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The Illinois Model of Retail Competition

Presentation to Massachusetts Electric Restructuring Roundtable in joint session with XENERGY’s 11th Executive Forum May 18, 2001 Arlene A. Juracek Commonwealth Edison Company Vice President, Regulatory & Strategic Services. The Illinois Model of Retail Competition.

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The Illinois Model of Retail Competition

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  1. Presentation to Massachusetts Electric Restructuring Roundtable in joint session with XENERGY’s 11th Executive Forum May 18, 2001 Arlene A. Juracek Commonwealth Edison Company Vice President, Regulatory & Strategic Services The Illinois Model of Retail Competition

  2. Supply & Demand in the Competitive Market Today • The Illinois Restructured Marketplace • Illinois v. California • Keys to Competition • Promoting Competitive Marketplace

  3. Illinois Restructuring - Legislative Background • Electric Service Customer Choice & Rate Relief Act of 1997 • A transition enabler--not an end-state design • Bundled Rates Frozen through 2004 • FACs eliminated • Decommissioning costs rolled out • One of the Largest Residential Rate Cuts in the Nation • 15% for ComEd on August 1, 1998 • 5% for ComEd on October 1, 2001 • Meter Surcharge Imposed to Fund Supplemental Low-Income Assistance, Energy Efficiency and Coal Technology Development Assistance Programs

  4. Illinois Restructuring - Legislative Background (Con’t.) • Retail Choice Phased In over 3-year Period • Most large customers eligible on October 1, 1999 • All non-residential eligible on December 31, 2000 • Residential customers eligible on May 1, 2002 • Transition Charges Determined through a “Revenues Lost” Approach • Market value employed is equal to the value of utility’s opportunity to resell freed up energy • Charges may be imposed through 12/31/06, but can be extended to 12/31/08 with ICC approval • Utilities Allowed, But Not Required, To Divest Generation and Transmission Assets

  5. Illinois Restructuring - Legislative Background (Con’t.) • Mandatory ISO/RTO Membership • Act Does Not Address Power Exchange (“PX”) Concept and Does Not Contain Any Restrictions on Power Purchases • Customer Safety Nets Provided by the Act • Tariffed, cost-based rates available to all customers until service is declared competitive • Tariffed, market-based rates available to small commercial and residential customers after service is declared competitive • Tariffed rates available to larger customers for at least 3 years after service is declared competitive • An unbundled, Power Purchase Option (“PPO”) available to non-residential customers paying transition charges

  6. Illinois Restructuring - Legislative Background (Con’t.) • Customer Safety Nets Provided by Utilities • Utilities voluntarily offer interim supply service at market-based rates to customers dropped by their alternative suppliers

  7. Illinois Restructuring - ComEd’s Experience • All Commercial and Industrial Customers Have Choice Now • More than 300,000 customers • 12,389 customers have chosen other than bundled service • Represents 5,044 MW of demand on a 21,800 MW system • 19 million MWh of sales representing about 31% of eligible sales • Based on Current Market Prices, Many Transition Charges Are Less Than ½¢ / kWh and Some Customers Will See Charges Drop to Zero Before 12/31/06 • Residential Open Access Tariffs in the Works • Risks Associated with Being the Provider of Last Resort (“POLR”) Will Increase as More Customers Exercise Choice

  8. How Is Illinois Different from California? • ComEd: Retail rates are frozen until 1/1/05, but . . . • ComEd has a forward hedged supply with its generation affiliate • California utilities were forced to purchase supply on thespot market • Illinois: Regional Generation and Transmission • ComEd transmission import capability > 4,500 MW • Illinois: MAIN regional reserve margin > 18%, plus undedicated IPP generation • ComEd: MAIN Reserves > 20% for 2001 • California: Virtually no new plants for a decade • California: Likely blackouts this summer • ComEd’s service territory has seen significant additions of new IPP generation on-line in 2001with much more to come

  9. New Supply- Key to Competition • ComEd Actively Invited New IPP Generation Into Its Service Territory • Actively encouraging IPP development • Posted electrically optimum site locations on the Internet • Well articulated interconnection policies • Experiments to encourage renewables and DG • As a Result, ComEd’s Service Territory Has the Most Active Development of New IPP Generation in the Nation • 3,600 MW on-line in 2001 • 1,100 MW under construction now for 2002 • 4,100 MW in design for 2002

  10. Siting - Key to Competition • The Illinois Commerce Commission, the Illinois EPA, and the Illinois Pollution Control Board Follow a Balanced Approach to Approving New Generation • Restructuring in Illinois Is Being Phased in Over Several Years to Allow for Adjustments, Rather than All at Once • Nevertheless, Some IPPs Have Encountered Local Siting Difficulties • Governor’s Task Force on peaker siting

  11. Competitors- Key to Competition • There Are Sixteen Retail Electric Suppliers in Illinois AES NewEnergy, Inc. Enron Energy Services, Inc. Ameren Energy Marketing Co. Illinois Power Co. AmerenCIPS MidAmerican Energy Blackhawk Energy Service, L.L.C. Nicor Energy, L.L.C. CMS Marketing, Services and Trading Co. Peoples Energy Services Corp. Central Illinois Light Co. South Beloit Water Gas & Electric Co. Dynegy Energy Services, Inc. Unicom Energy, Inc. EnerStar Power Corp. WPS Energy Services, Inc • All of these Suppliers Are Currently Able, or Certificated to, Provided Service to Nonresidential Customers in ComEd’s Service Territory • Nine of the Sixteen Have Limited Their Sales to Customers with a Maximum Demand of 1 MW or Over and/or within Certain Utility Service Territories .

  12. Promoting Competitive Retail Markets • Act Locally, But Think Regionally by • Encouraging IPP development • Promoting and pursuing improvements to the regional transmission highway • Fostering the development of vibrant regional wholesale markets • Trust the “Invisible Hand” of Competition

  13. L.A. San Diego Downside of the Competitive Game

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