FERC last Thursday issued a final rule and a proposed rule to give regulators additional information regarding natural gas prices and physical flows, allowing them to evaluate the composition and effectiveness of the index pricing regime that governs the domestic wholesale market and measure physical natural gas flows at various locations and in the aggregate.

The final rule would require market participants to file a new form No. 552 detailing the aggregate volumes of annual natural gas purchases and sales to help the Federal Energy Regulatory Commission (FERC) and others in the market understand how price indexes are formed and used, as well as give the agency an idea of the volume of gas sales transacted in the physical market. Reporting will be required of sellers that either hold blanket sales certificates or buy or sell more than 2.2 million MMBtu annually, according to FERC [RM07-10].

Parties must report the following information about their physical gas transactions for the previous year 1) total volume of sales and purchases; 2) the volume of transactions that were priced at fixed prices; and 3) the volume of transactions that were reported to price index publishers. Market participants also must report whether they sell gas under a blanket sales certificate. The reporting requirement takes effect May 1, 2009 for calendar year 2008, the agency said.

This rule is FERC’s first exercise of its transparency authority that was provided by Congress under the Energy Policy Act of 2005, said Chairman Joseph Kelliher, who added that it “[was] not necessarily the last step that we’re taking.”

Commissioner Suedeen Kelly said the information provided under the rules would help the Commission determine “how robust” the natural gas price indexes are and for the first time, give them a good idea of the physical size of the natural gas market.

The proposed rule would require interstate pipelines and certain “major” non interstate pipelines to post daily capacity information, scheduled flows and actual flows that affect the wholesale interstate market [RM08-2]. The agency is seeking comment on its proposal within 45 days.

FERC emphasized that the posting requirements would not apply to all non interstate pipes, but rather only to “major” non interstate pipelines that make a “significant contribution” to the natural gas flows across the United States.

The final rule is important because “it will allow us to assess the physical size of the wholesale natural gas market, allow us to assess the relative importance of fixed price index transactions, as well as the relative size of traders,” Kelliher said. The proposed rule is key as well, he noted. “Physical flows are very important to understanding gas market operations.”

The two rules combined will provide consumers with “faith and confidence” in the wholesale gas markets, said Commissioner Marc Spitzer.

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