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Illinois Power Agency Submits 2012-2017 Default Service Procurement Plan
September 29, 2011
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The Illinois Power Agency has submitted its proposed default service procurement plan for the period June 2012 through May 2017 which retains the general parameters of past plans for energy requirements, but adds a carve-out for distributed solar and potentially clean coal (ICC Docket 11-0660).
As adopted in past plans, the IPA recommended purchasing standard wholesale products for energy supply at ComEd and Ameren under a laddered, three-year forward basis as follows:
- 35% of projected energy needs procured two years in advance of the year of delivery
- 35% of projected energy needs procured one year in advance of delivery
- 30% of projected energy needs procured in the year in which power is to be delivered
Additionally, given the increase in residential switching in the past year, the IPA asked the utilities to submit updated forecasts in early November 2011 so as to improve the accuracy of purchase quantities resulting from the plan.
Capacity at ComEd will continue to be sourced under RPM.
At Ameren, the IPA noted the potential transition to a centralized, forward capacity auction, and proposed to procure 100% of the capacity required to fully comply with the MISO resource adequacy requirements for the 2012 planning year (which will remain under the current design) with such quantities based on monthly requirements.
For planning years 2013 and 2014, the IPA proposes to procure 50% and 35%, respectively, of the annual capacity based on MISO's anticipated change to an annual forward construct. Since the MISO capacity market design is pending before FERC, the IPA proposes that the Commission approve the IPA proposal to pursue annual capacity for 2013 and 2014, but, "also asks that the Commission acknowledge the dynamic nature of the MISO proposal and therefore authorize the IPA to make modifications to this plan as warranted during the 2012 procurement process after consultation with the Procurement Administrator, Procurement Monitor, ICC Staff and Ameren Illinois."
More specifically, the IPA proposes undertaking capacity procurements into future years during the 2012 procurement cycle. "This will result in a hedge of approximately 50% of the capacity requirement for the 2013 planning year (June 2013 through May 2014), and 35% of the capacity requirement for the 2014 planning year (June 2014 through May 2015)."
Although the mechanics are not clear (such as whether the hedges will be physical or financial, and how the IPA will account for the hedges in any subsequent MISO auction, such as by opting out or self scheduling), this essentially appears to mean that the IPA will not be exposed to the forward capacity auction price for these hedged volumes. This is an important issue because retail suppliers, facing migration risk and uncertain future load without the ability to recover excess hedges through regulated rates as the IPA and utilities may do, cannot similarly take the same risks when hedging for capacity.
Additionally, the MISO has previously told Matters that, for any new load obligations assumed during a Delivery Year (e.g. from newly acquired customers), the retail supplier will pay the auction clearing price for such capacity obligation (8/2). If the IPA hedged capacity price is below the auction clearing price, this would seemingly provide the customer with an artificial disincentive to remain on default service -- artificial because the retail supplier has no alternative but to pay the auction clearing price for any newly acquired load obligations.
While similar issues arise any time default service requirements are hedged, the distinction is that, while the IPA's energy hedging may produce favorable energy pricing for customers, retail suppliers competing against this price have a variety of sources and channels from which to purchase energy supply, and when they acquire new load, they are not hamstrung in their cost of energy. In contrast, based on MISO's statement, it appears all new load obligations for retail suppliers will be priced at the auction clearing price for capacity, depriving retail suppliers of the ability to compete on this part of the bill for newly acquired load.
To meet renewable requirements, the IPA would establish annual compliance budgets and then solicit a variety of contracts lengths, up to 20 years, to determine the best mix to meet projected requirements.
Additionally, the IPA proposes a procurement plan for distributed solar RECs, with the first procurement event initiated by December 2012.
The solar REC procurement program will be designed to enable the utilities to sign long-term (at least 10-year) contracts for SRECs from distributed solar systems in Illinois at prices that are competitive with the average SREC clearing price from the standard renewable procurement process.
The IPA will consider the following broad program types:
(1) A fixed price, long-term, standard offer contract program in which initial contract prices are based on the auction clearing prices for SRECs from the IPA's Spring 2012 auction, and contract price offers are adjusted over time to track the market;
(2) An auction for long-term SREC contracts in which participation is limited to aggregators of SRECs from multiple small and mid-size distributed solar systems in Illinois.
Additionally, the IPA will seek proposals for both utilities for up to 250 MW of electricity generated by advanced clean coal technologies that capture and sequester carbon dioxide emissions. If a proposal is accepted and approved by the Commission, the project sponsor and both utilities will enter into long-term (20 years or greater) sourcing agreements.
The Agency will seek proposals from clean coal entities that demonstrate that they have made significant progress to meeting a commercial in-service date of December 31, 2017.
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