Rumford Paper’s settlement of fraud allegations linked to parent company’s bankruptcy

Rumford's NewPage paper mill as seen from Granite Street in Mexico.
Eileen M. Adams | Sun Journal
Rumford's NewPage paper mill as seen from Granite Street in Mexico.
By Whit Richardson, BDN Staff
Posted March 27, 2013, at 8:06 p.m.

RUMFORD, Maine — Rumford Paper Co. may have settled with the Federal Energy Regulatory Commission largely because its parent company, NewPage Corp., is in the middle of bankruptcy proceedings, according to a mill spokesman and a consultant.

FERC had accused Rumford Paper of fraudulently manipulating an energy program in 2007-08 that paid industrial electricity users to reduce energy consumption at times of high demand. It claimed the company received nearly $3 million in ill-gotten profits.

While Rumford Paper Co., which operates the paper mill in Rumford, agreed to the settlement, it has continued to deny any wrongdoing, Tony Lyons, a spokesman for the Rumford mill, said Wednesday.

The settlement calls for Rumford Paper to return those payments, as well as a $10 million fine. However, because NewPage is in bankruptcy, FERC agreed that a cash payment of slightly more than $3 million will suffice to settle the case, Lyons confirmed.

Other companies and individuals facing similar allegations from FERC — Competitive Energy Services in Portland, Rumford Paper Co.’s consultant at the time of its participation in the energy program; Richard Silkman, one of CES’ managing partners; and Lincoln Paper & Tissue — all have said they don’t intend to settle and look forward to bringing FERC to court.

When asked why Rumford settled while the other parties remain confident their arguments will hold up in court, Lyons said the financial situation of Ohio-based NewPage puts Rumford Paper in a unique position.

“When the allegations were made [in July 2012], we were in the middle of voluntary Chapter 11 bankruptcy proceedings,” Lyons said. “I would guess that because of the particular state of the company, we decided to go on the path we did.”

NewPage filed for bankruptcy in September 2011.

Lyons later stressed that he was speculating when he linked the settlement to the company’s bankruptcy.

“To be honest with you, I have no specific knowledge as to why we sought a settlement other than that the reality was we were seeking bankruptcy protection,” Lyons said. “That was an ongoing investigation that would have to be reported to bankruptcy court, and because of that I’m sure that that was part of the decision.”

He said the decision would have been made by NewPage’s legal department in Ohio, not in Rumford. Calls to communications and government relations spokespeople at NewPage were not returned late on Wednesday afternoon.

However, a statement released by Portland-based Competitive Energy Services, which was the consultant that advised Rumford on its participation in the program, also linked Rumford’s decision to settle with FERC to its bankruptcy.

“It appears that [Rumford Paper] needed to resolve this to conclude its bankruptcy proceedings and effectively agreed to give back the roughly $3 million it had earned in the Day‐Ahead Load Response Program,” the statement from CES reads.

Lyons said the bankruptcy judge still needs to approve the $3 million payment as outlined in the settlement.

http://bangordailynews.com/2013/03/27/business/rumford-papers-settlement-of-fraud-allegations-linked-to-parent-companys-bankruptcy/ printed on September 17, 2014