WPCNR THE POWER NEWS. By John F. Bailey.  September 16, 2008: The Federal Energy Regulatory Commission refused Monday to reveal to WPCNR the number of brokers who  engaged in selling contracts to their profit advantage, costing millions of New York electric customers overcharges that were charged back to them.

The brokers sold contracts routing electricity around Lake Erie at a  $20 MGH discount, when the electricity would automatically route directly into the New York Power Grid, resulting in Uplifts and production charges charged back to New York electric customers.  

The FERC spokesperson also declined comment on the scope of the practice. She would not say how many times each broker executed such discounted routings, the full dollar impact of the reroutings, the possible profits, and the estimated total cost to consumers, citing a non-public investigation ongoing. 

The New York Independent System Operator which oversees the New York electric spot market refused to reveal the information, either, nor how it was discovered. The reason, according to their press spokesperson Ken Klapp,   “it is in the hands of FERC.”

Senator Charles Schumer of New York perhaps will learn more when he meets with FERC Chair Joseph Kelliher Wednesday. The Senator's office has scheduled a news conference Wednesday to discuss the issue.

Lake Erie Maneuver was Executed in Reverse on New Jersey, Pa in 2003

An energy trader familiar with the practice told WPCNR Tuesday this “game” had been worked before by energy traders in 2003, and is nothing new.  Andrew Stevens of DC Energy in Vienna, Virginia, whose study of the Lake Erie connection activities from July 2007 to June 2008 is referenced in the FERC documents issued on the Lake Erie case,  told WPCNR the Lake Erie connection was executed in reverse around Lake Erie through New York back to the Pennsylvania, New Jersey market resulting in increased charges to Jersey and Pennsylvania users.

Stevens said that he had no personal knowledge of how the Federal Regulatory Commission first noticed the practice early this past spring, saying he suspects it was the FRC's market monitors

The actual overcharges  to New York customers resulting from this practice of the January- July Lake Erie connection are not known and range from $100 to  $300 Million, according to published reports, but may be substantially more.

A National Problem?

Stevens said  he has no evidence of similar market manipulation by routing electricity on a cost-advantageous route, by traders elsewhere in the country. He said he suspects such routing practices  for cost advantage, may be worked by other energy brokers across the country, because of the competitiveness of the market and rules that allow such routing, and that in smaller demand areas, the abuse is not as easily detected.

Impact Underestimated?

New York Municipal Power Agency, an organization representing 36  small cities in New York State, generating their own power, in a letter to the NYISO in July, put actual numbers to the problem.

NYMPA’s General Manager, Robert Mullane, wrote  that in May 2008, the additional charges generated, in part, from this practice amounted to $97 Million for one month  for just 36 municipalities – nine times NYISO’s budgeted charges to the NYMPA members for that month. NYPMA. 

In the same letter, Mullane said the NYISO uplift charge (for conveying electricity in “congested periods” for 36 NYMPA members in May 2008 was $15.3 million which was charged to customers, consumers of NYMPA electricity.

Mullane states: "The increased costs have a pernicious affect on NYMPA members' finances. The cost of Residual Adjustments and uplift alone have increased NYMPA members' ratepayers costs nearly one-cent per kilowatt-hour. In other words, NYMPA members' share of these two costs for May 2008 alone was over $1.3 Million."

The Little Towns Get Hit Hard.

 If these kinds of charges were distributed across the state, the total additional charges to power companies and utilities may be many times more. But no one knows apparently. No one knows.

The New York State cities in the New York Munipal Power Agency are not household names, and include none of the New York’s big cities, or most populated areas where, WPCNR would assume the overcharges would run into the billions. But, no one knows yet. The cities in the New York Municipal Power Agency are:

Akron, Andover, Angelica, Arcade, Bath Electric 7 Gas System, Bergen, Boonville, Brocton, Castile, Churchville, Endicott, Fairport Municipal Commission, Frankfort, Green Island Power Authority, Greene, Groton, Hamilton, Holley, Ilion Board of Light Company, Little Valley, Massena Electric Department, Mohawk Municipal Commission, Pen Yam Municipal Utility Board, Philadelphia, Plattsburgh Lighting Department, Richmondville, Rouses Point, Salamanca Board of Public Untilities, Sherburne, Silver Springs, Spencerport, Springville, Skaneateles, Theresa, Wellsville, Westfield.

Senator Schumer Meets.

Perhaps the full scope of the January to July Lake Erie  routing costs to the New York  customer will become clear Wednesday when Senator Charles Schumer meets with Federal Energy Regulatory Commission  Chairman Joseph Kelliher. Schumer says he wants to assure a “thorough and public” investigation. Schumer's office asked if the Senator would pursue of full-blown congressional hearing to discuss regulation of the energy markets, declined to comment.

Con Edison Lobbied NYISO to Stop The Lake Erie Maneuver.

Con Edison, WPCNR has learned from Andrew Stevens of  DC Energy in Vienna, Virginia,was instrumental in alerting  the New York Independent System Operator  to the ongoing routing of electricity around Lake Erie in the spring.  Con Edison, Stevens said applied pressure to get NYISO to prohibit as of July 22 what Senator Schumer has characterized as a“sham routing scheme” by “rogue energy traders.”

Stevens told WPCNR that his firm had drawn Con Edison’s attention to the routing practice and its impact on Con Edison charges.

Senator Schumer’s office has scheduled a News Conference Wednesday to discuss what Senator Schumer discovers after Wednesday’s meeting with Mr. Kelliher. The Senator’s press office. asked  by WPCNR if the Senator would seek a full-blown congressional investigation,  would say only the Senator was seeking “a thorough and public investigation by FERC.”

FERC Declines Clarification

WPCNR sent Barbara Connors, press officer for  electric in the Federal Energy Regulatory Commission, a series of  written questions based on FERC’s Acceptance of the NYISO steps to stop the practice as of July 22:

1.How many different Energy Brokers or energy sellers did this (sent electricity around Lake Erie, enjoying a discount for "relieving congestion").  (total number of firms is asked here.)

2. Who are they -- Could the FERC release a list in total of these "brokers"?  (if you will not, why not?)

3. How many times did each broker use the counter-clockwise route?

4. What were the total $$ amount of discounts brokers or whomever used the counter-clockwise route -- during the 6 months and 3 weeks this was allowed?

5. What were the total profits enjoyed by those companies during the 6 months and 3 weeks this was going on?

6.What event or entity brought this practice to FERC's attention -- what were the circumstances?

7. Does FERC contemplate investigation of energy-manufacturer costs of raw materials -- oil, coal, natural gas -- to assure there were no markups?

8. What arm of FERC monitors costs of those raw materials to manufacture electric power -- and how often do they do it?

9. What sanctions and penalties might be applied?

“This is a non-public investigation. I cannot tell you anything more than what was already stated  about it in  in the Order Accepting Tariff Sheets of August 21,” Ms. Connors said.

Connors said traders might be subject to fines of up to $1,000,000 a day, pending the investigation’s findings.

Connors said the investigation now underway has no timetable for completion. She would not comment on the scope of the investigation.

Perhaps, Senator Schumer will have better cooperation.