Supreme Court Leaves Room for State Regulation of Natural Gas Sales

Yesterday, the U.S. Supreme Court held that the federal Natural Gas Act does not preempt the field of state antitrust regulation of natural gas prices, which means states can apply their own policies to natural gas sales as long as those policies do not conflict with federal law.

Vanderbilt’s Jim Rossi has just posted an analysis of the case at SCOTUSblog. As he notes, U.S. courts have been struggling with how to draw a line between state and federal authority in both electricity and natural gas markets.

Under both the Natural Gas Act and the Federal Power Act, the federal government has authority over wholesale energy sales, while the states retain authority over retail sales of natural gas and electricity. As a result, the Supreme Court’s decision on the Natural Gas Act may have important implications for electricity markets as well. And it is another important precedent in the courts’ struggles to balance state’s traditional authority over their own energy markets with increasingly integrated interstate energy markets.

Professor Rossi writes:

According to the majority opinion, written by Justice Stephen Breyer and joined by five other Justices, the [Natural Gas Act] “was drawn with meticulous regard for the continued exercise of state power, not to handicap it or dilute it in any way.” Under Section 1(b) of the [Natural Gas Act], wholesale transactions fall squarely – and even exclusively — within the jurisdiction of federal regulators. For nearly seventy years, the Court has acknowledged the sharp clarity of this federal-state division of authority over wholesale and retail sales, sometimes even calling it a jurisdictional “bright line.”

… The difficult question this case presented was what to do when a practice affects both types of sales.

… Notwithstanding (somewhat confusing) language in the opinion that purports to place this matter on the state “side” of any dividing line, the majority questioned whether the [Natural Gas Act] contains any sharp dividing line at all: “Petitioners and the dissent argue that there is, or should be, a clear division between areas of state and federal authority in natural gas regulation. But that Platonic ideal does not describe the natural gas regulatory world.”

Here is Professor Rossi’s full post and here is the Supreme Court’s opinion.

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