Illinois Power Agency Seeks Return to Purchasing Default Service Supplies

The Illinois Power Agency on September 30 filed a default service procurement plan with the Illinois Commerce Commission (13-0546) which seeks to return to the purchase of fixed energy blocks to serve default service load.

"Although switching led the portfolio considered in last year's plan to be long and thus without procurement needs, this plan recommends a return to electricity procurements to address supply shortfalls and switching risk," the IPA said.

More specifically, because of the large potential swings in the amount of default service load from the potential return of government aggregations to default supply as default service pricing becomes more competitive, the plan recommends two potential procurement events for the June 2014 to May 2015 delivery year, one in April 2014 and, if needed, one in September 2014 (a departure from the prior annual procurements).

Specifically, the April 2014 procurement would be used to procure energy blocks such that, combined with the existing portfolio, 106% of the June 2014 to October 2014 default load would be hedged, and 75% of the November 2014 to May 2015 default load would be hedged. The September 2014 procurement would be used to procure additional energy blocks to bring the November 2014 to May 2015 hedging to 100%, if the default load forecast for that period has not changed significantly. The September 2014 procurement would not occur if the amount of default service load does not warrant additional purchases (e.g., if returns to default service are occurring at a slower pace than forecast).

The April 2014 procurement would also be used to procure energy blocks such that, combined with the existing portfolio, 50% of the June 2015 to May 2016 default load would be hedged, and 25% of the June 2016 to May 2017 default load would be hedged.

"The accelerated switching of load to competitive supply associated with governmental aggregation (which led to no procurement in 2013) is unlikely to continue at the same accelerated pace as has been seen since roughly 2011. Market saturation coupled with decreased headroom for competitive suppliers will drive any slowing or reversal of municipal aggregation gains. Most, though not all, of the large blocks of load that could switch have now done so and any likely additional load switching will come from ongoing retail marketing. The available headroom has diminished as a consequence of the utilities' current supply portfolio's lower price relative to market; it is now significantly closer to market price. As a consequence of these factors, the supply strategy presented in this plan takes the cautious view that expiring municipal aggregation contracts provide switching risk that the IPA must account for when considering what procurements to propose for eligible retail customers. To mitigate that risk, the IPA proposes a second procurement event to be held in September 2014 unless ComEd's load drops significantly below current projections and other factors determine that a second procurement is not cost-effective," the IPA said.

"[O]ver half the current supply contracts for municipal aggregation will expire in the 2014-2015 procurement year. It is a possibility that many of the renewal offers made by the suppliers to municipal aggregations may be out of the money relative to utility bundled supply prices, so there may be a considerable amount of return to utility service. This is especially true if market prices rise between now and the expiration of municipal aggregation contracts," the IPA said.

The plan continues to rely on block energy products for default service, rejecting full requirements products. The plan recommends decreasing the size of procurement blocks from 50 MW to 25 MW

"While the IPA investigated alternative strategies such as full requirement contracts or use of options, the IPA believes the continuation of the IPA's past strategy at this time to be the most prudent and the most likely to produce its statutorily mandated objective to, '[d]evelop electricity procurement plans to ensure adequate, reliable, affordable, efficient, and environmentally sustainable electric service at the lowest total cost over time, taking into account any benefits of price stability,'" the IPA said.

The IPA continues to recommend that capacity, ancillary services, load balancing services, and transmission services be purchased, as they are now, by Ameren from the MISO marketplace and by ComEd from PJM.

The plan continues to recommend that no procurement of renewable resources for default service occur because current targets are being exceeded and the statutory rate caps preclude any additional procurement.