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Will Capacity Settlement Tear NEPOOL Apart?

Thursday, February 16, 2006 9:58 pm by

After a pile-on of pleadings, a hearing, months of settlement talks, most parties have agreed on a settlement regarding ISO-New England's controversial locational installed capacity model (LICAP).  While Connecticut led the opposition to LICAP, now it's Maine that fiercely opposes the settlement and has threatened to withdraw from NEPOOL to spare its citizens what it considers excessive costs under the settlement.  

Development of capacity markets has led to tension between regions and market participants based on perceptions of capacity gluts or shortages, prices being too low or high, the level of the reserve margin to be procured, the creation of distinct capacity regions, and other issues.  [See No Consensus on Securing Long-term Generation Adequacy.]  There appears to be a growing awareness that capacity development and procurement must take into account the deliverability of energy from a capacity resource.  This in turn would provide for higher capacity payments to generators in constrained areas.  Connecticut authorities balked at this outcome and instead steadfastly insisted that the rest of New England subsidize supplying it with imported energy.

The current settlement agreement has yet to be filed at FERC.  Its outlines include dropping LICAP in place of a forward procurement market that would be implemented through competitive auctions.  During a transitional period of several years, generators would receive capacity payments to help cover their costs.  Overall, this plan is to cost consumers less, but some state officials remain unhappy, particularly those in Maine.  Its industrial customers already feel the brunt of higher energy costs, and fear greater price increases.  Withdrawal from NEPOOL may be an option: the Maine legislature's Utilities and Energy Committee has even held hearings on a bill that would allow the state's regulators to order utilities to leave the power pool.  A major energy marketer testified in opposition to the bill, urging lawmakers to not cast the blame for high energy prices on ISO-NE, which administers the energy markets and transmission in the NEPOOL region.  Other concerns include numerous administrative, operating, legal and market issues that would require resolution were Maine utilities to withdraw.    

Meanwhile, on the federal front, a FERC judge who shepherded the settlement has scheduled meetings with the parties to try to resolve these differences before ISO-NE files a revised capacity plan at FERC.  [FERC Docket ER03-563]


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