After allegations of management interference led PJM to replace its internal market monitoring unit with an independent monitor in 2008, FERC had an opportunity to prohibit other RTOs from using the internal structure. Because it chose not to do so, the temptation for RTO officials to muzzle their MMUs still exists.

First in a Series

By Tom Kleckner and Rich Heidorn Jr.

LITTLE ROCK, Ark. — SPP has interfered with the autonomy of its internal Market Monitoring Unit and FERC should order changes to ensure its independence, according to two former monitors who say they were fired for voicing their concerns.

Catherine Tyler Mooney and John Hyatt, who were fired in December, say they were forced out for resisting pressure to conform to policy positions of SPP management and members.

FERC assigned market monitors a key function in the nation’s wholesale electricity markets, making them responsible for ensuring markets are competitive, efficient and provide residential and business ratepayers with just and reasonable rates. Unchecked by independent, effective monitors, RTO stakeholder processes could shift market risk from generators, increasing their profits at the expense of ratepayers.

Mooney and Hyatt say SPP’s system is fatally compromised and that it should give at least some functions to an external monitor.

External market monitors are the norm, with Virginia-based Potomac Economics keeping tabs on the markets in ERCOT, ISO-NE, MISO and NYISO, and Monitoring Analytics performing the same duties for PJM. Only CAISO and SPP have internal MMUs.

Hyatt, a Ph.D. mathematician, and Mooney, who holds a doctorate in economics, were two of three staffers who reported directly to MMU Director Alan McQueen. They said McQueen told them he faced pressure to follow the policy positions of SPP members and RTO management, and that he proposed concessions to mollify generation owners as a result.

“Some in SPP’s leadership and membership dreaded the idea of the MMU publicly disagreeing with the RTO before FERC,” Mooney said.

“There were examples where [we were told] to change our stance on an issue because if we didn’t change our stance, the MMU could get shut down. We were told we have to think about people and politics and relationships, to think about preserving the internal MMU.”

Under SPP’s Tariff, the MMU is supposed to report to the Board of Directors’ Oversight Committee, which is composed of three outside directors. But the chairman of the committee refused to meet with the monitors after they wrote him a letter outlining their concerns in September.

In addition, despite FERC rules prohibiting RTO management from supervising their MMUs, SPP management took part until recently in performance reviews of McQueen and in reviewing the bonuses of other MMU employees. Management also attended Oversight Committee meetings with the MMU.

Meanwhile, FERC’s Office of Enforcement, which was aware of the monitors’ allegations, effectively ended an audit of SPP and the MMU in April without interviewing the committee. FERC declined to comment.

The independence concerns raised by Hyatt and Mooney resulted from FERC’s compromises in Order 719, its 2008 rule spelling out MMUs’ duties and their relationships with their RTOs (RM07-19, AD07-7). The commission rejected protections urged by some stakeholders, allowing RTOs to choose their structures and declining to provide job security protections for MMU employees. (See related story, Order 719: FERC Balanced MMU Independence Against RTO Autonomy.)

McQueen declined to say why Hyatt and Mooney were terminated, adding it is the “MMU’s policy not to publicly discuss human resource matters.” He said “they were not fired because the market monitor is not independent.”

Joshua W. Martin III, chairman of the Oversight Committee, said he refused to meet with the monitors because their letter, which outlined the problems with the internal monitoring function, proposed an external monitoring function that they offered to join.

“What stood out for me more than anything else in that letter was the fact that there was this issue of a contract that they wished. And obviously directors do not negotiate contracts with employees,” said Martin, who says he supported the monitors’ firing.

Mooney and Hyatt said they proposed an external monitor to solve the problems they experienced, not out of any desire to increase their incomes. They said it was SPP officials who initiated the discussion of a contract; the letter does not mention the word.

“We had very good jobs [at SPP],” Mooney said. “All we had to do to keep them was to keep our mouths shut. But we felt that was a compromise of our principles. We were not acting in our own self-interest.”

The two monitors agreed to tell their stories after resettling in suburban Philadelphia, where they have joined the staff of PJM’s Independent Market Monitor, Monitoring Analytics. They told RTO Insider that they hope going public with their concerns will lead to improvements at SPP.

“I really like this work,” Mooney said. “I think it’s really important, and I would like to see something good come of what happened to us.”

“I think what we’re showing is that the internal market monitor framework has some really big problems with it,” Hyatt said.

Echoes of PJM Monitoring Flap

Mooney and Hyatt’s departure from SPP recalls Monitoring Analytics’ own formation in 2007, when founder Joe Bowring — then a PJM employee — complained to FERC that his reports were being censored by then-CEO Phil Harris.

“You cannot do your job as a market monitor if you’re not independent, if you’re not free to criticize the RTO and its members, if you’re told to pull your punches,” Bowring said in a recent interview. “I am amazed [SPP] had the chutzpah to do this — fire the two best monitors they have. We’re very fortunate to have hired them.”

“I don’t know how we would do this job effectively if we weren’t independent,” agreed Potomac Economics President David Patton.

McQueen insisted in an interview that he has had no problems maintaining the MMU’s independence despite its place within SPP.

“That’s demonstrated by our record,” he said in an interview at SPP headquarters, citing the MMU’s three filings opposing SPP positions last year. “We oppose the RTO. We oppose the Board of Directors. That’s our right and that’s our responsibility to do that when we determine it’s appropriate.”

Oversight Committee Chairman Martin also defended the MMU’s independence, saying it has taken positions contrary to RTO staff and stakeholders both in FERC filings and stakeholder meetings.

But Mooney said that, until recently, the MMU dropped any opposition once an issue left the stakeholder meetings, failing to inform FERC when it disagreed with an SPP Tariff filing, as required by FERC Order 719.

Days after the firing of Hyatt and Mooney, the Oversight Committee adopted a revised statement on the MMU’s independence, which included two substantive policy changes: It made the committee responsible for all salary and bonus decisions for McQueen and other MMU employees and ensured that the MMU director could meet with the committee in executive sessions without RTO officials present. The statement also reiterated its choice of the internal market monitoring structure.

Martin announced the statement at January’s board meeting, adding that McQueen will retire by the end of the year.

SPP acknowledged that until the revised policy statement in January, CEO Nick Brown, COO Carl Monroe and SPP’s other officers had reviewed performance compensation bonuses for all RTO employees, including the MMU.

Spokesman Dustin B. Smith said the review of bonuses is separate from the annual performance reviews, which he said McQueen performed for MMU employees.

“Performance compensation, or annual bonuses, are given in the first quarter of each year based upon the prior year’s successes,” Smith said. “Nick, Carl and the other officers would only have reviewed these employees’ payout amounts in the context of their impact on the overall performance compensation budget. During this process, Nick and Carl did not change substantive performance compensation payouts as recommended by the director of the MMU.”

“We believe that SPP has been in compliance with Order 719,” Smith said, adding that the revised policy statement was “not to bring SPP into compliance with Order 719 but to further insulate MMU employees.”

Martin acknowledged that Hyatt and Mooney’s complaints and the FERC audit contributed to the decision to revise the statement.

“We were very attuned to the fact that SPP is under a magnifying glass in terms of … the independence of its MMU structure,” he said in an interview at his law office in Wilmington, Del. “I don’t want my answer to lead you to believe that what Catherine and John said made us generate this statement that came out in January. I know that that would not be accurate. But by the same token, obviously the concerns that they were expressing were one of the factors that were playing out in this process.”

FERC spelled out its rules on the structure and independence of market monitors in Order 719 in 2008. It allowed internal market monitors, external monitors and hybrid structures using both.

“Order 719 was a vast improvement and important, but … this is evidence that the RTO can still put a lot of pressure on the market monitor,” Hyatt said. “I would hope [that FERC takes] another look at whether this purely internal market monitor system really does work.”

Members of SPP’s MMU, which typically carries a staff of about 12, work alongside members of SPP’s market design, transmission congestion rights, internal audit and communications departments at the RTO’s headquarters in Little Rock. In the open seating, conversations two or three rows away can easily be heard. [SPP has also used outside consultants, including Monitoring Analytics, Potomac Economics and D.C.-based Boston Pacific.]

Joining SPP

Hyatt, who has a doctorate in applied mathematics and a master’s in economics, came to SPP from Arkansas’ Public Service Commission in 2008.

In about September 2014, he was promoted from supervisor to principal market monitor. He led the work on the RTO’s first annual State of the Market report and a study on frequently constrained areas. He also designed the mitigation plan for SPP’s energy and ancillary services markets.

Mooney joined SPP in 2011 from the University of Oklahoma, where she was an assistant professor of economics. She has a doctorate and master’s degree in economics and worked before graduate school as an economic consultant for Hagler Bailly and PA Consulting Group, where she focused on utility merger and anti-trust filings.

The SPP job was a homecoming for Mooney, who grew up in Little Rock. “I thought SPP was a great place for someone like me to analyze the industry and market power issues from an independent perspective,” she said. “And I could go home. It was a dream come true to me.”

But Mooney said she began to have concerns with the structure of the MMU immediately after joining the RTO.

At first, things appeared to be going well. Mooney received SPP’s President’s Award in December 2013 for helping launch the Integrated Marketplace, which gave the RTO a day-ahead market, a real-time balancing market, transmission congestion rights and a centralized balancing authority. About a year later, she was promoted to a position as a manager and lead market monitor, responsible for investigations, special studies and market-design issues.

With her promotion, Mooney became one of three who directly reported to McQueen, along with Hyatt and Barbara Stroope, a Ph.D. sociologist who is manager of market monitoring. Stroope, who joined the MMU seven years ago, remains with the MMU and sat in on RTO Insider’s interview with McQueen.

McQueen, who has a bachelor’s degree in environmental science and a master’s in economics, joined SPP in 2003 as a market analyst after 20 years at American Electric Power and Central and South West Corp.

He was hired by Richard Dillon, SPP’s director of market design, and worked under him when Dillon oversaw both the market monitoring and market design functions. In about March 2011, following FERC Order 719, the market monitoring function was moved from Dillon’s operation, with McQueen reporting to Stacy Duckett, then vice president and chief compliance officer.

SPP’s MMU staff is required to abide not only by Order 719 but also the RTO’s bylaws, which state among their “values and principles” that SPP is “a relationship-based organization” employing “member-driven processes.”

“It’s a member-friendly organization, and I felt SPP wants the MMU to be a part of that,” Mooney said.

The message starts at the top of the organization, the former monitors say, with CEO Nick Brown’s quarterly staff meetings, at which he stresses the need for SPP staff and stakeholders to reach “consensus” on contentious issues. Brown declined to comment, referring questions to Oversight Committee Chairman Martin.

‘You don’t understand the pressure I’m under.’

Hyatt and Mooney said McQueen, in turn, pressured them to compromise their positions in order to minimize conflicts with SPP management and stakeholders.

In 2013, for example, they said SPP management blocked them from asking FERC to reconsider changes to rules regarding physical withholding and uneconomic production because of fears they might delay SPP from the promised March 2014 start of the Integrated Marketplace. SPP boasted in a press release that it was the first RTO “to design, build and deliver a Day 2 market on time.”

After the market opened in 2014, Hyatt said, McQueen proposed a change that would have essentially increased generators’ make-whole payments by 25% — an effort, he said, to pacify generators upset by how the MMU was calculating cost-based offers.

“There was really no economic justification for this,” said Hyatt, who said he and Mooney were able to block the change. “It seemed to me that the MMU was expected to make some sort of significant concession … to appease the market participants.

“I never held the position that the policy was perfect,” he said. “But I do hold firmly to the belief that the general construct of the mitigation policy is sound, and I repeatedly disagreed with the concessions that the MMU director was pushing.

“Alan would say on many occasions, ‘You don’t understand the pressure I’m under,’” Hyatt said.

McQueen declined to say whether he had made such a comment.

“We all live under pressure,” he said. “The Market Monitor … we disagree with all different levels of the stakeholder process. If you don’t disagree with different groups at various times, then you’re probably not doing your job.”

McQueen added that he takes input from all sides before taking a position. “I listen to all sides, but I listen most to what [the MMU] staff has to say, and that’s absolutely where the primary position comes from in everything that the Market Monitor does.”

Mooney, however, said that until late 2014, the MMU was not fulfilling its responsibility to notify FERC when it disagreed with RTO filings. It began to change only when MMU management believed FERC wanted the MMU to become more vocal, Mooney said.

FERC Audit

It’s unclear how much of this FERC auditors knew when they arrived in Little Rock in March 2015. The commission has regularly looked over the MMU’s shoulder, however.

Following an audit in 2008, FERC ordered SPP to appoint an independent director for its NERC-deputized Regional Entity. The commission said an SPP officer was improperly wearing two hats — serving as an RTO official and overseeing the RE, which is supposed to police SPP’s compliance with NERC reliability standards (PA08-2, AD09-3).

In late 2013, members of FERC’s Division of Analytics and Surveillance traveled to Little Rock for a briefing on metrics, screens and dashboards the MMU was developing in preparation for the day-ahead market start-up.

In its audit initiation letter in late February 2015, FERC Enforcement said that, in addition to evaluating SPP’s compliance with the MMU rules in Order 719, it would be evaluating SPP’s obligations under its Open Access Transmission Tariff, the implementation of its Integrated Marketplace and compliance with commission accounting regulations and reporting requirements (PA15-6).

Over the next several months, according to Oversight Committee minutes, FERC auditors conducted weekly or biweekly conference calls with the MMU. FERC sought briefings on stakeholder activities regarding proposed changes to the SPP mitigation rules, the MMU told the committee. By September, FERC had issued three sets of data requests and broadened its questions to “all aspects of the Integrated Marketplace,” including “special studies, market efficiency, market anomalies, market participant [involvement] in new markets, Market Working Group issues and market screen results,” the MMU said.

The Beginning of the End

Mooney and Hyatt said they felt that the FERC audit presented an opportunity to address the MMU’s lack of independence. They also believed speaking up could jeopardize their careers at SPP.

For more than a year before the auditors arrived, Mooney said she had been told that some in SPP management disliked her independence.

In early 2014, Mooney said she was told by Hyatt — then her supervisor — that in the performance evaluation for her bonus, COO Carl Monroe had expressed concern that she was taking policy advice from the PJM Market Monitor. Monitoring Analytics has provided SPP technical assistance, including data collection and development of rules for cost-based offers, since 2012.

“SPP’s displeasure was apparent among staff, and [John and I] were not alone in the fear that it could lead to one or both of our eventual terminations,” Mooney said.

In September 2014, Mooney says, she succumbed to the pressure. At McQueen’s direction, she said, she advocated market design changes regarding mitigated offers “with the goal of appeasing SPP members’ complaints taking precedence over supporting an efficient market” (ER15-2268).

“This was a turning point for me,” she said. “I did not like being put in that position.”

Mooney said she began to fear being fired in about December 2014.

“RTO and MMU staff would come to me, behind closed doors, to tell me that SPP was unhappy with the fact that I would not back down from MMU positions when under pressure from the RTO and members,” Mooney said. “Sometimes they would tell me how much they respected what I was doing, but that they would understand if I backed down out of fear that I might lose my job.”

As the FERC auditors asked more questions during 2015, that fear grew. “We received our first negative performance evaluations in August 2015” — just after FERC’s auditors announced they wanted private meetings with the two, they said.

Hyatt said McQueen told him in his review that he needed improvement in “teamwork” and that he was “not interested in developing a consensus.”

His review occurred two days before he met with FERC auditors, Hyatt said. Although McQueen was not present for that interview, an attorney for the MMU was and confirmed he would be reporting to McQueen on what was said.

As a result, Hyatt said, he was reluctant to discuss his concerns with the auditors. He said he was more forthcoming after FERC requested yet another conversation — this time without the MMU lawyer.

Letter to Oversight Committee

In September 2015, Mooney and Hyatt wrote a letter to the Oversight Committee outlining their concerns and proposing a hybrid structure, with an independent monitor.

Martin declined to meet with Mooney and Hyatt, instead telling them to discuss their concerns with McQueen and his superior, Executive Vice President and General Counsel Paul Suskie. The monitors had what Hyatt called a “fairly cordial” meeting with McQueen and Suskie. But the monitors said the account of the meeting that Suskie and McQueen later wrote was inaccurate and incomplete.

At a second meeting with the two, Hyatt said, Suskie stated that, as SPP general counsel, he was acting as counsel for the Oversight Committee. Hyatt said he found Suskie’s role “confusing.”

“I had been encouraged to take issues to the Oversight Committee, and the one time I did go to the Oversight Committee with a concern, they dispatched the RTO general counsel and executive vice president to represent them in discussions on the issue.”

Suskie said in a statement that Hyatt and Mooney proposed that they would form their own company, and that SPP would fund their startup costs and award them a no-bid contract — essentially the arrangement that PJM agreed to with Joe Bowring when he left the RTO’s payroll and founded Monitoring Analytics in 2008.

Suskie said a no-bid contract would violate SPP’s purchasing policies. “When asked whether this contract should be competitively solicited, Mooney and Hyatt said that SPP’s failure to award them a contract could constitute retaliation for their statements to FERC staff,” Suskie said in a comment. “SPP estimates that such a contract would have amounted to a multi-million-dollar, no-bid contract for Mooney and Hyatt, which SPP’s board refused to consider.”

Mooney said it was Suskie and McQueen who initiated the discussion of contracts. “John and I felt that this was premature. The OC needed to make a policy decision about whether to pursue an external unit first,” she said. “We discussed whether an open request for proposals for an external MMU contract could be conducted in a way that would protect our careers given the retaliation we were experiencing.  John and I never ruled out any options.  We did not ask for a contract.”

If SPP had chosen an open solicitation, it’s unlikely it would have received more than a couple of responses. Market monitoring requires an analytical infrastructure that few firms possess, and many of those that do would be prevented from bidding because they consult for market participants. When Texas issued a solicitation last year for monitoring of ERCOT, only incumbent Potomac Economics submitted a bid.

Firing

At its Dec. 7 meeting, the Oversight Committee went into an executive session that included discussion of “MMU matters.” Executive sessions are typically called to discuss legal or personnel issues. In this case, Hyatt and Mooney were on the agenda.

McQueen confirmed that he informed the committee of his intention to fire Hyatt and Mooney but would not say if the committee formally voted to endorse the terminations.

Martin said the decision to fire Hyatt and Mooney was made by McQueen and SPP’s human resources department. “I thought that this was an appropriate decision for management to take,” he said. “Recognize that as a board member I’m not involved in making that decision. This is not a policy decision. This is a personnel decision and this had worked its way through the various personnel levels and I felt that what was being requested was not unreasonable and I saw no basis for the Oversight Committee to refute what was getting ready to happen. It wasn’t our position to second guess the human resources structure.”

A week later, the two monitors were called separately to human resources and fired within minutes of each other.

Both were told they had violated SPP’s Code of Conduct, but they say they were given no details of the allegations. McQueen told Mooney he had “lost faith” in her judgment, she said.

When Mooney filed an application for unemployment with Arkansas, she reported to the state Department of Workforce Services that she had been discharged “for alleged violation of company rules or policies.” The department approved her compensation, however, reporting, “Insufficient evidence has been presented by the employer to establish misconduct.”

SPP spokesman Smith said the RTO “does not comment on human resource matters.”

“In keeping with this policy, SPP did not report anything to the Arkansas Department of Workforce Services regarding the reasons for Mooney’s termination,” he continued. “Likewise, although SPP was given the opportunity to object to Mooney’s unemployment application, SPP chose not to do so.”

Revised Policy Statement

On Dec. 23, nine days after Hyatt and Mooney’s firing, the committee adopted a revised position statement on the MMU’s independence, which had last been updated in 2012.

The statement reiterated SPP’s choice of an internal monitor, saying “an internal MMU provides both an appropriate level of independence and the level and depth of expertise needed to perform its functions and does so at a more economical cost than an external contractor.”

“In addition,” the statement says, “the Oversight Committee believes that an internal MMU provides the tailored focus and overall consistency that would be more difficult to achieve with an external contractor.”

The statement did make two substantive changes.

In contrast with prior practice, the MMU will be able to meet with the Oversight Committee without RTO management present. The new statement says that “to maintain confidential communication between the MMU and the Oversight Committee, a member of the MMU staff will be designated as a staff secretary for MMU purposes.”

It adds, however, that “RTO staff may attend such executive sessions at the mutual consent of the Oversight Committee and the MMU director.”

The statement also makes the committee responsible for determining salary and bonus compensation for McQueen and his unit.

The committee shared its statement with the Board of Directors at the board’s Jan. 26 meeting. “It’s a step beyond where we’ve been in the past,” Martin said. “We wanted to be as clear as we can that the MMU is an independent entity.”

Mooney said the revised policy statement “reflects changes that are being put in place as a result of our concerns, concerns that the MMU leadership was unwilling to raise. … These changes notwithstanding, the MMU will not be independent as long it is subject to a member-driven RTO culture, instead of its own independent, market-driven principles.”

Hyatt says that the MMU should be the voice of the market. “If no one says what a true, efficient market is, then no one is going to get that market.”

Retirement Unrelated

Martin also announced at the January board meeting that McQueen would be retiring by the end of the year. McQueen said his decision to retire was driven by a desire to spend more time with his grandchildren in northern Michigan and had nothing to do with the conflicts in the MMU. No date has been set for his departure.

“I have never been limited in any of my positions or felt any pressure to do anything other than what my department has decided to do,” he said.

Are Mooney and Hyatt lying when they say otherwise?

“I’m not going to get into that,” he responded. “You know, that’s something for them to decide, not me.”

Mooney and Hyatt say they believe McQueen was conflicted.

McQueen “could have quieted us more than he did,” Mooney added. “He seemed uncomfortable, but I believe he felt that we were generally right.”

Mooney and Hyatt are happy to have landed new positions at Monitoring Analytics. The job change, however, meant Mooney’s and Hyatt’s children won’t often get to see their extended families in Arkansas. The firing was “heartbreaking for my family,” she said.

[Editor’s Note: SPP/ERCOT Correspondent Tom Kleckner worked as an SPP spokesman from 2011 to 2015; Editor-in-chief Rich Heidorn Jr. participated in the 2008 audit of SPP as a member of FERC’s Office of Enforcement.]