State Agencies Call for a Swift Investigation into the Lake Erie Loop Flow Issue and Decisive Action by FERC to Protect Consumer

NEWS
For Immediate Release
August 26, 2008

State Agencies Call for a Swift Investigation into the Lake Erie Loop Flow Issue
and Decisive Action by FERC to Protect Consumers

The New York State Consumer Protection Board (CPB), the New York Power Authority (NYPA) and the Long Island Power Authority (LIPA) have joined together as part of a growing coalition of Agencies calling on the Federal Energy Regulatory Commission (FERC) to conduct its examination of the Lake Erie Loop Flow issue expeditiously. The Agencies support the FERC’s investigation into the matter involving a small number of market participants who used circuitous paths around Lake Erie to manipulate prices, causing New York’s electricity customers to be significantly overcharged. We further call on the Commission to reassure the public by going beyond the current 120-day prohibition of scheduling over the involved transmission pathways by swiftly investigating, taking decisive action to prevent further potential harm and, if warranted, ordering immediate refunds to affected consumers.

Pursuant to August filings made to the FERC, the CPB, NYPA and LIPA have intervener status in the process. The Agencies are pleased to work with and support the New York Independent System Operator’s (NYISO) based on its July 21, 2008 Exigent Circumstances Filing. Given our status and the gravity of the situation, the Agencies are requesting ongoing status reports as the investigation proceeds.

“New Yorkers are already financially burdened due to economic hardships, and can ill-afford to bear the brunt of overcharges for their energy. For this reason, I have asked the Consumer Protection Board to take the lead in protecting New Yorkers from being overcharged due to unscrupulous methods that may have been used by some providers,” said Governor David A. Paterson. “I am counting on the federal government to act on behalf of New Yorkers as well. Anything less than a swift and comprehensive investigation as well as restitution would be unconscionable.”

“New York consumers should not have to bear the financial burden of unscrupulous market manipulation by private companies,” said Mindy A. Bockstein, the CPB’s Chairperson and Executive Director. “Paying more for already high energy prices is simply intolerable. This scheme has been estimated to cost New Yorkers more than $100 million. Coupled with overcharges of a similar magnitude in 2006 and 2007 due to another market design flaw, New Yorkers have paid more than $300 million more than they should have over the past several summers for electricity. We can not stand idly by and watch this continue. Something must be done to restore the public trust in governance of our energy system. While I am pleased that the FERC has commenced an investigation, the Commission should prevent this from happening again by instituting a long-term solution for consistent pricing transaction rules. Further, the people who were overcharged in this instance should get their money back.”

“LIPA has been a vocal proponent of resolving seams issues between the Northeastern electric markets and it is particularly troubling that a small number of parties have taken advantage of these market seams to the detriment of New York consumers,” said Kevin S. Law, LIPA’s President and Chief Executive Officer in an August 15, 2008 letter to FERC. “New York consumers have been financially harmed from these actions, and ratepayers must receive financial relief from this burden.”

Last October, the CPB joined with others in calling on the FERC to take immediate action against suppliers who were able to manipulate the market, and close loopholes in the rules, that make it possible to bilk people who live and work in New York City out of millions of dollars. The overcharges then totaled approximately $200 million attributed to electricity supplied during the summers of 2006 and 2007. The current controversy concerns suppliers who used circuitous paths around Lake Erie, rather than a more direct route, to schedule electricity to buyers in the Mid-Atlantic region, jeopardizing consumer access to energy and causing overpayments.

The CPB, as New York’s primary watchdog agency for consumer protection, and as the designated Statewide Consumer Advocate at the NYISO, NYPA and LIPA in their respective missions to provide clean, economical and reliable energy, support the NYISO’s filing, in asking the FERC to protect consumers from financial harm caused by unscrupulous providers.