United States District Court, D. Maine
ORDER ON OBJECTION TO ORDER RE: DISCOVERY
A. WOODCOCK, JR. UNITED STATES DISTRICT JUDGE.
an energy consulting firm and its managing member, object to
a portion of the Magistrate Judge's September 8, 2017
Order on Discovery Issues. Defs.' Partial
Obj. to Disc. Order (ECF No. 119) (Resp'ts'
Mot.); Order on Disc. Issues (ECF No. 117)
(Order). Specifically, the Respondents object to the
denial of their request for documents related to Petitioner
Federal Energy Regulatory Commission's (FERC) decision
not to pursue enforcement action against certain other
individuals or entities. Resp'ts' Mot. at 1;
Order at ¶ 2. The Court concludes that the
Respondents failed to demonstrate that the Magistrate
Judge's discovery ruling denying discovery is either
clearly erroneous or contrary to law.
Concise Factual Background
an administrative agency of the United States, organized and
existing pursuant to the Federal Power Act, 16 U.S.C. §
791a et seq. (FPA). 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, 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 (Dr. Silkman) resides in Maine and is an
employee and managing member of CES. Id. ¶ 14.
The Day-Ahead Load Response Program
Day-Ahead Load Response Program (DALRP) is a program
administered by ISO-NE that encourages large electricity
users to reduce the amount of electricity they consume from
the grid during periods of high or peak demand. FERC
Pet. ¶ 3. It provides this encouragement in the
form of payments to participants who reduce their energy
consumption during peaks hours. The payments are arranged in
advance between the participants and ISO-NE, with the
participants submitting bids that ISO-NE may accept.
Id. ¶ 4.
Dr. Silkman and CES' Alleged Fraud
alleges that CES and Dr. Silkman defrauded ISO-NE through the
consulting services it provided to Rumford Paper Company
(Rumford). Id. ¶ 36. Specifically, 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. Rumford enrolled in the DALRP
with assistance from an Enrolling Participant, Constellation
NewEnergy, Inc. 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. Id.
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
to 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. CES, including Dr. Silkman, then
communicated daily with ISO-NE regarding Rumford's
availability to provide approximately twenty megawatts of
electricity reduction. Id. ¶ 45. 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
July 2007 through February 2008, 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 NewEnergy, Inc.
(Constellation), Rumford's Enrolling Participant.
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. During
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.
Investigation and Enforcement Action
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 § 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
eighty-three-page response to these letters. Id.
Enforcement provided Dr. Silkman and CES's 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. Silkman.
2012, the Commission agreed to issue orders to show cause to
Dr. Silkman and CES, and the Respondents submitted a joint
answer in September 2012. Id. ¶ 55. In August
2013, the Commission issued orders assessing civil penalties
against CES and Dr. Silkman, finding that the Respondents
violated FPA § 222 and the Commission's
Anti-Manipulation Rule by engaging in a scheme to inflate,
and then by maintaining, a fraudulent baseline in order to
receive payments for load response they never intended to
provide or actually provided. Id. ¶¶ 60,
66-69. The Commission issued assessment orders in accordance
with Enforcement's recommendations. Id. ¶
62. Dr. Silkman and CES 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.