Illinois Attorney General Seeks to Abrogate Wholesale Power Contracts
March 29, 2007
On December 16, 2006, Illinois Attorney General Lisa Madigan (Illinois AG) filed a complaint with the Federal Energy Regulatory Commission (FERC) against 16 wholesale power suppliers alleging that those suppliers are charging certain Illinois utilities unjust and unreasonable rates for wholesale power purchases they made through a state-sponsored competitive auction. The Illinois AG is asking FERC to order suppliers to adjust their contract prices and to pay refunds to the Illinois utilities if the agency finds that a supplier’s rates are unjust and unreasonable. This complaint is part of a growing trend by certain states and consumer advocates to challenge competitive wholesale energy markets.
In September 2006, a fixed-price auction was held in Illinois in which wholesale power suppliers bid for the right to sell electricity to Commonwealth Edison Company (ComEd) and the Ameren Companies (Ameren). The named wholesale power suppliers were winning bidders in the auction and currently sell electricity to ComEd and Ameren. In the complaint, the Illinois AG asserted that the rates charged under these forward contracts are not just and reasonable and will result in $4.3 billion in excess costs for consumers.
The Illinois AG listed three main reasons why the wholesale power suppliers’ rates are not just a reasonable:
- The rates charged pursuant to the forward contracts are almost 40 percent higher than the prices charged for comparable products in bilateral electricity markets.
- The rates charged pursuant to the forward contracts are approximately twice the marginal cost of generating electricity to serve Illinois customers, resulting in significant increases in ComEd and Ameren customers’ electric bills.
- The rates were produced in a highly concentrated market in which there is evidence of price manipulation by coordinated interaction through contract triggers and quid pro quo arrangements among certain suppliers.
The Illinois AG is asking FERC to suspend the rates that the wholesale power suppliers are charging ComEd and Ameren and to commence proceedings to determine if the rates are just and reasonable. Any amounts charged in excess of the amounts found to be just and reasonable should be refunded. In addition, the Illinois AG is requesting that the Commission investigate evidence of price manipulation and impose civil penalties on any wholesale power supplier engaged in such activity.
At this point, it is difficult to assess the merits of the complaint because the AG’s allegations rely on price and other information that she states is confidential and cannot be released—even to the respondent suppliers. The wholesale power suppliers have filed numerous motions with FERC, asking the agency to compel the Illinois AG to release the complete, unredacted version of the complaint to them, as well as dismiss the complaints due to procedural defects. It is unclear if, after reviewing answers to the substance of the complaint, FERC will set the matter for hearing to address the allegations against some or all of the suppliers.
