United States: FERC Approves Settlement With Maxim Power Resolving Market Manipulation Charges

Last Updated: October 6 2016
Article by Russell Kooistra and Jasmine C. Hites

On September 26, 2016, FERC approved a settlement between FERC's Office of Enforcement ("Enforcement") and Maxim Power Corp. ("Maxim"), Maxim Power (USA), Inc., Maxim Power (USA) Holding Company Inc., Pawtucket Power Holding Company, LLC, and Pittsfield Generating Company, LP ("Pittsfield"; collectively, the "Respondents") requiring Maxim to make a disgorgement payment of $4 million to ISO New England Inc. ("ISO-NE") and a civil monetary payment of $4 million. The settlement resolves FERC's petition to enforce penalties against Maxim for market manipulation based on misrepresentation of fuel prices in the District Court of Massachusetts (the "District Court"), which had ordered the parties to participate in a full civil trial, as well as Enforcement's separate non-public investigation into Maxim for market manipulation based on falsely inflating its recurring Energy charge (the "Investigation").

In February 2015, FERC found that the Respondents violated the Federal Power Act (the "FPA") and FERC's Anti-Manipulation Rule, and that Maxim violated FERC's market behavior rule regarding communicating false and misleading information. FERC assessed the Respondents civil monetary penalties for (1) submitting offers for the Pittsfield plant based on fuel oil prices while actually burning less expensive natural gas and (2) making inaccurate statements to the ISO-NE market monitor about its offers (see February 13, 2015 edition of the WER). After the Respondents elected not to pay the penalties, FERC filed a petition in the District Court to affirm its civil penalty assessment. In denying the Respondents' motion to dismiss the petition, the District Court concluded that the case should be treated as an "ordinary civil action," which could be decided by a jury, if necessary (see July 26, 2016 edition of the WER).

In addition, in the Investigation, Enforcement determined that Maxim violated the FPA and FERC's Anti-Manipulation Rule by falsely inflating the price that Maxim received to run the Pittsfield plant. Under the ISO-NE tariff at the time, generators could submit different component prices in their offers to ISO-NE, including a one-time-per-dispatch "Startup" price separate from the recurring price for energy. As stipulated in the settlement, instead of providing the Startup price as a distinct charge, Maxim would include one quarter of its Startup price in each hour of the recurring Energy charge. Under this bid structure, if ISO-NE continued to dispatch the Pittsfield plant beyond its four hour minimum run time, Maxim would be compensated "equivalent to Maxim receiving an additional Startup payment every four hours, even though the plant had actually started up only once."

In its order approving the settlement, FERC stated that the Respondents agree that Maxim will make a disgorgement payment of $4 million to ISO-NE and a civil monetary payment of $4 million. FERC explained that the settlement resolves (1) FERC's petition in the District Court, (2) the Investigation, and (3) all claims and allegations arising from the Investigation. FERC further stated that the Respondents neither admit nor deny Enforcement's allegations that Maxim violated the FPA and FERC's Anti-Manipulation Rule. Finally, FERC concluded that approving the settlement was in the public interest because it resolves the allegations on fair and equitable terms.

A copy of the order is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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