State Review of NYISO Governance Structure Proposed

The Governor’s 2015 State of the State Agenda contains an interesting proposal for reform of the NYISO at page 144:

68. Review and Reform NYISO When New York restructured its energy markets in 1996, it created a marketplace for buying and selling wholesale electricity, to be operated by the New York Independent System Operator (NYISO). NYISO is a private, not-for-profit corporation established by the businesses that participate in the energy market, regulated by the federal government and overseen as an electric corporation by the PSC. It is responsible for the reliable operation of the bulk power system; it designs and administers wholesale energy, capacity, and ancillary services markets, and issues regular planning and economic reports identifying infrastructure needs in the system. The development of cleaner energy resources requires proper price signals at both retail and wholesale levels, and a marketplace that recognizes their value. The current wholesale market structure is not designed for, nor may be well suited for, the proliferation of clean distributed energy resources. The evidence lies in the limited deployment of demand response in the wholesale energy and ancillary services markets and the eroding penetration of demand response in the capacity market. Renewable energy resources also face financial difficulty operating within the current wholesale market structure. In designing and administering the wholesale markets, NYISO makes decisions that can have profound impacts on New York’s electricity prices and energy resource mix, and thus on consumers, the economy, and the environment. However, NYISO’s board of directors does not have adequate public and consumer representation, and are not subject to the same transparency standards as other governmental organizations. The PSC will review NYISO’s current governance structure and markets, and make recommendations for governance and market design changes that will better represent consumer interests and facilitate the advancement of the ongoing clean energy policies of New York State.

The NYISO is a wholesale electric utility operating now as a New York not for profit organization, with a self-perpetuating board.  Not all of the Directors are residents of New York State.  All NYISO rules and tariffs are approved by FERC. So, NY state and the state PSC, if they wish to change those rules, have little or no power to change them directly, because such efforts, if resisted, are likely to be preempted due to FERC’s exclusive jurisdiction over NYISO’s FERC-approved wholesale tariffs, which prescribe the market rules.  See NYISO Governance, NYUP Updates, June 18, 2008.

This does not, however, mean that the State can do nothing.  There is a precedent worth study. In California, after the Enron debacle and market manipulation in 2000/2001, there was a dispute over control of that state’s ISO, the CAISO. California exercised its supervisory and legislative powers over state corporations to reorganize the CAISO as a public benefit corporation with all of its directors named by the Governor and confirmed by the state senate. The incumbent CAISO board objected, fought its replacement by the new board named by the Governor, and complained to FERC. FERC ruled that the state’s restructuring of the CAISO and Governor’s naming of the new board members violated FERC’s requirement of independence of ISO/RTO board members, because the state was also a major participant in the CAISO markets. The case went to federal court.  In CAISO v FERC, the Court of Appeals for the DC Circuit rebuked FERC’s ouster of the gubernatorially selected board, stating:

First, lest there be any mistake, FERC has done nothing less than order a public utility subject to its regulation to replace its governing board. We offer no citation to any comparable order by FERC, or any other similar federal regulatory body, because to the best of our knowledge, there is none. FERC has claimed the authority of no such precedent, the petitioners have found none, nor has our independent research disclosed any. While the petitioners offer several grounds for setting aside that action, chief among those grounds is the argument by petitioners that FERC simply has no authority to do such a thing. Because we agree with petitioners on that basis, and because that basis alone is sufficient to set aside FERC’s order, we need consider no other argument by petitioners.

There appears to be no reason why NY could not do the same as California, to make the NYISO more accountable to interests of the state and its consumers.  AARP welcomed the NYISO review initiative, stating

“New York households pay some of the highest electric bills in the nation, and the wholesale electricity market overseen by NYISO has a major impact on prices,” said Beth Finkel, state director for AARP in New York state.

Larry Rulison, Grid Study Power Play, Times Union, January 27, 2014.  See AARP Lauds Cuomo Move to Protect Consumers in NY’s Electric Marketplace — Applauds Review and Recommendations to Ensure System’s Governance and Markets “Better Represent Consumer Interests,” Jan 27, 2015.

The Chairman of the NYISO Board of Directors, Michael B. Bemis, is a former utility executive (Exelon and Entergy) from Madison, Mississippi.  Other directors include a former state utility regulator from Madison, Wisconsin, Ave M. Bie who is now a partner in a law firm with utility industry clients; Dan Hill, a former Senior Vice President of Exelon Corporation from the Greater Chicago area; Daniel B. More, a former Morgan Stanley investment banker who lives in Greenwich, Ct.;  James V. Mahoney is President and CEO of Energy Market Solutions, Inc., a Florida-based energy advisory company, and is a former utility executive;  Thomas F. Ryan, Jr., from Massachusetts, was the former President and Chief Operating Officer of the American Stock Exchange; Vikki L. Pryor, possibly a Connecticut or New York resident, is founder of Change Create Transform, a thought leadership company in Rye Brook, NY, that helps mission-driven organizations.

New Yorkers on the NYISO Board of Directors include  the Chairman and CEO, Stephen G. Whitley; Erland Kailbourne, a retired banker and Chairman of Albany International, a large industrial firm; and Robert A. Hiney, an engineer from Croton on Hudson, NY, who previously worked for the New York Power Authority.

Updates

NYISO: We’ll Cooperate with PSC Review  — Governance, Market Design Changes Possible, RTO Insider, February 16, 2015.