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How are Ameren’s and ComEd’s Energy Supply Rates Determined?

The simple answer – the Illinois Power Agency (IPA) is responsible. The state of Illinois does something different than every other state when it comes to the procurement of electricity by its regulated utilities – Ameren and ComEd.  Since it was established in 2007 by Public Act 95-0481, the Illinois Power Agency purchases all electricity for both Ameren and ComEd. This is done in a very regulated and very public manner.

Every year, the IPA releases three Requests For Proposals (RFPs) for electricity. The first is for 35% of the electricity that will be needed by both Ameren and ComEd in 2 years. The second is for 35% of the electricity that will be needed by both Ameren and ComEd next year. And, the third is for 30% of the electricity that will be needed for both Ameren and ComEd this year. Because of this process, the electricity that is being supplied by Ameren and ComEd this year is 35% from a supply agreement that was reached 2 years ago, 35% from a supply agreement that was reached 1 year ago, and 30% from a supply agreement that was reached earlier this year.

The price per kWh determined in this manner shows up directly on your electricity bill. If you look at your Ameren bill, it’s the line identified as “Purch Elec Non-Summer” or “Purch Elec Summer”, depending on the season. If you look at your ComEd bill, it’s marked as “Electricity Supply Charge”. But, there are a few other components that go into the determination of the “Supply Services” charge when it comes to Ameren and ComEd.

The next piece is the “Transmission Service Charge”.  This is the cost of delivering the electricity from where it was generated to where it is used. It’s the equivalent of paying a “toll” for driving from Champaign to Chicago. The difference being that in the case of transmission, the toll increases as the amount of traffic on the road increases.

The last piece is the Purchased Electricity Adjustment. Electricity is unlike many other goods because it can’t really be stored effectively. There are a number of technologies that are trying to overcome this, but nothing that has been widely deployed. That being said, if you turn on your light at home, a power plant somewhere has to increase the amount of electricity it is producing at that moment in order to power that light. Now, look back at how the IPA purchases electricity for Ameren and ComEd. How in the world do they determine how much electricity to purchase?

There’s a very complex way that both Ameren and ComEd determine how much electricity they’re going to have to provide in the future, and the IPA uses this information to determine how much electricity they need to buy for 2 years from now, for next year, and for later this year. Ultimately, this is just a guess. There are too many variables involved to be able to accurately predict how much electricity will be needed very far into the future. Think about how much more electricity the north side of Chicago will use on the night Cubs win the World Series. If ComEd planned on that happening, they would have been wrong each of the last 104 years. But, when it does happen, they’ll have to be ready.

The way this variability is addressed is via an electricity clearinghouse (MISO for Ameren, and PJM for ComEd) that calls for the dispatch of electricity based on real-time electricity demand.  Because of the supply needing to match demand, the price for electricity is actually set in the moment when it’s used (think back to what you learned in Econ 101). Ameren and ComEd participate in this clearinghouse based on their electricity supply contracts – selling electricity when they have excess, and buying electricity when they have too little. The Purchased Electricity Ameren and ComEd reflects the “savings” they experience when they sell electricity, or the additional cost of purchasing more power.

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