Overseer's Accusations Roil Regional Electricity Distributor

By Peter Behr
Special to The Washington Post
Thursday, September 20, 2007

Federal energy regulators plan to meet today to try to resolve damaging accusations against PJM Interconnection by a key employee who oversees the fairness of electricity prices in the PJM system, the distributor of electric power to 51 million people from Washington to Chicago.

The dispute before the Federal Energy Regulatory Commission erupted in April when Joseph Bowring, PJM's internal market monitor, went public with complaints about his top management. Bowring charged that PJM officials had ordered him to delete a critical analysis from his official 2005 annual report, had barred him from briefing PJM members about some concerns, and refused to notify FERC about what Bowring said was an excessive $20 million payment to a generator.

In overseeing companies such as PJM, FERC depends on the market monitor, who is both a company employee and a watchdog who is supposed to alert regulators to problems. Bowring's statement, amplified by more than 1,000 internal PJM e-mails and documents since filed with FERC, has challenged the credibility of the PJM system, the largest power grid operation in the world. PJM calls itself the model for how competitive "deregulated" electricity markets should be run, and federal regulators have agreed.

But with electricity prices at high levels and generators enjoying opportunities for windfall profits in PJM's complex energy markets, independent oversight by a strong market monitor is essential, state regulators and PJM critics say. The issue is how much independence is enough.

"PJM is an entity that very few ratepayers know anything about, but the organization has a huge impact on every ratepayer's electric bills," said New Jersey Public Advocate Ronald K. Chen.

"This has been a very troubled period -- the most troubled period in the history of PJM," Irwin "Sonny" Popowsky, the Pennsylvania state consumer advocate, said in an interview. "There is a general concern . . . that prices are significantly higher than we anticipated at the time of [the electric industry] restructuring."

From a secured headquarters near Valley Forge, Pa., PJM's staff coordinates operations of more than 1,000 generating plants and the transmission network serving the District, Maryland, Virginia and 11 other states. It runs electricity markets where more than 500 utilities, energy companies, traders and speculators buy and sell power daily, establishing spot wholesale prices for electricity, similar to markets for wheat, oil and other commodities. The PJM wholesale spot prices and transmission charges are a key factor in consumers' retail electricity bills in its region.

Rising electricity prices have triggered a political backlash in PJM states. But if prices don't meet the expectations of electricity producers, then they may not build enough new power plants and transmission lines to assure adequate supplies of power. Unless investment and conservation programs are accelerated in PJM, mid-Atlantic states could face power shortages in five or six years, PJM says.

"The question is even more fundamental: Can PJM work?" Popowsky asked.

The accusations by Bowring, issued in April after PJM said it was considering replacing him and his staff with an outside firm as market monitor, were only the start of the organization's troubles.

In July, Phillip G. Harris, PJM's president and chief executive, unexpectedly resigned. It was a stunning departure by the strong-willed architect of the organization's decade-long expansion.

His action followed the equally surprising resignation in May of PJM's chief operating officer, Audrey A. Zibelman, who had clashed head-on with Bowring, according to the interoffice e-mails. She and Harris are close friends, and she had been expected to succeed him, PJM employees say. Instead she left to form a new energy-trading company, Nodal Exchange. Her company is affiliated with DC Energy in Vienna, a PJM member. Harris and Zibelman are not giving interviews on the issue, PJM said.

Karl V. Pfirrmann, a PJM veteran who is heading the organization while a search committee recruits a new president, said the two executives' departures were not related to the market-monitoring controversy, but he declined to discuss whether there were other factors. "Phil Harris elected to retire from the organization. That is clearly his decision," Pfirrmann said. "Audrey had an opportunity to lead a new organization."

PJM has its defenders. "I feel totally confident that the PJM staff -- even under an interim leader -- will keep the lights on," said Elizabeth A. Moler, an executive vice president of Exelon, a Chicago energy holding company, and a former FERC chair.

"The impression that the disagreement between the market monitor and PJM means something is rotten inside does not make sense," said Edward N. Krapels, a principal with Energy Security Analysis, an energy consulting firm. "PJM has a lot of very difficult issues. By and large, I think they deal with their issues honestly and effectively."

However, it faces a large group of state regulators and consumer advocates from the District, Virginia, Maryland and other states, and industrial companies and other customers from its region, demanding that FERC assure the independence of the PJM market monitor. "Confidence in the PJM administration seems to be at an all-time low,' said Patrick E. McCullar, president of the Delaware Municipal Electric Corporation, in a statement to FERC in May.

Before Harris left, PJM responded with a stiff counterattack against Bowring, an economist who heads a staff of engineers and economists. It said his statements were a "public litany of irrelevant but very harmful accusations" which demonstrate "the hazards of freeing someone in such a highly influential position from any review or accountability."

After Pfirrmann took over, PJM changed its tack, offering a settlement that guaranteed the job to Bowring for two years. Bowring and his supporters say that more protection is required and that the issue is now up to FERC. "It became obvious to us that the right thing for us to do was find a solution, rather than continue to fight the issue," Pfirrmann said.

PJM documents and internal e-mails filed in the case show an increasingly hostile relationship between Bowring and PJM's top executives as he battled to protect the independence of his analytical team, while his bosses questioned his work and demanded that he behave as an employee.

"This has been a management problem that should have been dealt with three to four years ago," said Nora Brownell, a former FERC commissioner. "There are issues on both sides -- Joe's style and Phil's style. To my regret, it came down to these two strong personalities."

Bowring's annual reports have concluded that PJM's principal energy markets are competitive, but where power supplies are strained, generators have opportunities to push up prices. "We believe there is considerable market power," said John A. Anderson, president of the Electricity Consumers Resource Council.

In an interview a year ago, Bowring said: "There are lots of attempts to exercise market power. I don't mean to pretend that everyone is perfect in PJM. Absolutely not. People are always trying to figure out ways to exercise market power." PJM has controls to prevent that, he added.

Bowring declined to comment last week on his current complaints with FERC.

Whether Bowring has proved his allegations or not, there is enough of an issue that it needs to be looked at, and FERC must assure the market monitor's independence, said Paul E. Flanagan, an attorney with the New Jersey public advocate division. "If you don't have someone with the ability to watch things at the micro level, across the entire PJM system, the deterrence is weakened," he said.