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ISO New England Inc. ) Docket No. EL00-62-041



Pursuant to the Commissionís December 28, 2001 notice in the above-captioned

proceeding, the Maine Public Utilities Commission (MPUC) makes the following

comments in response to ISO New Englandís (ISO-NE) December 20, 2001 filing

(December 20 filing) in the above docket made in compliance with the Commissionís

Order on Rehearing issued on November 20, 2001. ISO New England, Inc., 97 FERC ∂

61,212 (2001) (November 20 Order)1 MPUC submits these comments to urge the

Commission to clarify that the advance ICAP purchase requirement contained in ISONEís

filing is not a reasonable long term mechanism and should not be relied upon by

market participants as more than a temporary provision. Indeed, as noted below, it is

only the temporary nature of the tariff provisions that ISO-NE would put in place and the

relatively limited impact of those provisions under current market conditions that would

justify their implementation. These points are discussed in more detail below.


The Commissionís November 20 Order required the ISO to implement an

advance purchase requirement in which the load serving entity (LSE) knows before the

beginning of the supply month what its ICAP obligation will be for that month. In

1 The December 20 filing incorporates ISO-NEís December 3, 2001 report flied in compliance with the

Commissionís August 28, 2001 Order in this docket. ISO New England, Inc., 96 FERC ∂ 61,234 (2001)

(August 28 Order). Accordingly, MPUCís comments address both the December 3, 2001 and the

December 20, 2001 filings.


response to that order, on December 20, 2001, ISO made a compliance filing relating to

an end-of-the-month Installed Capacity (ICAP) cure period and the advance purchase

requirement. The ISO itself expresses reservations about its compliance filing, stating

that, while it could not implement a true advance purchase requirement in the immediate

future, its filing, based on historical purchases, had the ďvirtueĒ that it could be

implemented in the short term and was the best that could be done under the



There are two serious specific problems with ISO-NEís filing. First, by the ISOís own

account, the proposed ICAP scheme does not reasonably relate a supplierís ICAP obligation to

its actual sales level Ė it is based instead on historical purchases and usage. The result here is to

place added risk and cost on load servers who must still purchase ICAP without knowledge of

their actual responsibility and, presumably, to increase the price they must charge for electricity.

Second, the proposed scheme can require some customers to pay for ICAP twice in a

given month. In particular, if a customer switches suppliers mid-month, both its original and its

new suppliers must each cover that customerís ICAP needs for the entire month. This double

charging of ICAP tends to increase the cost of serving load and the prices customers must pay

for no legitimate reason.

These problems notwithstanding, MPUC recognizes that the tariff provisions the ISO has

proposed in compliance with the Commissionís November 20 Order would only be temporary.

Moreover, given the surplus of capacity under current market conditions, the impact of the

proposed tariff provisions, although undesirable, will be limited. In other words, while the tariff

provisions will tend to inflate the demand for ICAP services -- and hence the prices consumers


would have to pay -- the harm will be limited because the price of ICAP, absent some sort of

manipulation, should be relatively low regardless of the specific rules. That said, MPUC urges

the Commission to emphasize that because the compliance tariff provisions will only be shortterm

and temporary, market participants should be cautioned not to act in reliance on the

continuation of the compliance tariff terms, or on other portions of the current market rules for


MPUC also urges the Commission to clarify that it is far more important that a

functional long-term market for ICAP be developed. The Commission has recognized

the weaknesses of the existing ICAP regime. This recognition led to the requirement that

ISO make the December 3, 2001 filing on future directions for ICAP and, perhaps more

importantly, an ongoing series of discussions among participants in the New England,

New York, and PJM markets over the design of the ICP market. Further, we appreciate

the participation of Commission staff in the first meeting among these participants and

hope that the Commission will continue to participate and support this effort.

We too intend to continue to participate in the development of a workable and

effective capacity market. While we do not intend to continue that discussion here at any

length, we would like to take this opportunity to indicate what are, in our opinion, the

most fundamental principles of developing an ICAP market. In particular, we believe:

(1) that an ICAP market is a direct governmental intrusion into an increasingly

competitive electricity market, (2) that no such intrusion should take place unless and

until there are well articulated policy statements defining the goal(s) of that intrusion, (3)

that the development of the ICAP mechanism must be reasonably certain to achieve the

policy goals at a reasonable cost, and (4) that the ICAP mechanism be flexible enough to


accommodate all strategies to achieve its goals including both the supply and demand

sides, new as well as existing technologies, and more flexible operating and institutional

arrangements such as reserve sharing.

Conversely, an ICAP mechanism whose goal is merely to create an additional

revenue stream from one party to another or one which is adopted simply because some

market participants once had a vague expectation that they would receive an ill defined

revenue stream and priced their offer to buy existing generation accordingly is simply

unacceptable. Not only would such an approach fail to protect electricity customers from

near term high prices but, more importantly, it would lock in place a regulatory intrusion

into the electricity market which would, we fear, lead to new inefficiencies in the future.

The MPUC looks forward to participating in the ongoing discussions of

developing a workable ICAP Ďmarket.í

Respectfully submitted,



Lisa Fink

State of Maine

Public Utilities Commission

242 State Street

18 State House Station

Augusta, ME 04333-0018

(207) 287-1391 (phone)

Harvey L. Reiter

John E. McCaffrey


1150 18th Street, N.W.

Suite 800

Washington, DC 20036

(202) 785-9100 (phone)

(202) 785-9163 (fax)

Dated: January 22, 2002



I hereby certify that I have this day served a copy of the foregoing document by

first class mail upon each party on the official service lists compiled by the Secretary in

these proceedings.

Dated at Washington, D.C., this 22nd day of January, 2002.

Harvey L Reiter