By William Opalka
The Federal Energy Regulatory Commission last week fined Maxim Power and one of its employees in a fuel-switching scheme that occurred in the summer of 2010.
Maxim was fined $5 million and employee Kyle Mitton was fined $50,000 for overcharging ISO-NE by offering into the day-ahead market with a price for oil-fired generation when in fact it was burning cheaper natural gas (IN15-4).
Only three members voted to impose the penalty, with Commissioner Tony Clark, who had previously expressed skepticism, dissenting. (See FERC Seeks $5M from Maxim Power; Clark Dissents.) Chairman Norman Bay, formerly head of the Office of Enforcement, did not participate in the decision.
“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 their compensation,” FERC wrote.
The plant involved is a 181-MW dual fuel generator in Massachusetts, which was operating under a reliability must-run agreement at the time of the violations.
“As a result of Pittsfield’s high offer price, the grid operator often chose less expensive options and did not select Pittsfield to generate. Nevertheless, Pittsfield was often needed to ensure system reliability and so was requested to run despite its higher price,” FERC said.
Clark acknowledged that Maxim’s activities appeared “suspicious,” but he said Enforcement did not prove the case to his satisfaction. He also cited doubts about Mitton’s culpability.
“Staff’s case linking Maxim’s supply offers to a willful intent to deceive the Independent Market Monitor thus rests on the notion that while Mr. Mitton’s responses may have been technically correct and ultimately truthful, Mr. Mitton did not anticipate what information the Independent Market Monitor was really seeking and therefore his responses were too narrow and not as forthcoming as they should have been,” Clark wrote. “To me, such a fact pattern does not a $5 million penalty make.”
The majority disagreed, calling Mitton’s role “crucial to the fraudulent scheme.” The key to the dispute, it said, is a series of emails between Mitton and the Internal Market Monitor.
“Mitton personally sent emails to the IMM that conveyed the impression that Maxim needed to submit offers for the Pittsfield plant based on high oil prices because of supposed concerns about natural gas supply, even though Mitton was frequently able to procure much cheaper natural gas on those days, and even though Mitton himself had often purchased large amounts of natural gas before submitting day-ahead offers for Pittsfield,” the decision said.
Attorneys for Maxim and Mitton could not be reached for comment.