Assessing the Implications of Market Developments for Electricity it Regulation and Competition A Retail Perspective American Antitrust Institute Annual Energy Roundtable March 2, 2010
THE TRANSITION FROM REGULATION TO COMPETITION 1997 Illinois General Assembly enacts Customer Choice and Rate Relief Act Restructuring Retail Choice Rate Freeze 2006 Illinois Commerce Commission approves reverse auction 2007 Rate shock
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. UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION The People of the State of Illinois, ex rel. Illinois Attorney General LISA MADIGAN, Petitioner, v. Docket No. EL07-47 Exelon Generation Co., LLC, Constellation Energy Commodities Group, Inc., Dynegy Power Marketing, Inc., J.P. Morgan Ventures Energy Corporation, Ameren Energy Marketing Company, American Electric Power Service Corporation, Conectiv Energy Supply, Inc., DTE Energy Trading, Inc., Edison Mission Marketing & Trading, Inc., Energy America, LLC, FPL Energy Power Marketing, Inc., J. Aron & Company, Morgan Stanley Capital Group, Inc., PPL EnergyPlus, LLC, Sempra Energy Trading Corp., WPS Energy Services, Inc. Respondents. COMPLAINT BY THE PEOPLE OF THE STATE OF ILLINOIS, ex x rel. ILLINOIS ATTORNEY GENERAL LISA MADIGAN, REQUESTING THAT FERC INVESTIGATE EVIDENCE OF PRICE MANIPULATION IN THE ILLINOIS AUCTION, REQUIRE REFUNDS FOR SALES AT RATES THAT ARE NOT JUST AND REASONABLE, AND DIRECT CERTAIN WHOLESALE ELECTRICITY SUPPLIERS TO SHOW CAUSE WHY THEIR MARKET-BASED RATE AUTHORITY SHOULD NOT BE REVOKED Pursuant to Sections 205, 206 and 222 of the Federal Power Act ( FPA ), 16 U.S.C. 824d, 824e and 824v, and Rule 206 of the Rules of Practice and Procedure of the Federal Energy Regulatory Commission ( FERC or Commission ), 18 C.F.R. 385.206, the People of the State of Illinois ( the People ), ex rel. Lisa Madigan Illinois Attorney General, hereby file this complaint against 16 electricity suppliers engaged in wholesale power sales to Illinois utilities at rates that are not just and reasonable and that, consequently, burden the People with at least $4.3 billion in excess costs.
ILLINOIS ENERGY LEGISLATION Illinois i Power Agency Act 20 ILCS 3855/1 Electric Utility Renewable Portfolio Standard 20 ILCS 3855/1-75(c) Alternative Retail Electric Supplier Renewable Portfolio Standard 220 ILCS 5/16-115D Electricity Efficiency Portfolio Standard 220 ILCS 5/12-103(b) 103(b) Natural Gas Efficiency Portfolio Standard 220 ILCS 5/8-104 Electric Utility Demand-Response Standard 220 ILCS 5/12-103(c) and Real Time Pricing 220 ILCS 16-107 Clean Coal Portfolio Standard 20 ILCS 3855/1-75(d) Energy Efficiency On-bill Financing 220 ILCS 5/16-111.7 Net Metering (220 ILCS 5/16-107.5 and 83 Ill. Adm. Code 465) and Interconnection Standards (83 Ill. Adm. Code 466 and 467)
Illinois Power Agency (20 ILCS 3855/1) Procures electricity for electric utilities: At least once each year Competitive process Pay as bid Benchmarks used to reject above-market bids
Illinois Electric Sector (before policy intervention) Natural Gas Megawatt-ho ours Coal Nuclear 1980 1990 2000 2010
Illinois Renewable Portfolio Standard 20 ILCS 3855/1-75(c)(1) Percentage of electricity needed to serve ComEd and Ameren customers that t must come from renewable energy resources: at least 2% by June 1, 2008; at least 4% by June 1, 2009; at least 5% by June 1, 2010; at least 6% by June 1, 2011; at least 7% by June 1, 2012; at least 8% by June 1, 2013; at least 9% by June 1, 2014; at least 10% by June 1, 2015; increasing by at least 1.5% each year thereafter to at least 25 % by June 1, 2025.
Illinois Renewable Portfolio Standard Renewable Energy Resource Definition 20 ILCS 3855/1-10 10 energy and its associated renewable energy credits or renewable energy credits from wind, solar thermal energy, photovoltaic cells, biodiesel, crops and untreated and unadulterated organic waste biomass, tree waste, hydro power that does not involve new construction or significant expansion of dams, landfill gas produced in the State and other alternative sources of environmentally preferable energy.
Illinois Renewable Portfolio Standard 20 ILCS 3855/1-75(c)(4) Renewable energy credits used to comply with the standard must be retired
Renewable Portfolio Standards WA: 15% by 2020* NV: 25% by 2025* MT: 15% by 2015 OR: 25% by 2025 (large utilities)* 5% - 10% by 2025 (smaller utilities) CA: 33% by 2020 UT: 20% by 2025* AZ: 15% by 2025 www.dsireusa.org / October 2009 ND: 10% by 2015 SD: 10% by 2015 CO: 20% by 2020 (IOUs) 10% by 2020 (co-ops & large munis)* KS: 20% by 2020 NM: 20% by 2020 (IOUs) 10% by 2020 (co-ops) MN: 25% by 2025 (Xcel: 30% by 2020) IA: 105 MW VT: (1) RE meets any increase in retail sales by 2012; (2) 20% RE & CHP by 2017 MI: 10% + 1,100 MW by 2015* WI: Varies by utility; NY: 24% by 2013 10% by 2015 goal IL: 25% by 2025 MO: 15% by 2021 OH: 25% by 2025 WV: 25% by 2025* VA: 15% by 2025* NC: 12.5% by 2021 (IOUs) 10% by 2018 (co-ops & munis) ME: 30% by 2000 New RE: 10% by 2017 NH: 23.8% by 2025 MA: 15% by 2020 + 1% annual increase (Class I Renewables) RI: 16% by 2020 CT: 23% by 2020 PA: 18% by 2020 NJ: 22.5% by 2021 MD: 20% by 2022 DE: 20% by 2019* DC: 20% by 2020 HI: 40% by 2030 State renewable portfolio standard State t renewable portfolio goal Solar water heating eligible TX: 5,880 MW by 2015 Minimum solar or customer-sited requirement * Extra credit for solar or customer-sited renewables Includes non-renewable alternative resources 29 states &DC have an RPS 6 states have goals
Renewable Portfolio Standard Cost Cap 20 ILCS 3855/1-75(c)(2) If utility customer bills would go up more than about.5% in any given year to meet the renewable portfolio standard, utility is not required to meet the standard. Important to choose the most cost-effective measures available to avoid hitting the cap. Legislative review of cost cap by June 30, 2011
Illinois Renewable Portfolio Standard In-State Preference 20 ILCS 3855/1-75(c)(3) Through June 20, 2011, renewable energy resources used to meet the standard must be located in Illinois, to the extent that enough renewable resources are available in Illinois.
Illinois Renewable Portfolio Standard Technology Set-aside 20 ILCS 3855/1-75(c)(1) Starting in 2008, at least 75% of the resources used to meet the standard must come from wind Starting in 2015, at least 6% of the resources used to meet the standard must come from solar photovoltaics
Illinois Power Agency and Illinois Commerce Commission are required to develop benchmarks to evaluate bids for in-state renewable energy resources Benchmarks are used to reject high bids that may seek to exploit the statutory preference for Illinois-based renewable energy resources P.A. 95-1027 (effective June 1, 2009)
Comparison of Illinois REC prices (before and after benchmarks)
Illinois Electric Sector w/utility RPS Renewable Energy Natural Gas -hours Megawatt Coal Nuclear 1980 1990 2000 2010 2020 2030
Alternative Retail Electric Suppliers and utilities that sell outside of service territories are required to comply with the Illinois Renewable Portfolio Standard 220 ILCS 5/16-115D 115D Doubles Illinois i commitment t to the use of renewable energy resources
Illinois Renewable Portfolio Standard for Alternative e Retail Electric Suppliers 220 ILCS 5/16-115D (effective June 1, 2009) Percentage of electricity sold that must come from renewable energy resources: at least 5% by June 1, 2010; at least 6% by June 1, 2011; at least 7% by June 1, 2012; at least 8% by June 1, 2013; at least 9% by June 1, 2014; at least 10% by June 1, 2015; increasing by at least 1.5% each year thereafter to at least 25 % by June 1, 2025.
RENEWABLE PORTFOLIO STANDARD ALTERNATIVE COMPLIANCE PAYMENT 220 ILCS 5/16-115D115D Alternative Retail Electric Suppliers and utilities that t sell outside of service territories i meet 50% of RPS requirement by making Alternative Compliance Payment based on price for renewable resources in most recent Illinois Power Agency procurement event Illinois Power Agency uses Alternative Compliance Payment funds to purchase renewables, using long-term contracts when ever possible
Renewable Portfolio Standard for Alternative Retail Electric Suppliers (P.A. 95-1027 P.A. 96-159) COSTS ARE EFFECTIVELY CAPPED Because alternative compliance mechanism is tied to utility renewable energy procurement price
RPS Compliance Options 220 ILCS 5/16-115D ARES and utilities selling outside of their service territories may comply with half of RPS that does not require a mandatory alternative compliance payment by: Generating electricity using renewable resources Purchasing h renewable energy or credits, and/or Paying y g additional alternative compliance payments
Illinois Electric Sector w/utility + ARES RPS Renewable Energy Natural Gas -hours Megawatt Coal Nuclear 1980 1990 2000 2010 2020 2030
Interconnection New rules that make it easier for renewable generators to hook up to the electric grid 83 Ill. Adm. Code 466 (small and medium generators - summer 2008) 83 Ill. Adm. Code 467 (large generators - summer 2009)
CLEAN COAL PORTFOLIO STANDARD 20 ILCS 3855/1-75(d)
Clean Coal Facility Standard (200 ILCS 3855/1-10) 10) Commencement of commercial operation Carbon sequestration requirement 2015 or earlier 50% 2016-20172017 70% after 2017 90%
INITIAL CLEAN COAL FACILITY General Assembly has authorized a process to study and construct an initial clean coal facility that generates electricity and that captures and sequesters 50% of its carbon emissions i 20 ILCS 3855/1-75(d)
General Assembly Approval Required for Initial Clean Coal Facility General Assembly must approve cost and design-study study before the initial clean coal facility can be built and, if approved, the General Assembly must set the price at which electricity can be sold from the facility 20 ILCS 3855/1-75(d)
ICC determines extent to which Initial Clean Coal Facility costs are passed on to consumers ICC reviews rate of return, capital structure, fuel costs, etc. that can be passed on to consumers at least once every three years 20 ILCS 3855/1-75(d)
Clean Coal Portfolio Requirement ComEd, Ameren, Alternative Retail Electric Suppliers and utilities that sell outside their service territories are required to purchase electricity from the initial clean coal facility to serve up to 5% of their respective loads Costs are capped for residential and small commercial customers 20 ILCS 3855/1-75(d)
Illinois Electric Sector w/rps + Clean Coal Renewable Energy Natural Gas Megawatt- -hours Clean Coal Conventional Coal Nuclear 1980 1990 2000 2010 2020 2030
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Net Metering Electric utilities must credit customers that own renewable electric generating facilities, if those facilities supply electricity to the grid Meters measure the flow of electricity in both directions at the same time 220 ILCS 5/16-107.5 107.5
Net Metering New rules that implement the net metering statute went into effect May 15, 2008 83 Ill. Adm. Code 465
Demand-side Resources Energy Efficiency Demand Response
Illinois Energy Efficiency Portfolio Standard 220 ILCS 5/12-103(b) 103(b) ComEd, Ameren and DCEO required to implement measures to achieve annual energy savings for all electricity DELIVERED by ComEd and Ameren: at least.2 2% of energy delivered in the year commencing June 1, 2008; at least.4 % of energy delivered in the year commencing June 1, 2009; at least.6 % of energy delivered in the year commencing June 1, 2010; at least.8 % of energy delivered in the year commencing June 1, 2011; at least 1 % of energy delivered in the year commencing June 1, 2012; at least 14%of 1.4 % energy delivered in the year commencing June 1, 2013; at least 1.8 % of energy delivered in the year commencing June 1, 2014; at least 2 % of energy delivered in the year commencing June 1, 2015 and each year thereafter.
Energy Efficiency Portfolio Standard Total Resource Cost Test 20 ILCS 3855/1-1010 Benefit-cost ratio must be greater than one The benefit-cost ratio is the ratio of net present value of DSM program benefits (avoided electricity costs, including costs of complying with greenhouse gas controls + benefits to system and participant) to the net present value of DSM program costs (cost of program + implementation + evaluation) as calculated over DSM program life.
Illinois Energy Efficiency Portfolio Standard Cost Cap 220 ILCS 5/12-103(b) 103(b) If customer bills would go up more than about.5% to meet the EE/DR standards in any given year, the utilities/dceo are not required to meet the affected standard. Important to choose the most cost-effective measures available to avoid hitting the cap. Legislative review of cost cap by June 30, 2011
Illinois Electric Sector w/rps + Clean Coal + EEPS Megawatt- -hours Energy Efficiency Renewable Energy Natural Gas Clean Coal Conventional Coal Nuclear 1980 1990 2000 2010 2020 2030
Natural Gas Energy Efficiency Portfolio Standard (220 ILCS 5/8-104) Starting ti June 1, 2011, Peoples, NICOR and Ameren are required to implement measures to achieve energy savings goals for all natural gas DELIVERED to customers: 0.2% by May 31, 2012; an additional 0.4% by May 31, 2013, increasing total savings to.6% an additional 0.6% by May 31, 2014, increasing total savings to 1.2%; an additional 0.8% by May 31, 2015, increasing total savings to 2.0%; an additional 1% by May 31, 2016, increasing total savings to 3.0%; an additional 1.2% by May 31, 2017, increasing total savings to 4.2%; an additional 1.4% by May 31, 2018, increasing total savings to 5.6%; an additional 1.5% by May 31, 2019, increasing total savings to 7.1%; and an additional 1.5% in each 12 month period thereafter.
Natural Gas Energy Efficiency Portfolio Standard (220 ILCS 5/8-104) 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 2010 2020 2030 w/eeps w/out EEPS
On-Bill Financing Pay-As-You-Save Natural gas and electric utilities required to allow customers to pay cost of energy efficient furnaces, energy efficient central air conditioning, etc. through savings on utility bill 220 ILCS 5/16-111.7111.7
Percentage of Income Payment Plan with Mandatory Weatherization Amendments to Public Utilities Act (220 ILCS 5/8-105) Energy Assistance Act (305 ILCS 20/5) Federal and state LIHEAP funds used to reduce low-income customers electric and gas bills to 6% of income Mandatory weatherization (at no cost to participant) required for PIPP participants p
ENERGY EFFICIENCY MEGAWATT-HOURS V NEGAWATT-HOURS
DEMAND RESPONSE MEGAWATTS v NEGAWATTS
Electricity Demand
Illinois Demand Response Standard 220 ILCS 5/12-103(c) 103(c) Utilities must reduce peak demand for supply customers Demand Demand-response measures must reduce peak demand by 0.1% over the prior year, starting June 1, 2008 and continuing through each of the next ten years.
Illinois Demand Response Procurement Standard (220 ILCS 5/16-111.5111.5 - effective June 1, 2009) Illinois utilities are required to procure demand response when ever it costs less than purchasing capacity for supply customers
Utility-controlled Demand Response.
Utility-controlledDemandResponse 50% option Time: Weekdays (excluding holidays), 11 a.m. to 8 p.m. Unit cycles off: Maximum of 15 minutes every half hour (if needed). Participant receives: $5 credit/month per household, June 1 through September 30. The total credit will be $20. 100% option Time: Weekdays (excluding holidays), 11 a.m. to 8 p.m. Unit cycles off: Up to one continuous 3-hour period during any weekday (if needed). d) Participant receives: $10 credit/month per household, June 1 through September 30. The total credit will be $40.
Customer-controlled Demand Response Real-Time Pricing - 220 ILCS 5/16 220 ILCS 5/16-107 107
Aggregating Demand Response NYSERDA s objective is to encourage cost effective technologies and techniques that enable electric loads, especially aggregations of dispersed small loads, to participate in a demand response market or program, be automatically managed for facility peak load reduction and/or respond to a dynamic energy price. The benefits of these innovations to NYS rate-payers will be increased opportunity to participate in demand response programs and demand charge and energy cost savings. http://www.nyserda.org/funding/1151pon.pdf
Illinois Electric Sector w/rps + Clean Coal + EEPS Megawatt- -hours Energy Efficiency Renewable Energy Natural Gas Clean Coal Conventional Coal Nuclear 1980 1990 2000 2010 2020 2030
Illinois Electric Sector (w/out state t policy intervention) ti Natural Gas Megawatt-h hours Clean Coal Conventional Coal Nuclear 1980 1990 2000 2010 2020 2030
Impact of RPS + Clean Coal + EEPS on Illinois i Electric Sector Megawatt-ho ours Energy Efficiency Renewable Energy Natural Gas Clean Coal Conventional Coal Nuclear 1980 1990 2000 2010 2020 2030 Natural Gas Megawatt-hou urs Clean Coal Coal Nuclear 1980 1990 2000 2010 2020 2030