A group of natural gas producers, municipal gas distributors and industrial customers has called on FERC to revise its final rule reforming the agency’s storage pricing policies to include more protections for customers. Separately the American Gas Association (AGA), which represents local distribution companies (LDCs), asked the agency to consider a less liberal storage policy in the rule.

“Petitioners strongly support the Commission’s efforts to encourage [storage] infrastructure investments,” but “the final rule needs to go further in providing adequate protections for customers,” said the Natural Gas Supply Association (NGSA), American Public Gas Association (APGA), Process Gas Consumers Group (PGC) and the American Forest & Paper Association (AFPA) in a joint filing Wednesday [RM05-23, AD04-11].

The final rule, which was issued in June, offered two approaches for developers of gas storage facilities to qualify for market-based rate authority. The first approach provides storage developers the benefit of a more expansive definition of the relevant product market that factors in “nonstorage substitutes” to lower the level of market power and increase their chances of obtaining market-based rates. The nonstorage substitutes could include available pipeline capacity, supplies from local gas production, liquefied natural gas (LNG) and released transportation capacity, which would be available to the same customers to be served by the new storage operations.

The second approach, which implemented rules under the new Natural Gas Act Section 4(f) that was added in the Energy Policy Act of 2005 (EPAct), authorizes an applicant to charge market-based rates even if they have market power — if the Commission determines the project is necessary for the public interest and customers are adequately protected from manipulation. The final rule allows “pretty much any storage facility constructed after Aug. 8, 2005” (the enactment date of EPAct) to apply for market-based rates under Section 4(f).

On rehearing, the petitioners called on the Federal Energy Regulatory Commission to fine-tune its decision to expand the definition of the relevant product market, ruling instead that “nonstorage products — such as local gas production, LNG supplies and pipeline capacity under the expanded market power analysis — are not good alternatives for customers that use storage service to physically store gas.”

For customers “desiring to store gas, local gas production or LNG supplies provide no alternative to storage service. Pipeline capacity, whether primary capacity or released capacity on the secondary market, allows a customer to move gas from a receipt point to a delivery point on the pipeline’s system. [But] pipeline capacity does not allow a customer to store gas,” they said.

The AGA echoed that sentiment. “Customers, particularly LDCs, contract for long-term storage capacity primarily to ensure reliability of supply for core retail loads and have no effective alternatives during the terms of such contracts,” the group said.

If FERC should retain its expanded product market test, the agency “should clarify that a market-based rate applicant using a market power analysis that includes local production, LNG supplies or pipeline capacity must show that such nonstorage products are good alternatives for all storage service customers, including those customers that use storage service to physically store gas, before granting market-based rate authority,” the NGSA, APGA, PGC and AFPA petitioners said.

Furthermore, FERC should specify that “in order for a nonstorage product to be considered a good alternative [to storage], it must be available for customers that use storage service to physically store gas during the periods in which…customers seek to inject gas, not just during peak demand periods,” the group said.

They also asked FERC to clarify that storage providers cannot obtain market-based rate authority under the expanded market power analysis for services from existing storage facilities. As an alternative to this, the agency should state that customers of existing storage facilities that obtain market-based rate authority would have the option of having their cost-based contracts grandfathered or being given an early termination right.

Likewise, the AGA urged the Commission to limit the applicability of the expanded market power standard to proposed new storage capacity — either expansions of existing facilities or new storage field projects.

In addition, the NGSA, APGA, PGC and AFPA petitioners called on FERC to require all storage providers with market-based rates that have a 10% or greater market share to file updated market power analyses every five years. The Commission initially proposed this requirement, but dropped it in the final rule.

Moreover, they asked FERC to interpret that the new NGA Section 4(f), which makes storage developers candidates for market-based rates even if they have market power, applies only to new storage caverns, reservoirs or aquifers. The AGA proposed a similar change. It asked the Commission to restrict storage facilities eligible for market-based rates under the new NGA Section 4(f) to new caverns and reservoirs, as originally proposed by FERC.

Finally, petitioners proposed that storage applicants under the new NGA Section 4(f) be required to report at least every five years on the adequacy of the customer protections put into place as a condition for receiving market-based rate authority.

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