The NCSL Blog

22

By Lisa Soronen

Oneok v. Learjet is interesting not so much because of its subject matter—price manipulation of natural gas prices that happened well over a decade ago—but because it is the only pre-emption case of the U.S. Supreme Court’s current term.

Natural gas is the focus of the sole pre-emption case before the U.S. Supreme Court  this term.This case is a solid win for states, consumer protection and the 9th U.S. Circuit Court of Appeals. The court held the Natural Gas Act does not pre-empt state-law antitrust lawsuits alleging price manipulation that affect both federally regulated wholesale natural-gas prices and nonfederally regulated retail natural-gas prices.

Historically, federal regulation of the natural-gas industry has been divided into three segments: production, interstate gas pipelines (wholesale), and local gas distribution (retail).

The federal Natural Gas Act regulates only the second segment—the interstate shipment of gas, including rate setting. States regulate the other segments. Since deregulation in the 1970s, pipeline wholesalers have sold natural gas at market rate based on price indices of voluntarily reported data of natural gas sales. In 2003 the indices were found to be inaccurate because natural-gas traders had been reporting false data. 

A group of retail natural gas purchasers sued the pipelines claiming they violated state antitrust law by manipulating the natural-gas indices. The district court concluded that the Natural Gas Act preempted the claims because the price manipulation affected not only nonfederally regulated retail rates but also federally regulated wholesale rates.

The 9th Circuit disagreed, and the Supreme Court (surprisingly) agreed with the 9th Circuit.  

According to the majority, in an opinion written by Justice Stephen Breyer, the important consideration in determining whether the antitrust laws were preempted was “the target at which the state law aims.” 

If a state law is aimed at a subject a state may regulate, then it isn’t preempted. For example, in Northwest Central Pipeline Corp. v. State Corporation Commission of Kansas, the court held that the Natural Gas Act did not preempt a state regulation concerning the timing of gas production even though the regulation might affect wholesale prices because it was aimed primarily at “protect[ing] producers’ . . . rights—a matter firmly on the states’ side of that dividing line.”

The court reasoned the claims in this case aren’t pre-empted because they are directed at practices affecting retail prices, which are also “firmly on the states’ side of that dividing line.”

Lisa Soronen is executive director of the State and Local Legal Center. She writes frequently on U.S. Supreme Court cases for the NCSL Blog.

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This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.