Maxim Power defends itself over market manipulation finding by FERC

Maxim Power told the Federal Energy Regulatory Commission on March 4 that it acted defensively to avoid burning costly oil at its Pittsfield power plant and that its actions do not constitute power market manipulation.

Maxim Power was responding to a Feb. 2 “show cause” order from FERC’s Office of Enforcement (OE) asking that it prove that its actions in 2010 weren’t market manipulation.

“A market manipulation case should not be based on impressions but on hard unambiguous facts and literal, unforced applications of the law to conduct with no legitimate business purpose; and such cases only should be brought where the party charged with manipulation was on fair notice that the challenged conduct was unlawful,” the company wrote. “Anything less would be not only fundamentally unfair, but demonstrably vulnerable in court, as is the case with respect to OE Staff’s claims here.

“An objective evaluation of Maxim’s offering strategy should begin where Maxim began – with the undisputed premise that as a dual fuel unit, Maxim’s Pittsfield plant could be committed by ISO-NE in the day ahead market on a gas-based offer and had Maxim not been able to procure sufficient gas to satisfy the dispatch for its entire term, Pittsfield would have been obligated to burn oil. For just one day, that could mean losing over $300,000. Many such instances then would result in very serious financial losses. This very real risk – of having to burn oil when committed on gas and the necessity to minimize it – was what led Maxim to pursue the risk minimization strategy that OE Staff now contends was manipulative.

“In regards to this strategy, there was no intent to deceive, no intent to defraud, and no intent to withhold or omit information. And, although OE Staff’s 65-page Report to the Commission (‘Report’) is chock-full of exaggeration and hyperbole, it includes no reliable, much less unambiguous, evidence to the contrary.

“Nevertheless, although legally unprecedented and predicated only on alleged after-the-fact impressions, OE Staff urges the Commission to bring this case against Maxim, even though OE Staff could not reasonably dispute that, if Maxim offered gas and had to burn oil, its conduct would not have amounted to market manipulation; nor would Maxim have been wrong had it offered on oil and burned gas after receiving an economic dispatch. But when Maxim offered on oil and then burned gas after receiving an out-of-merit dispatch – the receipt of which was wholly beyond Maxim’s control – OE Staff cries manipulation. OE Staff theorizes that on such occasions Maxim knew that the IMM: (1) likely would never learn that Maxim had burned gas; and (2) likely would never review Maxim’s fuel burns for purposes of determining whether mitigation was appropriate even through the IMM, in fact did learn, and reasonably could have been expected to learn of both of these things as part of its normal settlement review process. Not surprisingly, OE Staff’s Report lacks support for either assertion.”

The Feb. 2 show cause order said Maxim Power and related entities should show cause why they should not be found to have violated laws and regulations through a scheme to obtain payments for reliability dispatches based on the price of expensive fuel oil when Maxim in fact burned much less costly natural gas.

These allegations arose out of an investigation conducted by OE staff and are described in an Enforcement Staff Report and Recommendation submitted to the commission on Jan. 16. The OE Staff Report alleges that, principally through its employee Kyle Mitton, Maxim engaged in a series of transactions with ISO-New England (ISO-NE) and misleading communications with the ISO-NE Internal Market Monitor (IMM) for the purpose of obtaining inflated make-whole payments at high fuel oil prices when a Maxim plant was dispatched for reliability, even though the plant was actually burning much less expensive natural gas. During July and August 2010, Maxim regularly submitted Day Ahead offers to ISO-NE at high oil prices, but on 22 days when it got reliability commitments, burned much less expensive gas to produce all or almost all of the plant’s energy, said the show cause order.

Maxim owns three power generators that participate in markets administered by ISO-New England. The focus of the FERC report is Maxim’s plant in Pittsfield, Massachusetts, which Maxim acquired in 2008. Pittsfield can burn either fuel oil or natural gas to generate electricity, although it typically burns gas, which is almost always much cheaper on a per-MWh basis.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.