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Justices Rule Against Natural Gas Suppliers

(CN) - A divided Supreme Court ruled Tuesday that natural-gas suppliers can be sued under state antitrust laws for allegedly manipulating prices during the 2000-02 California energy crisis.

By a vote of 7-2, the Justices said federal law leaves room for state-law antitrust claims filed by natural-gas buyers - including Learjet Inc., Briggs and Stratton Corp - against some of the country's largest energy concerns, including Duke Energy CO., ONEOK Inc., and American Electric Power Co.

Chief Justice John Roberts and Justice Antonin Scalia dissented.

The majority's decision upholds a lower court's conclusion. It is also noteworthy for reversing a Reagan-era ruling in which the high court held that the federal government has exclusive authority over the wholesale natural-gas market.

In the after of an energy crisis that say rolling blackouts across much of California, Learjet, Sinclair Oil and a slew of other retail gas buyers sued traders in state and federal court, claiming they manipulated the market by submitting false information to two trade publications, Gas Daily and Inside FERC. That information appeared in price indices used to determine the market price of natural gas.

Gas Daily collected its price data through phone interviews with traders and producers, while Inside FERC had traders fill out and email a spreadsheet.

A 2003 report by the Federal Energy Regulatory Commission (FERC) said that "many companies report passing around a form and using a spreadsheet on a shared drive."

The customers also claimed the companies made sales directly offsetting each other to create a false price for the indexes.

The argued their lawsuit should be able to move forward because they're complaints revolved around the manipulation of retail prices, an area traditionally policed by state regulators.

The suppliers responded by arguing that index manipulation would affect the wholesales rates, the practice is in the exclusive realm of the federal government.

Once the cases were consolidated in Nevada, U.S. District Judge Philip Pro found that the federal Natural Gas Act pre-empted most of the state-law antitrust claims.

The 9th Circuit reversed last year, favoring a narrow reading of the provision granting FERC jurisdiction over any "practice" affecting jurisdictional rates.

During the energy crisis, prices rose ten-fold, customers endured rolling blackouts, and California's two largest utilities became insolvent.

Writing for the majority, Justice Stephen Breyer said while the petitioners' arguments were forceful, "we cannot accept their conclusion."

"The Natural Gas Act," he continued, "was drawn with meticulous regard for the continued exercise of state power, not to handicap or dilute it in any way."

Breyer went on to note that states have a long history of providing common law and statutory remedies against monopolies and unfair labor practices, and "Respondents' state-law antitrust suits relief on this well established state power."

Breyer left open the possibility that the suppliers could win dismissal of the suits by arguing that the anti-trust suits would interfere with the federal rate-setting process. "Conflict pre-emption may, of course, invalidate a state law even though field pre-emption does not," the Justice wrote.

However, pre-emption was not an issue raised before the high court.

In a dissenting opinion that was joined by the chief justice, Justice Scalia acknowledged that the Natural Gas Act divides responsibility over trade in natural gas between federal and state regulators, but said the Act and Supreme Court precedent "Draw a firm line between national and local authority over this trade.

"If the Federal government may regulate a subject, the States may not," he continued. "Today, the Court smudges the line."

Later, Scalia added, "The court's make-it-up-as-you-go-along approach to preemption has no basis in the Act, contradicts our cases, and will prove unworkable in practice."

Representatives of the petitioners and respondents were not immediately available for comment.

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