Investment giant Morgan Stanley raked in $21.6 million for an illegal electricity price-fixing scheme that cost consumers almost $160 million — but could get away paying only a puny $4.8 million fine, state utility regulators charge.
“Why would such a penalty deter similar violations of the antitrust law in the future?” the state Public Service Commission asked in court papers challenging the settlement Morgan Stanley struck with the Justice Department.
Morgan Stanley bankers allegedly pocketed the handsome fee for setting up a scheme that enabled two Queens power-plant operators to rig prices through complicated derivative-swap transactions.
The plot is believed to have cost Con Ed customers about $157 million.
Con Ed itself did not profit from the scheme.
The swaps, which were in place between 2005 and 2006, effectively enabled the two power plants to rig the wholesale energy prices electric customers pay through their Con Ed bills, the court papers charge.
The financial chicanery cost a typical Con Ed ratepayer a total of $40.
Under a deal reached with the Justice Department, Morgan Stanley would get to keep $16.8 million of its $21.6 million fee, while admitting no wrongdoing. The proposal is awaiting approval by Manhattan federal Judge William H. Pauley.
Complaining about the fine, PSC attorneys wrote that “common sense suggests that such an amount will . . . be viewed as merely a cost of doing business.” They hope to quash the deal.
AARP — filing on behalf of New York consumers — also wants the court to reject the agreement.
It gives “not one penny [to] the injured consumers,” AARP says.
“Instead, the entire $4.8 million of monetary relief is to be paid to the United States Treasury.
“This does nothing to address the injury to those most directly harmed, the electric customers.’’
KeySpan — now part of energy giant National Grid — had set the scheme in motion six years ago because it feared competition for its Ravenswood plant.
By using the Morgan Stanley derivatives, KeySpan was able to reap a share of the sales by competitor Astoria Generating. At the same time, KeySpan could safely lower its own generating capacity, which caused wholesale electricity prices to rise.
Without admitting wrongdoing, National Grid last February agreed with the Justice Department to pay a $12 million fine for KeySpan’s role in the plot. A federal judge accepted the settlement last year despite complaints that the fine was far less than what KeySpan earned from the scheme.