The United States Court of Appeals for the District of Columbia Circuit vacated a decision from the Federal Energy Regulatory Commission (FERC) denying Mobil Pipe Line Company’s application for permission to charge market-based rates.
Mobil requested market-based rates authority for Pegasus, a crude oil pipeline that that transports mostly Western Canadian crude oil. In a competitive market, FERC generally allows a pipeline to charge market-based rates, and in determining whether market-based rate authority is appropriate, FERC looks to a pipeline’s market power.
Despite the fact that Pegasus transports only 66,000 barrels of crude oil per day – roughly 3% of the 2.2 million barrels of crude oil produced in Western Canada each day – and FERC’s expert staff’s strong support of Mobil’s application, FERC concluded that Pegasus had market power in Western Canada and possessed a 100% market share. On review, the D.C. Circuit found that Pegasus’ transport of 3% of the crude oil out of Western Canada did not give it market power, and that the competitive nature of the Western Canadian crude oil market was unaffected by Pegasus’ recent entry into the market. As a result, the Court determined that FERC’s denial of Mobil’s application for market-based rate authority was unreasonable.
Mobil Pipe Line Co. v. Fed. Energy Regulatory Comm’n, No. 11-1021 (D.C. Cir. Apr. 17, 2012).