United States District Court, D. Maine
ORDER REGARDING PROCEDURES APPLICABLE TO PETITION FOR
ORDER AFFIRMING ASSESSMENT OF CIVIL PENALTIES
A. WOODCOCK, JR. UNITED STATES DISTRICT JUDGE
17, 2012, the Federal Energy Regulatory Commission (FERC or
Commission) issued orders to show cause to an energy
consulting firm and its managing member (Respondents),
requiring them to show cause why the Commission should not
(1) find them in violation of section 222 of the Federal
Power Act (FPA), 16 U.S.C. § 824v, and FERC's rule
against energy market manipulation (the Anti-Manipulation
Rule); (2) assess civil penalties against the firm and the
managing member; and (3) require the firm to disgorge unjust
to the FPA, the Respondents, upon receiving the orders to
show cause, faced a choice of procedures. First, under 16
U.S.C. § 823b(d)(2), the Respondents could proceed to a
hearing before an Administrative Law Judge (ALJ) and appeal
any unsatisfactory decision to the Commission and,
eventually, to the United States Court of Appeals in
accordance with the Administrative Procedure Act (APA).
Alternatively, under 16 U.S.C. § 823b(d)(3), the
Respondents could bypass a hearing with an ALJ and request
the Commission to make a prompt ruling on the proposed
penalties. If the Commission imposed a penalty, and the
Respondents failed to pay within sixty days, the Commission
could institute an action in the district court for an order
affirming the Commission's penalty assessment. The FPA
states that, in ruling on the Commission's penalty
assessment, the district court “shall have the
authority to review de novo the law and the facts
case, the Respondents opted for an immediate ruling from the
Commission under § 823b(d)(3), and on August 29, 2013,
the Commission issued assessment orders imposing the proposed
penalties. The Respondents failed to pay the penalties within
sixty days. Accordingly, the Commission filed a petition for
an order affirming its assessment orders.
matter of first impression in the District of Maine, this
Court must determine the applicable procedures that govern
the Court's de novo review of the Commission's
assessment orders. After considering the compelling arguments
and authorities both parties bring to bear on the issue, the
Court has resisted the temptation to make a grand
pronouncement about the scope of de novo review under §
823b(d)(3) and instead concludes, based on the specific
circumstances of this case, that it will treat this matter as
an ordinary civil action subject to the Federal Rules of
Proceedings in the District of Massachusetts
December 2, 2013, FERC filed a petition in the District of
Massachusetts for an order affirming its assessment orders.
Pet. for Order Affirming FERC's Aug. 29, 2013 Orders
Assessing Civil Penalties Against Richard Silkman and
Competitive Energy Services, LLC (ECF No. 1) (FERC
Pet.). On December 19, 2013, the Respondents filed a
motion to dismiss, Resp'ts' Mot. to Dismiss
(ECF No. 8), and a motion to transfer to the District of
Maine. Resp'ts' Mot. to Transfer (ECF No.
9). On January 9, 2014, FERC filed oppositions to the motion
to dismiss, FERC's Opp'n to Resp'ts' Mot.
to Dismiss (ECF No. 18), and the motion to transfer.
FERC's Opp'n to Resp'ts' Mot. to
Transfer (ECF No. 19).
March 3, 2014, Judge Douglas Woodlock notified the parties of
an initial scheduling conference and ordered the parties to
submit a joint statement regarding scheduling pursuant to
Massachusetts Local Rule 16.1. Notice of Scheduling
Initial Scheduling Conf., Order for Joint Statement and
Certifications, and Order for Elec. Filing (ECF No. 20).
The parties filed their joint statement on March 25, 2014,
highlighting their disagreement about the nature and scope of
the applicable procedures. Joint Rep. Pursuant to
Fed.R.Civ.P. 26(f) and Loc. R. 16.1 (ECF No. 22)
scheduling conference on April 3, 2014, Judge Woodlock denied
the motion to transfer without prejudice and scheduled a
hearing on the motion to dismiss. Elec. Clerk's
Notes (ECF No. 23). Additionally, Judge Woodlock ordered
initial disclosures pursuant to Federal Rule of Civil
Procedure 26(a)(1) and requested additional briefing
regarding how the Court should conduct a “review de
novo” under § 823b(d)(3). Id. The
Respondents filed a supplemental brief on procedure on May 9,
2014. Resp'ts' Suppl. Br. on Pro. (ECF No.
28) (Resp'ts' Suppl. Br.). FERC responded on
June 6, 2014. FERC's Mot. for Leave to Cross-File
Contours of the Case Resp., Attach. 1, FERC's
Resp. to Resp'ts' Mem. Regarding Ct.'s Auth. to
Review De Novo Comm'n's Orders Assessing Civ.
Penalties Against Resp'ts' (ECF No. 37)
(FERC's Suppl. Resp.).
18, 2014, Judge Woodlock heard arguments on the motion to
dismiss and the supplemental briefs on procedure, as well as
additional arguments regarding transfer to the District of
Maine. Elec. Clerk's Notes (ECF No. 43); Tr.
of Mot. Hr'g (ECF No. 44). Following the hearing, on
April 2, 2015, the Respondents filed a second supplemental
brief on the applicable procedures. Resp'ts'
Second Suppl. Brief on Pro. (ECF No. 52)
(Resp'ts' Suppl. Br. II).
case was effectively stayed pending resolution of related
issues in the United States Supreme Court and the United
States Bankruptcy Court for the District of
Maine. By April 5, 2016, both matters were
resolved, and the proceedings continued. On April 11, 2016,
Judge Woodlock denied the Respondents' motion to dismiss,
FERC v. Silkman, No. 13-13054-DPW, 2016 U.S. Dist.
LEXIS 48409 (D. Mass. April 11, 2016) (ECF No. 65), and
transferred the cases to the District of Maine for further
proceedings. FERC v. Silkman, No. 13-13054-DPW, 2016
U.S. Dist. LEXIS 48401 (D. Mass. Apr. 11, 2016) (ECF No. 66).
Proceedings in the District of Maine
April 21, 2016, following transfer to the District of Maine,
the Respondents filed an answer to FERC's petition.
Defs.' Answer (ECF No. 72). That same day, the
Respondents filed a motion requesting a scheduling conference
and an order assigning the case to the complex track.
Defs.' Mot. for Scheduling Order and Conf. (ECF
No. 73) (Resp'ts' Mot.). Along with their
motion, the Respondents filed a declaration from their
attorney, Peter Brann, detailing the Respondents'
experiences throughout the FERC investigation. Mot. for
Complex Track, Attach. 1, Peter Brann Decl.
(ECF No. 73) (Brann Decl.). On April 28, 2016, FERC
responded. FERC's Resp. to Resp'ts' Mot. for
Scheduling Order and Conf. (ECF No. 74) (FERC's
Resp.). The Respondents replied on May 4, 2016.
Defs.' Reply Br. in Supp. of Mot. for Scheduling
Order and Conf. (ECF No. 79) (Resp'ts'
3, 2016, the Court held a scheduling conference. Minute
Entry (ECF No. 84); Tr. of Proceedings (ECF No.
85). At the scheduling conference, the parties presented
arguments concerning the procedures that should govern the
Court's de novo review of the Commission's assessment
orders. Tr. of Proceedings at 2:24-49:18. The Court
ordered additional briefing from the Respondents'
regarding (1) the additional documents they wish to obtain
from the agency's investigative record, and (2) any
additional discovery they require to present the Court with a
complete record for de novo review. Id. at
46:6-47:2. The Court requested that FERC file a responsive
brief to explain (1) why the Respondents are not entitled to
discovery as a matter of law, and (2) why the Court should
rely solely on FERC's administrative record in reviewing
de novo the Commission's assessment orders. Id.
Respondents filed their discovery brief on July 8, 2016.
Defs.' Br. Concerning Disc. (ECF No. 86)
(Resp'ts' Disc. Br.). On July 22, 2016, the
Respondents filed a supplemental brief alerting the Court to
FERC v. Maxim Power Corp. No. 15-30113-MGM, 2016
U.S. Dist. LEXIS 107770 (D. Mass. July 21, 2016).
Defs.' Notice of Suppl. Auth. (ECF No. 87). On
July 29, 2016, FERC filed its brief in response.
FERC's Opp'n to Resp'ts' Br. Concerning
Disc. (ECF No. 88) (FERC's Disc. Resp.).
The Respondents replied on August 8, 2016. Defs.'
Reply Br. Concerning Disc. (ECF No. 89)
(Resp'ts' Disc. Reply). On August 17, 2016,
the Respondents filed a second supplemental brief to alert
the Court to another recently-decided case, FERC v. City
Power Marketing, LLC, No. 15-1428-JDB, 2016 U.S. Dist.
LEXIS 105421 (D.D.C. Aug. 10, 2016). Defs.' Second
Notice of Suppl. Auth. (ECF No. 90). FERC responded to
the Respondents' notices of supplemental authority on
August 29, 2016. FERC's Resp. to Resp'ts'
Notices of Suppl. Auth. (ECF No. 93) (FERC's
Resp. to Suppl. Auth.).
The Parties and Relevant Entities
an administrative agency of the United States, organized and
existing pursuant to the FPA, 16 U.S.C. § 791a et
seq. FERC Pet. ¶ 13. FERC's Office of
Enforcement (Enforcement) “initiates and executes
investigations of possible violations of the Commission's
rules, orders, and regulations relating to energy market
structures, activities, and participants. Office of
Enforcement (OE), FERC,
visited January 25, 2017). Based on its investigations,
Enforcement may submit reports to the Commission recommending
that the Commission institute administrative proceedings.
FERC's Disc. Resp. at 4. Once the Commission
authorizes an administrative proceeding, Enforcement's
role shifts from investigator to litigator, and a
“wall” goes up between the Commission and its
Enforcement arm to prevent ex parte communication.
is an independent, non-profit organization that works to
ensure the day-to-day reliable operation of New England's
bulk electric energy generation and transmission system by
overseeing the fair administration of the region's
wholesale energy markets. FERC Pet. ¶ 2. FERC
regulates the markets that ISO-NE administers. Id.
Competitive Energy Services (CES) is a limited liability
company organized under the laws of Maine with its principal
place of business in Portland, Maine. Id. ¶ 15.
It provides energy consulting and other services to clients
throughout North America. Id. ¶ 35. Respondent
Richard Silkman resides in Maine and is an employee and
managing member of CES. Id. ¶ 14.
The Day-Ahead Load Response Program
to FERC, ISO-NE administers “load response
programs” that encourage large electricity users to
reduce the amount of electricity they consume from the grid
during periods of high or peak demand. FERC Pet.
¶ 3. This reduction in consumption helps ease stress on
the electric grid and can also help lower electricity prices.
Id. The specific load response program at issue here
is ISO-NE's Day-Ahead Load Response Program (the DALRP).
Id. ¶ 4. Under this program, a participant
could offer to reduce its electricity consumption by a
certain amount during the peak hours the following day in
exchange for payment from ISO-NE. Id. If ISO-NE
accepted a participant's offer, and if the participant
actually reduced its consumption the following day, then the
participant would receive compensation based on the amount of
electricity they conserved. Id. ¶ 4.
order to calculate how much a participant actually reduced
its electricity consumption, ISO-NE first needed to establish
a baseline to reflect the amount of electricity the
participant normally demanded from the grid. Id.
¶ 29. To do so, ISO-NE calculated the participant's
average electricity demand between 7:00 AM and 6:00 PM over a
five-day period before the participant agreed to reduce its
electricity consumption. Id. ¶¶ 29-30.
Once ISO-NE calculated the baseline, it was able to determine
the participant's reduced demand by subtracting the
actual electrical consumption from the grid during the hours
in which ISO-NE accepted the participant's offer.
Id. ¶ 29.
establishing the participant's initial baseline, ISO-NE
continued to adjust the baseline on a rolling basis in order
to reflect changes in a participant's normal operations
over time. Id. ¶ 30. However, ISO-NE could not
adjust the baseline on days when it accepted a
participant's offer to reduce consumption because the
participant's consumption on those days would not reflect
its normal operations. Id. ¶ 31. Consequently,
if ISO-NE accepted a participant's offer every day, the
participant could maintain its initial baseline indefinitely.
Silkman and CES's Alleged Fraud
Petition, FERC makes the following allegations regarding
CES's and Dr. Silkman's supposed involvement in a
scheme to defraud ISO-NE. According to FERC, CES and its
managing member, Dr. Silkman, regularly provided energy
consulting services to Rumford Paper Company (Rumford), a
paper mill in Rumford, Maine. Id. ¶ 36. As a
result, CES and Dr. Silkman knew that, although Rumford was
connected to the electrical grid, it typically used a large,
relatively inexpensive on-site generator to meet the
substantial majority of its electricity needs to operate the
paper mill. Id. In the spring of 2007, Dr. Silkman
approached Rumford and suggested that the paper mill enroll
in the DALRP. Id. ¶ 37.
enrolled in the DALRP with assistance from an Enrolling
Participant, Constellation NewEnergy, Inc. (Constellation).
Id. ¶ 46. An Enrolling Participant is a
third-party that helps register participants in the DALRP and
arranges for ISO-NE to receive load response and meter data
from the participant. Id. Additionally, an Enrolling
Participant serves as a middleman, receiving payments from
ISO-NE and distributing the revenue to the participant.
Silkman and another CES partner advised Rumford to reduce the
amount of electricity the mill created with its generator
during the initial five-day baseline calculation period and
purchase unusually large amounts of more expensive
replacement electricity from the grid. Id. ¶
42. Dr. Silkman understood that this otherwise uneconomic
short-term purchase of grid electricity would artificially
inflate Rumford's baseline. Id. Dr. Silkman also
understood that by designing daily offers to ISO-NE that were
almost guaranteed to be accepted, Rumford could maintain its
inflated baseline indefinitely. Id. ¶ 44. Dr.
Silkman told Rumford personnel that if those bids were
accepted, Rumford would receive substantial payments under
the DALRP by simply resuming routine operation of its
generator without reducing its electricity consumption from
the grid. Id.
Rumford managers expressed concern about the scheme to Dr.
Silkman and CES, noting that it appeared that they would be
paid for doing nothing, Rumford nevertheless authorized CES
to register Rumford in the DALRP and facilitate the scheme.
Id. ¶ 45. CES, including Dr. Silkman, then
communicated daily with ISO-NE regarding Rumford's
availability to provide approximately 20 MW of electricity
reduction. Id. This phantom reduction was roughly
equal to the amount by which Rumford curtailed its
electricity generation during the baseline period.
Id. CES continued the scheme by making offers at a
price that effectively guaranteed acceptance, thereby
assuring that Rumford's baseline would remain unchanged.
scheme continued from late July 2007 through early February
2008. Id. ¶ 47. During this time, Rumford did
not actually reduce electricity consumption below its normal
levels. Id. Dr. Silkman and CES actively
participated in the scheme and continually concealed
Rumford's lack of demand reduction from ISO-NE and from
Constellation, Rumford's Enrolling Participant.
January 2008, ISO-NE made a presentation notifying market
participants that ISO-NE expected to make changes to the
program because it had learned that some market participants
had wrongly attempted to profit from intentionally
establishing and then maintaining an inflated baseline.
Id. ¶ 48. The presentation clearly described
the scheme that Dr. Silkman and CES designed and executed in
conjunction with Rumford. Id. Dr. Silkman was aware
of the presentation and forwarded it to Rumford managers, but
neither he nor anyone else at CES recommended that Rumford
cease its involvement in the scheme. Id.
January 2008, Dr. Silkman received a phone call and a letter
from Constellation explaining its concern that certain
program participants had artificially increased their
electricity usage during their baseline periods and warned
that an enrollee could be subject to sanctions if ISO-NE
determined that the enrollee committed fraud to extract load
response program payments. Id. ¶49. Despite
these communications, Dr. Silkman, CES, and Rumford continued
their involvement with the scheme. Id.
Rumford's participation in the DLARP, ISO-NE paid $3,
336, 964.43 for load response that it contends did not occur.
Id. ¶ 51. Rumford, Constellation, and CES
shared the ISO-NE payments. CES-and Dr. Silkman as a result
of his employment and ownership-received $166, 841.13, or
five percent of the total payments. Id.
Enforcement's Investigation of Dr. Silkman and
February 8, 2008, ISO-NE altered the DALRP program to guard
against baseline inflation. Id. ¶50. After
analysis of electricity usage data, ISO-NE suspected that
Rumford had committed fraud and referred the behavior to FERC
for possible enforcement action. Id.
commenced an investigation of Dr. Silkman and CES in February
2008. Id. ¶ 52. During the investigation,
Enforcement obtained and reviewed thousands of pages of
documents, including emails, internal memoranda, and
electricity consumption and load response offer data.
Id. Enforcement also deposed Dr. Silkman and several
third-party witnesses, including Rumford and Constellation
employees. Id. Enforcement determined from its
investigation that Dr. Silkman and CES devised and
implemented a scheme to inflate Rumford's DALRP baseline
in violation of section 222 of the FPA and the
Commission's Anti-Manipulation Rule. Id. ¶
was unable to reach a settlement with either Dr. Silkman or
CES and therefore issued letters notifying them of
Enforcement's intent to seek action by the Commission.
Id. ¶ 54. Dr. Silkman and CES submitted a joint
83-page response to these letters. Id. Enforcement
provided this response to the Commission, along with a report
detailing Enforcement's findings, and recommended that
the Commission issue orders to show cause to CES and Dr.
FERC Issues Orders to Show Cause
17, 2012, the Commission unanimously agreed to issue the
orders to show cause to Dr. Silkman and CES. Id.
¶ 55. The orders required Dr. Silkman and CES to show
cause why the Commission should not: (1) find them in
violation of section 222 of the FPA, 16 U.S.C. 824v, and the
Commission's Anti-Manipulation Rule; (2) assess a $1,
250, 000 civil penalty against Dr. Silkman; (3) assess a $7,
500, 000 civil penalty against CES; and (4) require CES to
disgorge $166, 841.13 in unjust profits. Id. ¶
orders also explained that Dr. Silkman and CES were required
to elect either an administrative hearing before an ALJ
pursuant to 16 U.S.C. § 823b(d)(2) or an immediate
ruling by the Commission under 16 U.S.C. § 823b(d)(3).
Id. ¶ 56. As FERC explained to Dr. Silkman and
CES in the orders to show cause:
If Respondent elects an administrative hearing before an ALJ,
the Commission will issue a hearing order; if Respondent
elects an immediate penalty assessment, and if the Commission
finds a violation, the Commission will issue an order
assessing a penalty. If such penalty is not paid within 60
days of assessment, the Commission will commence an action in
a United States district court for an order affirming the
penalty, in which the district court may review the
assessment of the civil penalty de novo.
FERC Pet., Attach. 5, Order to Show Cause and
Notice of Proposed Penalty at 3-4 (ECF No. 1); FERC
Pet., Attach. 6, Order to Show Cause and Notice of
Proposed Penalty at 3-4 (ECF No. 1). On July
27, 2012, CES and Dr. Silkman requested an immediate penalty
assessment by the Commission under § 823b(d)(3).
FERC Pet. ¶ 56.
September 14, 2012, Dr. Silkman and CES submitted a joint
answer to the orders to show cause. Id. ¶ 58.
On November 13, 2012, Enforcement filed a reply. Id.
FERC Assesses Civil Penalties
August 29, 2013, after reviewing the briefs and the evidence
that Enforcement provided, the Commission issued orders
assessing civil penalties against CES and Dr. Silkman.
Id. ¶ 60. The Commission unanimously found:
1) Dr. Silkman and CES violated FPA section 222 and the
Commission's Anti-Manipulation Rule from July 2007 to
February 2008 by engaging in a scheme to inflate and then
maintain a fraudulent baseline in order to receive payments
for load response that they never intended to provide or
actually provided. Id. ¶¶ 60, 66-69.
2) Dr. Silkman and CES acted with scienter in executing their
manipulative scheme. Dr. Silkman and CES acknowledged that
Dr. Silkman, as an employee of CES, intentionally proposed to
Rumford that the mill reduce on-site generation of
electricity during the baseline period and then later submit
daily offers to reduce load to ISO-NE. Id.
3) The Commission had enforcement jurisdiction over both CES
and Dr. Silkman for their involvement with the scheme.
Id. ¶¶ 74- 76.
Commission issued assessment orders in accordance with
Enforcement's recommendations. Id. ¶ 62.
Dr. Silkman and CES both failed to pay their penalties within
sixty days; therefore, pursuant to § 823b(d)(3)(B), the
Commission filed a petition with this Court for an order
affirming the assessment of the civil penalties. Id.
question before the Court is what procedures should govern
the Court's de novo review of the Commission's
assessment orders. As the procedural history of this case
demonstrates, the parties have thoroughly briefed and argued
their positions. In general, the Respondents argue that the
FPA requires this Court to treat the matter as an ordinary
civil action governed by the Federal Rules of Civil
Procedure. As such, the Respondents assert that they are
entitled to discovery, including information relating to