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Procurement Manager Seeks Feedback On Using Multi-Year Capacity Hedge For Default Service, Rather Than PJM Capacity Market, Citing Concerns About Costs To Customers From PJM Auction Prices
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The Illinois Power Agency has issued for comment a draft default service procurement plan which, among other things, seeks comment on the use of multi-year capacity hedges for default service, rather than relying solely on RTO capacity auctions
Generally, the IPA proposes to maintain the current default service procurement framework at ComEd and Ameren, which relies on twice annual procurements of on and off-peak blocks of forward energy in a three-year laddered approach.
While the draft does not propose a change in capacity procurement (which at ComEd relies 100% on the PJM auction), the draft plan does seek stakeholder comment on implementing the use of multi-year capacity products (hedges) at ComEd, and the use of multi-year capacity hedges at Ameren
In light of "ongoing price volatility" in the PJM capacity market, the draft seeks comment on the following at ComEd:
1. Should the Agency consider procuring capacity for ComEd eligible retail customers (default service customers)?
2. If the Agency were to begin procuring capacity for ComEd eligible retail customers, how should the Agency structure the capacity product?
--- In particular, are there any recommendations on what portion (in % terms) of ComEd eligible retail customer capacity obligations should be hedged, what portion (in % terms) should be procured through the BRA, for what forward capacity periods, and utilizing what contract term(s) (i.e., 1-year contract covering one BRA period and/or utilization of a multi-year product covering multiple BRA periods)?
The IPA had asked similar questions regarding capacity hedging last year, but did not make any changes as a result
However, "Given the impact on customers of rising capacity prices and likelihood that capacity prices will remain elevated for the foreseeable future, the Agency remains interested in the input of stakeholders on potential solutions that could benefit eligible retail customers," the draft states
"The recent spikes in PJM’s capacity prices raised concerns over costs to consumers," the draft states
The draft states that capacity prices from the 2025-26 PJM BRA, "may indicate a new era of capacity pricing and volatility for PJM and for the purpose of consideration in this plan, the ComEd zone."
The draft also seeks comment on revising the capacity products procured at Ameren
At Ameren, "in light of the tightening capacity markets in MISO (and corresponding increases in recent capacity auction prices [...]), the IPA is considering as part of this 2026 Plan additional options for hedging capacity prices on behalf of eligible retail customers starting in 2026 for the 2027-28 delivery year and beyond," the draft states
"Principally, the IPA is considering solicitations for multi-year, all-season capacity contracts," at Ameren, the draft states
"Capacity prices are highly volatile, and even though fundamental dynamics point to continued tightening of the supply-demand balance in the MISO capacity market in the future, MISO PRA price outcomes could still vary widely. Generation owners value revenue certainty, which decreases revenue risk and thereby improves risk-adjusted returns on capital investments. Capacity contracts for all seasons across multiple years could offer significant revenue stability and certainty, reducing risk and incentivizing generators to offer more favorable contract prices in exchange. These multi-year, all-season contracts would also provide a more consistent price for eligible retail customers between period rate changes (e.g., from summer PTCs to non-summer PTCs as provided in section 3.5.4). These contracts could be used to cover a portion of the capacity position for eligible retail customers in combination with existing and future contracts for seasonal capacity as well to balance the capacity portfolio across seasons," the draft states
While the draft lists risks from multi-year, all-season capacity contracts, such as locking-in higher prices and the potential migration away from default service, the draft states, "These risks / challenges could be mitigated to a meaningful degree by making the multi-year, all-season contract an option and not an obligation, meaning these longer-term contracts would be part of the hedging portfolio and not 100% of the portfolio."
"Other alternatives to mitigate the risk could include incorporating a smaller share of multi-year product contracts (e.g., 10%), thus reducing the exposure to some risk elements such as over-procurement. Doing so also mitigates the potential benefits of the approach as well, thus requiring careful consideration to balance both risk and benefit," the draft states
At Ameren, the draft issues these questions for stakeholder feedback:
1. Should a multi-year, all-season capacity contract be added to the existing seasonal and annual contract options in future capacity solicitations?
2. If pursued, what portion (percent) of capacity procurement should be procured through multi-year, all-season capacity contracts?
3. In addition to purchase of ZRCs, should a multi-year financial hedge be offered?
4. What should the duration (total length) and start date (current year, subsequent year, or two years in the future) options be for bidders to consider?
5. Should multi-year, all-season capacity contracts be procured twice per year with the seasonal and annual contract options, or only once per year?
6. How should multi-year, all-season capacity contracts be evaluated and compared to seasonal and annual contract options?
7. Are there other impacts to customer rates that should be considered in pursuing multi-year, all-season capacity contracts?
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August 18, 2025
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Copyright 2025 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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