FERC, NYISO and PSC Watched While NYISO Gamers Looted Consumers

Today FERC released an Order approving NYISO’s emergency request for approval of rules to limit circuitous scheduling paths for the sale of electricity. It also revealed that it had a “non public investigation” underway since May. No action was taken to protect customers in May by commencing a formal complaint proceeding and setting a refund effective date, and that was not done yesterday either. See Feds Reveal Power-trading Probe: FERC Says it Secretly Began Investigating Two Months Before Complaint.

FERC did not act on requests of many parties, including PULP, for an open investigation under Section 206 of the Federal Power Act, saying it would await the outcome of a pending non-public investigation that has been underway since May. As a result, FERC is also not considering requests for refunds of the overcharges due to the market gaming activities. FERC said:

The Commission’s Office of Enforcement began a non-public investigation under Part 1b of the Commission’s regulations in May of this year into the scheduling of flows over the circuitous paths such as those that are addressed in the instant order. The Commission will determine what further action may be appropriate with respect to the above described claims after it considers the results of the staff investigation. We also will not require NYISO to file reports beyond those directed above, as such issues are more appropriately addressed in the investigation.

There are indications that the gaming cost consumers $25 million in April and $100 million in May. See Enron-Like Gaming of NYISO Rules. The gaming continued at least until July 21, when NYISO filed new rules intended to restrict the gaming. Commenters on the filing indicated that the cost in 2008 was $240 million to $415 million. This suggests that the gamers went for the gold in June and July until the fun stopped — or slowed.

As indicated in the post below, Lake Erie circulation continues, suggesting that the market gaming may be continuing, which also raises reliability concerns. By not initiating a Section 206 investigation and not setting a refund effective date, and by vacating a ruling that Enron’s California Death Star congestion and Megawatt Laundering gaming was illegal on June 5, FERC is making refunds more difficult, if not impossible, to remedy gaming that raises NYISO market prices.

The primary purpose of the Federal Power Act, which FERC is charged to implement, is protection of the nation’s electricity consumers. The failure of FERC to set a refund date and publicly investigate the NYISO gaming is an embarrassment.

In the absence of meaningful federal enforcement, what can the state do?

The NYISO is an electric company organized under New York law and is required to operate in the public interest. While the PSC lacks power to revise NYISO rates, the New York PSC can and should exercise more oversight of the performance of the NYISO. The PSC has access to the NYISO data, and might take action against sellers if they have certificates from the state, or might refer matters to the Attorney General for prosecution under the state unfair and deceptive practices laws. Also, the PSC could take a more vigilant stance in FERC proceedings. In the current case, the PSC basically supported the narrow approach of the NYISO, which was to limit certain scheduling paths, and did not seek refunds or ask FERC to open a broader investigation.

The State should consider alternative structures that provide greater accountability to the public interest and the interests of consumers, beginning with appointment of NYISO Board Members by the Governor, as California did after manipulation of the CAISO markets.

The State should also revisit the policies of the PSC that have resulted in too little bilateral contracting and too much reliance upon purchases in the flawed NYISO day-ahead and real time “convenience store” spot markets to meet needs of consumers that are predictable far in advance.

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