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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: owner-nyiso_tech_exchange@lists.thebiz.net X-To: TIE_List_Server@nyiso.com X-cc: X-bcc: X-Folder: \Larry_Campbell_Dec2000\Notes Folders\Discussion threads X-Origin: Campbell-L X-FileName: lcampbel.nsf rstalter@nyiso.com writes to the NYISO_TECH_EXCHANGE Discussion List: The following message has been forwarded to the Tech Exchange at the request of Steven Keller of the NY PSC: Statement of the Department of Public Service Staff to the BIC Regarding Shortening the ICAP Obligation Procurement Period from Six Months to One Month The ICAP Working Group has proposed Phase II tariff language that implements the BIC/MC decisions to implement a monthly ICAP obligation procurement period (OPP) instead of the current six-month OPP. It is our understanding that this proposal is largely supported by incumbent load serving entities who are currently required to purchase their ICAP six month's in advance even though they expect to lose load to new entrants during that period. The LSE's are concerned that they may lose money trying to sell unneeded ICAP back into the market. Staff of the New York State Department of Public Service (Staff) understands those concerns. A report by the Brattle Group suggests that the existence of price caps in New York could lead to capacity migration from New York under a one-month OPP scenario. Brattle suggests that under such a system certain "optimistic" suppliers might choose not to offer to sell their ICAP to NY if they think they could do better by selling energy into external markets where they could earn high revenues in high demand month. If that happens, even to a limited extent, we believe it will likely result in increased purchase costs for ICAP purchased both on a bilateral basis and through the ISO auctions, and could also push up energy prices. In a subsequent study by KEMA it is suggested that in order to avoid capacity migration ICAP deficiency charges should be increased as much as six-fold. The obvious result would be that all LSE's would be exposed to significantly higher deficiency charges under a one-month OPP. Staff does not view this as an acceptable alternative to retaining a six-month OPP even with its potential that LSEs may incur a loss as a result of purchasing ICAP for load they expect to lose. As of November 29, 2000, the ISO has been unable to estimate the level of deficiency penalties that would be required to avoid capacity migration under a one-month OPP. As a result, the New York State Department of Public Service has been unable to verify whether the current levels need to be increased, decreased or left as they are. Because of concerns about capacity migration, and because there is very little convincing argument about the costs/benefits that would result from moving to a one-month ICAP OPP that cannot at least partially be obtained from the six month OPP with monthly deficiency auctions, Staff is opposed to such a change at this time. Until the ISO and market participants work out how to ensure that energy and ICAP markets will remain workably competitive even during peak periods, we believe it is prudent to move cautiously with regard to shortening the OPP.
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