While there was general agreement by all but a few responding so far to FERC’s latest request for comments (PL03-3) that there is an overall improvement in natural gas price reporting and price transparency, several companies had suggestions to fine-tune the system .

One of the largest traders, BP Energy, notes that “strides have been made in enhancing the price reporting and index publication process. However, that does not mean that additional progress is not possible.”

BP points out that while liquidity is strengthening, it is not at levels seen in 2000-2001. This, however, is partly due to the loss of a number of trading firms and credit and regulatory pressures. “Liquidity will not simply follow from a greater confidence in price reporting. Rather, an improvement in the general level of liquidity will only occur through greater market participation.”

“Restoring confidence in the price reporting process is only one component in creating stronger energy markets,” the major producer and trader said.

The assignment by the publishers of pricing points to tiers, denoting trading volumes, has helped with transparency, but BP would like to see more precision in defining what trades go into a particular pricing location. For instance, the Houston Ship Channel pricing point appears to cover a broad area with many pipelines. “Yet, it is not possible from the description to identify and determine which gas deliveries are to be reported, or are, in fact reported.”

BP also believes the index developers should not use physical basis transactions (physical sales transactions tied to the price of the expiring Nymex futures contract) in their monthly calculations.

Another large trader, Entergy-Koch Trading (EKT), which said it will resume reporting shortly, disagrees, saying the inclusion of physical basis trades in index development is more in line “with the way products are traded and priced in other energy markets where financial and physical products trade together.”

EKT said it has seen a “noticeable improvement in price transparency over the last four to five months.” And it also believes that “price index developers should work with market participants to make changes to the price index system that would improve the usefulness of published prices as a price discovery tool.” One possible change would be to weight monthly data collection toward the last day of settlement or have it reflect daily pricing activity throughout the month.

Responding to FERC’s questionaire, Entergy-Koch said, as did a number of others, that FERC’s safe harbor policy for inadvertent errors had helped it to the decision to resume price reporting. Nicor Gas agreed, noting some of the burdens faced by companies reporting prices.

“First there remain many questions about which data should be reported particularly when pricing or volumes change after the reporting period closes. For example, actual volumes may vary from reported volumes; final pricing may differ from reported pricing; and transactions may shift from fixed price to index-based, or vice versa, after the fact. Each such question of interpretation creates a sense of regulatory risk.”

Nicor nevertheless, said it has seen improvement in the published indexes, the most important being “in the quality and consistency of the data submitted to index developers. Second, index developers are providing more data on the depth and breadth of markets, allowing Nicor Gas and others to be more informed in their selection of price indices when negotiating index-based contracts. This is critical given the amount of natural gas that currently is bought at index-based rates.”

ConocoPhillips believes the safe harbor would be more helpful if it extended to other agencies besides FERC. The major producer also would like to see the index developers go beyond the tier system to report for each location: the actual number of transactions, number of companies reporting and the actual volume traded at that point.

This was a popular theme. Piedmont Natural Gas also believes the tier system does not go far enough and would like to see the number of transactions that occur at specific points, and Niagara Mohawk would like the actual volumes reported. With volume information available, “the user is in a better position to determine whether it wants to rely on the index price at such points,” Niagara Mohawk said.

The Edison Electric Institute (EEI) complained that the price information supplied by the companies is going into a “black box….Market participants lack access to information related to what percentage of trades are reported and what percentages of trades that are reported are actually used in the creation of the price indices. In fact, in some cases there is not enough information about the volumes of trading, and where trading volume is reporting as low, it is not clear if this is caused by a lack of reporting or price index developers choosing not to use the data that was reported.”

ExxonMobil agreed that more specificity, including the number (but not the names) of counterparties would be valuable. “Like all buyers and sellers, we have a choice of how to price our natural gas transactions and we use the data available on the depth of the index points in making our decisions respecting whether and which price indices to employ. In areas where there are a relatively small amount of data and a limited number of counterparties, we would have potential concerns about the quality of those indices. Again we can choose not to use those indices for which we have such concerns. ExxonMobil prefers to allow the market to naturally evolve as needed.”

National Fuel Gas Distribution Corp. in Buffalo, NY, responding to FERC’s request for comments on price reporting, said it would like to see some of the information the Commission has collected in its two surveys of industry sales/purchasing and reporting practices (PL03-3).

National Fuel said information “regarding the characteristics (e.g., industry segment) of the reporting parties would increase the usefulness of the information index developers are providing so that industry participants can make more informed conclusions about the depth and breadth of gas reporting. This is important since, ultimately, it is the industry participants who decide whether to use price indices in their contracts.”

National Fuel also said that “additional clarification from the Commission simplifying the reporting procedures may help encourage more entities to engage in voluntary reporting and, as a result, increase the reliability of price indices.”

Atlanta-based AGL Resources, whose subsidiary Sequent Energy Trading buys and sells gas, said that not only does the company have “a high degree of confidence in the quality of the current price indices,” it always has had confidence in the indices.

“The company [AGLR] never believed that the price indices reports were not reflective of the depth of the market because the market has continuously consummated transactions in the normal course of business throughout the entire period under review in reliance on such indices,” AGL said.

AGL’s Sequent does not currently report prices to index developers, but it does a large amount of trading on the IntercontinentalExchange, so its trading contributes to price discovery through ICE.

Goldman Sachs, with its affiliate trading arm, J. Aron & Company, like a number of others, is looking for more additional information from the price reporting process.

“In particular, we believe that disclosure of counterparty identity is important to trade verification and elimination of double counting, at least for so long as index publishers are dependent on data providers unilaterally submitting transaction data.”

Goldman Sachs also would like to see daily reports on activity each day of the bidweek period. “The ability to watch and contribute to index price discovery all day or throughout bidweek would significantly enhance the ability to manage index exposure.”

Meanwhile, Questar Energy said that for certain index pricing points, it believes there is still a lack of 100% reporting and unless everyone reports all of their fixed-price trades, any indices will continue to be questionable.

There was general support for the continuation of the voluntary system of price reporting to publishers from a number of companies, and from the American Gas Association, the Process Gas Consumers and the associations and energy companies in the Market Price Reporting Action Coalition. In the comments appearing on the FERC website through Monday, only one appeared critical of the entire current process.

The Delaware Municipal Electric Corp. believes reporting of all transactions should be mandated, including affiliate transactions, although those should be designated as such. Codes of conduct should be stiff and penalties severe. Also, the Delaware municipal maintains, FERC should regularly audit and monitor the submissions of the companies, the computation process and the index developers.

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