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State denounces Astoria electric antitrust settlement

TimesLedger Newspapers

The state Public Services Commission condemned a proposed $4.8 million settlement between the U.S. Department of Justice and Morgan Stanley over the financial services firm’s alleged violation of antitrust laws through selling derivatives to KeySpan, which once operated the Big Allis plant.

The commission wrote in its comments to the Justice Department that given its allegations Morgan Stanley earned $21.6 million through the scheme, a $4.8 million settlement is not reasonable.

“Such an arrangement, however, is more akin to a tax than a penalty,” the commission said.

State Sen. Michael Gianaris (D-Astoria) said he agreed with the commission and that he, state Assemblywoman Aravella Simotas (D-Astoria) and City Councilman Peter Vallone Jr. (D-Astoria) would send a letter to Manhattan Judge William Pauley, who is overseeing the case, recommending against approving the settlement.

“The settlement is inadequate given the amount of money that was stolen from taxpayers because of this,” Gianaris said. “The settlement amount is a pittance.”

Morgan Stanley is charged with selling derivatives to KeySpan in 2006, while at the same time executing an offsetting derivative with the Astoria Generating Co. KeySpan operated the Big Allis plant on 36th Avenue and Vernon Boulevard and Astoria Generating, which is a part of USPowergen, continues to operate at the Con Edison complex at 20th Avenue and Shore Boulevard.

Justice contends the derivatives gave KeySpan a financial interest in Astoria’s generating capacity, which allowed it withhold its own capacity and increase energy prices, while Morgan earned revenues as the price went up.

The department previously entered into a $12 million settlement with KeySpan in February 2011. The Public Services Commission said this settlement was 24.5 percent of what KeySpan allegedly earned from the scheme, and the $4.8 million settlement with Morgan Stanley is 22.2 percent of what the investment bank gained from the scheme, in addition to tens of millions of dollars in unnecessary costs to consumers.

The settlement was announced Sept. 30 but must be approved in Manhattan federal court.

“This settlement with a major financial institution will signal to the financial services community that use of derivatives for anti-competitive ends will not be tolerated,” Sharis Pozen said in a statement at the time the settlement was announced.

The commission said it did not believe Justice Department proved the settlement was in the public interest or would deter future antitrust violations.

Gianaris said the money penalties should also come back to the taxpayers and not to the general Treasury.

“This is a great example of a need for aggressive regulation of the energy market,” he said.

Reach reporter Rebecca Henely by e-mail at rhenely@cnglocal.com or by phone at 718-260-4564.

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