United States Court of Appeals, District of Columbia Circuit
February 22, 2018
Petition for Review of Orders of the Federal Energy
Sundback argued the cause for petitioner. With him on the
briefs were Kenneth Wiseman and William Rappolt. Kevin
Siqveland entered an appearance.
T. Perry, Deputy Solicitor, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on the
brief were David L. Morenoff, General Counsel, and Robert H.
I. White, Nancy A. White, James H. Holt, Douglas F. John, and
Matthew T. Rick were on the joint brief of intervenors
Canadian Association of Petroleum Producers, et al. in
support of respondent.
Before: Henderson and Katsas, Circuit Judges, and Randolph,
Senior Circuit Judge.
KATSAS, CIRCUIT JUDGE.
Federal Energy Regulatory Commission refused to allow ANR
Storage Company to charge market-based rates, as opposed to
cost-based rates, for its natural-gas storage services. That
decision rested on FERC's conclusion that ANR had failed
to prove that it lacks market power. ANR challenges
FERC's decision as both inconsistent with prior precedent
and internally inconsistent.
4(a) of the Natural Gas Act requires natural-gas companies to
charge "just and reasonable" rates in interstate
markets subject to FERC's regulatory jurisdiction. 15
U.S.C. § 717c(a). This requirement governs not only
suppliers of natural gas, but also suppliers of natural-gas
storage services. Schneidewind v. ANR Pipeline Co.,
485 U.S. 293, 295 n.1 (1988). FERC generally considers
cost-based rates to be "just and reasonable," and
it allows market-based rates only if the seller shows that it
lacks power in the relevant markets. N. Nat. Gas Co. v.
FERC, 700 F.3d 11, 13 (D.C. Cir. 2012).
assesses market power in three steps: first, it defines the
relevant product and geographic markets; second, it
calculates share and concentration within those markets; and
third, it considers other relevant factors. Alternatives
to Traditional Cost-of-Service Ratemaking for Natural Gas
Pipelines, 74 FERC ¶ 61, 076, 61, 231 (1996)
(1996 Policy Statement). The relevant
product market includes both the specific service supplied by
the firm at issue and "good alternatives," which
FERC defines as any other service "that is available
soon enough, has a price that is low enough, and has a
quality high enough to permit customers to substitute the
alternative." Id. (citation omitted). Market
share measures a firm's ability to exercise market power
unilaterally, whereas market concentration, as determined by
the Herfindahl-Hirschman Index (HHI), measures the ability of
sellers to exercise market power jointly. Id. at 61,
234.  Relevant factors that might prevent the
exercise of market power, even for dominant competitors in
concentrated markets, include the absence of entry barriers
and the presence of countervailing buyer power. Id.
at 61, 235.
2012, petitioner ANR Storage Company sought authorization to
charge market-based rates for its natural-gas storage
services. FERC referred the matter to an administrative law
judge, who held a hearing, found that ANR had failed to show
a lack of market power, and thus declined to authorize
market-based rates. ANR Storage Co., 146 FERC ¶
63, 007 (2014) (Initial Decision).
review, the Commission rejected various aspects of the
ALJ's reasoning, but ultimately affirmed his decision.
ANR Storage Co., 153 FERC ¶ 61, 052 (2015)
(Opinion No. 538). Among other things, FERC
determined that the ALJ had erred by defining the relevant
product market to exclude intrastate storage capacity as well
as subscribed storage capacity committed to specific buyers
but subject to release. See id. PP 106-08, 162-63.
After expanding the relevant product and geographic markets
beyond those used by the ALJ, FERC recalculated ANR's
share to be 16.12% of the market for working gas and 15.16%
of the market for daily deliverability, and it calculated
the HHIs for these respective markets to be 951 and 1, 010.
Id. PP 183-213. FERC acknowledged that it had
granted market-based rate authority to other natural-gas
companies with similar shares, and it characterized the
relevant HHIs as "low." Id. PP 214-15.
However, it expressed concern that ANR was the largest
competitor in the market for working gas, and that a
significant part of that market consisted of intrastate or
subscribed storage capacity. Id. P 219. FERC
Based on the size of the applicant in relation to the market,
the relative lack of current competitors providing firm
interstate storage service, the need for a substantial number
of other facilities among the good alternatives to shift
operations in order to offer firm interstate service, and
also considering the fact that [ANR] is not a new entrant but
a strong incumbent, the Commission finds that [ANR] has ...