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ELECTRICITY MARKET RESTRUCTURING IN ILLINOIS: WHAT NEXT?

This article explores the future of electricity market restructuring in Illinois, including customer choice, alternative suppliers, utilities, regulators, default service, managing risk, and necessary actions. It also highlights the need for prompt decision-making and collaboration among stakeholders.

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ELECTRICITY MARKET RESTRUCTURING IN ILLINOIS: WHAT NEXT?

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  1. ELECTRICITY MARKET RESTRUCTURING IN ILLINOIS:WHAT NEXT? Institute for Regulatory Policy Studies Illinois State University Springfield, Illinois December 10, 2003 Philip R. O’Connor, Ph.D. Constellation NewEnergy, Inc. Phil.OConnor@constellation.com

  2. CUSTOMERS & CUSTOMER CHOICE • IL business customers have demonstrated substantial appetite for choice & ability to accommodate change. • Primary focus has been on cost savings. • Transaction costs, legacy subsidies, and other issues inhibit small customer market. • Business customer needs increasingly elicit new product ideas from providers. • Quasi-national markets are developing.

  3. ALTERNATIVE SUPPLIERS & CUSTOMER CHOICE • Incumbent RESs & ARESs are vigorously competing on price and products. • Reciprocity uncertainties inhibit new entry to some extent. • Appears to be little appetite at this time for residential offerings. • Generation & trader implosion credit issues inhibit supply acquisition. • Long-term RES commitment evident.

  4. UTILITIES & CUSTOMER CHOICE • After 5 years of debate and struggle, basic open access rules have emerged and are working reasonably well yet unevenly. • Commitment of utilities to open access will remain complicated by reality of affiliate generation companies. • RTO impact on access problematic. • Post-transition now on the front burner.

  5. REGULATORS & CUSTOMER CHOICE • ICC & FERC have generally acted as positive forces in achieving customer access. • Slow legacy procedural approaches are unsuited to the pace of customer choice. • Recent legislative session places job of designing post-transition in hands of ICC. • ICC will be called upon to provide philosophical leadership for post-transition design. • FERC is forging ahead on access during hiatus on Federal Energy Bill.

  6. DEFAULT SERVICE: WHICH CUSTOMERS, WHAT SERVICES? • We can expect that by the end of 2006 customers over 400 kW will be competitive. • Likely that 400 kW+ service will be based on current hourly/monthly default plan. • Residential & small business default service likely to be based on 1-year (plus) contracts. • Key issue will be balancing utility risk and desire of customers for hedged prices.

  7. MANAGING RISK IN A RISKY WORLD • Current limited liquidity in wholesale markets partly due to credit issues. • Most retail load now and in the future will be served under hedged contracts. • However, larger customers and their providers are learning more about time-based products and value of load control. • We have very little time to figure how to provide for utility supply risk management.

  8. WHAT NEEDS TO BE DONE: • Need to tell customers, utilities, and RESs what the post-transition rules will be well before the end of 2006. • Either set the ratemaking methodology or the rates for bundled service for 2007 no later than mid-2006, but preferably by the end of 2005. • Carefully consider the question of whether and how to set residential/small business bundled rates for multi-year periods 2007+. • Consider the issues of affiliate wholesale supplies, auction/bidding and outsourcing default service.

  9. HOW TO DO WHAT NEEDS TO BE DONE: • ICC can promptly reconvene seminars and conferences. • ICC should invite key legislators to participate in these seminars. • Learn how other states have approached these issues and resolve that IL will become a leader. • Work to commence any necessary ICC and legislative proceedings sooner rather than later. • Recognize that contested proceedings are not good ways to figure out tough policy issues.

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