Overview
On January 18, 2017, the Department of Justice (DOJ) Antitrust Division announced that it had reached a settlement with Duke Energy Corporation (Duke) for alleged “gun-jumping” – i.e., for violating the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act). This settlement is a stark reminder that gun-jumping issues must be considered thoroughly in electric power transactions.
The problem arose in 2014 when Duke agreed to purchase the Osprey generating unit from Calpine and concurrently entered into a tolling agreement for the unit. The tolling agreement was executed and went into effect months before Duke made its required HSR filing for the acquisition. As is common in tolling agreements, Duke provided all the fuel for the plant and dictated how much energy the plant would generate hour-by-hour on Duke’s behalf. DOJ alleged that by implementing the tolling agreement, Duke took control of the unit and exercised “beneficial ownership” prior to making the required filings and receiving HSR clearance. The settlement requires Duke to pay $600,000 in civil penalties for the alleged HSR violation.
It has long been common practice in the electric power industry for the parties to an M&A transaction to put in place an interim power supply or operating agreement pending closing of a transaction. Such arrangements require careful and knowledgeable crafting to accomplish the parties’ business and regulatory objectives and yet avoid gun-jumping problems. Steptoe has found ways to formulate interim power supply and operating agreements in numerous utility M&A transactions over the years that have always successfully overcome these issues. We have also had success ironing out such issues with DOJ in advance.
Although the new assistant attorney general in charge of the Antitrust Division in the Trump Administration remains to be announced and new deputies will be appointed, the DOJ section chiefs and staff attorneys who conduct such investigations will not necessarily change with the new administration. Consequently, it can be expected that the antitrust enforcement agencies will continue to carefully review M&A transactions in the electric power industry. Familiarity with DOJ staff and the agency’s mode of analysis of electricity markets will likely continue to play an important role in successfully navigating the HSR process without an antitrust challenge or an HSR violation.
