FERC should act to improve price reporting and transparency in the natural gas market by supporting appropriate standards for energy companies to follow when reporting trade data to publishers and pledging not to penalize companies that follow those standards, Platts said in a filing Friday (AD03-7-001).

“A return to robust price reporting in which the industry has confidence will not be possible without the Commission’s prompt action,” the energy trade publisher said, stating its position in advance of the Federal Energy Regulatory Commission’s scheduled technical conference Tuesday. The industry and publishers have made significant progress in tightening standards and increasing participation in the price surveys, but some companies have refused to report until “there is further clarity on industry and government expectations and guidelines,” it noted. The filing cited Entergy-Koch and Reliant Resources as making public statements to this effect, and it said similar views have been offered by others privately.

The Commission, in a policy statement, could endorse the best practices for price reporting established by the Committee of Chief Risk Officers (CCRO) and the code of conduct of the Electric Power Supply Association — “even if only for a specified interim period.” Platts recommended procedures laid out by Duke Energy Trading and Marketing in a filing June 16 (PA03-6) as a model.

Platts endorsed a long- and short-term approach to price surveys, calling on the Commission to bolster the current published indexes in the short term. The publisher said it was willing to explore providing information to FERC for targeted investigations “consistent with its obligations to its sources and its rights and protections under the First Amendment.” Long-term, FERC may need to set up a repository so companies can report transactions to the publications and to FERC so the Commission will be able to closely monitor prices itself.

Platts said reporting of transactions and prices continues to improve, with 97% of the companies submitting monthly data and 91% of those reporting daily data providing the data at the transaction level. Seventy-six percent of companies reporting monthly are submitting data from a back office. Total volumes for monthly data still are less than half of those reported at the same time last year, but are more than double those reported at the market’s low point last November.

Platts itself will contribute to transparency by starting July 1 to assign pricing points to three tiers according to volumes and number of companies reporting. The top tier will include points with volumes of at least 100,000 MMBtu/d and at least 10 trades; the middle tier will include points with volumes of 25,000 to 99,000 MMBtu/d and at least five trades; and the bottom tier will include points with volumes below 25,000 MMBtu/d and fewer than five trades. For the top two tiers, indexes will be created using straight quantitative analysis. For the third tier where actual transactions are scarce or non-existent, “Platts may assess prices using factors — including differentials to other locations, trading in the daily market during bidweek, physical bid/ask spreads, derivatives trading and other information.”

Eventually Platts may record actual transaction volumes at individual points. While it does not define which points are considered “liquid,” the tiered system provides “more transparency until trading becomes more robust at currently thinly traded points. By informing users of the relative depth of trading at points, Platts is enabling them to form their own opinions about liquidity.”

The publisher acknowledged that mandatory price reporting would result in more dependable published prices, noting that if the Commission considers the current market a crisis, it could invoke on an emergency basis the broad investigatory and rulemaking powers it has under Section 14 of the Natural Gas Act to mandate reporting. The Commission could impose quarterly reporting requirements similar to those it already has imposed on electricity sellers.

Also, publishers could set up audit procedures to verify their handling of the data and aggregation. Platts endorsed free market competition among pricing publishers as a much better safeguard on the legitimacy of the published prices than regulatory oversight and authorization of index publishers. The latter would do nothing to inhibit wash trades or inaccurate data submissions. “It bears repeating that the crisis of confidence now being experienced has little to do with index publishers’ work and everything to do with the quality of data submitted to the publishers.”

The filing includes a number of arguments against setting up a self-regulating organization (SRO), including the length of time necessary to set one up (as much as seven years in one instance) and the cost. While SRO supporters have suggested publishers would pay to receive the data from an SRO, “publishers such as Platts could end up competing with an SRO, not being aided by it, and thus would not be willing to assume SRO costs. And to date, the industry has not shown its willingness to fund an SRO through a volumetric surcharge or other mechanism.”

The Platts filing includes its table of pricing points, along with their tier ranking for November 2002 and April, May and June of this year; its guide to providing data to its survey; the Committee of Chief Risk Officers’ proposed confidentiality agreement; and Platts’ proposed confidentiality agreement.

An industry coalition, including most of the major natural gas trade organizations, currently is working on a “consensus” agreement, which was expected to be completed Monday and form a large part of the technical conference discussion Tuesday.

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