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News Digest

Fortnightly Magazine - December 2000

capacity market (ICAP) and associated deficiency charge to match the same step taken in ISO New England, and also to ensure that PJM's permanent bid cap of $1,000 per megawatt-hour (which has applied in the PJM ISO since its formation) will sunset simultaneously with the expected termination of price caps of the same amount in the New York and New England ISOs.

  • Abolishing ICAP Markets. Morgan Stanley had urged the FERC to follow the lead of New England in abolishing ICAP markets and deficiency charges throughout the Northeast, citing studies submitted by economists (such as William Hogan of Harvard Univ.) that ICAP markets are "valueless" and that capacity deficiency charges ought to be set at zero. (Pending the adoption of a new structure to replace its ICAP market, ISO-NE has proposed a deficiency charge of 17 cents per kilowatt-month as a transition measure, but PJM still retains a stiffer deficiency charge of $54.40 per kilowatt-year.)
  • Coordinating Price Caps. MSCG also urged the FERC to coordinate bid-cap policies among regions so that power producers, marketers, buyers, and sellers are not tempted to game markets by selling in one region to avoid a price cap in another. Nevertheless, by early November, Morgan Stanley appeared to have won support for its request only from Williams Energy and the Mid-Atlantic Power Supply Association. Nearly all other responding parties have opposed the request, including state PUCs from Pennsylvania and Maryland, the staff of the Virginia commission, plus consumer advocates from Pennsylvania, Delaware, Maryland, and New Jersey.
  • Stressing Reliability. Denise Goulet, the senior assistant consumer advocate from Pennsylvania, acknowledged that the PJM ICAP market was in need of review and reform, but warned against eliminating the requirement without another structure to ensure reliability and generation adequacy. She added that PJM already was considering alternative plans through its Future Adequacy Working Group, or FAWG.
  • Defending ISO Independence. The PJM and New York ISOs both suggested that each region should map its own course. New York said that it "strongly disagreed" with New England's position that ICAP markets and deficiency charges are "inherently unworkable and anachronistic." It said its own ICAP market rules "should be preserved and ISO-NE and PJM should be free to make their own decisions."
  • Warning of Disruptions. PJM asked the FERC to dismiss the complaint absent any evidence specific to the PJM that its ICAP market wasn't working: "PJM should not be forced to eliminate its ICAP rules simply because ISO New England has chosen to do so, just as ISO-NE should not be forced to retain its ICAP market because the New York ISO intends to keep its own." PJM argued that if it terminated its ICAP market, it actually would make regional differences greater, since New York had not shown a similar intent. "Adoption of Morgan Stanley's complaint," said PJM, "would create a PJM/NY seams issue where none now exists." .

New York Locational Reserves. The New York ISO announced "significant" reductions in locational reserve requirements for the eastern and Long Island sectors for 30-minute reserves and 10-minute spinning and nonspinning reserves, so as