News Analysis

 

New England puts a price on electric reliability, but some say the charge looks more like a tax.

Does ICAP qualify as a true commercial product, traded on its own merit with a tangible value for customers?

Or does it exist as artifice - a fiction contrived by regulators to revive and monetize the traditional duty to serve, itself an idea that may have lived past its time?

ICAP denotes "installed capability" - not the electric energy that users consume, but the capacity to produce it. ICAP represents the right to receive power that utilities (also called "load-serving entities," or LSEs) must buy from generators to make sure they have enough supply to cover the demands of their customers, including a margin to allow for contingencies.

Regulators want to make a market in ICAP. They say ICAP offers an essential incentive for power producers to build new plants, since without it, generators could never recover their fixed costs. To create that incentive, regulators impose an ICAP deficiency charge, based on some administrative estimate of the value of installed generating capacity, and payable if your ICAP runs short. Utilities never buy ICAP, the theory goes, if they find it cheaper to go without and pay the penalty. So most everyone concedes that the deficiency charge will set the price of ICAP traded in a bilateral market. Yet the regulators are having trouble setting the deficiency charge, and hence setting the price.

Is the price $8.75 (expressed in terms of a kilowatt-month), as it was in the New England Power Pool (NEPOOL) throughout the decade of the 1990s? Or is it 17 cents per kW-month, which is the current price, supported by many in NEPOOL. Or is it $2, $3, $4.87, or as little as zero? Any such range of prices could apply under the entirely revamped interim ICAP regime proposed on June 4 by ISO New England (ISO-NE). Sithe Energies and FPL Energy brand this peculiar result as "a concession to the 'anti-ICAP parties,' who persist in arguing that ICAP is valueless." All the same, the ISO' s interim ICAP plan would take effect August 1 and run through December, when the ISO would move to a new, permanent plan. By contrast, the base ICAP price in the PJM market is $5.38. The ICAP price runs considerably higher in in the New York ISO.

Some of NEPOOL' s anti-ICAP faction would set the deficiency charge at the price of ICAP traded in bilateral markets, turning on its head the common assumption that the deficiency charge sets the price. That would beg the question of whether ICAP has any value at all. They argue that real-time spot energy markets already recover all generator costs, operating and fixed, and that any ICAP charge in reality is a tax on consumption, since power producers and utilities alike should need no further incentive to build a capacity cushion.

Welcome, then, to dockets EL00-62-015 and EL00-62-026, the two cases in which the Federal Energy Regulatory Commission (FERC) must respond to a federal court remand order