Feds sue KeySpan over NY metro electric prices

The U.S. Justice Department filed an antitrust lawsuit Monday accusing KeySpan Corp. of trying to drive up electricity prices in the New York City market.

In a complaint filed in federal court in Manhattan, the  Justice Department alleged KeySpan, a unit of Britain's National Grid Plc, entered a swap with a financial services company to ensure it could withhold "substantial output" from the city's electricity generating capacity market and thus boost prices.

The financial services company was previously identified in proceedings before the Federal Energy Regulatory Commission as an affiliate of Morgan Stanley.

According to the complaint, KeySpan faced lower prices in 2006 because two electricity generation plants were slated to come online and it was looking to offset a potential $90 million of annual revenue it would give up by withholding capacity.

The government said KeySpan entered the swap knowing the financial services company would enter an offsetting agreement with Astoria Generating Co., its main competitor.

It said the "likely effect" of the swap was to boost prices for retail suppliers that must buy capacity and thus led to higher prices for consumers, the complaint said.

A National Grid spokesman had no immediate comment. Morgan Stanley did not immediately return a call for comment.

In March 2008, FERC found KeySpan's activity "did not constitute a fraud or fraudulent practice," and that the company did not collude with Astoria and Morgan Stanley to "impair, obstruct or defeat" the market for installed capacity in the city.

Astoria later became part of U.S. Power Generating Co.

The Justice Department is seeking remedies, including equitable monetary relief.