[Federal Register Volume 69, Number 48 (Thursday, March 11, 2004)]
[Notices]
[Pages 11619-11620]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-540]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket Nos. PL03-3-000 and AD03-7-000 (Not Consolidated)]


Price Discovery in Natural Gas and Electric Markets; Natural Gas 
Price Formation; Staff Notice of Request for Comments

March 5, 2004.
    Staff issues this notice to provide an opportunity for comments on 
the current state of natural gas and electricity price formation, and 
whether there has been any increase in confidence in natural gas and 
electric price indices. These comments will assist Staff in evaluating 
developments since the issuance by the Commission of the Policy 
Statement on Natural Gas and Electric Price Indices, 104 FERC ] 61,121 
(2003).
    Over the past year the Commission has taken several actions to 
improve the quality of and confidence in price indices that both 
reflect and influence the formation of wholesale prices for natural gas 
and electricity. In Docket No. AD03-7, the Commission's Staff held 
technical conferences on April 24 and June 24, 2003, issued Staff 
discussion papers, and held a follow-up workshop on July 2, 2003, to 
explore the desirability of a ``safe harbor'' for good faith reporting 
of prices to price index developers.
    The conferences and workshops led the Commission to issue the 
Policy Statement in Docket No. PL03-3 on July 24, 2003.\1\ In the 
Policy Statement, the Commission explained what it expects of natural 
gas and electricity price index developers and companies that report 
transaction data to index developers, and created a rebuttable 
presumption that companies that report trade data in accordance with 
the standards of the Policy Statement are doing so in good faith and 
will not be subject to administrative penalties for inadvertent errors 
in reporting.
    The Commission further required, prospectively, that price indices 
used in jurisdictional tariffs meet the criteria set forth in the 
Policy Statement and reflect adequate liquidity at the referenced index 
points. The Commission also directed Staff to monitor the level of 
reporting of transaction data to price index developers and the 
adherence by market participants and price index developers to the 
Policy Statement standards.
    With respect to prospective use of price indices in tariffs, the 
Commission issued separate orders on tariff filings where 
jurisdictional companies had proposed to make changes in indices used 
in the tariff. The Commission accepted and suspended the tariff sheets, 
permitting them to become effective subject to further action by the 
Commission following receipt of a report on the compliance and 
liquidity issues from the Commission Staff.\2\ The reports are due 
April 30, 2004.\3\
    Staff has actively monitored industry response to the Policy 
Statement. In September 2003 Staff sent a survey to 266 companies 
seeking information on their price reporting practices before and after 
issuance of the Policy Statement. To address the liquidity requirement 
of the Policy Statement, Staff held a workshop on liquidity issues on 
November 4, 2003. To evaluate whether index developers have adopted the 
Policy Statement standards, Staff solicited statements from price index 
developers, which statements were filed in January 2004 in Docket No. 
PL03-3-000.
    Meanwhile, on November 17, 2003, the Commission issued two orders 
adopting behavior rules for market participants. In Docket Nos. EL01-
118-000 and -001 the Commission issued its Order Amending Market-Based 
Rate Tariffs and Authorizations, 105 FERC ] 61,218, and in Docket No. 
RM03-10-000 the Commission issued Order No. 644, Amendment to Blanket 
Sales Certificates, 105 FERC ] 61,217. Both of these orders adopt a 
behavior rule requiring that, to the extent holders of market-based 
rate authority and sellers using blanket certificate sales authority 
report transactions to entities that

[[Page 11620]]

develop and publish price indices, they must report such transactions 
in accordance with the Policy Statement.
    The behavior rules orders also directed all market-based rate 
sellers and holders of blanket certificate authority to notify the 
Commission whether or not they report prices to index developers in 
accordance with the Policy Statement. Numerous such notices were filed 
in January 2004.
    Finally, Staff will soon send a second survey to a set of companies 
that buy and/or sell natural gas and electricity in wholesale markets. 
The results of this second phase survey will be an important part of 
Staff's status report to the Commission on price formation.
    As noted, the Commission instructed Staff to monitor ``both the 
level of reporting to index developers and the amount of adherence to 
the standards set forth herein,'' Policy Statement ] 43, and to report 
to the Commission about specific indices involved in certain tariff 
filings. The issues of the robustness of voluntary price reporting, 
price index developer adherence to Policy Statement standards, and the 
reliability of referenced index points all are related to the overall 
progress in improving the quality of price indices and of encouraging 
greater voluntary reporting of transaction data by market participants. 
As a result, Staff intends to report to the Commission on overall 
progress in restoring confidence in price indices and voluntary price 
formation as well as on the adequacy of indices referenced in specified 
tariffs.
    While Staff will shortly conduct the second industry survey to 
determine whether steps taken by the Commission have assisted the 
industry in restoring vitality and confidence in published price 
indices, Staff also provides this opportunity for comments by 
interested parties on changes since the issuance of the Policy 
Statement.

Price Index Developers

    A number of price index developers filed statements in Docket No. 
PL03-3-000 in January. At this time, Staff provides a further 
opportunity for any natural gas or electricity price index developer to 
submit a statement regarding its compliance with the Policy Statement 
standards, or to supplement its previous statement. Specifically, we 
request that index developers file in Docket No. PL03-3-000 (1) a 
statement whether the developer has adopted, or will adopt, the 
standards of Policy Statement ] 33 and (2) a description of the 
developer's practices in each of the five areas identified by the 
Commission in the Policy Statement. The description should include the 
following:
    1. Code of conduct and confidentiality. Provide a copy of the 
public portions of any applicable code of conduct or ethics, along with 
a description of how the public code relates to the treatment of price 
data obtained, the methodology for calculating indices, and the 
procedures for assuring confidential treatment of trade data. Provide a 
sample copy of any uniform confidentiality agreements used with market 
participants. Explain and document provisions permitting Commission 
access to price data necessary for performance of the Commission's 
statutory duties.
    2. Completeness. Discuss the scope of information collected for use 
in the indices. Provide sample indices showing how you report ``(a) the 
total volume, (b) the number of transactions, (c) the number of 
transaction entities, (d) the range of prices (high/low), and (e) the 
volume-weighted average price.'' Policy Statement ] 33.2. Describe any 
liquidity measures to inform users about the degree of activity or 
other indicators of reliability in the prices reported at each trading 
location.
    3. Data verification, error correction, and monitoring. Discuss the 
means by which you verify the prices reported to you. Explain or 
provide information on any error correction process used, including 
when and how error corrections are published. Describe and document 
your data monitoring and surveillance systems, and the steps to be 
taken (including notifying the Commission or other agencies) in the 
event anomalous data reported to you cannot be explained or resolved by 
the data provider.
    4. Verifiability. Describe the scope of and document the 
independent audit or verification of your data collection, evaluation, 
index calculation and index production processes, including whether 
there is any external process review.
    5. Accessibility. Describe the availability of your price indices 
to the industry. Discuss the measures taken to provide the Commission 
access to relevant data in the event of suspected bad faith reporting 
or potential manipulation.
    Failure to file will lead Staff to operate on the assumption that 
the index developer has initiated no changes in its practices. 
Information or data previously provided in any Commission docket or 
otherwise available publicly may be incorporated by reference in or 
included with the statement. In addition, index developers are invited 
to comment on whether the number of price reporting entities and the 
number of reported fixed price transactions have increased since 
issuance of the Policy Statement.

Price Reporting Entities

    Interested market participants are invited to file comments on the 
developments since issuance of the Policy Statement. Parties are 
encouraged to address the following questions:
    1. Has the Policy Statement safe harbor for good faith reporting 
been helpful for your firm in its consideration of whether to engage in 
the reporting of price transaction data?
    2. Have you adopted the standards of ] 34 of the Policy Statement 
or otherwise taken steps to improve the quality of trade data submitted 
to price index developers?
    3. Have changes by price index developers materially improved the 
transparency of information contained in price indices?
    4. Do price index developers provide enough information about the 
level of trading activity at locations for which index prices are 
provided?
    5. Is it clear to you in publications what information is intended 
to be price indices and what information is intended to be ``market 
price indications'' or other market-related information? Do price index 
developers make clear which prices are indices prepared according to 
their index methodology?
    6. Do you have any specific concerns regarding the quality of price 
indices? If so, what are they? Please be specific about the basis for 
the concerns as well as what the concerns are.
    7. Do you have more confidence in price indices today than before 
issuance of the Policy Statement?
    Interested parties should submit written comments on the issues 
outlined above no later than March 26, 2004. The Commission encourages 
electronic submission of comments in lieu of filing on paper. The 
Commission's electronic filing system and instructions for filing can 
be found at the ``eFiling'' link on the Commission's Web site (http://www.ferc.gov). Commenters are not required to serve copies of their 
comments on other commenters. For further information contact Ted 
Gerarden at 202-502-6187 or [email protected].

Magalie R. Salas,
Secretary.
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    \1\ See the Policy Statement, ]] 6-32, for a detailed discussion 
of the role of price indices in energy markets, concerns with price 
index quality and reliability, industry efforts to improve index 
quality, and the steps leading to the Commission's issuance of the 
Policy Statement. Subsequently the Commission also issued an Order 
on Clarification of Policy Statement on Natural Gas and Electric 
Price Indices, 105 FERC ] 61,282 (2003).
    \2\ See ``Order Accepting and Suspending Tariff Sheets, Subject 
to Further Proceedings'' in Transcontinental Gas Pipe Line Company, 
104 FERC ] 61,181 (2003); Northern Natural Gas Company, 104 FERC ] 
61,182 (2003); and Natural Gas Pipeline Company of America, 104 FERC 
] 61,190 (2003).
    \3\ See, e.g., Northern Natural Gas Company, et al., ``Notice 
Deferring Submission of Staff Reports,'' Docket Nos. RP03-533-000, 
et al., issued January 27, 2004.
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 [FR Doc. E4-540 Filed 3-10-04; 8:45 am]
BILLING CODE 6717-01-P