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From Antitrust Law Daily, December 15, 2014

High Court to hear opposing U.S., state views on Natural Gas Act preemption

By Jeffrey May, J.D.

The U.S. Department of Justice and the Kansas Attorney General's Office will offer their opposing views on preemption of state antitrust law claims by the Natural Gas Act (NGA) when the U.S. Supreme Court hears argument next month in a dispute between large retail buyers of natural gas and natural gas companies. Today, the Court granted motions by the U.S. Solicitor General and the State of Kansas to participate in oral argument as amicus curiae, as the Court reviews a decision of the U.S. Court of Appeals in San Francisco, reviving state antitrust law claims that had been rejected on preemption grounds (Oneok, Inc. v. Learjet, Inc., Dkt. 13-271).

At issue is a Ninth Circuit decision (715 F3d 716, 2013-1 Trade Cases ¶78,338), holding that Section 5(a) of the NGA did not preempt the natural gas buyers’ claims under state antitrust laws for price manipulation associated with transactions falling outside of the jurisdiction of the Federal Energy Regulatory Commission (FERC). The buyers alleged harm in retail transactions, and the NGA did not regulate retail sales. Therefore, there was no preemption, in the appellate court’s view. Summary judgment in favor of the defendants on the buyers’ state antitrust claims was reversed. The defendants sought High Court review.

In July, the Court granted the gas companies' petition for certiorari, asking whether the NGA preempts state regulation directed at practices that directly affect the wholesale natural gas market when those claims are asserted by litigants who purchased gas in retail transactions. The Court decided to take the case, even though the U.S. Solicitor General suggested that the petition be denied. The government contended in its May 2014 friend-of-the-court brief that, although the appellate court reached an incorrect conclusion about the scope of FERC's authority, review was not warranted. After the Court granted certiorari, the U.S. Solicitor General offered support for the petitioning gas companies.

In September, the federal government filed another brief, expressing its view that the state law claims were preempted by the NGA and that the Ninth Circuit's decision should be reversed. The Ninth Circuit erred in concluding that FERC lacks authority to regulate the practices of FERC-jurisdictional sellers that directly affect FERC-jurisdictional rates simply because those practices also have some relation to retail sales.

"Petitioners’ state-law antitrust claims challenge practices—false reporting of natural-gas-sales rates to index publishers and wash trades—by jurisdictional sellers that directly affect FERC-jurisdictional rates," the government argued. "They therefore fall squarely within FERC’s exclusive regulatory authority and are preempted."

The State of Kansas will ask the Supreme Court to maintain shared federal and state regulatory authority in the natural gas industry. In November, Kansas led a group of 21 state attorneys general in filing an amicus curiae brief, seeking to allow continued enforcement of state anti-price fixing laws against retail sellers of natural gas who illegally rig prices.

"This case directly implicates strong state interests in antitrust enforcement and consumer protection more generally, and does so in a context that presents no threat to federal interests, nor any improper threat to natural gas producers and wholesalers," the states argued. "In fact, permitting state antitrust lawsuits in this context will further and complement federal interests."

The states take issue with the petitioners’ argument that because (1) the NGA gives the FERC exclusive authority to regulate wholesale transactions and (2) the manipulated indices at issue here were based on fraudulent wholesale transactions, the NGA necessarily preempts state regulation that has any connection to price indices in the wholesale market. According to the states, the argument is inconsistent with NGA’s plain text, the Supreme Court’s interpretations of the Act, the history behind the NGA, and the dual federal and state regulation in the industry.

Attorneys: Donald B. Verrilli, Jr. for United States. Stephen R. McAllister for State of Kansas. Neal Kumar Katyal (Hogan Lovells US LLP) for Oneok, Inc. Jennifer Gille Bacon (Polsinelli PC) for Learjet, Inc.

Companies: Learjet, Inc.; Oneok, Inc.

MainStory: TopStory Antitrust

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