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| UNITED STATES DISTRICT COURT|
FOR THE SOUTHERN DISTRICT OF NEW YORK
DECLARATION OF OLIVER M. RICHARD
Oliver M. Richard declares:
1. I am the Assistant Chief in the Economic Litigation Section of the Antitrust Division of the United States Department of Justice.
2. I received a Ph.D. in Managerial Economics and Decision Sciences from the J.L. Kellogg Graduate School of Management at Northwestern University in 1997. I received a B.A in Economics and Mathematics from Swarthmore College in 1991 and studied under a fellowship grant from the European Commission at the Institut D'Economie Industrielle in 1996.
3. From 1997 to 2004, I taught economics at the Simon School of Business at the University of Rochester. I joined the Antitrust Division in 2004 as a Research Economist and became an Assistant Chief in 2007. I have published in leading peer-reviewed economics journals.
4. My current responsibilities involve supervising economic work performed by staff economists relating to electricity, energy, transportation and telecommunication matters. I have supervised economics staff in numerous antitrust investigations in the electricity industry, including investigations involving electricity generation capacity auctions like the auction underlying the present matter.
5. I submit this declaration in support of the Plaintiff United States's Response to Public Comments filed with the Court on June 11, 2010 and in response to the request made by the Court of the United States at a status conference on October 12, 2010. This declaration describes the net revenues KeySpan received under its January 18, 2006 financial derivative agreement relating to the New York City Installed Capacity Market (the "KeySpan Swap") with a financial services company ("FSC") during the twenty-four month period from May 2006 through April 2008.
6. The New York Independent System Operator ("NYISO") conducts three types of auctions for New York City capacity for each month of the summer and winter seasons: a strip auction, a monthly auction, and a spot auction. The market prices set in each of these auctions are published by the NYISO on its website. (1)
7. During the relevant period, the NYISO also established separate bid caps for each of the three owners of divested generation ("DGOs") in New York City, i.e., KeySpan, Astoria and NRG. These caps are published by the NYISO on its website. (2)
8. KeySpan filed a copy of the KeySpan Swap agreement under a Form 8-K with the Securities and Exchange Commission on January 24, 2006. (3) The relevant document in the Form 8-K filing for determining the revenues under the KeySpan Swap is titled "Appendix A - Form of Confirmation."
9. Under the terms of the KeySpan Swap:
Example 1: If in a given month the spot auction clearing price is $12.71 (which is above $7.57) and the average of the three DGOs' bid cap is $12.49, then the lesser is $12.49. The difference between $12.49 and $7.57 equals $4.92.
Example 2: If in a given month the spot auction clearing price is $5.84 (which is below $7.57) and the average of the three DGOs' bid cap is $5.74, then the lesser is $5.74. The difference between $5.74 and $7.57 equals -$1.83.
10. Applying these formulas and using public information from the NYISO website on spot auction prices and the DGO bid caps, I calculate that KeySpan received net revenues of $48,960,000. I have attached as Exhibit 1 to my declaration a table summarizing my calculations.
11. With the exception of March and April 2008, the spot auction clearing price was equal, each month, to Keyspan's bid cap. It is my understanding that the drop in spot auction price during the these last two months of the relevant period reflects the effect of a New York State Public Service Commission's ("NYSPSC") order requiring KeySpan to bid its capacity at zero in these two months.
1. See, e.g., http://icap.nyiso.com/ucap/public/auc_view_spot_detail.do, reporting the spot auction price in New York City for May 2006.
2. See, e.g., http://www.nyiso.com/public/webdocs/products/icap/auctions/Summer-2006/documents/ShapedPriceCaps06-07.pdf, reporting DGO caps for Summer 2006.