Constellation to Pay $500,000 to Settle Texas Investigation

Constellation Energy Commodities Group, Inc. (Constellation) has entered into a settlement with Staff of the Public Utility Commission of Texas to resolve and conclude Staff's investigation of Constellation for alleged violation of PURA 39.151(j) and P.U.C. Subst. R. 25.503(f)(2), concerning adherence to Electric Reliability Council of Texas (ERCOT) Protocol § 4.4.5(2) and submission of Congestion Revenue Rights (CRR) offers into the Day-Ahead Market for settlement in Real-Time.

Staff alleged that Constellation impermissibly submitted CRR offers into the Day-Ahead Market for settlement in Real-Time from the CRR account of Rayburn Country Electric Cooperative (Rayburn). Constellation does not agree with Staff's allegations.

Constellation conducted these transactions as the registered Qualified Scheduling Entity (QSE) for Rayburn.

Staff alleged that the transactions were impermissible because the CRRs were not held by Rayburn in Real-Time, as required by ERCOT Protocol § 4.4.5(2). Constellation does not agree that Rayburn did not hold the CRRs in Real-Time and contends that it did not violate the Protocol provisions cited by Staff in the Notice of Violation.

Pursuant to ERCOT Protocol § 4.4.5(2), CRRs are offered for settlement in the Day-Ahead Market (DAM). Only Non-Opt-In-Entities (NOIE) are allowed to offer CRRs for settlement in either the DAM or in Real-Time. To be offered for settlement in Real-Time, the CRR must be "held by" the NOIE in Real-Time.

Staff alleged that the CRRs at issue were no longer held by Rayburn under a contract between Constellation and Rayburn because Constellation controlled and retained all financial earnings and losses from any CRR transactions.

From December 1, 2010 through May 4, 2011, Staff alleged that Constellation improperly used Rayburn's CRR account to offer a wide variety of CRRs that were no longer held by Rayburn into the ERCOT DAM for settlement in Real-Time. Staff alleged that through this activity, Constellation received the entire profits realized on these transactions and Rayburn received no profit from these transactions.

Constellation contends that Rayburn received financial benefits in lower overall pricing under its full requirements contract with Constellation such that the CRR tools utilized by Constellation on behalf of Rayburn provided benefits to Rayburn.

Staff alleged that ownership of the CRRs was alienated from Rayburn and transferred to Constellation, who traded them entirely for Constellation's own benefit. Constellation contends that the ownership of the CRRs was not alienated from Rayburn and that ownership was not transferred to Constellation and that the CRRs at issue were continuously held by Rayburn at all times.

Commission Staff recommended and Constellation agreed to pay an administrative penalty of $100,000 and pay $400,000 to Rayburn to resolve the alleged violations.

Staff contends this $400,000 payment reflects a direct profit from these transactions that Rayburn could have received for these CRRs had they been held by Rayburn and offered for settlement in Real-Time.

Constellation agreed that it will not accept, either directly or indirectly, any repayment from Rayburn of the $400,000 described above.

Constellation does not admit any liability under the settlement and maintains that its conduct at issue in the alleged violations was in compliance with the ERCOT Protocols.

The settlement disposes of all issues related to Constellation's offering of CRRs from Rayburn's CRR Account in the Day-Ahead Market for settlement in Real-Time during the time period of December 1, 2010 through May 4, 2011

Upon receiving notification from the Independent Market Monitor (IMM) investigating the CRR transactions and as authorized by Rayburn, Constellation ceased submitting CRR offers from Rayburn's CRR account for settlement in Real-Time and has not since submitted any CRR offers for settlement in Real-Time.

Docket: 40949