FERC Denies Market-Based Rate Application

by Morgan Lewis

[authors: Mark R. Haskell, Levi McAllister, Charles A. Moore, and Christina M. Vitale]

Failure to provide detailed cost data relating to the provision of oil transportation service causes FERC to deny a pipeline's request to charge market-based initial rates.

On May 7, the Federal Energy Regulatory Commission (FERC or Commission) issued an order denying a request to charge market-based rates as initial rates for transportation service to be provided on the Seaway Crude Pipeline Company (Seaway) system.[1] The Commission's order clarifies for oil pipelines seeking market-based authority in the future that detailed cost data is a necessary prerequisite in conducting a market-power analysis in the context of market-based rate applications filed under the Interstate Commerce Act.


On December 2, 2011, Enterprise Products Partners L.P. and Enbridge Inc. (together, Applicants) filed an Application for Authorization to Charge Market-Based Rates with the Commission in connection with a proposed reversal of the Seaway system. Applicants requested authority to charge market-based rates for the interstate transportation of crude oil on the Reversed Seaway Pipeline at its Cushing, Oklahoma, origin and its proposed destinations on the U.S. Gulf Coast.

Currently, the Seaway system provides south-to-north transportation of crude oil from origins on the U.S. Gulf Coast to its destination at Cushing. However, Enbridge recently purchased a 50% interest in Seaway. After the purchase, the Applicants intended to reverse the flow of crude oil on the system in order to provide north-to-south service from Cushing to an initial delivery point in Houston, Texas, and (following construction of additional pipeline facilities) an additional delivery point in the Beaumont/Port Arthur, Texas, area. Currently, the Applicants anticipate that the Reversed Seaway Pipeline will begin operating in north-to-south service during the second quarter of 2012, with an initial capacity of approximately 150,000 barrels per day depending upon the specific mix of crude oil transported. Following pump additions and modifications anticipated to be completed by early 2013, the capacity of the Reversed Seaway Pipeline is expected to be approximately 375,000 barrels per day, again depending upon the specific mix of crude oil transported.

In their request, the Applicants argued that operating under the Commission's indexing procedures and cost-of-service ratemaking alternatives would constrain the Reversed Seaway Pipeline's ability to respond appropriately to the market forces in those locations. In support of their request, the Applicants argued that statistical analysis demonstrates that there are very low levels of market concentration in both the applicable origin and destination markets. In addition, the Applicants argued that in both its origin and destination markets, the Reversed Seaway Pipeline will have a low market share and there is significant excess capacity. However, the Applicants did not provide any price data, such as a netback analysis, to demonstrate that the Applicants would be competing cost-effectively. Instead, the Applicants stated that it is not possible to provide such data and perform such an analysis since the Reversed Seaway Pipeline has not yet begun providing service and does not have rates on file.

Commission Determination

The Commission determined that the information filed by the Applicants in their request was "insufficient to permit a determination that the proposed Reversed Seaway Pipeline lacks market power in its contested origin and destination markets."[2] In reaching its determination, the Commission first explained that price data is an "indispensible" component of a market-power analysis. In that regard, the Commission noted that a recent decision issued by the U.S. Court of Appeals for the D.C. Circuit, Mobil Pipe Line Company v. FERC,[3] did not take issue with the Commission's consideration of price data when conducting a market-power analysis. Instead, the Mobil court determined only that the pipeline at issue in that case could not possess market share sufficient to constitute market power and, therefore, remanded the Commission's denial of that pipeline's market-based rate request. Notwithstanding the court's action, the Commission stated that in Mobil the court did find that the pipeline could not raise its rates above the competitive level for a significant period of time. In light of this finding, the Commission did not interpret Mobil from precluding price data in the market-power analysis.

Having distinguished Mobil, the Commission explained that in order to conduct a market-power analysis, alternative competitors for supply must be considered to determine whether a market-based rate applicant would be competing cost-effectively. In that respect, "[f]or an alternative to be included in a geographic market, it must be a 'good' alternative. A good alternative must be a good alternative in terms of price."[4] For that reason, any market-power analysis requires a proxy for a competitive price because "[t]he necessity of identifying an appropriate proxy for the competitive price is central to the entire market power analysis."[5] The proxy need not be a regulated tariff rate, but something must be presented as a proxy to be used in an analysis. The Commission stated that even though parties may dispute whether the proxy used by a pipeline adequately reflects the competitive price level, the pipeline must still present such price data in order to determine good alternatives for inclusion into the market-power analysis.

Turning to the Applicants' request, the Commission found that the Applicants' failure to provide a proxy for a competitive price was fatal. The Commission noted the Applicants' recognition that such information could not be provided; therefore, the Commission declined to set the request for hearing and denied the request. In doing so, the Commission determined that "[a] hearing would not be productive where, as even the applicant acknowledges, a fundamental element required to demonstrate a lack of market power cannot be provided."[6]

The Commission distinguished several cases on which the Applicants' relied for the proposition that the Commission may approve market-based rate requests without detailed cost analyses. The Commission found that in one instance, it reviewed detailed cost analyses provided by a protestor and determined that the pipeline would be unable to exercise market power even if the protestor's data was accurate. In other instances, the Commission explained that the cost analyses were not required because market-based rate authorization was sought for economic areas (BEAs) defined by the Bureau of Economic Analysis as relevant regional markets surrounding metropolitan or micropolitan statistical areas. The Commission implied that in instances where market-based rate authorization is requested within BEAs, price analyses are not required because BEAs appropriately define geographic markets, including good competitors. As such, the cases on which the Applicants' relied were distinguishable from their application because they did not request market-based rate authority within a BEA.

[1]. See Enterprise Products Partners L.P., 139 FERC ¶ 61,099 (2012) (MBR Order).

[2]. Id. at P 33.

[3]. Case No. 11-1021 (D.C. Cir. Apr. 17, 2012).

[4]. MBR Order at 32.

[5]. Id. at P 40.

[6]. Id. at P 41.


DISCLAIMER: 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.

© Morgan Lewis | Attorney Advertising

Written by:

Morgan Lewis

Morgan Lewis on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.