Kansas reached a final settlement in late June on lost funds stemming from the natural gas price manipulation scandal of the early 2000s, potentially marking the end of such litigation among various states, said one legal expert.
“I think this is the conclusion really,” said attorney Reagan Bradford of the Oklahoma City-based Lanier Law Firm. Bradford focuses on commercial litigation matters involving energy, corporate governance, securities and antitrust.
Kansas Attorney General (AG) Doug Schmidt reportedly recovered nearly $1 million in funds that were overpaid as a result of illegally inflated natural gas prices in the early 2000s. The settlement concluded a five-year litigation process that began with a U.S. Supreme Court ruling.
Schmidt in 2014 led a 21-state group in filing an amicus curiae brief as the high court considered whether or not federal law enforcement preempted individual states’ antitrust enforcement in the case of natural gas retail market manipulation.
In April 2015, the Supreme Court upheld a U.S. Court of Appeals for the Ninth Circuit ruling, which took a narrow view of the jurisdiction of the Federal Energy Regulatory Commission under the Natural Gas Act (NGA). The ruling affirmed state jurisdiction over retail natural gas sales.
The decision went against energy companies, which were defending against antitrust claims, arguing that federal law preempted consideration of the cases at the state level. There was uncertainty among gas sellers in the fallout of the 2015 decision as to how many state-sponsored lawsuits might ensue in the following years.
Bradford doesn’t foresee any other settlements resembling the Kansas award from this point forward. The lost revenues stemmed from companies falsely reporting wholesale natural gas price data to price index publishers dating back to the early 2000s. The fraud cases came to a head with the bankruptcy of the nation’s leading gas trader Enron Corp. and the 2006 conviction of former Enron executives Kenneth Lay and Jeffrey Skilling.
Similar settlements have been reached by other states’ attorneys general. In January 2018, California AG Xavier Becerra reached a $102 million settlement with BP Energy Co., and affiliates, after alleging BP had overcharged the state for gas from 2003 to 2012.
The action of Schmidt could be indicative of a different trend as AGs are increasingly acting as plaintiff lawyers for states with stretched budgets, Bradford said.
In major oil and gas producing states, increased enforcements against energy companies could be the result of more generally aggressive litigation practices from the AG’s office. Such tactics could extend to other areas of industry regulations.
A more recent legal issue to dog the industry came in the form of land leasing agreements. The regulatory risk came to a head with the indictment of the late Aubrey McClendon, former Chesapeake Energy Corp. CEO. He was charged with rigging bids in March 2014, but he died in a car accident one day after his indictment in March 2016.
The market for legal services among oil and gas producers to vet their lease agreements, as a result, has been active ever since, said Bradford, as it could fall into the crosshairs of increasingly aggressive state AGs.