posted on Wednesday, June 29, 2005 3:43 PM by Gunnar Birgisson

FERC Administrative Law Judge Issues Initial Decision Largely Adopting ISO-New England Proposal for Locational ICAP

The contentious battle over capacity markets in New England moved a step closer to conclusion when a FERC judge recently upheld for the most part the details of ISO-New England’s locational ICAP ("LICAP") proposal.  See UPDATE (09/30/2002).  LICAP would replace the simpler ICAP regime that allowed load-servers to satisfy their ICAP obligations without regard to whether the capacity was actually deliverable where needed.

The judge found that use of LICAP and demand curves for capacity pricing was the only proposed methodology that would appropriately compensate generators needed for reliability and ensure there was adequate infrastructure while balancing the interests of generators and load.  The judge also recommended that the New England capacity market include Capacity Transfer Rights ("CTRs") to allocate constrained interfaces among competing uses.  CTRs would be allocated to those who pay for the transmission system, including those that funded specific upgrades that increase transfer capacity, and would not be given to load-servers outside of import constrained regions.  There would ultimately be five LICAP regions with separate capacity requirements and prices:  Maine, Connecticut, Southwest Connecticut, Northeast Massachusetts/Boston, and the remainder of New England.  

The transition from ICAP to LICAP in New England began with the submission to FERC of four reliability-must-run agreements in 2003.  FERC rejected the agreements, and directed the ISO to propose a mechanism that would implement location or deliverability requirements so that capacity within constrained area would be appropriately compensated for reliability.  Underlying this directive was the recognition that transmission constraints caused generation within congested areas to be of greater value than generation capacity located elsewhere.  In March 2004, ISO-NE proposed a LICAP model, supported by a coalition of generators, but opposed by most load servers who thought it would generate a windfall of revenue to generators.  Those opponents can be expected to appeal the judge's ruling.   [Devon Power LLC, et al., 111 FERC ¶ 63,063 (2005)] [UPDATE]