AARP Calls for Reform of NYISO and Its Electricity Spot Markets

AARP has called for reform of the NYISO, the wholesale electric utility that operates the New York grid and ‘organized” electricity spot markets. AARP Calls for Accountability, Oversight and Transparency in New York State Electricity Markets, AARP Press Release, Dec. 15, 2009.

AARP also issued a report identifying areas for specific reform:

• Accountability – The State Legislature should pass reforms requiring the Governor and the Legislature to appoint NYISO’s board of directors.
• Transparency – Require the bids, bidders, and computer computations in NYISO’s wholesale electricity market auctions to be public after no longer than two days.
• Oversight – Require the New York Public Service Commission to review the NYISO budget and approve the fee charged to consumers for NYISO’s operations. The NYISO should also be required to follow New York’s open meeting law.

Recommendations for Reforming NYISO to Lower Consumers’ Electricity Bills, AARP, Dec. 17, 2009.

The New York PSC and privately owned utilities began their experimentation with deregulation of power generation a decade ago, with the selloff of power plants and subsequent dependence upon wholesale purchases in functionally deregulated electricity markets. See Disconnected Policymakers. New York’s electric rates are among the nation’s highest. No state has followed the New York and its pied pipers of deregulation since the demise of Enron, and in recent years eight states suspended their plans to restructure, according to EIA.

According to the AARP Report and the Energy Information Agency, New York’s electric rates are among the nation’s highest.

Recently the New York Assembly committees that oversee energy utilities, corporations, authorities and commissions held joint hearings on the NYISO. See Assembly Committees Hold Hearing to Discuss NYISO Practices and High Electric Prices. The hearings revealed the existence of high bidding that seemed unlikely to be based on sellers’ marginal production costs, as spot market and competition advocates theorize would aoccur in a truly competitive market. See McCullough Research, New York Independent System Operators Market-Clearing Price Auction Is Too Expensive for New York, and New Yorkers Lost $2.2 Billion Because of NYISO Practices: The Debate Continues.

NYISO
refused to provide information requested by the legislative committees regarding the identity and anomalous bids of sellers in its electricity spot markets. The NYISO claims its internal rules, which have been approved by FERC, require secrecy about recent bids and complete “masking” of the identity of who, for example, regularly submits bids at the market maximum of $1,000/MWH, or who submitted more than 585,000 bids above $900/MWH from September 2007 to August 2008. See Data Discredits NYISO and PSC Defense of Spot Market Rate Demands; 12% of Bids Exceed $900, PULP Network March 31, 2009; and More Questions for the NYISO, PULP Network, April 9, 2009.

The current NYISO private governance structure allows power producers and traders to block internal reforms or change its market rules, which are filed with FERC. See NYISO Governance, PULP Network, June 18, 2008. Those rules do not bar anomalous bidding, and so refunds are not an option when sellers game the rules and overcharge. NYISO Admits its “Market Problem” Allows “100% Or More” Overcharges Due to “An Abuse of Market Power,” Proposes Rule Change, No Refunds, PULP Network, September 5, 2009.

When questions are raised about the results of the NYISO markets and its high cost of operations, NYISO claims it is regulated. See Larry Rulison, NYISO tighter control urged – AARP says system’s policies inflate electric prices, hurt consumers, Times Union, Dec. 17, 2009.

But FERC, the federal agency traditionally charged to regulate wholesale electric rates, has itself become a proponent of deregulated market rates. FERC liberally grants permission to sellers to dispense with filing all their rates and contracts publicly for review, lets them demand and charge “market-based rates,” and then suggests market nostrums, such as “demand response,” as a remedy for high and spiking charges, rather than fixing unreasonable charges and investigating market gaming and ordering refunds when sellers game the markets. See No Evil: FERC Refuses to Examine Gaming of RTO/ISO Electricity Spot Markets, PULP Network, April 22, 2008; FERC’s Advice: Avoid Our Deregulated ISO/RTO Spot Markets, PULP Network, June 24, 2009

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