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Growth in demand for gasoline has increased beyond growth in production capacity, which has caused prices to increase. By 'controlling' supply (at a higher price), through strategically temporarily shutting in supply for 'emergency' shut downs and maintenance, the price is driven up. As volume demanded changes little with price increases, the overall revenue increases (volume X price per unit). In the alleged case of TransAlta, there was no need to collude with other electrical generators. They are by far the largest electrical generator in AB. This company had 100% ownership in 8 thermal units and 50% ownership in 2 additional units, if memory serves me, in addition to over 200 MW of Hydro facilities and much wind generation.

What they are alleged to have done is to manipulate the 'SMP', or system marginal price, to increase profits beyond what the market would have provided.

How was it allegedly done? At the time of this alleged ;-) manipulation, electrical supply was very tight in AB. As I understand it, the manipulations occurred mostly on very hot days, when a/c demand pushed demand even higher. At peak demand they would have an 'emergency' shut down ;-) at a thermal plant and have to use the Hydro plant to fill the gap. The thermal plants' price is based on a rolling 30 day average SMP while the Hydro plant IS the SMP. The result would be a bump of several hundred dollars per MWh X several hours X several hundred MW for Hydro versus thermal. In addition, users all across the Province who purchased at SMP would have been affected. What TA is alleged to have done is well documented by the Provincial Regulator. A class-action suit for $1.4 billion CDN is pending. (But by the Grace of God, none of these alleged actions were done in the winter when -30°C temperatures also pushed demand higher, else some people may have frozen to death!)

In spite of economic slowdowns (or even screeching halts!), many executives STILL demand ever increasing profits. Collusion is not out of the question to maintain such profits. While oil companies operate on a different pricing regime than the AB electrical market, a producer can manipulate the price through strategic 'shutting in' of production. In fact, if the company has multiple refineries, it is possible they can increase their profits without coluding on the timing of shut downs. If they have multiple refineries in a tight market, they may be able to earn higher revenue with one temporarily shut down.

Algebraically:
P0*Va+P0*Vb+P0*Vc < P1*Va+P1*Vb where:
P0 is the unit price with all refineries operating,
P1 is the unit price with one refinery shut down temporarily
Va is production volume of refinery 'a'
Vb is production volume of refinery 'b'
Vc is production volume of refinery 'c'
Refinery 'c' is shut down temporarily, reducing volume supply but increasing the unit price. The resulting new price times the remaining volume can be greater than the old, lower price times the volume of the three refineries. In the case of TransAlta above, instead of 'refineries', think 'electrical generating plants'.

For the gasoline market in the US, one company is not likely to have that much dominance in the marketplace. If however, you extend the refineries from 'a', 'b', and 'c' to include 'd', 'e', 'f', etc., and they collude through the timing of plant 'turnarounds' throughout the year so that one or two plants are down at any given time, they have effectively artificially increased the price of the product! THAT is the collusion I am talking about! Factor in the fact that ALL energy companies have large 'trading' groups that 'hedge' exchange rates, futures and many exotic derivatives, based upon energy and money, and you multiply the effects.

For example, assume total refining capacity was 120,000,000,000 gallons per year divided between 24 refineries owned by six companies. Assume turnarounds take one month on average and the companies agree to space their turnarounds equally over the year, therefore, at any given time, two refineries are in turnaround at any given time. Because of the timing, effective capacity is reduced by 1/12 on average (10,000,000). Without a new refinery in the last 40 years, demand must be near capacity. Since gasoline is price inelastic, the price will have gone up more than 1/12, likely closer to 15% or more, due to price inelasticity. (A paper published by Stanfod University suggests a short term price elasticity for gasoline of between -.29 and -.61 L Levin paper) What that means is, you lose 1/12 of your volume at the old price but gain 11/12 at an additional 15% increase. Total revenue INCREASES over 5% for the year by producing only 11/12ths of the volume! ((11/12*1.15)-(12/12*1.00)=5.42%). All due to price inelasticity of demand and potential collusion on shutdowns.

With a government that wants to destroy the middle class, corporate giants that continually demand more, there is no one to protect the middle class. In the end, the colluders win and the consumer loses! "plus ça change, plus c'est la même chose"