On October 1, 2013, we reported here that the Federal Energy Regulatory Commission (FERC) issued orders on August 29, 2013, assessing civil penalties against, and requiring disgorgement of profits by, Lincoln Paper and Tissue, LLC (Lincoln), Competitive Energy Services, LLC (CES), and Dr. Richard Silkman, the managing member of CES. Please see here. FERC found that Lincoln, CES, and Dr. Silkman had violated the energy market manipulation prohibitions of the Federal Power Act (FPA) and FERC’s Anti-Manipulation Rule with a scheme to generate demand response payments in the ISO New England, Inc. (ISO-NE) Day‑Ahead Load Response Program without reducing electricity consumption from the grid. Lincoln owns and operates a paper mill in Maine, which participated in program using on-site generation. CES and Dr. Silkman provided consulting services to the Rumford Paper Company, which settled with FERC regarding similar allegations of fraud in March 2013.
The penalties were assessed pursuant to a procedure which allows the target of a FERC enforcement proceeding to bypass an administrative hearing and request that FERC immediately assess penalties. If those penalties are not paid within 60-days, the FPA directs FERC to commence an action in a United States District Court for an order affirming the penalty, in which the court may review the assessment of the civil penalty de novo. This procedure has proved popular in recent enforcement actions because it bypasses the time and expense of an administrative hearing in favor of quick access to a forum that may potentially be more sympathetic.
On December 2, 2013, FERC filed two petitions with the United States District Court for the District of Massachusetts, requesting orders affirming its assessment of penalties against Lincoln, and CES and Dr. Silkman, respectively. Massachusetts was chosen as a venue because ISO-NE is headquartered in Massachusetts. FERC requested a jury trial on the petitions, but suggested that the court affirm the penalty based on the record. The petition regarding CES and Dr. Silkman can be found here and the petition regarding Lincoln can be found here.