RUMFORD, Maine — Rumford Paper Co., which operates the paper mill in town, has agreed to pay more than $3 million to settle allegations brought by the Federal Energy Regulatory Commission that it profited from manipulating New England’s energy market.
In the consent agreement published Friday, Rumford Paper, which is a subsidiary of Ohio-based NewPage Corp., agreed to a total fine of $10 million and return of more than $3 million in payments FERC maintains the Rumford mill received fraudulently through the manipulation of an electricity program administered by ISO-New England that compensated large industrial electricity users for reducing their electricity consumption during peak demand hours.
However, because NewPage filed for bankruptcy in September 2011, FERC has agreed to accept a cash payment of slightly more than $3 million to settle the case.
In signing the consent agreement with FERC, NewPage neither denies the allegations nor admits any guilt.
Several calls to NewPage’s representative had not been returned as of late Tuesday afternoon.
The Rumford mill, which laid off 45 employees last month, participated in a demand-response program administered by ISO-New England beginning in 2007 under the guidance of Competitive Energy Services, an independent energy consulting firm based in Portland.
FERC began its investigation into Rumford Paper and CES in March 2008, after a referral from ISO-New England’s market monitoring unit, according to the consent agreement.
In July 2012, the federal agency issued orders to “show cause and notice of proposed penalty” that laid out its allegations that Rumford Paper Co., Competitive Energy Services and Richard Silkman, CES’ managing partner, had acted to fraudulently manipulate ISO-New England’s Day-Ahead Load Response Program.
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 rather than build out more generation and transmission infrastructure that may only be needed a few days a year.
FERC alleges that NewPage manipulated the program in such a way that it was paid for being on standby to reduce its electricity consumption when asked, though the company knew because of the way it had set a baseline for its energy consumption when entering the program that it would never have to reduce its load.
“Our customer in our opinion didn’t do anything that scores of New England entities didn’t do in this program,” Dustin Brooks, a CES spokesman, said Tuesday. “We advised based on the program guidance we received. It’s worth noting that FERC later canceled the whole program because they found it had some significant flaws. If there was a problem, it was with FERC, not the advice we gave our clients.”
According to the notices released in July, FERC is seeking civil penalties of $1.2 million against Silkman, former head of the Maine State Planning Office, and an additional $7.5 million against CES.
Rumford Paper has not been a client of CES since February 2008, according to Brooks.
While Rumford has settled the investigation, CES and Silkman have no such plans and expect to bring FERC to court over the matter, Brooks said.
“Throughout this process, we’ve maintained that neither CES or Dr. Silkman have violated any of the rules or the guidelines of the program. We’ve asserted this since the beginning, and we‘ll continue to do so,” Brooks said “We are anticipating we’ll end up in court.”
Brooks says FERC’s process has been “closed and nontransparent,” and that the company looks forward to the case and FERC’s allegations being opened up to scrutiny.
“We don’t think FERC’s case will hold up under the light of day,” he said.
FERC also alleged last July that Lincoln Paper & Tissue, though not a client of CES, manipulated the same demand-response program as the Rumford mill.
Keith Van Scotter, CEO of Lincoln Paper & Tissue, on Tuesday said his company has not resolved this issue with FERC.
“Our position relative to their allegations remains the same as when they first came out with the show-cause order,” he said. “We still strongly believe their allegations are misplaced. … We haven’t had our due process yet. These are still just allegations.”
Mary O’Driscoll, a spokeswoman for FERC, declined to elaborate on the consent agreement with Rumford Paper or respond to Brooks’ assertion that the Rumford mill and CES were operating within the guidelines and that the fault should lie with an allegedly poorly designed program.
“We’ve got this settlement agreement with Rumford, and so there’s not much more to say about it beyond what’s in this order,” she said. “I’m not going to respond to any responses. I cannot do that.”
NewPage has 10 days to pay the settlement, according to the consent agreement.