Supreme Court appears split over FERC’s regulatory reach

By Jeremy P. Jacobs | 01/12/2015 01:07 PM EST

Major natural gas producers argued to the Supreme Court today that a federal law shields them from state antitrust lawsuits stemming from the California energy crisis.

ONEOK Inc. v. Learjet Inc. concerns whether the Natural Gas Act pre-empts local antitrust lawsuits filed against natural gas producers for price manipulation.

The case may determine the scope of the Federal Energy Regulatory Commission’s jurisdiction over regulating wholesale natural gas prices and markets.

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It stems from fraudulent trading practices that led to the California energy crisis of 2000-02, causing rolling brownouts across the West.

A FERC investigation a year later found that major energy producers used practices that illegally manipulated natural gas indexes composed by trade publications. Those indexes contribute to setting the price of gas.

Their customers, led by Learjet, soon filed several lawsuits against American Electric Power Co., ONEOK Inc. and others under state antitrust provisions.

After the cases were consolidated, a federal district court judge sided with the energy companies. The judge said the federal Natural Gas Act grants FERC jurisdiction over wholesale natural gas sales, which were influenced by the illegal trades. The state laws, therefore, were pre-empted and the companies were shielded from the litigation.

A federal appeals court reversed that decision. The 9th U.S. Circuit Court of Appeals applied a presumption against state law pre-emption and argued that the trading affected retail sales — not just wholesale — which is outside of FERC’s jurisdiction under the federal law and therefore subject to the state antitrust suits.

Neal Katyal of Hogan Lovells, representing the energy companies, argued today that Congress clearly intended uniform regulation under FERC — not a piecemeal approach where each state sets its own regulations.

"FERC is regulating in this area," he said.

That argument appeared to gain some traction with the conservatives on the bench.

Justice Antonin Scalia said that at the core of the antitrust suits is a complaint about price manipulation.

"There is no doubt," he said, that "falls within the scope of the Commission."

The court’s four liberal justices — Elena Kagan, Stephen Breyer, Sonia Sotomayor and Ruth Bader Ginsburg — all appeared skeptical of Katyal’s position, however.

Kagan argued that the authority to regulate could be "concurrent" and not mutually exclusive.

"I don’t see a reason," she said, "why you would exclude the state entirely."

Much of the argument, however, focused on complex hypotheticals where the justices sought to ascertain the exact scope of the case.

A key to the ruling may be whether the case presents a question of "field" pre-emption of state laws — meaning the federal law is comprehensive in scope and therefore overrides state regulation — or a question of "conflict" pre-emption — meaning there is a specific provision of the federal law that overrules state regulation.

The gas customers, represented by Jeffrey Fisher of Stanford Law School, argued that it is conflict pre-emption so they aren’t trying to overrule FERC authority entirely.

"We don’t have to fight FERC’s power," he said. Based on the plain language of the law with regard to retail sales, he added, "You can’t oust the states."

Notably, the Obama administration urged the court not to review the case because the legal circumstances it presents are unlikely to recur. In 2003, FERC issued guidance concerning the regulation of gas price reporting. Congress, two years later, amended the Natural Gas Act to expand FERC authority to oversee market trading (Greenwire, June 3, 2014).

Today, the administration backed the energy companies. Anthony Yang, an assistant to the solicitor general, argued for broad field pre-emption.

But Kagan and Justice Anthony Kennedy, a usual swing vote, were skeptical of that argument. Both pressed him on whether a specific "conflict" exists that would warrant pre-emption.

A decision in ONEOK Inc. v. Learjet Inc. is due by the end of June.

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