Independent Market Monitors Wouldn’t Have It Any Other Way
Lessons Unlearned: FERC’s Punt on Market Monitors’ Independence
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.
Joe Bowring and David Patton often disagree, as anyone who has watched a FERC technical conference featuring the two independent market monitors can attest.
But while the two — both Ph.D. economists — may clash over seams issues or the virtues of forward capacity markets, they are 100% in agreement on the need for independence in market monitoring.
“I don’t know how we would do this job effectively if we weren’t independent,” said Patton, whose Potomac Economics provides market monitoring for MISO, ISO-NE, NYISO and ERCOT and has done occasional work for CAISO and SPP.
“You cannot do your job as a market monitor if you’re not independent, if you’re not free to criticize the RTO and its members, if you’re told to pull your punches,” agreed Bowring, whose Monitoring Analytics serves as PJM’s monitor.
Monitoring Analytics was born in 2008, after Bowring — then a PJM employee — complained at a FERC technical conference that then PJM President Phil Harris and his allies were attempting to muzzle him. Bowring accused PJM management of censoring his reports, preventing him from presenting his views to a stakeholder committee, raiding his staff and threatening to disband the MMU altogether.
“PJM has made it clear that, from management’s perspective, the market monitor is first an employee of PJM with all the duties of an employee including obeying management orders, i.e. following the chain of command,” Bowring told the commission. “Based on my experience, it is not possible, as a practical matter, to maintain the independence of the MMU while leaving the control of personnel decisions, including hiring, firing, reviews and promotions, with RTO management.”
State consumer advocates, the PJM Industrial Customer Coalition and several electric cooperatives filed a request for a show cause order requiring PJM to answer Bowring’s allegations (EL07-56). State regulatory commissions and the Organization of PJM States Inc. (OPSI) followed about a week later with a complaint seeking a FERC investigation (EL07-58)
“The independence of the PJM MMU is of paramount importance because a wholesale market that is not competitive and not resistant to market power allows market participants to exercise market power and demand monopoly prices from customers to the detriment of the public,” the OPSI complaint said.
Following a FERC review of 2,700 pages of documents produced in response to data requests, CEO Harris resigned and FERC approved a settlement between PJM and Bowring. (See sidebar, State Regulators: FERC Investigation into Bowring Allegations Fell Short.)
The settlement called for Bowring — who previously worked at New Jersey’s Board of Public Utilities and Division of Rate Counsel — to form an independent company, which was awarded a six-year contract as PJM’s market monitor (EL07-56, EL07-58).
The PJM Board of Managers was given limited authority over the monitor — specifically, the power to review its budget and to decide whether to retain or replace the firm at the end of the initial term.
2013 Skirmish with PJM Board
The settlement did not end all conflicts. Both Bowring and PJM Board Chair Howard Schneider are strong-willed personalities and can be blunt when they disagree. Bowring also disagrees frequently and forcefully with PJM officials at stakeholder meetings.
Tensions flared anew in 2013 when the board attempted to issue a request for proposals to shop for potential alternatives to Bowring’s firm after the initial six-year term.
It’s doubtful the RFP would have generated many responses. Market monitoring requires an analytical infrastructure that few firms possess, and many of those that do would be prevented from bidding because they have market participants as clients. When the Public Utility Commission of Texas issued an RFP last year for monitoring of ERCOT, only incumbent Potomac Economics submitted a bid.
Nevertheless, state regulators, industrial consumers and cooperatives reacted with alarm to the draft RFP, saying it contained language that would undermine the independence and quality of the monitoring function. They sent letters to the board praising Monitoring Analytics’ performance and threatening to protest to FERC.
The board dropped the RFP in response to the outcry, signing a new contract with Monitoring Analytics running through 2019. (See PJM, Monitoring Analytics Sign New Contract.)
At the OPSI annual meeting in October 2013, Bowring and Schneider symbolically buried the hatchet. The two shared the dais with then-Maryland Public Service Commissioner Lawrence Brenner, chairman of OPSI’s Market Monitoring Committee, who had intervened in the contract dispute.
Brenner said he was happy to be able to call Bowring the “current and future market monitor,” prompting Schneider to interject — “current and future king” — with a chuckle.
“He has managed to annoy just about everybody in this room,” Robert Hanna, then president of the BPU, said of Bowring. “To me that’s a very good sign. He’s not in the tank for anybody. He does it in a principled way and he lets you know the basis.”
Patton not Shy About Criticizing Clients
David Patton hasn’t gotten involved in such drama since founding Potomac Economics in 2001 after stints at the Department of Energy and FERC.
But like Bowring, he has not been shy in criticizing the grid operators that hired him.
Patton’s first client was NYISO, followed in 2003 by ISO-NE and ERCOT in 2005. His firm also has done work for CAISO and SPP. It employs more than two dozen employees, most in its Fairfax, Va., headquarters, with several others in Texas and at MISO headquarters.
The firm’s role varies by region. At ISO-NE, for example, the internal monitoring staff of 20 handles day-to-day monitoring and market power mitigation; produces monthly, quarterly and annual markets reports assessing market competitiveness and making recommendations; and conducts investigations of participant behavior and refers violations to FERC’s Office of Enforcement. Patton’s firm produces monthly and quarterly reports for internal use and an annual public assessment critiquing market performance and making recommendations.
The company provides virtually all monitoring for MISO, NYISO and ERCOT. (The monitors work in ERCOT’s headquarters in Austin.)