On May 1, 2015, FERC issued an order assessing civil penalties against Maxim Power Corporation, Maxim Power (USA), Inc., Maxim Power (USA) Holding Company Inc., Pawtucket Power Holding Co., LLC, Pittsfield Generating Company, LP (collectively “Maxim”) and an Energy Marketing Analyst at Maxim, Kyle Mitton (“Mitton”), finding that Maxim and Mitton violated section 222(a) of the Federal Power Act and FERC’s Anti-Manipulation Rule, 18 C.F.R. § 1c.2.  FERC assessed civil penalties of $5,000,000 against Maxim and $50,000 against Mitton. 

In the order, FERC found that Maxim and Mitton had engaged in conduct that intentionally sought to defraud ISO New England Inc. (“ISO-NE”).  Specifically, FERC concluded that Maxim, primarily through Mitton, engaged in a series of transactions with ISO-NE, and a series of misleading communications with the ISO-NE Independent Market Monitor (“IMM”), for the purpose of obtaining inflated “make-whole” payments at high fuel oil prices when a Maxim plant was dispatched for reliability, even though the plant in question was actually burning much less expensive natural gas.

Under the ISO-NE Tariff, when generation resources are called upon for reliability purposes, they are eligible for make-whole payments called “Net Period Commitment Payments” based on the fuel price used to generate the required power.  According to FERC’s Office of Enforcement (“Enforcement”), Maxim regularly submitted Day-Ahead offers into the ISO-NE market at high oil prices during July and August of 2010.   However, Enforcement contended that when Maxim received its reliability commitments, it burned natural gas to generate almost all of the resource’s power.  Enforcement further alleged that when the IMM asked Maxim about its offers into the Day-Ahead market, Mr. Mitton, on behalf of Maxim, responded with communications giving the impression that Maxim was unable to obtain natural gas, and was therefore burning more expensive oil.  According to Enforcement, Maxim gave those responses to the IMM even though, on many days, Mitton had purchased large quantities of natural gas before submitting a Day-Ahead offer based on oil prices.  Enforcement argued that had the strategy been successful, consumers in New England would have suffered $3,000,000 in harm.

On November 3, 2014, Enforcement issued a Notice of Alleged Violations against Maxim.  That order set out three separate potentially fraudulent schemes in ISO-NE that Maxim had allegedly engaged in, one of which was the deceit of the falsely inflated make-whole reimbursements (see November 10, 2014 edition of the WER).  On February 2, 2015, FERC directed Maxim and Mitton to show cause as to why they should not be found to have violated the Federal Power Act and the Commission’s regulations through its request for inflated make-whole reimbursements, and why they should not be assessed civil penalties of: $5,000,000 and $50,000 respectively (see February 13, 2015 edition of the WER).

Commissioner Tony Clark dissented from the May 1, 2015 order.  Commissioner Clark argued Enforcement had not met its burden of proof that Maxim and Mitton had intended to engage in a deceptive course of business.  While acknowledging that the behavior could appear somewhat suspicious, Commissioner Clark argued that “such a fact pattern does not a $5 million penalty make.”  Further, Commissioner Clark had reservations with assessing a penalty against Mitton.  Commissioner Clark explained that, while “there are some circumstances in which it can be appropriate to hold individuals accountable,” he could not support “holding only the front-line employee culpable when management itself embraces and takes ownership of the actions.”

To view the order, click here.