Connecticut Attorney General Seeks Disgorgement and Penalties from ISO-NE, Capacity Importers

The Attorney General of the State of Connecticut (CT AG), Richard Blumenthal, filed a Complaint requesting Investigation, Hearing, Disgorgement and other penalties against ISO-New England, Inc. (ISO-NE) and Certain Unidentified Market Participant Importer(s) of Installed Capacity on April 20, 2009 based in part on ISO-NE’s statements that such sellers with contracts over the Northern New York AC Interface (the NNY Capacity Resources) did not deliver energy when called upon to do so.  The ISO-NE statements that precipitated the CT AG Complaint were made in a filing with the Federal Energy Regulatory Commission in Docket No. ER09-873-000 that sought to change the market rules to provide that capacity resources must submit competitive energy bids and to set forth a means to determine that a bid is competitive.  On April 24, 2009, the CT Department of Public Utility Control and the CT Office of Consumer Counsel filed a complaint based on the same alleged conduct.  ISO-NE subsequently stated that its allegations that the capacity sellers had not provided energy upon request were in error. 

On May 22, 2009, the CT AG filed an amended complaint seeking a public hearing proceeding and Commission investigation into the alleged fraudulent, manipulative scheme perpetrated for more than two years starting in December 2006 by installed capacity (ICAP) resources that were paid at least $50.9 million for reliability services that the CT AG states their conduct demonstrates they never intended to provide.  The CT AG seeks disgorgement of the $50.9 million as well as compensation for the distortion of energy prices caused by the respondents’ practices, penalties for the alleged market manipulation perpetrated by respondents and changes to the ISO-NE market monitoring structure.  While continuing to pursue certain unnamed defendants, the amended complaint specifically lists Brookfield Energy Marketing Inc., H.Q. Energy Services (U.S.) Inc., and Constellation Energy Commodities Group, Inc. as respondents that engaged in the activities subject to the complaint. 

Specifically, the CT AG alleges certain entities violated Section 206 of the Federal Power Act by entering ICAP Import Contracts and accepting New England capacity payments when they never intended to perform the obligations of capacity resources.  He alleges that they did so by employing a high-offer strategy - offering their energy at prices that would rarely, if ever, be accepted (bids were $660/MWh and above); the CT AG calls these uncompetitive bids that “certainly violated the intent of the Market Rules because they effectively removed the NNY Capacity Resources’ supply from New England’s energy markets”, and characterizes the respondents’ behavior as greedy and possibly the result of collusion, making reference to a trader who transferred from one respondent to another.  While not the focus of the Complaint, the CT AG indicates that payments of $6.0 million for capacity imports over the Phase I/II Quebec ties and the New Brunswick ties for which Market Participants offered energy above $660/MWh between December 2006 and January 2009 may be subject to similar claims of impropriety.

The CT AG named ISO-NE as a respondent in both the original and amended complaint.   He claims that ISO-NE’s market monitoring function is a failure, as evidenced by ISO-NE’s delay in identifying, disclosing, and dismantling this scheme, its acknowledged errors in analyzing market participants’ conduct, and its failure to take action to make customers whole.  He indicated that either ISO-NE’s market monitors failed to detect activity despite obvious clues or that they did detect it and allowed it to continue.