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DOJ Charges Electric Power Company with Gun-Jumping Violation
Practical Law Legal Update w-005-5461 (Approx. 3 pages)
DOJ Charges Electric Power Company with Gun-Jumping Violation
by Practical Law Antitrust
| Published on 01 Mar 2017 • USA (National/Federal) |
The Department of Justice (DOJ) charged Duke Energy Corporation with taking control of Osprey Energy Center before making required Hart-Scott-Rodino (HSR) Act notifications and observing the required waiting period, known as gun-jumping. The DOJ charged Duke $600,000 in civil penalties.
On January 18, 2017, the DOJ issued a proposed final judgment in its case against Duke Energy Corporation for violating the HSR Act requiring Duke to pay $600,000 in civil penalties. In its complaint, the DOJ alleged that Duke agreed to acquire Osprey Energy Center, an electrical generating facility, in August 2014 from Calpine Corporation, a competing seller of wholesale electricity. Duke allegedly obtained beneficial ownership of Osprey before submitting a required HSR Act filing and observing the waiting period. In an HSR-reportable transaction, the premature acquisition of beneficial ownership of the equity or assets to be acquired is a violation of the Act known as gun-jumping.
The DOJ alleged that as part of its acquisition agreement, Duke entered a tolling agreement under which Duke could immediately:
- Exercise control over Osprey's output.
- Reap the day-to-day profits and losses from Osprey's business.
The DOJ alleged that as soon as the tolling agreement was signed, Osprey stopped being a competitor in the Florida market for generating electricity. Instead, through the terms of the tolling agreement, Duke exercised beneficial ownership of Osprey by:
- Taking control of buying and arranging for delivery of all of the fuel needed for the Osprey plant to produce energy, and arranging for the transmission of all energy that plant generated.
- Determining how much energy the Osprey plant should generate on an hour-by-hour basis, and sending detailed instructions daily to plant personnel directing them to produce a certain amount of power.
- Having the right to the profit (or loss) from the sale of the energy, bearing the risk of changes in market prices for fuel and energy.
Duke failed to make required HSR Act filings and observe the HSR Act waiting period before assuming beneficial ownership of Osprey under the terms of the tolling agreement in violation of the Act.
Duke submitted an HSR form months after the tolling agreement was executed, and the waiting period on the filing ended on February 27, 2015. The agencies found that Duke was in violation of the HSR Act for 150 days, from the date the tolling agreement became effective (October 1, 2014) to the date the agencies terminated the waiting period on its HSR filing (February 27, 2015). The DOJ stated that the civil penalty of $600,000, or approximately $4,000 per day, was adjusted downward from the maximum because Duke was willing to resolve the action by consent decree and avoid prolonged investigation and litigation.
For more information on alleged gun-jumping violations in other agency enforcement actions, see Practice Note, Antitrust Enforcement Actions: Gun-Jumping. For a checklist of warnings and instructions counsel can provide to transacting parties to avoid gun-jumping violations, see Avoiding Gun-Jumping in Corporate Transactions Checklist.