On July 17, 2012, FERC accused several entities of fraudulent behavior in ISO New England, Inc.’s (“ISO-NE”) demand response market and proposed significant penalties. FERC issued separate Show Cause and Notice of Proposed Penalty orders to Rumford Paper Company, Lincoln Paper and Tissue, LLC, Competitive Energy Services, LLC (“CES”) and Richard Silkman alleging that Rumford and Lincoln created phantom load reductions in ISO-NE’s Day-Ahead Load Response Program (“DALRP”) in order to defraud ISO-NE of demand response payments. The DALRP is a demand response tool that assists grid operators in balancing supply and demand by compensating entities that offer load reductions and thus help reduce energy prices in ISO-NE.
FERC’s Office of Enforcement alleges that both Rumford Paper (which owns and operates a lumber mill in Rumford, Maine) and Lincoln Paper and Tissue (which owns and operates a paper mill in Lincoln, Maine) committed market manipulation by decreasing their on-site generation during the five-day period when their initial baseline loads were being set for ISO-NE’s DALRP, thus inflating their baseline demand for ISO-NE supplied power. With the artificial baselines set, the Office of Enforcement alleges that both companies then increased their on-site generation to meet virtually all of their energy demands. As such, the Office of Enforcement claims that both companies created the impression that load was being reduced and offered load reductions to ISO-NE as demand response that never actually occurred. According to the Office of Enforcement, both companies knew that they would not and did not decrease load, and therefore defrauded ISO-NE and its ratepayers with phantom load reductions.
The Office of Enforcement further alleges that CES (an independent energy services company) and Mr. Silkman, a managing partner of CES, devised and urged Rumford to adopt the load reduction plan. In addition, the Office of Enforcement alleges that CES and Mr. Silkman initiated the DALRP enrollment process for Rumford and managed its day to day activities in the DALRP.
The Office of Enforcement proposed (1) a civil penalty of $13,250,000 and disgorgement of $2,836,419.08 for Rumford; (2) a civil penalty of $4,400,000 and disgorgement of $379,016.03 for Lincoln; (3) a civil penalty of $7,500,000 and disgorgement of $166,841.13 for CES; and (4) a civil penalty of $1,250,000 for Mr. Silkman. All parties have 30 days from the date of the order to file an answer with FERC.