The D.C. Circuit today decided Mobil Pipe Line v. FERC. Mobil is the owner of the Pegasus crude oil pipeline, which since 2006 has been transporting Western Canadian crude between Illinois and refiners in Texas. Mobil applied to have rates for their pipeline changed from an index system to market-based rates. FERC denied their request, and Mobil appealed under the APA.
FERC Order 572 declares how the Commission will determine whether market based rates will be charged or not. To qualify, “a pipeline must demonstrate that it lacks market power in its product and geographic markets.” FERC did not disagree that the Texas market was competitive, but they claimed that the market in Illinois was not competitive.
FERC’s experts examined the issue, and “did not think this a close case.” Judge Kavanaugh includes about a page and a half of quotations from the experts, all supporting the competitiveness of the market.
The Commission disagreed with these experts though, using a different method to determine how competitive the market was, and claiming that Pegasus had a controlling share. The D.C. Circuit was not convinced though, stating “the critical statistic is that about 97 percent of Western Canadian crude oil gets to refineries by means other than Pegasus.”
The Court finds the Commission’s action to be unreasonable, vacating FERC’s order and remanding for further consideration. I suppose the best takeaway from all of this is that if agency experts all say one thing, directors need to have some sort of basis for their decisions before completely disregarding their experts.
Exxon Wins FERC’s Reconsideration of Pegasus Pipeline Rates (Bloomberg)
Final exams continue here at W&L, so blog coverage will remain somewhat spotty. But, we are starting to look at papers for volume 4 of the Journal, so if you are interested in publishing with us now would be a great time to submit. Call for papers for our 2013 symposium should be going up in the next few weeks as well. More details to follow on that.