Illinois AG accuses Dynegy of electricity market manipulation

Illinois Attorney General Lisa Madigan and consumer advocacy group Public Citizen Inc. are accusing Dynegy Inc. of manipulating electricity markets in a recent auction that sent prices for Ameren Illinois customers skyrocketing.

In a complaint filed with the Federal Energy Regulatory Commission Thursday, Madigan’s office and Public Citizen asked the agency to keep new electricity rates from taking effect next week in downstate Illinois. Electricity consumers there who weren’t on fixed contracts for power were facing a sharp increase in prices, estimated at about 10 percent, or $150 a year for households, by the Illinois Citizens Utility Board.

The two groups accuse Houston-based Dynegy of being able to control the price for a component of electricity in downstate Illinois because of the number of power plants it owns there.

The increase was because of an auction last month held by grid manager Midcontinent Independent System Operator, or MISO, that determines a part of the overall price of electricity. Known as a capacity auction, it is meant to set the price at which power plant owners agree to stay available to pump juice into the grid at peak times to avoid brownouts or blackouts.

In downstate Illinois (northern Illinois is served by a different grid operator, PJM Interconnection), prices jumped 800 percent, to $150 per megawatt day from $16.75 per megawatt day last year.

“These consumers have a right to rely on MISO’s representations that the (auction) is a competitive market process free from market power or manipulation that will produce least cost, just and reasonable prices for Illinois electricity consumers,” Madigan’s petition with FERC says. “The (auction) has not delivered on its promise that it would ‘establish competitive capacity prices.’ ”

In other areas where the grid is operated by MISO, including Ameren’s Missouri territory, prices didn’t rise above $3.50 per megawatt day. In eastern Missouri, prices fell to $3.48 per megawatt day from $16.75.

Tyson Slocum, director of Washington, D.C.-based Public Citizen’s energy program, pointed to the large increase in clout Dynegy gained when it bought Ameren’s Illinois coal power plants at the end of 2013. That transaction more than doubled the capacity the Houston-based power plant operator owned in downstate Illinois.

“It gave them significant control over capacity, which enabled them to withhold capacity from the auction, which allowed for the significant price increase,” Slocum said.

Madigan’s office says the Ameren buy made Dynegy a “pivotal supplier,” meaning that in order to meet the reliability standards set by MISO, Dynegy must participate in the auction. Thus, it can ask for any price from the market, according to Madigan’s petition.

Slocum called withholding capacity the “oldest trick in the book,” equating it to the electricity market schemes defunct energy giant Enron pulled more than a decade ago.

Dynegy, in a statement, said it “follows and respects all the rules, tariffs, and obligations in the markets” where it operates.

“Dynegy offered all of its megawatts into the MISO auction with no physical or economic withholding in accordance with MISO tariffs and as approved by the Independent Market Monitor,” the company said. “MISO’s Independent Market Monitor has publicly stated that ‘the auction results are reliable and participants’ behavior was in line with all tariff rules and procedures.’”

Both the Illinois Attorney General and Public Citizen cited MISO’s own internal proposal last year to combine the Southern Illinois MISO zone with the area covering Eastern Missouri.

That came after MISO staff said they were “concerned with Dynegy’s offer strategy in the next (auction) as they are now the dominant provider of capacity in the zone,” according to MISO meeting minutes referenced in Public Citizen’s petition. The proposed merger was to mitigate Dynegy’s market power, Slocum said, but Dynegy opposed it, and MISO dropped the proposal.

He also pointed to Dynegy’s past talk of leaving MISO for another grid operator such as PJM. That can be used to make operators, which are privately run organizations, hesitant to make changes large members don’t like, Slocum said.

“There’s a serious political science problem with these (regional transmission organizations),” Slocum said. “MISO has an enormous self-interest to retain membership. They don’t want a lucrative member like Dynegy to flee, because it might open the floodgates.”

MISO, in a statement, said it was still reviewing the complaints and would respond during FERC proceedings.

Unlike most areas within MISO, Illinois operates a deregulated electricity market, which allows customers to shop for power producers. Often, municipalities aggregate their citizens’ buying power to negotiate contracts in Illinois. Ameren Illinois only delivers the power, serving much of downstate as a delivery-only regulated utility.