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United States of America v. Duke Energy Corporation; Proposed Final Judgment and Competitive Impact Statement

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Notice is hereby given pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment, Stipulation, and Competitive Impact Statement have been filed with the United States District Court for the District of Columbia in United States of America v. Duke Energy Corporation, Civil Action No. 1:17-cv-00116. On January 18, 2017, the United States filed a Complaint alleging that Duke Energy Corporation violated Section 7A of the Clayton Act, 15 U.S.C. 18a, by acquiring the Osprey Energy Center from Calpine Corporation before filing the required notification form and observing the required waiting period. The proposed Final Judgment, filed at the same time as the Complaint, requires Duke Energy Corporation to pay a civil penalty of $600,000.Start Printed Page 8846

Copies of the Complaint, proposed Final Judgment, and Competitive Impact Statement are available for inspection on the Antitrust Division's Web site at http://www.justice.gov/​atr and at the Office of the Clerk of the United States District Court for the District of Columbia. Copies of these materials may be obtained from the Antitrust Division upon request and payment of the copying fee set by Department of Justice regulations.

Public comment is invited within 60 days of the date of this notice. Such comments, including the name of the submitter, and responses thereto, will be posted on the Antitrust Division's Web site, filed with the Court, and, under certain circumstances, published in the Federal Register. Comments should be directed to Caroline E. Laise, Assistant Chief, Transportation, Energy & Agriculture Section, Antitrust Division, Department of Justice, 450 Fifth Street NW., Suite 8000, Washington, DC 20530 (telephone: (202) 353-9797).

Start Signature

Patricia A. Brink,

Director of Civil Enforcement.

End Signature

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

United States of America, U.S. Department of Justice, Antitrust Division, 450 Fifth St. NW., Suite 8000, Washington, DC 20530, Plaintiff, v. Duke Energy Corporation, 550 South Tryon Street, Charlotte, NC 28202, Defendants.

Case No.: 1:17-cv-00116

Judge: Beryl A. Howell

Filed: 01/18/2017

COMPLAINT

The United States of America, acting under the direction of the Attorney General of the United States, brings this civil action to obtain monetary relief in the form of civil penalties against the Defendant, Duke Energy Corporation (“Duke”), for violating Section 7A of the Clayton Act, as amended, 15 U.S.C. 18a, also commonly known as the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”), and alleges as follows:

I. NATURE OF THE ACTION

1. The HSR Act is an essential part of modern antitrust enforcement. The HSR Act and implementing regulations require purchasers to notify the Department of Justice and the Federal Trade Commission and wait for agency review before acquiring assets valued in excess of certain thresholds. A purchaser can “acquire” assets without taking formal legal title, for instance by obtaining operational control over the assets or otherwise obtaining “beneficial ownership.” The HSR Act's notice and waiting period requirements ensure that the parties to a proposed transaction continue to operate independently during review, preventing anticompetitive acquisitions from harming consumers before the government has had the opportunity to review them according to the procedures established by Congress in the Clayton Act. A purchaser that prematurely takes beneficial ownership of assets, sometimes referred to as “gun jumping,” is subject to statutory penalties for each day it is in violation.

2. In August 2014, Duke agreed to terms to purchase the Osprey Energy Center (“Osprey”) from its owner, Calpine Corporation (“Calpine”), a competing seller of wholesale electricity nationally and in Florida. Osprey is a combined-cycle natural gas-fired electrical generating plant located in Auburndale, Florida. Duke violated the HSR Act by obtaining beneficial ownership of Osprey before filing the required notification and observing the required waiting period.

3. Specifically, as part of the agreement to acquire the plant, Duke also entered into a “tolling agreement” whereby Duke immediately began exercising control over Osprey's output, and immediately began reaping the day-to-day profits and losses from the plant's business. Duke, for example, assumed control of purchasing all the fuel for the plant, arranging for delivery of that fuel, and arranging for transmission of all energy generated. Duke, not Calpine, retained the profit (or loss) from the difference between the price of the energy generated at Osprey and the cost to generate the energy, bearing all the risk of changes in the market price for fuel and the market price for energy. Based on these potential risks and rewards, Duke, and not Calpine, decided exactly how much energy would be generated by the plant on an hour-by-hour basis, and relayed those detailed instructions each day to plant personnel. Thus, from the moment the tolling agreement went into effect, Osprey ceased to be an independent competitive presence in the market for generating electricity for Florida consumers.

4. Duke was never interested in a tolling agreement alone—Duke was only interested in the tolling agreement as a step in the process of purchasing the plant. As a Duke executive explained in testimony to the Florida Public Service Commission, the tolling agreement reflected an effort to obtain expedited approval for the purchase of Osprey from the Federal Energy Regulatory Commission (“FERC”). When FERC reviews a proposed power plant acquisition, it typically employs a “screen” to assess how much the proposed acquisition would increase market concentration. While planning the acquisition of Osprey, Duke and Calpine anticipated the acquisition would fail the FERC screen. But with a tolling agreement in place, Duke hoped that FERC would treat Osprey as already effectively controlled by Duke, and would therefore conclude that an acquisition would lead to no change in Duke's market share and no increase in concentration under FERC's screen. Indeed, after entering into the tolling agreement, Duke argued to FERC that its acquisition of Osprey posed no competitive threat and did not increase concentration because Duke “already controls [Osprey] pursuant to the Tolling Agreement.”

5. The combination of Duke's agreement to purchase Osprey and the contemporaneously negotiated and interdependent tolling agreement transferred beneficial ownership of Osprey's business to Duke before Duke had fulfilled its obligations under the HSR Act. As a result, Duke and Calpine did not continue to act as independent entities during the required waiting period while the Department of Justice investigated the proposed acquisition and determined whether to challenge it. Therefore, the Court should assess a civil penalty against Duke for its violation of the HSR Act.

II. JURISDICTION, VENUE, AND INTERSTATE COMMERCE

6. This Complaint is filed and these proceedings are instituted under Section 7A of the Clayton Act, 15 U.S.C. 18a, added by Title II of the HSR Act, to recover civil penalties for violations of that section.

1.

7. This Court has jurisdiction over the subject matter of this action pursuant to Section 7A(g) of the Clayton Act, 15 U.S.C. 18a(g), and pursuant to 28 U.S.C. 1331, 1337(a), 1345 and 1355.

8. The Defendant has consented to personal jurisdiction and venue in the District of Columbia for purposes of this action.

9. Duke is engaged in commerce, or in activities affecting commerce, within the meaning of Section 7A(a)(1) of the Clayton Act, 15 U.S.C. 18a(a)(1).

III. THE DEFENDANT

10. Defendant Duke Energy Corporation is organized under the laws of Delaware with its principal office and place of business at 550 South Tryon Street in Charlotte, North Carolina. Through various subsidiaries, Duke Energy Corporation generates and sells Start Printed Page 8847electric power on a retail and/or wholesale basis in numerous local markets throughout the United States.

IV. WAITING PERIOD REQUIREMENTS OF THE HSR ACT

11. The HSR Act requires parties to file a notification with the Federal Trade Commission and the Department of Justice and to observe a waiting period before consummating acquisitions of voting securities or assets that exceed certain value thresholds. The required notification gives the federal antitrust agencies prior notice of, and information about, proposed transactions. The waiting period provides the antitrust enforcement agencies with an opportunity to investigate and to seek an injunction to prevent harm from anticompetitive transactions.

12. The HSR Act requirements apply to a transaction if, as a result of the transaction, the acquirer will “hold” assets or voting securities valued above the thresholds. Section 801(c)(1) of the Premerger Notification Rules, 16 CFR 800 et seq., defines “hold” to mean to have “beneficial ownership.” An acquiring person may prematurely obtain beneficial ownership of assets by, among other things, assuming the risk or potential benefit of changes in the value of the relevant assets and exercising control over day-to-day business decisions of the acquired person's business before the end of the HSR waiting period. This conduct, sometimes referred to as “gun jumping,” violates Section 7A of the Clayton Act.

13. Section 7A(g)(1) of the Clayton Act, 15 U.S.C. 18a(g)(1), states that any person, or any officer, director, or partner thereof, who fails to comply with any provision of the HSR Act is liable to the United States for a civil penalty for each day during which the person is in violation. Beginning February 10, 2009, the maximum amount of civil penalty was increased to $16,000 per day, pursuant to the Debt Collection Improvement Act of 1996, Pub. L. 104-134, 31001(s) (amending the Federal Civil Penalties Inflation Adjustment Act of 1990, 28 U.S.C. 2461 note), and Federal Trade Commission Rule 1.98, 16 CFR 1.98, 74 FR 857 (Jan. 9, 2009). Pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, Pub. L. 114-74, 701 (further amending the Federal Civil Penalties Inflation Adjustment Act of 1990), and Federal Trade Commission Rule 1.98, 16 CFR 1.98, 81 FR 42,476 (June 30, 2016), the maximum amount of civil penalty was increased to $40,000 per day.

V. THE TRANSACTION AND THE DEFENDANT'S UNLAWFUL CONDUCT

14. In August 2014, Duke and Calpine reached an agreement for Duke to purchase Osprey. The parties memorialized their agreement in an August 25, 2014 term sheet. The structure of the transaction included a tolling agreement to be put into effect until the closing of the acquisition. Duke and Calpine executed the tolling agreement on September 30, 2014, and it became effective the next day.

15. Tolling agreements are relatively common in the electricity industry, but the circumstances surrounding Duke's tolling agreement for the Osprey plant are not. Duke said in testimony to the Florida Public Service Commission that there was no separate rationale to enter this tolling agreement independent of the acquisition. Duke was only interested in the tolling agreement as a bridge to the acquisition of the plant itself. As a Duke executive testified, the tolling agreement was a “mechanism to transfer the acquisition of the plant to [Duke].” Duke insisted that it was only willing to enter into a tolling agreement in combination with an acquisition agreement, and only if Duke had the right to terminate the tolling agreement without penalty in the event that FERC rejected the acquisition.

16. The tolling agreement was designed to smooth approval by FERC by enabling Duke to argue that it “already controls” Osprey through the tolling agreement and thus that no new harm could come from permitting Duke to acquire Osprey outright. Under the tolling agreement, Duke was responsible for determining the amount of power that would be generated at Osprey, and for purchasing and delivering all the fuel necessary to produce that power. Duke was then entitled to receive all of the electricity generated by the facility.

17. After entering into the tolling agreement, Duke began to make all competitively significant decisions for the Osprey plant. Each day, Duke sent hour-by-hour instructions to Osprey personnel directing them to produce a certain amount of power. Duke also arranged to procure and deliver the necessary natural gas to Osprey—functions previously performed by Calpine. Duke also arranged for all of the power generated at Osprey to be transmitted to its destination. In other words, Duke decided when and how much natural gas would be delivered to the plant and decided when and how much energy would be produced by the plant. Duke was free to make all of these decisions based on its own business interests, and Osprey's function was limited to the mechanical operation of the facility consistent with Duke's instructions. Calpine ceased to make any significant competitive decisions for Osprey.

18. The combination of the tolling agreement and the asset purchase agreement transferred market risk (or potential gain) of a change in the fortunes of Osprey's business. Duke paid Calpine a fixed monthly fee plus a small amount to reimburse the plant's variable operations and maintenance costs. Duke also assumed financial responsibility for procuring natural gas, the plant's primary input cost. Thus, it was Duke who gained the profit or loss from sale of the energy, and it was Duke who assumed all the risk that fuel prices would increase or that energy market prices would fall. Calpine was no longer exposed to any risk of changes in the fuel or energy markets.

19. Months after the tolling agreement was executed and Duke had taken beneficial ownership of Osprey, Duke submitted a notification and report form pursuant to the HSR Act concerning its intent to acquire the Osprey plant, valued at approximately $166 million. On February 27, 2015, the antitrust agencies terminated the HSR waiting period. Duke had beneficial ownership of Osprey for the entire waiting period.

VI. VIOLATION OF SECTION 7A OF THE CLAYTON ACT

20. Plaintiff alleges and incorporates paragraphs 1 through 19 as if set forth fully herein.

21. Duke's acquisition of Osprey was subject to Section 7A premerger notification and waiting-period requirements.

22. Duke obtained beneficial ownership of Osprey prior to making its required premerger notification and observing the applicable waiting period in violation of Section 7A.

23. Accordingly, Defendant was continuously in violation of the requirements of the HSR Act each day beginning on October 1, 2014, until the waiting period was terminated on February 27, 2015.

VII. REQUEST FOR RELIEF

Wherefore, Plaintiff requests:

(a) that the Court adjudge and decree that Defendant violated the HSR Act and was in violation during the period of 150 days beginning on October 1, 2014, and ending on February 27, 2015;

(b) order that Defendant pay to the United States an appropriate civil penalty as provided under Section 7A(g)(1) of the Clayton Act, 15 U.S.C. 18(a)(g)(1), and 16 CFR 1.98(a);Start Printed Page 8848

(c) that the Court award the Plaintiff its costs of this suit; and,

(d) that the Court order such other and further relief as the Court may deem just and proper.

Dated: January 18, 2017.

Respectfully Submitted,

/s/

Renata B. Hesse (D.C. Bar #466107),

Acting Assistant Attorney General.

/s/

Jonathan B. Sallet,

Deputy Assistant Attorney General for Litigation.

/s/

Patricia A. Brink,

Director of Civil Enforcement.

/s/

Robert A. Potter,

Chief, Legal Policy Section.

/s/

Caroline E. Laise,

Assistant Chief, Transportation, Energy & Agriculture Section.

/s/

Robert A. Lepore,

Assistant Chief, Transportation, Energy & Agriculture Section.

/s/

Jade A. Eaton (D.C. Bar #939629)

Njeri Mugure,

Trial Attorneys, Transportation, Energy & Agriculture Section.

/s/

Kara B. Kuritz,

Attorney Advisor, Legal Policy Section.

U.S. Department of Justice, Antitrust Division, 450 Fifth Street NW., Suite 8000, Washington, DC 20530, Phone: (202) 307-6316, Facsimile: (202) 307-2784, Email: jade.eaton@usdoj.gov.

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

United States Of America, Plaintiff,

v.

Duke Energy Corporation, Defendant.

Case No.: 1:17-cv-00116

Judge: Beryl A. Howell

Filed: 01/18/2017

COMPETITIVE IMPACT STATEMENT

Plaintiff United States of America (“United States”), pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act (“APPA”), 15 U.S.C. 16(b)-(h), files this Competitive Impact Statement relating to the proposed Final Judgment submitted for entry in this civil antitrust proceeding.

I. NATURE AND PURPOSE OF THE PROCEEDING

On January 18, 2017, the United States filed a Complaint against Defendant Duke Energy Corporation (“Duke”), related to Duke's acquisition of the Osprey Energy Center (“Osprey”) from Calpine Corporation (“Calpine”). The Complaint alleges that Duke violated Section 7A of the Clayton Act, 15 U.S.C. 18a, commonly known as the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”).

The Complaint alleges that Duke acquired Osprey, through a transaction in excess of the then-applicable statutory thresholds, without making the required HSR Act filings with the agencies and without observing the required HSR Act waiting period. The HSR Act provides that “no person shall acquire, directly or indirectly, any voting securities of any person” exceeding certain thresholds until that person has filed pre-acquisition notification and report forms with the Department of Justice and the Federal Trade Commission (collectively, the “federal antitrust agencies” or “agencies”) and the post-filing waiting period has expired. 15 U.S.C. 18a(a). A key purpose of the notification and waiting period is to protect consumers and competition from potentially anticompetitive transactions by providing the agencies an opportunity to conduct an antitrust review of proposed transactions before they are consummated.

At the same time the Complaint was filed, the United States also filed a Stipulation and proposed Final Judgment. Under the proposed Final Judgment, which is explained more fully below, Duke is required to pay a civil penalty to the United States in the amount of $600,000. The proposed Final Judgment is designed to deter HSR Act violations by Duke and similarly situated acquirers.

The United States and the Defendant have stipulated that the proposed Final Judgment may be entered after compliance with the APPA. Entry of the proposed Final Judgment would terminate this action, except that the Court would retain jurisdiction to construe, modify, or enforce the provisions of the proposed Final Judgment and punish violations thereof.

II. DESCRIPTION OF THE EVENTS GIVING RISE TO THE ALLEGED VIOLATION

A. Duke's Acquisition of Osprey Energy Center From Calpine

In August 2014, Duke agreed to terms to purchase Osprey from Calpine, a competing seller of wholesale electricity nationally and in Florida. As part of the acquisition, Duke entered into a “tolling agreement” whereby Duke immediately began exercising control over Osprey's output, and immediately began reaping the day-to-day profits and losses from the plant's business. Duke, for example, assumed control of purchasing all the fuel for the plant, arranging for delivery of that fuel, and arranging for transmission of all energy generated. Duke retained the profit (or loss) from the difference between the price of the energy generated at Osprey and the cost to generate the energy, bearing all the risk of changes in the market price for fuel and the market price for energy. Based on these potential risks and rewards, Duke decided exactly how much energy would be generated by the plant on an hour-by-hour basis, and relayed those detailed instructions each day to plant personnel. Thus, from the moment the tolling agreement went into effect, Osprey ceased to be an independent competitive presence in the market for generating electricity for Florida consumers. The tolling agreement was entered months before Duke made its required HSR filing for the acquisition of Osprey.

Duke made clear in testimony filed with federal and state regulators that it only ever considered the tolling agreement in conjunction with an agreement to acquire Osprey. As Duke explained in its application to the Federal Energy Regulatory Commission (“FERC”) for permission to acquire the plant, Duke's negotiation with Calpine “led to an agreement in principle whereby [Duke] would purchase power from Osprey Energy Center under a two-year power purchase agreement [the Tolling Agreement] and then purchase the facility itself.”

B. Duke's Alleged Violation of Section 7A

Before the HSR Act was enacted, the agencies were often forced to investigate anticompetitive mergers that had already been consummated without public notice. In those situations, the agencies' only recourse was to sue to unwind the parties' merger. During this time, the loss of competition continued to harm consumers, and if the court ultimately found that the merger was illegal, effective relief was often impossible to achieve. The HSR Act addressed these problems and strengthened antitrust enforcement by providing the antitrust agencies the ability to investigate certain large acquisitions before they are consummated. In particular, the HSR Act prohibits certain acquiring parties from undertaking an acquisition before required filings are made with the antitrust agencies and a prescribed waiting period expires or is terminated.

The HSR Act requirements apply to a transaction if, as a result of the transaction, the acquirer will “hold” Start Printed Page 8849assets or voting securities valued above the thresholds. Under HSR Rule 801.1(c), to “hold” assets or voting securities means “beneficial ownership, whether direct, or indirect through fiduciaries, agents, controlled entities or other means.” 16 CFR 801.1(c). Thus, under the Act, parties must make an HSR filing and observe a waiting period before transferring beneficial ownership of the assets or voting securities to be acquired. The Statement of Basis and Purpose accompanying the Rules explains that beneficial ownership is determined on a case-by-case basis, based on the indicia of beneficial ownership which include among others, the right to obtain the benefit of any increase in value or dividends, and the risk of loss of value. 43 FR 33,449 (July 31, 1978). The agencies have explained that a firm may also gain beneficial ownership by obtaining “operational control” of an asset.[1]

The combination of Duke's agreement to purchase Osprey and the tolling agreement transferred beneficial ownership of Osprey's business to Duke before Duke had fulfilled its obligations under the HSR Act. Duke's tolling agreement with Calpine gave it significant operational control over the Osprey plant, and allowed Duke to assume the risks or potential benefits of changes in the value of Osprey's business. Duke procured and decided how much fuel would be delivered to the plant, decided when and how much energy would be produced by the plant, and decided when and where that energy would be delivered. Calpine's function was limited to the mechanical operation of the Osprey facility consistent with Duke's instructions. In addition, Duke, and not Calpine, retained the margin between the cost of gas and the price of electricity. If the spread between the cost of gas and the market price of electricity increased or decreased prior to closing, Duke realized that gain or loss.

A tolling agreement alone does not necessarily confer beneficial ownership. Tolling agreements are relatively common in the electricity industry, and control over output and the shift of risk and benefit to the buyer over the term are typical features of such agreements. However, in this instance, as Duke admitted to regulators, the tolling agreement for the Osprey plant was entered as part and parcel of a broader agreement to acquire the plant and had no economic rationale independent from the acquisition. Considering the intertwined agreements in their totality, Calpine ceased to be an independent competitive presence in the market after entering the tolling agreement, and beneficial ownership of Osprey transferred to Duke.

Agreements that transfer some indicia of beneficial ownership, even if common in an industry, may violate Section 7A if entered into while the buyer intends to acquire the asset.[2] Entering into such agreements before filing the required HSR notifications and before the HSR waiting period expires defeats the purpose of the HSR Act by enabling the acquiring person to direct the acquired person's business to bring about the effects of an acquisition prior to completion of the agencies' antitrust review. Hence, Duke's obligation to file and observe the waiting period arose as of October 1, 2014, the effective date of the tolling agreement relating to the plant it intended to acquire.

III. EXPLANATION OF THE PROPOSED FINAL JUDGMENT

The proposed Final Judgment imposes a $600,000 civil penalty for violation of the HSR Act. The United States adjusted the penalty downward from the maximum permitted under the HSR Act in part because the Defendant was willing to resolve the matter by consent decree and avoid prolonged investigation and litigation. The relief will have a beneficial effect on competition because it will deter future instances in which parties seek to immediately remove an independent competitive presence from an industry before filing required pre-acquisition notifications with the agencies and observing the required waiting period. At the same time, the penalty will not have any adverse effect on competition.

IV. REMEDIES AVAILABLE TO POTENTIAL PRIVATE LITIGANTS

There is no private antitrust action for HSR Act violations; therefore, entry of the proposed Final Judgment will neither impair nor assist the bringing of any private antitrust action.

V. PROCEDURES AVAILABLE FOR MODIFICATION OF THE PROPOSED FINAL JUDGMENT

The United States and the Defendant have stipulated that the proposed Final Judgment may be entered by this Court after compliance with the provisions of the APPA, provided that the United States has not withdrawn its consent. The APPA conditions entry of the decree upon this Court's determination that the proposed Final Judgment is in the public interest.

The APPA provides a period of at least sixty (60) days preceding the effective date of the proposed Final Judgment within which any person may submit to the United States written comments regarding the proposed Final Judgment. Any person who wishes to comment should do so within sixty (60) days of the date of publication of this Competitive Impact Statement in the Federal Register, or the last date of publication in a newspaper of the summary of this Competitive Impact Statement, whichever is later. All comments received during this period will be considered by the United States Department of Justice, which remains free to withdraw its consent to the proposed Final Judgment at any time prior to the Court's entry of judgment. The comments and the response of the United States will be filed with this Court. In addition, comments will be posted on the U.S. Department of Justice, Antitrust Division's internet Web site and, under certain circumstances, published in the Federal Register. Written comments should be submitted to: Caroline Laise, Assistant Chief, Transportation Energy and Agriculture Section, Antitrust Division, United States Department of Justice, 450 Fifth Street NW., Suite 8000, Washington, DC 20530, Caroline.Laise@usdoj.gov.

The proposed Final Judgment provides that this Court retains jurisdiction over this action, and the parties may apply to this Court for any order necessary or appropriate for the modification, interpretation, or enforcement of the Final Judgment.

VI. ALTERNATIVES TO THE PROPOSED FINAL JUDGMENT

The United States considered, as an alternative to the proposed Final Judgment, a full trial on the merits against the Defendant. The United States is satisfied, however, that the proposed relief is an appropriate remedy in this matter. Given the facts of Start Printed Page 8850this case, the United States is satisfied that the proposed civil penalty is sufficient to address the violation alleged in the Complaint and to deter violations by similarly situated entities in the future, without the time, expense, and uncertainty of a full trial on the merits.

VII. STANDARD OF REVIEW UNDER THE APPA FOR THE PROPOSED FINAL JUDGMENT

The APPA requires that proposed consent judgments in antitrust cases brought by the United States be subject to a sixty (60) day comment period, after which the court shall determine whether entry of the proposed Final Judgment is “in the public interest.” 15 U.S.C. 16(e)(1). In making that determination, the court, in accordance with the statute as amended in 2004, is required to consider:

(A) The competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and

(B) the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.

Id. § 16(e)(1)(A) & (B). In considering these statutory factors, the court's inquiry is necessarily a limited one, as the government is entitled to “broad discretion to settle with the defendant within the reaches of the public interest.” United States v. Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); see generally United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007) (assessing public interest standard under the Tunney Act); United States v. U.S. Airways Group, Inc., 38 F. Supp. 3d 69, 75 (D.D.C. 2014) (noting the court has broad discretion of the adequacy of the relief at issue); United States v. InBev N.V./S.A., No. 08-1965 (JR), 2009-2 Trade Cas. (CCH) ¶ 76,736, 2009 U.S. Dist. LEXIS 84787, at *3, (D.D.C. Aug. 11, 2009) (noting that the court's review of a consent judgment is limited and only inquires “into whether the government's determination that the proposed remedies will cure the antitrust violations alleged in the complaint was reasonable, and whether the mechanism to enforce the final judgment are clear and manageable.”).[3]

As the United States Court of Appeals for the District of Columbia Circuit has held, a court conducting an inquiry under the APPA may consider, among other things, the relationship between the remedy secured and the specific allegations set forth in the government's complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties. See Microsoft, 56 F.3d at 1458-62. With respect to the adequacy of the relief secured by the decree, a court may not “engage in an unrestricted evaluation of what relief would best serve the public.” United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (quoting United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62; United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 2001); InBev, 2009 U.S. Dist. LEXIS 84787, at *3. Courts have held that:

[t]he balancing of competing social and political interests affected by a proposed antitrust consent decree must be left, in the first instance, to the discretion of the Attorney General. The court's role in protecting the public interest is one of insuring that the government has not breached its duty to the public in consenting to the decree. The court is required to determine not whether a particular decree is the one that will best serve society, but whether the settlement is “within the reaches of the public interest.” More elaborate requirements might undermine the effectiveness of antitrust enforcement by consent decree.

Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).[4] In determining whether a proposed settlement is in the public interest, a district court “must accord deference to the government's predictions about the efficacy of its remedies, and may not require that the remedies perfectly match the alleged violations.” SBC Commc'ns, 489 F. Supp. 2d at 17; see also U.S. Airways, 38 F. Supp. 3d at 75 (noting that a court should not reject the proposed remedies because it believes others are preferable); Microsoft, 56 F.3d at 1461 (noting the need for courts to be “deferential to the government's predictions as to the effect of the proposed remedies”); United States v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court should grant due respect to the government's prediction as to the effect of proposed remedies, its perception of the market structure, and its views of the nature of the case).

Courts have greater flexibility in approving proposed consent decrees than in crafting their own decrees following a finding of liability in a litigated matter. “[A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is `within the reaches of public interest.' ” United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd sub nom., Maryland v. United States, 460 U.S. 1001 (1983); see also U.S. Airways, 38 F. Supp. 3d at 76 (noting that room must be made for the government to grant concessions in the negotiation process for settlements (citing Microsoft, 56 F.3d at 1461)); United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent decree even though the court would have imposed a greater remedy). To meet this standard, the United States “need only provide a factual basis for concluding that the settlements are reasonably adequate remedies for the alleged harms.” SBC Commc'ns, 489 F. Supp. 2d at 17.

Moreover, the court's role under the APPA is limited to reviewing the remedy in relationship to the violations that the United States has alleged in its Complaint, and does not authorize the court to “construct [its] own hypothetical case and then evaluate the decree against that case.” Microsoft, 56 F.3d at 1459; see also U.S. Airways, 38 F. Supp. 3d at 75 (noting that the court must simply determine whether there is a factual foundation for the government's decisions such that its conclusions regarding the proposed settlements are reasonable); InBev, 2009 U.S. Dist. LEXIS 84787, at *20 (concluding that “the `public interest' is not to be measured by comparing the violations alleged in the complaint against those the court believes could have, or even should have, been Start Printed Page 8851alleged”). Because the “court's authority to review the decree depends entirely on the government's exercising its prosecutorial discretion by bringing a case in the first place,” it follows that “the court is only authorized to review the decree itself,” and not to “effectively redraft the complaint” to inquire into other matters that the United States did not pursue. Microsoft, 56 F.3d at 1459-60. As this Court confirmed in SBC Communications, courts “cannot look beyond the complaint in making the public interest determination unless the complaint is drafted so narrowly as to make a mockery of judicial power.” 489 F. Supp. 2d at 15.

In its 2004 amendments, Congress made clear its intent to preserve the practical benefits of utilizing consent decrees in antitrust enforcement, adding the unambiguous instruction that “[n]othing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene.” 15 U.S.C. 16(e)(2); see also U.S. Airways, 38 F. Supp. 3d at 76 (indicating that a court is not required to hold an evidentiary hearing or to permit intervenors as part of its review under the Tunney Act). This language codified what Congress intended when it enacted the Tunney Act in 1974, as the author of this legislation, Senator Tunney, explained: “The court is nowhere compelled to go to trial or to engage in extended proceedings which might have the effect of vitiating the benefits of prompt and less costly settlement through the consent decree process.” 119 Cong. Rec. 24,598 (1973) (statement of Sen. Tunney). Rather, the procedure for the public interest determination is left to the discretion of the court, with the recognition that the court's “scope of review remains sharply proscribed by precedent and the nature of Tunney Act proceedings.” SBC Commc'ns, 489 F. Supp. 2d at 11.[5] A court can make its public interest determination based on the competitive impact statement and response to public comments alone. U.S. Airways, 38 F. Supp. 3d at 76.

VIII. DETERMINATIVE DOCUMENTS

There are no determinative materials or documents within the meaning of the APPA that were considered by the United States in formulating the proposed Final Judgment.

Date: January 18, 2017.

Respectfully Submitted,

___ /s/ ___

Robert A. Lepore,

U.S. Department of Justice, Antitrust Division, 450 Fifth Street NW., Suite 8000, Washington, DC 20530, Phone: (202) 532-4928, Facsimile: (202) 307-2784, Email: robert.lepore@usdoj.gov.

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

United States of America, Plaintiff, v. Duke Energy Corporation, Defendant.

Case No.: 1:17-cv-00116

Judge: Beryl A. Howell

Filed: 01/18/2017

[PROPOSED] FINAL JUDGMENT

WHEREAS, Plaintiff, United States of America, filed this action on January 18, 2017, alleging that Defendant, Duke Energy Corporation, violated Section 7A of the Clayton Act, 15 U.S.C. 18a, commonly known as the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the United States and Defendant, by their respective attorneys, have consented to the entry of this Final Judgment without trial or adjudication of any issue of fact or law and without this Final Judgment constituting any evidence against or an admission by the Defendant with respect to any issue of fact or law;

NOW THEREFORE, before any testimony is taken, without trial or adjudication of any issue of fact or law, and upon consent of the parties, it is ORDERED, ADJUDGED, AND DECREED:

I. JURISDICTION

The Court has jurisdiction over the subject matter of and each of the parties to this action. The Complaint states a claim upon which relief may be granted against the Defendant under Section 7A of the Clayton Act, 15 U.S.C. § 18a.

II. CIVIL PENALTY

Judgment is hereby entered in this matter in favor of Plaintiff United States of America and against Defendant Duke Energy Corporation, and pursuant to Section 7A(g)(1) of the Clayton Act, 15 U.S.C. 18a(g)(1), the Debt Collection Improvement Act of 1996, Pub. L. 104-134 § 31001(s) (amending the Federal Civil Penalties Inflation Adjustment Act of 1990, 28 U.S.C. 2461), and Federal Trade Commission Rule 1.98, 16 CFR 1.98, 61 FR 54549 (Oct. 21, 1996), and 74 FR 857 (Jan. 9, 2009), and the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, Pub. L. 114-74, 701 (further amending the Federal Civil Penalties Inflation Adjustment Act of 1990), and Federal Trade Commission Rule 1.98, 16 CFR 1.98, 81 FR 42,476 (June 30, 2016). Defendant is hereby ordered to pay a civil penalty in the amount of six hundred thousand dollars ($600,000). Payment of the civil penalty ordered shall be made by wire transfer of funds or cashier's check. If the payment is made by wire transfer, Defendant shall contact Janie Ingalls of the Antitrust Division's Antitrust Documents Group at (202) 514-2481 for instructions before making the transfer. If the payment is made by cashier's check, the check shall be made payable to the United States Department of Justice and delivered to: Janie Ingalls, United States Department of Justice, Antitrust Division, Antitrust Documents Group, 450 Fifth Street NW., Suite 1024, Washington, DC 20530.

Defendant shall pay the full amount of the civil penalty within thirty (30) days of entry of this Final Judgment. In the event of a default or delay in payment, interest at the rate of eighteen (18) percent per annum shall accrue thereon from the date of default to the date of payment.

III. COSTS

Each party shall bear its own costs of this action.

IV. PUBLIC INTEREST DETERMINATION

The entry of this Final Judgment is in the public interest. The parties have complied with the requirements of the Antitrust Procedures and Penalties Act, 15 U.S.C. 16, including making copies available to the public of this Final Judgment, the Competitive Impact Statement, and any comments thereon and the United States' responses to comments. Based upon the record before the Court, which includes the Competitive Impact Statement and any comments and response to comments filed with the Court, entry of this Final Judgment is in the public interest.

Date:

Court approval subject to procedures of Antitrust Procedures and Penalties Act, 15 U.S.C. 16

Start Printed Page 8852

United States District Judge

End Preamble

Footnotes

1.  See, e.g., Complaint, United States v. Flakeboard Am. Ltd., No. 3:14-cv-4949 (N.D. Cal. Nov. 7, 2014), available at https://www.justice.gov/​atr/​case-document/​file/​496511/​download;​ Complaint, United States v. Smithfield Foods, Inc., No. 1:10-cv-00120 (D.D.C. Jan. 21, 2010), available at https://www.justice.gov/​atr/​case-document/​complaint-211;​ Complaint, United States v. Qualcomm Inc., No. 1:06CV00672 (PLF) (D.D.C. Apr. 13, 2006), available at https://www.justice.gov/​atr/​case-document/​complaint-civil-penalties-violation-premerger-reporting-requirements-hart-scott-0.

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2.  For example, the Department expressed this view in a 1996 speech by former Deputy Assistant Attorney General Larry Fullerton in which he discussed certain management contracts sometimes entered into by radio stations. Lawrence R. Fullerton, Deputy Assistant Attorney General, Antitrust Division, Dep't of Justice, Address at Business Development Associates Antitrust 1997 Conference (Oct. 21, 1996), available at https://www.justice.gov/​atr/​file/​518686/​download.

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3.  The 2004 amendments substituted “shall” for “may” in directing relevant factors for court to consider and amended the list of factors to focus on competitive considerations and to address potentially ambiguous judgment terms. Compare 15 U.S.C. 16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also SBC Commc'ns, 489 F. Supp. 2d at 11 (concluding that the 2004 amendments “effected minimal changes” to Tunney Act review).

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4.  Cf. BNS, 858 F.2d at 464 (holding that the court's “ultimate authority under the [APPA] is limited to approving or disapproving the consent decree”); United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the court is constrained to “look at the overall picture not hypercritically, nor with a microscope, but with an artist's reducing glass”). See generally Microsoft, 56 F.3d at 1461 (discussing whether “the remedies [obtained in the decree are] so inconsonant with the allegations charged as to fall outside of the `reaches of the public interest' ”).

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5.  See also United States v. Enova Corp., 107 F. Supp. 2d 10, 17 (D.D.C. 2000) (noting that the “Tunney Act expressly allows the court to make its public interest determination on the basis of the competitive impact statement and response to comments alone”); United States v. Mid-Am. Dairymen, Inc., No. 73-CV-681-W-1, 1977-1 Trade Cas. (CCH) ¶ 61,508, at 71,980, *22 (W.D. Mo. 1977) (“Absent a showing of corrupt failure of the government to discharge its duty, the Court, in making its public interest finding, should . . . carefully consider the explanations of the government in the competitive impact statement and its responses to comments in order to determine whether those explanations are reasonable under the circumstances.”); S. Rep. No. 93-298, at 6 (1973) (“Where the public interest can be meaningfully evaluated simply on the basis of briefs and oral arguments, that is the approach that should be utilized.”).

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[FR Doc. 2017-02026 Filed 1-30-17; 8:45 am]

BILLING CODE 4410-11-P