FERC grants first market-based gas storage rates request

Nov. 27, 2006
The Federal Energy Regulatory Commission on Nov. 16 granted an interstate natural gas storage operator market-based rates for the first time.

The Federal Energy Regulatory Commission on Nov. 16 granted an interstate natural gas storage operator market-based rates for the first time.

Under a new approach adopted in Order No. 678, issued on June 16, FERC said that Northern Natural Gas Co. may charge market-based rates to initial shippers submitting winning bids and signing precedent agreements for firm delivery service from a planned expansion of the company’s underground storage aquifer field in Redfield, Iowa.

The agency also clarified the order and denied requests for a rehearing on it. Order No. 678 established more-flexible criteria for evaluating proposals for market-based pricing of gas storage services. It implemented Section 312 of the 2005 energy policy act, which FERC adopted to make gas prices less volatile and to encourage development of more domestic storage capacity, Chairman Joseph T. Kelliher said.

“There is a need to expand gas storage capacity,” Kelliher said. “There is no question that we have reached the physical limits of our gas storage capacity. We have significant untapped potential; yet gas storage capacity has expanded by only 1.4% since 1988,” he maintained. “Pricing reforms can help develop untapped storage capacity to the benefits of consumers and the markets themselves.”

Northern Natural Gas plans to expand the Redfield storage facility, which it developed in 1954, by about 10 bcf, with a peak withdrawal rate of 175 MMcfd, according to FERC.

Based in Omaha, the company began in 1930 as a small gas utility serving 44 Nebraska, Iowa, and Kansas communities. It added pipelines, exploration and production, and other assets until 1985 when its parent, InterNorth, merged with Houston Natural Gas Co.

The combined company became Enron Corp. After Enron’s collapse in late 2001, Northern Natural Gas became part of Dynegy Corp. in February 2002 before being acquired by MidAmerican Energy Holdings Co., part of Berkshire Hathaway Inc., the following August. It currently focuses on gas transmission, storage, and distribution.

FERC said Northern Natural was the first operator to request market-based rates under Order No. 678’s criteria. The order states that a provider may receive market-based rates for storage and related service at a specific facility placed in service after Aug. 8, 2005, if FERC determines that such rates are necessary and in the public interest to encourage capacity construction, and customers are adequately protected.

The commission said Northern Natural met those qualifications based on facts presented in the case. Existing storage customers will not be affected by the market-based proposal, it added.

Northern Natural will be required to separately account for all costs associated with facilities to provide the market-based services. This will ensure that existing customers do not subsidize the expansion project’s cost, FERC said.