Opinion ID: 721438
Heading Depth: 3
Heading Rank: 1

Heading: MFV rate design's anticompetitive effects

Text: 186 FERC's authority over rate design in this case derives from NGA § 5, which requires it to replace any unjust, unreasonable, unduly discriminatory, or preferential rate, charge [319 U.S.App.D.C. 99] or classification charged by any natural-gas company in connection with any transportation or sale of natural gas with a just and reasonable rate, charge, [or] classification. 15 U.S.C. § 717d. Under the preexisting MFV design, the pipelines incorporated into commodity charges to their sales customers and usage charges to their transportation customers fixed costs that varied greatly from pipeline to pipeline. Accordingly, the unit prices to gas customers did not accurately reflect the actual variable cost of supplying gas, because producers in different gas fields compete for market share via different pipelines, so that their competitive positions in the market reflected the fixed costs in the pipelines' respective transportation usage charges and not simply the producers' own costs and efficiencies in producing gas. Order No. 636, p 30,939, at 30,434. The Commission concluded that a shift to the SFV rate design, under which the usage charges accurately reflect the actual variable costs of delivering gas, would remove this impediment to efficient competition. 187 The LDC petitioners 79 argue that FERC had no authority to take regulatory action on the basis of MFV rate design's anticompetitive effects on gas producers. They admit that FERC must consider the anticompetitive effects of rate design systems, but contend that FERC can only consider the anticompetitive effects of a system on entities it regulates directly (i.e., pipelines themselves), not on unregulated industries such as gas producers, and they argue that MFV's anticompetitive effect on gas suppliers does not constitute an anticompetitive effect on pipelines. The LDCs cite in support of their position Official Airline Guides, Inc. v. Federal Trade Comm'n, 630 F.2d 920, 927-28 (2d Cir.1980), cert. denied, 450 U.S. 917, 101 S.Ct. 1362, 67 L.Ed.2d 343 (1981), in which the Second Circuit struck down a Federal Trade Commission (FTC) ruling that a monopoly airline guide publisher's refusal to publish flight schedules for certain airlines impaired competition in the airline industry. The Second Circuit held that the FTC Act's power to proscribe anticompetitive conduct did not extend to the restraint of a business's practices solely because of the conduct's incidental effect on competition between third parties in another industry. 188 As the LDCs stress, antitrust policy does not outlaw the practices of a party solely because those practices may indirectly affect competition between other entities with which it does not compete. Though the LDCs' premise is valid, it does not answer the question of whether FERC has the authority to consider anticompetitive effects on unregulated segments of the gas industry in setting rates for the regulated pipelines. The Second Circuit's decision simply does not purport to answer that question. Rather, the Official Airline Guides court was extending the doctrine established in United States v. Colgate & Co., 250 U.S. 300, 307, 39 S.Ct. 465, 468, 63 L.Ed. 992 (1919) (as quoted in Official Airline Guides, 630 F.2d at 925), that, [i]n the absence of any purpose to create or maintain a monopoly, antitrust policy does not restrict the long recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal. In fact, the Official Airline Guides court noted the dangers of departing from this principle of independent business judgment: [W]e think enforcement of the FTC's order here would give the FTC too much power to substitute its own business judgment for that of the monopolist in any decision that arguably affects competition in another industry. Official Airline Guides, 630 F.2d at 927. 189 In contrast, FERC's decision in Order No. 636 represents not the rolling back of an independent business judgment because of its anticompetitive effect on an unrelated industry, but rather the substitution of one administratively imposed ratemaking regime for another based on the anticompetitive effect of the preexisting regime on unregulated entities dealing through regulated entities in a partially regulated segment of the economy--that is, the regulated pipeline [319 U.S.App.D.C. 100] segment of the partially regulated natural gas industry. The Commission's express duty under NGA § 5 to set aside rates and practices that it finds unjust, unreasonable, unduly discriminatory, or preferential is not limited to the remedies that the FTC may order in an unregulated market; nor is FERC's basis for the exercise of that authority necessarily as limited as the FTC's bases for enforcement decisionmaking. Antitrust policies governing the FTC in the unregulated market do not exhaust the public interest grounds on which the Commission may order a change in rates under NGA § 5. Here, given that we review the Commission's acts under the deferential substantial evidence standard, 15 U.S.C. § 717r(b); Town of Norwood v. FERC, 962 F.2d 20, 22 (D.C.Cir.1992), we hold that the Commission adequately justified its exercise of its authority when it stated that its ratemaking authority includes the establishing of just and reasonable transportation rates that maximize the benefits of decontrol to gas consumers, Order No. 636-A, p 30,950, at 30,594-95, and that regulated transportation rates should in no way inhibit the creation of a national gas market of efficient gas merchants as envisioned by Congress in enacting the Decontrol Act. Order No. 636, p 30,939, at 30,433. Unlike the FTC in Official Airline Guides, FERC was not attempting to limit the options of a free business actor in order to promote competition in an adjacent industry, but only to prevent the regulatorily imposed price decisions of a regulated industry from creating anticompetitive factors in economically adjacent markets.