News 
2006
| Statement: November 16, 2006 | 
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| Docket Nos: RM05-23-001 and AD04-11-001 | |
Chairman Joseph T. Kelliher's statement on rate regulation of certain natural gas storage facilities
and Northern Natural Gas Company
"The past year has witnessed significant volatility in natural gas prices.
A year ago, we were struggling with record gas prices. One year
later, prices have fallen significantly. While overall price
levels have fallen, price volatility remains.
FERC has taken a number of steps to reduce price volatility in natural gas markets
and provide greater assurance we can meet peak demand. We have acted to strengthen
our natural gas infrastructure, improve access to domestic natural gas supplies,
and increase our liquefied natural gas import capacity. We have encouraged greater
efficiency. We have encouraged hedging, which can reduce exposure to price volatility.
We are considering exercising our new price transparency authority.
One way to reduce natural gas price volatility is to expand natural gas storage
capacity. We have done that by reforming our market based rate policies, and
demonstrating flexibility in our cost based rate policies.
There is a need to expand gas storage capacity. There is no question that we
have not reached the physical limits of our gas storage capacity. We have significant
untapped potential. Yet, gas storage capacity has expanded by only 1.4 percent
since 1988. Pricing reforms can help develop untapped storage capacity, to the
benefit of consumers and the markets themselves.
Congress sent a clear signal in the Energy Policy Act of 2005 that it wanted
FERC to be more flexible with respect to market based rates for new storage capacity.
The final rule responded to Congress's recognition of the need for more gas storage
capacity, by reforming FERC's market power analysis developed under our preexisting
statutory authority, as well as by implementing our new Energy Policy Act authority.
The final rule took two approaches. First, it modified our traditional market
based rate analysis for storage to better reflect competitive alternatives and
substitutes: available pipeline capacity, local gas production, and liquefied
natural gas imports. Essentially, the final rule held that storage gas is not
a discrete product, but competes with other natural gas. Second, the final rule
implemented our new authority under the Energy Policy Act to approve market based
rates, notwithstanding market power, if necessary and in the public interest,
and if FERC assures adequate protection.
In Northern Natural, we conclude that the company met the requirements of the
final rule implementing our new Energy Policy Act authority. We held that the
project is in the public interest, that market based rates are needed, and that
consumers are adequately protected. Perhaps most significant was the fact that
under the open season, the storage capacity is fully subscribed, which eliminates
any ability to engage in withholding. In fact, most of the capacity is subscribed
for 20 years."
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