CITIZEN POWER ALLIANCE

The New York Public Service Commission (PSC) recently filed comments with the Federal Energy Regulatory Commission (FERC) warning that a proposed new FERC rule could limit access to information and market data from the New York Independent System Operator (NYISO) needed by the PSC for its oversight. The NYISO operates private markets for determining wholesale electric rates, set by sellers given "market rate authorization" by FERC, which have been criticized for their high prices and failure to assure adequate future supply. See, e.g., Cornell Professor Gives Low Marks to NYISO Electricity Markets.

The new regulations were proposed as part of a FERC initiative to address four narrow issues involving the "organized" markets it has fostered, viz, demand response and market pricing during operating reserve shortages; long-term power contracting; market-monitoring policies; and the responsiveness of Regional Transmission Organizations and Independent System Operators to their stakeholders and customers.

The "organized markets" such as the NYISO "day-ahead" and "real time" markets operate under FERC-approved tariffs. They essentially match production with demand and, like a cartel, set the same price for all sellers. In the 15 states that "restructured" their electric utilities a decade ago, and allowed power plants owned by state regulated utilities, these markets now play a major role in determining retail prices, which are no longer based on cost of energy production, and instead are based on the market price.

In an earlier phase of the case, more than forty consumer groups concerned about rising RTO and ISO rates and market manipulation asked FERC to broaden its inquiry to examine whether reliance on the private ISO and RTO utilities and the "organized markets" they operate to set is resulting in the "just and reasonable" wholesale rates for electricity required by law under the Federal Power Act. See Public Power, Industrial and Residential Consumer Groups Demand FERC Review of Organized Spot Markets.

FERC rebuffed the consumer groups in a Notice of Proposed Rulemaking issued on February 22, 2008. FERC refused to widen its inquiry, saying consumers should raise their concerns whether FERC is effectuating the "just and reasonable rate" requirements of the Federal Power Act within the industry-dominated "stakeholder" committee structures of the private ISO and RTO utilities. The ISO and RTO rules tend to marginalize and minimize the weight of consumer interests.

In response to FERC's Notice, the New York PSC filed comments objecting to language in the new rules which could be read to inhibit the flow of information from the NYISO to the PSC except in "enforcement" matters. This could sharply limit information routinely needed by the PSC to investigate and assess, for example, whether sellers are engaging in tactics that drive prices up, prior to any enforcement action. As a result, the ability to get data and information for "enforcement" purposes only could be useless if the PSC could not get access to data for routine analysis and investigation prior to any enforcement decision. The PSC stated:

Federal and state governments should be working in partnership to ensure that markets are working effectively. By refusing to allow state commissions access to this information, the cloud of suspicion by consumers and politicians of the competitive market may continue to grow. In some states, like New York, there have been calls by legislative leaders for the reversal of the competitive market. Consequently, it is vital that state commissions be able to demonstrate that the presence of a competitive market does not disable the state from protecting retail ratepayers and that the state commission is capable of carrying out its statutory obligations in a competitive market.

Even though FERC has jurisdiction to set the wholesale electric rates and rates for bulk transmission, the PSC has jurisdiction and a role to play to enforce the NYISO's state law duty, as a New York electric corporation, to operate and function in the public interest. As part of that function, the PSC can now demand data from the NYISO to ascertain if, for example, market power is being exercised, in a pre-enforcement context. See, e.g., NY Department of Public Service Interim Pricing Report on New York State's Independent System Operator. The PSC rightly objected to any new anti-consumer and anti-state rules that might be read by FERC so as to limit future PSC access to market data and information from the NYISO and its internal market monitoring unit.