The Federal Energy Regulatory Commission (FERC) recently thwarted an effort by PJM Interconnection LLC to limit the ability of its Independent Market Monitor (IMM) to file complaints against PJM. The Commission ruled that the explicit authority of PJM’s IMM to file complaints under specified circumstances does not foreclose the IMM’s general right to file complaints under Section 206 of the Federal Power Act. PJM Interconnection, LLC, 167 FERC ¶ 61,084 (2019). In addition to its importance within PJM, this decision potentially strengthens the hand of IMMs in relation to other regional transmission organizations and independent system operators across the country. 

In conjunction with its administration of competitive day-ahead and real-time energy markets, PJM has retained an IMM to, among other things, monitor, investigate, evaluate and report on the design of the PJM markets and the exercise of market power by participants in PJM markets. Although funded by PJM, the IMM is independent from, and not subject to, the direction or supervision of the PJM Board, except with respect to budgetary matters.

The IMM is responsible under the PJM Tariff to “objectively monitor the competitiveness of PJM Markets, investigate violations of FERC or PJM Market Rules, recommend changes to PJM Market Rules, prepare reports for the Authorized Government Agencies and take such other actions as are specified in this plan.” The PJM Tariff provides that, if appropriate, the IMM may raise concerns about matters for which it is responsible either with PJM or with the FERC. However, the only instance in which the IMM is authorized explicitly to file a complaint at the FERC is when it identifies the potential exercise of market power related to a Sell Offer submitted into the PJM capacity market.

Under certain circumstances, the PJM Tariff mitigates the potential for a Market Seller to exercise market power by requiring that bids to supply energy from a generation resource within PJM be limited to the marginal cost of supplying energy incurred by the generation resource. The PJM Operating Agreement and other PJM documents specify the means by which the marginal cost of energy from a generation resource is to be determined for this purpose.

In the course of developing its procedures for computing cost-based rate caps, PJM proposed that disputes between the IMM and PJM over Market Seller penalties should be referred to the FERC Office of Enforcement. Instead, however, the FERC ruled that “such disputes are the province of the Commission and its Administrative Law Judges to address in response to a complaint when appropriate, or for its Administrative Dispute Resolution process to resolve outside of formal processes.” Apparently out of concern that this ruling might be interpreted to expand the scope of the IMM’s authority, PJM asked the FERC to clarify that it did not intend to enable the IMM to initiate a complaint against PJM whenever PJM accepted bids to supply energy subject to cost-based rate caps that the IMM believed to be excessive.

In PJM Interconnection, the FERC denied PJM’s request for clarification. In so doing, the FERC explained that in the event the IMM becomes aware of a potential exercise of market power by a Market Seller, the PJM Tariff permits the IMM to “file a petition or initiate other regulatory proceedings addressing the issue.” The FERC concluded that the filing of a complaint at the FERC by the IMM is one way for it to do so. 

More generally, PJM argued that the filing of a complaint by the IMM against PJM, for any reason, would create a conflict of interest for the PJM Board because of its budget oversight responsibilities with respect to both PJM and the IMM. However, the FERC found that “it is unclear why only complaints that fall outside of the Tariff’s explicit grant of rights to the IMM would be problematic with respect to the PJM Board’s ability to fulfill its responsibilities,” and therefore dismissed this concern.

Significantly, Commissioner Richard Glick wrote a concurring statement in which he took a broad view of the IMM’s authority to file complaints against PJM pursuant to Section 206 of the Federal Power Act:

By virtue of its position and expertise, a market monitor will often be uniquely well-positioned to identify market design flaws and assemble a corresponding record sufficient to meet a complainant’s burden under section 206. As a result, a complaint by a market monitor may often be the most expeditious and effective avenue for remedying a market design aspect that has become unjust and unreasonable or unduly discriminatory or preferential. In light of that critical role, there is no reason to clip a market monitor’s wings by carving market monitors out from the broad set of potential complainants identified in the Commission’s Rules of Practice and Procedure.

The order in PJM Interconnection permits the IMM to file complaints against PJM on a wide range of topics within its general area of responsibility relating to market design and the potential exercise of market power. It therefore appears that the role of the IMM has been expanded – from that of an advisor on the design of PJM Markets and the potential exercise of market power – to that of an independent entity with authority to file market power complaints at FERC. The order also provides precedent for efforts by market monitors within other regional transmission organizations and independent system operators to claim similar authority. Only time will tell whether, and to what extent, IMMs may seek to take advantage of such authority to challenge decisions of the RTO/ISO by which they are employed.