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RTOs and the Public Interest

Defining the mission when the consumer plays second-fiddle to the needs of the market.

Fortnightly Magazine - September 2009

Such input parameters ordinarily could include data on generating-unit cost and performance, such as fuel usage, heat rates, plus minimum run and down times, maximum daily or weekly startups, and so forth. FERC (Order 719 had stipulated that RTOs “may” choose to accept such inputs from external MM units, but that RTOs, at the same time, must retain sole responsibility for implementing their tariffs, which contain the rules for conducting market mitigation.)

Opponents now complain that PJM’s post-719 tariff will create a shadow MM unit operating internally within the RTO-management structure—the exact same type of MM structure that was justifiably undone by the settlement order. (See, FERC Docket ER09-1063, filed April 29, 2009, and industry comments filed through July 22.)

Stepping into the fray, PJM’s external MM, Monitoring Analytics LLC, now has offered up its own alternative tariff designed to secure its independence from PJM management.

Joseph E. Bowring, the former PJM internal MM, and now president of Monitoring Analytics, complains that its true role in market monitoring is critical but poorly understood by outsiders. As Bowring explains, his MM team at Monitoring Analytics typically will contact and talk with generators and power suppliers on a daily basis, to discuss and help with their calculations of costs, operational parameters, and market-power tests and screens. The MM, Bowring writes, receives data “directly from participants through its web-based interface, screens the data and discusses the details with each market participant. These negotiations provide guidance to suppliers on what sorts of bids and sell offers will be viewed as competitive and free of taint from market power under RTO-mitigation rules.

“The result,” Bowring declares, “is either agreement or disagreement, well in advance of the auction.

“There is no conflict of interest in the Market Monitor’s role,” adds Bowring.

“Typically agreement is obtained, and the market participant is able to proceed, confident that the MM agreed that the proposed costs or values raise no market behavior or compliance concerns.

“For nearly [10] years the interactions between the MM and PJM market participants have proceeded so smoothly that there has been little cause for those outside of the process, including PJM staff … to understand in detail how the process works and how it serves the joint and several interests of all concerned.” (See, Protest of Independent Market Monitor, pp. 26-32, FERC Docket ER09-1063, filed May 27, 2009.)

The clear implication from Bowring and others is that if RTO management has discretion to ignore the work prepared by the external MM when the RTO implements market-mitigation rules contained in its tariffs, then the entire process will become tainted with potential conflicts of interest.

The Ohio PUC explains: “RTOs should not be vested with mitigation authority as a result of the inherent conflict of interest that RTOs have in imposing mitigation upon their own member companies, whose membership and participation are optional.” (See, comments, Ohio PUC, p. 5, FERC Docket ER09-1063, June 26, 2009.)

The Maryland PSC is even more blunt: “PJM,” it charges, “is vulnerable to profit-motivated pressure from its members.”

Market Outcomes and Cost Containment