Monitoring Unit Checks for Price Manipulations in N.Y.

By Jennifer Karchmer - Poughkeepsie Journal - 5-29-02

Spencer Ainsley/Poughkeepsie Journal This view of the Indian Point nuclear power station, in Buchanan, Westchester County, looks east from the Hudson River.

Trading strategies which Enron allegedly used in California to drive upelectricity rates couldn't happen in New York because of safeguards in the state's newly-created power market, industry experts say.

Californians experienced spikes in energy prices and rolling blackouts in 2000 during an energy crisis. Enron, which declared bankruptcy in December 2001, is at the center of an investigation by the Federal Energy Regulatory Commission on California's deregulated market.

In late 1999, the nonprofit New York Independent System Operator replaced the New York Power Pool by creating a wholesale bidding system where suppliers and customers meet. The idea is that competition will drive down prices.

''We operate the power grid in New York state and administer the wholesale market,'' NYISO spokesman Kenneth Klapp said. ''We're just a middleman, an exchange, like a commodities or stock exchange.''

Panel of 19 monitors market

To keep an eye on bids and prevent manipulations, Schenectady-based NYISO created a market monitoring unit made up of 19 members who have experience working in the energy markets and a background in economics and statistics.

Other information about the monitoring unit is confidential for security reasons, Klapp said.

''Every day suppliers put in each hour what they're willing to sell energy for, including their startup costs,'' said Steven Sullivan, also with NYISO. ''All suppliers say what they're willing to sell, then how much they need to buy. We stack up the supply and then we run our market. It's done for every hour of the day.''

Through a computerized, Internet-based system, if the monitoring unit detects an unusually high or low bid, which may indicate price manipulation, members investigate. Since NYISO was created, it investigated only a half dozen unusual bids, Klapp said, which may indicate the procedure has acted as a deterrent to price manipulation.

One of the techniques Enron is accused of is a strategy where it would send power out of California and then resell it back into the state to avoid price caps that applied to transactions solely within California. Sullivan said New York is prepared to combat that problem because it has market rules on price caps preventing suppliers from doing the same thing with neighboring states.

''I think New York learned something from California and the market is very different,'' said Michael Mager, an attorney for Multiple Intervenors Inc., which represents 55 big power customers throughout the state. ''New York is much better, more transparent in what's going on in terms of bidding.''

Tom Geurts, an associate professor of finance at Marist College, said California's market wasn't safeguarded like New York's energy market is today.  ''California was different from ours and it didn't have protection devices,'' he said.

AT A GLANCE

MONITORING UNIT

What: The New York Independent System Operator Market Monitoring Unit.

Purpose: To screen bidding practices to ensure against unethical price manipulation.

Began operation: Dec. 1, 1999.

Members: 19.

Background: Members have master's and doctoral degrees in economics and statistics and experience in energy markets.

Web site: For information on the New York Independent System Operator, log on to: www.nyiso.com.