[Federal Register Volume 69, Number 100 (Monday, May 24, 2004)]
[Notices]
[Pages 29529-29531]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-1206]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket Nos. PL03-3-005; AD03-7-005; ER03-1271-000; CP01-418-000; CP03-
7-001; CP03-301-000; RP03-245-000; RP99-176-089 and RP99-176-094; RP02-
363-002; RP03-398-000; RP03-533-000; RP03-70-002 and RP03-70-003; CP01-
421-000 and CP01-421-001; RP03-540-000 (Not Consolidated)]


Price Discovery in Natural Gas and Electric Markets; Natural Gas 
Price Formation; Aquila, Inc.; B-R Pipeline Company; Colorado 
Interstate Gas Company; Colorado Interstate Gas Company, et al.; Kinder 
Morgan Interstate Gas Transmission LLC; Natural Gas Pipeline Company of 
America; North Baja Pipeline LLC; Northern Natural Gas Company; 
Northern Natural Gas Company; PG&E Gas Transmission, Northwest 
Corporation; Portland General Electric Company; Transcontinental Gas 
Pipe Line Corporation; Notice of Conference on Market Liquidity, Energy 
Price Discovery, and Natural Gas and Electricity Price Indices

May 14, 2004.
    The Federal Energy Regulatory Commission (Commission) will hold a 
conference on the overall level of liquidity in wholesale natural gas 
and electricity markets, the adequacy of natural gas and electricity 
price formation, the level of reporting of energy transactions to price 
index developers, and the use of price indices in jurisdictional 
tariffs. The conference will take place on Friday, June 25, 2004, from 
9:30 a.m. to 5 p.m., at the Commission's headquarters, 888 First 
Street, NE., Washington, DC. The conference will be conducted by the 
Commission's Staff but may be attended by members of the Commission. A 
quorum of the Commission may be present for all or part of the 
conference. The Commodity Futures Trading Commission (CFTC) will 
participate.

Background

    On May 5, 2004, the Commission Staff issued a Report on Natural Gas 
and Electricity Price Indices in which Staff reviewed Commission 
actions and developments since the issuance of the Commission's Policy 
Statement on Natural Gas and Electric Price Indices, 104 FERC ] 61,121 
(2004), including particularly the results of the Commission's March 
2004 survey of market participants. The Report identified four broad 
options for future Commission action and addressed the use of price 
indices in jurisdictional tariffs, including specific recommendations 
on price index developers' adherence to Policy Statement standards and 
the criteria pursuant to which an index may be used in jurisdictional 
tariffs. The Report also included an extensive technical appendix 
providing tabulated results of the voluntary survey conducted by the 
Commission in March 2004.
    Staff has held previous conferences and workshops in Docket No. 
AD03-7 on April 24, 2003, June 24, 2003, July 2, 2003, and in both 
Dockets on November 4, 2003. Information gathered from such conferences 
has been of material use to the Commission in understanding the range 
of issues confronting market participants in their varied uses of 
energy price indices, and of the uses of indices in jurisdictional 
tariffs. The June 25 conference will provide all interested parties an 
opportunity to develop the record further in light of the information 
and recommendations presented in the Staff Report.

Scope of Conference

    The conference is open to discussion of all issues relevant to the 
formation of natural gas and electricity wholesale prices and the role 
of price indices both in the price formation process and as used by 
pipelines and utilities in jurisdictional tariffs. In particular, the 
Commission is interested in the following subjects:
    1. The overall market liquidity context for natural gas and 
electricity transaction reporting, and an evaluation of the extent to 
which wholesale energy trading is sufficient to generate reliable price 
signals for market participants. Many parties commented that improving 
processes for price reporting and increasing the number of companies 
reporting their fixed price day-ahead and bid-week transactions, while 
laudable, still does not address the decline in activity in energy 
markets, raising the concern that liquidity in these markets is 
inadequate to generate strong confidence in the prices observed. 
Parties are invited to comment on trading activity in energy markets 
and the optimum structures for encouraging robust and transparent 
trading in natural gas and electricity.
    2. Current status of energy transaction reporting to index 
developers and adequacy and robustness of indices. The Staff Report 
indicates that about 20 percent of companies surveyed report all of 
their ``reportable'' day-ahead and bid-week natural gas transactions 
and about 10 percent of companies surveyed report all of their day-
ahead electricity

[[Page 29530]]

transactions. At the same time, survey results indicate that, for 
responding companies that do report their transactions, there has been 
a significant improvement in key elements of the reporting process. As 
to natural gas and electricity indices themselves, the Report indicates 
most index developers have taken significant steps to adopt the Policy 
Statement standards. Nevertheless, many market participants still would 
like to have more information about the trading from which index prices 
are calculated. Parties are encouraged to discuss the import of the 
current level of price reporting and how price indices can best serve 
industry needs.
    3. Options for future Commission action on price indices and 
wholesale price formation. The Staff Report outlined four general 
options for future Commission action on price formation issues. Parties 
are welcome to comment on the pros and cons of each of these options 
and recommend the most effective Commission action given current 
circumstances:
     Accept Current Progress. The Commission could end active 
involvement with price formation issues and permit the industry to 
address issues without any formal structure or further guidance from 
the Commission.
     Continue To Focus Attention. The Commission could actively 
encourage the industry to implement the Policy Statement fully and 
closely monitor the level of trading activity reported by price index 
developers as well as compliance with the Policy Statement standards 
for reporting and index development.
     Introduce Mandatory Reporting. The Commission could move 
toward some form of mandatory price reporting of energy trade data, as 
some parties have urged over the past several months.
     Encourage Greater Reliance on Platforms for Trading, 
Confirmation/ Settlement and Clearing. Some parties have observed that 
the most open forum for obtaining accurate price information is trading 
on an electronic platform. In additional to electronic platforms for 
trading, platforms set up to facilitate confirmations/settlements and 
clearing have potential to further aggregate transactions for the 
purpose of forming more robust price indexes at low incremental costs. 
The Commission could encourage greater industry use of electronic 
platforms in price formation, in conjunction with any of the three 
other options.
     4. Review of survey response data. The Staff Report 
provided a detailed technical appendix tabulating the responses to all 
questions asked in the March 2004 survey. Interested parties are 
encouraged to examine the results of the survey and to offer 
observations on the tabulations or further analysis of the data. 
Questions concerning the data provided in the appendix should be 
directed to Rafael Martinez at 202-502-6336, or by e-mail at 
Rafael.Martinez@run spell.gov.
    Staff continues to review the data generated by the survey results. 
Requests for specific further examination or explanation of the results 
by Staff should be filed in Docket Nos. PL03-3-04 and AD03-7-004. Staff 
will consider any such filings in the continuing review of survey data.
    5. Criteria for Use of Indices in Jurisdictional Tariffs. In the 
Policy Statement, the Commission required, prospectively, that price 
indices in tariffs meet the Policy Statement standards and reflect 
adequate liquidity at the referenced pricing points. In certain cases, 
the Commission issued orders on tariff filings noting this requirement 
and calling for a Staff report on the index in question, with comments 
and additional evidence by the filing pipeline and intervenors to be 
submitted 15 days thereafter.\1\
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    \1\ See, e.g., Transcontinental Gas Pipe Line Corporatione, 104 
FERC ] 61,181 at P 11 (2003); Northern Natural Gas Company, 104 FERC 
] 61,182 at P 8 (2003); Natural Gas Pipeline Company of America, 104 
FERC ] 61,190 at P 8 and 105 FERC ] 61,269 at P 5 (2003); Kinder 
Morgan Interstate Gas Transmission LLC, 105 FERC ] 61,035 at P 18 
(2003); and Northern Natural Gas Company, 105 FERC ] 61,172 at P 86 
(2003).
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    In the Staff Report, Staff made the following recommendations 
concerning the use of price indices in jurisdictional tariffs:
     Price Index Developer Compliance. Staff recommends that 
six price index developers--Argus Media, Energy Intelligence Group, 
Inc., IntercontinentalExchange Inc., Io Energy, Intelligence Press, 
Inc., and Platts--be deemed to be in substantial compliance with the 
standards of the Policy Statement, and that Bloomberg, Btu/DTN, and Dow 
Jones be deemed conditionally to be in substantial compliance.
     Access to Confidential Data. Staff qualifies its 
assessment that most price index developers are in substantial 
compliance with a recommendation that the price index developers should 
affirm they will provide the Commission with access to relevant data in 
the event of an appropriate request for data in connection with an 
investigation into possible false price reporting or price 
manipulation.
     Additional Information To Be Supplied by Indices Used in 
Jurisdictional Tariffs. Staff recommends, effective September 1, 2004, 
any published index used in a jurisdictional tariff must regularly 
provide the volumes and the number of transactions from which the 
prices at all referenced locations are derived. If there were no 
transactions but a price assessment or estimate is supplied, the index 
must so state.
     Minimum Level of Activity. For each index location used in 
a jurisdictional tariff, Staff recommends the published index must 
report a minimum level of activity at that location, measured by 
volumes or number of transactions at the relevant location(s). The 
minimum volume levels are 25,000 MMBtu/day or 4000 MWh/day, and the 
minimum transaction levels are five trades (daily index), eight trades 
(weekly index), or ten trades (monthly index).
     Evaluation Period. Staff recommends indices be evaluated 
under the volume and transaction number criteria for a historical 90 
day period (or one year for monthly indices). If an index does not 
supply volume and transaction number information for 90 previous days 
(or one year for monthly indices), the index may continue to be used in 
the tariff until the review period can be evaluated, so long as the 
index has begun regular publication of volumes and transaction numbers 
by September 1, 2004.
     Deferral of Action in Pending Cases. Staff recommends 
further Commission action in cases in which changes have been made to 
index references in tariffs be deferred pending comments on the 
criteria recommended in the Staff Report.\2\
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    \2\ As noted, in certain of the above-captioned cases, the 
Commission accepted newly filed tariff sheets making changes in 
indices utilized in jurisdictional tariffs, pending further action 
after receipt of a Staff report on the adoption of Policy Statement 
standards by the index publisher involved and on the adequacy of 
liquidity at the specific referenced locations. These cases are 
Transcontinental Gas Pipe Line Corporation, Docket No. RP03-540-000; 
Northern Natural Gas Company, Docket No. RP03-533-000; Natural Gas 
Pipeline Company of America, Docket Nos. RP99-176-089 and -094; 
Kinder Morgan Interstate Gas Transmission LLC, Docket No. RP03-245-
000; and Northern Natural Gas Company, Docket No. RP03-398-000.
    In addition, similar tariff filings have been made in Aquila, 
Inc., Docket No. ER03-1271-000; Portland General Electric Company, 
Docket Nos. CP01-421-000 and -001; Colorado Interstate Gas Company, 
et al., Docket Nos. CP03-301-000, et al.; PG&E Gas Transmission, 
Northwest Corporation, Docket Nos. RP03-70-002 and -003; Colorado 
Interstate Gas Company, Docket No. CP03-7-001, North Baja Pipeline 
LLC, Docket No. RP02-363-002, and B-R Pipeline Company, Docket No. 
CP01-418-000. These latter cases did not include a specific 
requirement for a Staff report, but the same issues are present, and 
parties to those cases are hereby placed on notice that a Commission 
decision on the criteria recommended in the Staff Report may be 
applied in their cases.

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[[Page 29531]]

     Use of Approved Indices. Once an index and specific 
locations have been accepted by the Commission for use in a tariff, 
Staff recommends the use of the index and locations may continue until 
the pipeline or utility files a change in the index used in the tariff 
or an affected party seeks a change in the index being used based on 
the criteria no longer being met.

Comments

    The Commission encourages interested parties to submit comments in 
advance of the conference. To the extent parties share similar 
interests, joint submissions are encouraged. Comments may address any 
of the subjects discussed above or other issues related to market 
liquidity, price formation, and price indices. Review of and comment on 
the tabulated survey results is also encouraged.
    In particular, the companies and intervenors in the above-captioned 
individual tariff dockets are encouraged to file comments and 
additional evidence on (a) the extent to which the publishers of the 
price indices used in those tariffs meet Policy Statement standards and 
(b) whether the criteria proposed by Staff to determine if the specific 
locations reflect adequate liquidity should be applied to the indices 
filed in those tariffs.
    All comments, including those in the above-captioned tariff 
dockets, should be filed by June 11, 2004.\3\ Additional evidence on 
the suitability of the chosen index or indices should be filed in the 
individual tariff dockets.\4\ Comments may be filed electronically via 
the Internet in lieu of paper. See, 18 CFR 385.2001(a)(l)(iii) and the 
instructions on the Commission's Web site at http://www.ferc.gov under 
the ``e-Filing'' link.
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    \3\ The Commission pointed out that the pipeline or utility 
filing the change in index use in its tariff has the ultimate burden 
of showing that its proposed index use is just and reasonable. See, 
e.g., Transcontinental Gas Pipe Line Corporation, 104 FERC ] 61,181 
at P 14 (2003); Northern Natural Gas Company, 104 FERC ] 61,182 at P 
10 (2003).
    \4\ The June 11, 2004, comment date supersedes the previous 
requirement to file comments and additional evidence within 15 days 
of issuance of the Staff report in the tariff dockets identified in 
n.1, supra.
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Conference Information

    There is no charge to attend the conference and no requirement to 
register in advance for the conference. The conference will be 
transcribed. Those interested in acquiring the transcript should 
contact Ace Reporters at 202-347-3700 or 800-336-6646. Transcripts will 
be placed in the public record ten days after the Commission receives 
them.
    Capitol Connection offers the opportunity for remote listening and 
viewing of the conference. It is available for a fee, live over the 
Internet, by phone or via satellite. Persons interested in receiving 
the broadcast, or who need information on making arrangements should 
contact David Reininger or Julia Morelli at Capitol Connection (703-
993-3100) as soon as possible or visit the Capitol Connection Web site 
at http://www.capitolconnection.org and click on ``FERC.''
    Interested parties are urged to watch for further notices providing 
more information on the conference. For additional information please 
contact Ted Gerarden, 202-502-6187 or by e-mail at 
[email protected]. For questions pertaining to the technical 
appendix to the Staff Report, please contact Rafael Martinez at 202-
502-6336, or by e-mail at [email protected].

    By direction of the Commission.
 Magalie R. Salas,
Secretary.
[FR Doc. E4-1206 Filed 5-21-04; 8:45 am]
BILLING CODE 6717-01-P