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The Gas Storage Conundrum

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

Fortnightly Magazine - November 2005

periodically as it wants. Even if enacted to encourage unencumbered agency review for Enron-style market-power excesses, rate review of such an undefined extent prompts the question whether this new market-based rate option will help promote gas storage infrastructure to any significant degree.

Storage project sponsors instead may prefer to proceed traditionally, removing or mitigating any market power identified in their proposals to the regulator's satisfaction. Confronted with new NGA § 4(f)(3)'s undefined periodic rate review, that seems the simpler course to achieve more storage rate predictability. Better still, FERC action could make the puzzle go away by explaining and defining just how often it will choose to use its new § 4(f)(3) review power. Storage providers would gain predictability, encouraging them to propose needed gas storage infrastructure.


  1. 15 U.S.C. §§ 717c(a) & (b), 717d(a); see also NGA definition of a natural-gas company, 15 U.S.C. § 717a(6).
  2. Section 5(a) applies of its own force to all natural-gas company rates, whether prospectively to rates long established or, under § 4 (c), (d) and (e), retroactively to rates a natural-gas company newly changes. , 350 U.S. 332, 341 (1956). Initial rates for new facilities construction or expansion are established under § 7 certificate authority. 15 U.S.C. § 717f.
  3. Congress shows further concern with needed gas storage infrastructure in EPACT05 § 1801, which requires the secretary of energy to present Congress by Aug. 8, 2006, a study on gas storage capacity nationwide and by major geographical regions, addressing historical and projected gas storage capacity trends. Also, EPACT05 changes other NGA sections, including a new 4A Prohibition on Market Manipulation.
  4. , 74 FERC 61,076, 61,225, reh'g denied, 75 FERC 61,024 (1996)(Policy Statement).
  5. U.S. Energy Information Administration, Annual Energy Outlook 2005 at 6 (gas share of electricity generation including end use sector generation).
  6. , 74 FERC 61,076, 61,225; see generally J.M. Marcoux, "Moving Gas To Generate Power: An Encore For Hrehor/Sytsma," 140 Pub. Util. Fort., No. 8, 14-16 (Apr. 15, 2002).
  7. , 59 FERC 61,316, 62,166-68.
  8. , 74 FERC 61,076, 61,227.
  9. at 61,230. Analysis of ability to exercise market power includes defining relevant product and geographic markets, measuring market share and market concentration, and evaluating other relevant competitive factors such as ease of entry, presence of buyer power, sufficient quantities of good alternatives, or various mitigating changes, conditions, or agreements. . at 61,230-36.
  10. , at 61,236; see also n.22, infra.
  11. 18 C.F.R. § 35.27(c).
  12. , 102 FERC 61,077, at Paras. (PP) 4 & 40 (2003).
  14. 103 FERC 61,277, P 2 (2003).
  15. , at P 6.
  16. , 350 U.S. at 341.
  17. That periodic review would not involve rates newly changed by a storage service provider through § 4(c) and (d) filing requirements, for § 4(e) retroactive effect.
  18. , 112 FERC 61,268, Ordering P (D) (2005).
  19. , 112 FERC 61,248, P 19 (2005).
  20. S. 10, 109th Cong. § 382 (Jun. 9, 2005).
  21. . Rec. S6496 (daily ed. Jun. 14, 2005)(text of amendment submitted by Sen. Domenici).
  22. , 111 FERC 61,105 at PP 42-43 (2005) (significant changed circumstances include the applicant or an affiliate adding storage capacity, an affiliate