On July 1, 2014, the U.S. Supreme Court granted a petition to hear an appeal by several companies contending that antitrust claims filed against them under state law over alleged manipulation of gas prices during the western energy crisis from 2000 to 2002 were precluded by the Natural Gas Act (“NGA”).1 The Court’s decision to hear this appeal marks an important development in the preemptive effect of the NGA, and may potentially affect the scope of the Federal Energy Regulatory Commission’s (“FERC”) enforcement authority versus state authorities.
The Supreme Court will hear arguments in the case in its next term. The petitioners seek Supreme Court review of the April 2013 decision by the U.S. Court of Appeals for the Ninth Circuit. The appeals court allowed natural gas buyers to pursue antitrust lawsuits over alleged price manipulation against ONEOK, Inc., Duke Energy Trading and Marketing, LLC, CMS Energy Corp., The Williams Cos., Inc., El Paso Corp., American Electric Power Co., Inc., Xcel Energy, Inc., and other companies involved in gas trading.
The Ninth Circuit decision reversed an earlier decision by the U.S. District Court for the District of Nevada dismissing the claims against these companies.2 The district court found that antitrust claims under state law were preempted by Section 5(a) of the NGA. The Ninth Circuit disagreed, ruling that such a broad reading of NGA Section 5(a) could damage the jurisdictional provisions of NGA Section 1(b), which give states authority over natural gas sales that are not subject to FERC jurisdiction.
The Ninth Circuit reinstated the lawsuits and remanded the case back to the district court for further proceedings consistent with the appeals court's decision. The appeals court also reversed the dismissal of American Electric Power as defendants from suits in Wisconsin and Missouri and affirmed all other orders in the appeals.
In the underlying lawsuits, retail buyers of natural gas alleged that traders manipulated gas prices “by reporting false information to price indices published by trade publications.”3 The lawsuits also alleged that the traders engaged in wash sales, involving prearranged sales in which traders simultaneously offset one trade with an opposite buy or sell such that the trade involves no economic risk and no net change in beneficial ownership. As the Ninth Circuit observed, “a number of energy trading companies admitted that their employees provided false pricing data to” publications during the western energy crisis.4
In considering the petition for review of the Ninth Circuit’s decision, the Supreme Court invited the Solicitor General to file a brief expressing the views of the United States. The Solicitor General argued that FERC had exclusive jurisdiction over the manipulation of privately published price indices in 2000 and 2001:
Under 15 U.S.C. 717d(a), FERC has exclusive authority over practices affecting rates charged by natural gas companies in connection with the interstate sale of natural gas for resale. Because the manipulation of price indices that are used to establish rates in both jurisdictional and non-jurisdictional natural gas transactions is a practice that directly affects jurisdictional rates, the court of appeals erred in concluding that FERC did not have exclusive authority in 2000 and 2001 to regulate petitioners’ manipulation of the indices.5
Notably, however, the Solicitor General contended that the Supreme Court’s review was not warranted because the Ninth Circuit’s decision (contrary to petitioners’ assertions) does not contradict any decisions from state supreme courts. Furthermore, the Solicitor General argued that “significant changes to the regulatory environment make it highly unlikely that the factual scenario giving rise to respondents’ claims will recur, and FERC’s expanded authority under the [Energy Policy Act of 2005] would presumably alter the preemption analysis going forward.”
Regarding the scope of FERC’s authority under the NGA, the Solicitor General argued that “the NGA ‘leaves no room either for direct state regulation of the prices of interstate wholesales of natural gas, or for state regulations which would indirectly achieve the same results.’”
It is notable that the Supreme Court reverses decisions more often than it affirms them.8 This case is unique for the points identified by the Solicitor General and the expanded authority granted to FERC in the Energy Policy Act of 2005. Nevertheless, this decision will mark an important case for energy market participants.