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Procurement Case: Safe, Reliable Power in Post 2006
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In early 2006, the Illinois Commerce Commission (ICC) approved a procurement filing that Ameren’s Illinois utilities filed several months before. Thanks to that approval, Ameren-owned electric utilities can use the most cost-effective way available to purchase electricity―a declining price auction.
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Declining Price Auction
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The Declining Price Auction―or so-called reverse auction―is the answer to the post-2006 question. This mechanism will ensure Ameren’s Illinois utilities’ 1.2 million Illinois electricity customers will have safe and reliable service at the lowest competitive rates.
Unlike a conventional auction, this is a reverse auction where the winning bidder is the one with the lowest price.
As the independent auction manager lowers the price during successive rounds of bidding, suppliers may reduce the amount of electricity they are willing to sell. The auction ends when the price falls to a point where suppliers bid exactly enough electricity to serve the utility’s customers.
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With the Declining Price Auction, power suppliers from across the nation will compete for Ameren’s Illinois customers. When suppliers compete―consumers win. It’s anticipated that numerous suppliers will participate in the declining price auction.
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Rising Price Safeguard
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Ameren plans to have contracts expire in one, two and three years for residential and most commercial customers. In the first year the entire load will be auctioned in the Declining Price Auction.
After the first year, one-third of the contracts will expire every year, so new prices are blended with prices obtained in previous years to prevent rising prices at any given time from unduly impacting the price of the entire portfolio.
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Safeguards & Transparency: Independently Administered Transparent, Competitive National Auction Process
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The Declining Price Auction solution best satisfies the need for a fully competitive, open and transparent process and is in accordance with the Federal Energy Regulatory Commission (FERC) mandates.
Not only are there safeguards inherent in the market, but the independently administered declining price auction is subject to independent ICC review. The ICC will use an independent auction monitor to oversee the auction process and has the right to accept or reject the auction results.
Competitive procurement processes have been the predominant approach in several states facing similar policy issues, including New Jersey, Maryland, Rhode Island, Connecticut, Massachusetts, Maine and Texas.
Other alternatives would hurt consumers―bilateral contracts or a simple RFP for power would likely result in less competition and higher energy charges
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Declining Price Auction Satisfies “18 Stakeholder Principles”
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During a yearlong process, major stakeholders―including members of the ICC staff, consumer representatives and interested power suppliers―reached a consensus on 18 procurement consensus attributes. Key among those attributes are:
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Be highly transparent.
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Allow for a competitive procurement approach.
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Result in market-based rates for customers.
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Facilitate stable rates and mitigate rate volatility for applicable customers for relevant time periods.
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Facilitate and encourage supplier participation of all types in the wholesale market.
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Require an initial regulatory review to approve and an ongoing regulatory review to oversee and improve the procurement process.
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What Will Power Cost Post 2006?
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After 15 to 25 years of frozen and declining rates from Ameren’s Illinois utilities, we expect that your rates will go up in 2007.
We believe the best opportunity for the lowest possible cost in the reregulated market is through the Declining Price Auction.
Any attempt to predict the actual price for electricity Illinois consumers will pay in 2007 would be purely speculative, but for the current estimate, go to the Investors section on ameren.com for the latest securities filings on this issue.
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