On April 30, 2020, FERC granted Tennessee Gas Pipeline Company, L.L.C.’s (“Tennessee Gas”) petition for declaratory order that requested authorization to charge market-based rates for its proposed firm flexible storage (“FS Flex”) service. In reaching its decision, FERC reviewed whether Tennessee Gas held significant market power in the relevant product and geographic markets where the FS Flex service was to be offered, with the geographic market including east Texas, Louisiana, Mississippi, and Alabama (“Gulf Coast Production Area”). FERC found that Tennessee Gas’s small market share and market concentration in the relevant markets adequately demonstrated that Tennessee Gas lacked market power and that there were no other factors indicating that Tennessee Gas would be able to exercise market power when providing the FS Flex service.

In its petition submitted to FERC on February 28, 2020, Tennessee Gas detailed its proposed FS Flex service, stating that the proposed service will allow its customers to select between three firm injection options. Specifically, Tennessee Gas proposed a (1) Class A service option for traditional storage customers that require firm injection rights year-round; (2) Class B service option for liquefied natural gas (“LNG”) customers that may require large firm injection rights for a limited number of days each year to address short-term interruption in their LNG facilities’ operation; and (3) Class C service option for customers, such as marketers, who can accept interruption of their firm injection rights for a limited number of days each year. Tennessee Gas petitioned FERC for the authority to provide the FS Flex service at market-based rates, contending that it would not be able to exercise market power when providing the service.

In approving Tennessee Gas’ petition, FERC found that Tennessee Gas did not have market power over the FS Flex service, with market power defined as “the ability of a pipeline to profitably maintain prices above competitive levels for a significant period of time.” In reaching this decision, FERC first evaluated whether Tennessee Gas had appropriately defined the relevant geographic market and product market for the FS Flex service. FERC agreed with Tennessee Gas’ assertions that the relevant geographic market was the Gulf Coast Production Area and that the relevant product market included both local production and interstate and intrastate underground natural gas storage services. FERC then analyzed the size of Tennessee Gas’ market share and market concentration in those markets. FERC found that customers within the markets would have sufficiently diverse alternatives to the FS Flex service, as Tennessee Gas had only a 7.9% market share for working gas capacity and 8.9% market share for deliverability in the geographic market, and Tennessee Gas’ market concentration fell well below the threshold minimum that would have required further review by FERC. FERC also agreed with Tennessee Gas’ argument that barriers to entry are likely low in the relevant market and that alternative products are available to shippers in the Gulf Coast Production Area. Accordingly, FERC determined that Tennessee Gas lacked significant market power in the Gulf Coast Production Area for the FS Flex service.

In a concurrent, related order, FERC also accepted Tennessee Gas’ proposed pro forma tariff records that establish the FS Flex service and directed Tennessee Gas to file actual tariff records including the approved language within 30 days prior to commencement of the FS Flex service.

FERC’s order related to its review of whether Tennessee Gas may charge market-based rates can be found here.

FERC’s order related to its review of Tennessee Gas’ proposed pro forma tariff records can be found here.