NYISO Needs State "Visitation"

We have observed from time to time that New York State, and in particular, the Public Service Commission, should exercise some oversight power over the NYISO, a New York not for profit organization operating as a wholesale electric utility, even though the rates set in its spot markets are under federal jurisdiction. See, e.g., FERC, NYISO and PSC Watched While NYISO Gamers Looted Consumers, PULP Network, August 21, 2008; NYISO Costs Skyrocket, Benefits Questioned, PULP Network, September 26, 2006.

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. Evidence was received from McCullough Research pointing to high bidding that seemed unlikely to be based on sellers' marginal production costs, as spot market and competition advocates theorize. 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 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.

A Supreme Court decision issued this week in the context of state examination of federally chartered national banks, Cuomo v. Clearing House Association, L.L.C., contains an interesting historical discussion of the power of states to look into corporation matters, including those of federally regulated companies:

In 2005, Eliot Spitzer, Attorney General for the State of New York, sent letters to several national banks making a request “in lieu of subpoena” that they provide certain non-public information about their lending practices. ****

Historically, the sovereign’s right of visitation over corporations paralleled the right of the church to supervise its institutions and the right of the founder of a charitable institution “to see that [his] property [was] rightly employed,” 1 W. Blackstone, Commentaries on the Laws of England 469 (1765). By extension of this principle, “[t]he king [was] by law the visitor of all civil corporations,” ibid. A visitor could inspect and control the visited institution at will. ****

A State was the “visitor” of all companies incorporated in the State, simply by virtue of the State’s role as sovereign: The “legislature is the visitor of all corporations founded by it.” Guthrie v. Harkness, 199 U. S. 148, 157 (1905) (internal quotation marks omitted).

This relationship between sovereign and corporation was understood to allow the States to use prerogative writs—such as mandamus and quo warranto—to exercise control “whenever a corporation [wa]s abusing the power given it, or, . . . or acting adversely to the public, or creating a nuisance.” H. Wilgus, Private Corporations, in 8American Law and Procedure §157, pp. 224–225 (1910). State visitorial commissions were authorized to “exercise a general supervision” over companies in the State. I. Wormser, Private Corporations §80, pp. 100, 101, in 4 Modern American Law (1921).****

[fn] As Justice Story’s opinion in Dartmouth College stated, visitors of charitable corporations had “power . . . to correct all irregularities and abuses,”4 Wheat., at 673, which would surely include operations in violation of law. But whether or not visitors of charitable corporations had law-enforcement powers, the powers that they did possess demonstrate that visitation is different from ordinary law enforcement.

The Supreme Court upheld the information request from the New York Attorney General -- even though federal law prohibits and preempts states from exercising any "visitorial" oversight of national banks -- because his request was not for visitorial information, but for state law enforcement purposes.

The Supreme Court's decision is a reminder that there is no real barrier to New York State exercising "visitorial" powers over the NYISO to obtain information witheld from the public that would aid in ascertaining whether the NYISO is acting in the public interest for the people of the State. Unlike the national bank case discussed above, there is no federal statutory bar to prevent New York State from exercising its visitorial powers over the NYISO, as a New York not for profit organization. This inquiry could be conducted by legislative committees, by the PSC, (if it posessed the requisite curiosity and fortitude), or by the Attorney General. Also, based on results of its investigation, the legislature could find it in the public interest to reorganize the NYISO, which has a self-perpetuating board and a structure tilted toward producers and sellers. For example, after the spot market manipulation in California, the California ISO was made public benefit corporation, with its board directors appointed by the Governor, and confirmed by the state senate. See NYISO Governance, PULP Network, June 18, 2008.

Also, if NYISO persists in its refusal to release information to the state legislators about anomalous rates demanded by sellers in its markets, it could frame for judicial review the issue whether such secrecy is contrary to the Federal Power Act, which requires sellers to file all rates and rate changes publicly, and in advance of changes. FERC approved NYISO rules that

• allow hourly unfiled changes
• allow sellers to charging multiple and wildly varying rates for power made the same hour from the same power plant,
  
• mask the identities of sellers to whom FERC gives so called "market-based rate" permission and delay for months the release of masked data.
  

This system of secret, unfiled and unreviewable wholesale electric rates invented by FERC/NYISO has not been upheld by the Supreme Court. Indeed, last year the Court took pains to note it was not upholding or ratifying FERC's rationale for "market-based rates," calling it "metaphysical." See Supreme Court Leaves Fundamental Questions About FERC Market Rate Scheme Unanswered, PULP Network June 26, 2008. See also, May the FERC Rely on Markets to Set Electric Rates?