Does The Natural Gas Act Preempt State-Law Antitrust Lawsuits? – Supreme Court Arguments

On July 1, 2014, the U.S. Supreme Court granted a petition to hear an appeal by several companies contending that state-law antitrust claims were precluded by the federal Natural Gas Act and, therefore, fell under the exclusive jurisdiction of the federal government, including the Federal Energy Regulatory Commission.1 These state-law claims alleged manipulation of gas prices, as provided on published indices, during the western energy crisis from 2000 to 2002. The underlying Ninth Circuit decision was said to conflict with settled law, and the Supreme Court heard oral arguments on Monday, January 12, 2015. This case raises an intriguing question about what the Justices aim to achieve given the intervening expansion of FERC's anti-manipulation authority in the 2005 Energy Policy Act - a point stressed by FERC and the Solicitor General in their brief opposing cert.

1. Introduction

   The parties, in both their briefs and oral arguments, addressed: (1) what constitutes a wholesale natural gas transaction, as opposed to a retail natural gas transaction; and (2) whether field preemption or conflict preemption existed. The oral argument notably omitted any discussion of the correct standard to be used in making a preemption determination, a point emphasized in Respondent Learjet's brief.2 The final outcome of the case is difficult to predict, but during oral arguments the Justices were engaged, inquisitive, and at times contentious, challenging the parties on the facts and the underlying legal precedents.

2. Retail vs. Wholesale Transactions

   Wholesale transactions fall squarely within the jurisdiction of the federal government, while retail transactions are within the exclusive power of the states. As clearly articulated as this principle of federalism may sound, it ironically creates a gray area in which competing arguments regarding preemption run rampant. Yet, both parties admitted that the alleged manipulation of the published prices affected both retail and wholesale rates, begging the question: Who has jurisdiction?

   The relevant statutory provision that creates the retail versus wholesale dichotomy, and raises the question presented here, is Section 1(b) of the Natural Gas Act. Respondents, arguing for the state-law claims to be permitted, contended that such claims fall squarely within the exemption in Section 1(b), which provides:

   The provisions of this Act shall apply to the transportation of natural gas in interstate commerce, to the sale...