On March 22, 2013, FERC approved a Stipulation and Consent Agreement (“Agreement”) between the Office of Enforcement (“Enforcement”) and Rumford Paper Company (“Rumford”) regarding Rumford’s alleged fraudulent conduct in ISO-New England (“ISO-NE”). Enforcement concluded that Rumford violated FERC’s Anti-Manipulation Rule by adopting and implementing a “scheme” proposed by energy consultant Dr. Richard Silkman of Competitive Energy Services, LLC (“CES”) that defrauded ISO-NE of demand response payments. Rumford agreed to pay a civil penalty of $10 million, disgorge $2,836,419.08 in profits, and implement compliance measures. Ultimately, Enforcement agreed that due to Rumford’s bankruptcy, a Settlement Payment of $3,036,419.08 was “acceptable satisfaction” of the disgorgement and civil penalty obligations.
FERC previously issued an Order to Show Cause and Notice of Proposed Penalty on July 17, 2012, directing Rumford to explain why it should not be forced to pay a civil penalty of $13,250,000 and disgorge $2,836,419.08 (see July 23, 2012 edition of the WER). As described in FERC’s March 22 order, Enforcement concluded that Rumford curtailed its internal generation when its initial baseline load was established for the Day-Ahead Load Response Program (“DALRP”). DALRP is a demand response tool that compensates entities that offer load reductions and helps reduce energy prices in ISO-NE. Enforcement found that after curtailing internal generation, Rumford and CES would then purchase replacement energy during the baseline period instead of operating the generator as normal to supply Rumford. Enforcement concluded that by ramping down generation and purchasing more energy, Rumford and CES “knowingly established and communicated” to the ISO-NE an “inflated baseline” that did not indicate the genuine load response capability of Rumford, and Rumford did not intend to increase generation or reduce consumption once the baseline was established. As further detailed in the Agreement, after the baseline was established, Rumford and CES would submit load reduction offers in the DALRP, and then receive revenues as a result. Enforcement asserted that Rumford did not actually reduce its electrical consumption as a result of its DALRP offers being accepted. Enforcement concluded that Rumford violated the Anti-Manipulation Rule by “knowingly providing” misleading information regarding its participation in DALRP to Constellation NewEnergy, Inc. and ISO-NE.
While Rumford admitted to the facts laid out in the Agreement, it neither admitted nor denied that its DALRP conduct was a fraud. In determining the appropriate civil penalty level based upon the factors in the Revised Policy Statement on Penalty Guidelines, the order approving the Agreement notes that Enforcement took into account that high-level personnel and substantial authority personnel at Rumford “participated in and condoned” the violation, and lacked an effective compliance program at the time of its violation. Enforcement further weighed the fact that Rumford did not have a prior history of violations, did not engage in obstruction of justice, and cooperated with the investigation.
Based on Rumford’s bankruptcy, Enforcement agreed to civil penalties and disgorgement totaling $3,036,419.08. FERC directed Rumford to pay $2,836,419.08 of the Settlement Payment to ISO-NE within ten business days of the effective date of the Agreement, and directed Rumford to pay the remainder of the Settlement Payment to the U.S. Treasury within ten business days of the effective date of the Agreement. FERC also directed Rumford to make all filings necessary with the United States Bankruptcy Court for the District of Delaware to approve the Agreement.
A copy of FERC’s order is available here.