Court allows charge on electric utilities

BOSTON – A federal court has allowed regulators to reinstate a charge on New England electric utilities that fail to meet certain reserve capacity requirements.

The 1st U.S. Circuit Court of Appeals backed away from an order that blocked the so-called installed capability, or “ICAP,” charge.

Federal regulators can now reinstate the $8.75 per kilowatt-month charge. One kilowatt-month is enough power for an average home for a month.

Advocates and some utilities sued to keep the charge from taking effect. They said the charge was based on outdated information from before the region’s electric markets were deregulated.

They also worried that the charge would lead to higher rates as retailers passed the charge along to consumers already dealing with skyrocketing electric rates.

“We don’t think this is very good news,” said Stephen Ward, Maine’s public advocate, who fought for a much lower charge.

“It’s too much,” said Michael Monahan, spokesman for NStar, one of the electric utilities that would be subject to the ICAP charge.

Monahan said higher prices that hit the electric transmission companies, whether a higher ICAP fee or higher wholesale electricity prices, ultimately get passed to customers.

“Yes, it ends up with the consumer, no two ways about it,” Monahan said.

But a spokesman for the region’s generating utilities, Neal Costello, said ICAP charges have little impact on consumer rates since most electric transmission companies already provide for enough extra capacity. That means they don’t have to pay the charge.

The purpose of the ICAP charge is to make sure utilities have the reserve power needed to satisfy peak demand.

In New England, peak electricity demand usually occurs in the summer, when power-guzzling air conditioners and fans are used.

But because demand is rarely at peak level, utilities need an incentive to have enough capacity to generate at that level. The ICAP charge, first set at $8.75 per kilowatt-month in 1990, was meant to provide that incentive.

In 1998, federal regulators allowed New England utilities to abandon the flat ICAP charge in favor of an auction market for buying additional reserve capacity.

But when it became clear in 2000 that the auction system wasn’t working, federal regulators asked New England utilities to come up with a new ICAP charge.

In response, the New England utilities proposed a charge of 17 cents per kilowatt-hour, or about 2 percent of the $8.75 that had been charged before 1998.

Federal regulators said the 17 cents was too low to provide an incentive for generating companies, but they allowed it to stay in effect while advocates challenged the $8.75 charge in court.

The court ruling, issued Friday, supported the Federal Energy Regulatory Commission’s position that the charge necessary to act as an incentive is much greater than 17 cents per kilowatt month.

“That cost is far above $0.17 and probably lies in the $5 range,” the court said in its ruling. “On this premise, the $0.17 proposal was plainly noncomplying, and FERC’s rejection of the $0.17 proposal was therefore well justified.”

Last week, ISO New England, which operates the region’s electric grid, recommended that the ICAP charge range from $3 to $4.87 per kilowatt-month.

Rob Wilson, Massachusetts Department of Telecommunications and Energy spokesman, said the impact on consumers will be unclear until FERC sets an ICAP charge. Even then, different regulatory structures in the six New England states will lead to different impacts in each one.