Wednesday, December 02, 2009

NYISO Tenth Anniversary Marked by High Prices and High Costs

Today's Albany Times Union sheds some light on the high cost of operating the NYISO. See James Odato, Pay, Perks Hit at Power Grid Operator -- NYISO Policies "Bleeding the Ratepayers," Whistleblower Warns, Times Union, Dec. 2, 2009.

The NYISO is a nonprofit utility created at the request of the New York PSC to replace the grid management functions of the New York Power Pool and to create new spot markets for trading of energy. The NYISO just celebrated its tenth anniversary. The self congratulatory press release from the NYISO does not tell the whole story.

The old NYPP cost less than $20 million a year to run the state's bulk power grid and rationalize production by directing plants to run based on least cost and reliability principles.
The NYISO has grown. In 1998 the NYPP had employed approximately 111 people and had a budget of $14.5 million. Initially, the transformation of the NYPP into the NYISO was estimated to cost less than $5 million per year more than the NYPP. This rosy estimate is reflected in a Report prepared by the State of Georgia indicating at p. 121 that "New York Power Pool estimates an annual budget of $20 million." That, in hindsight, was laughably low, indicative of the wishful thinking of "Disconnected Policymakers" about markets that substituted for analysis of the economic and reliability costs of restructuring.
See NYISO Costs Skyrocket, Benefits Questioned, PULP Network, September 26, 2006.

The budget of the NYISO is now over $150 million a year. The NYISO has not issued its annual report for 2008, a year in which it took belated action to halt some trading practices that took advantage of market rules.

The NYISO has the ability simply to collect its expenses by adding them to the market price of energy in its markets. There is no real scrutiny of NYISO expenses by FERC, the federal regulatory agency which ostensibly regulates wholesale electric rates. FERC is still on a deregulation binge that depends on "organized" spot markets for the sale of electricity at unregulated prices run by the NYISO and other ISOs or Regional Transmission Organizations.

Legislative hearings have focused on the design and possible gaming of the NYISO markets. Recently, NYISO took belated action to address possible gaming of the markets. See NYISO Admits its "Market Problem" Allows "100% Or More" Overcharges Due to "An Abuse of Market Power," Proposes Rule Change, No Refunds, PULP Network, September 5, 2009. "While NYISO did not go so far as to claim that this behavior technically violated any existing rule, it did state that such actions depart from conduct normally expected under competitive market conditions." Troutman Sanders, FERC Allows NYISO to Subject Three Generators to New Market Mitigation Rules, Nov. 16, 2009.

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