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FERC Proposes Quarterly Natural Gas Price Reporting

The Federal Energy Regulatory Commission last Thursday issued a notice of inquiry (NOI) on whether to require quarterly reporting of FERC-jurisdictional next-day and next-month transactions under the Natural Gas Act in order to increase transparency in the wholesale natural gas market.

The initiative would for the first time require buyers and sellers to submit the prices of individual transactions. Under the Commission's Order 552, first issued in 2007, traders in the wholesale market voluntarily report aggregated totals of various types of transactions annually (see NGI, Dec. 22, 2008). The initial effort was directed at assessing the extent and viability of the industry's use of published prices, such as those published by Natural Gas Intelligence, for indexing its transactions.

"Much of the information available to the Commission and natural gas market participants is aggregated and therefore does not provide full market visibility or price transparency. Market participants lack a complete understanding of the actions that produce the prices that are reported to various indices. Increased confidence in these indices requires greater transparency to assure prices are a result of fundamental supply and demand, and not the result of manipulation or other abusive market conduct."

The FERC inquiry asks a series of questions on how best to enhance transparency and surveillance of gas markets, covering issues such as the scope and types of transactional information that should be part of the quarterly reports, what types of possible public dissemination of information would be appropriate and what would be the burden on market participants to provide the information. Comments are due 60 days from publication of the notice in the Federal Register.

Thursday's NOI for the natural gas industry is based on Section 23 of the Natural Gas Act, which Congress in the Energy Policy Act of 2005 used to direct FERC to "facilitate price transparency." The Commission said it now has identified additional areas of the natural gas market "where increased transparency may be helpful for market participants to better understand the market activities that produce the prices that are reported to indices and to assist the Commission in detecting, and ultimately deterring, market manipulation."

The gas NOI is the latest in a trend at the Commission to get more deeply into the business of policing the electric and natural gas markets. In another action last week FERC suspended for six months the electric market-based rate authority of JP Morgan Ventures Energy Corp., for submitting false information to the Commission regarding power market transactions.

This past year it created a new Division of Analytics and Surveillance in its Office of Enforcement to conduct surveillance and analyze transactional and market data to detect potential manipulation, anticompetitive behavior and other anomalous activities in energy markets. Its enforcement activities have been more focused on the power market and on the regulated natural gas pipeline transportation market since the Commission has more access to price and transaction information in those markets.

Since the Commission finalized its market reporting process for natural gas in 2008, laying down strict rules for publishers and marketers who participate in the voluntary daily and monthly spot market price surveys, there have been no reports of any misdeeds. Companies have been reporting annual aggregated trading data starting with information from 2008, and the Commission has issued survey reports each year on the natural gas purchase and sales volumes in total, by company, and amounts indexed or settled by fixed prices (see NGI, July 18, 2011; June 29, 2009).

The natural gas industry and the price publishers cooperated with FERC in setting up the new rules for price reporting in order to preserve the market following the collapse of Enron and much of the rest of the natural gas trading market in the early 2000s in a morass of FERC and Justice Department accusations and convictions for market manipulation. (Do a search on NGI's website for Enron.) It remains to be seen whether FERC's initiative to mandate reporting prices on individual transactions will destroy the current voluntary system that guides the market on a daily basis.

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