Rumford mill, Portland company also face multimillion-dollar FERC fines

Posted July 19, 2012, at 5:02 p.m.
Last modified July 20, 2012, at 3:09 p.m.
Richard Silkman
Richard Silkman

A Portland company that advised the Rumford paper mill on its participation in an electricity program five years ago faces $8.7 million of the $26.4 million in fines federal regulators are seeking for the alleged defrauding of New England ratepayers, federal documents revealed Thursday.

Staff at the Federal Energy Regulatory Commission allege that Richard Silkman of Competitive Energy Services LLC, former head of the Maine State Planning Office, fraudulently manipulated the energy market and should pay $1.2 million in civil penalties, according to notices filed at the FERC website.

The commission voted 5-0 on Tuesday to follow staff recommendations and file notices of the proposed penalties to Silkman, CES, Rumford Paper Co. and Lincoln Paper & Tissue LLC, said FERC spokesman Craig Cano. CES faces an additional $7.5 million in fines and Rumford $13.25 million in fines should FERC win its pending case, Cano said Thursday.

CES strongly denied the allegations. Company officials said in a statement released Thursday that FERC’s accusations emanate from a program that FERC itself found “fatally flawed” and later terminated. CES said it repeatedly explained the advice it gave the Rumford paper mill to the ISO New England managers of the electricity program, which paid large-scale energy producers to reduce their electricity use during times of high demand, and those managers never indicated finding any fault with the advice.

“We advised our clients regarding this complex program as instructed to by the program guidelines and in the same manner as dozens of other participants,” Competitive Energy Services said in the statement. “Our customers did nothing different from scores of other New England entities who participated in the [ISO New England] demand response program, only two of whom are being investigated.

“This issue has not been reviewed in any fair or reasonable setting — the FERC review was a closed and non-transparent process that we were prohibited from even discussing,” the statement continued. “Until yesterday, FERC never responded at all to any of the significant amount of evidence and explanations we submitted to them, and even now, they don’t address important evidence that contradicts their conclusion that we did anything wrong.”

The commission will await the exchange of responses from the defendants and staff over the next 60 days before making a ruling that, if appealed, could push the dispute into the U.S. Court of Appeals in Washington, D.C., Cano said.

According to FERC’s allegations, Silkman and CES advised the Rumford mill to set what staff called “artificially inflated” baseline consumption rates, “maximizing payments for phantom load reductions” from which the mill eventually collected more than $3.3 million. FERC seeks the return of that money as well as the fines.

FERC announced Wednesday that it is seeking $4.4 million i n civil penalties from Lincoln Paper & Tissue.

In a statement released Thursday, Lincoln Paper & Tissue President and CEO Keith Van Scotter called the allegations false and misleading and said the company sees business continuing as usual despite the threatened fines.

The dispute has been going on for years. It arises, Van Scotter said, from a lack of “meaningful guidance” from federal regulators and regulations or from officials who operate the New England power grid as to how the companies should operate.

“For a violation to be found, FERC must prove that Lincoln intentionally committed fraud to overstate its normal electricity usage. Lincoln had no such intent,” the statement reads. “Lincoln’s baseline-setting methodology was legitimate and economically sound” and “closely tracked the basic architecture of FERC’s own [regulations] on demand response compensation.”

Lincoln’s “‘expert’ enrolling participant failed to provide any instruction or guidance regarding how to set a baseline during the baseline-setting process,” Lincoln Paper & Tissue’s statement added.

Lincoln Paper has retained a law firm in Washington, D.C., to represent it in the matter, Van Scotter said.

The company has been in operation as Lincoln Paper & Tissue LLC since 2004. Located on Katahdin Avenue, Lincoln Paper and Tissue employs about 400 workers. They make deep-dyed tissue used by many of the nation’s party goods producers, airlines and food service companies to create napkins, towels, table covers and other specialty tissue products.

CORRECTION:

An earlier version of this story incorrectly stated the relationship between Competitive Energy Services and Lincoln Paper & Tissue LLC. A spokesman for CES said Friday that it never worked for the paper mill and Lincoln Paper and Tissue owner Keith Van Scotter was referring to another company when he said that Lincoln Paper and Tissue had failed to receive any instruction on how to handle its participation in an energy management program.

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