NGI The Weekly Gas Market Report
Market monitors told FERC Thursday that they have been able to keep watch on power transmission operations for potential abuses and anticompetitive conduct without any fear of retribution from regional transmission organizations (RTOs), which in most cases are their employers. The exception was the PJM Interconnection.
At PJM, “we [market monitors] have not been permitted to be independent” from the RTO, said Joseph E. Bowring, market monitor for the PJM Interconnection, during a technical conference reviewing FERC’s policies on market monitoring in Washington, DC. “We’ve seen significant issues with conflicts with PJM, and where there were conflicts,” the independence of market monitors from PJM was “compromised,” he noted.
“PJM views us primarily as employees that are responsible to management rather than being responsible to provide our independent views” to the Federal Energy Regulatory Commission, Bowring said. “I believe that the independence, and in fact the very viability of the PJM market monitoring, has reached significant proportions in PJM,” he told the Commissioners.
“We were informed last week by PJM management that in order to ensure independence, the market monitoring function would best be provided by an external consultant rather than the current market monitoring [unit],” Bowring said. “My employees were told there were other jobs [in the] organization” for which they could apply. “This has had, to say the least, a negative impact on morale,” but staff is continuing to do its work, he noted.
The market monitors stressed the need for them to be independent of RTOs and market participants in order to be effective and provide FERC with information about potential market abuses. But this can be difficult for those market monitors, such as Bowring, who are employed by an RTO.
Bowring noted that being an employee of an RTO creates an “impossible” situation. It’s difficult to be critical of an “entity that fills out [your] performance review,” he said. He believes it’s important for market monitoring units (MMUs) to be accountable to an entity other than the RTO.
David Patton, a contract (external) monitor for the Midwest Independent System Operator (ISO), has certain safeguards built into his contract. The Midwest ISO “can’t make any substantive decisions about my contract without your [FERC] approval,” he said.
FERC Commissioner Suedeen Kelly suggested that FERC could make changes to RTO tariff provisions that would provide protections for market monitors. The market monitors, as well as state regulators, supported this idea. Market monitors should be afforded “substantial job security,” said Commissioner Frederick F. Butler of the New Jersey Board of Public Utilities.
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. “I don’t have a gun. I have a whistle,” Bowring noted.
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 Chairman Joseph Kelliher. The types of market monitors vary from organization to organization. For example, the PJM currently has employees who act as internal monitors; the Midwest ISO has a contract employee as market monitor; and the California ISO has an employee-internal monitor and an external surveillance committee.
Market monitors “can’t carry a gun. [They] can’t carry a billy club,” said Kelliher, who added the monitors were more like a “neighborhood watch” that assists FERC in overseeing transmission operations.
“I think it’s clear that market monitors cannot be enforcers in the traditional sense,” he said. “The Commission has no expressed authority to delegate enforcement power to a market monitor.” Kelliher noted that one of the questions before FERC is whether the agency should establish a rulemaking to better define the role of market monitors. FERC issued a policy statement two years ago to offer guidance on this issue, but Kelliher and other Commissioners believe that a rulemaking may be in order.
“I think we should ask two fundamental questions. First, what should the role of market monitors be? Second, what can the role of market monitors be?” he told the conference. “If we were to reach the conclusion [from these questions] that it is necessary that market monitors have a robust enforcement role and traditional enforcement role, it is possible the only way to reconcile [that] with the legal limits on our relationship with market monitors is that market monitoring becomes a Commission function performed by Commission staff. That may be the only way to avoid an improper delegation of enforcement authority,” Kelliher said.
“To be clear, I do not start from a premise that it is necessary that market monitors have a robust enforcement role. I believe their greatest contribution can be improving the performance of the organized markets,” he noted.
Commissioner Kelly, however, was supportive of giving market monitors more power. “I’m not here to be a massive proponent of sub-delegation of authority to market monitors,” but she said she advocated giving monitors the ability to “nip in the bud” behavior that would prevent the power market from functioning properly and efficiently.
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