Supreme Court to hear case that could alter scope of federal regulation

By Jeremy P. Jacobs | 01/07/2015 01:24 PM EST

The Supreme Court on Monday will hear a high-profile case concerning whether federal law shields energy companies from state antitrust suits that stemmed from the California energy crisis.

ONEOK Inc. v. Learjet Inc. pits some of the country’s largest natural gas vendors against their customers.

The court’s decision could define the scope of the Federal Energy Regulatory Commission’s authority to regulate natural gas and other markets.


Major energy producers, including American Electric Power Co., Duke Energy Corp. and ONEOK, are seeking to overturn an April 2013 decision by the 9th U.S. Circuit Court of Appeals that would allow antitrust suits filed under state laws to proceed.

The lawsuits stemmed from a 2003 FERC investigation into the California energy crisis of 2000-02, which resulted in rolling brownouts across the West. FERC concluded that gas sellers used trading practices that illegally manipulated natural gas indexes composed by trade publications, which contributed to setting the price of gas.

Commercial and industrial gas consumers, led by Learjet, filed antitrust suits in 2005 in various states seeking damages. A federal district judge consolidated them but sided with the sellers. The judge reasoned that the federal Natural Gas Act gives FERC exclusive jurisdiction over wholesale natural gas sales. The state laws, therefore, are pre-empted.

The 9th Circuit reversed. It applied a presumption against state law pre-emption and argued that the cases centered on retail sales, not wholesale, which fell outside the scope of FERC’s Natural Gas Act jurisdiction.

In asking the court to review the case, ONEOK and the venders argued that Congress intended uniform natural gas regulations. The lower-court ruling, they said in court documents, "created a recipe for regulatory chaos" by "authorizing every state to impose its own unique regulatory regime on the wholesale gas market."

The customers counter that a specific provision of the Natural Gas Act specifically preserves regulation of retail sales for the states, not FERC. Further, they contend that nothing in the law demonstrates an effort by Congress to override state antitrust law.

The Natural Gas Act, they say in court filings, "creates a scheme of dual federalism" that "gives FERC authority over certain wholesale sales but reserves to the State exclusive regulatory power and thus expressly forbids FERC from exercising jurisdiction over" retail sales.

The justices asked the Obama administration to weigh in on whether to review the case. Solicitor General Donald Verrilli urged the court not to, in large part arguing that subsequent lawmaking has rendered the controversy moot.

In particular, FERC in 2003 issued guidance concerning the regulation of gas price reporting. Two years later, Congress amended the Natural Gas Act to expand FERC oversight authority so the price manipulation at issue in the California crisis is unlikely to arise again.

"Significant changes in the regulatory environment make it highly unlikely that the factual scenario giving rise to the respondents’ claims will recur," Verrilli wrote, "and FERC’s expanded authority under the [law] would presumably alter the preemption analysis going forward" (Greenwire, June 3, 2014).

Court watchers have suggested that the justices’ ruling in the case would define FERC’s authority under other similar statutes as well, including the Federal Power Act.

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