NYISO Admits its "Market Problem" Allows "100% Or More" Overcharges Due to "An Abuse of Market Power," Proposes Rule Change, No Refunds

Bad news about the NYISO's latest "market problem" spilled out late Friday afternoon, just before the Labor Day weekend, when the NYISO made a Filing Requesting Authority to Prospectively Apply New Mitigation Rules to Three Specifically Identified Generators, Requesting Limited Waivers of the NYISO’s Tariff and of the Commission’s Regulations, Seeking Expedited Commission Action, and Requesting Shortened Notice and Comment Periods. NYISO asked FERC for permission, on an emergency basis, to change its market rules due to price gouging by three electricity sellers.

According to the filing, sellers demanded prices that "reflected an exercise of market power and departs significantly from the conduct that [the NYISO Market Monitor] would expect to see under competitive market conditions.... The proposed measure is intended to apply to three generators that have recently been committed for reliability. . . . The generators are all located outside the New York City Constrained Area."

NYISO did not quantify the amount of the overcharges or the cost to consumers, how long the practice was tolerated. NYISO did not identify the sellers, consistent with its rules, approved by FERC, which mask the identities of sellers and their bids, stating:

"Disclosure of this information could cause commercial harm to each entity to which it relates, and could harm the markets administered by the NYISO."

As in prior market failure incidents, NYISO proposes no correction of prices or any disgorgement of the unreasonable overcharges: "the identified Market Parties will be subject to the mitigation measure proposed in this filing only on a prospective basis." The "mitigation measures" are a new formula designed to cap the maximum price that can be demanded by the three power generators.

The filing relies on an affidavit from its "Market Monitor" asserting that the sellers made anomalous bids that would not be expected in a competitive market, stating

(a) that Market Parties’ offering behavior typically departs from the conduct that would be expected under competitive market conditions (in particular, the Bids significantly exceed each facility’s marginal operating cost); (b) the Market Party’s offering behavior has increased the guarantee payments the Market Party has received for the relevant identified Generators by more than the 100% mandatory filing threshold specified in Section 3.2.3 of the MMM; and (c) that the Market Party’s offering behavior and associated guarantee payment are not attributable to legitimate competitive market forces or incentives.

This is similar to the type of conduct that NYISO - and its Market Monitor - flatly denied only a few months ago at hearings held by the New York State Assembly. See
Data Discredits NYISO and PSC Defense of Spot Market Rate Demands; 12% of Bids Exceed $900, PULP Network, March 31, 2009.

The lesson, again, seems to be that sellers cloaked with anonymity can exploit weaknesses in the NYISO rules by gaming them, and, if caught, they will be told to stop the gaming with no serious consequences.

For more about NYISO issues, see:

• McCullough Research, “New York Independent System Operators Market-Clearing Price Auction Is Too Expensive for New York”

• New Yorkers Lost $2.2 Billion Because of NYISO Practices: The Debate Continues.

• FERC, NYISO and PSC Watched While NYISO Gamers Looted Consumers, PULP Network, August 21, 2008;

• Assembly Committees Hold Hearing to Discuss NYISO Practices and High Electric Prices.

• Data Discredits NYISO and PSC Defense of Spot Market Rate Demands; 12% of Bids Exceed $900, PULP Network March 31, 2009;

• More Questions for the NYISO, PULP Network, April 9, 2009.

• NYISO Costs Skyrocket, Benefits Questioned, PULP Network, September 26, 2006.

• Out of the Loop: FERC Finds No Gaming, No Manipulation, and No Remedy in Lake Erie Loop Flow Case, PULP Network, July 17, 2009

• NYISO Needs State "Visitation", PULP Network, June 30, 2009.

Update
9/11/09 -- See Larry Rulison, 3 power generators may have cost consumers -- Agency looking into energy plants' actions, Times Union, 9/11/09