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22 février, 2008 13:59

By Pamela A. MacLean

The National Law Journal

02-21-2007

With billions of dollars riding on the outcome, the 9th U.S. Circuit Court of Appeals is expected to define the scope of federal regulatory power and the ability of private litigants to recover antitrust damages in the deregulated world of natural gas selling.

The legal battle stems from three related cases of alleged price-fixing and market manipulation by natural gas suppliers during the 2001 California energy crisis: Sierra Pacific v. El Paso Corp., No. 05-15127; Texas-Ohio Energy v. AEP Energy Services, No. 05-15919; and E&J Gallo Winery v. Encana Corp., No. 05-17352.

The outcome will influence how alleged market manipulation is remedied.

"The Federal Energy Regulatory Commission [FERC] adopted regulations intended to prevent a recurrence of at least some of the abuses that were seen in these markets, but its ability to enforce those regulations with respect to many sellers remains in question," according to Barry Himmelstein of San Francisco's Lieff Cabraser Heimann & Bernstein, who filed an amicus brief on behalf of several dozen gas customers involved in separate litigation.

A 2004 energy white paper issued by the California attorney general questioned the willingness of FERC to remedy manipulation. "In fact, there is no record of any FERC enforcement action, before or during the California energy crisis, against any generator operating in the California market," the report states.

In a 2005 press statement, however, FERC said that it had "facilitated more than $6.3 billion in settlements" and brought 60 investigations of electricity market manipulation.

Deregulation of natural gas markets began in the 1970s, but it was not until the early 1990s that FERC, while retaining jurisdiction over pipelines, allowed unregulated wholesale trades in natural gas. Previously, natural gas suppliers were subject to FERC control of publicly filed, regulated rates, under what was known as the filed-rate doctrine.

Central to the three appeals is whether gas suppliers can win dismissal of the antitrust and market manipulation suits by asserting that only FERC has jurisdiction under the filed-rate doctrine. "They can't have deregulation benefits without having lost the protection of the filed-rate doctrine," said Russell Campbell of Balch & Bingham in Birmingham, Ala., who represents plaintiffs Sierra Pacific Resources and Nevada Power Co. in their suit against gas supplier El Paso.

Stephen Freccero of Morrison & Foerster's San Francisco office, who represents El Paso Corp., said, "The question really is how the courts are going to recognize the sort of power and scope of regulatory agencies entrusted with these markets."

But for senior attorney Mike Florio with the consumer watchdog group The Utility Reform Network, "It is hard to see how the filed-rate doctrine can survive in an industry where natural gas is a commodity that is not regulated."

In Sierra Pacific and Texas-Ohio, the trial judge dismissed the suits holding that the filed-rate doctrine barred antitrust suits. In E&J Gallo, the judge held that the filed-rate doctrine did not apply and allowed the suit to proceed to discovery on claims of conspiracy to drive up the price of natural gas.

Adding to the legal tangle, Congress passed the Energy Policy Act of 2005 in response to the energy crisis and to evidence of price manipulation in electricity markets. The law gives FERC greater civil-penalty powers to punish energy-trading manipulation.

"I don't see how giving FERC authority to act on manipulation takes antitrust out of the picture," said Florio.

In Public Utility District of Snohomish County v. FERC, No. 03-72511, the 9th Circuit, last December, ordered FERC to reconsider whether wholesale-power contracts California bought at exorbitant prices during the energy crisis should be modified. The court's ruling opened the potential for nearly $1.4 billion in refunds or credits to California consumers.