Sunday, August 17, 2008

NYISO Governance - Director Conflicts

The head of the Port Authority last week resigned his position as a director of the NYISO. As reported by the Daily News:

The Port Authority's executive director is going to have to get by on just $286,702 a year.

Chris Ward resigned Monday from a second job at an obscure nonprofit that manages the state power grid, where he could have earned another $100,000 a year. Ward stepped down from the post less than two months after the Daily News revealed he was moonlighting at the New York Independent System Operator.

"He felt he could not give it adequate time considering his responsibilities at the Port Authority," said Stephen Sigmund, a Port Authority spokesman.

Ward had been appointed to the Independent System Operator in mid-April, just two weeks before Gov. Paterson tapped him on May 3 to helm the Port Authority.

The nonprofit lavishes its directors with a $35,000 annual retainer for part-time work - plus $2,000 for each monthly meeting, $1,500 a day for committee meetings and $750 for telephone conferences.

The move will give Ward more time to grapple with the mess he inherited at Ground Zero, where squabbling, inefficiencies, cost overruns and budget-busting delays have marred efforts to rebuild the World Trade Center site.

PA Boss Ditches Moonlight Gig. This followed prior Daily News articles focusing on the amount of time spent by NYISO directors and their compensation, see Port Authority Boss Also Earns $100G as Part of Nonprofit's Board, and the full time duties of the Port Authority position. As stated in a NY Post editorial after the Port Authority chief resigned from the NYISO Board:
"Not that there was anything at all illegal, or unethical, about Ward's post with the New York Independent System Operator. But his position at the Port Authority is a full-time job - now more than ever."
Chris Ward's Full Plate.

Newsday pointed out that "The New York Independent System Operator provided no reason for the resignation of Christopher Ward from the board of directors." Port Authority Head Resigns from NY Power Board.

The press apparently did not notice that NYISO filed a request to FERC on July 9, stating that it had just noticed that two of its Board members are chief executives of companies that are participants in the spot markets run by the NYISO. NYISO asked FERC to waive conflict of interest requirements of tariffs previously approved by FERC. As summarized by Con Edison in its request for intervention in the case:
On July 9, 2008, the NYISO filed a request for a tariff waiver to address a conflict of interest that has arisen with respect to two of its board members, Christopher O. Ward and Erland E. Kailbourne. The NYISO stated that it "recently determined that these directors are associated with entities that have interests in resources that are eligible to provide demand reductions in the NYISO-administered markets." Because of these associations, the NYISO is concerned about a violation of Section 5.01 of the ISO Agreement which prohibits any NYISO director from "being affiliated with any Market Participant." Accordingly, the NYISO's filing seeks a limited waiver of Section 5.01 of the ISO Agreement to enable these two directors to remain on the NYISO Board.
In addition to Con Ed, numerous parties intervened in the case. Both of the directors mentioned are heads of organizations that can receive large payments for so-called "demand response," i.e., reducing consumption of electricity at times when NYISO spot market prices surge above a designated level. According to the NYISO filing, after the discovery was made (following news stories about the dual role of the Port Authority chief) the two directors were isolated from NYISO Board decision making in matters directly dealing with "demand response." However, other matters at the NYISO, such as those affecting rates of sellers, might indirectly increase or decrease the number of incidents in which "demand response" is called for and is rewarded.

NYISO withdrew the request for waiver of conflict rules with respect to Board member Ward last week after he announced he would resign.

The NYISO was created privately by New York utilities in order to conform with the desires of the NY PSC expressed in its 1996 NY PSC "vision order." Through the carrot and stick of its rate making powers, the PSC encouraged, but did not require, utilities to "restructure"by divesting their power plants from state-regulated traditional utilities and forming new holding companies which would be able to make and sell electricity through less regulated affiliates whose profits would not be limited.

In its restructuring orders, the PSC rejected a New York Power Authority proposal that it be the Independent System Operator, on the ground that it would also be a market participant due to its ownership of the Niagara and St. Lawrence hydro projects and around 2000 miles of transmission lines.

Instead, the utilities cooperated with the PSC vision by morphing the NY Power Pool, which had been directing bulk power grid operations, into a private, non profit electric company to oversee the grid and to run wholesale electricity service spot markets. Under its bylaws, NYISO directors pick their successors. There is some theoretical oversight of the NYISO by FERC and the NY PSC, but current FERC commissioners, like those of the NY PSC, remain in laissez faire deregulation mode, trying to meet their statutory duties to fix reasonable rates by designing and relying upon markets, yet another illustration of hope triumphing over a decade of experience. See Disconnected Policymakers.

In California, the CAISO , a public benefit corporation, performs grid operation and market making functions similar to those of the NYISO. After the Enron debacle, California required the CAISO Board Members to be selected by the Governor and approved by the state senate. See NYISO Governance. Perhaps New York will consider this the next time the NYISO markets fail or the lights go out.

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