A proposed threshold for annual natural gas purchases and sales that would trigger a new reporting requirement for companies came under close scrutiny in comments filed last week at FERC, with interstate pipelines, gas marketers, major producers, utilities and industrial customers calling for a change or clarification. Independent producers were among the few industry sectors to support the proposed threshold.

The comments were in response to the Federal Energy Regulatory Commission’s (FERC) notice of proposed rulemaking (NOPR), which was issued in April, that seeks to establish a threshold requiring buyers and sellers of more than de minimis amounts of natural gas (2.2 Bcf annually) to report the numbers and volumes of relevant transactions for the previous calendar year. It also would require intrastate gas pipelines to post on the Internet the daily capacities and volumes of natural gas flowing through their major receipt and delivery points (see NGI, April 23).

In addition, the FERC would require each holder of blanket marketing certificate authority or blanket unbundled sales services certificate authority to notify the Commission annually as to whether it reports its transactions to publishers of electricity or natural gas price indexes and whether the reporting conforms to certain standards [RM07-10]. The proposed rule did not call for mandatory reporting of gas prices to published indexes.

The proposed rule would allow FERC to annually estimate for the first time the size of the physical natural gas market in the U.S., to assess the importance of index pricing in that market and to determine the size of the fixed-price trading market, which forms price indexes. This would make it easier for the Commission to assess market forces and detect market manipulation, it noted.

The de minimis amount of 2.2 Bcf/d annually equates to less than one standard New York Mercantile Exchange futures contract per day, or 1/10,000th of the nation’s annual physical volumes, according to FERC. The Interstate Natural Gas Association of America (INGAA), which represents interstate gas pipelines, called for the Commission to raise this threshold level.

“INGAA agrees with Morgan Stanley’s comments that the…level proposed by the Commission is far removed from any legitimate concern about the exercise of market power, even in a specific geographic region. As a result, it would capture too many market participants that can have little, if any, effect on the market price of physical trades of natural gas,” INGAA said.

It believes that “Morgan Stanley has made a reasonable case for increasing the de minimis threshold to the equivalent of 200 natural gas futures contracts per day, based on the ‘large position’ reporting levels employed by the Commodity Futures Trading Commission to identify trading activity that has reached a volume level that may warrant further oversight.”

The National Energy Markets Association (NEM) also called for FERC to raise the de minimis threshold to exclude retail transactions. It noted that the Energy Policy Act of 2005 gave the agency the authority to obtain pricing information from “any market participant,” but it left the term undefined. FERC has interpreted “any market participant” to include companies that are both jurisdictional to the agency and others (retail).

“The retail transactions of a supplier with end-users should not be intended to be included in the reporting requirement. Requiring suppliers to submit retail transaction data would not advance the purpose of this Commission or Congress to assess and capture information about the size of the wholesale market, and indeed could lead to duplicative reporting that would be contrary to this purpose,” NEM said. It urged FERC to redefine the exemption to exclude retail transactions.

The American Forest & Paper Association (AF&PA), which represents the gas-consuming forest, paper and wood products industry, asked FERC to take similar action. “AF&PA…supports the Commission’s efforts to require reporting of information relative to wholesale sales and purchases of gas that may influence price formation in the wholesale market,” but it should “modify the [proposed] rule to make clear that it does not require reporting of retail purchases by end-users,” the group said.

“AF&PA believes that the collection of pricing and volume information from industrial facilities, which are geographically dispersed and none of which have the ability to impact the wholesale price even at their location, will not be useful, even if, when aggregated as a single company on a nationwide basis, purchases by these facilities may collectively exceed the proposed de minimis threshold,” it noted.

“If the Commission is concerned that a single large buyer at one location may have sufficient buying power at retail to indirectly effect price formation and trades at wholesale, then the Commission should consider applying the de minimis threshold to retail purchase only on a facility-specific basis,” the AF&PA told the agency.

“AF&PA is extremely skeptical that wholesale gas indices or prices are substantially affected by retail purchases, even at a single location, at or even substantially above the proposed de minimis level.”

Like NEM, the Natural Gas Supply Association (NGSA), which represents major producers, and the American Gas Association (AGA), a gas utility group, separately called on FERC to more narrowly define the transactions that would be subject to the threshold. Specifically, they want only buyers or sellers engaged in physical gas transactions (above the threshold level) at “wholesale and in interstate commerce” to be required to file reports for the previous calendar year. Retail sales or volumes transported for others under retail choice programs should be exempted from the reporting requirement, the AGA said.

The Independent Petroleum Association of America (IPAA) supported as “reasonable” the agency’s proposed threshold for defining de minimis market participants that are exempt from reporting. “There may be strong arguments as to why the level should be increased, as a means of reducing the reporting burden on small market participants without compromising the quality of data collection. IPAA urges the Commission to carefully consider the arguments that other parties may raise to increase the de minimis threshold. However, the IPAA strongly believes that the 2.2 Bcf annual threshold should not be lowered.”

The NOPR also proposes that intrastate gas pipelines post on the Internet the daily capacities and volumes of natural gas flowing through their major receipt and delivery points; some are calling for FERC to expand this requirement to include interstate gas pipelines.

“INGAA opposes the suggestion that interstate pipelines be required to report actual flow gas volume data. The gas scheduling information that interstate pipelines currently post to their websites more accurately reflects the volumes of flowing gas that is being marketed in interstate commercial transactions on their systems,” the interstate pipe group said.

“Including actual flow information on interstate pipelines in the calculation of the volume of gas available…would be misleading and counterproductive because, on any given day, that figure would include volumes used purely for pipeline operations — volumes that do not have an impact in the commercial markets,” it explained.

While much information on scheduled volumes and flow tracking on interstate pipelines is already available, “the Commission may wish to consider a requirement for the public EBB [electronic bulletin board] posting of existing interstate flow volume information,” the NGSA said. “The Order 637 requirement for interstate pipelines to post capacity and ‘scheduled’ volumes is important to the market, but actual flow data could lead to an even more accurate and near real-time indication of underlying market supply and demand fundamentals. This is particularly true where there is a heavy reliance on ‘no-notice’ volumes and pipeline imbalance tolerances,” it said.

“On heating season peak days or days with wide intra-day weather swings, no-notice volumes can be significant; therefore, scheduled volumes are not a proxy for physical flow and, thus, do not necessarily provide an accurate picture of underlying market fundamentals,” the NGSA noted.

“While it is true that interstate pipeline postings do not necessarily reflect flows for ‘no-notice service, no-notice activity generally does not reflect the current gas trading activity that the Commission is attempting to make more transparent through the NOPR,” INGAA countered. “Rather, as the Commission has recognized elsewhere, the volume of no-notice gas typically reflects storage withdrawals.”

The AGA called on FERC to clarify that the proposed posting requirement for intrastate pipelines will not apply to Hinshaw pipelines, local distribution companies or distribution companies with Commission-approved service area determinations under the Natural Gas Act. “These entities operate in downstream markets served by interstate pipelines and, with few exceptions, there are no market centers on these systems that would provide information needed to assess the natural gas supply and demand picture beyond what could be and is currently being obtained from the interstate pipelines or is available from other sources of contemporaneous data,” the gas utility group said.

As part of its proposal, the Commission suggested that each holder of a blanket marketing certificate under Section 284 (pipeline marketing affiliates) or a blanket unbundled sales service under Section 284 (pipelines making unbundled wholesales) notify the agency whether it reports its transactions to publishers of electricity or natural gas indexes and whether the reporting complies with certain standards, INGAA said.

“The Commission should clarify that de minimis blanket certificate filers need file only ‘basic identification information and whether it reports transaction information to price index publishes, and whether any such reporting complies with the regulations governing reporting to price index publishers,” the interstate pipeline group said.

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