ICAP Issues Massachusetts Roundtable February 16, 2001 - PowerPoint PPT Presentation

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ICAP Issues Massachusetts Roundtable February 16, 2001

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ICAP is largely an extension of the old NEPOOL Capability ... Does not assign costs to cost-causers. Two choices. Reform. Eliminate. Reform ICAP market? ... – PowerPoint PPT presentation

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Title: ICAP Issues Massachusetts Roundtable February 16, 2001


1
ICAP IssuesMassachusetts RoundtableFebruary 16,
2001
  • Tom Austin
  • Maine PUC
  • thomas.austin_at_state.me.us (207) 287-5901

2
Background
  • ICAP is largely an extension of the old NEPOOL
    Capability Responsibility requirement
  • Originally load servers could meet their ICAP
    requirement by
  • Owning generation
  • Entering bi-lateral contracts
  • Buy ICAP from a NEPOOL/ISO auction process
  • The total ICAP need is set by NEPOOL typically as
    a fairly constant amount for each month of the
    year. This means that load servers must carry a
    higher reserve margin in low load months.

3
Framing the Issue
  • Maine needs about 2500 MW of ICAP per month
  • At current market price (3 per kw) Maine spends
    90 million annually
  • i.e. ICAP adds about 1 cent per kwh to energy
    (currently about 5.5 cents) or almost 20
  • If we paid the proposed 8.75 deficiency charge,
    this would rise to 250 million Half the cost
    of electricity would be ICAP
  • Other states will have similar exposure although
    some have been shielded so far
  • ICAP market is artificial Customers want energy
    at particular times, Not ICAP.
  • Do we need to increase the energy price by 20
    to 50 to maintain reliable service?

4
The Real ICAP Market
  • Standard Offer experience
  • Late 1999 -- ICAP prices suddenly up sharply in
    bilateral market
  • Later find ISO mitigates auction market for Jan
    to Mar due to gaming
  • Currently market is driven largely by the
    expected FERC outcome

5
Problems with existing Market
  • Product is artificial
  • Market easily manipulated
  • Does not provide incentive to build
  • Does not assign costs to cost-causers
  • Two choices
  • Reform
  • Eliminate

6
Reform ICAP market?
  • Base on past bilateral deals
  • Base on cost of new peaker
  • Current cost is around 5
  • Need to net out revenues from other sources
  • According to ISO consultant this leads to cost
    under 1
  • Change details of rule

7
Eliminate ICAP market?
  • Not a product
  • Real effect of ICAP (if any) is to reduce price
    volatility
  • Probably not needed if real-time demand (or
    supply) response is adequate
  • Reduces opportunity for gaming
  • Market manipulation
  • Market rule gaming
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