Order 678 (Market-based Storage)

June 19, 2006, the Federal Energy Regulatory Commission (FERC) adopted new regulations that reformed its approach to authorizing market-based pricing of storage service.  In the context of regulations that already permitted market-based pricing premised on an absence of market power, FERC liberalized its market-power analysis to permit consideration of close substitutes to gas storage in defining the relevant product market. 

This reform will help protect against denying applications for market pricing because of an overly narrow definition of the relevant market. 

FERC also adopted new regulations to implement section 312 of the Energy Policy Act of 2005, which permits authorization of market-based storage rates for new storage capacity – even when the storage providers do not demonstrate a lack market power – in circumstances where the applicant can nevertheless show that consumers will be protected from market power abuse.  

By encouraging expansions of storage capacity, Congress and FERC expect these regulations to reduce natural gas price volatility and improve adequacy of gas supply during periods of peak demand.  In adopting these regulations, FERC resisted proposals to foreclose out of hand applications for market-based rate authority by storage providers that are affiliated with pipelines.