FERC has exercised its new authority under the Energy Policy Act of 2005 (EPAct) that allows it to authorize market-based rates for storage services even if an applicant has market power.

The Federal Energy Regulatory Commission (FERC) approved market-based rates as part of an order certifying Texas Gas Transmission LLC's proposed 8.25 Bcf expansion of its Midland Gas Storage Field in Muhlenberg County, KY. Although Texas Gas was unable to satisfy the traditional requirement for market-based rates -- show that good storage alternatives exist for customers in the proposed geographic market to prevent the pipeline from exercising market power -- FERC concluded that Texas Gas met the new standard under EPAct.

EPAct added Section 4(f) to the Natural Gas Act, which allows an applicant possessing market power to obtain market-based rates if the Commission determines the project is necessary for the public interest and customers are adequately protected from manipulation. FERC approved a final rule implementing the EPAct provisions in June 2006 (see NGI, June 19, 2006).

"We find that there is a demonstrated additional need for natural gas storage in the area to be served by Texas Gas' proposed project," the FERC order said [CP07-405]. "We find that market-based rates are necessary to encourage Texas Gas to construct the entire 8.25 Bcf of storage capacity proposed...We [also] find that Texas Gas' open season, which included an incremental cost-based reserve price for the proposed storage capacity, provided adequate protection for the potential storage customers that ultimately signed binding precedent agreements for capacity."

And "we...find that Texas Gas has shown, with one exception...that existing customers will not be subject to any additional costs, risks or degradation of service resulting from the new services," the order said.

"The one concern we have regarding protection of Texas Gas' cost-based rate customers involves Texas Gas' proposal to offer a new market-based rate interruptible storage service from the incremental capacity. We find this aspect of Texas Gas' proposal to be unclear." FERC ordered the pipeline to file within 45 days an explanation of how the offer of market-based interruptible storage service will be made without affecting customers of cost-based interruptible storage service.

In EPAct, FERC Chairman Joseph Kelliher said Congress sent a "clear signal" to FERC to be more flexible in awarding market-based rates to promote storage development, which has lagged over the past two decades.

Under the expansion Texas Gas, a subsidiary of Boardwalk Pipeline Partners, proposes to replace two existing 2,000-hp compressor units with one 5,488-hp unit at its Midland 3 Compressor Station; build approximately 11 miles of 30-inch diameter mainline loop from the discharge side of the Midland 3 Compressor Station to a point near Hanson, KY; and drill seven horizontal injection/withdrawal wells (see NGI, July 9, 2007).

The Midland Gas Storage Field is the largest storage field on the Texas Gas system, with a certificated capacity of 135.1 Bcf, working gas capacity of 55.7 Bcf and peak-day deliverability of 860 MMcf/d. The proposed expansion would add 8.25 Bcf of firm storage capacity and 92.2 MMcf/d of firm deliverability.

Texas Gas seeks to expand the field in two phases, with the first phase going into service by Nov. 1 of this year to provide 5.31 Bcf of additional storage capacity, and the remainder of the project going into operation by Nov. 1, 2009.

Texas Gas said the expansion will provide additional storage service to Anadarko Energy Services and CIMA Energy Ltd., as well as satisfy the need for storage capacity that will be created by the eastern leg of the Rockies Express Pipeline, known as REX-East.

Texas Gas owns and operates a 5,900-mile interstate gas pipeline that provides storage services and transports gas from the Gulf Coast to markets in the South, Midwest and Northeast.

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