THE U.S. TREASURY DEPARTMENT HAS ISSUED RULES that will allow all public power systems to participate in independent system operators without risk of losing the tax-exempt status of their bonds...
A Hope, A Wing, and A Prayer
- failing to perform upgrades;
- Generator rights to positions in the queue;
- "Clustering" of applications to facilitate multiple studies simultaneously; and
- Tax consequences of payments and credits for upgrades.
Bonneville Power Administration (BPA) panned the idea that generators could ask for third-party studies if ISOs/RTOs or other transmission providers (TPs) fail to complete work on time, or even if they disagree over the time the job should take. That will happen in every case, said BPA, which offered the following insightful comment:
"Consider the generator proposal as a whole:
- The generator can require the TP to conduct an unspecified 'reasonable number' of optional studies;
- The TP must coordinate with affected systems, whether or not they wish to cooperate;
- Because the generator need not meet any milestones to remain in the queue other than demonstrating site control, the TP has virtually no means to weed out less-serious requests;
- The TP may study only certain interconnection requests in clusters, and only those received within a 90-day period; and
- The TP must accomplish all of this within 45 days for the feasibility study, 60 days for the [system impact] study, 60 days for a re-study, and 90-180 days for the interconnection facilities study.
By itself, any one of these proposals in unreasonable," said BPA. "Taken together, they are astonishing."
Reliability, ICAP, and Must-Offer Rules
The idea of a market for mandatory reserves of generation capacity, known as "installed capacity" or ICAP, remains the of RTO market design.
At the FERC SMD conference of Feb. 6, consultant Roy Shanker panned the ICAP idea. "Must there be a long-term capacity obligation? The answer is in theory, no. Adequacy markets aren't needed. An energy-only market is sufficient," he said.
Alex Galatic of Strategic Energy argues that energy markets already incorporate the value of capacity in their prices, so in a sense there's nothing left over to relegate to an ICAP market.
"Firm energy is firm," says Galatic. "It is only valuable because there is an assurance of delivery. ... So we have a system now where capacity is included in the term of a firm energy contract ... without that assurance of delivery ... the price would be close to zero."
PennFuture Consultant and former Pennsylvania state utility regulator John Hanger points out that back in January 1994, when rolling blackouts threatened across the state because of a failure of natural gas supply for boiler fuel for generators, "the lights stayed on in Pittsburgh," where there was no ICAP requirement. But he says that ICAP rules within PJM did not prevent rolling blackouts within the territory served by the ISO.
"ICAP has not been shown, at least as practiced within PJM," Hanger says, "to reduce the loss of load probability over other alternatives. ICAP is not encouraging more generation in PJM. Yet ICAP rules, or versions of ICAP rules are plainly expensive to consumers.
"What are they getting for their money?" he asks.
Nevertheless, Shanker appears willing to admit that price caps and political realities will make ICAP markets inevitable. So he calls ICAP a tax-a surcharge to pay