Exelon 2001 Annual Report Download - page 48

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industrial load, and 42% of its large commercial and industrial load were purchasing their electric energy from an
alternative electric supplier or chose the purchase power option, and approximately 28% of PECO’s residential load, 6% of
its small commercial and industrial load and 5% of its large commercial and industrial load were purchasing generation
service from an alternate supplier.
Provider of last resort (POLR) obligations refer to the obligation of a utility to provide generation services (i.e., power and
energy) to those customers who do not take service from an alternative generation supplier or who choose to come back to
the utility after taking service from an alternative supplier. Because the choice lies with the customer, these obligations
make it difficult for the utility to predict and plan for the level of customers and associated energy demand. If these
obligations remain unchanged, the utility could be required to maintain reserves sufficient to serve 100% of the service
territory load at a tariffed rate on the chance that customers who switched to new suppliers decide to come back to the
utility as a “last resort” option. A significant over or under estimation of such reserves may cause commodity price risks for
suppliers. Both ComEd and PECO have entered into long-term agreements with Generation to procure their power needs
and achieve some certainty during the next several years with respect to these obligations. ComEd’s agreement allows it to
obtain sufficient power at fixed rates. PECO’s agreement allows it to obtain sufficient power at the rates it is allowed to
charge to serve customers who do not choose alternate generation suppliers.
In Illinois, utilities are required to offer bundled rates frozen at levels established prior to restructuring legislation until
January 2005. The provider of last resort issue requires resolution in the near term, as the answer will affect pricing,
competitive market development and planning by utilities, alternate suppliers and customers. ComEd has made an informal
proposal, regarding its future provider of last resort obligations. The proposal seeks to balance the desire for a reliable supply
of electricity at a reasonable price with more price certainty for smaller customers, such as residential customers, while
continuing to develop a functioning competitive wholesale market for generation services. The proposal offers large
customers a default power and energy offering at spot market rates, thereby freeing the utility from maintaining a long-term
portfolio and making that capacity available to alternative suppliers. The proposal affords certainty of supply for large
customers, but not price certainty. Recognizing that small customers may not yet have the same competitive options as large
customers, the proposal offers small customers both supply and price certainty, protecting those customers from market
volatility. The proposal would require regulatory action in order to become effective, and no assurance can be provided as to
the timing of such action or the ultimate result of such action.
PECO’s rates for generation services are generally capped through December 2010. Accordingly, the provider of last resort
issue for PECO also requires resolution, but in a longer timeframe.
Transmission. Energy Delivery provides wholesale transmission service under rates established by FERC. FERC has used its
regulation of transmission to encourage competition for wholesale generation services and the development of regional
structures to facilitate regional wholesale markets. In December 1999, FERC issued Order No. 2000 (Order 2000) requiring
jurisdictional utilities to file a proposal to form a regional transmission organization (RTO) or, alternatively, to describe
efforts to participate in or work toward participating in an RTO or explain why they were not participating in an RTO. Order
2000 is generally designed to separate the governance and operation of the transmission system from generation
companies and other market participants.
In response to Order 2000, ComEd and several other utilities filed a business plan in August 2001 with FERC
describing the creation of Alliance Transmission Company, LLC (Alliance Transco or Alliance) as an independent, for-
profit transmission company. In connection with the process leading to the FERC filing, ComEd issued a non-binding
declaration of intent to divest to Alliance Transco transmission facilities having a gross book value in excess of $1
billion. In a related action, ComEd entered into a non-binding memorandum of understanding with National Grid USA
(National Grid), the proposed manager of Alliance Transco, setting forth general principles relating to the divestiture
and Alliance Transco as a basis for further discussion.
On December 20, 2001, FERC issued several orders relating to RTOs operating in the Midwest. In those orders,FERC,among other
things, approved Midwest Independent Transmission System Operator, Inc. (MISO) as an RTO and found that Alliance Transco
lacked sufficient scope to be a stand-alone RTO. FERC also directed the Alliance participants to explore with the MISO how the