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After Supreme Court Ruling, State Action by Retail Gas Buyers, Sellers Is Uncertain

Natural gas sellers could face antitrust lawsuits stemming from alleged past price manipulation in the Enron era that the U.S. Supreme Court said Monday is now open to state legal action (see Daily GPI, April 21). But the initial reaction in the industry is unclear on what action at the state level is likely to unfold.

A spokesperson for the American Gas Association (AGA) told NGI on Thursday that the association plans no legal action at this point, but expressed "disappointment" in the court's action because its member natural gas utilities rely on "regulatory certainty surrounding transparent and efficient natural gas markets in order to prepare and build a supply portfolio, mitigate costs and plan for long-term investments in infrastructure."

AGA is concerned that the court's decision “may expose the natural gas wholesale market participants to jurisdictional uncertainty as to whether and how state laws may affect their activities,” the spokesperson said.

In upholding a Ninth Circuit ruling that took a narrow view of the jurisdiction of FERC under the Natural Gas Act (NGA), the Supreme Court said the doctrine of "field preemption" does not preclude state antitrust action alleging price manipulations by gas pipelines making direct (retail) sales to customers.

Monday's court decision was based solely on the basis of field preemption, according to Debra Palmer, a partner with Schiff Hardin.

The court also said none of the parties brought up the potential of "conflict preemption," in which when state and federal laws directly conflict with one another the federal laws prevail through the supremacy clause in the U.S. Constitution. At least one analyst thinks that may be a key for sellers going forward, and some legal analysts agreed.

Conflict preemption may still be used as a means to fight antitrust claims, according to Christi Tezak, managing director of ClearView Energy Partners LLC. "It could give sellers leverage in potential settlement discussions if the parties decide not to litigate further," Tezak said.

The plaintiffs in what turns out to be a field preemption ruling are a collection of large energy users: manufacturers, hospitals, and other retail buyers of natural gas. Their state antitrust claims, however, could still be preempted by the "conflict" clause, according to Steven Weiler at Stinson Leonard Street, a Minneapolis-based law firm that includes an energy/regulatory practice.

"The Ninth Circuit reversed the lower court’s decision, reasoning that the state claims were aimed not at wholesale prices regulated by FERC, but rather at high retail prices, which are within the purview of the various states. The Supreme Court agreed," Weiler said.

Weiler told NGI that he thinks this is an opening for retail purchasers to take action at the state level, and it may be centered on state regulatory commissions.

Weiler cited the Supreme Court on the NGA as expressly not preempting states' rights to bring antitrust actions, saying the court noted that the federal law “was drawn with meticulous regard for the continued exercise of state power” and finding that “the lawsuits are directed at practices affecting retail rates..."

Without prejudging the outcome, the court's action allows litigation to continue from the states, said Weiler, while not predicting the impact of any subsequent litigation.

AGA said it plans to continue to evaluate the court decision's potential impact on local natural gas utilities and their customers. It said this may make it tougher for trade association member utilities to get the "uniform, reliable and consistent regulatory environment" they seek. Affordable, stable gas pricing may be at risk, the AGA spokesperson said.

An informal survey by NGI of several western retail gas sellers and regulators turned up no one willing at this early stage to offer any thoughts on future impacts and what actions, if any, they individually might consider. Sempra Energy, Pacific Gas and Electric Co. (PG&E), Southwest Gas Corp., NW Natural, and the California Public Utilities Commission offered little or no response to inquiries from NGI on Tuesday and Wednesday following the court's action.

Sempra's lawyers are studying the court ruling, a San Diego-based spokesperson said. PG&E's spokesperson in San Francisco was still waiting for an analysis from the combination utility's law department.

"All of this is very new, and our legal people are still researching it, so at this point we are trying to determine our next steps," said a Las Vegas-based spokesperson for Southwest Gas, adding that the multi-state utility's attorneys are doing a lot of research related to questions raised by the court ruling. "It's new to us and we're still trying to figure it all out."

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