Jan. 1, 2007 will mark the expiration of long-term power supply contracts that resulted from the late-1997 initial introduction of competitive energy markets in Illinois and resulting restructuring actions of utilities.
"AmerenCILCO, AmerenCIPS and AmerenIP now own little or no electric generating facilities. With the expiration of the power supply contracts at the end of 2006, these Ameren Illinois utilities will have to buy electricity to supply customers who will continue to rely on us for service," says Ameren Executive Vice President and Chief Financial Officer Warner L. Baxter. "Ameren's Illinois utilities must seek suppliers for 7,500 megawatts of retail load in a way that will provide our customers with a reliable energy supply at the most competitive price."
After a year-long analysis of options, including discussions and input from a range of stakeholders, the companies are recommending the ICC approve the companies' procurement plan, which includes an auction process. "Our recommendations are consistent with the December 2004 ICC staff report that recommended an auction of this type. Such an auction best satisfies the need for a fully competitive, open and transparent process," Baxter says. "Independently administered, it would be subject to independent ICC review, and, in encouraging competitive bidding and participation, it would provide our customers with the most competitively priced electricity. It's important to note that this is a process that has been used successfully in other states."
With the reverse auction, the bidding process includes the following steps:.
• The initial price is set by the independent auction manager with the advice of the ICC's auction monitor.
• The initial price is set to attract the maximum number of bidders, who offer more power than the utility requires.
• As the 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.
According to today's filing, the companies hope to receive regulatory approval by December 2005 and to hold a first auction in May 2006.
In testimony filed today, Ameren Vice President for Strategic Initiatives Craig Nelson stressed that, through what is called the Post 2006 Initiative, the company has repeatedly met for over a year with many major stakeholders\- including key regulatory staff, consumer representatives and interested power suppliers. Those meetings have resulted in a consensus on the majority of the significant components of the proposal filed today.
A competitive process also satisfies the federal regulatory requirement that any procurement approach be fully competitive. 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.
Today's filing also includes a request for ICC approval of a structure and methodology to translate the supply auction outcome into retail rates. This would involve a combined procurement process for Ameren's Illinois-based distribution companies.
"Ameren utility operating companies will simply pass through to customers the actual costs paid for electricity as a result of the auction," explains Baxter. Baxter emphasized the request for approval of this rate structure would not result in an immediate change in rates. Rates will remain frozen for nearly two years; the companies are seeking approval of the auction process and the rate method that would go into effect Jan. 1, 2007.
With assets of more than $17 billion, Ameren Corporation (NYSE: AEE) through its subsidiaries, serves 2.3 million electric and more than 900,000 natural gas customers in Illinois and Missouri.