State public utility commissions should reverse their prohibitions on fixed term contracts and allow local distribution companies (LDC) to create portfolios of short-, medium- and long-term contracts, Linda Breathitt, a former FERC commissioner and Kentucky state commissioner, said Monday.

“Allowing gas prices to flow through under a fuel adjustment clause may have been great when prices were $2.50-$3.00,” but not in the current market, Breathitt told the LDC Forum in Atlanta.

State commissions also should be educating the public, through town meetings and other means about the gas supply situation. “Consumers don’t understand,” and won’t accept it when their gas bills go from $40 a month to $200, she said.

Breathitt led off a full morning of discussion on price indices with spokesmen for pricing publications and major natural gas associations.

NGI’s price editor Mark Curran followed up on Breathitt’s theme of a balanced portfolio, saying LDC purchases that did not include some fixed price transactions should not be deemed prudent. “A measure of prudence should be that an LDC is an active participant in the market and not just a price-taker,” Curran said. As the consumer’s representative, the LDC should be exerting pressure on the market and trying to get the best price it can, he added.

The Federal Energy Regulatory Commission could take the lead in this, Breathitt said, noting that the Commission previously had directed the California Public Utilities Commission to enter into longer term contracts.

While industry representatives said they had come a long way toward reaching a consensus on the issues involved in price reporting and index formation, Larry Foster, an editorial director at Platts, said some companies have not been forthcoming with the cooperation their representatives had promised at FERC’s April 24 meeting. “As we try to implement agreements, we are having significant problems at the company level with attorneys and chief risk officers, who say they see virtually no upside to providing this data to us and a lot of downside.

“It’s time for FERC to take some kind of initial action to provide some kind of guidance,” Foster said. While the market of reported fixed price transactions has come a long way from its low point last November, it appears to have plateaued in the last couple months below an optimal level.

It was noted that the Commission has promised to issue an “options” paper on the subject this Friday. Also, there is a meeting of representatives of various segments of the industry on June 17 to try to reach a consensus.

Don Santa, executive vice president of the Interstate Natural Gas Association of America, and a former FERC commissioner, agreed there was a need for FERC to say what is the minimum it will accept, whether reporting should be mandatory or voluntary, and whether it should be handled by an independent third party. He noted there could be two solutions, one short-term and another for the long term.

Skip Horvath, president of the Natural Gas Supply Association, said a paper was currently circulating among the industry that showed agreement on about 80% of the issues in price reporting and aggregating.

Not part of the 80% is whether companies reporting transactions should include counterparty information. Horvath said producers were opposed to routinely providing “commercially sensitive” counterparty information, which could be subject to a Freedom of Information Act request. And while they have no problem cooperating by providing data to government agencies investigating specific incidents, they object to indiscriminant “fishing expeditions.”

Foster also objected to government fishing expeditions, saying that while Platts had cooperated with the Commodity Futures Trading Commission (CFTC), providing 900 pages of documents in response to subpoenas, it was fighting in court a broad, multiple-year, multiple-company demand for data.

Foster noted that Entergy-Koch has publicly announced it will not provide data to the surveys because of the uncertainty about where it will appear. Foster and Curran both said they were getting the same message privately from other companies.

Arthur Corbin, president of the Coalition for Energy Market Integrity and Transparency (EMIT) said counterparty information was necessary in order to verify transactions. He disputed Horvath’s contention that buy-sell information should be adequate for verification. Corbin threatened that if problems of price manipulation occurred again, FERC would be held to account by the Congress.

Mike Smith, executive director of the Committee of Chief Risk Officers, also warned industry not to lose sight of the threat of action in the current Congress, which is considering an energy bill.

And he warned “those sitting on the sidelines” who say that by doing so they are not taking a position. That doesn’t follow. “You’re not really sitting it out. You are taking a position.” He urged companies to “get back in,” and participate in a solution before the government takes over and “does it for us.”

Corbin also said there should be mandatory reporting for larger companies above a certain threshold. Questioned, he said he did not know if any members of the American Public Gas Association, which he also represents, currently do fixed price transactions and report them to the publications. He said most of them are smaller companies without trading capabilities.

The panelists were questioned as to whether, if there were mandatory reporting of fixed price transactions, more market participants would be driven to indexing rather than report transactions. Horvath said he thought there would be more indexing. Corbin said he thought all transactions, even indexed transactions, should be reported.

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