor in FERC filings and letters to the head of PJM’s search committee for a new CEO.

“Just as PJM recognizes the rights of states to their policies, PJM must recognize the right of the IMM to be an independent body,” Kristin Munsch, president of Consumer Advocates of the PJM States, in a July letter to the committee. “Arguments parsing Tariff language distract from the larger questions of how to use competitive markets to provide affordable and reliable electricity service.”

“Fact of the matter is that PJM and the Market Monitor agree on far more issues than they disagree upon,” Roberts said. “I think we have to focus on that.”

Consumer advocates weren’t the only stakeholders to intervene in the proceeding. PJM Power Providers sided with the RTO in its dismissal request, saying previous commission guidance supports its interpretation of the Monitor’s ability to file complaints.

The Edison Electric Institute took no official position, but it urged FERC to consider a governance structure that excludes the Monitor from playing a primary role in drafting tariff revisions, manuals or other documents, or implementing rule changes “that they ultimately monitor.”

“When possible, Market Monitors should attempt to address perceived areas of concern associated with behaviors or practices of market participants through a fact-based transparent resolution process before taking formal steps of referrals to regulatory authorities or otherwise,” the EEI wrote. “As part of the process, prior to referrals to regulatory authorities, market participants should have the ability to challenge the Market Monitor’s findings pursuant to a dispute resolution process as outlined in the tariff.”