Mobil Pipe Line Co. v. Federal Energy Regulatory Commission

Congress has charged the Federal Energy Regulatory Commission (FERC) (defendant) with ensuring the rates that customers pay for use of oil pipelines are just and reasonable. In noncompetitive markets, FERC capped the rates of pipelines. In competitive markets, FERC generally permitted pipelines to charge market-based rates. Mobil Pipe Line Company (Mobil) (plaintiff) owned and operated the Pegasus pipeline. Mobil accounted for transportation of about 3 percent of the total Western Canadian crude oil. Mobil applied for permission from FERC to charge market-based rates. The expert staff of FERC determined that Mobil’s case for charging market-based rates was a slam dunk to be approved. Many local refineries that processed Western Canadian crude oil existed, and several pipelines that moved Western Canadian crude oil to other refineries in Canada and the United States operated within the crude-oil market. Staff noted that the supply of Western Canadian crude oil vastly exceeded Pegasus’s capacity and that it was impossible for a recent entrant to a market to exercise market power in an already established market. However, both an administrative law judge and FERC itself denied Mobil’s application. They both found that the Pegasus pipeline possessed market power because the pipeline could have raised rates by 15 percent or more over Pegasus’s regulated rate for oil shipments to Gulf Coast refineries despite numerous other competitive alternatives for oil producers to transport their crude oil to refineries in other locations. Mobil appealed.