Tennessee Supreme Court Rules Interstate Natural Gas Transactions Are Exclusive Federal Field
The Tennessee Supreme Court last week dismissed state-law antitrust claims against several of the nation’s largest natural gas marketing companies, finding that federal law preempts state regulation in the field of interstate wholesale natural gas transactions. In Leggett v. Duke Energy Corporation, Samuel Leggett and others sought to bring a class action on behalf of Tennessee residential and commercial natural gas consumers, alleging that the defendant gas marketers had artificially inflated wholesale natural gas prices in 2000-2002 and that various municipalities and utility districts had passed the increased costs on to members of the plaintiff classes. Because the Leggett plaintiffs alleged manipulation in the interstate wholesale natural gas market—a field exclusively reserved for federal regulation—the Court ruled that they could not bring claims under the Tennessee Trade Practices Act. The Supreme Court’s decision reversed the Tennessee Court of Appeals and reinstated the trial court’s dismissal order.
Justice Gary R. Wade, writing for a unanimous Court, rejected the Leggett plaintiffs’ argument, and Ninth Circuit caselaw, that natural gas deregulation has narrowed the scope of federal preemption. Surveying the historical development of federal natural gas regulation, Justice Wade explained that, even before passage of the Natural Gas Act, interstate transportation and wholesales of natural gas have always been an exclusively federal field. Congress’s decision to replace federal wellhead price-controls with adjustable price ceilings in the Natural Gas Policy Act of 1978 (NGPA), and then to eliminate wellhead price controls altogether in the Wellhead Decontrol Act of 1989 (WDA), should not be misunderstood as an invitation to the states to begin regulating wholesale natural gas prices. To the contrary, the federal interest in uniform regulation of the wholesale natural gas market remains strong. “Deregulation,” rather than representing a retreat from the wholesale natural gas field, represented Congress’s judgment that a hands-off approach was the best way to achieve federal goals.
The Leggett decision took issue with the Ninth Circuit’s recent contrary decision in E&J Gallo Winery v. Encana Corp., 503 F.3d 1027 (9th Cir. 2007). In Gallo, the Ninth Circuit had found that federal preemption in the “deregulation” era applies only to non-deregulated transactions—those remaining under the Federal Energy Regulatory Commission’s jurisdiction after the NGPA and WDA—rather than to the entire wholesale natural gas field. The Tennessee Supreme Court dismissed Gallo as non-binding and followed instead a series of United States Supreme Court cases holding that the NGPA and WDA did not invite states to regulate the sales thereby removed from FERC’s jurisdiction. Justice Wade further disagreed with the Ninth Circuit’s opinion that state antitrust law does not conflict with the goals of federal natural gas regulation, finding that state regulation of wholesale natural gas prices through antitrust suits would undermine the federal interest in uniform regulation of the interstate market free from government interference.
J. Gregory Copeland, a partner in the firm’s Houston office, argued the motion to dismiss in the trial court for the Leggett defendants.
|
