Law Profs See $300 Million Electric Scheme (withholding electricity to boost prices)

Law Profs See $300 Million Electric Scheme

BUFFALO, N.Y. (CN) - Morgan Stanley and KeySpan Corp., New York City's largest electricity vendor, face an antitrust class action accusing them of withholding electricity from the market to goose prices to the tune of $300 million.

Plaintiffs Alfred Konefsky and Martha McCluskey, both professors at the University at Buffalo Law School, claim KeySpan and Morgan Stanley Capital Group cut an illegal deal to inflate prices.

According to the federal complaint, on Jan. 18, 2008, KeySpan and Morgan Stanley "executed an agreement (the 'Morgan/KeySpan Swap') that ensured that KeySpan would withhold substantial output from the New York City electricity generating capacity market, a market that was created to ensure the supply of sufficient generation capacity for New York City consumers of electricity, and in turn reduce capacity supply to be included in statewide capacity market demand curve auctions (the statewide area is referred to as the 'New York Control Area' or 'NYCA'). The likely effect of the Morgan/KeySpan Swap was increased capacity prices for retail electricity suppliers who purchased capacity, and, in turn, pass increase supply prices directly to consumers who pay for electricity in New York City and New York State. For its part, Morgan Stanley obtained a $21 million profit payment in connection with the Morgan/KeySpan Swap, while incurring no substantial expense, advancing no funds and taking no risk in such transaction."

...

"Between 2003 and 2006, KeySpan, the largest seller of electricity generating capacity ('installed capacity') in the New York City market (the 'NYC Capacity Market') earned substantial revenues due to tight supply conditions. Because purchasers of capacity required almost all of KeySpan's output to meet expected demand, KeySpan's ability to set price levels was limited only by a regulatory ceiling (called a 'bid cap'). Indeed, the market price for capacity was consistently at or near KeySpan's bid cap," according to the complaint.

http://www.courthousenews.com/2012/01/12/42983.htm