On June 16, 2016, FERC affirmed its process outlined in Opinion No. 538 for analyzing whether natural gas storage companies lack significant market power for the purposes of determining whether to grant market-based rate (“MBR”) authority for natural gas storage service. However, FERC clarified that the burden to show lack of control over an affiliate rests with the applicant.
On October 15, 2015, FERC issued Opinion No. 538 denying ANR Storage Company’s (“ANRS”) application for MBR authority for natural gas storage service and finding that ANRS failed to show that it lacked significant market power (see October 26, 2015 edition of the WER). In a request for rehearing of the opinion, ANRS argued, among other things, that (1) ANRS met its burden to show that it lacks significant market power; (2) ANRS met its burden in demonstrating that interruptible service should be included in the relevant product market; (3) FERC should have considered that ease of entry into the Central Great Lakes Market (“CGLM”) addresses potential market power concerns; (4) FERC miscalculated the Herfindahl-Hirschman Index for the CGLM; and (5) FERC failed to consider ANRS’s proposed mitigation measures. In addition, a group of intervenors (the “Joint Intervenors”) requested rehearing on numerous rulings in Opinion No. 538, including FERC’s definition of the relevant product market, determination of the relevant geographic market, list of competitive alternatives, and market share calculations.
On rehearing, FERC reiterated that the relevant product market is determined on a case-by-case basis and includes services that customers will be able to use as substitutes for the applicant’s. FERC further affirmed that the use of cross-elasticity of supply in determining the product market is a well-accepted practice, and that the potential supplies of one product that could enter an applicant’s market within a short period of time may be included in the market power analysis. FERC also found that ANRS had not demonstrated that interruptible service should be included in the product market because its testimony was inconsistent. In addition, FERC affirmed the selection of the CGLM as the geographic market, reaffirming that the determination of the geographic market is on a case-by-case basis; is a necessary, distinct step in the market power analysis; and does not depend on the existence of competitive alternatives within the area. Regarding competitive alternatives, FERC affirmed that fully-subscribed storage capacity that is subject to FERC’s capacity release requirements should be included in the market power analysis. With respect to market share calculations, FERC clarified that the burden to show lack of control over an affiliate rests with the applicant and thus ANRS failed to overcome the presumption that a voting interest of 10 percent or more creates a rebuttable presumption of control. Finally, FERC concluded that ANRS failed to demonstrate that it lacked significant market power, stating that ANRS did not establish that the existence of intrastate storage and fully subscribed capacity subject to release prevents ANRS from exercising market power.
A copy of the order is available here.