Constellation NewEnergy agrees to pay $4.7M to settle allegations it violated CAISO's market rules

Dive Brief:

Constellation NewEnergy agreed to pay $4.7 million for allegedly violating California Independent System Operator market rules that are designed to ensure the grid operator has enough power, according to an agreement the Federal Energy Regulatory Commission approved Tuesday.
Constellation NewEnergy, a retail energy supplier, in 2017 had a practice of offering imported resource adequacy into CAISO's day-ahead energy market without having a specific source of power for its imports. Constellation NewEnergy twice failed to provide power when called on by the grid operator that year, according to FERC.
The unit of Constellation Energy, which separated from Exelon last month, agreed to pay a $2.4 million fine to the U.S. Treasury and $2.3 million to CAISO. The Baltimore-based company agreed to the facts described by FERC's enforcement office, but neither admitted nor denied the alleged market violations.

Dive Insight:

Constellation NewEnergy sells electricity in California to "direct access" customers that opt to buy power from competitive suppliers. CAISO requires load-serving entities like Constellation NewEnergy to offer specified amounts of RA into the grid operator's day-ahead energy market and, if the offer clears, into its real-time market, according to FERC.

The company had a practice of offering imported RA into the day-ahead market at $399/MWh from unspecified sources. If the offer cleared, Constellation NewEnergy planned to rely on the spot market to buy the electricity. The company would reoffer the imported capacity in the real-time market at either $899/MWh or $999/MWh, according to FERC.

In June and August 2017, Constellation NewEnergy was unable to secure electricity in the spot market and failed to meet CAISO's dispatch orders, FERC said, noting the company stopped that business practice.

FERC's enforcement office said it was unreasonable for Constellation NewEnergy to expect it would be able to wait to secure electricity in the spot market to support its RA imports when the market was constrained.

"It was unreasonable to expect that electricity would be readily or sufficiently available in the spot market during times when CAISO market prices rose to or above bids of $999/MWh because such prices usually reflect an environment in which it is difficult to secure sufficient supply to meet demand," FERC said in explaining enforcement staff's thinking.

The penalty was fair and reasonable considering the seriousness of Constellation NewEnergy's conduct, according to FERC, which said the company fully cooperated with the enforcement office investigation.

"We note that [Constellation NewEnergy's] conduct went against the purpose of RA, which is to ensure that firm resources are available to address supply shortfalls," FERC said.

Constellation, a power company that owns 32,400 MW, contends it followed CAISO's rules.

"This settlement resolves a CAISO tariff interpretation dispute concerning transactions that occurred five years ago," Linda Foy, Constellation director of commercial communications, said Wednesday in an email. "While Constellation maintains it complied with the [CAISO] tariff, it is time to put this matter behind us."

In other action, Dynegy Marketing and Trade agreed to pay $569,000 for allegedly violating the PJM Interconnection's market rules under an agreement FERC approved Monday. In part, Dynegy misrepresented to PJM how quickly 10 of its units could ramp up, according to FERC.

FERC approved nine enforcement office settlement agreements totaling $7.9 million in fiscal year 2021, according to the agency's most recent enforcement report.