Energy Legal Blog

Illinois AG Cries Foul, Invokes Ninth Circuit Rulings to Undo Wholesale Power Auction

In the latest salvo of blame for Illinois' increased retail power rates, the state’s Attorney General (AG) accused wholesale sellers of manipulating the 2006 auction through which utilities bought power for resale to consumers.  In a complaint to FERC, the AG targeted 15 suppliers, including affiliates of the state’s main utilities, Ameren and Commonwealth Edison, and asked FERC to order refunds and even revoke the sellers’ market-pricing authority.  Ironically, both FERC and the Illinois Commerce Commission approved the auction process and design beforehand. 

The AG complaint alleges that auction price results in the vicinity of $70/MWh were far higher than prices in comparable bilateral contract markets and twice the marginal cost of generating the electricity.  As a consequence, the complaint argues that the state’s ratepayers are paying $4.3 billion above costs for power due to collusion and market manipulation.  The AG directs her harshest accusations to the state’s utilities, pointing out that ComEd’s wholesale seller affiliate won 97% of the utility's 41-month contracts.  Details of many of the charges are not clear, as the public version of the complaint is heavily redacted. 

The complaint also alleges that wholesale suppliers failed to comply with reporting and filing requirements under the Federal Power Act.  By these allegations the AG seeks to bring the complaint within several controversial decisions of the U.S. Court of Appeals for the Ninth Circuit that hold wholesale power transactions at market prices, such as the auction sales, enjoy no filed rate protection if the transactions are not sufficiently reported to and filed with FERC.

Representatives of wholesale sellers as well as ComEd and Ameren point out that the previous retail electricity rates were artificially low due to a rate freeze required by the state’s deregulation plan, and that rates rose primarily because fuel costs have increased significantly sine the rate freeze was implemented.   Bills have been introduced in the Illinois legislature proposing to re-freeze retail rates.  Doing so, the utilities contend, might push them into bankruptcy, just as a retail rate freeze forced Pacific Gas and Electric into bankruptcy earlier in the decade. 

Illinois isn’t the only state protesting rate hikes upon the expiration of a rate freeze.  Maryland enacted this same play last year in which a restructuring plan led to a multi-year rate freeze, followed by large rate increases that drew heated opposition from consumers and politicians, including many of the same politicians who had voted for the restructuring legislation that imposed the rate freeze in the first place.