The Alexandria Pipeline Application for Authorization to Charge Market-Based Rates

Abstract

A short fictional story to illustrate for non-economists the economic forces at play when the Federal Energy Regulatory Commission (FERC) reviews oil pipeline applications to be authorized to charge market-based rates. Economic theory made as digestible as possible by avoiding formulas, using lots of pictures and letting the involved parties tell their story. The take-away messages: relying on concentration indexes (HHIs) and easy-to-implement algorithms determining who competes with whom may (netback analysis) is consistent with FERC precedent, but it may not produce answers FERC can safely rely on.