After allegations of management interference led PJM to replace its internal market monitoring unit with an independent monitor in 2008, FERC had an opportunity to prohibit other RTOs from using the internal structure. Because it chose not to do so, the temptation for RTO officials to muzzle their MMUs remains.

‘The Most Troubled Period in the History of PJM’

Second in a Series

Joe Bowring’s allegations at a FERC technical conference in 2007 that PJM management had attempted to muzzle his internal market monitoring unit shook the RTO to its roots.

It was “the most troubled period in the history of PJM,” Irwin “Sonny” Popowsky, then Pennsylvania state consumer advocate, told The Washington Post at the time. Patrick McCullar, president of the Delaware Municipal Electric Corp., said confidence in PJM management “seems to be at an all-time low.”

Bowring’s allegations led to the resignation of the RTO’s top two officials — and, ultimately, to the establishment of an independent MMU function. (See related story, Independent Market Monitors Wouldn’t Have It Any Other Way.)

But it wasn’t the finest moment for FERC in the view of state regulators, who contended the commission conducted only a half-hearted investigation.

Bowring made his allegations in April 2007 after then-CEO Philip Harris said he was considering replacing Bowring and his team with an outside firm. Bowring accused PJM management of censoring his reports, preventing him from presenting his views to a stakeholder committee and raiding his staff.

The allegations prompted PJM’s Board of Managers to hire a law firm to conduct an internal investigation and FERC to issue data requests to Bowring and the RTO.

By May, PJM COO and executive vice president Audrey Zibelman had resigned, followed by Harris’ retirement two months later. Zibelman, now chair of the New York Public Service Commission, and Harris, now CEO of Tres Amigas, later married.

Restoring Confidence

Based on its review of 2,700 pages of documents produced by the data request, the commission issued an order in September 2007 concluding that PJM had not violated its Tariff but that RTO management exerted an “unusual degree of supervision” over the monitor. While ordering Bowring and PJM to seek a settlement to the dispute, the commission made a preliminary finding that the monitor should report to the board rather than management.

“A consensual resolution is most likely to restore confidence in the efficient, impartial and competitive operation of PJM’s markets and in the monitoring of those markets, confidence that has been jeopardized by the recurring controversy over the role of PJM’s MMU,” FERC said.

The commission noted that although Bowring had sent an email in January 2007 to a member of the commission’s Division of Energy Market Oversight alleging “a clear infringement of MMU independence and a violation of the Tariff Attachment M,” he had softened his criticism in his response to the commission’s data request. Instead, he said that he was concerned that “left unchecked, such PJM actions [as described at the technical conference] will escalate to the point where PJM would violate the Tariff.”

‘Systemic Problem’

Bowring had complained the MMU’s full-time staff was reduced from 15 to 13 after two employees accepted job offers in the RTO’s Markets Department. FERC concluded that the employees left because of their expertise in the development of cost-based rates, a function that PJM had recently assigned to the department.

The commission cited emails in which Bowring accused Andy Ott, then PJM’s vice president of markets, of threatening one of the MMU employees if he refused to transfer. But FERC said PJM human resources interviewed the employee and “reported that the transferee did not feel intimidated” by RTO management or Ott, now CEO, “and, in fact, agreed that the cost-based rates function should properly be in the Markets Department.”

The commission also looked into Bowring’s allegation that Zibelman ordered him to remove from the 2005 State of the Market report his conclusions regarding an absence of structural competition in the regulation market. Bowring’s analysis ultimately was included in the final SOM report, although without his earlier conclusion.

“It is unclear whether PJM was attempting to influence Dr. Bowring to alter his conclusion, or whether it was simply trying to make sure his revised analysis was sound,” the commission said.

FERC concluded that there was a “systemic problem in the relationship between Dr. Bowring and PJM management, as well as a fundamental disagreement between them as to the appropriate balance between independence and accountability of the MMU.”

Commission ‘Has Not Looked Very Hard’

The Organization of PJM States Inc. (OPSI), which represents state regulatory commissions, filed a request for rehearing of the order, criticizing the “scant” record developed by FERC and calling for a broader probe in which the state commissions would take part.

“OPSI simply has not been permitted to look into these allegations at all, and the commission has not looked very hard,” it said.

“It is clear from the record that does exist that PJM has engaged in a pattern of conduct with the express intention of interfering with the independent operation of its MMU, conduct which does violate both PJM’s Attachment M and general commission policy.”

OPSI said PJM’s questioning of the two employees who transferred from the MMU was insufficient and that they should be interviewed “away from the senior RTO management upon whom the livelihood of such employees depends … to fully establish whether MMU personnel were pressured to leave the MMU.”

The regulators also cited evidence of a “secret internal set of procedures” governing the implementation of Attachment M.

“These procedures specifically intend to muzzle the MMU. … These procedures were and are wholly incompatible with any notion of independence and subject the PJM market monitor to detailed day-to-day review, objection and the exercise of editorial powers by PJM senior management in the smallest matters, effectively placing the PJM market monitor directly under the day-to-day control of [Zibelman] and requiring the market monitor to seek prior approval for almost any significant action or communication.”

– Rich Heidorn Jr.