Finding that Enron Storage Co. lacks market power, the Federal Energy Regulatory Commission (FERC) has approved its request for market-based storage rates for firm and interruptible natural gas service under section 311 of the Natural Gas Policy Act of 1978, subject to conditions (Docket No. PR94-2-000). Enron proposed that rates for individual storage services be determined by the marketplace and agreed to by itself and the customer through arm's-length negotiations.
The FERC has said it will only grant market-based rates in individual cases where applicants demonstrate that they lack significant market power or have adopted conditions that sufficiently mitigate market power. In Transok, the FERC stated that "market power is defined as the ability of a seller to profitably maintain prices above competitive levels for a significant period of time." When figured in the aggregate (including capacity held by Enron affiliates), the FERC found that Enron's share amounted to less than nine percent of the existing storage capacity in its market area. The FERC concluded that Enron had appropriately defined its market area because it included storage competitors in the Gulf Coast region as well as storage owned or operated by pipelines directly connected to Louisiana Resources Pipeline Co. Ltd. Partnership, Koch Gateway, and Acadian. (Enron connects with these pipelines.)
The lack of market power finding was based partly on Enron's lack of local distribution (LDC) affiliates outside of Louisiana, but the FERC ruled that if Enron or its parent or affiliates acquire an LDC outside of Louisiana, Enron must give the FERC notice so it may reconsider its finding. The FERC said that it would also reexamine its approval of market-based rates if Enron's current market status underwent significant change.
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