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28 percent. CECG is a subsidiary of Constellation Energy, a Fortune 200 company based in Baltimore, Md. that owns and
operates power plants in Maryland, New York and Pennsylvania. CECG does not produce power itself but it claims to be North
America's largest wholesale supplier of power.
The origins of the power these companies were selling to Ameren could not be determined.
In addition to the power purchased from third-party brokers, the Illinois Ameren companies are also filling nearly
one-third of their energy needs by buying from one of their sister subsidiaries, Ameren Energy Marketing Co.
Ameren is also buying approximately 20 percent of its requirements from Dynegy Power Marketing Inc., a subsidiary of
Dynegy. Dynegy is a Houston-based corporation with electric power plants in 10 states - mostly concentrated in Illinois.
Dynegy purchased several plants from Illinois Power, including the Wood River plant, as part of the electric utility
deregulation process.
According to the report, the auction was designed so that the companies bid on tranches. For the purposes of the auction,
a tranche was defined as a block of approximately 50 megawatts of electricity at peak demand. Ameren needed a total of 144
tranches or 7,200 MW.
Bidding began on Sept. 5, 2006 at $100 per megawatt hour for fixed-price customers, according to the report. The auction
was designed so that all registered bidders entered the number of tranches that they were willing to supply at the $100
price level. According to the report, the supply greatly exceeded the demand at $100 so prices were gradually reduced until
the supply bid matched the 144 tranche level. Under this structure, all winning bidders sold at the same price - regardless
of what it cost them to produce or purchase the power. The final figures were $64.77/MWh on 17-month contracts, $64.75/MWh
on 29-month contracts and $66.05 on 41-month contracts.
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The auction set a 35 percent limitation on suppliers; that is, no one company could supply more than 35 percent of
Ameren's requirement. However, no one knows where the brokers were buying the power they were selling into the auction - and
that is a concern, says Chris Thomas, director of policy for the Citizens' Utility Board.
"That's clearly one of the concerns that I think has been expressed with this process," Thomas said. "We don't have any
idea where the power is coming from. In fact, it could all be coming from exactly the same places that it was before
deregulation, and we're just paying J. Aron a mark-up for the same power we were getting before."
Responding to this concern, Illinois Attorney General Lisa Madigan filed a complaint with the Federal Energy Regulatory
Commission on March 15 alleging that electricity suppliers engaged in price manipulation in the September rate auction.
Madigan alleged that the prices produced by the auction were 40 percent higher than prices in wholesale electricity markets,
and approximately double the actual cost of generating electricity to serve ComEd and Ameren customers.
The complaint relies in part on the results of a major study by Argonne National Lab and the University of Illinois which
shows that the marginal cost of generating electricity to serve ComEd and Ameren customers is less than $30/MWh over 90
percent of the year, and less than $36/MWh over 95 percent of the year. ComEd and Ameren customers are paying an average of
over $70/MWh for electricity purchased through the auction.
"We undertook an extensive investigation to find out why the prices produced by the auction were so high," said Madigan.
"Our investigation turned up disturbing evidence of price manipulation. We are now calling on the FERC to immediately open a
formal proceeding to gather additional evidence."
Scott Cisel, president and chief executive officer of Ameren Illinois utilities, contends that such allegations are out
of line.
"The Ameren Illinois utilities simply followed the law, and the competitive model has delivered rates that approximate
the national average," Cisel said.
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