Colonial Pipeline Co
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Colonial Pipeline Co. 92 FERC ¶ 61,144 (2000) The Commission established in this proceeding that cost studies were required to justify proposed alternative sources of transportation in an origin market similar to the cost study requirements in a destination market. For an origin market, the Commission adopted a “netback” cost analysis that required a comparison of the price a shipper receives for selling its products when using the applicant pipeline and when using proposed alternative sources of transportation. The Commission also followed the detailed cost study formulation established in the TEPPCO proceeding that used a threshold price increase to compare proposed alternative sources. The Commission in this case did not make a finding on the appropriate threshold price increase, however, instead relying on a range of different price increases to gauge the competitiveness of proposed alternatives. In addition, the Commission signaled in this proceeding that it would now principally cite to the market share and market concentration statistics in its determination of market power. Other factors that the Commission had cited in prior proceedings, such as excess capacity, begin to be omitted in the reasoning for the Commission’s findings on market power. UNITED STATES OF AMERICA 92 FERC ¶ 61,144 FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: James J. Hoecker, Chairman; William L. Massey, Linda Breathitt, and Curt Hébert, Jr. Colonial Pipeline Company Docket No. OR99-5-000 ORDER ON APPLICATION FOR MARKET POWER DETERMINATION AND ESTABLISHING A CONFERENCE (Issued August 1, 2000) On March 26, 1999, Colonial Pipeline Company (Colonial) filed an application for a market power determination pursuant to Part 348 of the Commission's regulations.1 Colonial seeks permission to charge market based rates in its Gulf Coast origins and destinations. As discussed below, the Commission finds that the Lafayette, Louisiana, and the Beaumont-Port Arthur, Texas destination markets are uncontested. In addition, the Commission finds that Colonial lacks significant market power in the Jackson, Mississippi, and the Baton Rouge-New Orleans destination markets. The Commission will permit Colonial to implement market based rates in these markets. The Commission also will direct its staff to convene a conference to explore the facts and issues regarding the Western Gulf Coast and Baton Rouge-New Orleans Origin Markets. I. Background 118 C.F.R. Part 348 (1999). Docket No. OR99-5-000 −2− Colonial is a common carrier pipeline, constructed in 1962 as a joint venture among the affiliates of 10 major oil companies. 2 Colonial transports refined petroleum products, e.g., gasoline, distillate, kerosene and jet fuel, from origins on the Gulf Coast to the New York Harbor (and intermediate points) over a system that includes 2,886 miles of mainlines, 2,196 miles of stublines, and 192 miles of delivery lines. Colonial is a bulk delivery pipeline that delivers to marine and truck distribution terminals, airports, other pipelines, power generating plants, and Department of Defense facilities. Most of the petroleum product volumes shipped by Colonial are delivered to large distribution terminals. The average distance a barrel of petroleum product is transported on Colonial is slightly less than 1,000 miles. The Gulf Coast region of Colonial's system serves primarily as an origin on the pipeline. There are large shipper-owned bulk storage facilities that can also serve as destination points on the pipeline. At its origin in Houston/Pasadena, Colonial receives petroleum products from a large number of pipeline and refinery connections that it transports eastward in two parallel 40-inch and 36-inch pipelines to Herbert, Texas, where Colonial interconnects with lateral connections to Beaumont and Port Arthur, Texas. At Herbert, Colonial receives product from a number of refineries located in Beaumont and Port Arthur, and also delivers product to TE Products Pipeline, L.P. (TEPPCO), for further movement to the Midwest. The next origin on Colonial is at Lake Charles, Louisiana where Colonial receives product from Conoco's Westlake refinery and CITGO's Lake Charles refinery from a connection with the shipper-owned Lake Charles pipeline. At Krotz Springs and Baton Rouge, Louisiana, Colonial receives product from several refineries and can make deliveries at Opelousas, Louisiana, to a Chevron storage facility. In Collins, Mississippi, Colonial makes deliveries for further transportation on Plantation Pipeline and to an Amerada Hess storage facility in Collins. II. The Instant Filing 2Colonial's current stockholders are Amoco Pipeline Holding Company (14.32 %), Atlantic Richfield Company (1.58 %), Citgo Pipeline Investment Company (13.98 %), Conoco Pipeline Company (7.55%), Koch Petroleum Corporation (6.46%), Marathon Oil Company (2.50%), Mobil Pipeline Company (11.49 %), Phillips Petroleum International Investment Company (7.10%), Texaco Trading and Transportation Inc. (14.27%), and Union Oil Company of California (20.75%). Docket No. OR99-5-000 −3− With this application, Colonial seeks permission to file market-based rates on shorter movements between origins and destinations in its Gulf Coast region, i.e., Texas, Louisiana and Mississippi. Colonial proposes to charge market-based rates for movements from origins in Pasadena and Houston, Texas; Hebert (i.e., Beaumont and Port Author), Texas; Lake Charles, Louisiana; Krotz Springs and Baton Rouge, Louisiana; and Collins Mississippi, to destinations in and around Beaumont and Port Author; Opelousas, Baton Rouge, and Lafayette, Louisiana; and Collins and Meridian Mississippi. Colonial defines the relevant product market as pipelineable refined petroleum products, which consist of motor gasoline, distillates, kerosene, and jet fuel. III. Protests and Interventions Colonial filed its application on March 26, 1999. On May 10, 1999, Transmontaigne Product Services, Inc. (TPSI) filed a motion requesting a two-week extension of time, i.e. until June 8, 1999, to file protests, if necessary. On June 8, 1999, TPSI filed its protest and motion to intervene. Chevron also filed a motion to intervene on June 8, 1999. Colonial filed a motion for summary disposition, which included supplemental testimony from Dr. George R. Schink, on July 19, 1999. On July 21, 1999, TPSI requested a three-week extension of time to respond to Colonial's motion for summary disposition. TPSI filed its reply to Colonial's motion for summary disposition on August 24, 1999. On August 25, 1999, Chevron also replied to Colonial's motion for summary disposition. TPSI remonstrates that Colonial's application is undermined by the use of suspect methodology and a lack of evidentiary support. TPSI states that the Commission should deny Colonial's application. To be more specific, TPSI levels the following objections against Colonial's subject filing: (1) Colonial's definition of the Jackson and Baton Rouge destination markets is unsupported; (2) Colonial's HHI calculations of its market power in the Jackson and Baton Rouge markets is artificially understated; (3) Colonial's reliance on the 10% rule regarding waterborne competition is misplaced; and (4) Colonial's conglomeration of numerous BEAs into two large origin markets is improper. TPSI states Colonial has expanded the definition of its destination markets well beyond the relevant BEAs without adducing any evidence to support, much less justify, such an expansion. For example, TPSI argues that Colonial presumes that all sources of product within a 75-100 mile straight-line radius of the border of the Jackson BEA provide effective competition within the entire BEA. However, contends TPSI, Colonial does not explain its use of the border of the BEA, as opposed to the major population center in the middle of the BEA, as the measure of the competitive reach of external sources. Furthermore, adds TPSI, Colonial presents no truck surveys or cost studies to Docket No. OR99-5-000 −4− show that these external sources currently compete, are economically feasible, or could effectively constrain a "small but significant and nontransitory increase in price" (SSNIP) by Colonial. TPSI presents data that it states it collected through a preliminary truck survey conducted in the Jackson BEA, which it claims illustrates that Colonial's use of a 75-100 mile radius from the border of the Jackson BEA substantially overstates the reach of external sources. In addition, continues TPSI, a study undertaken by TPSI to determine the "laid in" cost for truck shipments into the Jackson BEA demonstrates that the external sources upon which Colonial seeks to rely are not economically feasible alternatives and could not act as a check on Colonial's market power in the Jackson BEA. TPSI states that Colonial should provide evidentiary support for its contention that sources of supply from outside each relevant BEA could act as a competitive constraint on Colonial's exercise of market power within the BEA. Since TPSI asserts that Colonial has failed to do so, TPSI contends Colonial's attempt to expand the destination market beyond the boundaries of the relevant BEA should be rejected out of hand. Also, TPSI maintains that with the studies and analysis presented in its protest, the relevant destination markets for Jackson and Baton Rouge should be limited to the boundaries of the Jackson and Baton Rouge BEAs. TPSI asserts that Colonial makes unsupported assumptions about the Baton Rouge destination market. Specifically, TPSI states Colonial