The Federal Energy Regulatory Commission (FERC) Wednesday gave the natural gas market a short-term window of opportunity — through the winter — to straighten out the market’s private and confidential price reporting and index-setting system by reporting their gas transactions to index developers or face more onerous government-mandated price reporting requirements.

The action was the result of a successful campaign for a consensus by a united industry, working with the Commission and trade publications, that pulled gas price reporting out of the fire of onerous government orders and mandates handed down on the same day for potential transgressors in the western energy crisis (see related story).

Chairman Pat Wood urged industry to “get back in reporting business so we get more of the volumes that are actually being transacted reported to existing price collectors… This should be a no-brainer.”

While holding off on a mandate, the Commission proposed amendments to blanket certificates that would among other things, require those who report prices to publications to do so fully and accurately. If enacted, it also would require certificate holders to report to the Commission as to whether they participate in the price surveys or not, “so can find out why they’re not.” The amendments are open for comment, but commissioners and staff made clear this was a short-term carrot and stick approach, and that longer term the rules could change if it was deemed necessary.

Wood also noted the Commission would work swiftly on a safe harbor provision or “liability blanket” for reporting mistakes that might be made by participants acting in good faith. Industry was invited to an open meeting July 2 to help formulate the safe harbor provision. Action on the safe harbor provision grew out of FERC’s technical conference Tuesday, which capped months of conferences and negotiations among industry, FERC staff and the price publishers with a consensus (see Daily GPI, June 25).

Wood said the actions amounted to applying “a band-aid to a bleeding wound.” And while the commissioners and staff would be discussing where to go in the longer term, “these quick, early steps gets the patient out of ER, and then hopefully, maybe we’ll never see him again; but we may have to follow up on some of these issues.” The issues center on access to data and the veracity of the platforms. He endorsed the standards put forward by the industry coalition, “possibly with some changes.”

“I really hope people roll up their sleeves and get to work,” Commissioner Nora Brownell said. Calling for a surgical, disciplined approach, she said “there is no question this is what it’s going to take to build the future and get the confidence back and to go forward. It’s not whether we do it, it’s how we do it and how good we are at it that supports development of the marketplace. I really hope that people get real about what it’s going to take to effectuate the changes that we need to make to assure us and others that these markets are transparent and they are going to work.”

The Commission rejected, at least for the short term, a variety of proposals for full mandatory reporting of transaction information to an independent entity authorized and overseen by FERC.

The proposed amendments to blanket certificates, similar to others proposed for the electric power side, besides requiring completeness and accuracy of price reports and revealing whether companies were reporting or not, also include prohibitions on price and market manipulation, and compliance with codes of conduct. Companies must also retain transaction records and records of their submissions to index developers for at least three years. Penalties for failing would be disgorgement of unjust profits and possible suspension or revoking of marketing certificates. Third party complainants would have to file their complaints within 60 days after the quarter in which the violation occurred or if it was discovered later, then 60 days after the discovery. Staff said many of the proposed rules were similar to those outlined in staff’s earlier report on the western market.

Steve Harvey, deputy director of FERC’s Office of Market Oversight and Investigation, reporting Wednesday on the previous day’s meeting on the formation of price indices, said there had been substantial progress in restoring confidence to the published indices by the industry and the trade press. FERC will act quickly to do its part by issuing a safe harbor statement to protect data providers in the event of simple errors in reporting. He said there was a very clear separation between short and long term solutions. “We hope voluntary participation in price discovery can be encouraged; the draft orders provide potential platforms for further action regarding reporting to the extent action is necessary.”

The industry consensus reached by association representatives of producers, marketers, local distribution companies, pipelines, large end users and municipals represented by the Coalition for Energy Market Integrity and Transparency, called for price collectors to adopt a corporate code of ethics and to make it available to the public, disclose price collection and disseminating methodology, verify price data from the providers of the data through methods such as matching buys and sells, follow up with companies in the event of any discrepancies, have sufficient monitoring and surveillance systems in place to identify quickly any attempts at price manipulation, notify FERC if it’s unclear whether erroneous information was supplied intentionally, submit an annual certified audit to ensure compliance, and provide otherwise confidential data to FERC or another federal regulatory agency if it is requested for investigative purposes.

The publishers, NGI, Platts and Natural Gas Week basically agreed to all of the above, with the caveat that data would be supplied for specific, targeted government or legal investigations where there are clear indications of wrongdoing, but not for broad “fishing expeditions.” Also, as to a surveillance role, NGI and Platts essentially said they would report to the Commission if they found clear evidence that parties were committing a crime by intentionally submitting false information with the object of manipulating the indices and the market. NGI noted that while it had problems with becoming a surveillance arm of the federal government, it could report a crime in the same manner that any private citizen would report observed criminal activity.

As for companies and others that submit gas price information, the industry consensus requires them to do the following: adopt a corporate code of ethics as well, and make it available to the public; prohibit traders from reporting index information; provide data on all “reportable” transactions (these include bilateral, arms-length transactions between non-affiliate companies in the physical cash markets); report each transaction separately, providing information on price, volume, buy/sell indicator, delivery/receipt location, transaction date and term (next day or next month); and submit to an annual certified audit of the process used to report gas transactions.

Three key items were left on the cutting room floor. The industry group could not agree on whether there should be a single or multiple collector/developer of price index information, mandatory or voluntary reporting by all buyers and sellers of natural gas, and whether companies should be required to submit counterparty information to index developers.

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