[Federal Register Volume 75, Number 120 (Wednesday, June 23, 2010)]
[Rules and Regulations]
[Pages 35632-35643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-15118]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 260

[Docket No. RM07-10-002; Order No. 704-C]


Transparency Provisions of Section 23 of the Natural Gas Act

Issued June 17, 2010.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule; order granting clarification.

-----------------------------------------------------------------------

SUMMARY: In this Order Granting Clarification, the Commission addresses 
pending requests to clarify Form No. 552, under which natural gas 
market participants must annually report information regarding physical 
natural gas transactions that use an index or that contribute to or may 
contribute to the formation of a gas index. Order No. 704 required 
market participants to file these reports in order to provide greater 
transparency concerning the use of indices to price natural gas and how 
well index prices reflect market forces.
    Order No. 704-C revises Form No. 552 so as to exempt from reporting 
any unexercised options to take gas under a take-or-release contract; 
clarify the definition of exempt unprocessed natural gas transactions 
as those involving gas that is both not yet processed (to separate and 
recover natural gas liquids), and still upstream of a processing 
facility; exempt from reporting cash-out and imbalance transactions, 
since they were burdensome to report and provided little market 
information; strike the form's references to the blanket sales 
certificates issued under Sec.  284.402 or Sec.  284.284, since they 
were burdensome to report and provided little market information, so as 
to also exempt small entities who were obligated to report solely by 
virtue of possessing a blanket sales certificate; and make several non-
substantive modifications to Form No. 552 in an effort to make it more 
user-friendly.

DATES: Effective Date: This rule will become effective September 30, 
2010.

FOR FURTHER INFORMATION CONTACT: 
Vince Mareino (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6167, [email protected].
Thomas Russo (Technical Information), Office of Enforcement, Federal 
Energy

[[Page 35633]]

Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
(202) 502-8792, [email protected].

SUPPLEMENTARY INFORMATION: 
Before Commissioners: Jon Wellinghoff, Chairman; Marc Spitzer, 
Philip D. Moeller, and John R. Norris.


 
                                                               Paragraph
                                                                 Nos.
 
I. Background...............................................           2
II. Clarifications..........................................           9
    A. Use of Indices.......................................           9
    B. ``Take or Release'' Transactions.....................          21
    C. Natural Gas Imported to the Lower 48 States..........          25
    D. Unprocessed and/or Upstream Natural Gas..............          27
    E. Cash-out, Imbalance, and Operation-Related                     40
     Transactions...........................................
    F. Unit of Measurement..................................          46
    G. Blanket Certificates.................................          51
    H. Other Substantive Requested Clarifications...........          59
III. Other Non-Substantive Modifications....................          66
IV. Information Collection Statement........................          69
V. Document Availability....................................          75
VI. Extension of Time.......................................          78
 

    1. The Federal Energy Regulatory Commission's (Commission) FERC 
Form No. 552 requires certain natural gas market participants to 
identify themselves and provide summary information about physical 
natural gas transactions on an annual, calendar year basis.\1\ In this 
order, the Commission addresses pending requests to clarify Form No. 
552, resolve issues discussed in comments in this docket and at the 
March 25, 2010 Technical Conference (Technical Conference), and provide 
additional guidance for Respondents. Further, the Commission, in light 
of its experience administering the first year of Form No. 552, 
clarifies the exclusion of transactions involving volumes of 
unprocessed natural gas. The Commission adopts a revised Form No. 552 
incorporating these modifications, which is included in the Appendix to 
this order.
---------------------------------------------------------------------------

    \1\ FERC Form No. 552 (Form No. 552): Annual Report of Natural 
Gas Transactions. A copy of Form No. 552, as revised by this order, 
is attached hereto in the Appendix. The revised form will be 
available on the Commission's Web site at http://www.ferc.gov/docs-filing/forms.asp in the near future. Where appropriate, terms 
defined in Form No. 552 are capitalized herein.
---------------------------------------------------------------------------

I. Background

    2. On December 26, 2007, the Commission issued a Final Rule in 
Order No. 704,\2\ which amended Part 260 of its regulations to require 
the annual submission of a new form, Form No. 552. Order No. 704 has 
its genesis in the Energy Policy Act of 2005,\3\ which added section 23 
of the Natural Gas Act (NGA). Section 23 of the NGA, among other 
things, directs the Commission ``to facilitate price transparency in 
markets for the sale or transportation of physical natural gas in 
interstate commerce, having due regard for the public interest, the 
integrity of those markets, and the protection of consumers.'' \4\ 
Accordingly, Order No. 704 required natural gas wholesale market 
participants, including a number of entities that may not otherwise be 
subject to the Commission's traditional NGA jurisdiction, to report 
certain information concerning their natural gas sales and purchases 
annually.
---------------------------------------------------------------------------

    \2\ Transparency Provisions of Section 23 of the Natural Gas 
Act, Order No. 704, FERC Stats. & Regs. ] 31,260, 73 FR 1014 (2007) 
(Final Rule) (Order No. 704).
    \3\ Energy Policy Act of 2005, Public Law 109-58, 119 Stat. 594 
(2005).
    \4\ 15 U.S.C. 717t-2(a)(1) (2006).
---------------------------------------------------------------------------

    3. The basic purpose of these reports is to provide greater 
transparency concerning the use of indices to price natural gas and how 
well index prices reflect market forces. Many market participants rely 
on indices as a way to reference market prices without taking on the 
risks of active trading. However, the Commission found that there was 
insufficient information available to the Commission and market 
participants to assess whether the gas indices are derived from a 
robust market of fixed-price transactions and thus accurately reflect 
market forces. For example, there was no way to determine the 
volumetric relationships between (a) the fixed-price, next day and next 
month delivery transactions that form gas price indices; and (b) 
transactions that use indices.
    4. Accordingly, Order No. 704, as clarified and modified by Order 
Nos. 704-A\5\ and 704-B,\6\ requires market participants with 
reportable physical natural gas purchases or sales equal to or greater 
than 2.2 trillion British Thermal Units \7\ to report the following 
information on Form No. 552:
---------------------------------------------------------------------------

    \5\ Transparency Provisions of Section 23 of the Natural Gas 
Act, Order No. 704-A, 73 FR 55726 (Sept. 26, 2008), FERC Stats. & 
Regs. ] 31,275 (2008) (Order No. 704-A).
    \6\ Transparency Provisions of Section 23 of the Natural Gas 
Act, Order No. 704-B, 125 FERC ] 61,302 (2008) (Order No. 704-B).
    \7\ 2.2 TBtus, or roughly 2.2 million dekatherms.
---------------------------------------------------------------------------

    (1) Total volume of the respondent's reportable physical sales and 
purchases during the year;
    (2) Quantities contracted at fixed prices for next day delivery;
    (3) Quantities contracted at prices that refer to published daily 
gas price indices;
    (4) Quantities contracted at fixed prices for next month delivery;
    (5) Quantities contracted at prices that refer to published monthly 
gas price indices;
    (6) Quantities contracted under trigger agreements, such as NYMEX 
Plus contracts; and
    (7) Quantities contracted as physical basis transactions.\8\
---------------------------------------------------------------------------

    \8\ Respondents must also explain any difference between the 
total volumes of their reportable purchases and sales reported in 
response to item (1) above and the sum of the corresponding 
quantities reported in response to items (2) through (7).
---------------------------------------------------------------------------

    5. The Commission has engaged in substantial outreach efforts 
related to Form No. 552. These efforts are intended to inform market 
participants of the obligation to file Form No. 552, to answer 
questions regarding the form, and to identify ways to improve it. 
Commission Staff has provided informal guidance to dozens of individual 
Respondents as well as to various natural gas industry associations 
representing Respondents. This outreach includes one-on-one telephone 
conferences with potential Respondents, conference calls with a number 
of industry participants, presentations to groups of market 
participants, and the creation and updating of a Frequently Asked 
Questions (FAQ) list available on

[[Page 35634]]

the Commission's Web site.\9\ Commission Staff has also discussed Form 
No. 552 compliance with major trade organizations through conference 
calls and direct presentations. In addition, the Commission has 
addressed specific questions regarding Form No. 552 compliance through 
our Enforcement Hotline, Compliance Help Desk, direct calls to Staff 
members, and e-mails addressed to our dedicated Form No. 552 mailbox 
([email protected]).
---------------------------------------------------------------------------

    \9\ The FAQ is available at http://www.ferc.gov/docs-filing/forms/form-552/form-552-faq.pdf. Along with the FAQ, copies of 
relevant Commission orders and general filing guidance are provided. 
The Commission will update the FAQ as necessary and encourages 
potential Respondents to review the FAQ prior to filing Form No. 
552.
---------------------------------------------------------------------------

    6. The Commission extended the deadline for filing the first Form 
No. 552, for calendar 2008, from May 1, 2009 to July 1, 2009.\10\ The 
Commission received Form No. 552 for calendar year 2008 from 1,109 
Respondents. The vast majority of these participants timely submitted 
Form No. 552, though the Commission granted seven requests for limited 
extensions of time to submit the form. Filed copies of each 
Respondent's Form No. 552 are publicly available in the Commission's 
Web site in eLibrary. The entire Form No. 552 database for calendar 
year 2008 is also available for download at http://www.ferc.gov/docs-filing/forms/form-552/data.asp. While most Respondents correctly 
completed Form No. 552, the Commission believes that additional 
clarifications to Form No. 552 would enhance regulatory certainty and 
improve the quality of data elicited in the form.
---------------------------------------------------------------------------

    \10\ Transparency Provisions of Section 23 of the Natural Gas 
Act, Notice of Extension of Time (issued Apr. 9, 2009). The order 
provided for an extension of the filing deadline for calendar year 
2008 data. Calendar year 2009 data must be submitted by May 1, 2010.
---------------------------------------------------------------------------

    7. The American Gas Association (AGA) and Pacific Gas and Electric 
Company (PG&E) submitted requests for clarification of Order No. 704 on 
October 9, 2009 and November 3, 2009, respectively. These requests are 
discussed below. In addition, Commission Staff held a Technical 
Conference to discuss:

    (1) Inconsistencies in reporting upstream transactions in the 
natural gas supply chain on Form No. 552, and whether these 
transactions contribute to wholesale price formation;
    (2) Whether transactions involving balancing, cash-out, 
operational, and in-kind transactions should be reported on Form No. 
552; and
    (3) Whether the units of measurement (TBtu) currently used for 
reporting volumes in the form are appropriate.\11\
---------------------------------------------------------------------------

    \11\ Notice of Form No. 552 Technical Conference (Feb. 22, 
2010).

    Lastly, in addition to the discussion at the Technical Conference, 
the Commission received numerous written comments in this docket, which 
we also discuss below.
    8. Although the Commission and its Staff have provided considerable 
guidance with regard to these reporting requirements, because of the 
importance the Commission puts on compliance and its efforts to provide 
clear and understandable rules, the Commission finds that Form No. 552 
should be revised to further clarify Respondents' obligations.

II. Clarifications

A. Use of Indices

1. Request for Clarification
    9. Form No. 552, at page 4 line 3, requires respondents to report 
``what quantities were contracted at prices that refer to published 
Next-Day Delivery gas price indices.'' Similarly, respondents are 
required to report, at line 5, ``what quantities were contracted at 
prices that refer to published Next-Month Delivery gas price indices.'' 
AGA requests that the Commission modify Form No. 552 to state clearly 
that the transactions reportable on these lines ``are transactions that 
are contracted at prices that refer to daily or monthly gas price 
indices regardless of whether such transactions are themselves for 
next-day delivery or for next-month delivery.'' \12\ AGA claims that 
this clarification is necessary to resolve ambiguity in the form that 
has led some Respondents to submit inaccurate calendar year 2009 
information.
---------------------------------------------------------------------------

    \12\ AGA Request for Clarification at p. 1.
---------------------------------------------------------------------------

    10. In particular, AGA argues that Order No. 704 was unclear as to 
whether the index-priced transactions required to be reported in line 3 
or 5 must themselves be next-day or next-month transactions or whether 
all transactions that refer to daily or monthly gas price indices 
should be reported even if they do not require gas to be delivered the 
next day or month.
    11. AGA states that Order No. 704-A appeared to clarify that only 
index-priced transactions that were for next-day or next-month delivery 
were required to be reported in lines 3 and 5, respectively. Among 
other things, AGA points out that Order No. 704-A revised the 
instructions to Form No. 552 by specifically excluding from the 
reporting requirements ``Fixed Price transaction volumes that are not 
Next-Day Delivery or Next-Month Delivery.'' \13\ Thus, AGA argues, the 
fact only next-day and next-month fixed price transactions were 
required to be reported suggested that, similarly, only index priced 
transactions that were themselves next-day or next-month transactions 
were required to be reported on line 3 or 5. AGA also points out that 
that Order No. 704-A revised lines 3 and 5 of the Form No. 552 to 
specify that the transactions reportable on line 3 were volumes 
``contracted at prices that refer to published Next-Day Delivery gas 
price indices,'' and that the transactions reportable on line 5 were 
volumes ``contracted at prices that refer to published Next-Month 
Delivery gas price indices.'' AGA states that the addition of the 
phrases ``Next-Day Delivery'' and ``Next-Month Delivery'' created 
uncertainty as to whether those phrases applied to the transactions to 
be reported or only modified the referenced gas price indices.
---------------------------------------------------------------------------

    \13\ Instruction VII(h).
---------------------------------------------------------------------------

    12. Against this background, AGA argues that as market participants 
began to prepare to file Form No. 552 to report their 2008 calendar 
year transactions there was continued uncertainty as to the reporting 
of index-priced transactions. In some cases, AGA states, filers 
included in line 3 or line 5 only those index-based transactions where 
the day of gas flow matched up with the index being used, and did not 
include, for example, transactions that were priced based on an average 
of gas price indices or transactions for future gas delivery based on 
historic gas price indices.
    13. Thus, AGA recommends that the Commission modify lines 3 and 5 
of the Form No. 552 to ask for ``quantities that were contracted at 
prices that refer to daily price indices and ``quantities that were 
contracted at prices that refer to monthly price indices,'' and remove 
the references to Next-Day and Next-Month delivery.
    14. NiSource,\14\ in its comments in response to the Technical 
Conference, also draws the Commission's attention to lines 3 and 5 on 
page 5 of Form No. 552.\15\ NiSource recommends revising

[[Page 35635]]

them both so that each line begins ``Of the amounts reported on line 1, 
regardless of the date the transaction was executed, * * *'' \16\ 
NiSource argues that this revision is in keeping with Order No. 704-B, 
which stated, ``[i]ndex-based transactions are reportable even if they 
are not for Next-Day Delivery or Next-Month Delivery.'' \17\
---------------------------------------------------------------------------

    \14\ In this docket, NiSource refers to the following affiliated 
distribution companies: Bay State Gas Company; Columbia Gas of 
Kentucky, Inc.; Columbia Gas of Maryland, Inc.; Columbia Gas of 
Ohio, Inc.; Columbia Gas of Pennsylvania, Inc.; Columbia Gas of 
Virginia, Inc.; Kokomo Gas and Fuel Company; Northern Indiana Public 
Service Company; and Northern Indiana Fuel and Light Company, Inc.
    \15\ These lines ask Respondents, respectively, ``Of the amounts 
reported on line 1, what quantities were contracted at prices that 
refer to published Next-Day Delivery gas price indices?'' and ``Of 
the amounts reported on line 1, what quantities were contracted at 
prices that refer to published Next-Month Delivery gas price 
indices?''
    \16\ NiSource Comments at 6.
    \17\ Order No. 704-B at P 15.
---------------------------------------------------------------------------

2. Discussion
    15. The Commission grants AGA's request. In granting AGA's request, 
we provide clarification that also addresses the root of NiSource's 
comments. The Commission's guiding principle is that all transactions 
that utilize a daily or monthly gas price index, contribute to index 
price formation, or could contribute to index price formation must be 
reported on Form No. 552. As Order No. 704-A stated:

    [T]he focus of Form No. 552's data collection is transactions 
that utilize an index price, contribute to index price formation, or 
could contribute to index price formation. Specifically, the 
Commission finds that volumes reportable on Form No. 552 should 
include volumes that utilize next-day or next-month price indices, 
volumes that are reported to any price index publisher, and any 
volumes that could be reported to an index publisher even if the 
respondent has chosen not to report to a publisher. By `could be 
reported to an index publisher,' we mean bilateral, arms-length, 
fixed price, physical natural gas transactions between non-
affiliated companies at all trading locations.\18\
---------------------------------------------------------------------------

    \18\ Order No. 704-A at P 13.

    In Order No. 704-B, in response to a request for clarification 
regarding retail end-use transactions, the Commission reiterated that 
``Form No. 552 requires reporting of volumes associated with 
transactions that utilize, contribute to, or could contribute to a 
price index.'' \19\
---------------------------------------------------------------------------

    \19\ Order No. 704-B at P 13.
---------------------------------------------------------------------------

    16. Transactions that utilize daily or monthly indices are reported 
on lines 3 and 5, respectively, of Form No. 552. Transactions that 
contribute to, or could contribute to a gas index are reported on lines 
2, 4, 6 and 7 of Form No. 552. Consistent with the purpose of Order No. 
704 of providing greater transparency concerning the use of indices to 
determine natural gas prices and how well index prices reflect market 
forces, the Commission seeks information concerning all transactions 
that use indices, regardless of any other aspect of the transaction. 
Thus, the Commission intended that all transactions using indices be 
reported on lines 3 and 5 no matter when they were transacted.\20\ Such 
information is necessary to determine, for example, the volumetric 
relationship between (a) transactions that use indices to determine 
natural gas prices; and (b) the fixed-price next day or next month 
delivery transactions, NYMEX trigger agreements, including NYMEX plus 
contracts, and physical basis transactions that form gas indices.
---------------------------------------------------------------------------

    \20\ Multi-year physical natural gas transactions that refer to 
an index would report only those volumes that flowed during a given 
reporting year in the Form No. 552.
---------------------------------------------------------------------------

    17. Accordingly, we are modifying Form No. 552 to provide greater 
clarity. In particular, as requested by AGA, the Commission eliminates 
the references to ``Next-Day Delivery'' and ``Next-Month Delivery'' in 
page 4, lines 3 and 5 of Form No. 552 and revises the question on page 
4, line 3 to ask for ``quantities that were contracted at Prices that 
Refer to published Daily Indices*.'' The question on page 4, line 5 is 
similarly revised to ask for ``quantities that were contracted at 
Prices that Refer to published Monthly Indices*.'' \21\
---------------------------------------------------------------------------

    \21\ In particular, the revised Form No. 552, on page 4, line 3, 
asks for ``quantities that were contracted at prices that refer to 
published daily gas price indices'' and on page 4, line 5 asks for 
``quantities that were contracted at prices that refer to published 
monthly gas price indices.''
---------------------------------------------------------------------------

    18. In addition, we are modifying the definitions in the Form No. 
552 to provide additional guidance to respondents concerning what 
transactions should be treated as reportable transactions that refer to 
daily or monthly indices. In the revised definitions, the Commission 
clarifies that transactions that refer to ``weekly,'' ``yearly,'' or 
other gas price indices may, in fact, be based on daily gas price 
indices and are reportable on page 4, line 3 of Form No. 552. For 
example, a transaction that references a ``weekly'' index that is 
formed by averaging multiple daily indices is reportable as referencing 
a daily index. Similarly, a transaction that refers to a yearly index 
that is formed by averaging twelve monthly indices would be reported as 
referencing a monthly index.
    19. The Commission also clarifies that the referenced index need 
not be solely a gas index. Thus, a transaction that relies on a basket 
of indices which includes a gas index and other daily or monthly 
indices such as coal, petroleum, LNG, inflation, etc. would also be 
reportable on lines 3 and 5 of the Form No. 552. The Commission will 
ask Respondents that use a basket of daily or monthly indices that 
includes gas and other indices to identify the names of the indices 
used on page 4 in line 8 or 9. The Commission reminds Respondents that 
the NYMEX Natural Gas Futures price outside of bidweek is not 
considered an index for purposes of Form No. 552 and is not to be 
reported.\22\
---------------------------------------------------------------------------

    \22\ See Order No. 704 at P 113 (``Unlike in the NOPR, Form No. 
552 no longer requests information on NYMEX contracts that go to 
physical delivery because the purpose of the form is to focus on 
fixed-priced spot transactions and how they are used. Further, 
information attributable to such contracts is available from NYMEX. 
Consequently, to reduce the burden on market participants, this 
instruction has been removed and a market participant may not 
include volume information related to physically-settled future 
contracts.'')
---------------------------------------------------------------------------

    20. Finally, while all transactions referring to daily or monthly 
indices must be reported without regard to whether they are for next 
day or next month delivery, the fixed price transactions to be reported 
on lines 2, 4, 6 and 7 of the Form No. 552 are limited to transactions 
which are for next-day or next-month delivery. The transactions to be 
reported on those lines are transactions that contribute to gas index 
price formation, or could contribute to gas index price formation. The 
only fixed price transactions that can contribute to a daily price 
index are fixed price contracts for next day delivery. Similarly, the 
only fixed price contracts that can contribute to a monthly gas price 
index are contracts for next month delivery reported on lines 4, 6 and 
7. The Commission is modifying and adding definitions in the Form No. 
552 to make clear that the terms ``Next-Day Delivery or Next-Month 
Delivery'' only pertain to Fixed Price transactions which are 
reportable on lines 2 and 4, respectively\23\ and to clarify what 
transactions on the form do or may contribute to daily and monthly gas 
price indices.
---------------------------------------------------------------------------

    \23\ Lines 3 and 5 of the schedule appearing on page 4 of Form 
No. 552 have also been slightly modified to remove references to 
``Next-Day Delivery'' and ``Next-Month Delivery.''
---------------------------------------------------------------------------

B. ``Take or Release'' Transactions

1. Request for Clarification
    21. AGA states that gas is sometimes purchased under long-term 
contracts that offer the purchaser an option to either take (i.e.) 
purchase gas up to a contract maximum quantity on a monthly or daily 
basis or release the gas back to the seller for it to market to other 
purchasers. AGA refers to these contracts as ``take or release 
contracts.'' AGA states that the orders in this proceeding do not 
specifically address how take or release transactions are to be 
reported. AGA notes that, under the definition of ``Physical Natural 
Gas

[[Page 35636]]

Transaction,'' Form No. 552 provides that ``[i]t is not necessary that 
natural gas actually be delivered under the transactions, only that the 
delivery obligation existed in the agreement when executed.'' AGA 
believes that this raises the question whether the option to take or 
release a volume of natural gas under a take or release contract 
constitutes a ``delivery obligation'' within the meaning of ``Physical 
Natural Gas Transaction'' such that the optional amount the purchaser 
could take must be reported, or whether only the volumes that actually 
flowed under the contract should be reported.
    22. AGA recommends that the Commission clarify that respondents 
must report only those volumes that actually flowed under a take or 
release contract. AGA believes that the option to take or release a 
portion of the volumes of natural gas under such a contract does not 
give rise to a delivery obligation that would make such volumes 
reportable. The nature of the contract is such that some portion of the 
contract volumes may or may not be delivered, and the exact amount of 
the volumes that must be delivered remains unknown until the purchaser 
actually exercises the option. In other words, the delivery obligation 
only arises when the option to take is actually exercised. Indeed, 
argues AGA, the parties to a take or release contract contemplate that 
some volumes will not be delivered at all. As a result, it is the 
quantity of gas that is actually delivered that has an impact on 
pricing, according to AGA. AGA recommends that the Commission clarify 
that the option to take or release a volume of natural gas under a take 
or release contract does not constitute a ``delivery obligation'' 
within the meaning of a ``Physical Natural Gas Transaction'' such that 
only the volumes that actually flowed under the contract are reportable 
on FERC Form No. 552.
2. Discussion
    23. The Commission grants AGA's requested clarification. The 
Commission adopted the reporting requirements in the Form No. 552 in 
order to monitor the use of price indices in the natural gas market, 
including determining the volumetric relationships between (a) the 
fixed-price for next day or next month delivery and other transactions 
that form gas indices; and (b) transactions that use indices to price 
natural gas transactions. For this purpose, the Commission seeks 
information concerning what volumes of natural gas are purchased and 
sold in physical natural gas transactions based on price indices and 
what volumes are purchased under fixed price contracts which could 
contribute to a gas index. Where gas is sold under long-term contracts 
which give the purchaser an option to either take gas or release the 
gas back to the seller, the relevant volumes to be reported are those 
that actually flowed under the contract during the course of the year 
for which the report is being filed. An unexercised option to take gas 
under a contract does not constitute a reportable physical natural gas 
transaction.
    24. The take or release contracts described by AGA differ from the 
contracts addressed by the statement in the Form No. 552 definition of 
``Physical Natural Gas Transaction'' that ``[i]t is not necessary that 
natural gas actually be delivered under the transactions, only that the 
delivery obligation existed in the agreement when executed.'' That 
statement contemplated a contract which required the seller to deliver 
a specified amount, without either party having any option to modify 
the amount to be delivered. By contrast, the take or release contracts 
give the purchaser an option whether to purchase. In the latter 
situation, only volumes actually delivered pursuant to the option 
should be reported on the form if they use an index, contribute to or 
may contribute to gas price formation.

C. Natural Gas Imported to the Lower 48 States

    25. PG&E requests that the Commission clarify the reporting status 
of purchases of natural gas outside of the United States for use in the 
United States.\24\ In particular, PG&E requests that the Commission 
clarify the reporting status of purchases by a Local Distribution 
Company (LDC) of gas outside the United States for use in the United 
States. PG&E argues that it is not clear from Order No. 704 and the 
orders on rehearing of Order No. 704 the extent to which gas purchase 
transactions by an LDC that occur outside of the United States are 
reportable on Form No. 552.\25\
---------------------------------------------------------------------------

    \24\ PG&E Request for Clarification at p. 1.
    \25\ Id. at p. 2. Furthermore, PG&E claims LDCs have been given 
conflicting unofficial guidance by Commission Staff on this issue.
---------------------------------------------------------------------------

    26. In Order No. 704-A, the Commission addressed whether 
transactions outside the lower forty-eight states are reportable on 
Form No. 552. In relevant part, Order No. 704-A provides that:

    Regarding transactions involving possible international 
transportation, we clarify that: (1) Volumes originating outside the 
lower 48 states and delivered at locations outside the lower 48 
states are not reportable; (2) volumes originating from inside the 
lower 48 states and delivered outside the lower 48 states are 
reportable; and (3) volumes delivered inside the lower 48 states are 
reportable. Thus, any volumes that originate or are delivered into 
the lower 48 states should be reported on Form No. 552 to the same 
extent as purely domestic volumes.\26\
---------------------------------------------------------------------------

    \26\ Order No. 704-A at P 74 (emphasis added).

The Commission reaffirms the above statement from Order No. 704-A and 
clarifies that it applies to all Respondents, including any LDC.

D. Unprocessed and/or Upstream Natural Gas

    27. Order No. 704-A held that transactions involving unprocessed 
natural gas were not reportable on Form No. 552.\27\ The Commission 
made this holding in response to two requests on rehearing of Order No. 
704. Hess Corporation (Hess) requested that the order exclude entities 
engaged in transactions behind a processing plant priced pursuant to a 
percentage-of-proceeds contract under which the producer is entitled to 
receive a percentage of the proceeds realized by the buyer upon resale 
of the natural gas. Similarly, the Oklahoma Independent Petroleum 
Association (OIPA) sought rehearing of Order No. 704 so as to exempt 
producers of natural gas that sell wellhead gas at the initial first 
sales point under a percentage of proceeds contract.
---------------------------------------------------------------------------

    \27\ Order No. 704-A at P 78.
---------------------------------------------------------------------------

    28. On rehearing the Commission held, ``transactions involving 
unprocessed gas should not be reported on Form No. 552 and should not 
be counted when determining whether an entity falls below the de 
minimis threshold. Transactions involving unprocessed natural gas are 
not relevant to wholesale price formation.'' \28\ The Commission did 
not, however, define the term ``unprocessed natural gas.'' Commission 
Staff sought further input at the Technical Conference on industry 
practice in order to determine whether upstream natural gas contributes 
to wholesale price formation.\29\
---------------------------------------------------------------------------

    \28\ Id.
    \29\ Notice of Form No. 552 Technical Conference.
---------------------------------------------------------------------------

    29. Through Staff's outreach efforts and the below comments, the 
Commission finds that there remains some confusion regarding the filing 
requirement and that Respondents have interpreted the requirement in 
various ways. Commission Staff administering Form No. 552 responded to 
a number of informal requests for clarification involving pipeline-
quality natural gas. For instance, some Respondents questioned whether 
pipeline-quality natural gas that is sold directly into an interstate 
or intrastate natural gas pipeline without processing involved

[[Page 35637]]

``unprocessed natural gas'' and, thus, need not be reported. Other 
Respondents reported transactions of pipeline-quality gas under the 
assumption that ``unprocessed natural gas'' was natural gas that 
required processing.
1. Comments
    30. In general, commenters supported the unprocessed natural gas 
exemption, but were disparate in their understanding of what the 
precise metes and bounds of the exemption should be. Three 
commenters\30\ simply request that the Commission promulgate a clear 
and consistent definition. Others propose specific definitions of the 
exemption, as laid out below. While some commenters seek a broadly-
worded exemption, others recommend that some volumes be understood not 
to fall under the exemption.
---------------------------------------------------------------------------

    \30\ Occidental Energy Marketing, Statoil Natural Gas, and 
Summit Energy Services.
---------------------------------------------------------------------------

    31. Hess limits its concern to that in its original filing: That 
the Commission exclude transactions behind a processing plant priced 
pursuant to a percentage-of-proceeds contract.
    32. DCP Midstream, LLC (DCP) recommends that Form No. 552 should be 
revised so as to only apply to Dry Natural Gas, using the definition 
developed by the Energy Information Administration (EIA):

    Natural gas which emains after: (1) The liquefiable hydrocarbon 
portion has been removed from the gas stream (i.e., gas after lease, 
field, and/or plant separation); and (2) any volumes of 
nonhydrocarbon gases have been removed where they occur in 
sufficient quantity to render the gas unmarketable. Note: Dry 
natural gas is also known as consumer-grade natural gas. The 
parameters for measurement are cubic feet at 60 degrees Fahrenheit 
and 14.73 pounds per square inch absolute.\31\
---------------------------------------------------------------------------

    \31\ EIA, Energy Glossary, ``D'', available at http://www.eia.doe.gov/glossary/glossary_d.htm (May 19, 2010).

    Similarly, Independent Petroleum Association of America (IPAA) 
urges the Commission to use EIA definitions, and calls for a blanket 
exclusion of transactions involving unprocessed gas. IPAA argues that 
the Commission would still capture these volumes in transactions 
downstream of the processing facility.
    33. Devon Energy Corporation (Devon) argues that the Commission has 
a choice between a definition based on gas quality, and a definition 
based on the type of transaction. Focusing on gas quality, it argues, 
runs the risk of requiring Respondents to conduct a complex, burdensome 
well-by-well examination of their supplies. Instead, it urges the 
Commission to clarify that the exclusion applies to Unprocessed Natural 
Gas Transactions, a phrase that it defines as ``transactions in which 
title transfers prior to the physical act of process and [prior to 
when] the gas is physically delivered to a processing [facility].'' 
Devon states that its definition would exclude some upstream 
transactions regardless of whether they reference an index or could be 
reported to an index. Nevertheless, it argues, any such volumes would 
be reported at the first non-affiliate sale downstream of the 
processing plant, so the Commission could adopt Devon's proposal 
without endangering its goal of facilitating price transparency in the 
wholesale market.
    34. By contrast, Shell Producers \32\ offer a three-part 
definition, which they argue is consistent with the guidance that 
Commission Staff has provided:
---------------------------------------------------------------------------

    \32\ In this docket, Shell Producers refers to Shell Gulf of 
Mexico Inc., Shell Offshore Inc., and SWEPI LP.

    (i) Title to the gas involved in the transaction passes to the 
buyer at, or upstream of, a processing plant;
    (ii) The gas is physically unprocessed at the time of the title 
transfer. (Wellhead separation and treating is not defined as 
processing for purposes of this exemption.); and
    (iii) Other transactions (not covered in (i) and (ii)) involving 
unprocessed gas are also exempt from reporting if they do not use, 
contribute to, or could contribute to a price index; however, if an 
unprocessed gas transaction is downstream of a plant (or no plant is 
in the vicinity) and does use, contribute to, or could contribute to 
a price index, the transaction is reportable.

Shell Producers also urge the Commission to clarify the difference 
between processing, treating, and separating natural gas.
    35. Natural Gas Supply Association (NGSA), similarly, argues that 
there are situations in which it might be appropriate to report 
unprocessed gas transactions. NGSA gives the example of a firm-to-
wellhead pipeline with long-haul shippers: producers often transfer 
title to long-haul shippers upstream of the processing plant, but only 
sell the net quantity of post-processing gas. NGSA argues that the 
parties to these transactions ``should be allowed to report these 
volumes.'' This scenario aside, NGSA proposes to exempt transactions 
that meet both of two criteria:

    1. Title to the gas involved in the transaction passes to the 
buyer at, or upstream of, a processing plant; and
    2. The gas is physically unprocessed at the time of the title 
transfer.
2. Discussion
    36. The Commission understands there is no uniform industry 
processing practice. As such, it is not practical for the Commission to 
attempt to provide guidance designed to address every situation 
involving natural gas that may be subject to processing. However, the 
Commission provides the following clarification to assist Respondents 
in meeting their Form No. 552 filing obligations.
    37. The goal of Order No. 704-A is to facilitate transparency of 
the price formation process by collecting information concerning the 
use of indices to determine the price of natural gas and certain fixed 
prices in natural gas markets. As stated in Order No. 704-A: ``the 
focus of Form No. 552's data collection is transactions that utilize an 
index price, contribute to index price formation, or could contribute 
to index price formation.'' \33\ In response to Hess and OIPA's request 
to exempt transactions behind a processing plant priced pursuant to a 
percentage-of-proceeds contract under which the producer is entitled to 
receive a percentage of the proceeds realized by the buyer upon resale 
of the natural gas, the Commission in Order No. 704-A exempted 
unprocessed natural gas from the Form No. 552 data collection because 
``[t]ransactions involving unprocessed natural gas are not relevant to 
wholesale price formation.'' \34\ Nothing has changed regarding our 
exemption of percentage-of-proceeds contracts associated with 
unprocessed gas. While this holding clearly exempts the particular 
transactions referred to by Hess and OIPA, it has not been clear to 
some Respondents whether the Commission does, indeed, intend to grant a 
broader exemption for unprocessed natural gas, and if so, how the 
Commission defines unprocessed natural gas.
---------------------------------------------------------------------------

    \33\ Order No. 704-A at P 13.
    \34\ Order No. 704-A at P 78.
---------------------------------------------------------------------------

    38. The Commission clarifies that, within the context of Form No. 
552, ``unprocessed natural gas'' refers to natural gas that is not yet 
processed, but will be processed prior to delivery to an end-user, and 
is sold on an unprocessed basis. The EIA defines unprocessed gas as 
``natural gas that has not gone through a processing plant.'' \35\ EIA 
further defines a processing plant as ``a surface installation designed 
to separate and recover natural gas liquids from a stream of produced 
natural gas * * * and to control the quality of natural gas

[[Page 35638]]

* * *.'' \36\ We apply the quoted definitions, with one exception. In 
some instances, lean natural gas may emerge from the wellhead without 
the need for any further processing to remove natural gas liquids 
before consumption. If this natural gas is produced and eventually 
transported to end users without any processing then transactions 
involving such natural gas are reportable at all stages, if the 
transactions use an index, or contribute to, or may contribute to gas 
index formation. Accordingly, transactions involving natural gas that 
is both (1) not processed; and (2) upstream of a processing facility 
(that is, volumes reasonably expected to travel through a processing 
facility before consumption) are not reportable.\37\
---------------------------------------------------------------------------

    \35\ EIA, Energy Glossary, ``U'', available at http://www.eia.doe.gov/glossary/glossary_u.htm (June 1, 2010).
    \36\ EIA, Energy Glossary, ``P'', available at http://www.eia.doe.gov/glossary/glossary_p.htm (June 1, 2010).
    \37\ The Commission understands that, in limited circumstances, 
a seller of natural gas may not know whether the purchaser intends 
to process natural gas prior to transportation to an end-user. In 
such case, the seller should report the relevant volumes on Form No. 
552.
---------------------------------------------------------------------------

    39. Whether certain natural gas is lean, separated, or treated does 
not necessarily resolve whether a transaction is reportable. Separation 
(the removing of water and petroleum liquids) and treatment (the 
removing of other impurities) are distinct from processing (the removal 
and recovery of natural gas liquids). Thus, wellhead separation and 
treatment do not necessarily render natural gas reportable under Form 
No. 552. In all instances, the question is whether the gas is of 
sufficient quality that it could contribute to gas index formation. To 
the extent a Respondent is unsure as to whether a particular 
transaction is reportable, it may request informal guidance from Staff 
or request waiver from the Commission.

E. Cash-out, Imbalance, and Operation-Related Transactions

    40. In Order No. 704, we required market participants to report 
sale and purchase volumes related to cash-outs, imbalance make-ups, and 
operations.\38\ These transactions include transactions to resolve 
shippers' transportation imbalances on pipelines and LDCs. Such 
imbalances are often cashed out pursuant to provisions in the pipeline 
or LDC tariffs based on specified price indices. The cash-out prices 
may be set at a premium to the relevant price index in order to 
penalize shippers which incur significant imbalances. These 
transactions also include operational purchases and sales by pipelines 
and LDCs and production-related balancing activities, such as those 
between producers and working interest owners.
---------------------------------------------------------------------------

    \38\ Order No. 704 at P 107.
---------------------------------------------------------------------------

    41. In Order No. 704, we stated that, while some volumes related to 
such transactions are not utilized to create price indices, many 
volumes do refer to or utilize such indices, and therefore these 
transactions should be included in the Form No. 552 reports.\39\ In 
Order No. 704-A, we reiterated, ``It has been our experience that a 
significant number of balancing, cash-out, and similar transactions 
include references to price indices. Understanding the magnitude of 
this reliance on price indices is therefore a legitimate policy goal.'' 
\40\
---------------------------------------------------------------------------

    \39\ Order No. 704 at P 108.
    \40\ Order No. 704-A at P 61.
---------------------------------------------------------------------------

    42. After respondents filed their Form No. 552s for 2008, Staff 
reviewed the filings and made preliminary findings that the volumes of 
natural gas identified as cash-outs are relatively low in relation to 
the total reportable physical natural gas reported on Form No. 552. 
Therefore, Staff sought through the Technical Conference and comment 
process to better understand the burden and benefits of reporting these 
volumes.\41\
---------------------------------------------------------------------------

    \41\ Notice of Form No. 552 Technical Conference.
---------------------------------------------------------------------------

1. Comments
    43. Almost every party that filed comments in response to the 
Technical Conference commented on cash-out and related transactions, 
including seven trade associations and six companies.\42\ All of these 
Commenters urge the Commission to exclude cash-out and imbalance 
transactions in Form No. 552, and generally provide the same arguments 
for exclusion. Commenters claim that reviewing and reporting these 
transactions takes roughly between one-third and one-half of the 
person-hours that the typical Respondent devotes to Form No. 552.\43\ 
Moreover, since cash-out and imbalance transactions are fairly 
unpredictable and spread out over a wide range of contracts, the 
process of reviewing them will not become significantly more efficient 
over time. In terms of volume, however, cash-out and imbalance 
transactions are relatively minor: between 0 and 3 percent of most 
Respondents' reportable volumes.\44\ Volumes are low because cash-out 
and imbalance transactions are netting transactions. Finally, 
commenters argue that cash-out transactions take place after the fact 
as a method of settling imbalances, and thus cannot contribute to 
market price index formation.
---------------------------------------------------------------------------

    \42\ The trade associations are AGA, Electric Power Supply 
Association (EPSA), Interstate Natural Gas Association of America 
(INGAA), IPAA, NGSA, Northwest Industrial Gas Users (NWIGU), and 
Process Gas Consumers Group (PGC). The companies are Carolina Gas 
Transmission Corporation (CGT), DCP, Devon, NiSource, Shell 
Producers, and Summit Energy Services (Summit).
    \43\ Commenters state that they or their members devoted the 
following person-hours, or proportion of person-hours, to cash-out 
and imbalance volumes. DCP: 90 person-hours or half their time; 
IPAA: 100 person-hours (data for one representative member); NGSA: 
50 person-hours; PGC: 32 percent; Shell Producers 30 person-hours.
    \44\ As a percentage of total reportable volumes, Commenters 
state that they or their members reported the following cash-out and 
imbalance volumes. AGA: under 3 percent; DCP: 1 percent; Devon: 
under 1 percent; IPAA: under 1 percent (data for one representative 
member); NGSA: 0.5 percent; PGC: 1 percent; Shell Producers: zero.
---------------------------------------------------------------------------

    44. AGA agrees with the other commenters that cash-out and 
imbalance transactions should be excluded from reporting on Form No. 
552. AGA argues, however, that it may be appropriate to continue 
reporting operational volumes unrelated to the resolution of 
imbalances. For example, LDCs may purchase or sell wholesale volumes in 
advance to address balancing concerns on their distribution systems. 
Such advance purchases should continue to be reported, AGA argues, 
because the volumes are acquired through the typical procurement 
channels as their end-use volumes, and would require disproportionate 
effort to exclude from reports.
2. Discussion
    45. Upon review of the comments in this docket, as well as Staff's 
review of initial year Form No. 552 submissions for 2008, we have 
reconsidered our position with regard to cash-out and imbalance 
transactions. As several Commenters note, cash-out and imbalance 
transactions represent an insignificant portion of the total reportable 
volumes because the transactions, while frequent, do not accumulate to 
significant volumes for any one Respondent. The Commission's interest 
is in aggregated totals, so eliminating cash-out and imbalance 
transactions has little effect on our mission to monitor aggregate 
reliance on indices. Further, given the after-the-fact nature of 
accounting for these sorts of operational transactions, we find that it 
may be unduly burdensome for some Respondents to report these volumes 
as compared to any benefit achieved by such reports. Accordingly, 
Respondents are no longer required to report cash-out, and imbalance 
transactions that refer to or use indices or that may contribute to gas 
indices. However, as AGA requests, respondents should continue to 
report transactions related to operational volumes unrelated to the 
resolution of imbalances. These operational volumes are commonly used

[[Page 35639]]

to maintain system pressure and provide line pack for pipelines and 
other gas distributions systems.

F. Unit of Measurement

    46. Form No. 552 required respondents to report transactions in 
trillions of British Thermal Units (TBtu). However, this caused some 
confusion among filers whose transactions were expressed in other 
measurement units, such as MMBtus (millions of British Thermal Units) 
as to how to convert those transactions to TBtus. As a result, 
converting data to TBtus led to a number of filing errors, and 
subsequent resubmissions to correct the data were required. 
Accordingly, Staff sought feedback on whether to change the reporting 
units to a more common magnitude or unit.\45\
---------------------------------------------------------------------------

    \45\ Notice of Form No. 552 Technical Conference.
---------------------------------------------------------------------------

1. Comments
    47. While several parties filed comments on the appropriate unit of 
measurement, the commenters generally stated that the issue is minor 
relative to their other concerns. IPAA, for instance, favors retaining 
TBtus in order to ``minimize disruption,'' but states that ``this 
recommendation is less urgent than'' its other requests.\46\ DCP and 
NGSA briefly ask the Commission to continue with TBtus which, NGSA 
states, is reflective of the way gas is purchased and sold in the 
wholesale market. NWIGU, however, asks the Commission to switch to 
MMBtus or another more common unit. Summit, rather than recommending a 
unit, instead recommends that in the event that the Commission 
continues with TBtus, the instructions to Form No. 552 should provide 
more detail on how to convert other units to TBtus.
---------------------------------------------------------------------------

    \46\ IPAA Comments at 4.
---------------------------------------------------------------------------

    48. AGA does not reach a firm conclusion, but offers the most 
detailed analysis. In favor of a new unit, it notes that the NAESB Base 
Contract Transaction Confirmation Form uses millions of British Thermal 
Units (MMBtus) as its base unit, and defines an MMBtu as equal to a 
dekatherm. It also suggests that ``[r]eporting at the thousand-
dekatherm (or BBtu) level would provide * * * 100 times more detail 
than currently reported.''\47\ AGA warns, however, that either switch 
could prove to be too fine a level of detail, leading to unnecessary 
revisions, or could lead to another round of conversion errors as 
Respondents adjust to the new reporting magnitude. If no change is 
made, AGA recommends that Form No. 552 include a definition advising 
Respondents that 1 TBtu is equal to 1,000,000 MMBtu.
---------------------------------------------------------------------------

    \47\ AGA Comments at 6.
---------------------------------------------------------------------------

2. Discussion
    49. Given the lack of interest in changing units, the Commission 
will retain the TBtu as its unit of reporting. While Staff's review of 
the initial Form No. 552 submissions found numerous unit-conversion 
errors, it also appears that correcting those errors has been 
relatively simple for Respondents, and that Respondents anticipate far 
fewer errors going forward. We acknowledge, however, the confusion 
caused by using a unit that is orders of magnitude greater than the 
units commonly used in most natural gas contracts.
    50. Accordingly, the revised Form No. 552 will include a brief 
description of the proper conversion ratios. A TBtu is one trillion 
British Thermal Units; a BBtu is one billion British Thermal Units; and 
an MMBtu is one million British Thermal Units. A dekatherm (Dth) is, by 
definition, one MMBtu. One thousand Cubic Feet (Mcf) of natural gas at 
standard pressure and heat content produces almost exactly one MMBtu of 
heat, so these terms may be treated as equal for purposes of Form No. 
552 unless doing so would produce a significantly misleading result; 
similarly, one billion Cubic Feet (Bcf) may be treated as equal to one 
TBtu. Thus, when filing Form No. 552, respondents should convert as 
follows: 1 TBtu = 1,000 BBtu = 1,000,000 MMBtu = 1,000,000 Dth = 
1,000,000 Mcf = 1 Bcf.

G. Blanket Certificates

    51. In Order No. 704, the Commission required that each market 
participant, including a de minimis market participant, state in the 
Form No. 552 whether it operates under a blanket sales certificate 
issued under Sec.  284.402 or Sec.  284.284 of the Commission's 
regulations.\48\ Section 284.402 grants to any entity which is not an 
interstate pipeline a blanket marketing certificate, authorizing it to 
make sales for resale at negotiated rates in interstate commerce of any 
category of gas that is subject to the Commission's NGA jurisdiction. 
Section 284.284 grants open access interstate pipelines a blanket 
certificate to make unbundled sales.
---------------------------------------------------------------------------

    \48\ The current Form No. 552 implements this requirement by 
asking, ``At any time during the report year, did the Reporting 
Company operate under a Blanket certificate?''
---------------------------------------------------------------------------

    52. Order No. 704 stated that the requirement for market 
participants to state whether they operate under a blanket sales 
certificate would give the Commission a measure of the number of 
holders of such certificates. The Commission also stated that it would 
permit some breakdown of market information between jurisdictional and 
non-jurisdictional components, which is useful for effective oversight 
and monitoring for market manipulation.\49\
---------------------------------------------------------------------------

    \49\ Order No. 704 at P 91.
---------------------------------------------------------------------------

1. Comments
    53. In its comments after the technical conference, NGSA seeks 
clarification of when a market participant should be considered to be 
operating under a blanket marketing certificate. It points out that 
Sec.  284.402(a) automatically grants the blanket marketing certificate 
to all market participants who are not interstate pipelines, without 
the need to file an application for the certificate or for any 
Commission action. It also notes that Sec.  284.402(d) authorizes 
abandonment under NGA section 7(b) of any sales service performed under 
the certificate upon the expiration of the contractual term of that 
service or upon termination of each individual sales arrangement. NGSA 
asserts that these provisions create confusion as to whether a 
respondent has operated under the blanket certificate in certain 
scenarios. NGSA explains:

    It is not clear if a company that used a blanket marketing 
certificate in year one for certain transactions, but didn't use the 
certificate in subsequent years, continues to hold the certificate 
in perpetuity (unless the certificate is rescinded by the 
Commission); or whether a new certificate is allowed in a subsequent 
year if the company needs to enter into a transaction that requires 
a blanket certificate. If the future transaction is several years 
later, should the company be required to report in interim year Form 
552's that it holds a blanket marketing certificate or is it 
acceptable for the company to assume the original certificate was 
abandoned when the original transactions ended; and a new 
certificate commences with the subsequent transaction? \50\

    \50\ NGSA Comments at 8.
---------------------------------------------------------------------------

    54. NGSA recommends that the Commission clarify that the reporting 
requirement only applies if the respondent actually used the blanket 
marketing certificate during the reporting year. It requests 
clarification that this reporting requirement be limited to market 
participants using a blanket marketing certificate above the de minimis 
volume.
2. Discussion
    55. The Commission has determined to remove from Form No. 552 the 
requirement that market participants state whether they operate under a 
blanket sales certificate issued under either Sec.  284.402 or Sec.  
284.284 of the

[[Page 35640]]

Commission's regulations.\51\ Our experience reviewing completed 
reports for the year 2008 indicates that this requirement does not 
provide sufficiently useful and reliable information to justify its 
continuation.
---------------------------------------------------------------------------

    \51\ The current Form No. 552 implements this requirement by 
asking, ``At any time during the report year, did the Reporting 
Company operate under a Blanket certificate?''
---------------------------------------------------------------------------

    56. As illustrated by NGSA's request for clarification, it can be 
difficult for market participants to know whether they have operated 
under a blanket marketing certificate during a reporting year. A market 
participant only operates under a blanket marketing certificate when it 
makes a sale subject to our NGA jurisdiction. In order for a sale to be 
within our NGA jurisdiction it must be a sale for resale in interstate 
commerce, which does not qualify a ``first sale'' of natural gas, as 
defined in section 2(21) of the Natural Gas Policy Act.\52\ The first 
sale definition is very complicated. As the Commission explained in 
Order No. 644:
---------------------------------------------------------------------------

    \52\ The Natural Gas Wellhead Decontrol Act of 1989 removed all 
``first sales'' from our NGA jurisdiction.

    Under the NGPA, first sales of natural gas are defined as any 
sale to an interstate or intrastate pipeline, LDC, or retail 
customer or any sale in the chain of transactions prior to a sale to 
an interstate or intrastate pipeline or LDC or retail customer. NGPA 
section 2(21)(A) sets forth a general rule stating that all sales in 
the chain from the producer to the ultimate consumer are first sales 
until the gas is purchased by an interstate pipeline, intrastate 
pipeline, or LDC. Once such a sale is executed and the gas is in the 
possession of a pipeline, LDC, or retail customer, the chain is 
broken, and no subsequent sale, whether the sale is by the pipeline, 
or LDC, or by a subsequent purchaser of gas that has passed through 
the hands of a pipeline or LDC, can qualify under the general rule 
as a first sale of natural gas. In addition to the general rule, 
NGPA section 2(21)(B) expressly excludes from first sale status any 
sale of natural gas by a pipeline, LDC, or their affiliates, except 
when the pipeline, LDC, or affiliate is selling its own 
production.\53\
---------------------------------------------------------------------------

    \53\ Amendments to Blanket Sales Certificates, Order No. 644, 
FERC Stats. & Regs., Regulations Preambles 2001-2005 ] 31,153, at P 
14 (2003) (Order No. 644). See also Order No. 644 at P 22, 
clarifying the provision concerning an affiliate's own production.

    57. Thus, whether a market participant makes a sale pursuant to the 
blanket marketing certificate depends on a number of factors, including 
whether: (1) The gas was previously purchased and sold by a pipeline or 
LDC; (2) whether the purchaser will resell the gas; (3) whether the 
seller is pipeline, LDC or an affiliate thereof; and (4) if so, whether 
the seller is selling gas produced by any member of the affiliated 
group. Because the first two of these factors involve events occurring 
before and after the relevant sale, it is possible that a market 
participant may not have all the information necessary to determine 
whether its sale is subject to NGA jurisdiction and thus made pursuant 
to the blanket marketing certificate. For example, it may be 
particularly difficult for the market participant to know whether the 
gas it is selling previously passed through the hands of a pipeline or 
LDC. Moreover, for many market participants the relevant factors 
causing a sale to be subject to our NGA jurisdiction will be present 
for some sales, but not others. Thus, such market participants will be 
operating pursuant to the blanket marketing certificate for only some 
portion of their sales, not all.
    58. As a result of these complications, the responses to the Form 
No. 552 blanket certificate question have not provided useful 
information to the Commission. The Commission had hoped that those 
responses would permit some breakdown of market information between 
jurisdictional and non-jurisdictional components. However, given the 
widespread confusion as to whether particular sales are jurisdictional, 
the market participants' statements in the Form No. 552 as to whether 
they operated under the blanket marketing certificate do not appear 
reliable. Moreover, a simple statement of whether the market 
participant made sales pursuant to the blanket marketing certificate 
does not reveal whether those sales constituted most, or only a very 
few, of the market participant's sales. Without that information, it is 
not possible to determine, with any degree of accuracy, what proportion 
of gas sales are subject to our NGA jurisdiction.\54\ In any event, 
information about whether sales are jurisdictional is not relevant to 
the fundamental purpose of the Form No. 552, which is to obtain 
information concerning the relative volumes of fixed price transactions 
that contribute or may contribute to a gas index versus the volume of 
transactions that refer to indices. For all these reasons, the 
Commission eliminates the requirement that market participants report 
whether they make sales under a blanket certificate. Accordingly, the 
Commission will modify section 260.401 of its regulations to strike 18 
CFR 260.401(b)(1)(i), which prevented blanket certificate holders from 
benefiting from the de minimis exemption to the annual filing 
requirement. The instructions on Form No. 552 shall be modified to 
reflect this holding.
---------------------------------------------------------------------------

    \54\ Interstate pipelines filing the Form No. 552 reported 
insignificant volumes of sales pursuant to the Sec.  284.284 blanket 
certificate authorizing pipelines to make unbundled sales. Few, if 
any, pipelines use that certificate, because almost all pipeline 
exited the merchant business after Order No. 636.
---------------------------------------------------------------------------

H. Other Substantive Requested Clarifications

    59. Several commenters, in responding to the issues raised at the 
Technical Conference, took the opportunity to raise other issues 
related to Form No. 552. Some of these comments concerned the timing 
and enforcement of the revised reporting requirements, mainly in the 
form of the requests for extension of time noted below. In addition, 
DCP states that it ``does not support significant changes * * * that 
would require another burdensome process.'' Similarly, IPAA requests an 
extension of the safe harbor for any inadvertent errors, while NWIGU 
and NGSA request an extension of the safe harbor period in the event 
that the Commission makes any substantive changes to Form No. 552 in 
this or future orders.
    60. In response to DCP's comments, we clarify that the present 
order does not require Respondents who have under-reported or mis-
reported their 2008 Form No. 552 to correct their filings based on our 
guidance herein.
    61. We will not institute any additional safe-harbor period. 
However, as previously stated, the Commission will focus any 
enforcement efforts on instances of intentional submission of false, 
incomplete, or misleading information to the Commission, of failure to 
report in the first instance, or of failure to exercise due diligence 
in compiling and reporting data.\55\
---------------------------------------------------------------------------

    \55\ Order No. 704 at P 114.
---------------------------------------------------------------------------

    62. NGSA also raises the issue of whether a Sarbanes-Oxley \56\ 
signoff standard applies to Form No. 552's signature requirement. NGSA 
argues that it does not, and urges the Commission to clarify that the 
entity signoff can be from any official that is able to bind the 
company.
---------------------------------------------------------------------------

    \56\ Sarbanes-Oxley Act of 2002, Public Law 107-204, 116 Stat. 
745. In certain situations, the Sarbanes-Oxley Act requires chief 
corporate officers to personally vouch for the veracity, timeliness, 
and fairness of their companies' public disclosures.
---------------------------------------------------------------------------

    63. The Commission does require Annual Corporate Officer 
Certification and Sarbanes-Oxley signoff for some forms: e.g., Form 
Nos. 1, 2, 2-A, 6, 60, 3-Q, and 6-Q. These forms are financial reports 
that include balance sheets, income statements, and similar financial 
data. However, we do not interpret the Sarbanes-Oxley Act to compel the 
Commission to require such a standard

[[Page 35641]]

for Form No. 552. At this time, we believe that it is sufficient that 
the person signing Form No. 552 be one whose signature legally binds 
the company with respect to the accuracy and completeness of the 
submission. The instructions on Form No. 552 as well as the form shall 
be modified slightly to clarify this holding.
    64. NiSource requests that the Commission exempt from reporting any 
``transactions that occur under a local distribution company's state-
approved retail tariff that refer to next-day or next-month price 
indices.'' \57\ NiSource states that gathering such information is 
administratively burdensome for it because NiSource has several state-
approved tariffs among several affiliates and currently lacks ``one 
consistent IT system that can be used to pull this data.'' \58\ 
NiSource also states that some of these tariffs only rely upon index 
prices when certain conditions are met, and that NiSource's IT systems 
only record the actual price and fail to record the reason why the 
price was charged. NiSource states that, among its nine LDC affiliates, 
it has identified 26 state-approved tariff provisions that refer to gas 
price indices, providing for different variations of cash-outs and a 
number of imbalance situations.
---------------------------------------------------------------------------

    \57\ NiSource Comments at 1.
    \58\ NiSource Comments at 4.
---------------------------------------------------------------------------

    65. We reject the requested exemption for state-approved retail 
tariffs. All of the examples of reportable transactions that NiSource 
gives in its comments involve cash-out or imbalance provisions. 
Accordingly, the exemption granted above in this order for cash-out and 
imbalance transactions that reference a price index appears to 
sufficiently address NiSource's concerns.

III. Other Non-Substantive Modifications

    66. In response to informal questions by Respondents and in an 
effort to make the Form No. 552 more user friendly, we approve a number 
of other non-substantive modifications to Form No. 552. These 
modifications do not affect the data to be collected by Respondents and 
provided on the form. However, the modifications more clearly identify 
the data to be provided and more understandable direction to 
Respondents. A copy of revised Form No. 552 is attached to this 
order.\59\
---------------------------------------------------------------------------

    \59\ The copy of the Form No. 552 in the Appendix should not be 
eFiled with the Commission at this time. Staff will make available a 
fillable PDF Form No. 552 at a later date.
---------------------------------------------------------------------------

    67. For example, the instructions to Form No. 552 have been 
modified to allow potential Respondents to more easily determine 
whether they must submit the form, the types of transactions that are 
reportable, and the procedure to eFile the form. The instructions also 
explain that typing the name of the company officer constitutes an 
electronic signature of a company officer is acceptable under the 
Commission's regulations.\60\ Additionally, the schedule on page three 
of Form No. 552 is modified to explain that each Respondent Reporting 
Company and Affiliate should be listed and required to answer the 
questions on the schedule.
---------------------------------------------------------------------------

    \60\ See 18 CFR 385.2005(c).
---------------------------------------------------------------------------

    68. The Commission believes that the modifications to Form No. 552 
will provide regulatory certainty and reduce erroneous filings by 
Respondents. We encourage potential Respondents to utilize other 
Commission resources should they have questions regarding the filing of 
Form No. 552. In addition to consulting the Form No. 552 FAQ at http://www.ferc.gov/docs-filing/forms/form-552/form-552-faq.pdf and other 
filing guidance at http://www.ferc.gov/docs-filing/forms/form-552/fil-instr.asp, Respondents may request informal assistance through our 
Compliance Help Desk or by submitting questions via e-mail to 
[email protected].

IV. Information Collection Statement

    69. The Office of Management and Budget (OMB) regulations require 
that OMB approve certain reporting, recordkeeping, and public 
disclosure (collections of information) imposed by an agency.\61\ The 
information collection requirements or Form No. 552 respondents were 
approved under OMB Control No. 1902-0242. This order further revises 
these requirements in order to more clearly state the obligations 
imposed in Order No. 704. While the net result of these revisions is to 
decrease the overall burden as well as the number of Respondents, 
because the Commission has made ``substantive or material 
modifications'' to the information collection requirement, we will 
submit them for OMB review under the Paperwork Reduction Act.\62\
---------------------------------------------------------------------------

    \61\ 5 CFR 1320.
    \62\ See 44 U.S.C. 3507(h)(3).
---------------------------------------------------------------------------

    70. The Commission identifies the information provided under Part 
260 as contained in FERC Form No. 552. The Commission solicited 
comments on the need for this information, whether the information 
would provide useful transparency information, ways to enhance the 
quality, utility, and clarity of the information to be collected, and 
any suggested methods for minimizing respondents' burden. Where 
commenters raised concerns that information collection requirements 
would be burdensome to implement, the Commission has addressed those 
concerns above in this order.
    71. In Order No. 704, the Commission estimated the burden for 
complying with the Final Rule as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Estimated annual   Total annual hours
 Data collection part 260 FERC form       Number of        Number of responses per     burden hours per         for all        Estimated start-up burden
              No. 552                    respondents              respondent              respondent          respondents           per respondent
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Reporting Requirement.......              1,500   1 per year.................                  4               6,000   40 hours.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Commission further estimated average annualized cost for each 
respondent to be the following:

----------------------------------------------------------------------------------------------------------------
                                                      Annualized capital/
                  FERC form No. 552                    startup costs (10     Annual costs      Annualized costs
                                                      year amortization)                             total
----------------------------------------------------------------------------------------------------------------
Annual Reporting Requirement........................               $400                $400                $800
----------------------------------------------------------------------------------------------------------------


[[Page 35642]]

    The Commission did not change its burden estimate upon release of 
Order Nos. 704-A or 704-B.
    72. Several factors influence the Commission's revised numbers. If 
the Commission were making no changes to Order No. 704-B, then it would 
be revising the estimates upward. Many Respondents reported 
unexpectedly high start-up burdens, primarily due to the difficulty of 
gathering information on cash-out and imbalance transactions. However, 
virtually every clarification or revision provided above in this order 
should act to reduce the burden on Respondents. In addition, the 
experience in filing the initial Form No. 552 reports should 
drastically reduce the start-up burden in responding to the revised 
Form No. 552.
    73. Based on data collected for calendar year 2008, the number of 
Respondents was 1,109, not 1,500 as estimated. The elimination of the 
requirement for parties to file information about their use of certain 
blanket certificates should reduce the number of Respondents even 
further, as 369 Respondents filed solely to meet the blanket 
certificate reporting requirement. As a result, the Commission 
estimates the burden for complying with the Final Rule as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Estimated annual   Total annual hours
Data collection part  260 FERC form       Number of        Number of  responses per    burden hours  per        for all        Estimated start-up burden
              No. 552                    respondents              respondent              respondent          respondents           per respondent
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual Reporting Requirement.......                740   1 per year.................                  4               2,960   5 hours.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Information Collection Costs: The average annualized cost for each 
respondent is projected to be the following:

----------------------------------------------------------------------------------------------------------------
                                                      Annualized capital/
                  FERC form No. 552                   startup costs (10-     Annual costs      Annualized costs
                                                      year amortization)                             total
----------------------------------------------------------------------------------------------------------------
Annual Reporting Requirement........................                $50                $400                $450
----------------------------------------------------------------------------------------------------------------

    Title: FERC Form No. 552.
    Action: Proposed Revised Information Filing.
    OMB Control No: 1902-0242.
    Respondents: Business or other for profit.
    Frequency of Responses: Annually.
    Necessity of the Information: The annual filing of transaction 
information by market participants is necessary to provide information 
regarding the size of the physical natural gas market, the use of the 
natural gas spot markets and the use of fixed- and indexed-price 
transactions. The revisions to the filing reduce the burden to 
respondents.
    74. Interested persons may obtain information on the reporting 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426 [Attention: 
Michael Miller, Office of the Executive Director], e-mail: 
[email protected], Phone: (202) 502-8415, Fax: (202) 273-0873.
    For submitting comments concerning the collection of information 
and the associated burden estimate(s), please send your comments to the 
contact listed above and to: Office of Information and Regulatory 
Affairs, Office of Management and Budget, 725 17th Street, NW., 
Washington, DC 20503 [Attention: Desk Officer for the Federal Energy 
Regulatory Commission], Phone: (202) 395-4638, Fax: (202) 395-7285.
    Due to security concerns, comments should be sent electronically to 
the following e-mail address: [email protected]. Please 
reference OMB Control No. 1902-0242 and the docket number of this order 
in your submission.

V. Document Availability

    75. In addition to publishing the full text of this document, 
except for the Appendix, in the Federal Register, the Commission 
provides all interested persons an opportunity to view and/or print the 
contents of this document, including the Appendix, via the Internet 
through FERC's Home Page (http://www.ferc.gov) and in FERC's Public 
Reference Room during normal business hours (8:30 a.m. to 5 p.m. 
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.
    76. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document, including the 
Appendix, is available on eLibrary in PDF and Microsoft Word format for 
viewing, printing, and/or downloading. To access this document in 
eLibrary, type the docket number excluding the last three digits of 
this document in the docket number field.
    77. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from FERC Online Support at 202-502-
6652 (toll free at 1-866-208-3676) or e-mail at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. E-mail the Public Reference Room at 
[email protected].

VI. Extension of Time

    78. On May 24, 2010, the Secretary of the Commission issued in this 
docket an extension of time until September 1, 2010 for Respondents to 
file Form No. 552 with calendar year 2009 data.\63\ The report for 
calendar year 2010 remains due on May 1, 2011, as per Sec.  
260.401(b)(2) of the Commission's regulations.
---------------------------------------------------------------------------

    \63\ See 18 CFR 375.302(b).
---------------------------------------------------------------------------

    79. OMB regulations require a notice and comment period before 
changes to the Code of Federal Regulations may take effect. 
Accordingly, this order's revision to section 260.401 exempting blanket 
certificate holders with de minimis transaction volumes will be 
effective September 30, 2010. In order to allow these entities to be 
exempt from the 2009 filing requirement, and also to allow other 
Respondents to review and revise their data in light of the 
clarifications provided in this order, Respondents are granted an 
extension of time until October 1, 2010 to file calendar year 2009 
data.
    The Commission orders:
    (A) AGA's and PG&E's requests for clarification are granted as 
described herein.
    (B) FERC Form No. 552 is modified as discussed herein.
    (C) Form No. 552 Respondents are granted an extension of time until

[[Page 35643]]

October 1, 2010 to file calendar year 2009 data.

List of Subjects for 18 Part 260

    Natural gas, Reporting and recordkeeping requirements.

    By the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

0
In consideration of the foregoing, the Commission amends part 260, 
Chapter I, Title 18, Code of Federal Regulations to read as follows:

PART 260--STATEMENTS AND REPORTS (SCHEDULES)

0
1. The authority citation for part 260 continues to read as follows:

    Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352.


Sec.  260.401  [Amended]

0
2. Section 260.401 is amended as follows:
0
a. Paragraph (b)(1)(i) is removed.
0
b. Paragraphs (b)(1)(ii) and (iii) are redesignated as paragraphs 
(b)(1)(i) and (ii) respectively.

[FR Doc. 2010-15118 Filed 6-22-10; 8:45 am]
BILLING CODE 6717-01-P