By Rich Heidorn Jr.
PJM Insider

(March 7, 2013) — The PJM Board of Managers may be headed toward a new showdown with stakeholders over the role of its market monitor.

States, industrial consumers and cooperatives indicated in letters posted Tuesday that they may challenge the PJM Board before the Federal Energy Regulatory Commission if the board carries through with its current plan to shop for a new market monitor.

The commenters praised the performance of Monitoring Analytics, LLC, which has been operating as the market monitor under the terms of a 2007 FERC settlement (EL07-56-000). They said the board’s proposed Request for Proposals (RFP) to select a new monitor would undermine the independence and quality of the monitoring function.

“The character, number and gravity of the deficiencies in the RFP … raises a concern that the RFP process will not be executed in an open, nondiscriminatory and transparent manner,” wrote the Organization of PJM States, Inc., (OPSI). “We are concerned that the Board is reopening the debate as to whether the Market Monitor should play an active role in discussions and formal proceedings related to development of PJM market rules. We regard that role as an essential feature of market monitoring, beneficial to improvement of the PJM market design and required by FERC rules.”

Board Member Jean D. Kinsey, who is leading the search process as chair of the Competitive Markets Committee, told PJM Insider this morning that she had not read the comments. “So I don’t have any response except to say I’m happy to have them and were going to give them every consideration.”

“Generally satisfied”

The coops and industrials said they were “generally satisfied” with Monitoring Analytics’ performance and costs. Consumer advocates from Pennsylvania, Maryland and West Virginia were more effusive, saying Monitoring Analytics “has provided excellent service” and that its “capabilities represent the state of the art among RTO market monitors.”

Monitoring Analytics is headed by Joseph Bowring, a Ph.D. economist who has served as PJM’s market monitor since 1999. In April 2007, Bowring sparked a firestorm at a FERC technical conference when he accused then-PJM President Phil Harris and his allies of attempting to muzzle him by squelching his reports and cutting his budget.

More than a dozen PJM stakeholders, including several of those who filed the letters this week, responded by filing a complaint calling on FERC to take steps to ensure the monitor’s independence.

2007 Settlement

Following an investigation by an independent counsel hired by PJM, Harris resigned and FERC approved a settlement between PJM and Bowring. The settlement called for Bowring to form an independent company, which was awarded a six-year contract as PJM’s market monitor.

Under the settlement, the PJM board was given limited authority over the monitor, specifically the power to review the monitor’s budget and to decide whether to retain or replace the firm at the end of the initial term. The settlement allowed the board to renew Monitoring Analytics’ contract for subsequent terms of three years or seek a replacement through an RFP.

RFP Announcement

Monitoring Analytics’ contract, which is worth about $10 million per year, expires on July 31, 2014. Kinsey announced the board’s decision to issue an RFP rather than renew the contract in a letter Dec. 18.

“In reaching this decision, the Board was mindful of (i) the critical importance of the services in question and, (ii) its fiduciary obligations and tariff-prescribed role to ensure PJM is procuring the most effective market monitoring services at an appropriate cost,” Kinsey wrote. “The Board concluded that the most responsible course of action available to discharge its duties in this regard was to issue an RFP to explore all options, including the option of continuing its contractual relationship with the incumbent provider, Monitoring Analytics.”

Kinsey said today that she expects the board to make a filing seeking FERC approval of the RFP within two months.

Deficiencies in RFP

In the letters released Tuesday, the commenters said an RFP was unnecessary because Bowring’s company had performed well and at reasonable cost. The commenters noted that the board had not cited any deficiencies in the work of Bowring and his firm and said it risked losing the firm’s extensive knowledge of PJM markets and operations.

“The prospect that PJM and its stakeholders may lose the extensive institutional knowledge and expertise developed by the staff of the existing MMU if the Board decides not to renew its contract with Monitoring Analytics is troubling,” representatives of nine cooperatives and municipal utilities wrote.

If the board insists on issuing the RFP, they said, it should amend it to ensure the selection process is fair and transparent and that the resulting contract ensures the monitor’s independence. Among the commenters’ criticisms:

• The proposed selection process lacks transparency: There is no provision for stakeholder involvement in the selection nor any description of how the board will evaluate candidates.
• The RFP needs stronger conflict of interest provisions: As currently drafted, the RFP would not bar submissions from companies that have had prior business relationships with the PJM market participants or require them to disclose any such relationships with the board. “As currently worded, [the RFP] would allow a firm that has recently represented only one market segment to become the IMM,” wrote the PJM Industrial Customer Coalition.
• The RFP could result in a lower level of services: The RFP does not specify the minimum level of services required. Applicants “might only budget for attending a single PJM stakeholder senior committee meeting a month, deeming that a sufficient level of participation,” wrote the cooperatives and public power commenters.
• The board is threatening the independence of the monitoring function: The proposed contract requires the monitor to notify the board of any referrals of suspected market violations to FERC. Commenters said this requirement appears to conflict with the 2007 settlement, which requires that such referrals be made in a non-public manner.

A pdf of this article is available for printing: Commenters Blast PJM Plan to Shop for Market Monitor – 2013-03-07