On January 30, 2012, FERC staff issued a notice of alleged violations against Constellation Energy Commodities Group, Inc. (“CCG”). FERC staff alleges that CCG violated the Commission’s rules against market manipulation and the Commission’s market behavior rules governing communication.
FERC staff’s notice does not give extensive detail concerning the investigation, but does allege that from September 2007 to December 2008, CCG participated in virtual transactions in New York Independent System Operator’s (“NYISO”) Control Area and scheduled day-ahead physical flows between NYISO and PJM Interconnection, Inc. (“PJM”), Ontario and ISO New England, Inc. to benefit their financial positions. “Day-ahead physical flows” refers to the process by which energy traders schedule energy delivery based upon the pricing of energy in the day-ahead market. The increase in physical flow in the day-ahead market could have impacted the prices for CCG’s financial deals by increasing congestion and driving up prices. The notice also alleges that CCG provided “inaccurate and misleading information” to NYISO regarding its “uneconomic virtual trading activities.”
There is speculation (but no confirmation) that this notice of alleged violation is connected to the market manipulation investigation surrounding “circuitous schedules” around Lake Erie in 2009. In July 2009, the Commission ordered the release of an enforcement staff report and adopted findings by the Office of Enforcement (“OE”) concerning an investigation into alleged market manipulation in the Lake Erie region. OE eventually concluded that the market participants were simply responding to price signals when they submitted circuitous schedules. The participants had not previously been warned to avoid the creation of the loop flow or told that clockwise loop flow would result from their schedules. OE also determined that loop flow historically had been predominately counterclockwise and had harmed PJM and the Midwest Independent System Operator, Inc. but benefited NYISO by decreasing its congestion. OE went on to find that the traders’ actions were not used to artificially affect market signals or increase congestion or prices. As a result, in that instance, FERC concluded that the market participants who undertook the Lake Erie transactions at issue did not engage in any market manipulation or violate any tariff provisions.
A copy of staff’s notice is available here.