N.Y. Seeks Fed Probe in Suspected Power Market Manipulation

ALBANY -- State agencies seeking a federal probe of an alleged power-market manipulation scheme that they say cost New York consumers as much as $250 million on Tuesday applauded temporary measures to halt the practice and an investigation that could lead to reimbursements, Newsday reported.

The Federal Energy Regulatory Commission (FERC) confirmed it has been investigating whether electricity traders have been manipulating power prices through complex transactions aimed at capitalizing on differences in the cost of transmitting electricity, according to the Buffalo News.

Under state energy-market rules overseen by the New York Independent System Operator, companies selling power to out-of-state utilities pay to transmit it over available grids depending on the amount of electrical "traffic" on those lines, Newsday reported. Between January and July, several unidentified companies that sell locally generated power to out-of-state utilities took advantage of a loophole in the system to boost profits, state officials said

The suspicious trades scheduled electricity from around Lake Erie to be shipped to the New York City area along a circuitous route that passed through Ontario, Michigan, Ohio and Pennsylvania to take advantage of lower transmission costs by avoiding the transmission bottleneck that exists between upstate New York and New York City, the Buffalo News reported. But because electricity follows the path of least resistance, regardless of the scheduled route, ISO officials estimate that 80 percent of the power followed a more direct -- and much more costly -- route through New York state and Pennsylvania.

A number of parties also are urging FERC to take steps to force those traders to make refunds for the overcharges that the transactions caused the Buffalo News reported. Gerald A. Norlander, the executive director of the Public Utility Law Project, an Albany-based advocacy group for low-income consumers, who has requested a public investigation, said it is unclear how much restitution could legally be sought, according to the paper.

-- NYSSCPA.org News Staff

Posted on 8/28/08