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Judge Denies FERC Request on $5M Market Manipulation Fine, Orders Case to Civil Court

In a ruling that could affect future FERC enforcement actions, a federal judge in Massachusetts denied a motion by the regulatory agency to compel Maxim Power Corp. and its subsidiaries to pay $5 million in fines for allegedly manipulating power markets in New England in 2010.

The Federal Energy Regulatory Commission levied the fine against Maxim in May 2015, alleging the Calgary-based company manipulated power markets by falsely selling electricity at oil-generated rates instead of charging for the lower-cost natural gas it was burning (see Daily GPIMay 4, 2015). The regulatory agency also fined Kyle Milton, a Maxim marketing analyst, $50,000.

FERC filed for an order in July 2015, asking the U.S. District Court for the District of Massachusetts to affirm the penalties after the respondents did not pay. But in a ruling last Thursday, Judge Mark Mastroianni denied FERC's request and referred the case to Magistrate Judge Katherine Roberts for full pretrial case management.

"In short, the court concludes that this case is to be treated as an ordinary civil action requiring a trial de novo, but with limitations on the discovery process in order to promote an efficient resolution of the case," Mastroianni said in his ruling.

The matter will now proceed as an ordinary civil case. Mastroianni ordered both sides to develop a discovery plan under federal statute -- specifically, the Federal Rules of Civil Procedure and its amended Rule 26 -- to "promote an efficient resolution of the dispute,"

According to court records, for 38 days in July and August 2010, during a particularly hot summer, Maxim submitted day-ahead orders for its power plant in Pittsfield, MA, based on oil prices instead of natural gas prices. At the time, oil prices were about $175/MWh, compared to $75/MWh for natural gas. On 22 of the 38 days, grid operators ISO New England Inc. drew power from the Pittsfield plant and paid Maxim at the oil price, but the plant burned "all or nearly all" of its natural gas at a much lower cost.

FERC alleged that on 11 of the 22 aforementioned days, Maxim had already contracted to buy natural gas from Tennessee Gas Pipeline Co. before a noon deadline for submitting day-ahead offers. Court records said Maxim countered that on all 22 days, "ISO-NE increased the hours the Pittsfield plant was required to operate, and Maxim had to either purchase natural gas in the more expensive same-day market or burn more expensive oil in conjunction with natural gas."

ISO-NE's internal market monitor subsequently questioned Maxim, which said pipeline restrictions reduced natural gas availability and forced it to burn oil to produce electricity. The monitor stopped payments to Maxim before it could realize any gains. ISO-NE said the excessive payments would have cost consumers in the region $2.99 million if they had been processed.

Maxim and its subsidiaries -- Maxim Power (USA) Inc., Maxim Power (USA) Holding Co. Inc., Pawtucket Power Holding Co. LLC, and Pittsfield Generating Co. LP -- are respondents in the case (No. 15-30113-MGM).

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