7 Trends to Watch in Energy Antitrust Enforcement and Litigation
What did antitrust enforcement look like in the energy sector in 2019? It was limited to the Federal Trade Commission seeking relief in a single transaction and the Department of Justice obtaining two additional guilty pleas in a previously announced investigation.
But make no mistake, antitrust enforcement activity in the sector is as high as it’s ever been.
“There’s always year-to-year variance in the numbers, but the industry has continued to be an area of focus for both antitrust agencies and private litigants,” said V&E Antitrust counsel Greg Wells.
In a recent report, Wells joined Antitrust partner Darren Tucker and Commercial and Business Litigation partner Jason Powers to explain key developments and trends affecting antitrust enforcement in the energy and chemicals industries. Here are several key takeaways.
Antitrust agencies are taking longer to approve M&A transactions.
Large companies, including those in the energy and chemicals spaces, should expect deal approvals from the DOJ and the FTC to take longer than they’re used to. This is due in part to agencies requesting more information during in-depth merger investigations known as second requests.
“It used to be that you could get through a second request in seven or eight months, and now it’s not unusual for it to take longer than a year,” Tucker said. “Energy and other companies contemplating deals where there is antitrust risk need to plan for a lengthy review.”
The time required for agencies to reach decisions on divestitures has also delayed deal approvals. Some recent agency-ordered divestitures have resulted in what critics have called failures, with buyers of divested assets later filing for bankruptcy.
“The agencies are spending more time trying to get that process correct,” Tucker said.
DOJ antitrust enforcement could increase for companies doing business with the federal government.
The DOJ is taking new aim at suspected collusion in public procurement. The agency announced in November 2019 the formation of its Procurement Collusion Strike Force. The announcement came not long after it came to light that multiple companies had participated in a price-fixing scheme when selling fuel to U.S. military bases in South Korea.
“The U.S. government had to pay more for fuel as a result of the price-fixing arrangement,” Tucker said. “This strike force was set up to look for other instances of where companies were colluding to supply products to the U.S. government at an inflated price.”
The work of the new strike force could result in more investigations and, ultimately, enforcement actions.
Robust antitrust compliance programs could lead to more leniency.
Companies that do find themselves ensnared in criminal DOJ antitrust investigations may be able to avoid prosecution if they’ve invested in strong antitrust compliance programs ahead of time. Under a new policy announced in 2019, the DOJ will give companies the opportunity to negotiate deferred prosecution agreements if they can demonstrate that robust compliance programs were in effect at the time of the alleged misconduct.
Previously, the primary way for a company to win leniency from the DOJ was to be the first to self-report misconduct.
“Now, a company that isn’t first in the door can still get some level of credit and not be fully prosecuted for a violation if they can show that the conduct at issue was anomalous and in violation of a well-established compliance program,” Wells said.
Non-compete agreements are a focus for the FTC.
The FTC last year successfully challenged a non-compete agreement between two natural gas pipeline companies, forcing the companies to drop their non-compete provision. The FTC and DOJ have also hosted workshops on non-competes in employment contracts, and officials have made multiple references to non-compete concerns in speeches and other policy statements.
The signal is clear: The FTC has non-compete agreements in its crosshairs, even when those agreements are ancillary to otherwise lawful transactions.
“The FTC recognizes that there are situations where a particularly tailored non-compete agreement is reasonable and necessary to attain efficiencies in a merger,” Wells said. “But there’s also an area where there’s potential for the agreement to be significantly overbroad and just curtail competition between two parties that doesn’t have any offsetting potential benefits. That’s what the agency is looking for.”
The success of a class designation in a private antitrust litigation may depend on jurisdiction.
The denial of a class certification of price-fixing claims against major railroads has inspired many companies who rely on rail transportation — including many prominent energy and chemical companies — to go it alone.
In August 2019, the D.C. Circuit court unanimously affirmed the district court’s denial of class certification for what would have been a class of 16,000 railroad shippers. The plaintiffs, including chemical manufacturers and metal producers had alleged that four railroads fixed prices by conspiring to impose fuel surcharges.
“The courts are starting to say you have to be able to show at least that all, or nearly all, of the class numbers were impacted. If you’ve got a class where a very large number of plaintiffs are rewarded with damages when they didn’t suffer any, it’s fundamentally unfair to the defendant,” Wells said.
Since the ruling, dozens of shippers have filed individual suits against the railroads. But in the future, plaintiffs seeking to file a class action may find more success in other courts, such as the Seventh Circuit, where the standards for class designation are arguably looser, Wells added. “We’ll probably see more cases brought there,” he said. “Plaintiffs are pretty adept at figuring out ways to get cases into particular courts.”
The filed-rate doctrine is a powerful shield against antitrust claims … at least when FERC is involved.
Defendants in two high-profile private antitrust litigation cases in 2020 obtained dismissals under the filed-rate doctrine. The doctrine holds that a company is immune from antitrust challenges to rates that are set or approved by a government body.
In both matters, the defendants’ rates were set by FERC. In one of the cases, the plaintiffs argued that the defendants reserved excess capacity in a pipeline without using it or reselling it, leading to an increase in electricity prices.
“It was a creative way to say, ‘We’re not challenging the rate that was approved by FERC,’” Wells said of the plaintiff’s case. But the judge in the case wasn’t convinced. “At the end of the day, the court determined that it was still a filed-rate case.”
But it remains to be seen whether companies with rates regulated by other agencies will see as much success through the filed-rate doctrine.
“Sometimes there’s going to be ambiguity in what a regulator has approved, and that’s going to be fodder for plaintiffs’ lawyers,” Wells said.
States are becoming more aggressive in their antitrust enforcement.
Even when companies successfully navigate past the federal enforcement agencies, they can’t be sure they won’t encounter challenges at the state level from attorneys general and other officials. Most notably, attorneys general from thirteen states and the District of Columbia sued to block the merger of telecommunications giants Sprint and T-Mobile notwithstanding the DOJ’s approval of the merger subject to the sale of assets to satellite provider Dish.
At a 2019 meeting of the American Bar Association Antitrust Section, several attorneys general noted that their enforcement actions sometimes targeted types of conduct that drew less attention from federal officials.
Tucker said that state attorneys general are especially wary of what they see as a decline in enforcement by the current presidential administration.
“We’ve seen concerns from state AGs that the Trump administration, in their view, is pulling back on antitrust enforcement,” Tucker said, “and the states have been quite vocal about the fact that there is a role for them to play in filling that perceived gap.”
To learn more about the antitrust enforcement and litigation landscape in the energy industry, check out the V&E 2019 Energy and Chemicals Antitrust Report.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.