Market-based Pricing for Gas Storage: Two Steps Forward, One Back
A new Federal Energy Regulatory Commission (FERC) rule allows new underground natural gas storage facilities to charge market-based rates under expanded circumstances. In CERA's view the rule, which has the difficult challenge of striking a balance between encouraging storage development and protecting consumers, represents two steps forward in providing more incentives for additional storage development, but in fact only a modest boost to developers, taking one step back:
* Market-based rates will be allowed under certain circumstances, even if the storage developer is unable to show that it does not have local market power.
* For developers seeking market-based rates under the existing format, which requires that the developer demonstrate a lack of market power, the FERC will now consider close substitutes to gas storage services for the market power analysis.
* Applicants not filing a market power analysis must demonstrate that their projects would not proceed unless granted market-based rates. Yet the test devised by the FERC may only serve to screen out projects that are viable with market-based rates. Successful applicants will be subject to more reporting requirements than those filing a market power analysis.
* For successful applicants that file a market power analysis, if their market share exceeds 10 percent, they may be subject to additional reporting requirements.
