Illinois Power Agency Modifies Default Service Procurement Plan Regarding Capacity, RECs, Clean Coal

In response to comments filed at the Illinois Commerce Commission, the Illinois Power Agency has modified its proposed default service plan, including the provisions related to long-term capacity, RECs, and clean coal contracting.

As only reported by Matters (9/29), the IPA originally proposed procuring through the plan 100% of capacity for the 2012-13 planning year at Ameren (which is expected to be the last year under the Midwest ISO monthly capacity construct), and then procuring, on a presumably bilateral basis, 50% and 35%, respectively, of the new annual capacity requirements in MISO for the Planning Years 2013-14 and 2014-15.

In response, ICC Staff said that it is unclear why the plan proposes that Ameren continue to obtain capacity through IPA procurement events rather than through the forward capacity market that MISO has proposed to implement starting with the 2013-14 Planning Year.

The IPA now agrees that the current procurement plan should only cover capacity needs for the June 2012 through May 2013 Planning Year since that is the last year for which there is certainty in the MISO capacity construct design. The IPA has struck is original recommendation to procure 50% and 35% of Ameren capacity needs for the Planning Years 2013-14 and 2014-15.

However, Ameren said that bilateral purchases of capacity beyond 2012-13 should still be considered. "[P]rocuring 100% of the capacity for the 2013-2014 plan year through an untested MISO process could carry with it certain risks to customers because the new auction process could result in prices well above those seen in recent IPA solicitations and via the MISO monthly auction process. Allowing the IPA to solicit capacity for the 2013-2014 and 2014-2015 plan years carries with it an option, but not an obligation to procure. This option may help to mitigate customer risk because the IPA, Staff, Procurement Administrator and Procurement Monitor would set price benchmarks associated with the IPA capacity solicitation," Ameren said.

Additionally, the IPA has been persuaded that the 2012 procurement plan should be revised to remove its proposal to solicit long-term REC contracts. The IPA will instead rely on 1-year unbundled RECs for default service.

"The IPA acknowledges that customer migration – both through retail switching and municipal aggregation – could play a significant role in the variability and uncertainty of forecasted load. Further, the IPA finds that the current low cost of short-term REC prices makes it difficult at this time to support entering into long-term contracts," the IPA said.

"The IPA does not foreclose the procurement of long-term RECs as an option in future procurements, and welcomes parties' comments on the inclusion of proposals that invite bids for longer-term contracts," the IPA said, stating an intention to develop a specific proposal for inviting bids for longer-term contracts before filing next year's procurement plan.

The IPA also withdrew its original proposal to include carve-out procurements for distributed solar RECs, with contracts lasting at least 10 years. The IPA, "remains committed to the inclusion of distributed SRECs in future Plans, but finds that detailed workshops would be beneficial to the development of the issue, prior to the Commission's consideration of the Plan."

Furthermore, the IPA withdrew it proposal to procure 250 MW of energy for each utility from a clean coal facility. While the IPA stressed that it has statutory authority to procure clean coal resources, the IPA agrees that the record is insufficient at this time to conclude that conducting a procurement event for a clean coal sourcing agreement would result in the lowest total cost over time.

"To be clear, the proposal to procure energy from cost-effective clean-coal facilities will be considered in future Plans," the IPA said.

Reply comments were filed by numerous additional parties on a variety of issues, the most notable being reaction to proposals from competitive suppliers to shorten procurement cycles and use full requirements contracts.

ICC Staff said that, "Proposals to increase exposure of retail rates to market price fluctuations would be too costly to implement within the IPA procurement process and would unduly increase risk to ratepayers without a reasonable expectation of savings."

"In theory, Staff does not necessarily oppose the concept of introducing more frequent procurement events or reducing how far into the future energy price hedges are established. However, Staff is reluctant to support the proposals of ICEA and RESA to hold more than one energy procurement event per year because there are significant costs to holding more frequent procurement events (that are compliant with the PUA and the IPA Act). Staff is also reluctant to support a dramatic alteration of the IPA's current strategy of partially hedging up to three years into the future, without some convincing evidence that the replacement strategy is expected to decrease total costs or that eligible retail customers are unconcerned about price volatility."

Staff would not be opposed to "modest" reductions in the Plan's hedge ratios, if the Commission were to agree with ICEA and RESA that more market reflective pricing would be of benefit.

Commonwealth Edison opposed the use of full requirements contracts. "ComEd understands that the Illinois General Assembly, in enacting Public Act 95-0481, intended to replace the ICC-approved auction process for acquiring full requirements products with an RFP process for standard wholesale products. It is difficult to see how full requirements products are consistent with the definition of Standard Wholesale Product contained in the PUA. Moreover, the RFP process has worked well. For those reasons, the Commission should continue to accept the IPA's proven plan for procuring block energy products and should decline to change the plan to use full requirements products," ComEd said.

ComEd also opposed more frequent procurements.