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Commission Watch

FERC mulls rival plans at the last minute, while on the West Coast, California gets into the game.

Fortnightly Magazine - November 2005

the financial risk when a shortage of generating capacity forces the ISO to scramble to drum up power at the very moment that peak prices prevail.

Connecticut had touted its plan as a just-in-time solution. By creating options available for the ISO to call during emergencies, the plan kicks in only when needed. Utilities would not need to acquire extensive and costly capacity portfolios to be available 24/7, as would be required under the ISO's LICAP proposal. However, the Connecticut RO plan went beyond the scope of the issues stipulated by FERC, so judge McCartney had been forced to declare it out of bounds.

Of course, plenty of complicated issues remained on the record for resolution. Consider, for example, the nearly dozen different alternative LICAP demand curves proposed in the case, two of which are reproduced here, in Figures 1 and 2. Each curve represents a different view of how much capacity really is needed to satisfy reliability needs for the region. ()

All of this changed in late summer, however, when FERC on Aug. 25 announced a new set of ground rules for the upcoming oral argument. Suddenly, FERC had asked the attorneys to compare the costs and benefits of New England's LICAP proposal to other possible plans, and whether LICAP—or any—would provide for just and reasonable wholesale power prices, and adequate assurance of necessary generating capacity. After that, it was "Katy bar the door."

In the three-plus weeks remaining until oral argument on Sept. 20, opponents went back to the drawing board and filed a host of new proposals to compete with LICAP. They flooded the record with an alphabet soup of acronyms, denoting a raft of new and complicated constructs.

Consider NERAM (the New England Resource Adequacy Market), and its companion plan, known as NELRAM (the "L" stands for Locational), as proposed by anti-LICAP groups representing various coalitions of state PUCs and consumer representatives in New England.

Each plan stands as an offshoot to the generic CRAM model developed by National Economic Research Associates. NERA presented the plan in February 2003 (or perhaps 2004, there is some dispute about this), to PJM, New England and the New York ISO, for their consideration in developing capacity markets. ()

NERAM and NELRAM (and CRAM) each envisions an open-market, periodic, descending-clock auction, with the auction price binding throughout the expected three- to five-year time frame for new plant investment. Generators would submit actual supply bids in exchange for a commitment several years hence to provide capacity, with the promise to receive actual auction-clearing price upon eventual delivery. Proponents claimed that either NERAM or NELRAM would give developers a greater incentive to build, since they already would know today exactly how much the capacity market would pay them eventually, several years down the road, when plant construction was complete.

Contrast these plans to LICAP, where the "auction" is a fiction. The price is set administratively by the ISO's self-designed demand curve. Also, under LICAP, new generators who see incentives in this month's LICAP capacity price will not necessarily receive that same price when