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Presumed Power

Growing gas storage depends on fair regulatory treatment.

Fortnightly Magazine - September 2010

and allocation procedures were separate for market-based storage and cost-based storage services, and because volumes of storage capacity and deliverability available for market-based storage service were limited.

Northern Natural: Cost-based rate customers unaffected : FERC held that Northern Natural had provided adequate protection both to expansion shippers bidding on new capacity and to existing customers, ensuring lawful rates. 27 An open season including all estimated storage project capacity protected the expansion shippers, with any additional capacity given to the highest bidder not receiving capacity in the open season auction. A maximum ceiling price and a ceiling term were set, such that greater bids would be considered made at those ceiling levels. The new storage service was offered under the applicant’s FERC open access tariff GT&Cs. All market-based storage facilities costs and revenues were accounted for in separate records, and existing customer cost-based rates weren’t affected. However, because the applicant had advanced no customer protections for future remarketing of its market-based rate storage expansion capacity, FERC didn’t decide the authorization of market-based rates for any such future capacity resales. 28

Ending Market-Power Presumption

FERC’s NGA §4(f) final rule appears substantially underemployed. Four interstate pipeline authorizations since 2006 aren’t very many, even against a backdrop of national economic fluctuation. Congress hardly expands FERC’s statutory authority cavalierly. 29 It’s thus unlikely that the NGA §4(f) final rule, which also declares new FERC NGPA authority, has escaped the attention of the gas storage industry, including other interstate and intrastate and green-field storage providers.

Perhaps more likely, the community of storage providers willing to swallow a FERC presumption that they have market power is smaller than anticipated. If that hypothesis is correct, then to help satisfy today’s vital national need for gas storage capacity and services, FERC should consider lessening the inhibition by removing its market power presumption and revising its regulations to reflect more exactly Congress’s statutory description of an applicant’s inability to demonstrate its lack of market power. Important NGA §4(f) determinations sufficiently ensure lawful rates whether or not market power is present.

 

Endnotes:

1. Alternatives to Traditional Cost-of-Service Ratemaking for Natural Gas Pipelines , 74 FERC ¶ 61,076, 61,225 (1996), reh’g denied, 75 FERC ¶ 61,024 (1996).

2. 74 FERC ¶ 61,076, at 61,230.

3. 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. 74 FERC ¶ 61,076, 61,230-36. The traditional approach under Natural Gas Act (NGA) rate policy requires showing an absence of market power in order for FERC to authorize market-based storage rates. Richfield Gas Storage Sys., 59 FERC ¶ 61,316, 62,166-68 (1992). Lack-of-market-power studies filed in FERC proceedings also can support market-based storage rate authorizations to Natural Gas Policy Act of 1978 (NGPA) intrastate pipelines and to Hinshaw intrastate entities [15 U.S.C. § 717(c)], including local gas distributors. J. Michel Marcoux, “Too Easily Overlooked: Three Rivers Intrastate Pipeline Exemption,” 16 Natural