The Gas Storage Conundrum

Deck: 

Congress allows market-based rates. How will FERC respond?

Fortnightly Magazine - November 2005
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Under Natural Gas Act (NGA) Sections 4(a) and (b), and 5(a), natural gas companies engaged in interstate commerce must charge just and reasonable, non-discriminatory rates.1 When the Federal Energy Regulatory Commission (FERC) determines rates are unjust and unreasonable, § 5(a) requires that agency, either on its own motion or on complaint to it, to determine and order just and reasonable, non-discriminatory rates on a prospective basis.2

Because these laws are so critical to predictable interstate gas storage and transportation rate regulation, NGA §§ 4 and 5 are not amended every day. In fact, except for minor § 4(e) rewording in 1962, §§ 4 and 5 had not been changed from 1938 until the Energy Policy Act of 2005 (EPACT05), effective Aug. 8, 2005.

If only in that sense, as a rare amendment to a venerable statute, EPACT05 § 312, New Natural Gas Storage Facilities, made headlines by appending a new subsection (f) to § 4. But the new law also tells us of Congress's effort to meet today's national need for gas storage capacity and services.3

New NGA § 4(f) adds an option for interstate, market-based storage rate making. It would encourage new storage facilities by permitting FERC to authorize market-based storage rates, even when the applicant is unable to demonstrate it lacks market power. After authorizing such rates, FERC periodically must review them.

The problem with the new law is that it does not specify those review periods. To give gas storage providers more rate predictability and encourage investment in new storage facilities in the first place, FERC needs to define when it will carry out its new mandate to review § 4(f) authorized and effective market-based rates.

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