April 10, 2013 / 9:20 PM / 4 years ago

UPDATE 1-Antitrust case tied to California energy crisis revived

* 9th Circuit says state law claims not preempted

* FERC: Manipulation caused natural gas prices to skyrocket

By Jonathan Stempel and Jeanine Prezioso

April 10 (Reuters) - 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 to 2002.

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.


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. 11-16786.

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