1. ICAP Issues Massachusetts Roundtable February 16, 2001
Tom Austin
Maine PUC
(207)

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. Standard Offer experience
The Real ICAP Market
Standard Offer experience
Late 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