Michael Giberson
A reader (in the comments here) asked whether we had any opinions on the complaint filed last week by the Illinois Attorney General alleging manipulation of the Illinois power procurement auction. Here’s the basic story, via Business Week and the Associated Press:
Last year, the Illinois Commerce Commission oversaw a reverse auction, where power suppliers offered the lowest prices at which they would sell electricity to Ameren and ComEd, which then sell the electricity to consumers.
The auction produced unexpectedly high increases over previous rates — 22 percent higher on average for ComEd customers and 55 percent higher for some Ameren customers. For some individual customers, the increases turned out to be even more.
[Attorney General Lisa] Madigan argued the huge increases must be a result of corporate misconduct. She said the average prices offered by wholesalers — which include the parent companies of ComEd and Ameren — are twice the actual costs of producing the electricity.
Generally speaking, it is impossible to come to a clear conclusion based upon the public version of the complaint documents — all of the potentially exciting parts are blacked out. (If any reader happens to have an un-redacted version to share, I could provide a better informed opinion.)
Overall, however, the public parts of the complaint don’t impress.
The logic illustrated in the Business Week quote captures the general thrust: prices have gone up sustantially for some customers and therefore there must be manipulation somewhere. (Not surprising to me that rates would go up after a ten-year old retail rate cap expires, but it is easy to see how someone not paying too much attention to the details of the state’s utility regulations might be suprised. I wonder if Madigan intends to associate herself with this latter class.)
The Chicago Sun-Times offers commentary on the complaint, with additional specificity on the rate cap:
The higher prices we are now paying for power stem from a decision made in 1997, when the Legislature put the state on the road to deregulating electricity. Rates were cut 20 percent and then frozen for 10 years. … The hope was that competition to Exelon Generation would emerge, but that didn’t happen, in part because the artificially low rates discouraged new entrants to the power market.
The best part of the complaint, on my cursory reading of the redacted version, compares the auction prices to NYMEX contract prices for delivery of power into Northern Illinois over similar time periods. The complaint also spins a not implausible story about how the market share of a dominant firm in the area could have resulted in implicit coordination among diverse bidders and the appearance of collusion. Not enough detail in the public version to assess the claims, but it could have happened.
These comments represent just my off-hand opinion based on a cursory review. Perhaps the truly damning evidence has been blacked out of the public document. Note that Lynne offered a skeptical opinion of the wholesale procurement auction on somewhat different grounds last June (in short, she thinks other approaches to retail competition will work better, but read her post). The Illinois auction was modeled on the New Jersey Basic Generation Service Auction which has been in use since 2002.