Energy companies aren't safe following Supreme Court decision

April 21, 2015 01:53 PM

The U.S. Supreme Court on Tuesday ruled that a federal law governing the natural gas market does not shield energy companies from state antitrust claims made over the western U.S. energy crisis between 2000 and 2002.

The 7-2 ruling was a loss for several energy companies, including American Electric Power Company Inc, Dynegy Inc and ONEOK Inc, which were accused of manipulating published price indexes that led to a spike in gas prices. The resulting energy crisis included rolling blackouts in California.

The ruling means the case can now proceed in lower courts, although it made it clear there could still be some conflicts between state and federal law that could require further litigation.

The energy companies asked the Supreme Court to rule that state antitrust law claims were trumped by a federal law, the Natural Gas Act. The law grants the Federal Energy Regulatory Commission (FERC) authority to regulate certain aspects of the natural gas market including wholesale prices.

The plaintiffs are industrial and commercial users of natural gas, including engine maker Briggs & Stratton Corp and Bombardier Inc's Learjet Inc.

Lawyers for the plaintiffs said in a statement the ruling was a "vigorous affirmation" of states' rights and "preserves the essential character" of the Natural Gas Act.

After the energy crisis, the plaintiffs filed multiple lawsuits against various energy companies, accusing them of violating state antitrust laws. The cases were consolidated before a federal judge in Nevada.

In an October 2012 ruling, the 9th U.S. Circuit Court of Appeals agreed with the plaintiffs and found that Congress did not intend to extend FERC's jurisdiction to retail transactions.

In an opinion written by Justice Stephen Breyer, the high court on Tuesday held that state antitrust law claims are not superseded by the federal law.

Breyer wrote that the energy companies' arguments were "forceful, but we cannot accept their conclusion." They ignored that the Natural Gas Act was drafted specifically to allow states to have a continued oversight role, Breyer added.

Breyer said any direct conflicts between state antitrust law and FERC's rate-setting process should be handled by the lower courts.

Justice Antonin Scalia, in a dissenting opinion joined by Chief Justice John Roberts, said the ruling "smudges the line" between federal and state authority.

"The court's make-it-up-as-you-go-along approach to preemption has no basis in the act, contradicts our cases, and will prove unworkable in practice," Scalia added.

The case is ONEOK Inc v. Learjet Inc, U.S. Supreme Court, No. 13-271.

About the Author