904 F.3d 1020
D.C. Cir.2018Background
- ANR Storage sought FERC authorization (2012) to charge market-based rates for interstate natural-gas storage instead of cost-based rates; FERC and an ALJ concluded ANR failed to show lack of market power.
- FERC expanded the relevant product market to include intrastate storage and subscribed (releaseable) capacity, recalculated ANR’s shares (≈16.12% working gas; ≈15.16% daily deliverability) and HHIs (951 and 1,010), and nonetheless denied market-rate authority.
- FERC explained denial by citing ANR’s status as the largest storage provider in the Central Great Lakes market, the relative lack of current competitors providing firm interstate service, and the number of alternatives that would need to shift to constrain ANR.
- ANR challenged the order in court, arguing (1) FERC’s decision conflicted with prior precedent, especially its approvals for DTE affiliates with similar or higher market shares, and (2) FERC’s analysis was internally inconsistent in treating intrastate and subscribed capacity as both good alternatives and yet insufficient to discipline ANR.
- The D.C. Circuit reviewed the agency record under the APA standard, accepted most FERC reasoning but found two reversible errors: arbitrary disparate treatment vis-à-vis DTE affiliates, and internal inconsistency regarding intrastate/subscribed capacity as market alternatives.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FERC lawfully denied market-based rates based on market-power findings | ANR: FERC misapplied precedent and treated similarly situated DTE affiliates differently without reason | FERC: ANR has significant market power given its size and market structure; past approvals differ in posture (unopposed/settlement) | Court: Remanded — FERC’s denial set aside because of arbitrary disparate treatment and internal inconsistency; other aspects largely upheld |
| Whether FERC’s treatment of DTE affiliates was consistent with precedent | ANR: DTE affiliates had similar or larger shares and were allowed market rates; FERC failed to justify disparate treatment | FERC: Differing procedural histories (unopposed/settlement) and possible affiliate-size differences justify different treatment | Court: FERC failed to provide a reasoned justification for treating DTE affiliates more favorably; decision arbitrary and capricious |
| Whether intrastate storage and subscribed/releaseable capacity are part of the relevant market and are ‘good alternatives’ that discipline market power | ANR: These capacities are interchangeable and should constrain ANR’s pricing power | FERC: Although included as good alternatives, the number and timing of shifts make them insufficient to discipline ANR | Court: FERC’s conclusion is internally inconsistent — cannot deem those capacities both good alternatives in the market and effectively non-constraining without explanation |
| Whether other challenges (attribution, computation, entry barriers, mitigation measures) invalidate FERC’s ruling | ANR: FERC erred in excluding or attributing certain capacities and in calculations; failed to credit entry conditions and remedies | FERC: These matters were immaterial or reasonably rejected | Court: These contentions lack merit; left for FERC to address on remand if needed |
Key Cases Cited
- Schneidewind v. ANR Pipeline Co., 485 U.S. 293 (storage services can be regulated under Natural Gas Act)
- N. Nat. Gas Co. v. FERC, 700 F.3d 11 (D.C. Cir.) (market-based rates require showing lack of market power)
- SEC v. Chenery Corp., 332 U.S. 194 (agency must articulate reasons in its decision; courts may not accept post-hoc rationalizations)
- Nat’l Petrochemical & Refiners Ass’n v. EPA, 630 F.3d 145 (D.C. Cir.) (courts cannot consider post-hoc agency rationalizations)
- Nw. Corp. v. FERC, 884 F.3d 1176 (D.C. Cir.) (agency decisions must be reasonable and reasonably explained)
- W. Deptford Energy, LLC v. FERC, 766 F.3d 10 (D.C. Cir.) (reasoned analysis required for disparate treatment)
- Sierra Club v. EPA, 884 F.3d 1185 (D.C. Cir.) (agency reasoning cannot be internally inconsistent)
- United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (market definition uses reasonable interchangeability)
- Ohio v. Am. Express Co., 138 S. Ct. 2274 (market includes arena where significant substitution occurs)
- Pan-Alberta Gas, Ltd. v. FERC, 251 F.3d 173 (D.C. Cir.) (capacity release described)