Ohio Gas Association

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Rate Regulation of Natural Gas Storage Facilities
A Salt Caverns B Aquifers C Depleted
Reservoirs Source FERC adaptation from PB-KBB
Inc.
Ohio Gas Association 2006 Sales / Marketing
Seminar July 18, 2006 Berne L. Mosley, Director,
Division of Pipeline Certificates
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The Long Road to a Final Rule
Market Based Rates for Storage 1996 Alternative
Rate Policy Statement allowed market based rates
for storage services where a lack of market power
could be demonstrated Successes Along the
Way Since then, over 40 proposals for market
based rates were received, with all but four
granted
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Winding Along the Road
Bump in the Road Red Lake Gas Storages proposal
in the underserved Southwest region was
denied Staff Report on Storage and the Storage
Technical Conference Staff issued a report that
examined underground natural gas storage and
convened a follow-up technical conference
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Moving into the Fast Lane

• Section 312 of the Energy Policy Act of 2005
  Commission may authorize market based rates even
  where a lack of market power can NOT be
  demonstrated
• Caveats
• Commission must find that market based rates
  are in the public interest and necessary to
  encourage the construction of storage capacity
  in the area needing storage services, and that
  customers are adequately protected
• Commission must periodically review that market
  based rates are just and reasonable

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The Light at the End of the Tunnel

• Rate Regulation of Natural Gas Storage Facilities
  (aka the Storage NOPR and Rule)
• The NOPR (issued last December) had two main
  parts
• First, it proposed to re-evaluate how the
  Commission examines potential market power in the
  context of natural gas storage and
• Second, it proposed to implement the new Natural
  Gas Act section 4(f), enacted as part of the
  Energy Policy Act of 2005.

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From NOPR to Final Rule

• Over 40 comments on the NOPR were filed from all
  sectors of the natural gas industry
• The final rule, largely adopts the proposals made
  in the NOPR with two substantive changes

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Changing the Status Quo - Revisions to Current
Screens
Redefinition of the Relevant Product
Market Non-storage products may serve as good
alternatives to storage when screening for market
power Good Alternatives Available pipeline
capacity, local gas production, LNG, and released
transportation capacity Caveat The burden is on
the applicant to show that these alternatives can
be substituted for storage
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Varying from the NOPR

• The NOPR wouldve required those authorized to
  charge market-based rates to file once every five
  years to demonstrate their continued lack of
  market power
• The Final Rule did not adopt this requirement
• BUT for storage providers with market shares
  greater than ten percent, the Commission will
  consider in individual cases whether periodic
  reports are necessary

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FERC Implements Section 312 of EPAct 2005 / NGA
4(f)

• Eligibility Requirements
• Only applies to new storage capacity related to
  a specific facility placed in service after the
  date of enactment expansions to existing
  storage facilities do qualify (different from the
  NOPR)
• Required Showing
• Applicants must show
• that market based rates are necessary to
  encourage the construction of storage capacity
  in the area needing storage service and
• how customers will be protected from market
  power abuses

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Section 312 / NGA 4 (f)

• FERCs Responsibility
• Section 4(f) also requires the Commission to
  review periodically whether the market-based
  rate is just, reasonable, and not unduly
  discriminatory or preferential.
• The Final Rule notes that FERC will rely on
  existing reporting requirements and publicly
  available data, along with staff monitoring of
  storage markets to meet the periodic review
  requirement

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Customer Protection A Balancing Act

• Protecting the Customer
• Its up to the applicant to propose a
  methodology best suited to its project
• Protection From Market Power Abuse
• Two approaches
• conditions that limit the withholding of capacity
• rate protections (e.g. price caps, recourse
  rates, and other pricing and rate design
  alternatives)

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Questions?