Revised order requiring further information re Kern River Gas Transmission Company under RP99-274.

UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION In the Matter of ) Seaway Crude Pipeline Company LLC ) Docket No OR15-6-000 ) Summary of the Answering Testimony of Mark Pinney on behalf of the Canadian Association of Petroleum Producers The Canadian Association of Petroleum Producers sponsors the testimony of Mr. Mark Pinney, an economist and experienced witness in market power cases. Mr. Pinney responds to and refutes the testimony of Seaway witness Schink. Mr. Pinney finds that the origin market is properly defined as the Cushing, Oklahoma crude oil hub. When Seaways origin market is thus appropriately defined, the market is concentrated beyond the point at which market based rate authorization can be granted. Moreover, Seaway and its affiliates hold a significant market share. Mr. Pinney also finds that Seaway is a pivotal supplier in both the origin market as he has defined it, and even under Dr. Schinks definition of the Cushing Origin market. In particular, the existence of large storage inventories at Cushing and the periodic workings of the market to draw down these inventories accentuates the need for pipeline capacity exiting this market. Mr. Pinneys market definition gives due consideration to the fact that the Cushing hub is the point at which the Seaway Pipeline originates, and is unique given its size and importance as a trading point for crude oil in North America. Mr. Pinney notes that prices for West Texas Intermediate (WTI) crude traded at Cushing also serve as a benchmark for the pricing of many other grades of crude. Mr. Pinneys definition of the origin market corresponds to the market power analysis conducted by the Federal Trade Commission in 2000, which found that the Cushing area serves as a major crude oil marketing hub in the United States, and pipeline and storage facilities located in other regions cannot serve the crude oil trading activities in Cushing. As Mr. Pinney notes, Cushing is an appropriate section of the country and geographic market within which to assess the likely effects of market concentration. Using the Cushing hub as the relevant origin market, Mr. Pinney computed an HHI of 2710, a figure that exceeds the threshold level of 2500 used by the Commission in such analyses. The market can thus be described as being highly concentrated. In addition, Mr. Pinney computes an excess capacity ratio of 0.84, indicating that the capacity provided by each of the market participant pipelines, ...