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:
o Owning generation
o Entering bi-lateral contracts
o Buy ICAP from a NEPOOL/ISO auction process
o 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.
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?
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
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
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
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