PJM, its Market Monitoring Unit, and the hotline tipster’s allegation of market power

Michael Giberson

From the Baltimore Sun, columnist Jay Hancock highlights part of one story buried in the most recent report on the dispute between PJM and its Market Monitoring Unit (MMU). Hancock writes:

On Sept. 14, 2004, a tipster urged electricity administrators to investigate a power generation plant that seemed to be charging extra-high prices during times of stress on the grid.

The inquiry found that a lack of competition allowed the plant to reap outsized profits – an “excess” $20 million just in one two-week period.

The windfall seemed so blatant that Joseph Bowring, market monitor for the Mid-Atlantic grid manager PJM Interconnection, wanted the government to slap controls not only on the plant in question but on every other generator not subject to price caps in times of high demand.

It was a stunning moment – or would have been if anybody knew about it…

[PJM’s MMU] found that unidentified customers were being overcharged for power and wanted to correct it.

But PJM and federal regulators never acted on his concerns.

Without more context, it is impossible to tell if those “outsized profits” were the result of market power or normal market operations. Not every complaint by a hotline tipster ends up supported by further study. But, as Hancock says, it was interesting enough to lead the MMU to urge action be taken.

Hancock concludes:

PJM’s “investigation” of Bowring’s claims of interference has produced hundreds of pages of documents and no changes. Here’s the big conclusion: “There can be no minimization of the divide between Dr. Bowring and PJM Management.”

Bowring will probably get his own operation instead of reporting to PJM bosses, thanks to litigation by state electricity commissions. But he’ll still have to work through FERC, which seems just as tilted toward generation companies as the grid manager.

His complaints about PJM meddling could have started a process to right wrongs and improve confidence in deregulated electricity. Instead, they just show how much trouble we’re in.

I think Hancock is too pessimistic in this last paragraph. Bowring’s “complaints about PJM meddling” will lead to improved confidence in deregulated electricity, in part because the controversy will promote better understanding of the day-to-day process of both running a regional power market and the job of the market monitor.

But for the controversy to promote better understanding, interested folks need to read some of those “hundreds of pages of documents.” On November 7, the special investigative committee appointed by PJM’s board issued their final 251-page report on the issue. [Link to pdf file. See also related documents at PJM here.] While the report bulk can be overwhelming, just skip ahead to the episode that caught Hancock’s eye, covered on pages 99-105.

This part of the report describes actions by PJM and its MMU beginning with a “question about the generator’s bidding … brought to PJM’s attention by means of a ‘hotline’ question received on September 14, 2004” and continuing through December 2006. Among the committee’s conclusion about the matter:

  • “There is no documentary or interview evidence indicating that anyone at PJM ever attempted to suppress information about the generator’s situation.”
  • “All of the evidence available indicates that the system worked as it was designed to work in this situation.”
  • “The MMU communicated its views to both FERC and PJM and had ample opportunity to continue to express its views thereafter.”

Each conclusion appears supported by the details in the report. While PJM management did not interfere, according to the report, the report does suggest they resisted the MMU’s efforts and certainly did not support the MMU’s views before the FERC.

And even if PJM had sufficient reason for its position, the sympathetic reader begins to understand some of the MMU’s frustration with management.

BACKGROUND: Previous posts on market monitoring and on PJM’s market monitor troubles:

Newspaper Article Presents Dispute between PJM and its Market Monitor
PJM Wants to Reorganize Market Monitoring Unit, Move On
PJM’s Newly Ex-CEO: PJM Never Really Wanted a Market Monitor
U.S. Senator Weighs in on PJM Dispute with Market Monitor
PJM Market Monitor Reports Interference from Management
The Kluge That We Need: Local Market Power Mitigation Measures
Ex Post Market Monitoring in Electric Power Markets
Why do we have Electric Power Market Monitors?
Market Monitors in Electric Power Markets, II
The Role of Market Monitors in Electric Power Networks

Gridlock! Drew Carey and Reason.tv on Road Pricing

Lynne Kiesling

In the five-plus years of Knowledge Problem’s existence, one of the topics on which I have opined extensively is the efficiency and conservation benefits of congestion pricing. Recently, Mike had two great posts on congestion pricing, one on how economists don’t understand the opposition to congestion pricing, and one on the unwillingness of intransigent airlines to acknowledge the benefits of congestion pricing for takeoff and landing slots and for gates.

The new Reason.tv project with Drew Carey contributes to the idea of congestion pricing for roads with an outstanding short video called Gridlock: Hell on Wheels: