On April 21, the U.S. Supreme Court issued an opinion in ONEOK, Inc., et al., v. Learjet, Inc. et al holding that state antitrust claims are not pre-empted by the Natural Gas Act. This important decision put the brakes on an attempt by FERC to expand its jurisdiction. The practical impact of the Court’s decision is to provide natural gas pipeline customers with an alternative forum in which to litigate certain claims against FERC jurisdictional pipelines.
At issue are a set of cases that arose from the West-wide energy crisis in the early 2000s. The plaintiffs, a group of manufacturers, hospitals, and other retail buyers of natural gas, claimed that state antitrust laws were violated by defendants (natural gas traders) who allegedly manipulated the price of natural gas by reporting false information to price indices published by trade publications and engaging in wash sales. (These are transactions that give the appearance of purchases and sales, but without the trader incurring any market risk or change in position).
The claims were raised in various state and federal courts, and consolidated in a multidistrict litigation proceeding. The federal district court granted the defendants’ motion for summary judgment, finding that the state antitrust claims were preempted by the NGA. The Ninth Circuit reversed the lower court’s decision, reasoning that the state claims were aimed not at wholesale prices regulated by FERC, but rather at high retail prices, which are within the purview of the various states. The Supreme Court agreed.
The pipelines, joined by the federal government, argued that the state antitrust claims are preempted (by virtue of the Constitution’s Supremacy Clause) because the NGA gives FERC exclusive authority over wholesale rates for natural gas, and that the state-law antitrust cases impermissibly tread into that preempted field. The Supreme Court disagreed, noting that the NGA “was drawn with meticulous regard for the continued exercise of state power” and finding that “the lawsuits are directed at practices affecting retail rates – which are 'firmly on the States side of the dividing line.'” This holding does not prejudge the final outcome of the underlying litigation, but rather merely allows the litigation to proceed.
Consistent with Congress’ removing price controls on wellhead sales of natural gas, FERC has consistently relied on competitive pressures in the marketplace to keep wholesale prices “just and reasonable.” As a further check, FERC has promulgated anti-market manipulation rules. The Supreme Court’s opinion in ONEOK does nothing to change these rules. Instead, it simply provides retail gas customers with an option to litigate market manipulation issues in a state court. Whether that is a meaningful option will turn on the outcome of the underlying litigation.