Bloomberg News

Paper Mills Join JPMorgan as U.S. Probes Power-Market Games

July 19, 2012

The U.S. Federal Energy Regulatory Commission proposed penalties of $29.8 million for alleged manipulation of New England’s power market in the agency’s expanding investigations that also ensnared JPMorgan Chase & Co. (JPM:US)

Rumford Paper Co. and Lincoln Paper and issue LLC, two paper mills, along with consultant Competitive Energy Services LLC and an employee were ordered to pay fines and give up financial gains made by claiming “phantom” cuts in electricity use in 2007-2008, according to documents released July 17.

Since January 2011, the agency announced 11 investigations of alleged manipulation in electricity and natural-gas markets and reached a record $245 million settlement with Constellation Energy Group Inc. this year. The agency on July 2 sued New York- based JPMorgan to release e-mails in a probe of possible gaming of power markets in California and the Midwest. The company denies the FERC allegations.

“It does show their vigilance and their focus on identifying market manipulation,” said Patrick M. Gerity, a Hartford, Connecticut-based senior counsel at law firm Day Pitney LLP, said of the FERC action, noting he isn’t familiar with the JPMorgan case. “Market manipulation can occur.”

Rumford, part of NewPage Corp., and Lincoln own and run paper mills in Maine. The companies curtailed generating their own electricity and bought more power from the grid to inflate their usage while the operator was measuring average customer demand. After the review period, Rumford resumed onsite generation, cut demand from the grid and was rewarded under a program aimed at reducing use, the FERC documents showed.

‘Strongly Disagree’

The alleged violations occurred from July 2007 to February 2008. Competitive Energy Services and employee Richard Silkman aided Rumford, according to FERC documents. The companies have 30 days to response to the agency’s action.

“We strongly disagree with FERC’s allegations,” Keith Van Scotter, chief executive officer at the Lincoln plant, said in an interview. “We’re just a small manufacturer. How can we manipulate power markets?”

“Competitive Energy Services and Dr. Silkman deny that they did anything improper or unreasonable,” Peter Brann, a spokesman for the Portland, Maine-based company, said by phone today. “They did not involve in any market manipulation.”

NewPage spokeswoman Shawn Hall declined to comment on the agency’s action.

J.P. Morgan Ventures Energy Corp. allegedly made bids that resulted in at least $73 million in improper payments to generators, according to the FERC. The investigation came to light when the FERC went to court seeking internal e-mails from JPMorgan.

To contact the reporters on this story: Kasia Klimasinska in Washington at kklimasinska@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net


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