ComEd auction ‘public meeting’ set for New York City

StoryImage( ‘/Images/Story//Auto-img-114848912923845.jpg’, ”, ‘Charles Box’);

Illinois Attorney General Lisa Madigan has filed a complaint against Commonwealth Edison and Ameren, which is the parent company for Central Illinois Light Co., Central Illinois Public Service Co. and Illinois Power Co.

The public meeting to disclose more about Illinois’ upcoming and controversial power auction will be conducted in New York City, 900 miles from the Prairie State, according to NERA Economic Consulting, which is based in NYC.

NERA said the session is scheduled for the Jumeirah Essex House on June 1, more than three months before the Sept. 5 reverse auction that would furnish power for Commonwealth Edison and Ameren, the two largest power companies in Illinois.

Two other meetings, closed to the public and press, will be June 6 in New York City and June 7 in Rosemont, Ill. These meetings are restricted to bidders only.

Why is the public meeting set for a distant location? NERA spokesman Georgina Martinez said the Illinois Commerce Commission, now headed by former Rockford Mayor Charles Box, wanted the meeting held “out of town,” according to Platt’s. TRRT was unable to contact Box.

ICC spokesman Beth Bosch denied that claim, saying it was news to her. After she learned that the meeting was indeed to be held in New York, Bosch said she contacted the auction manager to find out why that location was chosen. She said that so far she has received no answer.

Bosch said the commission learned Thursday, May 25, of Madigan’s complaint. She said whoever wants to participate in a hearing and testify will get the chance to announce that. Then, “an administrative law judge will be assigned to set the schedule. The commission staff will file its response,” and ultimately the matter will come before the entire commission for a decision.

The ICC, Jan, 24, issued an order authorizing the auction but, Madigan said, the order said in part that “a utility’s procurement process [should] be highly transparent.” The commission also created the Illinois Market Monitoring Unit (IMMU) to “enhance the openness and transparency of the auction process and the wholesale market.”

Martinez said even though the June 1 program is referred to as “The Illinois 2006 Auction Meeting for the General Public,” it has another purpose as well, namely, giving “potential suppliers [a chance] to find out more about the auction.”

Many suppliers have already indicated an interest in participating in the auction to buy up to 28,000 megawatts to serve the retail load in areas served by ComEd and Ameren beginning Jan. 1, 2007. Martinez said she could not disclose the actual number for “proprietary” reasons.

The auction plan has come under heavy criticism from Illinois Gov. Rod Blagojevich and other Illinois officials, such as Attorney General Lisa Madigan and the Citizens Utility Board (CUB).

They warn the auction is likely to result in rate increases for ComEd and Ameren customers of more than 40 percent in 2007. Madigan has filed suit to overturn the ICC’s order of Jan. 24 authorizing the auction. ComEd serves more than 3.6 million residential, industrial and commercial customers in Northern Illinois.

CUB says ComEd customers are facing a potential average increase of $266 a year per customer, and the average Ameren customer will pay $287 more. It says the auction is the main reason rates will rise.

That’s not all. The two utilities want more money to deliver electric power to your home or business. ComEd wants an additional $336 million annually, and Ameren is asking for $202 million more. This while Exelon, ComEd’s parent company, revealed record profits of $2.1 billion last year. Ameren’s profits went up 18 percent to $628 million.

CUB stated the auction method has only been tried in New Jersey, where energy costs recently leaped 55 percent.

Madigan’s complaint says the Enron-like decision of the auction manager to hold closed sessions for bidders is contrary to the commission’s order requiring transparency. She calls on the ICC to order the utility companies to comply with the commission orders regarding the auction.

She noted that closed meetings with wholesale electric suppliers raise the likelihood of anti-competitive bidding and collusion that could hike prices. A separate meeting for press and public in New York City, Madigan said, does nothing to lower the risk of such bidding behavior and does little to aid openness in the bidding process.

The Illinois wholesale power procurement process is developing along the lines of the New Jersey auction, according to Michael Brosius, vice president of commodities at Morgan Stanley. The bank—as a power marketer—has taken part as a supplier in New Jersey since the first auction and is involved in developing the Illinois plan.

“There are other things we are looking at,” Brosius said, “but we can’t discuss them at present. NERA is very strict about what the market participants reveal with regard to their involvement in the auction process.”

Reverse “clock” auctions work like this: the auction manager announces prices for products up for bid at the beginning of the auction. Product means the electricity supply needed by a particular utility or end-user. Each product is split into equal “tranches” of 50 megawatts. Suppliers then make their bids, which disclose how many “tranches” they are willing to supply to each end-user or utility. Once the bids are made, the auction manager computes how much power has been bid overall for each potential user. If there’s a surplus amount for a given utility, the price that utility will pay “ticks down,” or drops a certain amount determined by a formula. The more surplus, the bigger the price drop in each round. The auction moves on to the next round of bids, and bidders revise their offers according to the new prices.

There is no limit on the number of rounds, and prices drop each round. Suppliers change their offers until supply equals demand. The auction takes a few days.

Gene Meehan, senior vice president at NERA, said the market for clock auctions is still fairly small, but growing, and is a market with much potential. These methods are only used in states where utilities have been deregulated. That happened in the Midwest wholesale electricity market March 1. The market includes Illinois, Ohio, Michigan and Wisconsin. NERA conducted an auction in 2004 for an Akron-based utility, according to Meehan. California also has been studying deregulation.

It seems likely more states will deregulate their utilities, given the momentum deregulation has developed.

From the May 24-30, 2006, issue

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