D.C. Circuit Overturns FERC Order Denying ANR Storage Market-Based Rate Authority

On September 21, 2018, the United States Court of Appeals for the District of Columbia Circuit ("D.C. Circuit") ruled that FERC's order to deny ANR Storage Company's ("ANR") request to charge market-based rates was arbitrary and capricious. The D.C. Circuit found that FERC provided no basis for treating ANR differently from another competitor, DTE Energy Company ("DTE") in a prior decision, and that FERC's explanation for why intrastate facilities could not restrain ANR's exercise of market power was internally inconsistent. As such, the D.C. Circuit remanded the proceeding back to FERC.

FERC generally allows suppliers of natural gas and natural gas storage services to charge cost-based rates, as it considers these rates to be largely "just and reasonable." FERC will only allow a natural gas company to charge market-based rates when it can persuasively show that it lacks market power in its relevant markets. In 2012, ANR petitioned FERC for market-based rate authority for its natural gas storage services. In 2014, an Administrative Law Judge ("ALJ") determined that ANR failed to show that it lacked market power and declined to grant market-based rate authority. On review, in 2015, FERC affirmed the ALJ's initial decision. Although FERC acknowledged that it had authorized entities to charge market-based rates when their share of the market was similar to ANR's, FERC found that, in ANR's case, it 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." After FERC denied rehearing in 2016, ANR appealed to the D.C. Circuit.

In its petition to the D.C. Circuit, ANR argued that FERC's finding that ANR exercised market power differed from its findings in prior proceedings. ANR contended that a market share of 16% cannot establish that it exercised market power, at least in unconcentrated markets, and that FERC usually granted market-based rate authority in that context. The D.C. Circuit...