Buyer's report hits power suppliers
Says price manipulations cost homeowners, firms in region $2.1b last year
By Peter J. Howe, Globe Staff, 5/4/2001
ver the last year, New England power plant owners have faced - and staunchly denied - swirling speculation that they have been manipulating the region's new wholesale electric market to gouge consumers for millions of dollars.
Now a Westwood-based power buyer who has spent months analyzing market data has come up with an eye-popping allegation about how much suspiciously frequent last-minute plant closings and other generator maneuvers may have cost the region's homeowners and businesses last year: $2.1 billion.
Put another way, the typical homeowner who used 6,000 kilowatt hours of electricity last year arguably overpaid by around $150. Businesses may have paid hundreds or thousands of dollars in windfall profits to generating companies.
Generators and power-grid officials categorically deny the charges. The report author, Stephen M. Tuleja of Alternate Power Source, whose clients have included FleetBoston Financial, Texas Instruments and Western Mass. Electric, is not a wholly unbiased source.
In some ways he is like a grocer alleging that dairies are conspiring to raise the price of milk, hurting his sales. Also he has had longstanding legal and money disputes with grid officials.
But with the local power industry impatiently awaiting a weeks-overdue report from grid manager ISO-New England on the issue, Tuleja is the first market participant to venture an actual number on the impact of what several other market observers have seen as unusual, maybe deliberate, patterns of price-boosting behavior.
Tuleja's report mirrors charges from many in California, where electric industry deregulation has become a multibillion-dollar disaster. Governor Gray Davis and others say generators there appear to be chronically manipulating supply in order to maximize market prices and profits.
Earlier this week, for example, Williams Cos. Inc. agreed to pay $8 million to settle federal charges it withheld power from the California market to boost its profits. Williams denied wrongdoing. Duke Energy is reportedly negotiating a similar settlement in the state.
Tuleja broadly charges similar practices are happening here. ''The wholesale electric markets in New England are rife with serious flaws and market power abuse, and no one is doing anything about it,'' Tuleja said yesterday.
Increases in the cost of natural gas and oil used to generate power, Tuleja said, account for some, but far from all, of the recent electric rate hikes, which have ranged from 25 percent to 70 percent for customers of NStar Electric, Massachusetts Electric, and other area utilities.
''Deregulation has been a bonanza for most generating companies, and it is about time for our politicians to step up and help straighten out this mess,'' Tuleja said. ''They all have their heads in the sand.''
Understandably, Tuleja's report met with harsh denials from a top representative of New England generators.
Neal B. Costello, general counsel of the Competitive Power Coalition, said, ''Steve Tuleja has no credibility whatsoever. ... Anyone who says this is lying, is an idiot, or both.''
Costello declined an opportunity to review Tuleja's study, saying, ''To do that would give it credibility it does not deserve. I wouldn't waste a second of my life looking at anything this man produced. No one [outside grid management] could do such a study, and it is garbage.''
Privately, some industry sources questioned whether Tuleja is seeking revenge on ISO-New England in connection with a pending legal battle over his company's refusal to pay fees that he disputes to the New England Power Pool, leading grid officials to seek to have him terminated as an authorized power buyer. Tuleja denied any connection.
Lisa Franklin, a spokeswoman for PG&E National Energy Group, which along with Sithe Energies and Northeast Utilities controls the lion's share of generating capacity here, said: ''Since the competitive market began three years ago, there have been lots of self-interested parties alleging market manipulation, but not one case has been substantiated.''
Franklin added that Tuleja's charges ''point to the importance of the ISO speeding the release of its investigative report,'' which was initially promised to be delivered in March.
''ISO is the only entity that has access to all the data and all the rules,'' Franklin said. ''This report uses incomplete, piecemeal information to make broad, sweeping conclusions.''
The ISO said yesterday it plans to release the generator outage report later this month, but would not say when.
Bob Ethier, an ISO economist asked to speak for the agency, said last evening that ''the conclusions aren't supportable by the analysis that they have presented in the report, and the findings are frankly ludicrous.''
A large portion of the $2.1 billion figure Tuleja cites, Ethier said, can be explained by the fact that last summer was much cooler than normal, which reduced demand for electricity for air conditioning and thus held down spot-market prices.
As a result, utilities and businesses that had lined up power under long-term contracts paid a much bigger premium over market prices than expected, which Tuleja wrongly counts as overcharges, Ethier said.
Last year, the ISO pushed to wipe out one market, for so-called installed capacity, after it concluded there was a pattern of ''anomalous behavior'' by generators in the winter of 2000 that jacked up prices.
The US Justice Department has been investigating that issue, which involves monthly payments to promote plant construction, but has issued no public findings.
In the wholesale electric spot market, questions about whether supply is being withheld to push up prices were raised last January by the Union of Concerned Scientists, a Cambridge-based group that said plant closings suspiciously doubled in the year after the grid moved to a wholesale market in May 1999.
Grid rules state that plant owners ''shall at all times be the sole judge as to whether or not and to what extent safety requires'' they shut down or restrict output from a plant.
ISO spokeswoman Ellen M. Foley said she was not aware of the ISO, which has authority to inspect plants, ever challenging such a decision by a plant owner.
Under rules common to US wholesale electric markets, the identities of generators who bid to produce power, and details about who is shutting down plants and when, are scrupulously kept secret to protect sensitive internal information.
The ISO does, however, release six months after the fact what bids were put in, without names attached.
As part of his report, Tuleja and economists he hired compiled those records from 42 days over 19 months in 1999 and 2000 - the second Wednesday and Saturday of each month, and four other days when prices soared.
Over and over again, Tuleja said, a pattern emerges of just enough supply being withdrawn at the last minute that the market clearing price is pushed upward by several dollars per megawatt hour, on average about $10.
Each day, the ISO normally counts on 2,000 megawatts of capacity - about one-tenth what New England needs on a normal hot afternoon - being unavailable due to ''unplanned outages.''
But through late 1999 and 2000, on many days several hundred megawatts more were suddenly unavailable - sometimes as much as 4,600 megawatts beyond what was expected, Tuleja said.
Tuleja said further evidence of price manipulation includes his calculations, disputed by the ISO, that:
Weekend electricity prices, which historically have been and theoretically should be lower than weekday prices because demand is lower, frequently exceeded weekday prices in late 2000 because of plants being out of service or unavailable on weekends.
From May 1999 to August 2000, generators collectively raised by 24 percent the ''minimum run times'' for plants and hiked by 40 percent the ''low operating limits'' for plants, or the minimum amount of power the grid would have to agree to buy and for how long if a plant was ordered to run.
PG&E's Franklin said, however, that the increased shutdowns of plants may be linked to the fact that more than 1,000 megawatts of new capacity have been added to the grid since 1999.
''As a rule, brand-new plants have a great number of unplanned outages, because they are working through initial glitches,'' Franklin said. ''The good news is that we have the new plants, which California does not, and that's the biggest difference between the two regions.''
Costello, the generators' spokesman, said the ISO must release its own report immediately. ''We know we will be exonerated,'' Costello said. ''There is no collusion and no inappropriate behavior on the part of generators.''
Peter Howe can be reached by e-mail at howe@globe.com.
This story ran on page 01 of the Boston Globe on 5/4/2001.
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