Market Development: A ComEd Perspective

1
Market DevelopmentA ComEd Perspective

• Presentation to the
• Midwest Cogeneration Association
• November 20, 2002
• Stephan H. Baab
• Manager Technical Services, Commonwealth Edison
  Co.

2
Tonights Discussion

• Background
• Integrated Distribution Company Model
• Retail Markets
• Wholesale Markets
• Distribution Markets
• What does this mean to the MCA?

3
Background

• Until very recently, ComEd was a vertically
  integrated utility
• Owned transmission, generation, and a retail
  business.
• Entitled to revenues based on used and useful
  assets.
• Had limited rate options which applied to large
  numbers of customers.
• Worked to promote electric throughput and retain
  customers.
• Owned a 99.9 market share.

4
Background

• All that changed due to the 1997 Restructuring
  Act
• Bundled rates frozen through Jan 1, 2005 at 1994
  rates
• 20 residential rate decrease
• Customers can purchase electricity from
• Alternative Retail Electric Suppliers (ARES)
• Unbundled through the Power Purchase Option (PPO)
• Bundled through tariffed rates (ComEd 6L, 6T,
  etc)
• Customer Transition Charge (CTC) established for
  customers that switch
• ComEd is the Provider of Last Resort (POLR)
• ComEd had the choice to Functionally Separate and
  be able to market our electricity or become an
  Integrated Distribution Company (IDC) and remain
  supplier neutral.

5
What is an IDC?

• ComEd has chosen to the follow the Integrated
  Distribution Company Model
• ComEds business focus is essentially a
  transmission and distribution company.
• Ensures that ComEd does not have an unfair
  competitive advantage over a Retail Electric
  Supplier (RES).
• All requests for transmission and distribution
  services shall be processed in a
  non-discriminatory manner.
• ComEd shall not discriminate in matters relating
  to curtailment, interconnection, service
  restoration, repair work, distribution upgrading,
  scheduling, priority, balancing, or transmission
  and distribution services availability, price or
  service quality.
• If ComEd offers a rate discount, rebate or waives
  a fee on any delivery, transmission or
  distribution service of customers of its retail
  electric supply services, that same offer must be
  made available to customers of alternative retail
  electric suppliers.

6
ComEds Market Position

• ComEd has been committed to the development of
  robust competition and becoming a reliable
  provider of delivery services.
• ComEd has not been competing with alternative
  suppliers to retain customers and has chosen to
  follow the Integrated Distribution Company (IDC)
  model.
• Having divested its generation facilities to
  promote wholesale market development, ComEd must
  make decisions in the near future regarding what
  type of supply arrangements to make to meet its
  Provider of Last Resort (POLR) obligations.
• ComEd is currently meeting its POLR service
  obligations through a Power Purchase Agreement
  (PPA) with Exelon Generation.
• Through December 31, 2004, the PPA provides
  ComEds full power requirements at a fixed price.
  
• Between January 1, 2005 and December 31, 2006,
  ComEd is only entitled to the capacity of its
  former nuclear plants at market-based rates.
• Any load not covered by the PPA after 2004 must
  be procured through other arrangements.

7
Provider of Last Resort

• In states that have restructured their electric
  industries, there is typically a entity
  designated to provide electric service to
  customers that do not obtain their energy from an
  alternative supplier. These entities are
  commonly known as the Provider of Last Resort or
  POLR.
• In Illinois, electric utilities are the POLR.
• Under the 1997 Act, utilities must continue to
  offer existing services pursuant to regulated
  tariffs to all customers--regardless of whether
  the customer remains with the utility or is
  returning to the utility from an alternative
  supplier. 220 ILCS 5/16-103.
• There are several conditions imposed on the rates
  for POLR services.
• The rates for POLR service are effectively frozen
  at 1994 levels for all customers through 2006,
  the end of the transition period, with a 20
  residential rate reduction. 220 ILCS
  5/16-111(a) and (b).
• After 2006, POLR service rates may be capped by
  the ICC at the lower of cost or the market value
  plus 10. 220 ILCS 5/16-111(i).

8
Competitive Declaration Petition

• Although competition is currently doing well in
  Northern Illinois, particularly for large
  customers, the changes made to POLR will allow
  the market to move to the next level.
• ICC deemed ComEds Rate 6L competitive for its
  largest customers, with peak period demands of 3
  MW and greater. See 220 ILCS 5/16-113.
• There were 373 Rate 6L customers with on-peak
  demands of 3 MW or more in at least three months
  of 2001, representing over 20 of annual
  non-residential sales.
• These large customers will be encouraged to
  acquire energy through alternative suppliers.
• An existing Rate 6L customer will be able to
  continue to take Rate 6L for a maximum of 3 years
  after the June 2003 billing period (i.e., June
  2006).
• Customers electing delivery service or another
  available tariff after the June 2003 billing
  cycle will not be allowed to return to Rate 6L.
  Rate 6L also will not be available to new
  customers after June 2003.
• Rate HEP, a market-based hourly energy service,
  will continue to be available to customers as
  they transition to market supplies.

9
Highlights of the Filing

• In addition to Rate 6L itself, the eligibility
  for service under several other related tariffs
  are affected by the declaration of Rate 6L as
  competitive for customers with demands of 3 MW
  and greater, including
• Rider 13 - Governmental Pumping Service
• Rider 25 - Electric Space Heating
• Rider 26 - Interruptible Service
• Rider 27 - Displacement of Self-generation
• Rider 30 - Interruptible/Curtailable Service
• Rider 32 - Curtailable Service Cooperative
• Among the related tariffs that are unaffected by
  the filing are Rider GCB - Governmental
  Consolidated Billing, Rate IPP - Independent
  Power Producer Service and Rate 18 Standby
  Service.

10
Evidence Supporting the Filing

• Given the current state of competition within the
  ComEd control area, the time is right to redefine
  the POLR obligation and create certainty in the
  market.
• A plentiful wholesale supply outlook with diverse
  ownership and fuel mixes.
• A transmission system that continues to
  accommodate competitive deliveries.
• Burgeoning retail activity, particularly at the 1
  MW and over customer level.

11
Wholesale Supplies Are Available . . .

• Between 1999 and 2001, IPPs constructed 5,000 MW
  of new generation in ComEds service territory
• In 2002, another 3,500 MW of IPP generation is
  on-line.
• An additional 4,300 MW of IPP generation is in
  the queue for service by the end of 2004?????

12
Wholesale Supplies Are Sufficient . . .

• Including generation formerly owned by ComEd, it
  is expected that there will be over 33,000 MW of
  generation in Northern Illinois by the end of
  2004.

13
Wholesale Market Summary

• Market development is stimulated by encouraging
  large customers to directly rely on the market
  for energy supply (i.e., reducing ComEds roles
  as a market intermediary).
• With hourly spot-market pricing as the default
  service, large customers are encouraged to enter
  the market to hedge their power prices.
• ComEd filed revisions to Rider PPO on October 1,
  2002, that would change the time period when
  customers may select the PPO.
• Regional wholesale activity is enhanced.
• Capacity used by ComEd can be returned to the
  market for sale to others.
• The increased amount of load supplied by RESs has
  allowed ComEds full-requirements supplier,
  Exelon Generation, to return 2,684 MW of valuable
  baseload and intermediate capacity to the market.
• The petition creates certainty for all market
  participants as we approach the end of the
  transition period.
• With ComEds recent decision to join PJM, the
  outlook for transmission is increasingly
  positive.

14
Reliable Provider of Delivery Services

• ComEd ends a third straight summer without major
  incident. The company established a three-year
  track record of improved reliability with its
  hottest and toughest summer since 1999.
• This summer, for the second year in a row, ComEd
  was tested by high temperatures, including
• 21 days of temperatures 90 degrees or higher
  compared to 18 days in 2001, 2 days in 2000, and
  18 days in 1999.
• 9 days of peak loads greater than 20,000
  megawatts, compared to 7 days in 2001, 2 such
  days in 2000 and 3 such days in 1999
• Set an all-time new peak demand record of 21,804
  on August 1, 2002 eclipsing last years demand
  record of 21,574 megawatts set on Aug. 9, 2001.
• ComEd continued to demonstrate improved
  reliability on days of high usage, when demand is
  extremely high, greater than 20,00 megawatts.

15
ComEd Customers Have Fewer and Shorter Outages
16
79 of ComEd Customers Had Zero or One Outage in
2002
17
Significant Improvements Made, We Are Not Done Yet

• ComEd is completing plans for Summer 2003
  Projects, including work to improve and increase
  transmission capacity and reliability of service
  throughout the system, such as the installation
  of new cables in Chicago, and a major upgrade to
  transmission lines serving the northern part of
  the territory.
• ComEd will improve system reliability
  substantially through the continuation of its
  automation program to install Supervisory Control
  and Data Acquisition (SCADA) devices and switches
  on ComEds 34,000-volt lines. This monitoring
  system allows us to remotely monitor load
  variations on the lines the switches installed
  on the lines are triggered automatically to
  isolate problems on lines when they occur.

18
Reliability Remains ComEds 1 Job

• Projects are in development to increase
  distribution capacity by upgrading or installing
  additional equipment and transformers required
  for system flexibility and transferring load at
  ComEds substations throughout the service
  territory
• Bradley/Kankakee/Bourbonnais
• Shorewood/Joliet
• New Lenox/Mokena
• Carol Stream/Winfield/Wheaton
• Rolling Meadows/Arlington Heights/Elk Grove
  Village
• Rockford/Machesney Park/Loves Park/Roscoe
• North Aurora/Aurora
• Chicago (Far South Side Hegewisch)
• In 1999, ComEd launched a massive improvement
  effort promising our customers to improve
  reliability. And we kept that promise. But we
  recognize that maintaining reliability is a
  continuous job. Thats why it remains our number
  one priority. THE WORK CONTINUES.

19
What Does This Mean To MCA members

• ComEds position regarding customers who wish to
  install on-site or cogeneration systems is
  neutral.
• The baseline of customer energy savings is no
  longer 6L.
• Customers have a variety of stand-by options.
• Future electricity prices will be as difficult to
  forecast as gas prices.
• Reliability has increased for our customers.

20
Questions?
21
Concluding Remarks

• ComEd recognizes that POLR services can be a
  major challenge--if not handled properly.
• Perceptive utility executives like Exelons
  John Rowe worry that having to be the Supplier of
  Last Resort will hang a millstone around the neck
  of distribution utilities and interfere with or
  seriously impede the introduction of competition
  to the electric utility industry. (Energy
  Perspective, June 14, 2001.)
• Absent ComEds proposal, we run the risk of
  competition failing in the Illinois marketplace.
• Sustainable market development cannot occur with
  the uncertainty created by the fixed-price option
  that Rate 6L and other tariffs create.
• ComEds proposed filing may be considered bold by
  some, but the conditions in the large customer
  market support the competitive declaration. It
  is an affirmative step we can take toward
  sustainable market development and rate stability
  in ComEds service area.