Bloomberg News

Natural Gas Price-Fixing Suits Revived by Appeals Court

April 10, 2013

Duke Energy Corp. (DUK:US), CMS Energy Corp. (CMS:US), American Electric Power Co. (AEP:US) and other energy companies must face antitrust lawsuits by natural gas buyers alleging they manipulated prices during California’s energy crisis more than a decade ago, a federal appeals court ruled today.

The U.S. Court of Appeals in San Francisco today reversed a lower court’s dismissal of claims against companies and reinstated a group of antitrust lawsuits, saying the allegations weren’t pre-empted by federal law. The energy firms are accused in the cases, consolidated in federal court in Las Vegas, of manipulating prices from 2000 to 2002.

The appeals court concluded in its ruling that the U.S. Natural Gas Act, which provides the Federal Energy Regulatory Commission with jurisdiction over certain rates practices, doesn’t stand in the way of buyers pursuing state-law antitrust cases over energy prices. During the power crisis, prices rose 10-fold, businesses and consumers endured rolling blackouts, and California’s two largest utilities became insolvent.

Natural gas customers alleged companies manipulated prices by reporting false data to energy industry trade publications that used the information to calculate price indexes that were the basis for some contracts between buyers and sellers. They also claimed the companies engaged in “wash” sales in which traders executed electronic transactions and then immediately offset that trade by an equal and opposite trade, according to today’s ruling.

Pleas, Settlements

Former traders at several energy companies, including Enron Corp., pleaded guilty to price manipulation in a federal probe and California eventually reached settlements totaling more than $10 billion with power companies in lawsuits related to the energy crisis.

The lower court’s finding that the federal law precludes the claims is an “expansive reading” that “conflicts with Congress’s express intent to delineate carefully the scope of federal jurisdiction,” the appeals court said in its decision.

Natural gas buyers including Learjet Inc. and Sinclair Oil Corp. filed suits beginning in 2005 against 10 groups of energy- trading firms. They accused the groups of artificially inflating prices.

Decision ‘Disappointing’

“The decision is disappointing and we are evaluating our options,” Melissa McHenry, a spokeswoman for Columbus, Ohio- based American Electric Power, said in an e-mail. The ruling addresses preliminary legal issues and not the merits of the original complaint, she said.

“Duke Energy strongly disagrees with the federal appeals court’s ruling and will defend itself vigorously as the case moves forward,” said Dave Scanzoni, a spokesman for the Charlotte, North Carolina-based company, said in an e-mail. “The company followed all applicable rules and regulations, and did not engage in any of the alleged activities mentioned in the lawsuit.”

Dan Bishop, a CMS spokesman, didn’t immediately return a voice-mail message seeking comment.

The case is Learjet Inc. v. Oneok Inc. (OKE:US), 11-16786, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

To contact the reporters on this story: Christie Smythe in Brooklyn, New York, at csmythe1@bloomberg.net; Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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Companies Mentioned

  • DUK
    (Duke Energy Corp)
    • $73.21 USD
    • -0.82
    • -1.12%
  • CMS
    (CMS Energy Corp)
    • $30.22 USD
    • -0.35
    • -1.16%
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