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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

Utilities like National Grid say its too difficult for buyers to forecast load and ICAP requirements in advance. Others, like Aquila Energy Marketing, say the 5 percent cure allowance is too low, and will encourage buyers to hoard. That "will create a false scarcity in the ICAP Market," say Maine state regulators, "artificially inflating the bilateral contract price." (Pro consumers, but they don' t see it that way.)

5. DELISTING RIGHT. Generators may choose not to sell capacity in bilateral ICAP market, but export it instead (to New York, for instance) with no recall right for ISO-NE. (Pro generators.)

6. UNIT COMMITMENT. Generators selling ICAP in New England must submit a supply bid in real-time energy market, but capped at the equivalent of $1,000 per MW. Calpine complains that gives the ISO a virtual call option on energy, but without giving the generator the right to negotiate either the strike price (the $1,000 cap) or the option premium (the ICAP deficiency charge). "If the strike price is manipulated by regulatory fiat, it is most certainly going to affect the option premium." (Pro consumers.)

7. MARKET STANDARDIZATION. ISO touts its plan as based on PJM' s ICAP charge, but it differs on many particulars (monthly, instead of seasonal, and with no "bad behavior" penalty, as in PJM), and seems not to achieve a standard design. (Displeases many on all sides.)

8. REGIONAL COORDINATION. ISO aims plan at reducing "seams" issues with PJM, yet many argue that New York is the more natural trading partner. (Mainly of academic interest.)

9. INSTALLED CAPACITY VALUE. ISO sets $4.87 "default" deficiency charge simply by taking PJM' s charge ($177/MWh, or $5.48 per kW-month), based on PJM' s per three-year-old estimates of value of installed peaking capacity ($368/kW), and adjusting for different treatment of outates, but fails to update figures to current cost profile in New England. (Angers producers/consumers alike, who believe true current capacity value in New England is now higher/lower.)

10. BILATERAL PRICE CAP. ISO drops hints that later it will impose a price cap on ICAP traded in bilateral markets. It suggests a price cap based on the 95th percentile of energy clearing prices during OP-4 conditions, averaged over a rolling period, plus 20 percent. (Pro consumers, alarms generators.)

- B.W.R.

Source: FERC Docket Nos. EL00-62-015, EL00-62-026, proposals, comments and protests filed through July 8, 2001.

Regional Coordination: PJM vs. New York

The New England ISO makes it clear from the start that it wants to pattern its ICAP market after PJM' s ICAP plan, but opponents cry foul.

First, the details of New England' s ICAP plan vary widely from PJM' s. Second, if New England believes it so important to standardize markets so as to minimize "seams" between regions, then why not select New York as the model to emulate?

NEPOOL generators Mirant and PG&E sum up some of the differences between PJM and the scheme proposed by ISO-NE: "ISO-NE' s proposal É only selectively adopts portions of the PJM installed capacity approach as a jumping off point for ISO-NE' s own approach."