Supreme Court asks Obama admin for views on Natural Gas Act fight

The Supreme Court asked the Obama administration to weigh in today on a high-profile dispute over whether the federal Natural Gas Act protects energy companies from state-level antitrust lawsuits.

Justices asked Solicitor General Donald Verrilli to submit briefs in a case involving trading practices during the 2000-2002 energy crisis that caused blackouts across the western United States. The request shows the court is giving serious consideration to granting review of the case.

After the crisis, companies that purchase retail natural gas brought several lawsuits against wholesale vendors accusing them of price manipulation. Those antitrust suits against companies including ONEOK Inc., American Electric Power Co. Inc. and Duke Energy Corp. were consolidated in a federal district court in Nevada.

The district court sided with those companies, claiming that the 1938 Natural Gas Act gives the Federal Energy Regulatory Commission exclusive jurisdiction over regulating wholesale gas sales. Therefore, the court held, federal laws pre-empted antitrust claims that were filed under state laws.

But the 9th U.S. Circuit Court of Appeals reversed that ruling in April. The San Francisco-based panel held that the Natural Gas Act has jurisdiction only over wholesale transactions, not over the retail exchanges at issue in the case.


AEP, Duke and others are now asking the Supreme Court to review the case. Represented by Neal Katyal of Hogan Lovells, a former acting solicitor general in the Obama administration, they claim that retail sales by default affect wholesale prices.

They also argue that the 9th Circuit ruling conflicts with other precedent-setting rulings and has the potential to create a checkerboard of regulation across the country.

"Under the Ninth Circuit's approach, if a natural gas wholesaler engages in a practice that happens to affect both wholesale and retail rates, that practice is subject to regulation by lawsuits in every state," the companies wrote in court documents. "Natural gas companies will have to try to conform their conduct to 50 different sets of state laws."

The ruling will also affect FERC, they claim.

"Worse," they wrote, "companies -- and FERC itself -- will not know whether some or all states will end up competing with FERC to regulate a given practice, because they will have no way to predict whether, or where, that practice might end up affecting retail rates."

The case is rooted in gas trading between 2000 and 2002. Retail gas customers including Learjet Inc. alleged that the companies engaged in trading practices that illegally manipulated natural gas indexes compiled by trade publications.

Those indexes contribute to setting the price of natural gas, and the customers contended that the companies used fictional trades and other illegal tactics to artificially inflate the indexes.

It takes the votes of four justices to grant review of a case. Justice Samuel Alito did not consider the petition at this stage. As is customary at the court, Alito did not provide a reason for his recusal.

The court will likely consider whether to grant the case next year.

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