FERC Issues Final Rule Regarding Market-Based Rates For Certain Natural Gas Storage Facilities

Originally published July 11, 2006

In the Energy Policy Act of 2005 ("EPAct 2005"), Congress mandated market-based rates for new natural gas storage facilities even where the applicant is unable to demonstrate that it lacks market power if FERC finds that "market-based rates are in the public interest and necessary to encourage the construction of the storage capacity in the area needing storage services [and] customers are adequately protected." The Federal Energy Regulatory Commission ("FERC") has issued a Final Rule regarding market-based rates for underground natural gas storage facilities to implement this provision of EPAct 2005. The new rule changes FERC’s market-power test to include pipeline capacity and other non-storage alternatives as possible substitutes for storage, and it authorizes the use of market-based rates for new storage capacity under certain circumstances even if the applicant is unable to demonstrate that it lacks market power.