MDPPACPB Regulations

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22. Prohibition of Margin Squeeze by Vertically Integrated Dominant Licensees 
    (1)    Prohibition:  
A dominant vertically integrated Licensee operating at both midstream (such 
as processing, transportation, storage) and downstream (wholesale or retail 
marketing) levels shall not set wholesale or midstream access prices, or impose 
charges, that make it unduly difficult for an equally efficient unaffiliated 
downstream competitor to operate profitably. 
     
 
(2) Definition of Margin Squeeze 
For the purposes of this Regulation, margin squeeze refers to a situation where: 
 
(a) 
A vertically integrated licensee sets its midstream or wholesale 
price at a high level relative to its own downstream retail price; 
 
(b) 
The margin between the wholesale price charged to competitors 
and the retail price offered by the licensee’s own affiliated outlets is insufficient 
to allow an equally efficient rival to compete viably; 
 
(c) 
The conduct has the effect or intent of excluding independent 
downstream operators or limiting effective competition. 
 
(3) Assessment Criteria by the Authority 
In assessing whether a margin squeeze exists, the Authority shall: 
 
(a) 
Compare the wholesale price charged by the dominant vertically 
integrated licensee to unaffiliated downstream retailers; 
 
(b) 
Compare this price with the retail price offered by the licensee’s 
own downstream operations; 
 
(c) 
Evaluate whether a competitor as efficient as the dominant 
licensee could profitably operate under such conditions; 
 
(d) 
Take into account the downstream operator’s average operating 
costs, cost of capital, and industry benchmarks; 
 
(e) 
Examine evidence of intent or strategic pricing behaviour 
designed to foreclose or discipline rivals. 
 
(4) Examples of Prohibited Margin Squeeze Conduct 
Examples of conduct that may constitute a margin squeeze include: 
 
(a) 
A dominant gas wholesaler selling to independent industrial 
customers at a price nearly equal to or higher than its own bundled gas-retail 
offering; 
 
(b) 
A dominant retail fuel supplier offering pump prices below the 
wholesale price it charges independent retailers; 
 
(c) 
An integrated pipeline or depot operator charging high access or 
handling fees that make independent distribution uneconomic. 
 
(5) Remedies  
Where a margin squeeze is established, the Authority may: 
 
(a) 
Order the licensee to lower its wholesale or midstream price to a 
cost-reflective level;