FERC Rejects Escalating Penalty Plan For NY Mkt Abusers

- Federal energy regulators rejected part of a proposal that would have allowed New York's wholesale power market operator to impose escalating financial penalties on generators that repeatedly manipulate the market.

The New York Independent System Operator's ability to lower, in the real-time and day-ahead markets, bids that appear to be out of line with historical level should be sufficient to prevent market manipulation, the Federal Energy Regulatory Commission said in its Aug. 31 order. If the NYISO determines these systems aren't effective in preventing abuse, it should consider revising them, the commission said.

In the same order, FERC accepted other parts of NYISO's proposed penalty plan and the market operator the authority to fine generators that submit false information and fail to follow the grid operator's dispatch instructions. The commission said it also would allow NYISO to impose financial penalties on utilities and other companies with an obligation to deliver electricity to customers that repeatedly cause operational problems by underestimating the amount of power they need in the day-ahead market.

FERC's decision has drawn positive comments from the NYISO and some of the groups that opposed the plan.

"We see the FERC has stated very clearly in this that, between the automated mitigation procedure and real-time migitation, we are doing a good job of handling the problem," NYISO spokesman Steve Sullivan said. "We see that as a very positive thing."

The market operator doesn't have plans at this point to ask the commission to reconsider its order, Sullivan said.

Power marketers and independent power producers opposed the escalating penalty plan, saying it was an attempt by the NYISO to mask problems associated with a shortage of generation and transmission and a faulty market design. They also said it was unnecessary because there's no evidence of abuse in New York's power market and worried penalties would discourage generators from bidding in the real-time market and create price uncertainty that could hamper the development of new generation.

The Independent Power Producers of New York, a trade association representing merchant generators, praised FERC's decision as a victory for the state's generators.

"FERC upheld what we had said:there was no evidence anyone was manipulating the marketplace," Executive Director Gavin Donohue said through a spokesman. "This would have been one more reason not to do business in New York."

Controversy has swirled around this penalty plan since its inception. NYISO staff members developed the proposal after its board of directors rejected another one from an ISO committee composed of New York power market participants that called for stiff fines, penalizing first-time offenders and public disclosure of market abusers.

FERC said the penalties for false information submitted by generators and utilities that underbid will be retroactive to July 3.