A division of Constellation Energy Group said yesterday that it agreed to pay $6.9 million in penalties after admitting to federal regulators that it violated certain rules governing natural gas shipments.

The violations were reported to the Federal Energy Regulatory Commission by employees of Constellation NewEnergy-Gas, or CNE-G, after a routine audit in early 2007.

None of the thousands of transactions in question involved Maryland customers, and the company believes no gas customers in other states were directly harmed by the conduct.

Constellation said the problems stemmed primarily from a series of acquisitions in its retail gas business that led to a breakdown in oversight. The violations occurred primarily in Southern states in which CNE-G does business.

Among other things, FERC said Constellation circumvented competitive-bidding requirements involving gas shipments, denying other companies a chance to bid on discounted pipeline capacity.

"We self-identified the problems, reported them to FERC and have made the changes necessary to be fully compliant," said Lawrence McDonnell, a Constellation spokesman.

The fine is the fourth-largest FERC has imposed since January 2007 and adds to the overall regulatory woes the company has faced in recent months.

Constellation officials have sharply criticized Maryland utility regulators for a series of reports questioning aspects of a 1999 deal to deregulate the state's electric industry.

The fracas has spawned renewed debate in Annapolis over electric deregulation and caused industry analysts and credit-ratings agencies to question whether the state regulatory climate is hurting the company.

But the latest trouble is far removed from the debate over electric deregulation, and involves a comparatively small corner of the conglomerate's global energy business.

Based in Louisville, Ky., CNE-G employs about 250 employees and supplies natural gas to large customers ranging from universities to heavy manufacturing companies in 22 states and two Canadian provinces.

Retail natural gas suppliers make up a fraction of the nation's total gas supply market.

The FERC complaint credited the company for self-reporting the problems and cooperating with its investigation. But it said Constellation clearly violated rules aimed at preserving market transparency and competitiveness. The company will pay a $5 million civil penalty and give up $1.9 million in "unjust profits" to settle the matter.

Because there is no way to accurately identify parties who may have been harmed by the violations, FERC said the $1.9 million will go to benefit various energy assistance programs that receive grants from the Department of Health and Human Services.

"The penalties are significant because the violations are serious," FERC Chairman Joseph T. Kelliher said in a statement. He said the company could have faced higher penalties given the volume and scope of the violations.

The FERC complaint said Constellation's most serious violation involved a practice known as "flipping."

Flipping in this context occurs when a company makes short-term releases of pipeline capacity at a discounted price to two or more affiliates on an alternating monthly basis. FERC said the purpose of the transactions was to circumvent competitive-bidding requirements, denying other companies a chance to bid on the discounted capacity.

FERC said the violations were especially troubling because they were carried out under the direction of a CNE-G senior manager, who left the company last year.

"We don't endorse or tolerate or engage in this practice and the individuals associated with it are no longer with the company," said McDonnell, the Constellation spokesman.

FERC said the Constellation subsidiary also violated rules requiring companies shipping natural gas to also have title to the commodity while in transit.

Constellation NewEnergy-Gas said the violations occurred after it made a series of acquisitions and its internal compliance systems failed to keep pace with the changes.

McDonnell said the company has beefed up its compliance staff and made various structural changes to ensure the mistakes aren't repeated.

paul.adams@baltsun.com