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ICAP Issues Massachusetts Roundtable February 16, 2001

ICAP Issues Massachusetts Roundtable February 16, 2001. Tom Austin Maine PUC thomas.austin@state.me.us (207) 287-5901. Background. ICAP is largely an extension of the old NEPOOL Capability Responsibility requirement Originally load servers could meet their ICAP requirement by:

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ICAP Issues Massachusetts Roundtable February 16, 2001

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  1. ICAP IssuesMassachusetts RoundtableFebruary 16, 2001 Tom Austin Maine PUC thomas.austin@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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