Four leading natural gas producer and industrial groups last Thursday pledged unwavering support for the continuation of published gas price indexes, while at the same time expressing their disdain for a governmental takeover of the process. Similarly, two Sempra Energy utilities favored improving the price indexes rather than tossing them out and starting from scratch.

In post-technical conference comments filed at FERC, the Natural Gas Supply Association (NGSA), Independent Petroleum Association of America (IPAA), the Process Gas Consumers Group (PGC) and the New Jersey Large Energy Users Coalition said they were not ready to jettison published price indexes, and likened trader manipulation of the indexes to just another “bump” along the road in the development of North American gas markets. “This bump needs attention, but we have yet to be convinced that recent events should trigger either wholesale rejection of the current reporting mechanisms or imposition of a federally managed data-collection and index-reporting system.”

The four groups urged FERC “not to lose sight of the fact that the price indices have worked well in the past and can, with appropriate attention, work well again.” Platts has published price data for more than 15 years, Natural Gas Week for more than 17 years and Natural Gas Intelligence for nearly 20 years, they noted.

“These companies have been significant participants in the sea changes of the last two decades and we should allow them to continue applying their experience and knowledge to improve their processes, while we explore other alternatives in case additional measures are deemed necessary,” they said.

The Sempra Energy utilities, Southern California Gas (SoCal Gas) and San Diego Gas & Electric (SDG&E), said they supported a number of the proposals now on the table — from publications, FERC and the Committee of Chief Risk Officers — to improve the quality and transparency of prices and information reported to index publishers.

In backing these proposals, however, the utilities said “no suggestion is intended that prior indices did not generally reflect market prices, only that the process can and should be improved.” The aim of Sempra Energy is the same as that of a number of others — “to restore confidence in the integrity and accuracy of gas price indices.”

While they welcome some FERC oversight of price-reporting process, the NGSA, IPAA, PGC and New Jersey coalition said they objected to government assuming the role of index developer. “We continue to believe that the gas price data collection and index reporting functions should not be taken over by the federal government…We are concerned that a federal agency may not be sufficiently nimble to collect and analyze this amount of data on a daily basis,” they noted.

“We have watched [the Energy Information Administration] struggle with the data collection and reporting of the weekly storage report — a report that is released once each week and results in the reporting of one net injection number…If an agency were to take it [the price index] over, and was inadequately prepared, the consequences to the natural gas industry could be far-reaching and very damaging,” they believe.

“Given the fact that the gas price collection and index reporting function involves the collection of data on a daily basis from hundreds of sources and, in order to be useful, must result in the daily publication of pricing information for some 70 pricing points, we are skeptical as to whether any federal agency is adequately staffed or technologically prepared to take on this responsibility.”

The four groups were adamantly opposed to being required to report counterparty information (identities of a buyer and seller involved in a transaction). As an alternative to this reporting requirement, “we urge the industry to consider granting an index developer the right to conduct spot checks and request counterparty information when reported data is suspicious or questionable.”

But the Sempra Energy utilities said they were willing to submit both counterparty and buy-sell information to publishers, subject to the execution of “appropriate confidentiality agreements” and changes to the confidentiality terms of existing agreements with suppliers. Since the start of the year, the price and data submitted by SoCal Gas have been “centralized through its back office” to guarantee “accuracy and completeness.” SDG&E suspended the reporting of prices in December 2002, but it said it expects to resume the practice.

Last Monday, the NGSA, IPAA and PGC joined the Interstate Natural Gas Association of America (INGAA) and the American Gas Association (AGA) in calling on FERC to explore further the role of self-regulatory organizations (SROs) and other independent third parties in restoring public confidence in reported gas prices.

The NGSA, IPAA and PGC, in their written comments to FERC, made clear they were interested in SROs only if public confidence was not restored to published price indexes.

In a joint letter to FERC Chairman Pat Wood, the five associations representing a cross-section of the gas industry asked the agency to “promptly hold an educational workshop” to focus on the SRO method for collecting daily prices for gas trades.

The associations’ request came less than three weeks after the Commission held its technical conference to consider reforms to the current system in which energy companies report gas prices to trade publications, which then compile indexes. Publishers told FERC they already have taken steps to protect their indexes from trader fraud in the future, but some critics are calling for a complete overhaul of the price-reporting system.

“To continue our progress, we urge FERC to follow up the conference with a workshop structured to address how other commodity markets perform price discovery with a focus on independent third party or self-regulatory organizations (SROs) performing price-data collection,” wrote the gas trade groups in their letter.

The focus of the trade associations’ interest is the SRO — “how it would work [and] how it would protect the confidentiality” of traders reporting prices, said Martin Edwards, INGAA vice president of legislative affairs. By requesting the workshop, “it doesn’t mean that the groups are 100% going to support [an SRO],” he told NGI.

“I don’t know [if] they’re ready to make that kind of a value judgement yet,” said Edwards. The gas industry just wants to see how SROs work in other commodity markets, and whether it “might work for us too.”

“We are not at the point of embracing an SRO, we are just intrigued by it,” echoed Dena Wiggins, PGC’s general counsel. “There was sufficient discussion of SROs at the [FERC] conference that we believe we need to learn more about it.”

At the FERC conference in late April, Robert Levin of the New York Mercantile Exchange indicated that the exchange could provide SRO services for free. He said an SRO would “validate and substantiate” the pricing and other data supplied by traders prior to its being disseminated to price-index publishers (see NGI, April 28). He recommended that an SRO be subject to some oversight by FERC or the Commodity Futures Trading Commission, or both, saying this would provide “the public with the confidence that [the information] is authentic.”

FERC staff at the time also expressed interest in studying the SRO concept further.

In their post-conference comments, the NGSA, IPAA, PGC and the New Jersey coalition outlined some of their concerns about SROs. “Based on additional information we have gathered since that conference, we are somewhat concerned that an SRO, as constituted in other industries, may be too complex for the needs of the natural gas industry.”

For the one-day workshop, the groups suggested that FERC’s Office of Market Oversight and Investigations invite representatives from either the academic arena or third-party price collection entities from other industries to conduct training sessions and give overviews on how their organizations work.

With respect to third-party data collectors, specifically SROs, the gas industry wants to know “who participates; whether participation is voluntary or mandatory; how the entity is funded (both for initial start-up costs as well as ongoing expenses); whether counterparty information is required; and, if not, how the data-collection process is verified without it; whether the government or some other entity has oversight authority over the data-collection entity…; whether the third-party entity was developed through industry consensus or mandated by statute; whether the third-party entity has audit capability…; and the role of the federal government in the day-to-day operations of the third-party entity,” the gas associations told FERC.

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