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Power Pool Politics: How New England Agreed to an ISO

Fortnightly Magazine - February 15 1997

rate gradually increases from $1 per kW-year (with the 30-percent bandwidth) to the full rate in the sixth year.

Initially, one-quarter of RNS revenues are distributed on a flow basis, gradually phasing to the full-revenue requirement basis. Certain tie-line owners receive compensation from all NEPOOL participants because the reserve requirements are reduced by the diversity benefits provided by interconnection with neighboring control areas. Existing transmission arrangements among the parties remain in effect and do not fall under the RTG.

Finally, there is a schedule of fixed transition payments among NEPOOL participants as a settlement method to insure, so far as possible, revenue neutrality from changes resulting from the RTG.

The parties were unable to agree to the second five-year period after initiation of the RTG. One alternative provides that existing transmission arrangements terminate and that the average RNS rate applies. The second alternative continues transmission arrangements until expiration, and phases down the bandwidth over the next five years. In either case, some tie-benefit payments to tie owners continue and are phased out. Most parties agree that they will accept either alternative and leave the choice to the FERC. This package, as other aspects of the NEPOOL restructuring, received more than the required 85-percent vote. The principal parties abstaining were Massachusetts municipal utilities and Enron.

Competing Tariffs. The Massachusetts Municipal Wholesale Electric Company filed a competing tariff to the NEPOOL tariff. Enron may argue for a direct and immediate application of the FERC open-access transmission tariff.

The MMWEC proposal rejects RTG status, but moves more rapidly toward the "end state" envisaged by the NEPOOL tariff. It provides for the use of the full RNS rate from the outset and no transition or tie-benefit payments. It also calls for point-to-point service, and leaves all current transmission contracts in place with termination left up to FERC. It clarifies that NEPOOL may own new transmission facilities. Thus, to a notable degree, it strips away some of the gains obtained by transmission owners in the NEPOOL negotiations.

Houlton Water Company, a Maine municipal which is a NEPOOL participant but not located in the NEPOOL control area, signed the agreement but objected to the reciprocity provision of the tariff. The provision does not appear to require reciprocity from New Brunswick Power, to which system HWC is connected. Because such a provision would be the key to NEPOOL access to the Eastern Canadian market, Enron, a nonsigner, supports the HWC position.

Market Structure

The entire NEPOOL changed from dispatch on the basis of energy costs to a market-based approach, as mandated by new players that are both suppliers and purchasers.

The new NEPOOL market will include both bilateral transactions and a power exchange. Both will be voluntary, which means no entity need buy or sell through the power exchange. In fact, most transactions will likely occur through bilateral trades.

Capacity Requirements. Each load-serving NEPOOL participant will have an installed-capability requirement and will be required to carry adequate resources to meet it each month. Currently, the capability will be determined as a function of the total NEPOOL capacity and reserve