Federal energy regulators have recommended civil penalties totaling more than $5.65 million against a Portland businessman and Lincoln Paper & Tissue, saying they manipulated energy markets and cost electricity users more than $3.74 million.

In a notice filed Tuesday, the Federal Energy Regulatory Commission staff says Richard Silkman, a principal in Competitive Energy Services LLC, violated the commission’s rules.

In another case, FERC recommended a $4.4 million civil penalty against Lincoln Paper & Tissue LLC for fraudulently manipulating the energy market. It said Lincoln’s behavior was “particularly problematic” because senior managers orchestrated and implemented Lincoln’s fraudulent scheme.

Silkman, a former director of Maine’s State Planning Office, gave improper advice to Rumford Paper Co, the FERC staff said. The advice was related to a program run by New England’s power grid operator, in which big power users are paid to reduce electricity consumption during times of high demand.

Silkman allegedly advised Rumford Paper to reduce its internal power generation and buy energy for a five-day period, to set an “artificially inflated” baseline.

That ultimately benefited the paper mill over six months in 2007 and 2008 whenever it was called on to reduce consumption, according to FERC.

At the same time, the commission says, it cost New England electricity consumers more than $3.3 million. Competitive Energy Services received $166,841 in revenue during the period, FERC says.

In a prepared statement, Competitive Energy Services denied any suggestion that Silkman or Rumford Paper did anything unreasonable or improper.

The company said it hasn’t violated any rules or regulations, and the program cited by FERC was later found to have a design flaw and was terminated by the commission.

Competitive Energy Services also says that, until Tuesday, FERC never responded to any of the evidence the company submitted — although the order says the commission considered all of Silkman’s submissions.

“We welcome the opportunity to end this accusation and to clear our name,” the statement said.

Silkman is widely known as an expert in Maine’s energy industry. He has been involved in two small wind power projects in Maine, Beaver Ridge Wind LLC, which is operating, and Mount Harris Wind LLC, which is on hold because of community opposition.

Silkman is a partner in Grid Solar LLC, a solar technology and non-transmission alternative development company. He also is a partner in Kennebec Valley Gas Co., which proposed a natural gas line through central Maine and is being sold to Colorado-based Summit Utilities.

FERC’s order gives Silkman 30 days to file a response.

The company said in its statement, “We believe there is no basis for this FERC action, dispute that we engaged in or even could be capable of market manipulation, and look forward to a transparent process that will yield a fair and open hearing before an impartial federal court. That hearing will demonstrate that our actions were entirely lawful, appropriate, and proper under the governing rules.”

In the Lincoln case, FERC said Lincoln also “established a false and inflated baseline” of its energy use. Instead of operating a generator to supply Lincoln with virtually all of its energy needs, the company curtailed the generator and purchased replacement energy during the baseline period for $10,000, FERC said.

The artificially inflated baseline allowed Lincoln to claim load reductions (the difference between its baseline load and its normal operations) without actually reducing any load. Lincoln’s violations resulted in a loss of $445,901 to electricity customers in New England as they paid for demand response that never occurred, FERC said.

FERC said the $4.4 million civil penalty was “appropriate.” It also said Lincoln should repay $379,916 in unjust profits, plus interest, and adopt a plan to ensure future compliance. 

LIncoln said the allegations were “meritless and Lincoln intends to rigorously defend its actions.”

“Clearly, assertions of market manipulation do not make sense given Lincoln’s small size relative to the energy markets,” the company said in a statement.

“What they are proposing just doesn’t make any sense and what they are alleging we strongly disagree with,” Lincoln’s President and Chief Executive Keith Van Scotter told the Bangor Daily News. “This is stuff that is five years old. The last conversation we had with them was almost two years ago. We are very upset and we strongly dispute their findings,” he told the newspaper.

According to FERC, Lincoln said even the lowest possible penalty and repayment of profits would “financially ruin” the company. Lincoln is required to show cause why it did not violate any policies and why it should not be required to pay the financial fees. FERC said.

Staff Writer Tux Turkel can be contacted at 791-6462 or at:

tturkel@pressherald.com