American Oil and Gas Reporter - June 2015 - 24

WASHINGTONWATCH
Supreme Court Ruling
In ONEOK v. Learjet Muddies
Regulatory Jurisdiction
The U.S. Supreme Court handed down its ruling in ONEOK
Inc. et al. v Learjet Inc. et al. on April 21, and the decision appears to muddy the regulatory distinctions and establish a new
regime of dual jurisdiction determined on a case-by-case basis.
This case stems from market manipulation charges arising from
the California energy crisis and allegations of false reporting to
natural gas price indexes on which natural gas contracts are based.
The case and its implications for Federal Energy Regulatory Commission jurisdiction were the topic of the November 2014
Washington Watch. That murky future is in play now, with the
Supreme Court finding that the purchasers' state-law antitrust
claims are not pre-empted by the Natural Gas Act (NGA). Justice Antonin Scalia dissented, joined by Chief Justice John Roberts.
At stake was whether states could regulate certain actions associated with retail sales, even if the associated actions involved
interstate sales, which fall under federal regulation. Producers and
sellers of natural gas faced a possibility that 48 states and the District of Columbia could impose laws on sellers of natural gas in
the wholesale market-which is clearly under federal jurisdiction-as
long as retail sales were affected. The ruling could be construed
to apply to sales of electricity under the Federal Power Act.
Ideally, the ONEOK case should have clarified jurisdiction between FERC and the states. But in the majority opinion, Justice
Stephen Breyer wrote, "Petitioners and the dissent argue that there
is, or should be, a clear division between areas of state and federal authority in natural gas regulation. But that platonic ideal does
not describe the natural gas regulatory world."
The majority view various precedents as emphasizing "the importance of considering the target at which the state law aims in
determining whether that law is pre-empted." By looking at the
effect of market manipulation on retail rates, the majority found
that state action was not pre-empted by FERC implementation
of the NGA.
Justice Scalia strongly disagreed, writing in his dissent,
"Our precedents demand . . . that the court focus in the present
case on what the state seeks to regulate (a pipeline practice that
is subject to regulation by FERC), not why the state seeks to regulate it (to curb the practice's effects on retail rates)."
Justices Scalia and Roberts view the case much more simply.
"If the federal government may regulate a subject, the states may
not. Today, the court smudges this line."
The dissent characterizes the majority's consideration of aim
thus: "The (NGA) does not give (FERC) the power to aim at particular activities. When the commission regulates those activities,
it may consider their effects on all parts of the gas trade, not just
on wholesale sales. The court's ad hoc partition of authority over
index manipulation-leaving it to the commission to control the
practice's consequences for wholesale sales, but allowing the states
to target its consequences for retail sales-thus clashes with the
design of the act."
The dissent confirms the concerns of producers, pipelines and
natural gas marketers about having to navigate multiple regulatory and legal regimes. "Before today, interstate pipelines knew
24 THE AMERICAN OIL & GAS REPORTER

"The dissent confirms the concerns of
producers, pipelines and natural gas

marketers about having to navigate multiple

regulatory and legal regimes.

their practices relating to price indexes had to comply with one
set of regulations promulgated by (FERC). From now on, however, pipelines will have to ensure that their behavior conforms
to the discordant regulations of 50 states-or more accurately, to
the discordant verdicts of untold state antitrust juries," the dissent opines.
Note that both the majority and dissenting opinions use the
term "pipeline" when discussing natural gas sales. That may be
a short-hand, albeit inaccurate, way of referring to "firms that engage in interstate transportation and perform jurisdictional
sales." However, the opinions were replete with instances where
the court did not understand today's gas market and who actually sells the product.
For example, the majority describes the respondents-a group
of manufacturers, hospitals and other institutions-as having bought
large quantities of natural gas directly from interstate pipelines
for their own consumption. It is discouraging that the court did
not fully grasp the enormous changes in the natural gas market,
despite a lengthy description of those changes from the 1950s
through FERC Order 636 in 1992. However, the correct facts
would not have altered the court's decision.
Future Supreme Court cases may help define the issues that
remain somewhat unsettled in ONEOK. The court has agreed to
hear FERC v. EPSA, in which FERC seeks review of the wholesale versus retail jurisdiction distinctions with respect to its authority over demand response programs. In the interim, we must
grapple with "the court's all-things-considered test, (which) does
not make for a stable background against which to carry on the
natural gas trade."
❒

SUSAN GINSBERG is vice
president of crude oil and natural gas regulatory affairs for
the Independent Petroleum
Association of America. She
covers legislation and regulation, focusing on the CFTC
and FERC. Her experience in
natural gas regulatory affairs
spans 25 years.

American Oil and Gas Reporter - June 2015

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