ONEOK, Inc. v. Learjet Inc.: Testing The Boundaries Of State And Federal Regulatory Authority In The Natural Gas Industry

Keywords: ONEOK, Inc. v. Learjet Inc., Natural Gas, antitrust, pricing conduct,

On January 12, 2015, the Supreme Court heard arguments in ONEOK, Inc. v. Learjet Inc., a case concerning the jurisdictional line between federal and state regulation of pricing conduct in the natural gas industry. In ONEOK, the Court will determine whether the Natural Gas Act, 15 USC. § 717 et seq. ("NGA")—which gives the Federal Energy Regulatory Commission ("FERC") exclusive authority to regulate wholesale rates for natural gas transactions—preempts state antitrust claims based on price manipulation, where those claims were brought by purchasers of natural gas in transactions falling outside of FERC's authority, but where the conduct at issue also affected wholesale gas prices within FERC's jurisdiction.

The case arises out of the energy crisis of 2000-2002. The respondents, retail purchasers of natural gas, allege that the petitioners, natural gas traders, manipulated the price of natural gas in violation of state antitrust laws by reporting false information to published price indices and by engaging in wash sales. In 2011, the district court found that Section 5(a) of the NGA— which confers FERC with jurisdiction over "practices" affecting wholesale rates—preempted state law antitrust claims, and entered judgment against the respondents. On appeal, the Ninth Circuit reversed and reinstated the lawsuits, holding that the district court's reading of Section 5(a) was too broad and conflicted with the express limitations on federal jurisdiction set forth in Section 1(b). Learjet, Inc. v. ONEOK, Inc., 715 F.3d 716, 729 (9th Cir. 2013). The Supreme Court granted certiorari on July 1, 2014.

Section 1(b) of the NGA, 15 USC. § 717(b), grants FERC the authority to regulate rates charged by natural gas companies in wholesale transactions, but the Act is explicit that FERC's regulatory power does not extend to retail sales or to so-called "first sales," or sales of natural gas that are not preceded by a sale to a pipeline, local distribution company or retail customer.1 FERC is charged with ensuring that rates in transactions falling within its jurisdiction, known as "jurisdictional transactions," are just, reasonable and not unduly discriminatory or preferential; Section 5(a) of the NGA also gives FERC the authority to regulate practices and contracts affecting jurisdictional transactions.2 Since 1992, FERC has issued blanket marketing certificates that authorize natural gas companies transacting within FERC's jurisdiction to sell at market-based rates upon a showing that the company lacks market power.3 These blanket certificates permitted natural gas companies subject to FERC's jurisdiction to charge market-based rates, rather than rates filed with and approved by FERC.4 In the wake of FERC's use of these certificates, the industry used published indices as reference points for setting prices in natural gas transactions, both in wholesale transactions within FERC's jurisdiction, and in retail and first sales falling outside FERC's jurisdiction.5

On summary judgment, the district court held that because the same price indices are used to set prices in transactions falling within and outside FERC's jurisdiction, any manipulation of these indices fell...