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Federal Energy Regulatory Commission v. Silkman

United States District Court, D. Maine

December 2, 2019

RICHARD SILKMAN, et al., Respondents.



         The Court denies a petitioner's motion to exclude an expert witness designated by the respondents because the Court concludes that the expert is qualified to give the opinions he has rendered, that his opinions are likely to be helpful to the jury, and that the petitioner's other objections do not justify exclusion. Instead, the petitioner is free to test the expert's qualifications, his knowledge of the facts in the case, and his opinions at the crucible of cross-examination, by the introduction of contrary evidence, and through careful attention to proper jury instructions.

         I. BACKGROUND

         A. Procedural Background

         With jury selection set for April 7, 2020 and trial scheduled from April 27 through May 1, 2020, on August 27, 2019, the Federal Energy Regulatory Commission (FERC) filed a motion to exclude one of the Respondents' expert witnesses, Thomas L. Welch.[1] Pet'r's Mot. to Exclude Thomas L. Welch (ECF No. 174) (Pet'r's Mot.). On September 17, 2019, Richard Silkman and Competitive Energy Service, LLC (CES) responded, objecting to the FERC motion. Defs.' Opp'n to FERC Mot. to Exclude Expert (ECF No. 179) (Resp'ts' Opp'n).[2] On October 1, 2019, FERC filed its reply. Pet'r's Reply in Support of Its Mot. to Exclude Thomas L. Welch (ECF No. 180) (Pet'r's Reply).

         B. Factual Overview

         1. FERC's Allegations

         In its Order on Motions for Summary Judgment dated January 4, 2019, the Court described in detail the complex factual and legal underpinnings of this case. Summ. J. Order at 2-69. FERC claims that the Respondents “engag[ed] in a fraudulent scheme to manipulate the ISO New England, Inc. (ISO-NE) Day-Ahead Load Response Program from July 2007 to February 2008.” Pet. for an Order Affirming the Fed. Energy Regulatory Comm'n's Aug. 29, 2013 Orders Assessing Civil Penalties Against Richard Silkman and Competitive Energy Servs. LLC ¶ 1 (ECF No. 1). ISO-NE is “an independent, non-profit, Regional Transmission Organization serving Massachusetts, Connecticut, Maine, New Hampshire, Rhode Island, and Vermont.” Id. ¶ 2. It “ensures the day-to-day reliable operation of New England's bulk electric energy generation and transmission system by overseeing and ensuring the fair administration of the region's wholesale electricity markets.” Id. ISO-NE “administers load response programs that encourage large electricity users to reduce their electricity consumption or ‘load' during periods of high or peak demand on the bulk electric system.” Id. ¶ 3. Under a program administered by ISO-NE known as the Day Ahead Load Response Program (DALRP), participants were allowed to offer “electricity reductions for hours in the next day when New England experienced high electricity prices” and were required to actually reduce their consumption of electricity. Id. ¶ 4. When a business reduced its electrical needs for a peak period, the DALRP “would pay [the user] for the electricity savings resulting from its” reduction. Id. ¶ 5.

         In this case, FERC alleges that Dr. Silkman and CES helped a CES client create a false baseline to foster “the illusion that the client was reducing consumption of electricity.” Id. ¶ 10. As a consequence, FERC maintains, the client was paid “for demand response that they neither intended to provide nor actually provided.” Id. FERC concluded that Dr. Silkman's and CES's “scheme to extract payments for phantom load reductions was a violation of the FPA's prohibition of electricity market manipulation, 16 U.S.C. § 824v(a) (2012), and the corresponding prohibition in the Commission's regulations, 18 C.F.R. § 1c.2 (2013).” Id. FERC brought this lawsuit to enforce its civil penalty of $1, 250, 000 against Dr. Silkman and of $7, 500, 000 against CES and to disgorge $166, 841.13 in unjust profits. Id. ¶ 12.

         2. Thomas L. Welch: Defense Expert

         Dr. Silkman and CES deny FERC's allegations and have vigorously defended themselves against FERC's allegations. During discovery, on January 26, 2018, Dr. Silkman and CES listed Thomas L. Welch as an expert and produced his expert report and resume. Mr. Welch is a former member and the former Chair of the Maine Public Utilities Commission. Pet'r's Mot. Attach. 4, Thomas L. Welch Statement of Ops. and Basis at 17 (Welch Report). He was graduated from Stanford University in 1972 and from Harvard Law School in 1975. Id. He has worked as an attorney in two law firms, as in-house counsel for Bell Atlantic, as the Chief Deputy Attorney General for Antitrust in Pennsylvania, as the Director of Market Strategy for PJM Interconnection, a regional transmission organization, and since 2015 as a consultant. Id. According to his report, Dr. Silkman and CES designated Mr. Welch as an expert to testify that the DALRP in place in New England was flawed in several crucial respects. Id. at 2-13.

         The Respondents also designated Mr. Welch to rebut the proposed testimony of one of FERC's experts, Dr. Samuel A. Newell. Id. Attach. 2, Statement of Thomas L. Welch in Resp. to Dr. Newell Report at 1-12 (ECF No. 174) (Welch Rebuttal). Dr. Newell expressed the view that Dr. Silkman's interpretation of DALRP did not “present[] a baseline-measuring concept that conforms to industry norms or guidance from ISO-NE or the intent of the program, or even one that makes logical sense.” Id. Attach. 7, Expert Report of Samuel A. Newell at 56 (Dr. Newell Report). Mr. Welch issued a rebuttal in which he disagreed with Dr. Newell that there has been a consensus about how to calculate the baseline for DALRP. Welch Rebuttal at 1-12.


         A. FERC's Motion

         Citing Federal Rule of Evidence 702 and the series of judicial decisions commencing with Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), FERC contends: (1) Mr. Welch does not have enough expertise in “wholesale demand response, ” Pet'r's Mot. at 3-6; (2) Mr. Welch does not reliably apply his opinions to the facts in this case, id. at 7-10; and (3) specific opinions are unreliable and irrelevant, including his view that the DALRP was flawed, that his rebuttal opinions do not effectively rebut Dr. Newell's opinions, that Mr. Welch's opinions about simulating future conditions are self-contradictory, confusing and unsupported, and that his views regarding the propriety of conduct are unsupported and invade the province of the court. Id. at 11-15.

         B. The ...

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