Illinois Electric Restructuring

Illinois Electric Restructuring

Electric Service Customer Choice and Rate Relief Law of 1997

House Bill 362

Rate reductions
HB 362 provides immediate rate reductions to all residential customers from 5% to 15%. For example ComEd and Illinois Power had to reduce their rates by 15% on August 1, 1998 and additional 5% on May 1, 2002. For the rates below Midwest average should be reduced 5% by August 1, 1998 and additional up to 5% on October 1, 2000. Moreover, rates were frozen at those reduced levels for what eventually turned out to be 10 years.

Consumer choice
Customers will be allowed to purchase power from alternative electric suppliers according to the following schedule:

• Industrial and commercial customers (large)    : October 1, 1999
• All other non-residential customers    : December 31, 2000
• All residential customers    : May 1, 2002

Transition charge to (presumably) account for stranded costs
HB 362 allows utilities to recover a limited portion of their stranded costs or the investments that cannot be recovered from the sale of power on the market (particularly for expensive nuclear power plant). Stranded costs will be recovered through a "transition charge" paid by all customers who choose to purchase electricity from an alternative supplier. Transition charges will be calculated per kilowatt-hour.

The table below shows the residential customer mitigation factors for customers who purchase power from alternative suppliers.

• May-December, 2002 : 6 percent
• 2003    : 7 percent
• 2004-2005    : 8 percent
• 2006    : 10 percent

Transition charge ended in 2006 but then extended until 2008.

Securitization
The bill allows utilities to issue "transitional funding instruments," which are bonds or other debt instruments that will be paid off by the collection of an "instrument funding charge" deducted from all customer bills. Because revenue to pay off the debt is guaranteed in legislation, these instruments are likely to receive a higher rating than existing utility debt. As a result, the interest payments on the bonds will be lower than the utility's current cost of debt. The utility may sell the right to collect the payments to a third party.

Consumer protections

• Utilities must continue to offer bundled service to the customers after electricity is declared competitive. Meaning that the customers may pay a rate that includes all services—generation of electricity, transmission, distribution, metering, and billing.
• Residential customers will be allowed to select real-time pricing by October 1, 2000, which allows customers to pay a price for electricity that varies according to the hour or other period of time when the electricity is used. Under real-time pricing, customers could save money by using more electricity at times when it is cheapest.
• All alternative retail electric suppliers receive certification from the Commission to sell power to customers in Illinois. "Alternative retail electric suppliers" are sellers of electricity other than the incumbent utility. In order to receive certification, the supplier must demonstrate that it possesses sufficient technical, financial and managerial resources to provide the services for which it is seeking certification.

Procurement for default service

• Uniform clearing price reverse auctions (2007). Under the uniform clearing price reverse auction scenario, electricity suppliers (rather than buyers) offer volumes or quantities of electricity. The auction manager sets the initial bid price at the first round of bidding and decreases the offer price in subsequent rounds until the quantity demanded equals the offered quantity to supply. The winning suppliers receive this uniform market-clearing price.
• Bilateral contract (2008). On the other hand, a bilateral contract trading refers to a one-to-one based agreement between a buyer and seller to exchange electricity, rights to generating capacity, or to settle an agreed upon price, under mutually agreeable terms. In contrast to the uniform clearing price reverse auction, the bilateral contract is set up as a pay-as-bid system in which suppliers bid their best guess of the market clearing price  in such a manner that maximizes their profit and chance of winning the bid. The bid is based on the supplier’s forecast of the market clearing price, rather than marginal costs. Each supplier then receives a price equal to the price they bid, and therefore the price paid to each supplier can be different.

Other Benefits

• Environmental benefit. HB 362 establishes trust funds to support the development of renewable energy sources and energy conservation programs. The Renewable Energy Resources Trust Fund will be used to provide grants, loans, and other types of financial support for the development of renewable resources and energy efficiency program. Revenue for the fund is expected to amount to $100 million over ten years, half of which will come from residential customers. 
• Provision of Affordable Electricity to Low-Income Customers. HB 362 creates a Low-Income Energy Assistance Fund to support programs designed to provide low-income customers with access to affordable electricity. Revenue for the fund will be collected beginning in January 1998 from a monthly charge of 40 cents per month for residential electric and gas customers, $4 per month for commercial and small industrial customers, and $300 per month for large industrial customers.

Criticisms

• Even though rate was reduced, utilities still earned ‘high’ revenues e.g. 15% cuts under leaves C.E. - 25% above Midwest average. and IP - 10%above Midwest average.
• Transition period too long 2008 until transition charges end, only then will customers save money and have real choice.
• Stranded cost recovery for 10 years.  There was no direct link between stranded costs and transition charges.