The Mid-Atlantic states' emerging electricity retail markets could be shortchanged if the independent system operator for the region goes forward with initial proposals to overhaul existing market rules, says the executive director of the Mid-Atlantic Power Supply Association (MAPSA).
The PJM Interconnection Inc. staff proposals to insure reliability in the short-term "fail to recognize or incorporate key concerns raised by retail suppliers," Suzanne Daycock says. "We are looking for a better balance between reliability and retail competition."
PJM, which administers electricity markets in Pennsylvania, Maryland, Delaware, Virginia and Washington, DC, set up a committee in August to consider changes to the PJM model forecasting adequacy of generation and to overhaul the existing installed capability/capacity (ICAP) model.
The staff issued a "work in progress" white paper Jan. 8 in which it discusses short-term changes to existing ICAP rules to maintain reliability, while enhancing market capability."
Under the ICAP system, a charge is levied against utilities and other load serving entities that don't contract for enough electricity to serve customers and maintain a reasonable generation margin, or the so-called ICAP. The charge is paid to generators and is intended to spur new construction. But critics have charged the system also has led to potential gaming of the market and other market power problems.
"Tinkering with ICAP is not the best solution to fixing reliability," Daycock says, adding what's needed is a real-time market system. She says retailers presently are stuck with price caps that have produced very thin margins and ICAP only exacerbates the problems.
However, Craig Glazer, PJM manager of regulatory affairs, said ICAP provides assurances the capacity will be there when it's needed.
"It has to be recallable back into PJM," he says, even if it is sold elsewhere. Moreover, ICAP provides generators a revenue stream that is intended to foster development of new capacity within PJM. Glazer conceded marketers don't like the ICAP model because it costs them money.
Reliability has become a "very dicey issue with the California situation," he says, and whether the ICAP model should be replaced at all is still in question.
"A lot of commissioners don't want us to do anything at all. Everybody is positioning for the battle that is yet to come," Glazer says.
If MAPSA is to support a transition approach before the Federal Energy Regulatory Commission (FERC), that support will be based upon PJM's willingness to address a number of concerns the organization said in a letter to PJM management, including:
� Any transition plan must be replaced with a more permanent, market-based approach prior to the summer 2002 peak.
� Any transition plan must mitigate to the fullest extent possible potential or additional adverse impact on retail and generation under development.
� Any transition plan must mitigate the impact that may arise due to concentrated ownership of generation eligible to be qualified as ICAP resources.
� Prior to recommending a plan, the committee must examine and recommend means for increasing the available supply of generation and determine to what extent PJM-West loads and resources will effect PJM's capacity obligation.
� Prior to recommending a plan, newly developed generation resources must be able to access the capacity market under comparable terms and conditions as existing resources.
� Prior to recommending a plan, the future generation adequacy working group must require PJM to develop a supply-demand forecast to determine if a competitive short-term ICAP market is feasible.
� Prior to recommending a plan, the committee must explain how its proposal addresses withholding of ICAP by incumbent players and any other gaming opportunity that could inhibit development of a retail market.
"We think they understand ICAP is a problem," Daycock says. But MAPSA is concerned PJM will put in place rules that reinforce inefficiencies in the market rather than moving forward with a better model, she says.