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Illinois Regulators Buck Governor and Approve Reverse Auction for Power

Thursday, January 26, 2006 8:52 pm by

Following months of acrimony over power procurement and electric retail rates, the Illinois Commerce Commission (ICC) unanimously decided the state’s utilities should use a state-run reverse auction to procure power for consumers that do not choose competitive suppliers.  While the ICC agreed with state utilities Commonwealth Edison and Ameren on the benefits of this procurement method, other state officials, including Gov. Rod Blagojevich, have stridently opposed it.  But their opposition appears to have less to do with the use of an auction than the soon-to-end state-imposed retail rate freeze that has kept rates under market for several years during a transition to deregulation.   The Governor has vowed to continue his opposition.

Reverse auctions have been used successfully in New Jersey and elsewhere.  See New Wholesale Power Procurement Model Emerges: All-Source Auctions.  They entail successive rounds of offers by qualified wholesale power suppliers that drive the price of contracts lower until there is a match between the quantity needed and the supply offered.  The ICC said the auction, covering customers of ComEd and the Ameren companies, would take place in September, for deliveries commencing in January 2007.  To address concerns about market power and lack of competition, the ICC committed to create a market monitor within the agency and test auction results for prudence.  The latter would seem inconsistent with the auction mechanism, but the ICC is trying to stave off further political criticism that it is not doing enough to protect power consumers. 

The ICC concurrently denied ComEd’s request to purchase a quarter of its electricity under five-year contracts, concluding this would raise costs, and instead approved a plan under which all of the utilities will procure power up to a maximum of three years in advance.

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