U.S. SC rules against natural gas companies

By Jessica M. Karmasek | Apr 28, 2015

WASHINGTON (Legal Newsline) - The U.S. Supreme Court ruled last week that some of the nation’s largest natural gas suppliers can be sued under state antitrust laws for allegedly manipulating prices a decade ago.


The court, in a 7-2 vote, affirmed a ruling made by the U.S. Court of Appeals for the Ninth Circuit last year, allowing a lawsuit by retail buyers of natural gas to proceed. The Ninth Circuit reversed a federal district court decision that sided with the gas companies, which include ONEOK Inc., American Electric Power Co. and Duke Energy Co.


The natural gas buyers -- Learjet Inc., Briggs and Stratton Corp., a Colorado brewery, a Kansas school district, a Wisconsin college and a Missouri hospital -- claim the pipelines, in the midst of the California energy crisis, reported false information to the natural gas indices on which the buyers’ contracts were based.

Market manipulations, illegal shutdowns of pipelines and capped retail electricity prices caused the energy crisis, which gripped the state in 2000 and 2001. It suffered from multiple large-scale blackouts as a result.


Justice Stephen Breyer, who authored the court’s 16-page majority opinion, explained that the indices affected not only retail natural gas prices, but also wholesale natural gas prices.


And while the pipelines’ arguments “are forceful,” Breyer said the court “cannot accept their conclusion.”


“As we have repeatedly stressed, the Natural Gas Act ‘was drawn with meticulous regard for the continued exercise of state power, not to handicap or dilute it in any way,’” he wrote in the April 21 ruling.


The pipelines had argued that the act, which gives the Federal Energy Regulatory Commission the authority to determine whether rates charged by natural gas companies or practices affecting such rates are unreasonable, preempted the buyers’ state law claims.


The act also limits FERC’s jurisdiction to the transportation of natural gas in interstate commerce, the sale in interstate commerce of natural gas for resale and natural gas companies engaged in such transportation or sale.


However, the act leaves regulation of other portions of the industry, such as retail sales, to the states.


The district court, in its ruling, had reasoned that because the pipelines’ challenged practices directly affected wholesale as well as retail prices, they were preempted by the act.


The Ninth Circuit, which acknowledged that the pipelines’ index manipulation increased both wholesale and retail prices, held that the state law claims were not preempted because they were aimed at obtaining damages only for excessively high retail prices.


The high court’s decision reverses a previous ruling in which it held that the federal government has exclusive authority over the wholesale natural gas market.


Chief Justice John Roberts and Justice Antonin Scalia dissented.


A spokesman for ONEOK could not immediately be reached for comment on the ruling.


From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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