Morgan Stanley to Pay $4.8 Million to Settle Alleged Antitrust Violations Which Raised Capacity Prices

Morgan Stanley will pay $4.8 million for allegedly violating the antitrust laws by entering into an agreement with KeySpan Corporation that allegedly restrained competition in the New York City electricity capacity market, the U.S. Department of Justice said Friday.

The department said that the agreement with KeySpan, "likely resulted in a price increase for electricity retailers, which, in turn, led to increased electricity prices for consumers."

The settlement provides for disgorgement of profits for a violation of the antitrust laws and requires Morgan Stanley to pay $4.8 million to the United States. The department previously entered into a settlement with KeySpan that required the company to disgorge $12 million in profits for its role in the agreement, which was approved by a court in February 2011.

According to the DOJ complaint, in January 2006, KeySpan and Morgan Stanley executed a financial derivative for New York City capacity while Morgan Stanley simultaneously entered into an off-setting derivative with Astoria Generating Company, KeySpan's largest competitor in the capacity market.

The agreements effectively transferred to KeySpan a financial interest in Astoria's capacity, thereby ensuring that KeySpan would withhold substantial output from the capacity market and increase prices. For its part, Morgan Stanley earned revenues by retaining the spread between the fixed prices of the two derivative agreements.

The anticompetitive effects of the Morgan Stanley/KeySpan agreement lasted until March 2008, when regulatory conditions eliminated KeySpan's ability to affect the market price of electricity capacity.