United States: District Court Affirms FERC’s Statutory Authority Over Wholesale Natural Gas Prices Under the Natural Gas Act

On April 8, 2005, the U.S. District Court for the District of Nevada ruled that the filed rate doctrine barred federal and state antitrust and unfair competition claims against sellers of natural gas. The Court, in In Re W. States Wholesale Natural Gas Antitrust Litig., J.P.M.L. Docket No. MDL 1566, affirmed FERC’s exclusive authority under the Natural Gas Act to determine the reasonableness of wholesale natural gas prices. The Court found that Plaintiff Texas-Ohio’s claims would require a Court to calculate damages, necessarily usurping a function explicitly assigned to FERC.

This case arose out of the California energy crisis of 2000-2001, during which, FERC concluded in its fact finding investigation of the market crisis, the "spot gas prices rose to extraordinary levels, facilitating the unprecedented price increase in the electricity market." Texas-Ohio sued various sellers of wholesale natural gas claiming that they violated the Sherman Act (Federal antitrust law), the Cartwright Act (California antitrust law) and California Unfair Competition laws, by allegedly engaging in false reporting of natural gas prices; by participating in wash trades; by entering into illegal netting agreements; and by conspiring not to compete in natural gas markets.

Defendants moved to dismiss the complaint on the basis of field preemption and the filed rate doctrine. As to field preemption, defendants argued that Section 717(b) of the Natural Gas Act, 15 U.S.C. § 717, et seq., grants FERC plenary jurisdiction over all sales for resale of natural gas in interstate commerce. The filed rate doctrine applied, defendants asserted, because Texas-Ohio sought damages which would require a comparison of the actual filed rate to a hypothetical rate that would have been charged absent the alleged misconduct. In response, Texas-Ohio argued that due to the deregulation of the natural gas market, the defendants never filed their rates at issue with FERC, and consequently the filed rate doctrine does not bar its claims. Texas-Ohio argued that two cases, Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571 (1981) and County of Stanislaus v. Pacific Gas and Elec. Co, 114 F.3d 858 (9th Cir. 1997), supported its argument that the filed rate doctrine is dependent on the specific rate having been filed and approved by FERC. In Arkansas Louisiana Gas, the respondents had become "small producers of natural gas" and were not required to file their rates with FERC. 453 U.S. at 576 n.5. The Court held that the filed rate doctrine was a bar to damages during the time respondents were subject to FERC’s jurisdiction, but not for the period after the respondents gained "small producer status." Id. at 585 n. 14. Texas-Ohio further argued that Stanislaus confirmed the notion that for the filed rate doctrine to apply, a rate must be filed and approved by FERC. Stanislaus, 114 F.3d at 863 (stating that the sale and transportation of natural gas cleared several levels of state and federal review and was sufficient to bar the claims).

The Court rejected Texas-Ohio’s argument and concluded that because Texas-Ohio’s claims would require the Court to speculate what rates would have been charged in the natural gas market absent defendants’ alleged misconduct by assuming a hypothetical rate, they were barred by the filed rate doctrine. The Court held that "[t]he essential purpose of the filed rate doctrine is to protect the jurisdiction of a regulatory body that Congress has designated to determine whether rates changed, such as those in the natural gas markets, are just and reasonable." The Court further found that "[u]nder the Natural Gas Act, FERC retained statutory authority over wholesale natural gas prices, and therefore, the filed rate doctrine applied even though FERC, in exercising its authority, chose to move toward a market-based system." The court’s holding was supported by the Ninth Circuit Court of Appeals decision in Public Utility Dist. No. 1 of Grays Harbor County Wash. v. Idacorp, 379 F.3d 641, 651-52 (9th Cir. 2004).¹ In Grays Harbor, the Ninth Circuit rejected the argument that the filed rate doctrine did not apply because of the "market-based nature of the rules at issue" in the case. Id. at 651. Instead, the Ninth Circuit held, market-based rates "do not fall outside of the purview of the doctrine" because FERC maintains continued over-sight of the market to ensure that the rates are just and reasonable.

The Court’s ruling in In Re W. States Wholesale Natural Gas Antitrust Litig. shows that the filed rate doctrine applies to market-based rates, not only in the wholesale electricity markets, see Grays Harbor, but also in the natural gas markets. ²

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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