LICAP and Its Lessons: A Kink in the Curve

Deck: 

Doubts intensify over New England’s radical new market for electric capacity.

Fortnightly Magazine - January 2005
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What began nearly two years ago as a simple request by power producers to boost their chances for recovering fixed costs for several power plants in Connecticut has mushroomed into the single most complicated case now pending before the Federal Energy Regulatory Energy Commission (FERC).

Starting with must-run agreements for plants essential for reliability in local load pockets, and then offering a safe-harbor rate (PUSH) for peaking units with low capacity factors, the New England ISO (the ISO) now finds itself on the extreme cutting edge of FERC's already-edgy Standard Market Design (SMD). In sheer complexity, the New England proposal exceeds just about anything tried before. (See FERC Docket No. ER03-563, testimony filed Aug. 31, 2004, and thereafter.)

The goal is to solve the most confounding problem of electric utility regulation: how to encourage developers to build enough electric generating plants to ensure reliability-but without the systemic overbuilding of the regulatory compact, or the irrational exuberance of the recent merchant power boom and bust.

The case thus far has attracted a dean's list of star expert witnesses from all sides of the electric utility industry, including such luminaries as Steven Fetter, Steven Stoft, Roy Shankar, Steven Corneli, and Peter Fox-Penner, speaking for power producers, consumers, investors, and the ISO (not in that order).

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