U.S. government regulators are accusing a Portland businessman and a company in Lincoln of fraudulently manipulating the energy market for their own financial gain. The Federal Energy Regulatory Commission wants Richard Silkman and Lincoln Paper and Tissue to pay millions of dollars in civil penalties. Both deny any wrongdoing. The case concerns their participation a few years back in a program to reduce stress on New England's power system.

ISO New England, based in Massachusetts, manages the region's power grid. The non-profit runs a program know to industry wonks as "Day-Ahead Load Response."

At times of heavy electricity demand, it pays big energy consumers, like factories, to use less juice from the grid and run internal generators instead.

Former Maine Energy Office Chief Gordon Weil says the goal is to prevent the regional system from becoming overloaded.
"It is less costly for the system to pay that customer than to run the most expensive generation that it can, when it's at the point that, if it doesn't do that, it will run out," Weil says.

The allegations in question cover the last half of 2007 and the early months of 2008. At the time, Lincoln Paper and Tissue agreed to take part in the program to reduce stress on the grid. New England ISO set an amount of power that the company would have to generate on its own.

But documents on the website of the Federal Energy Regulatory Commission allege that Lincoln deliberately produced less electricity, in house, than it had agreed to, and went on to buy replacement power elsewhere.

FERC calls these actions a "scheme" that left consumers picking up the tab for nearly $400,000 in profits Lincoln got for allegedly cutting its energy load.

"We think their charges are absolutely wrong and without merit," says Keith Van Scotter, Lincoln Paper's CEO. Van Scotter says that, at the time, the company asked independent energy experts to help it understand the program rules laid out by ISO New England.

"And, basically, everybody said, you know, we did what we were incented to do in this program," he says. "And somehow, at this point, FERC is blaming us. We're dealing with a lot of ambiguity here."

This ambiguity is a big reason why another forest products company, Rumford Paper, hired its own energy expert to help it navigate the load response program.

Dr. Richard Silkman, a former head of the Maine State Planning Office, is a principal at Competitive Energy Services or CES. He's also a partner at a solar technology company and at Kennebec Valley Gas Company, which has proposed running a natural gas line through central Maine.

FERC accuses Silkman of advising Rumford Paper to lower its internal power generation, and buy outside energy, which the commission says cost New England consumers more than $3 million.

But attorney Peter Brann, who represents Silkman and CES, says his clients didn't do anything wrong. "There's no rule, regulation or statute having to do with this program, the Day-Ahead program, that they've been accused of violating," he says. "And so we think that this is a misguided effort."

FERC itself, notes Brann, has since changed the rules for the Day-Ahead program after determining it identified serious flaws. A spokesperson says the commission doesn't comment on pending cases.

FERC is demanding that Silkman pay a civil fine of just over $1 million, and that Lincoln shell out more than $4 million.
The parties have 30 days to respond to FERC's allegations, and must decide whether to challenge the commission in U.S. District Court or seek an administrative settlement.