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PJM broke no rules, U.S. panel concludes

The Baltimore Sun

Federal regulators said yesterday that the Mid-Atlantic electricity grid operator broke no rules in its oversight of the regional power market but that its internal watchdog charged with ensuring market fairness should be more independent of management.

The Federal Energy Regulatory Commission ordered PJM Interconnection, which operates the power grid and electricity market for Maryland and 12 other states, to resolve a dispute with its market monitoring unit and issue a report within 90 days.

The decision came after Joseph Bowring, PJM's top market monitor, complained in April that management ordered him to alter critical information in reports concerning market fairness and declined to notify FERC about his concerns that a power generator received $20 million in excessive payments.

The decision disappointed utility regulators in Maryland and several other states that petitioned FERC to hold hearings on some of Bowring's claims.

The FERC ruling ensures that Bowring's monitoring unit will gain freedom from management interference. But critics say it effectively ends an investigation into whether market fairness was compromised and resulted in higher prices for consumers in deregulated states such as Maryland.

"I think they [FERC] have tried to characterize this as satisfying our request, and I think that is only partially the case," said Steven B. Larsen, chairman of the state Public Service Commission.

"They've obviously concluded that they're not going to try to validate the allegations of Mr. Bowring, which ... I think many of the states in the PJM region have found very disturbing."

Ray Dotter, a PJM spokesman, said, "The FERC order provides a framework that will enable us to move forward in the best interests of competitive wholesale electricity markets."

State regulators have expressed concerns about whether competition in the wholesale electric market is fair.

The issue has taken on greater significance in Maryland, where the move to deregulation resulted in a more than 70 percent rate increase this year for customers of Baltimore Gas & Electric.

BGE and other utilities in Maryland no longer own power plants, which means they must buy electricity from wholesale suppliers. Generators bidding to supply electricity to Maryland consumers take their cue from PJM's spot market when deciding how much to charge.

Critics of deregulation claim that many generators are earning excessive profits - a concern some say was enhanced by Bowring's claim that at least one generator may have received excessive payments.

Bowring's job is to make sure the market runs fairly and that no large electricity generators use their market power to boost prices artificially.

PJM is often held up by FERC and others within the industry as a model for how deregulated power markets should be managed. Headquartered near Valley Forge, Pa., it is the largest grid operator in the world.

Bowring raised eyebrows throughout the industry last April when he testified at a FERC hearing that PJM managers had altered certain analyses in his 2005 annual report on market competitiveness.

The matter arose after PJM said it wanted to replace Bowring and his monitoring unit with an outside firm. Bowring did not claim in his report that the market was uncompetitive, but subsequent documents and e-mails filed with FERC shed light on an increasingly acrimonious relationship between Bowring's monitoring unit and PJM management.

FERC concluded in a preliminary finding that Bowring's staff should report directly to PJM's board of managers or an independent board committee, rather than to management.

"In reviewing this case, we found there to be significant tension between PJM management and the market monitor that could compromise the monitor's ability to perform his tariff-related duties," said FERC Chairman Joseph T. Kelliher, in a statement yesterday.

But Kelliher said the commission denied allegations of tariff violations "because that is the only course supported by the record."

Larsen said Maryland may consider its own investigation of Bowring's claims. The PSC is studying whether to roll back Maryland's deregulation laws in the face of rising electric rates.

"I think Maryland has to consider whether we would want to pursue a partial investigation of our own to satisfy ourselves that any of the conduct that was alleged didn't occur to the detriment of Maryland ratepayers," the PSC chairman said.

Sen. Robert Menendez, a New Jersey Democrat, called on FERC yesterday to further investigate Bowring's charges.

FERC's order yesterday gives PJM and its market monitoring unit 14 days to select a mediator to help resolve their disputes.

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