A settlement filed with FERC last Wednesday calls for PJM Interconnection's market monitor function to be conducted by an external firm, enabling monitors to operate independently of PJM management.

The PJM monitoring services would be provided by Monitoring Analytics LLC, which will be headed by Joseph Bowring, PJM's existing internal market monitor. Bowring caused a firestorm of criticism and debate when he revealed during a Federal Energy Regulatory Commission (FERC) technical conference earlier this year that his unit was unable to function independently and, in fact, was hindered at times from functioning at all by PJM officials. He said it was impossible to monitor the activities of PJM as an employee of the regional transmission organization (RTO), which oversees the operation of the electric transmission system in 13 mostly Mid-Atlantic and East Coast states and the District of Columbia (see NGI, April 9).

The settlement discussions were instituted in September following a complaint accusing the PJM of interfering with the market monitoring unit (MMU). While FERC found that PJM has not violated its tariff, it said that significant tension between PJM management and the market monitor could compromise the MMU's ability to perform its tariff-defined functions. FERC ordered the settlement talks so the parties could work out a new organizational structure for market monitoring in PJM.

The settlement, which must be approved by the Commission, states that the MMU will be an independent, external entity under contract with the PJM board and approved by FERC. No one will have the right to interfere with or edit MMU actions, investigations or reports, according to PJM.

The initial market monitoring contract will be for six years beginning June 1, 2008, and only FERC can terminate the contract. The settlement provides the MMU with direct access to PJM data and ensures the MMU's ability to control its information technology and data.

Moreover, the market monitor's proposed annual budget for its services would be reviewed by the PJM Finance Committee, the PJM board and representatives of state regulators. Disputes over the proposed budget would be resolved by FERC, PJM said.

Under the agreement, state commissioners would be able to receive confidential information from PJM or the MMU, provided the commissioners certify to FERC that they have adequate procedures to protect against release of the information.

The role of the FERC market monitors is to ensure RTO participants are complying with market rules, prevent anticompetitive behavior, mitigate conduct that could distort markets and to work closely with the Commission's Office of Enforcement. They do not take enforcement action against market violators.

FERC Chairman Joseph Kelliher has likened market monitors to a "neighborhood watch" that assists FERC in overseeing transmission operations.

Currently, there are more than a dozen market monitoring positions overseeing the operations of RTOs and independent system operators (ISOs) across the U.S., according to FERC. The types of market monitors vary from organization to organization. For example, the PJM currently has an internal monitoring unit; the Midwest ISO has a contract employee as market monitor; and the California ISO has an employee-internal monitor and an external surveillance committee.

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