Producers and major natural gas customers have called on FERC to limit the scope of a proposed daily capacity posting requirement to only those intrastate pipelines that are connected to major market hubs in the United States, while Texas regulators argued that FERC was overstepping its authority by interfering in the Lone Star State's intrastate market. Others urged the agency to take steps to maintain the confidentiality of the companies that will be required to report natural gas sales and purchases under the proposed rule.
Yates Petroleum Corp. and Agave Energy Corp. asked the Federal Energy Regulatory Commission to consider revising a proposed rule, which was issued in April, to require posting of daily capacities and volumes by only those intrastate pipelines that have receipt or delivery points connected to 13 major market hubs served by both interstate and intrastate pipelines [RM07-10, AD06-11]. The proposed rule in its current state would apply to all intrastate pipelines (see NGI, April 23).
An intrastate natural gas pipeline should be any "facility that delivers or receives natural gas at one of the major market hubs...regardless of whether it qualifies as an intrastate pipeline under the Natural Gas Policy Act of 1978, a Hinshaw pipeline, a local distribution company or a gather," said Yates and Agave.
The 13 hubs are Carthage, Henry Hub, Katy-Enstor, Katy-DEFS, Mid-Continent, Moss Bluff, Nautilus, Perryville, Aqua Dulce, Waha-Long Star, Waha-Encina, Waha-El Paso and Waha-DEFS. But the hubs included in this group "need not and should not be static," the two producers said. "If after a suitable test period the Commission finds that the less-invasive alternative proposed herein is not sufficient to its purposes, it may institute a subsequent proceeding to explore expanding the scope of the daily posting requirements to include a more expansive group of market hubs and/or intrastate pipelines that do not interconnect with any market hub."
The Edison Electric Institute (EEI) and Alliance of Energy Suppliers agreed that FERC, in determining which intrastate pipelines should be required to report and post data, "should focus on hubs and other areas where there are enough transactions to actually improve market transparency." Focusing on hubs and other intrastate pipelines with "significant market impact" will ensure that transparency is increased, while keeping the burden reasonable and protecting confidential business information, they said, adding that pipelines with one or a few customers should be excluded from the reporting requirement.
The Natural Gas Supply Association (NGSA), which represents major producers, suggested that the intrastate pipeline posting requirement be applied to points downstream of gas gathering systems and only to those intrastate pipes that are significant in size with existing electronic telemetering.
The Texas Railroad Commission (RRC) argued that FERC's proposal to require intrastate pipes to post daily flow data exceeds its authority and "invades the RRC's long-established and recognized exclusive jurisdiction over intrastate pipelines." In light of FERC's "success in restoring confidence in natural gas price indices, there is no need to impose potentially burdensome and unnecessary reporting requirements on historically nonjurisdictional entities," the state regulator said.
But a group of more than 100 municipalities within the service area of TXU Electricity Delivery (now Oncor) begged to differ. "The RRC and the Texas Pipeline Association (and its members) want the FERC to abandon its inquiry into the intrastate pipeline systems and have the FERC believe the Texas intrastate market is sufficiently competitive and transparent. As end-use customers, [municipals] do not share this opinion and urge the FERC to continue in its efforts to ensure more price transparency in the intrastate market."
This second round of comments (the first were in July) was in response to FERC's notice of proposed rulemaking (NOPR) that seeks to 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. It also would 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.
In addition, 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. 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 NGSA expressed concern about the potential harm to competitive markets that could occur if the identity of a filer of an annual transaction report (or individual company data) is made public. "The annual aggregated transactional information could cause competitive harm to the market by potentially revealing corporate proprietary trading strategies of a company, particularly for companies with geographically concentrated trading or supply portfolios," it said.
"For example, the report would reveal the percentage of a company's portfolio that is index-based or fixed-price-based and the percentage of natural gas sold in the monthly and daily markets, potentially harming the company's procurement strategy and risk profile." The NGSA cited two ways that the risk could be avoided: 1) by not publicly disclosing the individual company annual transaction report filings, or 2) by redacting the identity of the market participant making the filing.
Honeywell International Inc. supported the confidentiality of reporting information as well. "Honeywell has no problem if the Commission aggregates all data and then releases it in its aggregated form, as long as each market participant's data submittals are kept confidential," said the company, a major feedstock user of natural gas for the production of ammonia and fertilizer.
It also asked FERC to clarify that purchases of natural gas by end-users from state-regulated local distribution companies do not have to be reported.
The Northwest Industrial Gas Users (NWIGU), which represent 35 industrial end-users of natural gas in the Pacific Northwest, asked the Commission to significantly raise the reporting threshold, which would trigger the sales/purchases' reporting requirement, to at least 136 million MMBtu annually. FERC has proposed a threshold level of 2.2 Bcf annually.
"The extremely low threshold proposed in the NOPR...poses significant problems for gas consumers who arrange their own purchases of gas commodity and interstate pipeline capacity," the industrial users said.
"Both Morgan Stanley Capital Group and the Interstate Natural Gas Association of America (INGAA) have endorsed a de minimis level equivalent of 200 Nymex natural gas contracts in order to avoid capturing market participants that have no effect on market prices. This threshold is one which NWIGU would also support as well reasoned." If FERC chooses not to adopt NWIGU's proposed threshold hike or that of Morgan Stanley and INGAA, NWIGU suggested that FERC should "simply exempt transactions involving end-users."
Moreover, the industrial group believes FERC should give "serious consideration" to restricting the reporting requirement to only sellers in the wholesale gas market, not buyers. "If sellers and buyers both have reporting obligations, the Commission risks having transactions reported twice," it noted.
NWIGU and others also asked the Commission to include a "safe harbor" protection in the NOPR so that companies will not be penalized for inadvertent errors associated with the posting or reporting of information.
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