Feds sue Lincoln mill, Portland consultant over electricity use fraud allegations

Posted Dec. 03, 2013, at 4:14 p.m.

PORTLAND, Maine — The Federal Energy Regulatory Commission on Monday filed two separate lawsuits in U.S. District Court in Massachusetts, one against Lincoln Paper and Tissue and another against Portland-based Competitive Energy Services and its owner Richard Silkman, who is a former director of the Maine State Planning Office.

The lawsuits were not unexpected, as they continue a proceeding that began in July 2012 when FERC first alleged in a “show cause” order that Lincoln Paper and Tissue, CES and Silkman manipulated a demand-response program administered by ISO-New England that paid end users to reduce their electricity consumption during peak hours.

The suits are seeking penalties of $5 million against Lincoln Paper and Tissue, $7.5 million against CES, and $1.25 million against Silkman.

The Lincoln mill, CES and Silkman have all denied the allegations in the past.

The cases are related, but separate. Lincoln Paper and Tissue was not a client of CES, so it is a plaintiff in its own case. CES, in turn, is accused of helping a client, Rumford Paper Co., manipulate the demand-response program. The Rumford mill, owned by NewPage, paid $3 million in March 2013 to settle similar allegations against it, though the settlement did not include an admission of guilt.

In Monday’s filings, FERC asked the court to enforce millions of dollars in civil penalties it levied against the companies in August for what it calls a “fraudulent scheme” to manipulate what’s known as the Day-Ahead Load Response Program between July 2007 and February 2008.

The idea behind these demand-response programs is that it’s more cost-efficient to pay end users to reduce consumption at times of high demand than to build out more generation and transmission infrastructure that may only be needed a few days a year.

FERC alleges that Lincoln Paper and Tissue, CES and Silkman manipulated the program by creating “a false baseline to create the illusion” that the end-user, whether Lincoln Paper and Tissue or a CES client, was reducing its consumption of electricity, which in turn allowed the end user “to extract payments for phantom load reductions,” according to the suits.

Keith Van Scotter, CEO of Lincoln Paper and Tissue, declined to comment on the pending lawsuit when reached Tuesday by the Bangor Daily News.

Dustin Brooks, a CES spokesman, provided a statement in which the company denied the allegations and said it looked forward to the opportunity to defend itself in a judicial proceeding.

“CES and Dr. Silkman will challenge any implementation of FERC’s actions in federal district court, and we fully expect that the judicial process will expose the major flaws in FERC’s accusations and prove that our actions were entirely appropriate,” the statement said. “CES and Dr. Silkman categorically deny that they engaged in market manipulation in advising Rumford Paper on its participation in this complex and flawed program.”

CES claims the Rumford mill — and the Lincoln mill, though the company makes clear the two entities have never done business — are being accused of participating in the program in the same way as “dozens of other participants,” which “FERC acknowledged when it canceled [the demand-response program] on the grounds that it was fundamentally flawed.”

The company’s statement called FERC’s review up to this point “a closed and non‐transparent process.”

“FERC and its staff continue to cherry‐pick the facts and ignore the voluminous evidence that we presented which contradicts their conclusions,” the statement said.

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