FERC on December 2 filed two suits in the District of Massachusetts to affirm orders alleging market manipulation in the ISO New England demand response market in 2007 and 2008.
In the first case (docket number 13-13054), the Commission seeks to affirm its August 29, 2013 order finding that Competitive Energy Services (CES), an energy consulting company, and its managing member Richard Silkman engaged in market manipulation by helping a CES client, Rumford Paper Company, “establish a false baseline to create the illusion that the client was reducing consumption of electricity. CES and the client were paid for demand response that they neither intended to provide nor actually provided.” (Complaint ¶ 36). The order assessed $7.7 million in penalties and disgorgement against CES, and a $1.25 million fine against Silkman. Rumford settled with FERC Enforcement in an order approved by the Commission on March 22, 2013, agreeing to pay approximately $1.3 million in civil penalties and disgorgement.
Similarly, FERC in the second case (docket number 13-13056) seeks to affirm an order, also issued on August 29, 2013, assessing penalties against Lincoln Paper and Tissue, a paper mill, for engaging in a “scheme to extract payments for phantom load reductions” by establishing a “false baseline to create the illusion that it was reducing consumption of electricity and therefore was paid for demand response that it neither intended to provide nor actually provided.” (Complaint ¶ 10). The August 29 order directed Lincoln to pay approximately $5.4 million in penalties and disgorgement.
These cases may mark the beginning of a trend among energy companies to refuse settlement offers in manipulation cases, forcing FERC to assess penalties and affirm them in federal court. Barclays Bank and four of its traders are challenging a July 2013 order assessing over $488 million in penalties and disgorgement, causing FERC to file suit in Federal court in the Eastern District of California in October (FERC v. Barclays Bank, Docket No. 13-01158). No other Commission order finding market manipulation under the market manipulation rule enacted in the Energy Policy Act of 2005 has ever been challenged in federal court.