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News Analysis

New England puts a price on electric reliability, but some say the charge looks more like a tax.
Fortnightly Magazine - August 2001

(). It also must review the ISO plan, which arguably does not represent the real parties in interest. Those players - the 200-odd "participants" in the New England Power Pool (NEPOOL) - earlier had voted 65 percent in favor of a completely different plan, but had failed to win the required two-thirds majority required for passage.

Mirant and PG&E put the matter bluntly: "As the [FERC] is well aware," they noted, "most NEPOOL Participants supported a 17-cent/kW-month deficiency charge."

In other words, the ISO' s plan is really nobody' s plan. It fails to say how it would dovetail with the comprehensive standard market design proposed recently in New England for congestion management and wholesale settlements. ()

"It' s a curious mix of interim provisions, proposed future rule changes and various ideas-in-the-process-of-development," writes Frederic Klein, assistant general counsel for Northeast Utilities Service Co., of the ISO plan.

All this uncertainty has taken a toll on New England. "The high level of effort involved on all sides continues to drain resources away from other, more productive work," adds Carlos Gavilondo, of New England Power, a subsidiary of National Grid.

And if that wasn' t enough, the ISO showed signs of backtracking in "working session" held on June 22 to present the idea to NEPOOL. At that meeting ISO representatives "acknowledged that their proposal had a number of holes in it" and asked for input on "how to flesh out significant details," say Debra Bolton, house counsel for certain Mirant generators in New England, and Steve Herman, at for PG&E Generating.

Scott Siverstein and Roberto Denis, house counsel for Sithe Energies and FPL Energy, want the FERC to step in and impose the old charge of $8.75. "The FERC should stand by its convictions," they say. "The design of electricity markets is far too complex," they add, "and the stakes far too high, to be dealt with in this piecemeal fashion."

Top Ten Disputed Proposals
New England' s ICAP plan has something for everyone - but more, it seems, for consumers.

1. MARKET MITIGATION. ISO could knock ICAP price down to $2 (with further 40-cent cuts) if ISO finds too-few players (three) controlling the net surplus of capacity not pledged as ICAP, during a mid-month market review. But some generators (e.g., Sithe) see greater concentration among ICAP buyers than sellers. They say buyers could trigger the $2 mitigation price almost at will, simply by choosing not to buy ICAP from the sellers with the largest volumes. (Pro consumers.)

2. FORCED DISCLOSURE. ISO could force traders to disclose positions during the mid- month market review. (Anti-producers.)

3. GOOD BEHAVIOR DISCOUNT. Utilities and LSEs get 20-percent discount off deficiency charge after covering their ICAP obligations in the prior month. (Pro consumers.)

4. CURE PERIOD. They also can avoid ("cure") up to 5 percent of the deficiency charge by buying ICAP retroactively up to two weeks past the monthly supply period. NRG Power Marketing complains that this rule lets ICAP buyers move after the fact to arbitrage the difference between the bilateral market and the deficiency charge.