States May Control Gasoline Price, Oil Allocation, High Court Rules

The Supreme Court said Tuesday that states may set price controls on gasoline or regulate the allocation of oil, a ruling that officials say could prove crucial in the event of another energy crisis.

The court’s unanimous opinion has no immediate impact on the oil industry except in Puerto Rico, where prices have been controlled since 1942. However, many states maintain a standby authority to control energy supplies or prices during an emergency and the high court ruling cleared away legal doubts about those laws, attorneys for the states said.

The decision overturns a federal appeals court ruling that concluded that the 1981 move by Congress and the President to decontrol oil prices also prohibited Puerto Rico from limiting wholesale prices of gasoline. Since the federal policy now called for a “free market” in oil, the lower court concluded that states must follow the same policy.

Scalia Issues Opinion

Writing for the high court, Justice Antonin Scalia said judges cannot simply assume that Congress meant to abolish state regulations as well. If Congress wants to preempt state laws, it must say so, he said.

“Unenacted approvals, beliefs and desires are not laws. Without a text that can, in light of those statements, plausibly be interpreted as prescribing federal preemption, it is impossible to find that a free market was mandated by federal law,” Scalia wrote.

Lawyers representing the states said they know of no state with price controls for gasoline. A state-imposed cap on prices could spur the petroleum industry to divert supplies and cause a shortage, they noted.

But many states have plans or laws that could allow a governor to allocate gasoline during a severe shortage, they said. Through these measures, preference could be given to ambulances, fire trucks and other necessary services.

Response in Energy Crisis

“If they had upheld the appeals court, it would have endangered the ability of states to respond during the next energy crisis,” said Jeffrey Genzer, general counsel for the National Assn. of State Energy Officials. Oil companies could have challenged those plans as violations of the free-market rule, he said.

“With Iranian ships being sunk in the Persian Gulf, you don’t know what will happen to oil supplies. And if Congress is slow to respond in the next crisis, states need the ability to move on their own,” Genzer said.

The case is Puerto Rico Department of Consumer Affairs vs. Isla Petroleum Corp., 86-1406.