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FERC Orders Power Generator to Pay $5M for Market Manipulation Scheme

In a 65-page decision issued on Friday, FERC ordered Calgary-based Maxim Power Corp. to pay a $5 million penalty for manipulating New England power markets in 2010 by falsely selling electricity at oil-generated rates instead of charging for the lower-cost natural gas it was burning.

Commissioners also ordered Maxim marketing analyst Kyle Mitton to pay $50,000 for his role in offering the power at oil-generated rates from the company's Pittsfield, MA, plant to grid operator ISO New England Inc.

The Federal Energy Regulatory Commission (FERC) alleges that during some of the hottest days in 2010, Maxim offered to sell energy to ISO from the dual-fuel facility based on oil prices, which were higher than natural gas at the time. That year, market rules in New England capped prices based on the fuel source used to generate power. Given its location, FERC said Pittsfield was often needed to ensure system reliability and was requested to run despite its higher price.

Although Maxim made offers based on high-priced fuel oil, FERC found that it was burning cheaper natural gas to generate the power it sold to ISO New England. When ISO's internal market monitor questioned Maxim, the company said pipeline restrictions reduced natural gas availability and forced it to burn oil to produce electricity.

"We find that respondents intentionally engaged in a fraudulent scheme, through misrepresentations and material omissions, to obtain and protect payments established by offers based on the price of oil, even though they ran the Pittsfield unit on lower-priced natural gas, which should have set compensation," FERC said in its order.

FERC found that Maxim and Mitton submitted day-ahead offers to sell power from the facility "under the pretense that it would be using high-priced oil as fuel." Instead, commissioners said the company fully expected to and did burn natural gas.

"In some cases, Maxim had already procured natural gas for the following day before submitting day-ahead offers based on oil prices," the order said. "When questioned by the [internal monitor] Maxim and Mitton responded with intentional evasion, misleading questioners by implying that Pittsfield was physically unable to obtain natural gas and therefore had to run on oil."

ISO's monitor discovered the manipulation and stopped payments before Maxim could realize any gains. The operator said if it hadn't, those payments would have cost consumers in the region nearly $3 million.

Maxim couldn't be reached to comment. But Commissioner Tony Clark dissented from the order and said FERC staff did not have enough evidence to proceed with the civil penalties. He added that pipeline restrictions were in place at the time and said Maxim could have easily been bidding its supply offers conservatively in response to limited natural gas. He also questioned FERC's decision to fine Mitton, saying the company "condoned and approved" the bidding strategy.

Both Maxim and Mitton must pay the penalties to the U.S. Treasury within 60 days of the order. 

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