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FERC Notes Improvements, Confidence in Price Indices; Leaves Tariffs in Place

November 22, 2004
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FERC Notes Improvements, Confidence in Price Indices; Leaves Tariffs in Place

The Federal Energy Regulatory Commission in an order approved last Thursday noted steady improvement and increased confidence in published price indices, listing 10 publishers that meet its criteria for reliability and whose indices may be reliably used as part of Commission-approved tariffs. FERC also closed the dockets on 13 tariffs containing formulas based on published indices, leaving those in place, but stating that in any new tariffs the specific index points used would have to meet its liquidity requirements.

The Commission said significant steps have been taken, both by companies reporting prices of wholesale energy transactions and developers of natural gas and electricity price indices, to increase confidence and certainty in wholesale energy markets. The Commission also said it will continue to monitor wholesale price formation to make sure there is accurate, reliable and transparent market price information.

Commission Chairman Pat Wood said he had been the "hard liner of this crowd on this issue," but had been convinced by the facts the Commission had put together, with the cooperation of the industry, showing the indices were capturing a significant amount of price data.

FERC staffer Ted Gerarden said a survey in March showed 55-65% participation. Wood said he would like to "see that up in the eighties and nineties," and said the Commission could update the survey for its June report on the market. It was noted that the percentages cooperating with the surveys are in the nineties for the larger traders, with the no-shows mainly among smaller companies doing few fixed price trades.

An industry study of price submissions last January showed that Natural Gas Intelligence (NGI) and Platts captured an estimated 70-75% of reportable fixed price transactions, daily and bidweek.

Responding to questions from the commissioners, Gerarden said some companies were not reporting because of the "perceived risk," but that risk was decreasing as the Commodity Futures Trading Commission was winding down its investigations. Also, the safe harbors issued by the CFTC and FERC, exempting inadvertent errors by companies which meet the Commission's guidelines for reporting processes had helped to increase participation.

However, most of the companies not reporting are the smaller companies, for whom the cost of putting the standard reporting processes in place is prohibitive. Also, for the smaller firms, putting a price reporting process in place is pretty far down on the priority list for IT resources, Gerarden said. In addition some companies trading at the less liquid points are afraid their trades would be identifiable, and since FERC's guidelines call for a reporting company to report all its transactions, this is a barrier to participation.

In terms of evaluating participation, "we need to make sure we are evaluating significant players and acknowledging that at some locations we shouldn't actually want, perhaps, that vulnerability in the marketplace," Commissioner Nora Brownell commented. It would be worthwhile in any further pursuit of the participation issue if the Commission pins down obstructions and explores "to what extent we and the CFTC have not addressed the issues of certainty that they need."

Wood suggested the Commission could call for comments in the [PL03-3] docket as to problems that FERC could address. Brownell said she believed there still was an overhang from the 2000-2001 investigations that was affecting the decisions of some companies to participate.

Commissioner Suedeen Kelly suggested that in any future surveys it would be valuable to "divide up our statistics, as to which ones should be reporting or which ones it would be reasonable to hope would report, versus the ones that have reasonable excuses for not reporting."

The Commission's July 2003 policy statement set out standards for voluntary reporting of energy transaction data and for developing price indices for natural gas and electricity transactions. On May 5, 2004, in a report titled "Report on Natural Gas and Electricity Price Indices," Commission staff identified four options for the Commission's future involvement in price formation issues, including dropping the subject altogether, instituting a system of mandatory price reporting or encouraging greater reliance on trading platforms (see Daily GPI, May 6). FERC chose instead to continue to monitor price indices and adopt criteria under which price indices could be used in jurisdictional tariffs.

At Thursday's meeting the chairman said that at the outset of the Commission's investigation, "I could have sworn that we would end up with a data hub," and he still hopes it "will go that way eventually." But he made clear it is not on the Commission's agenda. He said the revival of the price index reporting system was a clear example of FERC's stewardship and government in the public interest which involved leadership, involvement of industry with examples set by industry leaders, and open public discussion.

Since the policy statement was issued, there has been a steady increase in the number of companies reporting their transactions as well as an improvement in the systems by which prices are reported, FERC's order said. Furthermore, FERC said, publishers of price indices have taken steps to improve the amount of information provided to their customers. Several publications, Daily GPI and GPI Bidweek included, have begun publishing the exact volumes and number of transactions used to set the indices at each pricing location.

Thursday's action approves submissions by 10 price index developers, NGI included, who the Commission said fully or substantially met standards outlined in the policy statement for publishing price indices. In addition, the Commission said the hourly, day-ahead, weekly and month-ahead indices published by these developers could be used in jurisdictional tariffs if the specific points used meet minimum average criteria for the volume or number of transactions.

In early 2003, the Commission began examining how price indices reflect and influence wholesale energy prices, all with the goal of improving the accuracy, reliability, and transparency of wholesale price indices. In addition to the policy statement and staff report, the Commission has held technical conferences and workshops, conducted two surveys of industry practices in price reporting, and issued behavior rules requiring those who report transaction data to do so in accordance with the standards of the policy statement.

The tariff dockets on price formulas closed by the Commission on Thursday included: Aquila, ER03-1271; Colorado Interstate Gas, CP03-7 & CP03-301; Cheyenne Plains Gas Pipeline, CP03-302, CP03-303, & CP03-304; Kinder Morgan Interstate Gas Transmission, RP03-245; Natural Gas Pipeline Co. of America, RP99-176; North Baja Pipeline, RP02-363; Northern Natural Gas RP03-533; PG&E Gas Transmission, Northwest, RP03-70; Portland General Electric, CP01-421; Transcontinental Gas Pipe Line RP03-540; PacifiCorp, ER04-439; Northern Natural Gas, RP03-398; and B-R Pipeline, CP01-418.

Meanwhile, the American Public Power Association (APPA) issued its own update Wednesday on natural gas prices issues. The group conceded that FERC investigations into natural gas price indices have resulted in improvements to the indices, but the Commission "still has not resolved major issues concerning data confidentiality, reporting of counterparty information, access to publisher's data, and mandatory reporting of natural gas prices." The report is available at http://www.appanet.org/pressroom/ReleasesList.cfm?sn.ItemNumber=2085 .

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ISSN © 2577-9877 | ISSN © 1532-1266
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