Lightening Strikes: In A First, NY Electric Company To Give Up Profits In Antitrust Settlement

A judge in the Southern District of New York has approved a settlement agreement between the Department of Justice and KeySpan Corporation (“KeySpan”) in which KeySpan agreed to disgorge $12 million of profits for alleged violations of Sherman Act Section 1.  KeySpan was once the largest seller of electricity generating capacity in New York City and is owned by National Grid, which purchased it in 2007. 

The Department of Justice alleged that KeySpan manipulated New York City electricity prices to the detriment of consumers by entering into a swap agreement that provided it with an interest in the electricity generating business Astoria Generating Company (“Astoria”), its largest competitor.  According to the Department of Justice, KeySpan’s swap agreement with Astoria raised electricity prices for the consumers of New York City.  The swap was especially effective, according the Department of Justice’s complaint, because the New York City electricity market is highly concentrated, with KeySpan, NRG Energy, Inc., and Astoria, “controlling a substantial portion of generating capacity.”  Moreover, the Department of Justice alleged that KeySpan held market power in the New York City capacity market from 2003 to 2008.  The Federal Energy Regulatory Commission (“FERC”) had described KeySpan and its two principal competitors in New York City as “pivotal suppliers” in recognition of their central role in the local electricity market. 

U.S. District Court Judge William H. Pauley III stated in his decision approving the Settlement that whether the Department of Justice could seek disgorgement of profits was a novel legal question.  He stated that the Department of Justice could pursue this remedy, and added that it was the first time a federal U.S. court had approved disgorgement as an antitrust sanction.  The $12 million disgorgement by KeySpan represented 25 percent of its net revenues from the swap transaction at issue in the Department of Justice complaint.

Judge Pauley stated that such a remedy could prove to be a powerful deterrent and a way of punishing past antitrust violations.  He noted that “[d]isgorgement is particularly appropriate where, as where, the anticompetitive conduct has ceased.”  Such a remedy would, in his view, make a potentially valuable addition to the “government arsenal.”