* 9th Circuit says state law claims not preempted
* FERC: Manipulation caused natural gas prices to skyrocket
By Jonathan Stempel and Jeanine Prezioso
April 10 A federal appeals court has revived
antitrust claims by retail buyers of natural gas who accused
traders of conspiring to artificially inflate prices, leading to
a broad-based energy crisis felt mostly in California from 2000
The 9th U.S. Circuit Court of Appeals said a federal
district judge wrongly concluded that the federal Natural Gas
Act preempted the buyers' antitrust claims under state law.
Circuit Judge Carlos Bea wrote for a three-judge panel that
Congress did not intend to give the Federal Energy Regulatory
Commission broad power to displace the claims, citing lawmakers'
"deliberate efforts to preserve traditional areas of state
regulation of the natural gas industry."
More than a dozen companies and affiliates were named as
defendants in the case, including CMS Energy Corp, Duke
Energy Corp, Kinder Morgan Inc and ONEOK Inc
, court records show.
Among the plaintiff buyers were gasoline engine maker Briggs
& Stratton Corp, Learjet Inc, Sinclair Oil Corp and the
Breckenridge Brewery in Colorado. They have been seeking to
recoup what they claim to have overpaid on natural gas.
Wednesday's decision reversed portions of a July 2011 ruling
by U.S. District Judge Philip Pro in Las Vegas, and returned the
case to his court for further proceedings.
Mark Haddad, who argued the appeal for the defendants, did
not immediately respond to a request for comment.
Duke Energy said it strongly disagrees with the decision,
and will defend itself.
"The company followed all applicable rules and regulations,
and did not engage in any of the alleged activities mentioned in
the lawsuit," Duke Energy said in a statement.
Jennifer Gille Bacon, a partner at Polsinelli Shughart in
Kansas City, Missouri, representing the plaintiffs, said the
case affects far more people than the number responsible.
"The number of people who buy gas is in the millions. The
number of people who trade gas is in the hundreds," she said.
PRICES REACHED "EXTRAORDINARY" LEVELS
In a 2003 study, FERC investigated the energy crisis, which
included rolling blackouts in California, and concluded that
"spot gas prices rose to extraordinary levels, facilitating the
unprecedented price increase in the electricity market."
FERC said the market became dysfunctional in part because
traders manipulated indexes that are widely used as a peg for
setting prices, by regularly submitting false information to the
trade publications that published those indexes.
It also said traders distorted prices by engaging in
offsetting "wash" trades that inflated apparent demand without
transferring economic risk.
Natural gas sets the fuel portion of electricity prices. The
cost of natural gas, which typically equals a few dollars per
million British thermal units, peaked in southern California at
$58 per mmBtu on Dec. 11, 2000, according to Reuters data.
Also at issue was how wholesale power prices had been
deregulated but retail prices remained regulated, and were
capped for a time in California.
This caused a gap between what power companies in that state
paid to buy power and what they could charge, a factor in the
April 2001 bankruptcy of Pacific Gas & Electric Co.
California's energy crisis was a factor in the 2003 recall
of Democratic Gov. Gray Davis, who was replaced by the
Republican Arnold Schwarzenegger.
Litigation over the crisis began in 2001. The current
portion began in 2005 when plaintiffs began filing lawsuits in
federal court, and in state courts in Colorado, Kansas, Missouri
and Wisconsin. These lawsuits were later consolidated in Nevada.
Natural gas prices, which typically peak during the winter
and summer to meet demand for fuel to heat or cool homes, were
particularly volatile at the time, in part because of high
industrial demand and depressed production.
Joining Bea's decision were Circuit Judge Paul Watford and
U.S. District Judge William K. Sessions, who normally sits in
Vermont. Bea was appointed to the bench by President George W.
Bush, Watford by President Barack Obama and Sessions by
President Bill Clinton.
The case is In re: Western States Wholesale Natural Gas
Antitrust Litigation, 9th U.S. Circuit Court of Appeals, No.