Governor Spitzer Nominates NYISO Executive for PSC Post

First Choice for PSC Chairman Withdraws
Consumer groups supported Governor Spitzer’s first pick for chair of the Public Service Commission, Angela Sparks-Beddoe, a utility executive who served on his transition team. In her work for the utility, she was well aware of inadequacies of the deregulatory approach of the past decade, and she indicated openness to new solutions. See AARP Commends Governor's Choice for Commissioner of Public Service Commission. Importantly, she was aware of and supported consumer concerns for affordable and stable pricing, and had a track record of personal concern and action regarding the needs of low income households. When she was not confirmed during the legislative session, she withdrew.

Consumer Groups Snubbed in Second Choice
Consumer groups, including the 2.5 million member New York AARP, then urged the Governor to nominate another Chairman who also had a demonstrated commitment to consumer concerns. See Governor Spitzer Asked to Name Pro-Consumer PSC Chair. After months of rumors involving possible nominees, including nationally known experts in utility and environmental policy, Governor Spitzer nominated a new candidate for Chairman of the PSC, Garry Brown. Consumer groups were not consulted on the latest nomination, a candidate who for many years has worked for merchant power interests and the New York Independent System Operator, a utility created to privatize wholesale electricity rate setting. According to the Governor's press release

Mr. Brown currently serves as Vice President of External Affairs at the New York Independent System Operator. From 2002 to 2005, Mr. Brown served as Vice President of Strategic Planning within the same company. Mr. Brown worked for Sithe Energies Inc. from 1995 to 2002. While there, he served in several capacities including Manager of Government and Market Relations; he also served on the Board of Directors of the Independent Power Producers of New York. Previously, Mr. Brown served as a Senior Policy Analyst for the New York State Energy Office.

The Role of the State PSC in Overseeing the NYISO and Merchant Power Providers
The NYISO newsletter lauds the nomination, and describes the PSC position

The PSC regulates New York’s electric, gas, steam, water and telecommunications services. It sets rates and ensures that the state’s utilities provide adequate service to New York consumers.
PSC Commissioners serve six-year terms; they are appointed by the Governor and confi rmed by the state Senate. The Chair is selected by the Governor and is the chief executive offi cer of the Department of Public Service, the staff contingent of the PSC.

Not mentioned by the NYISO newsletter article is the role of the PSC in overseeing the NYISO as to certain of its functions under state jurisdiction. Some claim the NYISO is not under PSC jurisdiction, but that is not supported by prior PSC orders. While some NYISO functions are under FERC jurisdiction, the state retained important supervisory powers.

Also, even in matters in which FERC has unquestioned jurisdiction the state PSC intervenes as a party in FERC proceedings involving the NYISO. These FERC proceedings investigate and review NYISO rates, costs, and tariffs, and functioning of the NYISO markets. These cases often involve whether the NYISO organized markets actually are producing the reasonable rates required by the Federal Power Act, and in other matters. See Industrial and Residential Customers Agree: Proposed FERC Rules for Electricity Market Rates are Flawed

In recent years, questions have been raised about the wholesale market sector of the electric industry, for example,

• possible market gaming and manipulation by the merchant power providers. See Justice Department Investigating NY Energy Markets, and Did Electricity Market Manipulation Cost New York Consumers $157 Million in the Summer of 2006?
• spikingwholesale rates set in the private NYISO markets for energy. See NYISO "Scarcity Pricing" Events
• dysfunctional NYISO capacity markets costing more than $1 billion per year without stimulating intended market responses. see Investment Performance in Deregulated Markets for Electricity: A Case Study of New York State
• reliability issues, e.g., a lack of "black start" arrangements when the August 2003 blackout occurred, and
  
• mushrooming NYISO costs, which now amount to nearly one cent per kilowatt hour, or $5 to $10 per month for residential customers. See NYISO Costs Skyrocket, Benefits Questioned

Anti-Consumer Positions Taken by the NYISO
The NYISO in a recent FERC filing opposes refunds to New York consumers of possible overcharges due to market manipulation or malfunction to benefit consumers. See NYISO Opposes Possible Refund of Overcharges Due to Sellers' Market Power.

In another case in which FERC has begun to examine flaws and costs of organized private wholesale markets including the NYISO, the NYISO is opposing more accountability, in part, on the grounds that the NY PSC is provided confidential market data about rates demanded and is performing certain oversight functions. See NYISO comments objecting to proposals for greater accountability. In the same case, the New York PSC filed comments stressing the importance of PSC oversight of NYISO functions:

New York's Public Service Law assigns the NYPSC with the responsibility to ensure that electric corporations, such as the NYISO, furnish safe and adequate service at just and reasonable rates.'' Moreover, we have observed that "the manner in which bids are made, generators are committed, and the performance of generators in meeting those commitments, can and often do have profound impacts on the reliability of electric service in New York State and, ultimately, on retail rates.

NYISO comments in the same case cite the presence of PSC staff, their oversight role, and access of certain PSC staff to secret NYISO data on prices demanded by sellers, which could reveal withholding or market gaming tactics used to drive prices up, as reasons for FERC not to require greater accountability.

FDR Appointed a Market Insider
The PSC has an important role to play in the supervision of merchant power producers and the NYISO, all of which are New York electric companies that must operate in the public interest. The PSC chair will have the power to examine whether the lightly regulated utilities and the NYISO in which prices are privately set are functioning in the public interest. Despite the apparent lack of consumer-friendly credentials, perhaps the latest nomination will turn out to be analogous to Franklin Delano Roosevelt’s pick of Joseph Kennedy, Sr. as Chairman of the Securities Exchange Commission in 1932, in the aftermath of egregious stock market manipulation scandals and the stock market crash.

An SEC history shows FDR's selection of person attuned to the manipulation of markets turned out to be a very good pick:

while some pushed for the appointment of progressive reformers to the Commission, FDR confounded partisans by appointing Joseph P. Kennedy one of the SEC's first five Commissioners and insisting that the group designate Kennedy as Chairman. Kennedy had profited handsomely from financial manipulation, but he understood keenly the need to balance the interests of the people with the imperatives of the financial markets.

Conclusion
So, based on the experience of FDR’s pick of Joseph Kennedy, perhaps Governor Spitzer's nomination of an electricity market insider who was a merchant power and NYISO executive to lead the PSC will result in more robust and fearless supervision of the NYISO by the PSC, a crackdown on hockeystick bidding, investigation of possible market gaming by NYISO market participants, a more pro consumer tilt in PSC filings at FERC, meaningful state oversight and action to limit the ever rising costs of the NYISO itself, less blind faith in failed NYISO markets, rejection of further market nostrums, and transparency in energy planning to deal with the state’s future energy needs and future energy costs.