Husky Marketing and Supply Company v. Federal Energy Regulatory Commission and United States of America

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 12, 2024 Decided June 21, 2024
No. 23-1042
HUSKY M ARKETING AND S UPPLY C OMPANY ,
P ETITIONER
v.
FEDERAL ENERGY R EGULATORY C OMMISSION AND UNITED
S TATES OF AMERICA,
R ESPONDENTS
MPLX OZARK P IPE LINE LLC,
INTERVENOR
Consolidated with 23-1043
On Petitions for Review of Orders
of the Federal Energy Regulatory Commission
Gregory S. Wagner argued the cause for petitioner. With
him on the briefs were Richard E. Powers, Jr. and Joseph R.
Hicks.
Scott Ray Ediger, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on

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the brief were Matthew R. Christiansen, General Counsel, and
Robert H. Solomon, Solicitor. Robert J. Wiggers and Robert
B. Nicholson, Attorneys, U.S. Department of Justice, entered
appearances.
Elizabeth B. Kohlhausen argued the cause for intervenor
in support of respondents. With her on the brief were Dean H.
Lefler and Deborah R. Repman.
Before: M ILLETT, Circuit Judge, and EDWARDS and
GINSBURG, Senior Circuit Judges.
Opinion for the Court filed by Senior Circuit Judge
GINSBURG.
GINSBURG, Senior Circuit Judge: Two customers of a
crude-oil pipeline petition for review of orders issued by the
Federal Energy Regulatory Commission (FERC) approving the
pipeline’s application to charge market-based rates for its ship-
ping services. The petitioners contend the Commission
adopted an arbitrary and capricious definition of the relevant
geographic destination market for the pipeline’s services when
analyzing whether it had market power. We disagree and deny
their petitions for review.
I. Background
Petitioners Husky Marketing & Supply Company and
Phillips 66 Company ship crude oil on the MPLX Ozark, a 22-
inch-diameter pipeline that runs 433 miles from Cushing,
Oklahoma to Wood River, Illinois. MPLX Ozark is owned by
MPLX LP, a master limited partnership the general partner of
which is a wholly owned subsidiary of Marathon Petroleum
Corporation.

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In December 2018, Marathon filed with the FERC an ap-
plication for permission to charge market-based rates for trans-
porting crude oil from Cushing to Wood River on the MPLX
Ozark. Marathon asserted it did not have market power in the
relevant geographic origin and destination markets and there-
fore should be allowed to charge market-based rates rather than
cost-indexed rates, which are the default rates for oil pipelines
regulated by the Commission. See, e.g., MarkWest Mich.
Pipeline Co. v. FERC, 646 F.3d 30, 31–33 (D.C. Cir. 2011).
Husky and Phillips intervened to oppose Marathon’s ap-
plication, asserting the carrier’s proffered definition of the rel-
evant destination market, viz., the St. Louis–St. Charles–
Farmington Bureau of Economic Analysis (BEA) economic
area, was incorrect. They claimed the properly defined desti-
nation market was Wood River, a city of 10,000 in which they
alleged MPLX Ozark had market power.
The Commission referred the matter to an administrative
law judge (ALJ) who, after an evidentiary hearing, found the
correct destination market was the narrower Wood River mar-
ket advanced by Husky and Phillips, rather than the broader
St. Louis BEA Economic Area advanced by Marathon. Both
Marathon and the Petitioners filed exceptions to the ALJ’s de-
cision.
The Commission unanimously reversed the ALJ’s deci-
sion. MPLX Ozark Pipe Line LLC, 180 FERC ¶ 61,053 (2022).
Rather than accept Marathon’s broad St. Louis BEA definition,
however, the Commission concluded the correct geographical
destination market was Wood River together with Patoka,
Illinois — a small town about 75 miles to the east that is the
downstream destination for a substantial majority of the crude
oil shipped to Wood River on the MPLX Ozark.

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The FERC reached its destination-market conclusion
based primarily upon its determination that if MPLX Ozark
tried to exercise market power by raising prices or restricting
output, then its shipping customers could easily switch to other
Patoka-bound pipelines that do not go through Wood River.
The Commission rejected the ALJ’s analysis because it did not
consider pipelines that do not go through Wood River to reach
Patoka and beyond. 180 FERC ¶ 61,053, at para. 24.
In defining the destination market to be Wood River, the
ALJ had relied heavily upon the hypothetical monopolist test
performed by the Commission staff.* The Commission con-
cluded that facts in the record about “market participants pro-
vide[d] sufficient information to define the relevant geographic
market . . . without the consideration of a detailed hypothetical
monopolist test.” Id. at para. 23. It then reasoned, based upon
market-share data, that the Wood River–Patoka market was a
competitive one in which MPLX Ozark did not have market
power, and it approved Marathon’s application for permission
to charge market-based rates.
* The “hypothetical monopolist” or “SSNIP” test is a tool used in
antitrust cases, which often hinge on the definition of the relevant
product or geographic market. The test analyzes whether a hypothet-
ical firm with a monopoly in a certain geographic area (or product
market) would profit from a “small but significant and non-transitory
increase in price” — usually set at five percent. The profitability of
a SSNIP depends primarily upon the number of a firm’s customers
that would stop purchasing from it in response to the SSNIP. If that
number is high enough that the SSNIP would not be profitable for
the monopolist, then the market has been drawn too narrowly and
must be expanded. The test repeats this process until the SSNIP
would be profitable for the monopolist, at which point the market is
deemed properly defined.

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Husky and Phillips petitioned for rehearing and moved to
reopen the record, but the Commission denied their requests.
MPLX Ozark Pipe Line LLC, 181 FERC ¶ 61,242 (2022).
Husky and Phillips now petition for review. We have jurisdic-
tion under 28 U.S.C. §§ 2321, 2342 and 42 U.S.C. § 7192(a).
See 49 U.S.C. app. § 17(10) (1988); see also Ass’n of Oil Pipe
Lines v. FERC, 83 F.3d 1424, 1432 n.14 (D.C. Cir. 1996);
Earth Res. Co. v. FERC, 628 F.2d 234, 235 (D.C. Cir. 1980).
II. Standard of Review
We review the FERC’s orders under the “arbitrary and ca-
pricious” standard, which is deferential and narrow in scope,
prescribed by the Administrative Procedure Act (APA), 5
U.S.C. § 706(b)(A). LSP Transmission Holdings II, LLC v.
FERC, 45 F.4th 979, 991 (D.C. Cir. 2022); Xcel Energy Servs.
Inc. v. FERC, 41 F.4th 548, 557 (D.C. Cir. 2022). “So long as
proper procedures have been followed, intelligible reasons
have been given, and factual findings are supported by record
evidence, FERC must be affirmed.” Hecate Energy Greene
Cnty. 3 LLC v. FERC, 72 F.4th 1307, 1312 (D.C. Cir. 2023)
(cleaned up).
III. Analysis
Husky and Phillips challenge only the FERC’s conclusion
that Wood River and Patoka constitute the correct relevant ge-
ographic destination market. They do not challenge the rea-
sonableness of the Commission’s finding that the combined
Wood River–Patoka market for deliveries of crude oil is com-
petitive. The only issue before us, therefore, is whether the
Commission gave “intelligible reasons” for its conclusion that
Wood River and Patoka together constitute the correct destina-
tion market in which to analyze whether the MPLX Ozark has
market power for its shipping services. Hecate Energy, 72
F.4th at 1312. We hold that it did.

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For more than a century, federal law has made it unlawful
for a pipeline company to charge a rate that is not “just and
reasonable” for the transportation of crude oil in interstate com-
merce.† Under longstanding statutory requirements, the owner
of an oil pipeline must file proposed rates with the relevant reg-
ulatory agency — now the FERC — and receive its approval
before the pipeline may charge its customers those rates. A
Commission regulation provides that a pipeline ordinarily may
charge its customers no more than a “ceiling” rate that reflects
† Curiously, the “just and reasonable” rate requirement for oil pipe-
lines is nowhere to be found in the current U.S. Code. The require-
ment was created by the Lodge Amendment to the Hepburn Act of
1906, which extended to oil pipelines the “just and reasonable” rate
requirement the Interstate Commerce Act of 1887 had imposed upon
railroads. See Hepburn Act of 1906, Pub. L. No. 59-337, ch. 3591,
§ 1, 34 Stat. 584, 584; Interstate Commerce Act of 1887, ch. 104,
§ 1, 24 Stat. 379, 379. The Interstate Commerce Commission ad-
ministered the provision until 1977, when the Congress transferred
statutory authority over it to the newly created FERC. Department
of Energy Organization Act, Pub. L. No. 95-91, § 402(b), 91 Stat.
565, 584. The next year, the Congress repealed and replaced most
of the Interstate Commerce Act, including the “just and reasonable”
rate provision. Act of October 17, 1978, Pub. L. No. 95-473, § 4, 92
Stat. 1337, 1466–70. The 1978 Act, however, exempted from repeal
the statutory provisions regulating the rates for oil transport by pipe-
line that the Congress had transferred to FERC the previous year, as
they had existed on October 1, 1977. See id. § 4(c), 24 Stat. at 1470.
The House of Representatives’ Office of the Law Revision Counsel
deleted both the repealed and the unrepealed provisions of the Act
from the U.S. Code. The Office included the unrepealed provisions
in the 1988 edition of the Code as an appendix to Title 49, see 49
U.S.C. app. § 1 et seq. (1988), but it has not included them in any
subsequent editions. Although the provisions are now absent from
the U.S. Code, the “just and reasonable” rate requirement they im-
pose upon oil pipelines and the regulatory authority they confer upon
the FERC remain the law.

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the pipeline’s costs-of-service and is adjusted annually by the
FERC in accordance with the Bureau of Labor Statistics’
Producer Price Index for Finished Goods. See 18 C.F.R.
§ 342.3.
Under another Commission regulation, however, an oil
pipeline may charge its customers “market-based” rates that
exceed its “ceiling” rate if the pipeline first establishes it does
not have market power in the relevant geographic origin and
destination markets. See 18 C.F.R. §§ 342.4(b) & 348.1; see
also Order No. 572, Market-based Ratemaking for Oil
Pipelines, 59 Fed. Reg. 59,148, 59,149–51 (1994). In its deci-
sions, the Commission has defined the relevant geographic
market for a pipeline to be “the area in which a shipper may
rationally look for transportation service.” E.g., Saddlehorn
Pipeline Co., LLC, 181 FERC ¶ 61,021, at para. 12 (2022); see
also, e.g., White Cliffs Pipeline, LLC, 173 FERC ¶ 61,155, at
para. 32 (2020) (“[T]he geographic market . . . include[s] alter-
natives to the pipeline that are available to shippers in the event
the applicant pipeline raises rates above competitive levels”).
Courts have long held the “just and reasonable” rate re-
quirement in the statutes that govern the regulation of natural
gas and electricity do not require the Commission to use any
particular methodology or formula when it sets or approves
rates. E.g., Mobil Oil Expl. & Producing Se. Inc. v. United
Distrib. Cos., 498 U.S. 211, 224–25 (1991); Fed. Power
Comm’n v. Hope Nat. Gas Co., 320 U.S. 591, 602 (1944);
S. Cal. Edison Co. v. FERC, 717 F.3d 177, 182 (D.C. Cir.
2013). We see no reason, and the parties suggest no reason, to
read the just and reasonable rate requirement for oil pipelines
any more prescriptively.
The FERC does not require a pipeline owner to use “any
particular geographic market definition” in its application to

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charge market-based rates. Market-based Ratemaking for Oil
Pipelines, 59 Fed. Reg. at 59,154. Nor does the Commission
limit itself to any specific methodology when it defines the ap-
propriate geographic market in which to evaluate an applica-
tion. E.g., Guttman Energy, Inc., 161 FERC ¶ 61,180, at
para. 183 (2017). It has determined relevant geographic mar-
kets in some cases using the hypothetical monopolist test, e.g.,
White Cliffs Pipeline, at paras. 24–26, 31–34, and in others us-
ing a simple fact-based evaluation of the alternative choices
available to the customers served by the applicant pipeline,
e.g., Marketlink, LLC, 169 FERC ¶ 61,194, at paras. 12–14
(2019).
In the present case, the Commission took the latter course.
It concluded that “the appropriate geographic destination mar-
ket should include both Patoka and Wood River because these
areas contain the alternatives that would be available to ship-
pers if MPLX Ozark attempted to exercise market power.” 180
FERC ¶ 61,053, at para. 20.
The FERC adequately supported this conclusion. It is un-
disputed that a substantial majority of the crude oil shipped on
the MPLX Ozark to Wood River — including all of Husky’s
MPLX Ozark volume — is transported onward to Patoka. Nor
do the petitioners dispute that other Patoka-bound pipelines
that do not go through Wood River are available alternatives
for MPLX Ozark’s shipping customers.
In light of these facts, it was entirely logical for the FERC
to reject the conclusions of its staff and the ALJ and instead
conclude that limiting the geographic destination market to
Wood River alone would fail to account for other pipelines to
which MPLX Ozark’s customers could turn in order to ship
their crude oil to Patoka “in response to a SSNIP on MPLX
Ozark.” 180 FERC ¶ 61,053, at paras. 23–24. Husky and

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Phillips have not challenged the Commission’s conclusion by,
for example, showing the alternative pipelines have capacity
limitations that would prevent them from serving customers
leaving the MPLX Ozark. We therefore hold the Commission
did not act arbitrarily or capriciously when it concluded Wood
River and Patoka together, rather than Wood River alone, rep-
resent the area in which a shipper may rationally look for trans-
portation service.
Husky and Phillips fault the FERC for failing to do its own
“empirical analysis” of market data, which we take to mean its
own SSNIP test, to support its conclusion that MPLX Ozark’s
shipping customers could use alternative Patoka-bound pipe-
lines that did not go through Wood River in response to a
SSNIP on MPLX Ozark. They contend the FERC could not
determine whether other pipelines would be an alternative op-
tion for MPLX Ozark customers without regard to the prices
those pipelines would charge. More specifically, they wanted
the FERC to “consult market data to derive a competitive price
for transportation service to Wood River,” “evaluate market
prices of delivered crude oil at Wood River or Patoka,” and
analyze “the willingness of shippers to shift to alternatives
providing transportation to locations outside of Wood River.”
On the record before us, and particularly in the absence of any
challenge to the competitiveness of the Wood River–Patoka
market, the FERC is under no obligation to demonstrate that
prices on alternative pipelines would be acceptable to an appli-
cant’s customers absent a reason to think they would not be,
and the petitioners have suggested none. Were we to hold oth-
erwise, then the Commission could never define a market with-
out performing a detailed SSNIP test, even when the competi-
tiveness of the market is undisputed. As we have said, the
Commission is not so constrained by the requirement that rates
be just and reasonable.

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Husky and Phillips additionally fault the Commission for
using the term “SSNIP” when describing its chosen geographic
market, see 180 FERC ¶ 61,053, at para. 24 (“In response to a
SSNIP on MPLX Ozark, shippers traveling into Patoka have
several options”), when it did not actually do a SSNIP test,
which would involve estimating the volume of crude that ship-
pers would shift away from MPLX Ozark. Rather, the
Commission merely “eyeballed” the market situation based
upon the facts in the record. What it saw was sufficiently com-
pelling that it was not arbitrary or capricious for the
Commission reach its conclusion without doing its own SSNIP
test.
Quoting our decision in Mobil Pipe Line Co. v. FERC, 676
F.3d 1098 (2012), Husky and Phillips contend the FERC vio-
lated what we have termed its “statutorily required” duty to
“adhere to basic economic and competition principles” when it
defined the geographic destination market in this case without
analyzing real-world market data. Their argument miscon-
strues our decision in Mobil Pipe Line. In that case, the FERC
concluded a pipeline company had market power and denied
its application for market-based rates. We held the
Commission’s decision was arbitrary and capricious because
the record showed the company had only a three-percent share
in a market with “many alternative outlets available” to crude-
oil shippers. 676 F.3d at 1103–04. We concluded our decision
thus:
In sum, when an agency is statutorily required
to adhere to basic economic and competition
principles — or when it has exercised its discre-
tion and chosen basic economic and competi-
tion principles as the guide for agency deci-
sionmaking in a particular area, as FERC did in
Order No. 572 — the agency must adhere to

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those principles when deciding individual
cases.
Id. at 1104.
Our statement in Mobil Pipe Line did not mean, and should
not be read to imply, that the FERC’s use of the term “market
power” in its regulations categorically requires it to ground its
geographic-market determinations in detailed economic anal-
yses. The key word in our statement was “basic.” We did not
read the Commission’s prior orders to have imposed upon itself
a mandate to support its market-definition and market-power
determinations with detailed economic analysis. Rather, we
recognized merely that the Commission has chosen to follow
“basic economic and competition principles as the guide for
[its] decisionmaking in a particular area.” Id. That a firm has
market power when it can profitably and sustainably raise its
prices above those of its competitors, and that an adequate sup-
ply of alternative options for the firm’s customers will defeat
its ability to do so, are just such “basic economic and competi-
tion principles.” See, e.g., Elizabethtown Gas Co. v. FERC, 10
F.3d 866, 870–71 (D.C. Cir. 1993) (approving the FERC’s con-
clusion that the “adequate divertible gas supplies” available to
the customers of a natural-gas pipeline would prevent the pipe-
line from exercising market power by raising its prices above
competitive levels).
To be sure, some cases may require a more detailed anal-
ysis than the FERC undertook here. The agency remains free
to use empirical analyses and hypothetical monopolist tests as
appropriate. All we hold today is that the FERC was not re-

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quired to perform any additional empirical analysis in this
case.‡
IV. Conclusion
In sum, we hold it was not arbitrary or capricious for the
FERC to conclude, in light of the record before it, that Wood
River and Patoka together constituted the relevant geographic
destination market for MPLX Ozark’s crude-oil shipping ser-
vices. For the foregoing reasons, the petitions for review are
Denied.
‡ We reject the petitioners’ contention that the FERC’s conclusion
regarding the geographic destination market was arbitrary and capri-
cious in light of MPLX Ozark’s relationships with shipper affiliates.
The Commission considered and reasonably addressed whether these
relationships might affect its determination. See 180 FERC ¶ 61,053,
at paras. 25–27. As the Commission pointed out, the petitioners’ ar-
guments rested upon an erroneous reading of economic evidence and
ignored the role of unaffiliated shippers on non-Wood River pipe-
lines. Id. at para. 25 & n.62.

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