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Federal Regulators Have Looked The Other Way for Years on Potential Flaws in Auctioning Power At the Wholesale Level

Schumer: NY'ers Should Not Be Fleeced Out of Billions of Dollars a Year by an Opaque Bid System that Favors Power Generators

Today, U.S. Senator Charles E. Schumer called for a probe into bids and auction results of the New York Independent System Operator (NYISO), the entity that is responsible for pricing power to New York State utilities and large customers, contending that some bidders may be gaming the bidding process, which has led to $2.2 billion a year overpayment by ratepayers, according to a recent report. Schumer said the auction process may have been co-opted by some of the bidders to drive prices higher. Schumer pointed to a recent report showing that electricity costs in New York remain far higher than in neighboring northeastern and industrial states. Schumer today asked the head of the Federal Energy Regulatory Commission (FERC), which is supposed to be the cop on the beat for energy price auctions, to initiate a federal probe in the matter and report back within 90 days.
“Something appears to be rotten in the state of Denmark,” Schumer said. “New York's energy auction system needs to come out of the shadows before New Yorkers have to needlessly shell out another nickel to power generators who could be gaming the system to reap profits at consumers' expense. With energy prices already sky-high and with so many New Yorkers struggling to get by, FERC cannot let this issue sit on the shelf any longer.”
The current system was set up in 2000 as part of a broader plan to deregulate the state's power system and force utilities to sell off their generation assets. The NYISO was established to manage auctions for power from utilities and independent generators, as well as to schedule transmission and distribute revenues.  In addition to its function in the transmission market, the NYISO matches up power demand and supply bids and sets prices for power. However, these auctions must be monitored closely to make sure that bidders aren’t strategically withholding power in order to increase the price.   
A report by energy expert Robert McCullough found that the price of power across New York was ten percent higher than it should be, increasing bills an astounding $2.2 billion per year. Also, according to the U.S. Energy Information Administration, New York electricity customers pay much high rates compared to states without “market-clearing price” auctions administered by ISOs.  Schumer also said prices in New York are much higher than elsewhere in the U.S 
Schumer said the combination of sky-high electric bills and an economic downturn can be devastating families and seniors. New York State’s major utilities reported terminating 329,817 residential accounts for nonpayment, up from 277,771 in 2007. 
"The old FERC stuck its head in the sand and abrogated responsibility to aggressively investigate credible potential problems in the pricing of energy. I am hoping that the new administration will energize FERC to once again be the cop on the beat to protect energy consumers and to investigate potential threats to operating the most efficient and fair energy markets," said Senator Schumer.
Schumer said that for years FERC had been aware of potential problems with the NYISO, but FERC has not investigated whether or not NYISO’s power auctions were subject to price fixing or bid rigging. To ensure that this process receives the scrutiny it needs, Schumer today called on FERC Acting Chairman Jon Wellinghoff and asked him to initiate a complete investigation into the NYISO’s bidding and auction processes. Schumer also demanded that the results of the investigation be made public within 90 days.
Last year, prodded by Senator Schumer, the NYISO found problems with their transmission pricing and routing after customers had to pay increased transmission charges due to congestion on the system.  In that case, the increased congestion was caused by a few bidders scheduling circuitous routes in order to avoid their full share of costs. After months of customers facing high transmission charges, the NYISO finally asked FERC for permission to modify its transmission tariff to eliminate this circuitous routing.


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