Implementing a safe harbor provision assuring that those who report prices to published price surveys will not be prosecuted for inadvertent mistakes would be best achieved through a policy statement, industry representatives told the Federal Energy Regulatory Commission Wednesday at a technical conference.

Representatives of the major trade associations said assurances from FERC would encourage more of their members to report prices, thereby achieving the primary goal of adding reporting liquidity and improving the reliability of the published indexes.

The testimony came from members of the American Gas Association, the Natural Gas Supply Association, the National Energy Marketers Association (NEM) and the Process Gas Consumers, who earlier had worked out a consensus agreement for at least the short term. (see Daily GPI, June 24). FERC had quickly indicated its support in the short term for the earlier consensus and followed up with Wednesday’s technical conference to address requests from the industry for indemnity from prosecution for innocent mistakes. (see Daily GPI, June 26)

The safe harbor is aimed at “getting people comfortable” with reporting, Craig Goodman, head of NEM said Wednesday. He and others noted that companies get no direct benefit from reporting and it often involves costs to set up the process. They need encouragement to get involved in the process. While not exactly an incentive to report, a safe harbor provision removes the disincentive of becoming inadvertently caught up in criminal investigations. The greatest incentive, that will ultimately show up on everyone’s bottom line, is that of maintaining the success of price discovery and in turn, of the market.

Some of their members want a safe harbor provision in writing before they will report, the industry reps said, urging a policy statement as the most expeditious means getting buyers and sellers to re-enter the price reporting maelstrom. Support appeared to focus on the proposal of the Committee of Chief Risk Officers (CCRO) which would provide protection from prosecution for “non-criminal” errors for those who follow the standards set out in the industry consensus. That consensus called for companies to have a process in place for the full and accurate reporting of arms-length, fixed price transactions from non-traders.

CCRO Director Mike Smith said his members would like to see the safe harbor provision endorsed by both FERC and the Commodity Futures Trading Commission (CFTC), which also has been conducting investigations of natural gas trading, demanding information from the trade publications which publish prices. “It would make it much more effective if it were co-authored,” Smith said. CFTC representatives, which have sat in on other conferences on the price indices, were not present at Wednesday’s meeting because of time constraints, but FERC Staff said the CFTC would be apprised of the information collected at the conference.

Some witnesses, most notably those who have proposed new data collection systems, attempted to use the addition of a safe harbor provision to gain reconsideration of their proposals for a mandatory system with counterparty information included. They claimed that adding an additional provision opened up the industry consensus to new trade-offs. They also urged the Commission to set a timeline and procedure for monitoring the short term solution, including setting up a rulemaking to consider further actions.

Industry reps, however, pointed out that a safe harbor is not an additional provision to the consensus agreement, it simply would guarantee that those who abide by the agreement will have a rebuttable presumption that they acted in good faith. This is not unlike the U.S. Consitution which set the fundamental precept — innocent until proven guilty. Because of the mass of investigations that have emanated from government agencies and the Justice Department recently, market participants want a specific acknowledgement from government agencies that they recognize that is still the law of the land.

Rhone Resch, representing the Natural Gas Supply Association, suggested it was too soon to set a process for a long term solution. A “Phase II” could be considered “down the road, if in a year we still have problems.” He and others urged the Commission to give the industry time to work through changes in the current system. Progress in regularizing the reporting process already has been made and the system is being refined. With the new reporting procedures and the publishing of volumes by the trade publications, the market could evolve to much more robust trading around fewer points. Resch said it’s possible there won’t have to be further action.

The key, Goodman said, is improving liquidity in the price reporting, so that any errors or attempts to mislead the market will be sand-bagged by an abundance of data from multiple market participants.

Questions were raised as to how smaller companies or end users, who may have large volumes but only have one person doing the marketing or purchasing function, could comply with the standards of conduct, particularly the one requiring non-traders to do the reporting. A Process Gas Consumers representative urged that barriers to entry in the reporting process be kept low. It also was noted that an industrial buyer, even if he bought for multiple plants, or a small producer selling only his own gas would not be under FERC’s jurisdiction.

FERC staff said it would like to see written comments on the safe harbor provision by the end of next week.

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