Marketers: FERC Data-Collection Effort in CA a Fishing Expedition

A proposed initiative by FERC to collect an inordinate amount of price and volume information from transporters and sellers of natural gas into the California market is nothing more than a fishing expedition by the agency, marketers charge. The Commission proposed the reporting requirement last month in response to mounting pressure from Capitol Hill for regulatory action in the volatile gas market.

The Electric Power Supply Association (EPSA), Occidental Energy Marketing Inc. and Tractebel Energy Marketing Inc. contend that FERC's effort would duplicate ongoing state investigations into gas prices, impose an "extremely burdensome" requirement on pipelines, marketers and local distribution companies (LDCs) for information, and force companies to turn over "proprietary and confidential" data that could expose them to "potential financial harm." They urged the Commission to narrow the scope of its proposed information-collection effort considerably. Moreover, the marketers questioned whether FERC had the authority under the Natural Gas Act (NGA) to demand data from companies over which it lacked jurisdiction, and to investigate natural gas prices.

But the American Public Gas Association (APGA), which represents municipal gas distributors, is fully behind the Commission's effort. "In California, natural gas prices have been consistently and substantially higher than the national average... The Commission has correctly noted that market forces have not alleviated the high natural gas prices in California in a timely or predictable manner. This suggests, among other things, that the fundamental marketplace principle of supply invariably increasing to meet demand is being frustrated," the group said [RM01-9].

President Bush has said the California gas market warranted further review, and designated new Commissioner Pat Wood last month to head up the effort, the APGA noted. Wood and Commissioner Nora M. Brownell are scheduled to travel to California today to confer with Gov. Gray Davis about the state's gas market. Wood on at least two occasions has acknowledged that something doesn't appear to be quite right with the market, and Commissioner William Massey last week told a Senate committee that FERC needed to do a lot more work with the California gas market. FERC currently is exploring allegations that El Paso Natural Gas and its merchant power generation affiliates engaged in illegal practices to drive up gas prices at the Southern California border during 2000 (see NGI, June 18).

Occidental Energy Marketing Inc., which markets gas produced by its affiliates within California, doesn't dispute that a price investigation may be warranted. Its objection primarily is with the manner in which FERC proposes to gather information. "Not only does the Commission take a `shotgun' approach to data gathering, it has admitted that it may not have the authority to do anything about the information it receives," Occidental said. Moreover, while "much of the information it may receive under this rule may provide guidance as to `what' is happening," it may not give FERC any clue about "why."

Occidental suggested that the Commission take a "more limited approach" and focus on examining issues that are subject to its jurisdiction, such as capacity-release transactions on interstate pipelines that serve the California market. "Not only would such an inquiry clearly be within the purview of the Commission's jurisdiction, it would also lend itself to a much more focused approach." FERC already has proposed re-instituting the rate cap on capacity-release transportation to the state border. The Commission's decision to remove the cap as part of Order 637 last year contributed at least in part to the significant runup in gas prices in California last year, critics claim.

The EPSA, which represents independent energy marketers, also recommended that FERC limit its actions in California to those that are within its jurisdiction, such as approving new interstate pipeline projects. "The addition of new pipeline capacity and improvements in the natural gas transmission system will often limit or alleviate existing higher prices...Since these factors are under the jurisdiction of the Commission, a continued examination of these issues would better prepare the Commission to respond to any future price volatility."

Also, the group proposed that FERC, rather than initiate its own information-collection effort, use the data from the California investigations that are already in progress. If FERC should decide that it needs to "pursue additional data through a reporting requirement, it should provide for a more narrowly focused set of data and specify a sunset date for market participants," the EPSA noted.

Companies are reluctant to turn over such an enormous amount of information to FERC since it has not provided any "specific guarantees of confidentiality," the EPSA said. The "politically charged California environment heightens the potential for abuse of this information by way of manipulation and misrepresentation."

Tractebel Energy objected to a reporting requirement for marketers that are unaffiliated with interstate pipelines, as well as other non-jurisdictional companies. Unaffiliated gas marketers in California "move prices closer to competitive levels. Moreover, these marketers serve a positive role in enhancing liquidity and competitiveness through their arbitrage role. Accordingly, there is no basis on policy or analytical grounds to collect data from unaffiliated gas marketers," it said.

If FERC should decide otherwise, Tractebel Energy called for it to establish a volume threshold for reporting, "under which only large sellers would report."

The reporting requirements, as proposed by FERC in late May, would target all sellers of natural gas, and interstate pipelines and LDCs that serve the California market. FERC is seeking to gauge what percentage of the volumes destined for California is domestically produced gas sold by marketing affiliates of pipelines and LDCs in sale-for-resale transactions. These are the only sales over which FERC has jurisdiction under the NGA (see NGI, May 28).

Although LDCs and other sellers are not directly subject to FERC's NGA authority, the Commission noted that the law does give it "extensive authority" to collect information from all parties to determine whether there has been a violation of the NGA and to serve as a basis for proposing legislation to Congress.

The Commission proposes to collect the data on a quarterly basis (30 days after the end of a quarter) in a "standardized format." It then "[will] aggregate the data submitted and analyze it promptly" to "determine what action, if any, is warranted" with respect to the California gas prices. Prices in Southern California have been especially volatile in the last couple of weeks, falling to below the $4/MMBtu mark in early June from $15/MMBtu at the start of April. They have since rebounded to more than $7/MMBtu.

In addition to getting a handle on the level of gas sales by pipe marketing affiliates and LDCs in California, FERC is seeking to obtain "an accurate picture of the overall average gas costs being incurred by all purchases of natural gas moving into the California market," as well as "the extent to which the cost of interstate transportation...affects the price for the gas commodity at the California border."

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