Federal Energy Regulatory Commission

Friday,

January 4, 2008

Part IV

Department of

Energy

Federal Energy Regulatory Commission

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18 CFR Parts 260, 284, and 385

Transparency Provisions of Section 23 of

the Natural Gas Act; Final Rule

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Federal Register / Vol. 73, No. 3 / Friday, January 4, 2008 / Rules and Regulations

DEPARTMENT OF ENERGY

Federal Energy Regulatory

Commission

18 CFR Parts 260, 284 and 385

[Docket No. RM07–10–000; Order No. 704]

Transparency Provisions of Section 23

of the Natural Gas Act

Issued December 26, 2007.

AGENCY: Federal Energy Regulatory

Commission, DOE.

ACTION: Final Rule.

SUMMARY: In the final rule, the

Commission promulgates regulations

that require certain natural gas market

participants to report information

regarding their reporting of transactions

to price index publishers and their

blanket sales certificate status, and to

report annually certain information

regarding their wholesale, physical

natural gas transactions for the previous

calendar year. Certain market

participants engaged in a de minimis

volume of transactions will not be

required to report information regarding

their transactions for the calendar year.

The reported information will make it

possible to estimate the size of the

physical U.S. natural gas market, to

assess the use of index pricing in that

market, and to determine the size of the

fixed-priced trading market that

produces the information. These

regulations facilitate price transparency

in markets for the wholesale sale of

physical natural gas in interstate

commerce.

DATES: Effective Date: This rule will

become effective February 4, 2008.

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FOR FURTHER INFORMATION CONTACT:

Stephen J. Harvey (Technical), Office of

Enforcement, Federal Energy Regulatory

Commission, 888 First Street, NE.,

Washington, DC 20426, (202) 502–6372,

Stephen.Harvey@ferc.gov.

Christopher J. Peterson (Technical),

Office of Enforcement, Federal Energy

Regulatory Commission, 888 First

Street, NE., Washington, DC 20426,

(202) 502–8933,

Christopher.Peterson@ferc.gov.

Eric Ciccoretti (Legal), Office of

Enforcement, Federal Energy Regulatory

Commission, 888 First Street, NE.,

Washington, DC 20426, (202) 502–8493,

Eric.Ciccoretti@ferc.gov.

SUPPLEMENTARY INFORMATION: Before

Commissioners: Joseph T. Kelliher,

Chairman; Suedeen G. Kelly, Marc

Spitzer, Philip D. Moeller, and Jon

Wellinghoff.

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I. Background

1. In this final rule, the Commission

promulgates regulations that require

certain natural gas market participants

to report annually certain information

regarding their wholesale, physical

natural gas transactions, their reporting

of transactions to price index

publishers, and their blanket certificate

status. This rule arises from a Notice of

Proposed Rulemaking (NOPR) issued on

April 19, 2007, which set forth two

proposals, an annual reporting

requirement proposal and a daily

pipeline posting proposal.1 This rule

addresses the annual reporting

requirement. The Commission addresses

the daily pipeline posting proposal

concurrently in a Notice of Proposed

Rulemaking in a separate docket, Docket

No. RM08–2–000.

2. The Commission largely adopts the

annual reporting proposal in the NOPR

issued in this docket, with a few

changes and a few clarifications. The

final rule requires that any buyer or

seller of more than a de minimis volume

of natural gas report aggregate volumes

of relevant transactions in an annual

filing using a new form, Commission

Form No. 552. A market participant

buying or selling less than a de minimis

volume that operates under blanket

sales certificate authority pursuant to

§ 284.402 or § 284.284 of the

Commission’s regulations must also

submit a Form No. 552 for identification

and certain reporting purposes, but is

not required to report aggregate volumes

of relevant transactions. A market

participant that buys or sells less than

a de minimis volume but that does not

operate under blanket sales certificate

authority need not submit a Form No.

552. Filings of the form will be due on

May 1 of each year, starting on May 1,

2009 for the calendar year 2008.

3. The significant changes from the

proposal in the NOPR fall generally into

four categories. The first category of

changes focuses the reporting

requirement solely on wholesale buyers

and sellers by excluding retail

transactions. The second category of

changes, intended to focus on price

formation in the spot markets, narrows

the questions on new Form No. 552 to

obtain information about the amount of

daily or monthly fixed-priced trading

that are eligible to be reported to price

index publishers as compared to the

amount of trading that uses or refers to

price indices. The third category of

changes expands the number of

companies that must state publicly

1 Transparency Provisions of Section 23 of the

Natural Gas Act, 72 FR 20791 (Apr. 26, 2007),

FERC, Stats. and Regs. ¶ 32,614 (2007).

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whether or not they report to index

price publishers. The last category

involves other clarifications of questions

raised in comments and changes made

to streamline completion of the form.

4. In promulgating the final rule, the

Commission exercises its new

transparency authority under section 23

of the Natural Gas Act (transparency

provisions).2 Congress added the

transparency provisions in enacting the

Energy Policy Act of 2005 (EPAct

2005).3 The transparency provisions

direct 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 and further

allow the Commission to ‘‘prescribe

such rules as the Commission

determines necessary and appropriate to

carry out the purposes of [the

transparency provisions]’’—rules that

‘‘shall provide for the dissemination, on

a timely basis, of information about the

availability and prices of natural gas

sold at wholesale and interstate

commerce to the Commission, State

commissions, buyers and sellers of

wholesale natural gas, and the public.’’ 5

5. The final rule will facilitate

transparency of the price formation

process in natural gas markets by

collecting information to understand in

broad terms the size of the natural gas

market and the use of fixed prices and

of index prices. Currently, because of

the way transactions take place in the

natural gas industry, there is no way to

estimate in even the broadest terms the

overall size of the natural gas market or

its breakdown by types of contract

provision, including pricing and term

(e.g., spot or for delivery farther in the

future).6 As noted by the price index

developer Platts, the question of what is

the total size of the traded market has

‘‘hung over the gas market for years.’’ 7

More particularly, there is no way to

determine important volumetric

relationships between (a) the fixed2 Section 23 of the Natural Gas Act, 15 U.S.C.

717t–2 (2000 & Supp. V 2005).

3 Energy Policy Act of 2005, Pub. L. 109–58, 119

Stat. 594 (2005).

4 Section 23(a)(1) of the Natural Gas Act, 15

U.S.C. 717t–2(a)(1) (2000 & Supp. V 2005).

5 Section 23(a)(2) of the Natural Gas Act, 15

U.S.C. 717t–2(a)(2) (2000 & Supp. V 2005).

6 In its supplemental comments, Platts provided

information regarding its use of physical basis

transactions in compiling monthly indices.

Supplemental Comments of Platt’s, Transparency

Provisions of the Energy Policy Act, Docket No.

AD06–11–000 (filed Feb. 23, 2007).

7 Comments of Platts at 6, Transparency

Provisions of the Energy Policy Act, Docket No.

AD06–11–000 (filed Nov. 1, 2006).

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price, day-ahead or month-ahead

transactions that form price indices; and

(b) transactions that use price indices.

Without the most basic information

about these volumetric relationships,

the Commission has been hampered in

its oversight and its ability to assess the

adequacy of price-forming transactions.

Market participants are likewise unable

to evaluate their use of indexed

transactions. Typically, market

participants rely on index-priced

transactions as a way to reference

market prices without taking on the

risks of active trading. These market

participants rely on index prices, often

whether or not those prices are derived

from a robust market of fixed-price

transactions.

6. Price formation in natural gas

markets makes no distinction between

transactions that are jurisdictional to the

Commission under the Natural Gas Act,

absent new section 23 of that statute,

and those that are not. While the

Commission’s traditional jurisdiction

under sections 4, 5, and 7 of the Natural

Gas Act is limited to ‘‘natural gas

compan[ies],’’ 8 this limitation is not

applicable to the Commission’s

jurisdiction under the transparency

provisions.9 As a consequence, in order

to assess the size and structure of U.S.

natural gas markets, information about

wholesale natural gas transactions is

required from a market participant

regardless of whether it is subject to the

Commission’s traditional jurisdiction.

7. By obtaining information about

natural gas transactions, the final rule

would further the Commission’s efforts

to monitor price formation in the

wholesale natural gas markets, which

support the Commission’s marketoriented policies for the wholesale

natural gas industries. Those policies in

turn require that interested persons have

broad confidence that reported market

prices accurately reflect the interplay of

legitimate market forces. Without

confidence in the basic processes of

price formation, market participants

cannot have faith in the value of their

transactions, the public cannot believe

that the prices they see are fair, and it

is more difficult for the Commission to

ensure that jurisdictional prices are

‘‘just and reasonable.’’ 10

8. The performance of Western

electric and natural gas markets early in

the decade shook confidence in posted

market prices for energy. In examining

these markets, the Commission’s Staff

8 See 15 U.S.C. 717b–717i.

9 Section 23 of the Natural Gas Act, 15 U.S.C.

717t–2 (2000 & Supp. V 2005).

10 See sections 4 and 5 of the Natural Gas Act, 15

U.S.C. 717c, 717d; sections 205 and 206 of the

Federal Power Act, 16 U.S.C. 824d, 824e.

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found, inter alia, that some companies

submitted false information to the

publishers of natural gas price indices,

so that the resulting reported prices

were inaccurate and untrustworthy.11

As a result, questions arose about the

legitimacy of published price indices,

remaining even after the immediate

crisis passed. Moreover, market

participants feared that the indices

might have become even more

unreliable, since reporting (which has

always been voluntary) declined to

historically low levels in late 2002.

9. The Commission recognized

concerns about price discovery in

electric and natural gas markets as early

as January 2003, when, prior to passage

of EPAct 2005, the Commission made

use of its existing authority under the

Natural Gas Act and the Federal Power

Act to help restore confidence in natural

gas and electricity price indices. The

Commission expected that, over time,

improved price discovery processes

would naturally increase confidence in

market performance. On July 24, 2003,

the Commission issued a Policy

Statement on Electric and Natural Gas

Price Indices (Policy Statement) that

explained its expectations of natural gas

and electricity price index developers

and the companies that report

transaction data to them.12 On

November 17, 2003, the Commission

adopted behavior rules for certain

electric market participants in its Order

Amending Market-Based Rate Tariffs

and Authorizations relying on section

206 of the Federal Power Act to

condition market-based rate

authorizations,13 and for certain natural

gas market participants in Amendments

to Blanket Sales Certificates, relying on

section 7 of the Natural Gas Act to

condition blanket marketing

certificates.14 The behavior rules bar

11 See ‘‘Initial Report on Company-Specific

Separate Proceedings and Generic Reevaluations;

Published Natural Gas Price Data; and Enron

Trading Strategies—Fact Finding Investigation of

Potential Manipulation of Electric and Natural Gas

Prices,’’ Docket No. PA02–2–000 (Aug. 2003).

12 104 FERC ¶ 61,121 (2003). Subsequently, in the

same proceeding, the Commission issued an Order

on Clarification of Policy Statement on Natural Gas

and Electric Price Indices, 105 FERC ¶ 61,282

(2003) (Order on Clarification of Policy Statement)

and an Order on Further Clarification of Policy

Statement on Natural Gas and Electric Price

Indices, 112 FERC ¶ 61,040 (2005) (Order on

Further Clarification of Policy Statement).

13 Investigation of Terms and Conditions of Public

Utility Market-Based Rate Authorizations, 105

FERC ¶ 61,218, at P 1 (2003), superseded in part

by, Conditions for Public Utility Market-Based Rate

Authorization Holders, Order No. 674, 71 FR 9695

(Feb. 27, 2006), FERC Stats. and Regs. ¶ 31,208

(2006).

14 Amendments to Blanket Sales Certificates,

Order No. 644, 68 FR 66323 (Nov. 26, 2003), FERC

Stats. and Regs. ¶ 31,153, at P 1 (2003) (citing 15

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false statements and require certain

market participants, if they report

transaction data, to report such data in

accordance with the Policy Statement.

These participants must also notify the

Commission whether or not they report

prices to price index developers in

accordance with the Policy Statement.15

On November 19, 2004, the Commission

issued an order that addressed issues

concerning price indices in natural gas

and electricity markets and adopted

specific standards for the use of price

indices in jurisdictional tariffs.16

10. In the Policy Statement, among

other things, the Commission directed

Staff to continue to monitor price

formation in wholesale markets,

including the level of reporting to index

developers and the amount of adherence

to the Policy Statement standards by

price index developers and by those

who provide data to them.17 In adhering

to this directive, Commission Staff

documented improvements in the

number of companies that reported

prices from back offices, that adopted

codes of conduct, and that audited their

price reporting practices.18 These efforts

resulted in significant progress in the

amount and quality of both price

reporting and the information provided

to market participants by price

indices.19 Further, in conformance with

this directive, Commission Staff

recently concluded audits of three

natural gas market participants with

blanket certificate authority that were

data providers subject to § 284.403 of

the Commission’s regulations.20

U.S.C. 717f), reh’g denied, 107 FERC ¶ 61,174

(2004).

15 Certain portions of the behavior rules were

rescinded in Amendments to Codes of Conduct for

Unbundled Sales Service and for Persons Holding

Blanket Marketing Certificates, Order No. 673, 71

FR 9709 (Feb. 27, 2006), FERC Stats. and Regs.

¶ 31,207 (2006). The requirements to report

transaction data in accordance with the Policy

Statement and to notify the Commission of

reporting status were retained in renumbered

sections. 18 CFR 284.288(a), 284.403(a).

16 Price Discovery in Natural Gas and Electric

Markets, 109 FERC ¶ 61,184, at P 73 (2004).

17 Policy Statement at P 43.

18 Federal Energy Regulatory Commission,

‘‘Report on Natural Gas and Electricity Price

Indices,’’ at 2, Docket No. PL03–3–004 (2004).

19 See, e.g., General Accountability Office,

‘‘Natural Gas and Electricity Markets: Federal

Government Actions to Improve Private Price

Indices and Stakeholder Reaction’’ (December

2005).

20 The audits found general compliance with the

price reporting standards. See April 5, 2007 letter

issued to Anadarko Energy Services Co. in Docket

No. PA06–11–000 by Director, Office of

Enforcement and attached Audit of Price Index

Reporting Compliance; April 5, 2007 letter issued

to BG Energy Merchants, LLC in Docket No. PA06–

12–000 by Director, Office of Enforcement and

attached Audit of Price Index Reporting

Compliance; April 5, 2007 letter issued to Marathon

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11. Congress recognized that the

Commission might need expanded

authority to mandate additional

reporting to improve market confidence

through greater price transparency and

included in EPAct 2005 authority for

the Commission to obtain information

on wholesale electric and natural gas

prices and availability. Under the

Federal Power Act 21 and the Natural

Gas Act,22 the Commission has long

borne a responsibility to protect

wholesale electric and natural gas

consumers. EPAct 2005 emphasized the

Commission’s responsibility for

protecting the integrity of the markets

themselves as a way of protecting

consumers in an active market

environment. In particular, Congress

directed the Commission to facilitate

price transparency ‘‘having due regard

for the public interest, the integrity of

[interstate energy] markets, [and] fair

competition.’’ 23 In the new

transparency provisions of section 23 of

the Natural Gas Act, Congress provided

that the Commission may, but is not

obligated to, prescribe rules for the

collection and dissemination of

information regarding the wholesale,

interstate markets for natural gas, and

authorized the Commission to adopt

rules to assure the timely dissemination

of information about the availability and

prices of natural gas and natural gas

transportation in such markets.24

II. Overview of Final Rule

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12. In this final rule, the Commission

largely adopts the proposal in the

NOPR, with a few changes and a few

clarifications. The final rule requires

that any buyer or seller of more than a

de minimis volume of natural gas report

aggregate volumes of relevant

transactions in an annual filing using a

new form, Commission Form No. 552. A

market participant that buys or sells less

than a de minimis volume and that

operates under blanket sales certificate

authority under § 284.402 or § 284.284

of the Commission’s regulations must

also submit a Form No. 552 for

identification and certain reporting

purposes, but is not required to report

aggregate volumes of relevant

transactions. A market participant that

buys or sells less than a de minimis

Oil Co. in Docket No. PA06–13–000 by Director,

Office of Enforcement, and attached Audit of Price

Index Reporting Compliance.

21 16 U.S.C. 824 et seq.

22 15 U.S.C. 717 et seq.

23 Section 23(a)(1) of the Natural Gas Act, 15

U.S.C. 717t–2(a)(1) (2000 & Supp. V 2005); see also

section 220 of the Federal Power Act, 16 U.S.C. 824t

(2000 & Supp. V 2005) (identical language).

24 Section 23(a)(2) & (3) of the Natural Gas Act,

15 U.S.C. 717t–2(a)(2) & (3) (2000 & Supp. V 2005).

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volume but that does not operate under

blanket sales certificate authority need

not submit a Form No. 552. Filings of

the form will be due on May 1 of each

year, starting on May 1, 2009 for the

calendar year 2008.

13. The significant changes from the

proposal in the NOPR fall generally into

four categories. The first category of

changes focuses the reporting

requirement solely on wholesale buyers

and sellers by excluding retail

transactions. The second category of

changes, intended to focus on price

formation in the spot markets, narrows

the questions on new Form No. 552 to

obtain information about the amount of

daily or monthly fixed-price trading that

are eligible to be reported to price index

publishers as compared to the amount

of trading that uses or refers to price

indices. The third category of changes

expands the number of companies that

must state publicly whether or not they

report to index price publishers. The

last category involves other

clarifications of questions raised in

comments and changes made to

streamline completion of the form.

14. On Form No. 552, certain

wholesale natural gas buyers and sellers

must identify themselves to the

Commission and report summary

information about their physical natural

gas transactions for the previous

calendar year including:

a. the total volume of transactions for

the previous calendar year;

b. the volume of transactions that

were priced at fixed prices for next-day

delivery and were reportable to price

index publishers;

c. the volume of transactions priced

by reference to next-day gas price

indices;

d. the volume of transactions that

were priced at fixed prices for nextmonth delivery and were reportable to

price index publishers; and,

e. the volume of transactions priced

by reference to next-month gas price

indices.

15. As defined in Form No. 552, a

transaction is ‘‘reportable to price index

publishers’’ if it is made at a reportable

location where a price index publisher

collects information for fixed-price

transactions with next-day or nextmonth delivery obligations in order to

create a price index. As these locations

may change over time, Commission

Staff will post each year a list for the

coming year of current ‘‘Reportable

Locations’’ for each price index

publisher on the Commission Web site

at http://www.ferc.gov/docs-filing/

eforms.asp#552. This information will

allow a market participant to determine

whether a transaction should be

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classified on Form No. 552 as a

reportable transaction, i.e., one made at

a reportable location.

16. In addition, on the form, a natural

gas seller must state whether it operates

under blanket certificate authority

under § 284.402 of the Commission’s

regulations, whether it reports

transactions to price index publishers,

and whether any such reporting

complies with the standards provided in

§ 284.403(a).25 Similarly, an interstate

pipeline must state whether it operates

under blanket certificate authority

under § 284.284 of the Commission’s

regulations, whether it reports

transactions to price index publishers

and whether any such reporting

complies with the standards provided in

§ 284.288(a).26

17. The final rule requires these

holders of blanket sales certificates and,

also, wholesale buyers and sellers of

more than a de minimis volume in the

reporting year to report to the

Commission on Form No. 552 whether

they report transactions to natural gas

price index publishers.27 Sellers with

blanket sales authority must indicate

whether such reporting complies with

the Commission’s standards for such

reporting. Prior to this final rule, such

sellers were required to notify the

Commission only when it changed their

practice regarding such reporting. The

final rule will make notifications of

reporting status more reliable.

18. The final rule is designed to

permit an annual estimate of (a) the size

of the physical domestic natural gas

market, (b) the use of index pricing in

that market, (c) the size of the fixedprice trading market that produces price

indices from the subset reported to

index publishers, and (d) the relative

size of major traders. Obtaining such

estimates requires information from all

significant buyers and sellers of

wholesale natural gas in the United

States. The final rule creates an annual

requirement that buyers and sellers of

more than a de minimis volume of

25 In its regulations, the Commission grants

automatically blanket certificates of convenience

and necessity under section 7 of the Natural Gas

Act to interstate natural gas pipelines ‘‘to provide

unbundled firm and interruptible sales,’’ 18 CFR

284.284 (blanket certificates for unbundled sales

services), and to any person who is not an interstate

pipeline ‘‘to make sales for resale at negotiated

rates,’’ 18 CFR 284.402 (blanket market certificate).

26 The Commission recognizes that few if any

interstate natural gas pipelines still make wholesale

sales. Nevertheless, if they were to sell gas at

wholesale in interstate commerce, they would be

subject to the final rule. More relevant, of course,

is the fact that all of their affiliates making

wholesale sales in interstate commerce would be

subject to the final rule.

27 New 18 CFR 260.401.

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natural gas report volumes of relevant

transactions to the Commission.

19. Although the natural gas

transparency provisions authorize the

Commission to require reporting of

detailed transaction-by-transaction

information from wholesale natural gas

buyers and sellers, the Commission will

collect a more limited set of aggregate

information designed to assess the

market.

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III. Notice of Proposed Rulemaking

20. In the NOPR, the Commission

proposed that buyers and sellers of more

than a de minimis volume of natural gas

be required to report aggregate numbers

and volumes of relevant transactions in

an annual filing. The Commission

proposed a form for this reporting,

which was attached to the NOPR as

‘‘Form [X].’’

21. Under the proposed reporting

requirement, certain natural gas buyers

and sellers would have had to identify

themselves to the Commission and

report summary information about

physical natural gas transactions for the

previous calendar year including: (a)

Their total amount of physical natural

gas transactions by number and volume;

(b) the breakdown of their transactions

by purchases and sales; (c) the number

and volume breakdown of their

purchases and sales by whether they

were conducted in monthly or daily

spot markets; and (d) the number and

volume breakdown of their purchases

and sales by type of pricing, in

particular whether that pricing was

fixed or indexed.

22. In addition, under the proposal, a

natural gas seller would have been

required to state whether it operates

under blanket certificate authority

under § 284.402 of the Commission’s

regulations, whether it reports

transactions to price index publishers

and whether any such reporting

complies with the standards provided in

§ 284.403(a). Similarly, an interstate

pipeline would have been required to

state whether it operates under blanket

certificate authority under § 284.284 of

the Commission’s regulations, and

whether it reports transactions to price

index publishers and whether any such

reporting complies with the standards

provided in § 284.288(a).

23. In response to the NOPR, seventyfour entities filed comments.

Commission Staff held an informal

workshop to discuss implementation

and other technical issues associated

with the proposals set forth in the NOPR

on July 24, 2007. Following the

workshop, twenty-nine entities filed

reply comments.

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IV. Comments on the Notice of

Proposed Rulemaking

A. Merits of Annual Reporting

Requirement

24. As an initial matter, no

commenter asserted that the

Commission lacked jurisdiction to

implement the annual reporting

proposal or lacked jurisdiction over

market participants required to report,

i.e., ‘‘any buyer or seller that engaged in

wholesale physical natural gas

transactions the previous calendar

year.’’ 28

25. The vast majority of commenters

on this issue supported the annual

reporting proposal, although many

suggested refinements. For instance,

MidAmerican Energy Company and

PacifiCorp (MidAmerican) supported

the reporting proposal and praised

FERC’s ‘‘sensible approach,’’ which

would ‘‘help market participants and

state and federal regulators better

understand the natural gas market and

pricing process.’’ 29 Similarly,

Wisconsin Electric Power Company and

Wisconsin Gas Company LLC (the

Wisconsin Companies) supported the

reporting proposal stating that the

‘‘benefits of such a reporting regime

outweigh the expenditures of resources

necessary to implement.’’ 30 The

Wisconsin Companies cautioned,

however, that ‘‘[a]ny further frequency

or granularity in the reporting

requirements * * * would be unduly

burdensome.’’ 31 The Wisconsin

Companies proposed changes to the

information reported, suggesting a

simple breakdown for transaction

information between monthly or daily

spot markets would be insufficient and

suggesting obtaining information about

transactions of longer than a month and

intraday transactions.32 The Wisconsin

Companies reasoned that these

categories of transactions ‘‘make up a

substantial amount of the purchases and

sales conducted by the Companies and

therefore need to be included in the

reporting.’’ 33

26. The Public Service Commission of

New York (PSCNY) supported the

annual reporting proposal as a way to

‘‘provide critical information to analyze

the important volumetric relationships

between the fixed-price day-ahead or

month-ahead transactions that form

28 New 18 CFR 260.401(b).

29 MidAmerican Comments at 1 & 5; see also

Statoil Comments at 4–5 (supporting annual

reporting requirement).

30 Wisconsin Companies Comments at 4.

31 Id.

32 Id. at 6.

33 Id.

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1017

price indices.’’ 34 The Producer

Coalition 35 also supported the annual

reporting proposal as a way to create

greater market confidence and

transparency. The information obtained

from the requirement, according to the

Producers Coalition, would result in

greater understanding of the prices and

availability of physical natural gas in

interstate commerce and allow for

assessment of the ratio of fixed-price

transactions to index-priced

transactions.36 AGA supported the

annual reporting of transaction data

‘‘because it could provide valuable

information regarding the size of the

physical natural gas markets.’’ 37

27. In opposition to the annual

reporting proposal, Morgan Stanley

Capital Group Inc. (MSCG) contended

that the Commission did not establish in

the NOPR a clear connection between

the required annual reporting and the

statutory goal to achieve price

transparency in the physical gas

markets.38 For its part, MSCG asserted

its confidence in the markets and

contended it did not need the

information that would be provided

through the annual reporting

requirement proposal.39 MSCG observed

that the price indices are already good

and are getting better which renders any

annual reporting requirement an

unnecessary burden.40 MSCG described

the proposal as an ‘‘additional

regulatory intervention to benefit the

publishers’ commercial enterprise.’’ 41

Also in opposition, DCP Midstream LLC

(DCP) objected to the annual reporting

proposal as unnecessary given that there

are other sources available for the

information sought in the proposal.42

28. Platts, a price index publisher,

proposed revisions to the annual

reporting proposal. Platts contended

that as drafted the annual reporting

proposal could provide misleading

information regarding the universe of

fixed-price transactions and create a

misleading comparison of fixed-priced

transactions and index-priced

transactions.43 This problem arises,

according to Platts, because the

proposed definition of fixed-price

transactions lumped together two

34 PSCNY Comments at 2.

35 The Producer Coalition consists of three

independent producers: Forest Oil Corporation;

Hydro Gulf of Mexico LLC; and, Newfield

Exploration Company.

36 Producer Coalition at 3.

37 AGA Comments at 3.

38 MSCG Comments at 7.

39 Id.

40 Id.

41 Id.

42 DCP Comments at 4–6.

43 Platts Comments at 4–7.

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categories of fixed-price transactions: (a)

Fixed-price transactions that are eligible

for inclusion in a published price index

(‘‘indexable’’ as described by Platts);

and (b) fixed-price transactions that are

not eligible. Without distinguishing

these two categories, the information

reported could not be used to determine

the percentage of fixed-price

transactions that are reported to price

index publishers.44 Platts summarized

the problem: ‘‘the proposed reporting

form would sweep up far more physical

fixed-price deals than are eligible for

inclusion in Platts’s indices. Rather than

enabling a comparison of apples to

apples, it would compare apples and

fruit salad.’’ 45

29. To avoid this problem, Platts

recommended that the Commission

distinguish between ‘‘transactions that

are eligible to be included in [published

price] indices and those that are not.’’ 46

In support of this recommendation,

American Public Gas Association

(APGA) advocated changing the survey

form to obtain data to determine ‘‘what

proportion of reportable fixed-price

transactions are actually being reported’’

to index publishers.47 APGA asserted

that, when survey data are collected,

FERC should ‘‘be able to determine once

and for all whether the indices, on the

basis of which hundreds of millions of

dollars of natural gas are traded, are

grounded in fixed-price transactions

representing most of the fixed-price

transactions being consummated in the

market.’’ 48

30. Platts, in its comments, also

suggested that all companies—not just

blanket certificate holders—notify the

Commission annually of their price

reporting status.49 Additionally, Platts

suggested that all companies affirm that

their price reporting practices comply

with the Policy Statement procedures.50

31. Calpine Corporation (Calpine)

contended that the Commission should

avoid collection of information that is

available elsewhere. As an example,

Calpine suggested that a market

participant that submits information on

its fossil-fuel purchases to the U.S.

Department of Energy’s Energy

Information Administration (EIA) not be

required to file an annual report at the

Commission.51

44 Id. at 5.

45 Id. at 7.

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46 Id. at 4.

47 APGA Reply Comments at 1; see also AGA

Reply Comments at 7 (supporting ‘‘capture’’ of

transactions eligible to be reported to a price index

publisher).

48 APGA Reply Comments at 3.

49 Platts Comments at 8.

50 Id.

51 Calpine Comments at 4.

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B. De Minimis Threshold

32. In the NOPR, the Commission

proposed to define a de minimis market

participant as a market participant that

engages in physical natural gas

transactions that amount by volume to

less than 2,200,000 MMBtus annually

and to exclude such de minimis market

participants from reporting transaction

information.52 Several commenters

sought to increase the de minimis

threshold.53 MSCG supported a higher

de minimis volume based on 200

standard futures contracts per day as a

way to focus only on large sellers.54

Northwest Industrial Gas Users

(Northwest Industrials) argued for

increasing the annual volume threshold

significantly from the proposed

2,200,000 MMBtus per year to

136,000,000 MMBtu per year.55

Independent Oil & Gas Association of

West Virginia proposed a greater de

minimis threshold of 10,000,000

MMBtu/year.56 A greater de minimis

threshold would reduce the burden, it

contended, for some of its small

producer-members.57 The Wisconsin

Companies called for a greater de

minimis threshold because the

threshold set forth in the NOPR uses

‘‘physical volumes consumed [and,

thus], may ignore the reality of daisy

chain sales; that is, many transactions

can occur before natural gas ultimately

reaches the consumer.’’ 58

33. Some commenters supported the

Commission’s proposed de minimis

threshold.59 The Texas Alliance of

Energy Producers (Texas Alliance)

contended that the de minimis

threshold for annual transaction

reporting is reasonable.60 IPAA

advocated setting the de minimis

threshold as a function of the market

size rather than setting it as a fixed

number.61

34. The Interstate Natural Gas

Association of America (INGAA) sought

clarification that a de minimis market

participant need only file basic

identification and whether it reports

transactions to index price publishers.62

C. Exclusion of Certain Transactions

35. Commenters sought to exclude

certain transactions from the reporting

requirement. INGAA sought to exclude

interstate pipeline transactions

associated with cash-out and operations

because such information is already

reported by some in Form No. 2 and on

electronic bulletin board (EBB) postings

and because such operational

transactions would only distort

assessment of the quantity of gas

available for trading in the interstate

market.63 The Oklahoma Independent

Petroleum Association (Oklahoma IPA)

sought to exclude transactions priced

pursuant to a ‘‘percentage of proceeds’’

contract under which a producer is

required to sell any gas produced and

receive the percentage of proceeds

realized by the buyer.64 Oklahoma IPA

argued that sellers of such contracts

have no influence on the price for the

sale of gas.65 Along those lines,

Oklahoma IPA argued that the de

minimis threshold is too low.66

36. Shell sought to exclude reporting

transactions that are related to

operational functions and transactions

between affiliates.67 As transactions

related to operational functions, Shell

included imbalance make-up, royaltyin-kind payments, gas provided for

processing such as plant thermal

reduction (shrinkage), and purchases

and sales related to the production and

gathering function.68 Such transactions,

Shell contended, are not part of the

wholesale market and their reporting

would not provide a meaningful

benefit.69 As to affiliate transactions,

Shell noted that the Commission’s

Policy Statement excludes transactions

between affiliate companies.70

37. MSCG supported the exclusion of

financially settled transactions from the

proposed reports, claiming that the

Commission lacks jurisdiction over

natural gas futures contracts that are not

settled through physical delivery.71

Further, MSCG asserted that the

Commission’s memorandum of

understanding with the Commodity

Futures Trading Commission could

facilitate obtaining such information.72

52 NOPR at P 52.

53 MSCG Comments at 10; Northwest Industrial

Gas Users Comments at 7–10; Independent Oil &

Gas Association of West Virginia at 3–4.

54 MSCG Comments at 10; see also INGAA

Comments at 8 (supporting MSCG’s de minimis

proposal).

55 Northwest Industrials at 7–10.

56 West Virginia Independents Comments at 3–4.

57 Id.

58 Wisconsin Companies Comments at 5.

59 See, e.g., APGA Comments at 10.

60 Texas Alliance Comments at 12.

61 IPAA Comments at 3–4.

62 INGAA Comments at 8.

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63 Id. at 9.

64 Oklahoma IPA Comments at 3.

65 Id. at 3; see also Hess Corporation Comments

at 4–6.

66 Oklahoma IPA Comments at 3.

67 Shell Comments at 8.

68 Id.

69 Id. at 8–9.

70 Id. at 9 (citing Price Discovery in Natural Gas

and Electric Markets, Policy Statement on Natural

Gas and Electric Price Indices, 104 FERC ¶ 61,121

(2003) (Policy Statement)).

71 MSCG Comments at 8.

72 Id.

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38. The Natural Gas Supply

Association (NGSA) sought clarification

that a market participant did not need

to report the following transactions: (1)

liquefied natural gas (LNG) import

transactions prior to regasification; (2)

natural gas exports from LNG

liquefaction facilities; (3) transactions

related to export for re-import; (4)

transactions among affiliates; (5) sales

and purchases in Alaska; and (6) sales

to or purchases by an end-user.73

39. Several commenters sought to

exclude retail transactions involving

end-use customers from reporting. In its

reply comments, the American Forest &

Paper Association contended that enduse customers should not be required to

report end-use purchases because enduse purchases do not play a role in

setting index prices.74 NGSA sought

clarification that the Commission did

not intend to require the reporting of

non-wholesale transactions in the

annual report.75 NGSA contended that

the Commission must limit reporting to

wholesale transactions made in

interstate commerce because section 23

of the Natural Gas Act limits the

information the Commission may obtain

to wholesale transactions in interstate

commerce.76

40. AGA called for the Commission to

exclude reporting of retail sales or

volumes transported for others under

retail choice programs.77 The National

Energy Marketers Association (NEM)

requested that retail transactions be

exempt from any reporting

requirement.78

41. EnCana Marketing seeks

clarification that the reporting

requirement only applies to transactions

in the United States.79

D. Mandatory Reporting of Fixed-Price

Transactions to Publishers

42. Some commenters advocated for

the Commission to use its transparency

authority to require mandatory reporting

of fixed-price transactions directly to

price index publishers or indirectly to

them through the Commission. APGA

sees the annual reporting proposal set

forth in the NOPR ‘‘as an important first

step in the journey towards full

transparency in the physical market,’’

but stated that the Commission should

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73 NGSA Comments at 15.

74 AF&PA Comments at 5–7; see also NGSA

Comments at 12–14; Industrial Energy Consumers

of America Comments at 3.

75 NGSA Comments at 14.

76 NGSA Comments at 12; see also Honeywell

Reply Comments at 2.

77 AGA Comments at 3.

78 NEM Comments at 4–7.

79 EnCana Marketing Comments at 5.

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go further and seek mandatory reporting

of fixed-price transactions.80

43. In contrast, other commenters

objected to any mandatory reporting of

fixed-price transactions.81 For instance,

concurring with the Commission’s

reasoning set forth in the NOPR, the

NEM opposed mandatory reporting,

saying that voluntary reporting with a

safe harbor for a good-faith effort is

sufficient.82

E. Purchases and Sales

44. Several commenters objected to

reporting of information regarding

purchases. Several parties asserted that

double-counting would result from the

inclusion of purchases and sales.83

EnCana Marketing (USA) Inc. (EnCana

Marketing) called for reporting on only

sales of natural gas and not for

purchases.84 EnCana Marketing asserted

there is no value in reporting purchases

‘‘other than to enlarge the universe of

market participants obligated to

undertake the new reporting

requirement.’’ 85

45. MSCG stated that the Commission

should require the reporting of only

sales, not purchases, contending that

requiring buyers to report purchases

would be overreaching.86 The Texas

Alliance contended it would be more

efficient to require only the purchaser

and/or recipient of gas from producers

to file a report.87

F. Frequency of Reporting

46. Several commenters support

reporting no more frequently than

annually. EnCana Marketing contended

that reporting more frequently than

annually would be burdensome while

not providing a significant benefit.88

MSCG contended that any reporting

should be annual, unless a clear

connection can be established that more

frequent reporting results in greater

transparency.89 In contrast, the National

Association of Royalty Owners (NARO)

favored monthly transaction reporting

rather than just annual reporting; it

stated that monthly as well as regional

reporting would be more useful to

80 APGA Comments at 5–8.

81 Platts also supports FERC’s ‘‘continued reliance

on voluntary price reporting.’’ Platts Comments at

2; see also Electric Energy Institute (EEI) and the

Alliance of Energy Suppliers Reply Comments at 3;

ONEOK Energy Services Co. L.P. Comments at 3.

82 NEM Comments at 2–3.

83 See, e.g., Northwest Industrials Reply

Comments at 4.

84 EnCana Marketing at 8–9.

85 Id. at 9.

86 MSCG Comments at 9.

87 Texas Alliance Comments at 12.

88 EnCana Marketing Comments at 10.

89 MSCG Comments at 9.

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1019

royalty owners, including for the

monitoring of price index reliability.90

G. Codification of Price Index Policy

47. In the NOPR, the Commission

sought comment on whether to codify

the price index policy standards into the

regulations. The regulations describe the

price index policy standards by

reference to the Policy Statement.91

NARO supported codification of the

price index policy standards because

the enforcement power of the

Commission is necessary to protect the

integrity of the data.92 MSCG opposed

such codification.93

H. Aggregation of Data

48. The Wisconsin Companies call for

the discretion to submit separate reports

because ‘‘[a] requirement for

[combination utilities] to submit a single

annual report is problematic in that the

separation of these business units

currently prevents the sharing of market

information that would be relevant to

the reporting requirements.’’ 94

49. The Electric Power Supply

Association (EPSA) called for

companies to have the option to file

either aggregated data for all its affiliate

companies that buy and sell natural gas

or individual reports for each entity that

buys or sells gas.95 Similarly, Calpine

Corporation called for the Commission

to allow companies to aggregate data

from subsidiaries in order to reduce the

burden on industry and to provide the

benefit of eliminating double-counting

of intracompany transactions.96

50. NGSA wanted clarification that

the annual transaction report, with a

few exceptions, applies to all

nonaffiliated third parties, and one

report can be filed on behalf of all

entities in a corporate family.97 NGSA

advocated exclusion of sales between

affiliates because such information

90 NARO Comments at 4; see also Mewbourne Oil

Company Comments at 5.

91 Title 18 of the CFR, section 284.403(a) reads,

in relevant part:

‘‘To the extent Seller engages in reporting of

transactions to publishers of electricity or natural

gas indices, Seller shall provide accurate and

factual information, and not knowingly submit false

or misleading information or omit material

information to any such publisher, by reporting its

transactions in a manner consistent with the

procedures set forth in the Policy Statement on

Natural Gas and Electric Price Indices, issued by

the Commission in Docket No. PL03–3–000 and any

clarifications thereto.’’

See also 18 CFR 284.288(a) (identical language).

92 NARO Comments at 5; see also MidAmerican

Comments at 10.

93 MSCG Comments at 12.

94 Wisconsin Companies Comments at 6.

95 EPSA Comments at 7–8.

96 Calpine Comments at 4–5.

97 NGSA Comments at 15.

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would not be meaningful.98 NGSA

contended that such exclusion is

consistent with the price index

reporting standards set forth in the

Policy Statement, which ‘‘prohibit the

reporting of sales between affiliates to

price index developers.’’ 99

51. On a similar issue, AGA and Duke

Energy Ohio, Inc. sought clarification on

the reporting obligations of asset

managers.100

I. Public Filing

52. Several commenters supported

maintaining as non-public any

aggregated transaction data to be

filed.101 NGSA contended that ‘‘the

annual aggregated transactional

information could cause competitive

harm to the market by potentially

revealing corporate proprietary trading

strategies of a company particularly [if

it has] geographically concentrated

trading or supply portfolios.’’ 102 Pacific

Gas & Electric (PG&E) contended that

data filed by market participants should

be maintained as non-public for one

year following the calendar year for

which the data pertain to avoid

revealing competitive buying

strategies.103 Enbridge contended that

each entity should have the option to

file information non-publicly.104

53. NGSA advocated that any

reporting be non-public. NGSA argued

that even ‘‘annual aggregated

transactional information could cause

competitive harm to the market by

potentially revealing corporate

proprietary trading strategies of a

company, particularly for companies

with geographically concentrated

trading or supply portfolios.’’ 105 NGSA

explained that making public ‘‘the

percentage of a company’s portfolio that

is index-based or fixed-price-based and

the percentage of natural gas sold in the

monthly and daily markets’’ would

reveal the company’s ‘‘procurement

strategy and risk profile,’’ thus reducing

its competitiveness in future deals.106

To address this concern, NGSA

suggested not publicly disclosing the

individual company filings or

‘‘redacting the identity of the market

participant making the filing.’’ 107

J. Filing Date

54. In the NOPR, the Commission

proposed an annual filing deadline of

February 15 and asked for comment on

whether this deadline would be unduly

burdensome.108 MSCG and Statoil

called for a deadline of April 30.109

AGA recommended a filing date of May

1.110 NGSA recommended a filing date

of either May 1 or April 18, which is the

filing deadline of FERC Form No. 2.111

K. Safe Harbor

55. Several commenters requested

that the Commission adopt a safe harbor

for good faith compliance with the

reporting obligation.112 The

Commission should state, according to

AGA, that it will not ‘‘prosecute,

penalize or otherwise impose remedies

on parties for inadvertent errors in

* * * reporting.’’ 113

L. Information Collection Burden

56. NEM and Sequent Energy

Management, L.P. (Sequent) stated that

the Commission significantly

underestimated in the NOPR the cost

burden imposed by the annual reporting

proposal.114 NEM stated an estimate

that it would take approximately 200

hours annually to comply with the

reporting requirement.115 NEM

explained that because market

participants’ data is not currently stored

in a format that could be used to fill out

the proposed form, market participants

would need to develop ancillary

information technology systems to store

such data at significant cost.116 NEM

also stated that although the proposal

would require annual reporting, data

collection would be needed daily,

which would be costly.117 Sequent

pointed out that the Commission

estimate overlooks the costs of legal and

regulatory compliance for each annual

report.118 Sequent also stated that the

cost burden estimate ignores asset

management arrangements because an

annual reporting requirement would

trigger renegotiation of those asset

management contracts.119

108 NOPR at P 68.

109 MSCG Comments at 9; Statoil Comments at 6–

7.

98 Id.

110 AGA Comments at 4.

99 NGSA Reply Comments at 4.

111 NGSA Comments at 15–16.

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100 AGA Comments at 3; Duke Energy Ohio, Inc.

Comments at 8–9.

101 Nicor Gas Company Comments at 6; Statoil

Natural Gas LLC Comments at 5; PG&E Comments

at 6; NGSA Reply Comments at 2.

102 NGSA Reply Comments at 2.

103 PG&E Comments at 6.

104 Enbridge Comments at 26.

105 NGSA Comments at 2.

106 Id.

107 Id.

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112 AGA Comments at 6–7; NGSA Comments at

16–17; PG&E Comments at 6; Suez Energy North

America, Inc. Comments at 10–12.

113 AGA Comments at 7.

114 NEM Comments at 7; Sequent Comments at 6–

7.

115 NEM Comments at 8.

116 NEM Comments at 7.

117 NEM Comments at 8.

118 Sequent Comments at 7.

119 Sequent Comments at 7.

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V. Commission Determination

57. On the basis of the comments, the

Commission has determined to adopt in

large part the proposed annual reporting

of certain natural gas transaction

information, but to modify its proposal

in several ways. Specifically, the

Commission adopts rules here to require

certain market participants to report

annually information about their

wholesale, physical natural gas

transactions delivered in the previous

calendar year in the United States of

America on a form, Form No. 552.120

For purposes of the annual reporting

requirement, a market participant is

defined as ‘‘any buyer or seller that

engaged in wholesale, physical natural

gas transactions in the previous

calendar year.’’ 121 Specifically, on Form

No. 552, a market participant must

provide the Commission with contact

information and answer questions about

whether it sells pursuant to a blanket

sales certificate and whether it reports

to price index publishers. A market

participant that sold or purchased more

than a specified de minimis volume of

natural gas during the previous calendar

year, regardless of whether it holds a

blanket sales certificate, must also

provide the following information:

a. The total volume of transactions for

the previous calendar year;

b. The volume of transactions that

were priced at fixed prices for next-day

delivery and were reportable to price

index publishers;

c. The volume of transactions priced

by reference to next-day gas price

indices;

d. The volume of transactions that

were priced at fixed prices for nextmonth delivery and were reportable to

price index publishers; and,

e. The volume of transactions priced

by reference to next-month gas price

indices.

58. The final rule will also require a

market participant to report whether it

operated under a blanket sales

certificate under the Commission’s

regulations, § 284.402 or § 284.284. This

information will allow the Commission

to measure overall market activity of the

entities subject to its jurisdiction under

the Natural Gas Act as well as allow the

Commission to maintain records of such

entities. The final rule will require a

market participant to indicate whether it

120 As we stated in the NOPR, although the

standard contract for the most significant natural

gas futures market traded on the New York

Mercantile Exchange (NYMEX) requires physical

delivery, the vast majority of those transactions do

not go to delivery. For the purposes of the reporting

requirement, the Commission excludes volumes of

futures transactions from reporting.

121 New 18 CFR 284.401(b).

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Federal Register / Vol. 73, No. 3 / Friday, January 4, 2008 / Rules and Regulations

reports transactions to any price index

publishers, and, if so, whether their

reporting conforms to the standards set

forth in § 248.403 or § 248.288, as

applicable. This information will allow

the Commission to ensure the accuracy

of price indices and to monitor

adherence to the Commission’s

transaction reporting standards.

59. The final rule retains several of

the specific proposals presented in the

NOPR: the de minimis threshold is to

remain the same; all filings are to be

made public; both purchases and sales

are to be reported; and the filing will be

annual.

60. The final rule makes several

changes to the proposal in the NOPR.

They include the following:

a. Reporting will be limited to buyers

and sellers only of wholesale natural gas

delivered in the United States, i.e., it

excludes sales to end-users.

b. All wholesale buyers and sellers of

natural gas operating under a blanket

sales certificate and all others buying or

selling more than the de minimis

volume must provide contact

information, indicate whether they are

operating under a blanket sales

certificate, and whether they report

prices to an index publisher. In the

NOPR, the Commission did not propose

asking wholesale buyers and sellers that

are not operating under a blanket sales

certificate whether they report prices to

index publishers.

c. A company with multiple affiliates

may choose to report separately or in

aggregate, as best meets its needs. In the

NOPR, we assumed that reporting

would be by affiliate or subsidiary.

d. The questions on the form now

request data relating to transactions

with expected deliveries in the

reporting year, rather than transaction

dates.

e. The form no longer requests the

number of transactions.

f. The definitions of fixed-price

transactions in the form have been

changed to tie more directly to those

volumes that could be reported to index

providers. To clarify those terms, the

Commission will establish a web site

defining reportable locations previous to

each reporting year, and providing links

to active index publishers and their

reporting definitions.

61. The final rule includes further

instructions regarding certain specific

categories of reportable and nonreportable transactions. The final rule

also discusses some general issues

raised by commenters including safe

harbor provisions, mandatory reporting

of fixed-price transactions to price index

publishers, and possible effects of the

rule on price index publishers.

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62. By obtaining the volume of

transactions conducted for each

significant market participant, the

Commission, market participants and

others will be able to determine the

overall level of activity of market

participants in the physical natural gas

market. In particular, the information

will provide regularly an estimate of (a)

the size of the physical U.S. domestic

natural gas market, (b) the use of index

pricing in that market, (c) the size of the

fixed-price trading market that produces

price indices, and (d) the relative sizes

of major traders.

63. This information will improve the

understanding of index pricing by

interested entities, including the market

participants and state commissions who

use them. The volume break-down of

transactions by price type, fixed-price or

index-price, should permit an overall

assessment of the ratio of index-using

transactions to price-forming

transactions, i.e., fixed-price

transactions. At present, we do not

know how much fixed-price

transactions are a part of the universe of

natural gas transactions, although they

may be the minority of natural gas

transactions.122 The Commission has

taken several steps to restore confidence

in natural gas index prices and their

formation. By obtaining information

regarding the extent that market

participants make fixed-price

transactions, market participants will be

able to evaluate their confidence in the

index prices that are formed by those

fixed-price transactions.

64. By collecting sales and purchases

information, results may also be crosschecked to ensure that information is

accurate. In effect, total sales should

roughly equal total purchases, with

some allowance for de minimis buyers

and sellers.

A. Definitions

65. Definitions used in this final rule

for development of Form No. 552

include the following:

a. Affiliate—An affiliate means a

person who controls, is controlled by or

is under common control with, another

person.123

122 Tr. at 32 (Comments of Ms. Jane LewisRaymond, American Gas Association) (surmising

that we currently cannot know the amount of fixedprice transactions and the amount of fixed-price

trades that make up an index).

123 A market participant has the option of

including an affiliate’s information in its reporting

on Form No. 552. This is a matter of convenience

for companies subject to the final rule. Their

affiliations are irrelevant to whether they are

required to report under the final rule. If they

satisfy the criteria of a reporting market participant,

they must report. Therefore, the Commission

intends to allow market participants to determine

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1021

b. Fixed Price—A ‘‘Physical Natural

Gas’’ price determined by agreement

between buyer and seller and not

benchmarked to any other source of

information. For example, Physical

Basis transactions that refer directly to

futures prices, for the purpose of this

form, are not ‘‘Fixed Price’’ transactions.

c. Next-Day Delivery—Delivery of a

transaction executed prior to NAESB

nomination deadline (11:30 am Central

Prevailing Time) on one day for uniform

physical delivery over the next pipeline

day. Transactions done for Friday are

usually for flow on Saturday, Sunday,

and Monday inclusive. Trading patterns

may vary in the case of holidays or the

end of a month that occurs on a

weekend. Commission Staff will

maintain links to price index

publishers’ descriptions of their

processes for receiving price

information and publishing indices on

the ferc.gov Web site at http://

www.ferc.gov/docs-filing/

eforms.asp#552.

d. Next-Month Delivery—Delivery of a

transaction executed during the last five

(5) business days of one month for

uniform physical delivery over the next

month.

e. Physical Natural Gas—Natural gas

transactions that contain an obligation

to deliver natural gas at a specified

location and at a specified time, with

the exception of physically-delivered

futures contracts. It is not necessary that

natural gas actually be delivered under

the transactions, only that the delivery

obligation existed in the agreement

when executed. Certain Physical

Natural Gas transactions may not

remain in existence through the time of

delivery because they were traded away

or ‘‘booked out.’’ For purposes of this

form, these transactions should be

included whether they went to delivery

or not. The only exception,

notwithstanding its delivery obligation,

is futures contracts traded on the New

York Mercantile Exchange which

should not be reported in this form.

f. Price Index Publisher—Companies

that report price indices for U.S.

wholesale natural gas markets. The list

of companies can change over time.

Commission Staff will maintain a list of

relevant ‘‘Price Index Publishers’’ with

links to their descriptions of their

processes for receiving price

information and publishing indices on

the ferc.gov Web site at http://

www.ferc.gov/docs-filing/

eforms.asp#552.

whether their relationships permit one company to

report on behalf of another company. Accordingly,

the definitions of ‘‘affiliate’’ used elsewhere in the

Commission’s regulations, e.g., in Part 358, are not

germane.

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g. Prices that Refer to (Daily or

Monthly) Price Indices—Prices for

‘‘Wholesale Natural Gas Purchases’’ or

‘‘Sales’’ that reference directly a daily or

monthly index price published by a

‘‘Price Index Publisher’’ rather than a

‘‘Fixed Price’’ or a price that refers

directly to some other benchmark.

h. Quantity—Amount of purchases or

sales expressed in units of energy

‘‘British Thermal Units’’ (Btu). One

million BTUs (MMBtu) are, by

definition, the same as one Dekatherm

(Dth). A volume of one billion cubic feet

(Bcf) of natural gas contains

approximately one trillion Btus (TBtu or

million MMBtu) of energy depending on

the exact energy content of the natural

gas. The quantities to be reported in the

‘‘Purchase and Sales Information’’

schedule should be measured in TBtus.

i. Reportable Locations—Those

locations (hubs, pipelines, regions, etc.)

where ‘‘Price Index Publishers’’ collect

‘‘Fixed Price’’ information for

transactions with ‘‘Next-Day’’ or ‘‘NextMonth Delivery’’ obligations, and

produce index prices. These locations

may change over time. Commission

Staff will maintain a list of current

‘‘Reportable Locations’’ with links to

‘‘Price Index Publishers’’ descriptions of

their processes for receiving price

information and publishing indices on

the ferc.gov Web site at http://

www.ferc.gov/docs-filing/

eforms.asp#552.

j. Reporting Company—The person,

corporation, licensee, agency, authority,

or other legal entity or instrumentality

on whose behalf the report is being

submitted by the ‘‘Respondent.’’

k. Respondent—The person,

corporation, licensee, agency, authority,

or other legal entity or instrumentality

that is submitting the report either on its

own behalf, or on behalf of itself and/

or its affiliates. A Respondent may

choose to either report for all its

affiliates collectively, or may choose to

have each of its affiliates report

separately as their own ‘‘Respondent.’’ If

reporting collectively, the reporting

‘‘Respondent’’ must report for each

‘‘Affiliate’’ in the ‘‘Schedule of

Reporting Companies’’ and the ‘‘Price

Index Reporting Schedule,’’ and

collectively for all its affiliates in the

‘‘Purchase and Sales Information’’

schedule.

l. Wholesale Natural Gas Purchases—

The ‘‘Quantity’’ of ‘‘Physical Natural

Gas’’ purchased by the ‘‘Reporting

Company’’ during the ‘‘Year of Report,’’

with the exception of certain futures

contracts.

m. Wholesale Natural Gas Sales—The

‘‘Quantity’’ of ‘‘Physical Natural Gas’’

sold by the ‘‘Reporting Company’’

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during the ‘‘Year of Report’’ to

customers that do not use all the natural

gas they buy themselves under contracts

with physical delivery obligations, with

the exception of physically-delivered

futures contracts.

B. Facilitating Price Transparency

66. The annual reporting requirement

will make the price formation process

more transparent and aid the

Commission’s efforts to monitor price

indices and the integrity of wholesale

natural gas markets. These efforts follow

the directive of Congress in the

transparency provisions to facilitate

price transparency ‘‘having due regard

for the public interest, the integrity of

[the physical natural gas] markets, [and]

fair competition.’’ 124 By monitoring and

reporting on price indices and their

influence over wholesale natural gas

pricing in the United States, the

Commission ensures that market

participants can have confidence in the

oversight of published price indices, a

basic building block of price formation.

We reiterate that, without confidence in

the basic processes of price formation,

market participants cannot have faith in

the value of their transactions, the

public cannot believe that the prices

they see are fair, and it is more difficult

for the Commission to ensure that

jurisdictional prices are ‘‘just and

reasonable.’’ 125

67. The information gained from the

annual reporting requirement will make

the price formation process more

transparent by providing a better

understanding of the size of the physical

natural gas market, the use of fixed and

indexed prices in that market, and the

formation of price indices. The

information collected under this

requirement is focused specifically on

daily and monthly physical spot or

‘‘cash’’ market activity and the

contracting based on the prices

developed in those markets. The

requirement will not create additional

information concerning other types of

wholesale natural gas contracting

practices in the United States, such as

long-term, fixed-price transactions,

swaps and other financially-settled

transactions and futures. Better

understanding of the role and

functioning of wholesale natural gas

spot markets can increase confidence

that posted market prices of natural gas

accurately reflect the interplay of

legitimate market forces.

124 Section 23(a)(1) of the Natural Gas Act, 15

U.S.C. 717t–2(a)(1) (2000 & Supp. V 2005).

125 See sections 4 and 5 of the Natural Gas Act,

15 U.S.C. 717c & 717d.

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68. In promulgating these regulations

to improve the transparency of the

natural gas markets, the Commission

exercises its authority under the

transparency provisions. Under the

Natural Gas Act,126 the Commission has

long borne a responsibility to protect

wholesale electric and natural gas

customers.127 The transparency

provisions of EPAct 2005 added new

authority for protecting the integrity of

the markets themselves as a way of

protecting customers in an active market

environment.128 As discussed above,

Congress’s grant of transparency

authority followed the Commission’s

earlier efforts at monitoring the price

formation process.129 Congress

recognized that the Commission might

need expanded authority to mandate

additional reporting to improve market

confidence through greater price

transparency and included in EPAct

2005 authority for the Commission to

obtain information on the availability

and prices of sales of wholesale natural

gas.

69. Pursuant to this grant of authority,

the final rule continues the

Commission’s efforts to monitor price

index formation and to increase

transparency of the price formation

process, and, thus, protect the integrity

of the physical natural gas markets. The

final rule increases transparency by

allowing, for the first time, the

Commission and other market observers

to determine an annual estimate of (a)

the size of the physical domestic natural

gas market, (b) the use of index pricing

in that market, (c) the size of the fixedprice trading market that produces price

indices from the subset reported to

index publishers, and (d) the relative

size of major traders.

70. The information to be reported in

the annual reporting requirement falls

well within the Commission’s

transparency authority. In section 23 of

the Natural Gas Act, Congress provided

the Commission a broad grant of

authority to obtain and disseminate

‘‘information about the availability and

prices of natural gas sold at wholesale

and in interstate commerce.’’ 130

Information about the volume of

wholesale, physical gas transactions and

about the type of pricing used for those

transactions is ‘‘information about the

availability and prices of natural gas

126 15 U.S.C. 717 et seq.

127 See sections 4 and 5 of the Natural Gas Act,

15 U.S.C. 717c, 717d; sections 205 and 206 of the

Federal Power Act, 16 U.S.C. 824d, 824e.

128 See section 23(a)(1) of the Natural Gas Act, 15

U.S.C. 717t–2(a)(1) (2000 & Supp. V 2005).

129 See, supra, at P 11.

130 Section 23(a)(1) of the Natural Gas Act; 15

U.S.C. 717t–2(a)(1) (2000 & Supp. V 2005).

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sold at wholesale and in interstate

commerce.’’ 131

71. The information sought in the

final rule is not obtainable elsewhere.

Section 23(a)(4) of the Natural Gas Act

requires the Commission to ‘‘consider

the degree of price transparency

provided by existing price publishers

and providers of trade processing

services * * *.’’ 132 As we stated in the

NOPR, because of the way transactions

currently take place in the natural gas

industry, there is no way to estimate in

even the grossest terms the overall size

of the natural gas market or its

breakdown by types of contract

provision, including pricing (fixed

prices or prices using or referring to

price indices) and term (e.g., spot

transactions for next-day or next-month

delivery or forward transactions for

longer-term delivery).133 Further,

currently there is no way to determine

important volumetric relationships

between the fixed-price, day-ahead or

month-ahead transactions that form

price indices or to determine the use of

price indices themselves.

72. In comments on the NOPR, no

commenter pointed to a source for

similar information. DCP contended that

‘‘the information that is available

through the price index publishers is

the same information that is being

requested [in the annual reporting

proposal] and it is the actual data that

makes up the index prices that represent

the price of natural gas on any given day

at any given location.’’ 134 The

information to be reported on Form No.

552 is not the same. The information to

be reported will include information

regarding transactions that could be

(i.e., are qualified to be) but are not

reported to price index publishers,

therefore, such information is not

available from price index publishers.

The amount of market activity that

could form price indices as opposed to

the amount that actually does form price

indices is an important fact that has

been missing in the discussion of the

Commission’s market price policies,

leading to confusion and undermining

confidence in indices.

73. Further, the Commission’s goal is

not only to understand the transactions

used to formulate price indices; it is to

understand how influential price

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131 Id.

132 Section 23(a)(4) of the Natural Gas Act; 15

U.S.C. 717t–2(a)(4) (2000 & Supp. V 2005).

133 NOPR at 50 (‘‘As noted by the price index

developer Platt’s, the question of what is the total

size of the traded market has ‘hung over the gas

market for years.’ ’’) (citing Comments of Platts at

6, Transparency Provisions of the Energy Policy

Act, Docket No. AD06–11–000 (filed Nov. 1, 2006)).

134 DCP Comments at 5.

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indices are in the overall transacting of

natural gas in U.S. wholesale markets.

The information to be reported on Form

No. 552 will allow market participants

to evaluate their use of indexed

transactions. Typically, market

participants rely on index-priced

transactions as a way to reference

market prices without taking on the

risks of active trading. These market

participants rely on index prices, often

whether or not those prices are derived

from a robust market of fixed-price

transactions. Such information is not

available elsewhere.

74. Also, the annual reporting

requirements will allow the

Commission, market participants and

the public to estimate the amount of

activity of significant wholesale traders

relative to the overall market.

Information on significant traders’

activity allows the Commission and the

public to understand the impact of the

largest traders on the price formation

process, improving natural gas market

transparency.

75. The Commission directs Staff to

monitor the information received in the

filings of Form No. 552, to determine

whether the information received meets

the goals set forth in this preamble.

Although in future years the

Commission Staff may change the

reportable locations and may change the

format of Form No. 552 in order to make

the form easier to complete and to make

the information submitted easier to

analyze, the substance of Form No. 552

will remain the same absent

Commission action.

C. Reporting Requirements Retained

From the Notice of Proposed

Rulemaking

76. The final rule retains several of

the features of the annual reporting

proposal presented in the NOPR: (1) The

de minimis threshold remains the same;

(2) all filings are to be made publicly;

(3) both purchases and sales are to be

reported; and (4) the form is to be

submitted annually.

1. De Minimis Threshold

77. In the final rule, the Commission

retains the volumetric de minimis

threshold proposed in the NOPR and

clarifies its application.135 A market

participant is required to report its

transactions annually if it engages either

in wholesale sales that amount to

2,200,000 MMBtus or more or wholesale

purchases that amount to 2,200,000

135 New 18 CFR 284.401(a) (defining de minimis

market participant). The regulations define a market

participant as ‘‘any buyer or seller that engaged in

physical natural gas transactions for the previous

calendar year.’’ New 18 CFR 284.401(b).

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1023

MMBtus or more. Each market

participant operating under a blanket

certificate under § 284.284 or § 284.402

must file a Form No. 552. However, if

a market participant operating under a

blanket certificate under § 284.284 or

§ 284.402 buys or sells less than the de

minimis volumes in the reporting year,

it is not required to provide information

about the volumes of its transactions. A

market participant that does not operate

under a blanket certificate under

§ 284.284 or § 284.402, and that buys or

sells less than the de minimis volumes

in the reporting year, is not required to

file a Form No. 552. The creation here

of a de minimis threshold is consistent

with the transparency provisions.

Notwithstanding Congress’s broadening

of the scope of the Commission’s

jurisdiction in new section 23 of the

Natural Gas Act with respect to

transparency, Congress mandated that

the Commission exempt ‘‘natural gas

producers, processors or users who have

a de minimis market presence [from

compliance] with the reporting

requirements of this section.’’ 136

78. In proposing in the NOPR a de

minimis threshold for reporting which

would apply to market participants, the

Commission sought to require reporting

from a sufficient number of significant

market participants to ensure, in the

aggregate, an accurate picture of the

physical natural gas market as a whole.

To this end, the Commission proposed

in the NOPR to define such a de

minimis market participant as a market

participant that engages in physical

natural gas transactions that amount by

volume to less than 2,200,000 MMBtus

annually.137 This figure was based on

the simple calculation of one-ten

thousandth (1/10,000th) of the annual

physical volumes consumed in the

United States, which is approximately

22 trillion cubic feet (Tcf) (or roughly 22

billion MMBtus).138 Looked at another

way, a de minimis market participant

would trade the equivalent of less than

one standard NYMEX futures contract

per day. Although a market participant

that contracts for 1/10,000th of the

nation’s annual physical volume may

appear to have little effect on natural gas

prices, that participant may be

transacting only at one location and,

thus, have a much greater pricing effect

there. In the NOPR, we indicated that

we do not expect annual physical

136 Section 23(d)(2) of the Natural Gas Act, 15

U.S.C. 717t–2 (2000 & Supp. V 2005).

137 New 18 CFR 260.401.

138 U.S. Department of Energy, Energy

Information Administration, Natural Gas Summary,

Data Series: Total Consumption, 2006, http://

tonto.eia.doe.gov/dnav/ng/

ng_sum_lsum_dcu_nus_a.htm.

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volumes consumed in the United States

to remain constant, however the figure

of 22 Tcf was a useful snapshot of

consumption and a useful starting-point

for setting the de minimis exemption.

79. As requested by INGAA, the

Commission clarifies that each market

participant that (a) either holds a

blanket certificate under § 284.284 or

§ 284.402, or (b) buys or sells more than

the de minimis volumes in the reporting

year must report: identification

information; whether it holds a blanket

certificate under § 284.284 or § 284.402;

whether it reports transactions to price

index publishers, and, if so, whether its

reporting conforms to the applicable

regulations. A market participant that

holds a blanket certificate under

§ 284.284 or § 284.402 but that buys or

sells less than the de minimis volumes

in the reporting year must complete the

form except it need not report its

volumes.

80. Several commenters, including

MSCG,139 Northwest Industrial Gas

Users,140 and the Independent Oil & Gas

Association of West Virginia,141

proposed greater de minimis thresholds.

Other commenters, including the Texas

Alliance,142 supported the proposed

threshold. No commenter suggested a

lesser threshold. The proposed

threshold is small enough to allow the

Commission to accurately determine the

size of the physical natural gas market,

while at the same time, large enough to

exclude market participants, who in the

aggregate, do not contribute

significantly to that market.

81. The spot wholesale natural gas

markets that create index prices—those

markets that involve fixed-price trading

for next-day or next-month delivery at

reportable locations and that are

actually reported to price index

publishers—make up only a tiny part of

the overall wholesale natural market in

the United States. This is true whether

one compares those particular trading

volumes to total U.S. consumption or

whether, as Wisconsin Companies

points out in their comments 143 (in

support of a higher de minimis

threshold) an appropriate total trading

volume would also include those

transactions that take place between the

production and consumption of natural

gas. When the spot wholesale natural

gas markets that create index prices are

then broken down among many varied

geographical locations, even very small

139 MSCG Comments at 10.

140 Northwest Industrial Gas Users Comments at

7–10.

141 Independent Oil & Gas Association of West

Virginia Comments at 3–4.

142 Texas Alliance Comments at 12.

143 Wisconsin Companies Comments at 5.

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market participants can be very

important in narrow regional contexts. It

is conceivable that these small, local

wholesale market participants do not

actually contribute to price formation in

this type of trading, but the Commission

and other market observers are in no

position to know at this time. If these

small, local wholesale market

participants do contribute to this type of

price formation—which would be a

healthy thing for these markets—such

contribution would not be detectable if

the de minimis threshold were set too

high.

2. Public Filing

82. A market participant must submit

Form No. 552, in a public filing. Some

commenters objected to filing the form

publicly because, in their view, public

filing of the annual report could reveal

confidential trading strategies.144 The

Commission finds these commenters’

concerns are misplaced and ignore

Congress’s directive in the transparency

provisions. Public access to Form No.

552 data would comport with the

transparency provisions which require

that any such rules ‘‘provide for the

dissemination, on a timely basis, of

information * * * to the public.’’ 145

The transparency provisions further

direct the Commission to ‘‘rely on

[existing price publishers and providers

of trade processing services] to the

maximum extent possible.’’ 146 By

requiring public filings by market

participants, the Commission would

provide an opportunity for trade

publications and commercial vendors to

aggregate the information filed and

provide any analysis should a desire for

such services arise in the energy

information marketplace.

83. Under the transparency

provisions, the Commission is required

to balance confidentiality concerns with

the transparency goal that the

information collected be disseminated

publicly. The annual filing requirement

balances these two statutory

requirements. By requiring a company

to file its report publicly, the

requirement adheres to Congress’s

directive that ‘‘[t]he rules shall provide

for the dissemination, on a timely basis,

of information about the availability and

prices of natural gas at wholesale and in

interstate commerce to the Commission,

State commissions, buyers and sellers of

wholesale natural gas, and the

144 See, e.g., PG&E Comments at 6.

145 Section 23(a)(2) of the Natural Gas Act, 15

U.S.C. 717t–2 (2000 & Supp. V 2005).

146 Section 23(a)(4) of the Natural Gas Act, 15

U.S.C. 717t–2(a)(4) (2000 & Supp. V 2005).

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public.’’ 147 Because the filing requires

aggregated information and does not

require reporting of price information or

of transaction-specific information, the

annual reporting requirement adheres to

Congress’s other directive ‘‘to ensure

that consumers and competitive markets

are protected from the adverse effects of

potential collusion or other

anticompetitive behaviors that can be

facilitated by untimely public disclosure

of transaction-specific information.’’ 148

The annual reporting requirement

avoids facilitating anti-competitive

behavior in several ways: (i) Reported

information would not include specific

price information; (ii) reported

information would be aggregated

information over a period of one year

and not transaction-specific

information; (iii) reported information

would be made on an aggregated,

national level, and not by point or even

region; and (iv) information would not

be reported until four months after the

end of the reporting year.

84. This approach is consistent with

the opinion of the U.S. Department of

Justice, which observed that the

Commission ‘‘may be able to achieve the

benefits of transparency while limiting

its potential harm by aggregating,

masking, and lagging the release of such

information.’’ 149 The Commission

determines that ‘‘masking’’ or

permitting filings on a confidential basis

is unnecessary to avoid potential harm.

The aggregation of the information and

lagging of public filing is sufficient to

avoid such harm.150 Any potential harm

from the public filing of Form No. 552

would be minimal given the aggregation

of data, both aggregation across the

nation and aggregation across the

calendar year, and given the lagging of

the public filing of information until

May 1 of the year following the

reporting year. In circumstances in

which any potential harm is minimal, it

147 Section 23(a)(2) of the Natural Gas Act, 15

U.S.C. 717t–2(a)(2) (2000 & Supp. V 2005).

148 Section 23(b)(2) of the Natural Gas Act, 15

U.S.C. 717t–2(b)(2) (2000 & Supp. V 2005).

149 Comments of the U.S. Department of Justice,

Antitrust Division, Transparency Provisions of the

Energy Policy Act, Docket No. AD06–11–000 (filed

Jan. 25, 2007). The Department of Justice’s

comments focused on the electricity markets,

although it did note that the same general

considerations that applied to electricity markets

also applied to natural gas markets.

150 This is consistent with our approach regarding

the individual transaction data reported on Electric

Quarterly Reports. For that much more detailed

reporting of individual transactions, the

Commission found that a delay of 30 days for

reporting individual transaction data in EQR filings

would greatly reduce the usefulness of the data as

a tool for collusion. Revised Public Utility Filing

Requirements, Order No. 2001, 67 FR 31043 (May

8, 2002), FERC Stats. & Regs. ¶ 31,127 (2002) at P

17.

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is not the Commission’s practice to

permit confidential filings.151 In

addition, smaller market participants

whose operations are limited to a

smaller region of the country are likely

to transact less than the de minimis

amount required to report their

transaction information. Further,

without public filings by market

participants, market observers would

not be able to estimate the relative size

of major traders.

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3. Purchases and Sales

85. Several commenters, including

EnCana Marketing,152 MSCG,153 and the

Texas Alliance,154 objected to the

inclusion of purchases as well as sales

in the reporting requirement. While the

Commission appreciates these

commenters’ concerns, it believes that

volume information on purchases as

well as sales is necessary for developing

a complete and accurate picture of the

size of the natural gas spot market. For

example, it will permit the Commission

Staff to cross-check information. Also,

as discussed above, spot prices are

formed in only a very tiny fraction of all

wholesale U.S. natural gas transactions,

which are then broken down among

many varied geographical locations.

Verifying the amount of such trading

becomes far more difficult. At the level

of de minimis volume set forth herein,

this type of cross-verification becomes

more important than it would

otherwise. In this regard, Staff’s

experience implementing the Electronic

Quarterly Reports suggests that

purchase transactions are quite

important in developing a

comprehensive picture of trading

activity.

86. Although the language of the

natural gas transparency provisions

address sales of natural gas, it does not

limit the Commission from seeking

information about natural gas purchases

as well as sales. They are simply

different sides of the same transaction.

Congress directed the Commission to

‘‘facilitate price transparency in markets

for the sale * * * of physical natural

gas in interstate commerce,’’ but that

language does not limit the Commission

151 This is consistent with our approach regarding

the individual transaction data reported on Electric

Quarterly Reports. For that much more detailed

reporting of individual transactions, the

Commission found that a delay of 30 days for

reporting individual transaction data in EQR filings

would greatly reduce the usefulness of the data as

a tool for collusion. Revised Public Utility Filing

Requirements, Order No. 2001, 67 FR 31043 (May

8, 2002), FERC Stats. & Regs. ¶ 31,127 (2002) at P

17.

152 EnCana Marketing Comments at 8–9.

153 MSCG Comments at 9.

154 Texas Alliance Comments at 12.

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to seeking information regarding only

sales.155 Purchases of physical natural

gas are also a part of such markets; there

is no market for the sale of natural gas

that does not include purchases. Nor

does the natural gas transparency

provision language that provides for the

‘‘dissemination * * * of information

about the availability and prices of

natural gas sold at wholesale and

interstate commerce’’ restrict the

Commission.156 As a practical matter,

information regarding purchases of

natural gas is necessary to evaluate the

reliability of information regarding sales

of natural gas. Both types of information

are necessary to obtain a useful gauge of

price transparency in natural gas

markets.

87. MSCG expressed a further concern

about double-counting if purchases and

sales are included.157 Form No. 552

requires that purchases clearly be

reported separately from sales. Given

the clear identification of sales as

opposed to purchases in the form, the

Commission remains confident that its

Staff and other users of this information

will be capable of not mixing these

separate sets of numbers in their

analyses.

4. Annual Reporting

88. The Commission retains from the

NOPR the requirement that Form No.

552 be submitted annually. Commenters

provided a variety of perspectives on

the frequency of filing, but none

supported less frequently than annually.

NARO favored monthly, regional

reporting.158 EnCana Marketing and

MSCG commented that more frequent

reporting would not provide a

significant benefit.159 Annual, national

information alone will significantly

improve both the Commission’s and

others’ understanding of index pricing.

Annual reporting should provide a

useful amount of information to assess

the volume break-down of transactions

by price type, fixed-priced or indexpriced, and the ratio of index-using

transactions to price-forming

transactions, i.e., fixed-priced

transactions. A more granular

breakdown, which would result from

more frequent reporting or from regional

reporting, would be more likely to

reveal the strategies of particular market

155 Section 23(a)(1) of the Natural Gas Act, 15

U.S.C. 717t–2(a)(1) (2000 & Supp. V 2005).

156 Section 23(a)(2) of the Natural Gas Act, 15

U.S.C. 717t–2(a)(2) (2000 & Supp. V 2005)

(emphasis added).

157 MSCG Comments at 9.

158 NARO Comments at 4; see also Mewbourne

Oil Company Comments at 5.

159 EnCana Marketing Comments at 10 and MSCG

Comments at 9.

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1025

participants, raising the concerns

Congress in the transparency provisions

cautioned the Commission to avoid, that

is, ‘‘the adverse effects of potential

collusion or other anticompetitive

behaviors that can be facilitated by

untimely public disclosure of

transaction-specific information.’’ 160

D. Reporting Requirements Changed

From the Notice of Proposed

Rulemaking

89. In the final rule, the Commission

changes several features of the reporting

requirement proposal presented in the

NOPR: (1) Retail (end-use) transactions

are excluded; (2) basic contact

information must be reported; (3) a

market participant must indicate

whether it reports transactions to price

index publishers; (4) a market

participant may report in the aggregate

for its affiliates; (5) volumes are to be

reported based on delivery date, not

execution date; (6) a market participant

must report volume information but not

the number of transactions; (7) volumes

of transactions must be broken down by

whether they are reportable to price

index publishers; and (8) the filing

deadline is changed to May 1 of each

year.

1. Exclusion of Retail Transactions

90. Several commenters objected to

the inclusion of purchases in the form

because end-use customers would be

required to file annual reports.161

Although some transactions reported to

indices may include purchases by large

end-users, the Commission is generally

interested in wholesale prices. On

balance, restricting reporting only to

clearly wholesale transactions should

provide a reasonable set of data for

assessing wholesale price activity,

without burdening retail or end-use

customers. Consequently, the

Commission does not require end-use

customers or retail buyers to report

transaction information unless they also

make wholesale sales or purchases of

natural gas greater than the de minimis

threshold. Likewise, a transaction made

to an end-user is not to be included in

the volumes reported on the form. Of

course, if the end-use customer holds a

blanket marketing certificate under

§ 284.402, it must report on Form No.

552 that it holds such certificate and

whether it reports to price index

publishers.

160 Section 23(b)(2) of the Natural Gas Act, 15

U.S.C. 717t–2(b)(2) (2000 & Supp. V 2005).

161 See, e.g., AF&PA Comments at 5–7; NGSA

Comments at 12–14; Industrial Energy Consumers

of America Comments at 3.

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2. Basic Contact Information and Use of

Blanket Sales Certificates

91. Each market participant, including

a de minimis market participant, must

provide contact information and

indicate on Form No. 552 whether or

not it operates under blanket certificate

authority under § 284.402 or § 284.284

of the Commission’s regulations. This

information from a market participant

will provide the Commission with basic

information regarding participants in

wholesale natural gas markets necessary

to monitor their behavior systematically

as well as a measure of the number of

holders of Natural Gas Act blanket sales

certificates and contact information for

those blanket sales certificate holders.

This combination of information will

permit some break down of market

information between jurisdictional and

non-jurisdictional components, which is

in turn useful for effective oversight and

monitoring for market manipulation.162

3. Status of Reporting to Price Index

Publishers

rwilkins on PROD1PC63 with RULES4

92. Each market participant must state

on Form No. 552 whether it reports

transactions to price index publishers. If

so, it must also state whether its

reporting complies with the standards

for reporting provided in § 284.403(a) or

§ 284.288(a), which in turn incorporate

the reporting procedures of the Policy

Statement on Natural Gas and Electric

Price Indices.163 Prior to this final rule,

a blanket sales certificate holder did not

need to report whether it reports

transactions to a price index publisher;

it needed only report whether it changes

that reporting status.164 To simplify the

reporting, instead of a letter notification

only upon a change in company policy,

under this final rule, a market

participant, including a blanket sales

certificate holder, must notify the

Commission annually of its price index

162 The Commission has the authority to police

against manipulation of natural gas markets in

connection with jurisdictional transactions.

Prohibition of Energy Market Manipulation, Order

No. 670, 71 FR 4244 (Jan. 26, 2006), FERC Stats. &

Regs. ¶ 31,202 (2006), at P 4, 21–24.

163 Policy Statement on Natural Gas and Electric

Price Indices, 104 FERC ¶ 61,121 (2003).

164 See former 18 CFR 284.403(a) (blanket

marketing certificate holder); former 18 CFR

284.288(a) (unbundled sales certificate holder). In

Order No. 644, the Commission required each

holder of a blanket sales certificate to notify the

Commission whether it engages in reporting of its

transactions to publishers of electricity or natural

gas price indices according to the standards set out

in the Commission’s Policy Statement on Price

Indices. Amendments to Blanket Sales Certificates,

Order No. 644, 68 FR 66323 (Nov. 26, 2003), FERC

Stats & Regs. ¶ 31,153 (2003), at P 70–72 (amending

18 CFR 284.403(a) and 18 CFR 284.288(a)), reh’g

denied, 107 FERC ¶ 61,174 (2004).

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reporting practices.165 The Commission

amends § 284.288(a) and § 284.403(a) in

this final rule accordingly.

93. The Commission also requires a

holder of blanket sales certificate to

notify the Commission annually about

its reporting of transaction information

to price index publishers and whether

any such reporting conforms to the

Policy Statement. After the Policy

Statement’s notification requirement

took effect, we observed that blanket

marketing certificate holders may have

overlooked this requirement and we

provided the opportunity for blanket

marketing certificate holders to notify

the Commission by August 1, 2005 of

their reporting status.166 Based on

Commission Staff’s experience

monitoring price indices and adherence

to the Policy Statement, as discussed in

the introduction, the Commission

believes that notification on an annual

basis would make the information more

reliable. As a further benefit, a filing

company would have the opportunity to

review their practices in coordination

with their response to the data

collection proposal described above.

94. In the NOPR, the Commission

sought comment on whether the

procedures set forth in the Policy

Statement for reporting to price index

publishers should be codified.167 Of

those who commented on this

provision, some supported codification;

some opposed codification.168 The

Commission will not codify these

procedures. The Commission believes

that the regulations read in conjunction

with the Policy Statement are

sufficiently clear to price index

publishers and those who report to price

index publishers. In this regard, for

example, this year, Commission Staff

concluded audits of three natural gas

market participants with blanket

certificate authority that were data

providers subject to § 284.403 of the

Commission’s regulations.169

165 However, a seller of electricity under marketbased rates will continue to be obligated to notify

the Commission of its reporting status upon a

change in status. See 18 CFR 35.37(c).

166 Order on Further Clarification of Policy

Statement at P 21.

167 NOPR at P 70.

168 MidAmerican supported codification as a way

to add clarity to the regulations. MidAmerican

Comments at 10; see also NARO Comments at 5.

MSCG opposed codification. MSCG Comments at

12; see also ONEOK Energy Service Co. Comments

at 5.

169 See April 5, 2007 letter issued to Anadarko

Energy Services Co. in Docket No. PA06–11–000 by

Director, Office of Enforcement and attached Audit

of Price Index Reporting Compliance; April 5, 2007

letter issued to BG Energy Merchants, LLC. in

Docket No. PA06–12–000 by Director, Office of

Enforcement and attached Audit of Price Index

Reporting Compliance; April 5, 2007 letter issued

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Commission Staff found that these three

companies generally complied with the

standards in the Policy Statement and

found the regulations sufficiently clear

to perform the audits and ensure

compliance with the regulations.

95. In the final rule, in contrast to the

proposal in the NOPR, a market

participant with sales or purchases

greater than or at the de minimis level

must state whether it reports its

transactions to a price index publisher

regardless of whether it operates under

a blanket sales certificate. Platts, in its

comments, suggested that all

companies—not just blanket certificate

holders—notify the Commission

annually of their price reporting

status.170 In fact, the processes used in

the formation of wholesale natural gas

prices by market participants have no

regard for whether or not those

participants operate under blanket

certificates. In order to clearly assess the

effectiveness of the index formation

process, the Commission needs to

collect the information about reporting

to price index publishers from each

market participant including market

participants that section 1 of the Natural

Gas Act 171 excludes from the

Commission’s certificate authority

under section 7 of the Natural Gas

Act.172

96. However, only a company

operating pursuant to a blanket sales

certificate must state on Form No. 552

whether its reporting to price index

publishers conforms to the

Commission’s Policy Statement. Platts

suggested that all companies affirm that

their price reporting practices comply

with the Policy Statement

procedures.173 But, the Policy Statement

standards apply only to holders of

blanket sales certificates. A market

participant that does not hold blanket

sales certificates is not required to

comply with the Policy Statement

processes, nor does it receive the safe

harbor available in the Policy Statement.

Consequently, there is no value to the

Commission in collecting and

publicizing the compliance of

companies with policies that do not

apply to them.

4. Aggregated Reporting

97. In reporting transactions on Form

No. 552, a market participant may, but

is not required to, aggregate information

from its affiliates. One commenter,

to Marathon Oil Co. in Docket No. PA06–13–000 by

Director, Office of Enforcement, and attached Audit

of Price Index Reporting Compliance.

170 Platts Comments at 8.

171 15 U.S.C. 717.

172 15 U.S.C. 717f.

173 Id.

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Wisconsin Companies, underscored its

difficulties in providing an aggregated

report.174 Others, including EPSA,

Calpine and NGSA, sought the ability to

file an aggregate report.175 Given the

comments both for and against

aggregation and the ease with which

Staff can process the information in

either form, the Commission provides

the option to reporting companies. A

company must indicate on Form No.

552 the affiliates for which it is

reporting. If an affiliate or subsidiary

holds a blanket certificate pursuant to

§ 284.284 or § 284.402, each affiliate

must report separately that it has such

a certificate. Similarly, if an affiliate

reports transactions to price index

publishers, it must report so separately.

98. By contrast, asset managers may

not report aggregated information for

their customers in Form No. 552.

Several commenters sought clarification

on the reporting obligations of asset

managers.176 It is unlikely that

transactions between asset managers

and their clients would be used to create

price indices, although such

transactions may use price indices.

Given the variety and diversity of

services available from asset managers,

and the interest of the Commission in

tracking the amount of wholesale

natural gas activity that both creates and

relies on spot price indices, information

about the use of price indices would be

lost if such aggregation were permitted.

5. Reportable Volumes Based on

Contracted Delivery

rwilkins on PROD1PC63 with RULES4

99. Unlike in the NOPR, Form No. 552

now requires reporting based on date of

contracted delivery and not date of

execution. Although there were no

comments on this issue, in Staff’s

experience, for many market

participants, this approach may also

simplify collection of data by permitting

use of more direct accounting

information. The Commission’s goal in

obtaining data is to evaluate the creation

and use of price information in the

market, specifically the creation and use

of spot price indices. Because wholesale

natural gas price indices are based on

fixed-priced trading for next-day or

next-month delivery, delivery dates for

the transactions of particular interest

will not differ by more than a month

from execution date. Consequently,

reporting transactions by delivery date

gives a sufficiently accurate picture of

the use of price indices and how well

price indices reflect fixed-priced

transactions. Even though not pointed

out in comments, the trade-off of some

information lost for what is likely to be

much simpler gathering of information

by respondents is a reasonable one.

6. Eliminate Reporting Numbers of

Transactions

100. In another change from the

NOPR, Form No. 552 does not require

market participants to report the

number of their transactions. Although

this part of the proposal did not prompt

comments, this change streamlines the

form and reduces the burden of

reporting without significantly reducing

the value of the information. Volume

information is more relevant for

monitoring the amount of market

activity used in creating price indices

and using those indices. On reflection,

the number of transactions is not

needed to obtain greater transparency of

the price formation process,

consequently Form No. 552 does not

include it.

7. Conform Reporting Definitions to

Those Used by Price Index Publishers

101. In several other respects, the

reported information requested on the

final Form No. 552 differs from the

information on the form proposed in the

NOPR. In response to the comments of

Platts 177 as supported by APGA 178 and

AGA,179 Form No. 552 distinguishes

more directly those fixed-priced

transactions that are reportable to price

index publishers from those that are not.

Platts’ expressed concern that

information collected from the proposed

form would not effectively show the

ratio of market activity that forms index

prices to the market activity eligible to

form index prices.180 As proposed in the

NOPR, all next-month and next-day

fixed price transactions would have

been reported, instead of only those

transactions that were actually eligible

for inclusion in price indices. The

changes in the final Form No. 552

should allow the Commission, market

participants and the public to assess in

a more focused way the amount of fixed

price transactions that contribute to the

formation of price indices. In effect, the

change allows a more precise

calculation of the proportion of those

transactions that could be reported to

price publishers to those that are

reported to them.

102. To implement this change, a

market participant must categorize

174 Wisconsin Companies at 6.

175 EPSA Comments at 7–8; Calpine Comments at

4–5; NGSA Comments at 15.

176 AGA Comments at 3; Duke Energy Ohio, Inc.

at 8–9.

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177 Platts Comments at 4, 5 & 7.

178 APGA Reply Comments at 1 & 3.

certain volumes by whether the

transaction was made at a ‘‘reportable

location’’ regardless of whether the

transaction was actually reported to a

price index publisher. As stated on

Form No. 552, a ‘‘reportable location’’

transaction is ‘‘a location (hubs,

pipelines, regions, etc.) where ‘Price

Index Publishers’ collect ‘Fixed Price’

information for transactions with ‘NextDay’ or ‘Next-Month Delivery’

obligations, and produce index prices.’’

As these locations may change over

time, Commission Staff will maintain a

list of current ‘‘Reportable Locations’’

for each price index publisher on the

Commission Web site at http://

www.ferc.gov/docs-filing/

eforms.asp#552. This information will

allow a market participant to determine

whether a transaction should be

classified on Form No. 552 as a

reportable transaction, i.e., one made at

a reportable location. Commission Staff

will list the price index publishers and

the index price points no later than

December 20 of the year previous to the

report year. The first annual report will

be due in 2009 for transactions

delivered in 2008.

103. Although generally supportive of

making a distinction based on whether

a transaction is reportable, APGA raised

the concern that a market participant

that does not report transactions to price

index publishers will not easily

understand which transactions are

reportable.181 To address this concern,

Form No. 552 provides more

information regarding these distinctions

than the form proposed in the NOPR. In

particular, Form No. 552 asks for

transactions with particular price and

term characteristics (i.e., fixed-priced

transactions for next-day or next-month

delivery) at reportable locations. To

provide a common understanding of

reportable locations, the Commission

Staff will maintain a list of current

‘‘Reportable Locations’’ with links to

‘‘Price Index Publishers’’ descriptions of

their processes for receiving price

information and publishing indices on

the ferc.gov Web site at http://

www.ferc.gov/docs-filing/

eforms.asp#552.

104. In addition, the Commission

believes that appropriately reporting

those transactions needed to establish

wholesale natural gas market prices

represents a significant public good. The

Commission believes that a market

participant, should consider reporting

in a responsible way, and to do so must

become aware of which of its

transactions are reportable. The burden

imposed on market participants to

179 AGA Reply Comments at 7.

180 Platts Comments at 4–7.

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181 APGA Reply Comments at 2.

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understand and distinguish its

reportable from its non-reportable

transactions is easily balanced by the

benefits of improving public knowledge

of how much market activity, though

reportable, is not reported. The benefits

accrue to the Commission and all

market participants, who will be able to

evaluate the usefulness of the price

indices better.

8. Filing Date

105. Unlike in the NOPR, Form No.

552 will have a filing deadline of May

1 in the year after the reporting year. In

this regard, the Commission agrees with

the commenters who sought more time

for filing than permitted by the February

15 deadline proposed in the NOPR.182

Because the data used for the form

would come from the accounting and

other official records of the market

participants reporting, the response to

Form No. 552 must be coordinated with

a variety of other regular annual

financial and regulatory reports. May 1

was the latest filing date recommended

in comments. Given the aggregate nature

of the data, a time lag of four months

from the reporting year should keep the

information timely while providing

market participants the time needed to

coordinate a new regulatory filing with

other obligations.

E. Clarification of Other Reporting

Issues

106. Several commenters requested

clarification as to reportable volumes.

The Commission will address these in

turn, first those that must be reported

and then those that do not need to be

reported.

rwilkins on PROD1PC63 with RULES4

1. Reportable Volumes

107. Interstate pipelines must report

sale and purchase volumes related to

cash-outs, imbalance makeups and

operations. INGAA advocated that

transactions associated with cash-out

and operations be excluded from Form

No. 552 because similar information is

available from Form No. 2 and from

pipeline electronic bulletin boards

(EBBs), and the volumes used are not

available for trading.183 Similarly, Shell

indicated that imbalance makeup

volumes should be excluded.184 The

Commission finds these commenters’

views unpersuasive. The partial

availability of information on Form No.

2 submissions and through EBBs does

not provide a complete view of that

information in an assessment of

wholesale natural gas market activity. In

addition, while it is true that volumes

of sales and purchases related to

pipeline cash-out and operations are

unlikely to be used to create price

indices, such sales and purchases do

use price indices as a way of

transferring value among market

participants. Consequently, the

information is useful in assessing how

spot prices are being used commercially

in the nation.

108. Market participants must include

on Form No. 552 sale and purchase

volumes attributable to royalty-in-kind

transactions, gas provided for

processing such as plant thermal

reduction, and purchases and sales

related to the production and gathering

function. Shell advocated excluding

these transactions from reporting.185

While these transactions may not affect

the formation of price indices in

wholesale markets, these transactions

often make use of price indices. Again,

to the extent that transfers of value take

place based on price indices, it is

important that the Commission and

other market observers be able to

understand the extent of that transfer

and its dependency on price indices as

well.

109. NGSA further sought

clarification regarding transactions

related to export for re-import.186 The

sale of these volumes, assuming they

could be identified, has an effect on

overall wholesale markets and could,

potentially, either help create or make

use of price indices, consequently they

should be reported. If such transactions

take place among affiliates, they should

be excluded (as explained below).

2. Non-Reportable Volumes

110. The instructions to Form No. 552

now explicitly exclude volumes due to

transactions among affiliates. Several

commenters emphasized the importance

of excluding volumes transacted among

affiliates.187 A transaction between

affiliates is not part of the price

formation process in wholesale natural

gas markets.

111. Market participants may not

include any type of financially-settled

transaction on Form No. 552. However,

transactions with physical delivery

obligations must be reported—whether

those transactions actually continued

through delivery or not. When the

physical transaction was executed, it

may have either contributed to or used

spot market price information regardless

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F. Other Issues Raised by Commenters

1. Safe Harbor Policy

114. Many commenters requested a

‘‘safe harbor’’ for reporting.190 The

Commission set forth a ‘‘safe harbor

policy’’ provision in the Policy

Statement for voluntary reporting to

price index publishers.191 As requested

by commenters, the Commission

reiterates that it does not intend to

prosecute or penalize parties for

inadvertent errors in reporting. The

Commission’s goal in setting forth the

reporting requirement is to obtain

information for the evaluation of price

indices; it is not to penalize good faith

efforts at compliance. However, in

contrast to the voluntary reporting to

price index publishers, the annual

reporting requirement for Form No. 552

188 NGSA Comments at 15.

189 Id.

182 MSCG Comments at 9–10; Statoil Comments at

6–7; AGA Comments at 4; NGSA Comments at 15–

16.

183 INGAA Comments at 9.

184 Shell Comments at 8.

of its later disposition. In other words,

sales or purchase obligations that were

‘‘booked out’’ must be included. The

Commission intends ‘‘physical natural

gas transaction’’ to mean a sale or

purchase of natural gas with an

obligation to deliver or receive

physically, even if the natural gas is not

physically transferred due to some

offsetting or countervailing trade. Thus,

even if the transaction does not go to

physical delivery, it would still be

included as a physical transaction.

112. In response to NGSA,188 the

Commission clarifies that a market

participant should not include volumes

of imported LNG traded prior to

regasification. LNG traded prior to

regasification is not wholesale natural

gas, though it is a source of natural gas

through regasification itself. NGSA

further sought clarification regarding

natural gas exports from LNG

liquefaction facilities.189 LNG traded

after liquefaction is also not wholesale

natural gas, consequently a market

participant must exclude such volumes.

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.

185 Shell Comments at 8.

186 Id.

187 See, e.g., Shell Comments at 8; NGSA

Comments at 15.

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190 AGA Comments at 6–7; NGSA Comments at

16–17; PG&E Comments at 6; Suez Energy North

America, Inc. Comments at 10–12.

191 Policy Statement at P 37.

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is mandatory for certain market

participants. The Commission will focus

any enforcement efforts on entities that

violate good faith standards, including

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.

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2. Mandatory Reporting of Fixed-Priced

Transactions

115. Several commenters called for

mandatory reporting of individual,

fixed-priced transactions.192 However,

the Commission will not require

mandatory reporting of fixed-priced

transactions to price index publishers at

this time. Mandatory reporting would

appear to provide additional benefits in

that it could assist in determining

whether the price indices are an

accurate reflection of underlying fixedpriced trading. Market participants,

state commissions, and the Commission

could gain a clearer sense of the volume

and number of natural gas transactions

that form prices by location and

duration. In the NOPR, the Commission

acknowledged these benefits, but the

Commission decided that mandatory

reporting is not appropriate at this time,

citing three reasons. We review those

three reasons here.

116. First, mandatory reporting of

certain transactions would create an

incentive for wholesale buyers and

sellers to consider structuring

transactions based on avoiding reporting

requirements rather than simply on the

economics of the transaction. Even very

subtle shifts in the form of transactions

could easily make them non-reportable

in any pre-defined system. For instance,

if the Commission required reporting of

fixed-price, day-ahead transactions,

market participants could create twoday transactions, achieving substantially

the same economic result and avoiding

reporting.

117. Second, buyers and sellers might

shift away from fixed-priced

transactions to indexed-price

transactions. Fixed-priced transactions

could easily decrease to the point that

indices that rely on them would no

longer represent reliable indicators of

the market. Such indices would likely

become more volatile as they moved

more in response to fewer

transactions.193

192 See, e.g., APGA at 5–8.

193 At the October 13, 2006 technical conference

in this proceeding, several panelists raised similar

concerns and advocated against mandatory price

reporting. See, e.g., Tr. at 12–13 (Mr. Christopher

Conway on behalf of Conoco-Phillips Gas and

Power, the Natural Gas Supply Association, and the

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118. Third, the Commission stated

that broad availability of detailed

transaction data might prove to be

anticompetitive.194

119. In its comments, APGA disputed

the three reasons asserted by the

Commission in the NOPR. It discounts

the first reason asserted that mandatory

reporting creates an incentive to

structure transactions to avoid

reporting. APGA contended that the

burden of mandatory reporting is not so

great as to cause a significant number of

market participants ‘‘to change the way

they do business.’’ 195 APGA did not

deny the existence of such an incentive

and the Commission does not wish to

create such an incentive. This is

particularly so given that it would be

difficult to detect whether an entity was

acting on such an incentive and,

thereby, determine what effect this

incentive had on reporting of

transactions. In discounting the

assertion, APGA also contended that the

Commission is sufficiently creative to

frame its reporting requirement to

overcome those that might seek to avoid

the reporting requirement. The

Commission is not as confident.

Commission Staff cannot monitor

activity so closely as to be aware of

every attempt to evade the

Commission’s annual reporting

requirement. Additionally, because

market practices change over time,

trying to promulgate rules to account for

constantly changing market dynamics

would not only place a significant

demand on Commission resources, but

the level of interaction could easily

interfere in the healthy, continuing

development of the markets themselves.

120. APGA also disputed that

mandatory price reporting would cause

entities to switch from fixed-priced

transactions to index-priced

transactions because there is little

burden to such reporting and those that

would switch would not have been

reporting to price indices anyway. The

Independent Producers Association of America)

(asserting that mandatory price reporting could

drive market participants away from reportable

transactions, thereby, possibly reducing liquidity);

Tr. at 35–36, 38–39 (Mr. Alex Strawn on behalf of

the Process Gas Consumers Group) (asserting that

mandatory reporting of fixed price transactions

would drive market participants to use index-price

transactions, thereby, reducing liquidity);

Comments of Independent Petroleum Association of

America, at p. 3, Transparency Provisions of the

Energy Policy Act, Docket No. AD06–11–000 (filed

Nov. 1, 2006) (mandatory reporting would push

market participants away from reportable

transactions and cause them to do more index-price

transactions); Comments of Natural Gas Supply

Association, Transparency Provisions of the Energy

Policy Act, Docket No. AD06–11–000 (filed Nov. 1,

2006) (similar).

194 NOPR at P 60.

195 APGA Comments at 6.

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1029

Commission does not share APGA’s

confidence that mandating price

reporting would not cause such

switching. The Commission remains

concerned about the liquidity of the

fixed-priced, next-day and next-month

wholesale natural gas markets, and

would prefer to see much more activity

in these price-generating markets. Any

reluctance to actively trade fixed-priced

transactions could affect liquidity in

these crucial markets.

121. APGA disputes the assertion in

the NOPR that mandatory price

reporting could lead to the potential

collusion or anticompetitive behavior

because mandatory price reporting

would make public detailed transaction

data. The Commission’s concern would

be dependent on the exact nature of the

mandatory price reporting process,

though the Commission acknowledges

that simply mandating reporting to price

index publishers would not, given

historical practice, put competitive

information at risk.

122. The annual reporting

requirement set forth in this final rule

can provide significant insight into the

formation and use of price indices and

how they reflect underlying fixed-priced

trading. Given these benefits, at far

lower costs in time and effort, the

Commission continues to believe

mandatory reporting of fixed-priced

transactions is not appropriate at this

time.

3. Effects on Trade Publishers

123. In opposing the annual reporting

requirement, MSCG contended that the

requirement imposes a burden on

market participants simply to benefit

commercial trade publishers. As

discussed above, the transparency

benefits justify the burdens imposed by

the annual reporting requirement. The

Commission acknowledges that the

annual reporting requirement could

benefit commercial trade publishers, but

disagrees that this is a drawback.

Indeed, the comment ignores the fact

that commercial trade publishers are the

most significant source of market price

information in U.S. wholesale natural

gas markets. The information they

develop is used by Commission Staff to

monitor market activity, and more

significantly, buyers and sellers

interested in access to market prices.

Acknowledging this, Congress

specifically directed the Commission in

prescribing transparency rules to ‘‘rely

on [existing price] publishers and [trade

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processing] services to the maximum

extent possible.’’ 196

4. Information Collection Burden

124. NEM argued that market

participants’ data is not currently stored

in a format that could be used to fill out

the proposed form, and, as a result,

market participants would need to

develop ancillary information

technology systems to store such data at

significant cost.197 NEM also stated that

although the reporting proposal requires

annual reporting, data collection would

be needed daily, which would be costly.

In requiring annual aggregated reporting

of a limited set of transactions, the

Commission intends that each market

participant would have the data

necessary to complete Form No. 552 in

the course of its business operations, for

instance, in the course of preparing

year-end aggregations for management,

accounting and shareholder reporting

purposes. The information needed to

complete Form No. 552 is information

that can be extracted from the market

participant’s book of accounts that it

would already have developed as part of

its normal business operations. If a

market participant buys or sells natural

gas under complex arrangements, then it

is likely to have an accounting system

to manage the complexity and sort out

the categories of purchases and sales.

The Commission bases its estimated

cost burden on a market participant

adapting existing information to the

standard format for Form No. 552 and

submitting the form annually. On that

basis, the Commission will retain its

estimate of the cost burden as set forth

in the NOPR. This estimate does not

include the regulatory and compliance

costs attributable to reporting as those

costs are part of the overhead that

market participants bear as part of their

participation in Commission-regulated

markets. Although Sequent asserted that

asset managers would have to

renegotiate contracts to provide for the

annual reporting requirement, the

Commission considers it likely that

such asset management agreements

already require collection of the

transactions executed which could be

used to complete Form No. 552.

VI. Information Collection Statement

125. The Office of Management and

Budget (OMB) regulations require that

OMB approve certain reporting, record

Data collection

Number of

respondents

Number of

responses per

respondent

Estimated annual burden

hours per

respondent

Total annual

hours for all

respondents

Estimated

start-up

burden per respondent

1,500

1 per year

4

6,000

40 hours.

Part 260 FERC–552

Annual Reporting Requirement ...........................................

Information Collection Costs: The

average annualized cost for each

keeping, and public disclosure

(collections of information) imposed by

an agency.198 Pursuant to OMB

regulations, the Commission will

provide notice of its proposed

information collections to OMB for

review under section 3507(d) of the

Paperwork Reduction Act of 1995.199

126. 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 elsewhere in the rule.

127. The Commission estimates the

burden for complying with the final rule

as follows:

respondent is projected to be the

following:

Annualized capital/startup costs

(10-year

amortization)

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FERC–552

Annual Reporting Requirement .................................................................................

Title: FERC–552.

Action: Proposed 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.

196 Section 23(a)(4) of the Natural Gas Act; 15

U.S.C. 717t–2(a)(4) (2000 & Supp. V 2005).

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$400

128. Internal Review: The

Commission has reviewed the

requirements pertaining to natural gas

market participants and determined

they are necessary to provide price and

availability information regarding the

sale of natural gas in interstate markets.

129. Interested persons may obtain

information on the annual reporting

requirements by contacting: Federal

Energy Regulatory Commission, 888

First Street, NE., Washington, DC 20426,

[Attention: Michael Miller, Office of the

Chief Information Officer], phone: (202)

197 NEM Comments at 6–7.

Annual costs

$400

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$800

502–8415, fax: (202) 208–2425, e-mail:

Michael.Miller@ferc.gov. Comments on

the requirements of the final rule also

may be sent to the Office of Information

and Regulatory Affairs, Office of

Management and Budget, Washington,

DC 20503 [Attention: Desk Officer for

the Federal Energy Regulatory

Commission].

130. For submitting comments

concerning the collections of

information and the associated burden

estimates, please send your comments

to the contact listed above and to the

199 44 U.S.C. 3507(d).

198 5 CFR 1320.11.

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total

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Federal Register / Vol. 73, No. 3 / Friday, January 4, 2008 / Rules and Regulations

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)

395–3122, fax: (202) 395–7285. Due to

security concerns, comments should be

sent electronically to the following email address:

oira_submission@omb.eop.gov. Please

reference the docket number of this

rulemaking in your submission.

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VII. Environmental Analysis

131. The Commission is required to

prepare an Environmental Assessment

or an Environmental Impact Statement

for any action that may have a

significant adverse effect on the human

environment.200 The actions taken here

fall within categorical exclusions in the

Commission’s regulations for

information gathering, analysis, and

dissemination, and for sales, exchange,

and transportation of natural gas that

requires no construction of facilities.201

Therefore, an environmental assessment

is unnecessary and has not been

prepared in this rulemaking.

VIII. Regulatory Flexibility Act

132. The Regulatory Flexibility Act of

1980 (RFA) 202 generally requires a

description and analysis of final rules

that will have significant economic

impact on a substantial number of small

entities. The RFA requires consideration

of regulatory alternatives that

accomplish the stated objectives of a

proposed rule and that minimize any

significant economic impact on such

entities. The RFA does not, however,

mandate any particular outcome in a

rulemaking. At a minimum, agencies are

to consider the following alternatives:

Establishment of different compliance

or reporting requirements for small

entities or timetables that take into

account the resources available to small

entities; clarification, consolidation, or

simplification of compliance and

reporting requirements for small

entities; use of performance rather than

design standards; and exemption for

certain or all small entities from

coverage of the rule, in whole or in part.

133. The annual reporting

requirement set forth in the final rule

will not have a significant economic

impact on a substantial number of small

entities. The requirement for annual

reporting of physical natural gas

transactions will have minimal impact

200 Order No. 486, Regulations Implementing the

National Environmental Policy Act, 52 FR 47897

(Dec. 17, 1987), FERC Stats. & Regs, ¶ 30,783 (1987).

201 18 CFR 380.4(a)(5) & (a)(27).

202 5 U.S.C. 601–612.

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on small entities. By incorporating a de

minimis exemption into the regulations,

the Commission has reduced the

number of small entities subject to the

requirements: de minimis entities

without blanket sales certificates will

not be required to report. This reporting

requirement will affect small entities

but the burden on them will be

minimal. For each entity, small or

otherwise, that is required to comply

with the annual reporting requirement,

the Commission estimates that the

compliance would require a one-time

cost of approximately $4,000 and an

annual cost thereafter of $400. Although

some costs would increase for market

participants with a greater number of

transactions, we expect that the increase

would be likely offset because such

entities would have already compiled

information regarding their transactions

in the aggregate. This amount is not a

significant burden on small entities. The

de minimis exemption provides a

regulatory alternative that will reduce

the economic impact on certain small

entities from coverage of the rule.

Accordingly, the Commission certifies

that the final rule will not have a

significant economic impact on a

substantial number of small entities.

IX. Document Availability

134. In addition to publishing the full

text of this document in the Federal

Register, the Commission provides all

interested persons an opportunity to

view and/or print the contents of this

document 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.

135. From FERC’s Home Page on the

Internet, this information is available on

eLibrary. The full text of this document

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.

136. 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

ferconlinesupport@ferc.gov, or the

Public Reference Room at (202) 502–

8371, TTY (202) 502–8659. E-mail the

Public Reference Room at

public.referenceroom@ferc.gov.

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X. Effective Date and Congressional

Notification

137. These regulations are effective

February 4, 2008. The Commission has

determined, with the concurrence of the

Administrator of the Office of

Information and Regulatory Affairs of

OMB, that this rule is not a ‘‘major rule’’

as defined in section 351 of the Small

Business Regulatory Enforcement

Fairness Act of 1996. The Commission

will submit the final rule to both houses

of Congress and to the General

Accountability Office.

List of Subjects

18 CFR Part 260

Natural gas; Reporting and

recordkeeping requirements.

18 CFR Part 284

Continental shelf; Natural gas;

Reporting and recordkeeping

requirements.

18 CFR Part 385

Administrative practice and

procedure; Electric power; Penalties;

Pipelines; Reporting and recordkeeping

requirements.

By the Commission.

Kimberly D. Bose,

Secretary.

■ For the reasons stated in the preamble,

the Federal Energy Regulatory

Commission, amends 18 CFR Chapter I

as follows.

PART 260—STATEMENTS AND

REPORTS (SCHEDULES)

■ 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.

■ 2. Section 260.401 is added to read as

follows:

§ 260.401 FERC Form No. 552, Annual

Report of Natural Gas Transactions.

(a) Prescription. The annual reporting

report for natural gas market

participants, designated as FERC Form

No. 552, is prescribed for the calendar

year ending December 31, 2008 and

each calendar year thereafter.

(b) Filing requirements—(1) Who must

file. Unless otherwise exempted or

granted a waiver by Commission rule or

order, each natural gas market

participant, i.e., any buyer or seller that

engaged in wholesale, physical natural

gas transactions the previous calendar

year, must prepare and file with the

Commission a FERC Form No. 552

pursuant to the definitions and general

instructions set forth in that form. As a

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de minimis exemption, a natural gas

market participant is exempt from this

filing requirement if:

(i) It does not hold a blanket sales

certificate pursuant to § 284.402 of this

chapter or a blanket unbundled sales

certificate pursuant to § 284.284 of this

chapter; and

(ii) It engages either in wholesale,

physical natural gas sales that amount to

less than 2,200,000 MMBtus for the

previous calendar year or wholesale

physical natural gas purchases that

amount to less than 2,200,000 MMBtus

for the previous calendar year.

(2) Form No. 552 must be filed as

prescribed in § 385.2011 of this chapter

as indicated in the General Instructions

set out in the annual reporting form, and

must be properly completed and

verified. Each market participant must

file Form No. 552 by May 1, 2009 for

calendar year 2008 and by May 1 of

each year thereafter for the previous

calendar year. Each report must be

prepared in conformance with the

Commission’s software and guidance

posted and available for downloading

from the FERC Web site (http://

www.ferc.gov). One copy of the report

must be retained by the respondent in

its files.

■ 4. In § 284.288, paragraph (a) is

PART 284—CERTAIN SALES AND

TRANSPORTATION OF NATURAL GAS

UNDER THE NATURAL GAS POLICY

ACT OF 1978 AND RELATED

AUTHORITIES

§ 284.403 Code of conduct for persons

holding blanket marketing certificates.

■ 3. The authority citation for part 284

continues to read as follows:

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Authority: 15 U.S.C. 717–717w, 3301–

3432; 42 U.S.C. 7101–7352; 43 U.S.C. 1331–

1356.

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revised to read as follows:

§ 284.288 Code of conduct for unbundled

sales service.

(a) To the extent Seller engages in

reporting of transactions to publishers of

electricity or natural gas indices, Seller

must provide accurate and factual

information, and not knowingly submit

false or misleading information or omit

material information to any such

publisher, by reporting its transactions

in a manner consistent with the

procedures set forth in the Policy

Statement on Natural Gas and Electric

Price Indices, issued by the Commission

in Docket No. PL03–3–000 and any

clarifications thereto. Seller must notify

the Commission as part of its FERC

Form No. 552 annual reporting

requirement in § 260.401 of this chapter

whether it reports its transactions to

publishers of electricity and natural gas

indices. In addition, Seller must adhere

to any other standards and requirements

for price reporting as the Commission

may order.

*

*

*

*

*

■ 5. In § 284.403, paragraph (a) is

revised to read as follows:

(a) To the extent Seller engages in

reporting of transactions to publishers of

electricity or natural gas indices, Seller

must provide accurate and factual

information, and not knowingly submit

false or misleading information or omit

material information to any such

publisher, by reporting its transactions

in a manner consistent with the

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procedures set forth in the Policy

Statement on Natural Gas and Electric

Price Indices, issued by the Commission

in Docket No. PL03–3–000 and any

clarifications thereto. Seller must notify

the Commission as part of its FERC

Form No. 552 annual reporting

requirement in § 260.401 of this chapter

whether it reports its transactions to

publishers of electricity and natural gas

indices. In addition, must shall adhere

to any other standards and requirements

for price reporting as the Commission

may order.

*

*

*

*

*

PART 385—RULES OF PRACTICE AND

PROCEDURE

■ 6. The authority citation for part 385

continues to read as follows:

Authority: 5 U.S.C. 551–557; 15 U.S.C.

717–717z, 3301–3432; 16 U.S.C. 791a-825v,

2601–2645; 28 U.S.C. 2461; 31 U.S.C. 3701,

9701; 42 U.S.C. 7101–7352, 16441, 16451–

16463; 49 U.S.C. 60502; 49 App. U.S.C. 1–85

(1988).

■ 7. In § 385.2011, paragraph (a)(11) is

added to read as follows:

§ 385.2011 Procedures for filing in

electronic media (Rule 2011).

(a) * * *

(11) FERC Form No. 552, Annual

Report of Natural Gas Transactions.

Note: The following appendix will not be

published in the Code of Federal

Regulations.

Appendix A to Final Rule

BILLING CODE 6717–01–P

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[FR Doc. E7–25478 Filed 1–3–08; 8:45 am]

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BILLING CODE 6717–01–C