Constellation NewEnergy (CNE) has agreed to pay $4.7 million in penalties for violating CAISO tariff provisions related to the treatment of imports intended for resource adequacy.
FERC on Tuesday issued an order approving a settlement in which the company will pay a $2.4 million civil penalty to the U.S. Treasury Department for violating the RA rules and associated FERC regulations. The company must also disburse $2.3 million in funds to CAISO, which will be distributed to network load (IN22-4).
A subsidiary of Constellation Energy (NASDAQ:CEG), CNE describes itself as “a full-service energy company that provides comprehensive and innovative solutions to meet the energy needs of governmental, large commercial, institutional and industrial customers.”
At issue in Tuesday’s order was CNE’s past practice — until 2017 — of not sourcing electricity for import before selling energy into CAISO’s day-ahead and real-time markets.
“CNE did not have a specific source of power linked to a specific RA import prior to submitting offers and instead intended to rely on the bilateral spot energy market if needed,” the commission wrote. “As a part of this business practice, CNE regularly offered its import capacity into the CAISO day-ahead market at $399/MWh. If those day-ahead offers cleared, CNE would reoffer the import capacity in the real-time market at either $899/MWh or $999/MWh.”
In June and August 2017, CNE failed to meet RA-related dispatches in California because it could not secure electricity in the bilateral market, prompting it to end the practice.
But FERC’s Office of Enforcement found that CNE’s practice violated the commission’s market behavior rules — specifically 18 C.F.R. section 35.41(a) — and sections 4.2.1, 37.2.1.1, and 37.3.1 of the CAISO tariff.
The commission explained that section 35.41(a) states that “where a seller participates in a commission-approved organized market, seller must operate and schedule generating facilities, undertake maintenance, declare outages, and commit or otherwise bid supply in a manner that complies with the commission-approved rules and regulations of the applicable market.”
Enforcement determined that CNE violated that rule by violating sections of the CAISO tariff that require market participants to follow the ISO’s dispatch instructions when the company could not respond to the RA-related dispatch signals in June and August 2017.
FERC found that CAISO’s tariff “requires that market participants have a ‘reasonable expectation’ of being ‘available and capable of performing at the levels specified in the bid’ at the time it is placed in the day-ahead market. Enforcement determined CNE lacked a sufficiently reasonable basis for its expectation that it would be able to wait to secure electricity in the spot market to support its RA imports during times when the market was constrained.”
Enforcement also pointed out that it was “unreasonable” for CNE to expect that electricity would be readily available in the spot markets when CAISO prices were reaching or exceeding $999/MWh, “because such prices usually reflect an environment in which it is difficult to secure sufficient supply to meet demand,” the commission said.
“In particular, we note that CNE’s conduct went against the purpose of RA, which is to ensure that firm resources are available to address supply shortfalls,” FERC concluded.
In addition to paying the penalties, CNE also agreed to only use specific generation sources or firm contracts with respect to importing RA in the future.
