Ferc and Icap

While we have certainly been arguing that the market can determine and include the capacity in the energy price (without the need for a reserves/icap market), the new FERC (Massey, Breathitt, Wood and Brownell) may shed some light on their current thinking in the NE order below issued 8/28/01. While accepting the current NE program with certain changes, FERC is requiring NE to consider alternatives and report to the Commission by December 3. Some quotes from the order:

p. 11: "In a competitive market, the market itself is expected to provide the signals that new construction is needed. These signals are most frequently provided in the form of supply shortages and the rise in prices that may result. However, because it can take up to two years to construct new generation (or longer for certain types of generation) ICAP will help to ensure that this new capacity is brought on line when needed in order to avoid critical capacity shortages. ICAP is intended to serve this purpose by creating the incentive to construct adequate capacity sooner rather than later, and to avoid the price spikes and supply disruptions that a shortage of capacity can cause... thus, a properly-structured ICAP requirement serves an important reliability function and provides an incentive for members to build or acquire needed generation in a timely manner.

While the parties ..may disagree over the appropriate methodology to price ICAP deficiencies, the underlying objective should be clear, i.e., an ICAP deficiency charge that will motivate participants to secure sufficient ICAP, to build new generation, and to offer that generation to others.

Future alternatives to ICAP: Among the possible mechanisms, one such mechanism would be the acquisition of reserves on a forward basis....Another (or possibly complementary) option would be the use of demand side mechanisms, i.e., allowing LSEs to meet part of their capacity requirement by identifying load that would curtail usage, when directed by the grid operator."

This should give us more opportunities to educate the Commission on alternatives. Thanks.

-----Original Message-----
From: Fulton, Donna
Sent: Wednesday, August 29, 2001 10:07 AM
To: Lindberg, Susan; Davis, Dana; Broderick, Paul J.
Cc: Novosel, Sarah; Allegretti, Daniel; Nicolay, Christi L.; Fromer, Howard; Hoatson, Tom
Subject: ICAP order

Sarah Novosel asked me to email this order to you. The FERC accepts as amended, the ISO-NE compliance filing, setting the ICAP deficiency charge at $4.87/kw/month (increased from the currently effective 17 cents). ISO-NE is also directed to make a filing by December 3, 2001 to look at alternatives to the ICAP requirement.