The Illinois electricity marketplace has made significant progress this year, but warnings from the state?s regional transmission organization and a new merger between Constellation and Exelon Corp. is sparking concerns about the future competitiveness of the state?s electricity market.

The Midwest Independent Transmission Organization (MISO) is warning of a pending threat to reliability in the marketplace. The source of their concern is proposed (and now officially released) EPA air pollution regulations that could cause the closure of about 13,000 megawatts of coal-fired generation.

Generators have the option of the decommissioning coal plants or retrofitting operations. The cost of upgrading 62,000 of 70,000 megawatts of coal fired capacity in the region is expected to cost about $33 billion, and generators have a limited time to make those changes. MISO worries companies who choose to comply by retrofitting coal plants may temporarily shut plants down at the same time in order to meet stringent deadlines.

MISO is cooperating with other regional grid operators in requesting more flexibility from the EPA to comply with the rules. However, the EPA has been largely unreceptive to warnings from the industry about the reliability issues that agency?s regulatory agenda could cause.

Another concern in the Illinois market is Exelon?s takeover of Constellation Energy Group Inc.   Attorney General  Lisa Madigan is concerned the $7.98 billion deal will enable the already large company to manipulate the market to the detriment of consumers. Madigan is concerned the small number of suppliers and the limited amount of generation and transmission facilities in the northern portion of Illinois will limit competition. In November, she asked the U.S. Federal Energy Regulatory Commission (FERC) to review the deal.

In Illinois, Constellation sells electricity to consumers on the retail market but doesn’t own power plants. Constellation is one of a few suppliers to the Illinois Power Agency that purchases electricity for consumers who don?t have access to the retail electricity market in Illinois.

In a settlement with PJM this fall, Exelon agreed to reduce its market concentration. The company proposed divesting three plants. Of course the three plants that Exelon proposed divesting are all in the Baltimore area. Consumer advocates for Maryland and Pennsylvania want Exelon to sell an additional 637 megawatts of capacity to prevent it from exercising too much market power. They say the settlement with the PJM market monitor is not acceptable because there are no penalties for not complying.

Along with the Federal Energy Regulatory Commission, the U.S. Justice Department, U.S. Nuclear Regulatory Commission and regulators in New York reviewed and approved the deal on the condition that Exelon divests all three generation facilities in the Baltimore area. Exelon aims to wrap up regulatory approvals of the deal and close the deal during the first quarter of 2012.