FERC, CFTC Monitoring Month-Long Escalation in Gas Prices
FERC Chairman Pat Wood said Wednesday that the Commission and other federal regulators were closely monitoring the month-long escalation in prices for natural gas, but he declined to speculate about whether market manipulation may be the driving force.
FERC and the Commodity Futures Trading Commission (CFTC), which have developed a "close operating relationship," had a closed meeting with commissioners and staffs in December to discuss the upward swing in gas prices, he told reporters during a press briefing in Washington, DC. But Wood did not divulge any substantive details.
"If there are issues that require further review by our Commission or their Commission [CFTC] that can be made public, they will be. If they're not, then you won't hear from us. If we need some help from Congress, we will mention what we need," he said somewhat cryptically.
Sources close to the CFTC review said that so far the agency has not found any "abnormal concentration" of gas futures contracts in the hands of traders that would signal that the latest price run-up was the product of manipulation. The CFTC keeps close tabs on the concentration level through the daily reports its gets on traders who have more than 175 gas futures contracts.
"This was a price move, not a spike. It would be difficult to conceive of a manipulation sustained over that period of time [nearly a month]...It seems very difficult to imagine," said the source. "It's one thing to get the market out of line for 60 seconds. But it's another thing to get it out of line for 30 days."
FERC has been keeping a watchful eye on gas prices since February 2003, when the energy market experienced a short-term "pronounced spike" in gas prices. During that price run-up, Wood noted that the physical prices led the financial market prices on the way up.
"So, [we] had a true scarcity driven response at the end of the cold winter, which is not unusual," he said. The latest price rise "has been much more extended in time," with the financial market prices leading the physical prices on the way up. "So you've got more of an expectation about future developments driving [the] price today," which "at this time in the winter may not be unusual," Wood noted.
Separately, Wood was asked whether FERC planned to mandate the reporting of prices on natural gas trades to index publishers. "I don't know that it's inevitable," he told reporters. He indicated the issue would be further explored in March when the agency plans to survey energy companies that submit data on trades to index publishers.
Initial reports suggest that the Commission's new price-reporting standards, which govern the behavior of the data providers and index publishers, have had a "chilling effect" on the gas industry, causing companies to quit reporting prices out of fear of enforcement action by either the FERC or CFTC.
"I'm under no illusion that everybody is just thrilled to death about what the basic standards that FERC set forth are," Wood said. The CFTC's enforcement actions against several energy companies for the reporting of fake pricing information "are probably sobering to a number of CEOs [who] are saying that the risks of getting swept up into this are not attractive."
Wood was quizzed about the future of the proposed Millennium Pipeline in the wake of last month's Commerce Department ruling that essentially has put the Lake Erie-to-New York City pipeline on hold (see Daily GPI, Dec. 17). He said he planned to meet with the head of the pipeline this week. "So, I will probably have something to say after I visit with him."
Lastly, Wood noted that the agency hopes to change the regulatory structure for gas storage to make investing in new projects more inviting. This was high on the Commission's agenda in the New Year, he said.