ANTITRUST ALERT
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
ANTITRUST ALERT
A Global Resource for Compliance Officers & Legal Advisors
Energy/Commodities
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On Heels of European Raids, Energy Companies Face U.S. Class Actions

by | Jul 9, 2013 | , ,

by Megan Morley

White Oaks Fund LP, an Illinois private placement fund, filed a class action suit last week against BP PLC, Royal Dutch Shell PLC and Statoil ASA in the Southern District of New York.  White Oaks Fund v. BP PLC, et al., case number 1:13-cv-04553.  The complaint alleges that the energy companies colluded to distort the price of crude oil by supplying false pricing information to Platts, a publisher of benchmark prices in the energy industry, in violation of the Sherman and Commodity Exchange Acts.  Plaintiffs claim that defendant companies are sophisticated market participants who knew that the incorrect information they provided to Platts would impact crude oil futures and derivative contracts prices traded in the U.S.

This action follows at least six civil litigations that have been filed against BP, Shell and Statoil after the European Commission (EC) and Norwegian Competition Authority raided the companies in May.  The London offices of Platts were also searched.  After the surprise raids, the EC has stated that it is investigating concerns that the companies conspired to manipulate benchmark rates for various oil and biofuel products and that the companies excluded other energy firms from the benchmarking process as part of the scheme.  In addition, at least one U.S. Senator has requested that the U.S. Department of Justice look into whether any of the alleged illegal behavior occurred in the U.S.

The private actions filed against these energy companies in the U.S. on the heels of an investigation by the European Commission are not uncommon.  Any company that transacts business in the U.S. and undergoes a raid or investigation by a foreign competition authority should prepare to face these civil litigations and defend itself against similar allegations.



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EU State Aid Investigation into German Renewable Energy Law

by | Jun 11, 2013 | , ,

 by Martina Maier and Philipp Werner

The European Commission (Commission) is likely to open a formal EU State aid investigation into the German Renewable Energy Source Act. According to the Commission, the Act may have given unlawful advantages to renewable energy producers and energy-intensive companies (those producing chemicals or steel) in Germany. Producers and companies that benefited from the Act are therefore exposed to the risk of the alleged benefit being recovered, which is likely to amount to a figure in at least the tens of billions of Euros.

The European Commission is currently examining whether or not the German Renewable Energy Source Act infringes EU State aid law. The Commission is expected to reach a decision on whether or not to open a formal investigation procedure in autumn 2013, following its summer break.

The German Renewable Energy Source Act aims to support renewable energy by fixing the tariffs that electricity providers, such as E.ON, RWE, Vattenfall or EnBW, must pay for energy from renewable sources, e.g., solar panels or wind turbines. These tariffs are higher than those for energy from traditional sources. The Act also exempts energy-intensive companies, e.g., those producing chemicals or steel, from the EEG surcharge that electricity providers are entitled to charge their customers. These higher tariffs and the EEG exemption could be in breach of EU State aid law and are currently the subjects of a Commission examination.

Should the Commission come to the conclusion that they do infringe EU State aid law, it can order Germany to recover the advantages from the companies that benefitted from these rules. The potential State aid involved is likely to amount in total to a double-digit billion Euro figure.

In a separate but similar case, in March 2013 the Commission opened an in-depth investigation into the exemption of large electricity consumers from network charges in Germany, dating back to 2011. This exemption was financed by the final electricity consumers, who, since 2012, must pay a special surcharge. A German court, recently declared this exemption and the surcharge as unconstitutional and the legal provisions will be changed. The Commission may, however, still conclude that, up until the German court ruling, large electricity customers were benefitting from State aid. It could therefore order Germany to recover the past benefit from these customers, which is estimated at around Euro 300 million for 2012.

These investigations by the Commission expose renewable energy producers, energy-intensive companies and large electricity consumers in Germany to the significant risk of the recovery of the alleged benefit. Such companies are therefore strongly advised to co-operate with the Commission during this examination phase and if a full investigation is launched.



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Natural Gas Companies Settle Antitrust Suit Stemming from Joint Bidding

by | Apr 25, 2013 | ,

by Jon B. Dubrow and Cerissa Cafasso

On Monday, April 22, 2013, after rejecting the initial settlement agreement, Judge Richard Matsch (D. Colo.) approved a revised settlement of a suit brought by the U.S. Department of Justice (DOJ) against two energy companies for conspiring not to compete for mineral rights leases.  Gunnison Energy Corp. (GEC) and SG Interests I Ltd. and SG Interests VII Ltd. (collectively "SGI”) will each pay a fine of $275,000 to the DOJ to settle allegations of agreeing not to bid against each other in violation of antitrust law for natural gas leases on government land in western Colorado.  These fines are in addition to those related to alleged False Claims Act violations, for which SGI and GEC paid government fines of $206,250 and $245,000 respectively.  The new settlement is twice the amount of the fines in the original settlement.

McDermott Will & Emery wrote an article in February 2012 analyzing the DOJ’s initial complaint against the parties, and the competitive implications of joint bidding.  At the time, the parties had agreed to pay a total of $550,000 in fines.  The court rejected the settlement in December 2012 finding that it was not in the public interest.  "There is no basis for saying that the approval of these settlements would act as a deterrence to these defendants and others in the industry, particularly as GEC considers ‘joint bidding’ to be common in the industry."  Further, the settlement amount was "nothing more than the nuisance value of [the] litigation."  Additionally, as reflected in the newly approved deal, the court wanted the alleged Sherman Act violations and False Claims Act violations settled separately, with a payment for the Sherman Act claims separate from, and in addition to, any amount due under the False Claims Act.  At heart, it appears Judge Matsch wanted any settlement he approved to be meaningful enough to have a deterrent effect on future agreements.

This was the DOJ’s first challenge to an anti-competitive bidding agreement for mineral rights leases, but it is just one of the recent cases in which joint bidding activities have become the focus of antitrust scrutiny.  In Summer 2012, the DOJ opened an investigation into Chesapeake Energy’s acquisition of oil and gas properties in Michigan and the possibility that Chesapeake conspired with Encana Corp. to allocate bids on those properties.  In 2006, the DOJ began investigating the joint bidding practices of private equity firms in connection with leveraged buyouts.  That investigation led to class action suits against private equity firms.  One of those suits survived a motion for summary judgment last month.

It is important to note that the DOJ is paying attention to joint bidding practices and taking action.  As noted in the SGI/GEC matter, while joint bidding may in fact be common practice in the energy field, it is not necessarily lawful.  Each arrangement should be evaluated for potential anticompetitive effects.



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Release of Confidential Cartel Information by European Commission to English High Court Suspended

by | Jan 16, 2013 | , ,

by Philip Bentley and Philipp Werner

On 29 November 2012, the EU General Court (GC) issued a provisional order suspending the European Commission’s decision to communicate to the High Court of England and Wales a copy of Alstom’s reply to the statement of objections in the gas insulated switchgear cartel.  The statement of objections, which contained confidential business secrets, had been requested by the High Court in the context of a follow-on damages claim brought by National Grid, one of Alstom’s former customers.

For defendants, it will be reassuring to know that the GC will not allow the Commission to disclose contentious documents until the matter has been debated fully in court.  Plaintiffs will be relieved that they are not completely shut out of court on the issue of access to Commission documents that might support their claim for damages.  The matter does have to be debated at length, however, and the result is likely to be a set of nuanced and finely balanced rules that turn on the circumstances of each individual case.

This order is, therefore, another piece in the increasingly complex puzzle of procedures on access to documents in the European Union for the purposes of follow-on damages actions.  There are also wider issues surrounding document protection that must be considered carefully.

To read the full White Paper, click here.



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Alleged Agreement Between Chesapeake Energy and EnCana Corporation to Suppress Prices for Mineral Rights Highlights the Antitrust Risks Facing Energy Companies

by | Jul 3, 2012 | , ,

by Jon B. Dubrow and Shauna A. Barnes

Recently published reports of land acquisition activities between Chesapeake Energy and EnCana senior executives will likely expose those companies to a Department of Justice (DOJ) antitrust investigation and challenge, as well as, if accurate, civil antitrust claims.  This matter highlights the risks that energy companies face when discussing lease arrangements with their competitors. 

Joint Bidding or Bid Rigging for Property Rights Can Violate the Antitrust Laws

In February 2012, DOJ settled its first challenge to a bidding agreement for mineral rights, alleging that agreements between Gunneson Energy Corporation and SGI Interests to bid jointly for government mineral leases were anticompetitive.  In a previous post, we explained the potential issues and pitfalls related to joint bidding for oil and gas properties.  We suggested various factors that companies can use to assess, or manage, their antitrust exposure. 

Reuters Obtains and Publishes Confidential Communications Between Chesapeake and EnCana Appearing to Coordinate to Reduce Prices Paid for Properties

On June 25, 2012, Reuters published a special report indicating that Chesapeake and EnCana agreed to suppress bids for mineral rights at public and private land auctions.  Citing dozens of highly inflammatory emails, the article purports to detail how Chesapeake’s CEO, Aubrey McClendon, and other senior executives at Chesapeake and EnCana discussed how to avoid creating a bidding price war in acquiring drilling rights for Northern Michigan properties. 

According to Reuters, throughout 2010, EnCana and Chesapeake were the leading buyers in Michigan and they aggressively competed to acquire properties for hydraulic fracturing (fracing) operations.  During a May 2010 land auction, they paid approximately $1,413 per acre.  Following the auction, private landowners sought competing bids, leading to a bidding war resulting in offers of more than $3,000 per acre.

Reuters indicates that Chesapeake and EnCana discussed via email entering into a formal venture, including some areas of mutual interest that would allow the parties to share in the risks and rewards of developing properties.  However, they did not enter into any venture.  Instead, they purportedly discussed in emails ways, as independent bidders, to refrain from bidding up land prices, and to allocate various properties between themselves.  These emails were followed by significant price reductions in the offers made by Chesapeake and EnCana. 

Oil and Gas Industry Companies Need to be Sensitized to the Risks in Joint Activities Related to the Acquisitions of Mineral Rights

The Chesapeake-EnCana situation, following quickly on the heels of the DOJ’s joint bidding challenge earlier this year, serves as a reminder that companies in the oil and gas industry must exercise care in situations where they may want to work with potentially competing bidders.  In the oil and gas industry, firms frequently work together to acquire and develop properties, and that can often be lawfully accomplished through a legitimate collaboration.  Firms, and their executives, may often have opportunities to discuss property acquisition in the context of a legitimate, integrated venture, including with firms that might otherwise be competitors.  However, while some [...]

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6th Circuit Limits Applicability of the Filed-Rate Doctrine and Holds that Electricity is a “Commodity” under Robinson-Patman

by | Jun 18, 2012 |

by Nick Grimmer, Gregory E. Heltzer and Shauna A. Barnes

On June 6, 2012, in Williams v. Duke Energy Int’l, Inc., the U.S. Court of Appeals for the 6th Circuit reversed a dismissal of Robinson-Patman Act (price discrimination) claims, amongst others.  In the district court, a class of electricity purchaser plaintiffs alleged that defendant electricity providers gave an unfair competitive advantage to several of the defendants’ largest customers by paying them undisclosed rebates in side agreements, such that the favored customers paid effective rates below those approved by the governing agency, while the plaintiffs still had to pay higher agency-approved rates.  The plaintiffs alleged that while the favored customers initially objected to the defendants’ proposed rate plan, they withdrew their objections in exchange for the undisclosed rebates.  The district court dismissed the plaintiffs’ claims under the filed-rate doctrine, which bars challenges to the reasonableness of a “filed rate” (i.e., a rate approved by the governing regulatory agency).

The 6th Circuit reversed, holding that while the “filed-rate doctrine bars challenges to the reasonableness of a filed-rate,” the plaintiffs were not challenging the filed (i.e., approved) rate.  Instead, the court explained that the plaintiffs challenged “the lawfulness and purpose of payments made . . .  pursuant to various side agreements” that were “made outside of the [approved] rate scheme” – that is, these side agreements “were not filed with any agency, including the [governing agency].”  The court held that the plaintiffs properly stated a cause of action by alleging that via rebate payments, the defendants charged certain favored customers less than the actual filed rate, thereby harming the plaintiffs by giving the favored customers an unfair competitive advantage.

The extent to which other circuits will follow Williams is not clear, particularly if award of damages would have the effect of altering the filed rate (a point argued by the Williams defendants, but unaddressed by the 6th Circuit).  In the 8th Circuit (FirstCom, Inc. v. Qwest Corp.), for instance, “to the extent [a plaintiff] seeks recovery for a price discount it was allegedly entitled to, its claims are barred by the filed rate doctrine.”  And in the 11th Circuit (Hill v. BellSouth Telecomms., Inc.), the filed-rate doctrine bars claims where “an award of damages to the customer-plaintiff would, effectively, change the rate paid by the customer to one below the filed rate paid by other customers.”  However, these cases (and similar cases, for instance, the 2nd Circuitin Marcus v. AT & T Corp.) did not involve allegations that side deals caused the effective rates to vary from the filed rates.

Another noteworthy holding of Williams is that electricity is a commodity for purposes of the Robinson-Patman Act – a statute that makes it unlawful to price discriminate between purchasers of commodities of like grade and quality.”  This holding is in conflict with district courts in other circuits (Delaware, for instance, in City of Newark v. Delmarva Power & Light Co.) holding that under the Robinson-Patman Act, electricity is not a commodity.  The [...]

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FERC Reaffirms Merger Policy; Does Not Adopt DOJ/FTC 2010 Horizontal Merger Guidelines

by | Feb 27, 2012 | , , ,

by Jon Dubrow and Cerissa Cafasso

Public utilities could face different levels of scrutiny in merger reviews before the U.S. Federal Energy Regulatory Commission, and the Department of Justice and the Federal Trade Commission (the Antitrust Agencies).

To view the full article, please click here. 



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DOJ Finds Antitrust Violation in Joint Bid for Oil & Gas Leases

by | Feb 23, 2012 | ,

by Jon B. Dubrow and Shauna A. Barnes

The U.S. Department of Justice’s recent action challenging a joint bidding arrangement for natural gas leases highlights the antitrust risks of joint bids.  This newsletter describes considerations parties considering joint bids can take to evaluate and potentially manage their antitrust risks.

To read the full article, click here.



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Antitrust Inspections in The Energy Exchange Market

by | Feb 14, 2012 | , , ,

by David Henry and Philipp Werner

On February 7, the European Commission (EC) and the European Free Trade Association (EFTA) Surveillance Authority conducted unannounced inspections in the energy exchange market.  Representatives of Nord Pool Spot (Lysaker, Norway) and EPEX Spot (Paris, France and Leipzig, Germany) announced that the companies were subject to inspections.  It is not known whether other companies were also raided.  The inspections show that the EC’s enforcement policy extends beyond the retail level of the energy sector.

To read the full article, click here.



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