Earlier this week, the U.S. Supreme Court held that the Natural Gas Act does not confer on the Federal Energy Regulatory Commission (“FERC”) authority to regulate natural gas industry wholesale pricing practices to the complete exclusion of state regulation when those practices affect both wholesale and retail prices to gas consumers. Oneok v. Learjet, 575 U.S._____ (2015). By a 7 to 2 majority, the Court affirmed a Ninth Circuit decision holding state-law antitrust claims based on alleged manipulation of wholesale prices that affect retail prices are not within the field of matters pre-empted by the Natural Gas Act, even though FERC has express authority under the Act to investigate and prosecute claims of wholesale price manipulation.
In the Oneok case, a group of manufacturers and other institutions that buy natural gas directly from interstate pipelines at the retail level sued the interstate pipeline defendants, alleging that the pipelines had reported false information to various natural-gas indices, violating state antitrust laws. The Natural Gas Act gives FERC authority over the pricing practices of natural gas companies in the interstate wholesale sale of gas, but leaves the regulation of retail resale to the states. The pipelines, joined by FERC and other industry participants, essentially argued that state law antitrust claims were invalid under the doctrine of field pre-emption because any alleged price manipulating violations would affect both retail and wholesale pricing, and FERC's authority to regulate under the Natural Gas Act dominates the field.
The Court held that although the alleged price manipulation would increase both wholesale prices and retail prices, the state law claims were not pre-empted because they were aimed only at excessively high retail prices. The Natural Gas Act was specifically drafted with the intent to preserve the continued exercise of state jurisdiction over retail rates and, in this case, the target of the claims were practices affecting retail pricing, a matter "firmly on the States' side of the dividing line." Notably, the Court expressly disclaimed any opinion as to conflict pre-emption. If the state law antitrust claims would make compliance with both state and federal law impossible, the Natural Gas Act as interpreted by FERC would prevail because of the conflict.
In a dissent joined by Chief Justice Roberts, Justice Scalia argued that the Court's focus on the target at which state claims are aimed replaces a firm line drawn in prior decisions between federal and state authority over natural gas pricing practices with a "make-it-up-as-you-go-along approach," and is likely to cause more confusion than clarity for the gas industry going forward. He maintains that the Court's holding leaves interstate pipelines and other gas companies at risk of having to navigate the antitrust laws of every state in which they operate.
While there is refuge from this decision in conflict pre-emption, companies may need very definitive decisions from FERC to create such conflicts with state regulation. The settlement of FERC investigations of questioned practices without an adjudication of the practices at issue may be insufficient to create a conflict between a FERC rule or Order and state regulation.
Finally, the Court’s decision in Oneok may impact field pre-emption under the Federal Power Act because its jurisdictional language is similar to that in the Natural Gas Act and the Court has often treated jurisdictional decisions under each Act as interchangeable precedents. In two Circuit Court of Appeals cases involving FERC’s wholesale pricing authority under the Federal Power Act decided last year, the courts followed Justice Scalia’s “firm line” theory of field pre-emption and determined that state actions affecting wholesale electricity prices are field pre-empted by the Federal Power Act. These cases are: PPL EnergyPlus, LLC v. Nazarian, 753 F. 3d 467 (4th Cir. 2014) and PPL EnergyPlus v.Solomon, 766 F. 3d 241 (3d Cir. 2014). Petitions for certiorari seeking review by the Supreme Court are pending in both cases.