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Utilities, state planning for interim power-purchase period

Posted December 27, 2007 10:00 pm

Adriana Colindres

A spike in electricity prices this year sparked a loud public outcry, ultimately resulting in some rate relief for consumers and a new blueprint for how utility companies should buy power in the future.

The changes won't be fully implemented until 2009, however, so officials have started making plans to cover the interim period.

No one knows yet exactly how the changes will affect the size of household electricity bills. But in approving the $1 billion rate-relief law, legislators and the governor said their intent was to help consumers who had been socked by larger-than-expected bills.

A key part of the overhaul involved eliminating the "reverse auction" process, which was used a year ago to set the present electric rates, and creating a new entity called the Illinois Power Agency. Once launched, the agency's duties will include overseeing the purchase of electricity by state-regulated utilities such as AmerenIP, AmerenCIPS and AmerenCILCO that serve much of downstate Illinois.

The IPA will not be up and running by the end of May 2008, which is the expiration date for about one-third of the power-supply contracts that took effect as a result of the reverse auction.

But the rate-relief law, which Attorney General Lisa Madigan's office helped negotiate, recognized it would take time to set up the IPA. The law included a provision requiring the Ameren Illinois utilities and Chicago-based Commonwealth Edison to enter into long-term contracts with power suppliers to buy electricity at fixed prices. The idea behind the long-term contracts was to try to keep electricity costs as low as possible for consumers.

Those long-term contracts will, in effect, partially fill the gap that will be created when some of the existing power-supply contracts expire in May.

To fill the rest of the gap, the Illinois Commerce Commission this month approved a modified version of Ameren Illinois' plan to buy electricity needed to supply residential and small commercial customers, starting in June. The ICC, which regulates the state's utility industry, also OK'd a modified version of Commonwealth Edison's plan to do the same thing for its Chicago-area customers.

Susan Hedman, senior assistant attorney general in Madigan's office, said one of the tweaks the ICC made to the Ameren and ComEd proposals was to require the utilities to buy extra power in advance for the months of July and August. That's when demand - and price - most likely will spike because air conditioners run more often in the summer heat.

"It's kind of an insurance policy for those days when the risk is greatest," Hedman said.

Ameren spokesman Leigh Morris said the company has hired Boston-based Levitan & Associates as the independent manager for the "interim procurement process" - in other words, the purchase of electricity during the period before the IPA starts operations.

Levitan will seek bids from electricity suppliers, Morris said. Bids will be due in March, and contracts also should be awarded that month.

Hedman said that while it is difficult to predict what prices will result from the new process, it will be more consumer-friendly than the reverse auction was. The new method, she said, "has many more safeguards to protect consumers against higher prices."

Still, consumers should not count on lower power bills over the long haul.

Pending before the ICC is Ameren Illinois' request for a $247 million delivery-rate increase, which would mean higher bills for all of the company's residential electricity customers and some of its natural gas customers. The commerce commission is expected to decide on the request sometime next year.

Adriana Colindres can be reached at (217) 782-6292 or adriana.colindres@sj-r.com.

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