Current Issues and Trends in the Energy Markets by fsb96139

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									                     AMERICAN BAR ASSOCIATION
            COMMITTEE ON THE REGULATION OF FUTURES AND
                      DERIVATIVE INSTRUMENTS
                        2008 WINTER MEETING
                           FEBRUARY 2, 2008
      PANEL 3: CURRENT ISSUES AND TRENDS IN THE ENERGY MARKETS

                             SUSAN J. COURT
                                DIRECTOR
                         OFFICE OF ENFORCEMENT
                 FEDERAL ENERGY REGULATORY COMMISSION
                           WASHINGTON, D.C.

There are myriad issues and trends in energy markets today relating to matters as
diverse as $100/bbl oil to emissions allowances. The Federal Energy Regulatory
Commission (FERC) is involved in many of the issues as it is charged, inter alia,
with overseeing the rates and service terms and conditions of investor-owned
public utilities, natural gas pipelines, and oil pipelines that operate in interstate
commerce. Its jurisdiction extends directly over physical wholesale sales of
electric energy and natural gas and the interstate transportation of electric energy,
natural gas, and oil. It also has jurisdiction to police against electric and natural
gas market manipulation by any entity and to facilitate transparency in electric and
natural gas prices. To ensure compliance with the rules and regulations it
promulgates in the exercise of its jurisdiction, the Commission has the remedial
authority to rescind relevant authorizations, to order a company to disgorge unjust
profits, to impose civil penalties of up to $1 million per day per violation for the
duration of the violation (with respect to violations relating to natural gas and
electric energy), and to refer violations to the United States Department of Justice
for criminal prosecution (again, with respect to violations relating to natural gas
and electric energy).

Since the mid-1980’s, the FERC has taken the direction, and thus established an
energy trend, to rely more on competition than hands-on regulation in the exercise
of its jurisdiction. The agency started in that direction first with respect to natural
gas in 1985 and again in 1992 in two landmark rules, Order No. 436 and Order
No. 636, and continued the trend with respect to electric energy in 1996 and again
in 2007 in two equally landmark rules, Order No. 888 and Order No. 890. Both
sets of orders required access to the respective transmission of the commodities to
ensure that willing buyers and sellers could meet on a level playing field. Over
this same period, Congress enacted several laws reinforcing the FERC’s direction,
most recently in the Energy Policy Act of 2005. As relevant here, the FERC has
recognized that less prophylactic regulation requires more active monitoring of the
markets to ensure that companies neither abuse their market power nor manipulate
the markets. To that end, the FERC has invested staff resources to monitor
markets, and has taken several actions to assist that effort. Very recently, at the
end of 2007, the Commission issued two orders to implement its new EPAct
authority to facilitate transparency in natural gas prices. Earlier in 2007, the
Commission issued an Advance Notice of Proposed Rulemaking that, inter alia,
proposed new rules on marketing monitoring of organized electricity markets.

Attached here are the EPAct transparency provisions. Below are citations (as of
this writing) to the recent rulemakings that reflect a major trend at the FERC to
focus on market monitoring. Also listed below is a citation to the Amaranth Show
Cause order, which made public the FERC’s investigation of the hedge fund
entities’ manipulation of the NYMEX futures contract in three separate months in
2006, thereby affecting physical natural gas prices under FERC jurisdiction. This
investigation was initiated following observations by the Commission’s market
monitoring staff. Finally, also attached is the organizational chart of the FERC’s
Office of Enforcement, which shows the interplay between the various staffs who
are responsible for the agency’s enforcement program.

   •   Transparency Provisions of Section 23 of the Natural Gas Act, Order No. 704,
       Final Rule, 121 FERC ¶ 61,295 (Dec. 26, 2007).
   • Pipeline Posting Requirements under Section 23 of the Natural Gas Act,
     Notice of Proposed Rulemaking, 21 FERC ¶ 61,293 (Dec. 21, 2007).
   • Wholesale Competition in Regions with Organized Electric Markets,
     Advance Notice of Proposed Rulemaking, 72 Fed. Reg. 36,276 (July 2,
     2007), FERC Stats. & Regs. ¶ 32,617 (2007).
   • Amaranth Advisors, L.L.C., et al., 120 FERC ¶ 61,085 (2007).




                                                              January 3, 2008




                                                                                 2
       Natural Gas Transparency Language Added By EPAct 2005

                                 Natural Gas Act
                   (15 U.S.C. § 717t-2 (2000 & Supp. V 2005))

§ 717t-2. Natural gas market transparency rules

(a) (1) The Commission is directed 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, fair competition,
and the protection of consumers.
    (2) The Commission may prescribe such rules as the Commission determines
necessary and appropriate to carry out the purposes of this section. The rules shall
provide for the dissemination, on a timely basis, of information about the
availability and prices of natural gas sold at wholesale and in interstate commerce
to the Commission, State commissions, buyers and sellers of wholesale natural
gas, and the public.
    (3) The Commission may--
        (A) obtain the information described in paragraph (2) from any market
participant; and
        (B) rely on entities other than the Commission to receive and make public
the information, subject to the disclosure rules in subsection (b).
    (4) In carrying out this section, the Commission shall consider the degree of
price transparency provided by existing price publishers and providers of trade
processing services, and shall rely on such publishers and services to the
maximum extent possible. The Commission may establish an electronic
information system if it determines that existing price publications are not
adequately providing price discovery or market transparency.

(b) (1) Rules described in subsection (a) (2), if adopted, shall exempt from
disclosure information the Commission determines would, if disclosed, be
detrimental to the operation of an effective market or jeopardize system security.
    (2) In determining the information to be made available under this section and
the time to make the information available, the Commission shall seek 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.

(c) (1) Within 180 days of enactment of this section [enacted Aug. 8, 2005], the
Commission shall conclude a memorandum of understanding with the Commodity
Futures Trading Commission relating to information sharing, which shall include,
among other things, provisions ensuring that information requests to markets


                                                                                     3
within the respective jurisdiction of each agency are properly coordinated to
minimize duplicative information requests, and provisions regarding the treatment
of proprietary trading information.
    (2) Nothing in this section may be construed to limit or affect the exclusive
jurisdiction of the Commodity Futures Trading Commission under the Commodity
Exchange Act (7 U.S.C. 1 et seq.).

(d) (1) The Commission shall not condition access to interstate pipeline
transportation on the reporting requirements of this section.
    (2) The Commission shall not require natural gas producers, processors, or
users who have a de minimis market presence to comply with the reporting
requirements of this section.

(e) (1) Except as provided in paragraph (2), no person shall be subject to any civil
penalty under this section with respect to any violation occurring more than 3
years before the date on which the person is provided notice of the proposed
penalty under section 22(b) [15 USCS § 717t-1(b)].
    (2) Paragraph (1) shall not apply in any case in which the Commission finds
that a seller that has entered into a contract for the transportation or sale of natural
gas subject to the jurisdiction of the Commission has engaged in fraudulent market
manipulation activities materially affecting the contract in violation of section 4A
[15 USCS § 717c-1].

HISTORY:
 (June 21, 1938, ch 556, § 23, as added Aug. 8, 2005, P.L. 109-58, Title III,
Subtitle B, § 316, 119 Stat. 691.)




                                                                                      4
            Electric Transparency Language Added By EPAct 2005

         Federal Power Act (16 U.S.C. § 824t (2000 & Supp. V 2005))

§ 824t. Electricity market transparency rules

(a) (1) The Commission is directed to facilitate price transparency in markets for
the sale and transmission of electric energy in interstate commerce, having due
regard for the public interest, the integrity of those markets, fair competition, and
the protection of consumers.
  (2) The Commission may prescribe such rules as the Commission determines
necessary and appropriate to carry out the purposes of this section. The rules shall
provide for the dissemination, on a timely basis, of information about the
availability and prices of wholesale electric energy and transmission service to the
Commission, State commissions, buyers and sellers of wholesale electric energy,
users of transmission services, and the public.
  (3) The Commission may--
    (A) obtain the information described in paragraph (2) from any market
participant; and
    (B) rely on entities other than the Commission to receive and make public the
information, subject to the disclosure rules in subsection (b).
  (4) In carrying out this section, the Commission shall consider the degree of
price transparency provided by existing price publishers and providers of trade
processing services, and shall rely on such publishers and services to the
maximum extent possible. The Commission may establish an electronic
information system if it determines that existing price publications are not
adequately providing price discovery or market transparency. Nothing in this
section, however, shall affect any electronic information filing requirements in
effect under this Act [16 USCS §§ 791a et seq.] as of the date of enactment of this
section [enacted Aug. 8, 2005].

(b) (1) Rules described in subsection (a) (2), if adopted, shall exempt from
disclosure information the Commission determines would, if disclosed, be
detrimental to the operation of an effective market or jeopardize system security.
  (2) In determining the information to be made available under this section and
time to make the information available, the Commission shall seek 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.

(c) (1) Within 180 days of enactment of this section [enacted Aug. 8, 2005], the
Commission shall conclude a memorandum of understanding with the Commodity
Futures Trading Commission relating to information sharing, which shall include,


                                                                                     5
among other things, provisions ensuring that information requests to markets
within the respective jurisdiction of each agency are properly coordinated to
minimize duplicative information requests, and provisions regarding the treatment
of proprietary trading information.
  (2) Nothing in this section may be construed to limit or affect the exclusive
jurisdiction of the Commodity Futures Trading Commission under the Commodity
Exchange Act (7 U.S.C. 1 et seq.).

(d) The Commission shall not require entities who have a de minimis market
presence to comply with the reporting requirements of this section.

(e) (1) Except as provided in paragraph (2), no person shall be subject to any civil
penalty under this section with respect to any violation occurring more than 3
years before the date on which the person is provided notice of the proposed
penalty under section 316A [16 USCS § 825o-1].
  (2) Paragraph (1) shall not apply in any case in which the Commission finds that
a seller that has entered into a contract for the sale of electric energy at wholesale
or transmission service subject to the jurisdiction of the Commission has engaged
in fraudulent market manipulation activities materially affecting the contract in
violation of section 222 [16 USCS § 824v].

(f) This section shall not apply to a transaction for the purchase or sale of
wholesale electric energy or transmission services within the area described in
section 212(k)(2)(A) [16 USCS § 824k(k)(2)(A)].

HISTORY:
 (June 10, 1920, ch 285, Part II, § 220, as added Aug. 8, 2005, P.L. 109-58, Title
XII, Subtitle G, § 1281, 119 Stat. 978.)




                                                                                     6
7
8
                             121 FERC ¶ 61,295
                        UNITED STATES OF AMERICA
                 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.

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.

EFFECTIVE DATE: This rule will become effective [Insert date 30 days after

publication in the FEDERAL REGISTER].
Docket No. RM07-10-000                 -2-


FOR FURTHER INFORMATION CONTACT:

Stephen J. Harvey (Technical)
Office of Enforcement
Federal Energy Regulatory Commission
888 First Street NE
Washington, D.C. 20426
(202)502-6372
Stephen.Harvey@ferc.gov

Christopher J. Peterson (Technical)
Office of Enforcement
Federal Energy Regulatory Commission
888 First Street NE
Washington, D.C. 20426
(202)502-8933
Christopher.Peterson@ferc.gov

Eric Ciccoretti (Legal)
Office of Enforcement
Federal Energy Regulatory Commission
888 First Street NE
Washington, D.C. 20426
(202)502-8493
Eric.Ciccoretti@ferc.gov

SUPPLEMENTARY INFORMATION:
                        UNITED STATES OF AMERICA
                 FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Joseph T. Kelliher, Chairman;
                      Suedeen G. Kelly, Marc Spitzer,
                      Philip D. Moeller, and Jon Wellinghoff.

Transparency Provisions of Section 23 of                       Docket No. RM07-10-000
the Natural Gas Act

                                     ORDER NO. 704

                                       FINAL RULE

                                (Issued December 26, 2007

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.



       1
       Transparency Provisions of Section 23 of the Natural Gas Act, 72 FR 20791
(Apr. 26, 2007), FERC, Stats. and Regs. ¶ 32,614 (2007).
Docket No. RM07-10-000                                                           -2-


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 whether or not they report to
Docket No. RM07-10-000                                                            -3-


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



         2
          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. No. 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).
Docket No. RM07-10-000                                                            -4-


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 fixed-

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



       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).
Docket No. RM07-10-000                                                           -5-


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 market-oriented 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


       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).
Docket No. RM07-10-000                                                            -6-


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 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


       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.
       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).
Docket No. RM07-10-000                                                          -7-


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



       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 U.S.C. 717f),
reh’g denied, 107 FERC ¶ 61,174 (2004).
Docket No. RM07-10-000                                                           -8-


bar 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



        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.
Docket No. RM07-10-000                                                           -9-


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

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

       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 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.
Docket No. RM07-10-000                                                            - 10 -


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

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

       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).
Docket No. RM07-10-000                                                          - 11 -


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 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.
Docket No. RM07-10-000                                                          - 12 -


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 next-month

              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 next-month 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 website at http://www.ferc.gov/docs-

filing/eforms.asp#552. This information will allow a market participant to determine
Docket No. RM07-10-000                                                           - 13 -


whether a transaction should be 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




       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.
Docket No. RM07-10-000                                                          - 14 -


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 fixed-price 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 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.




       27
            New 18 CFR 260.401.
Docket No. RM07-10-000                                                         - 15 -


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
Docket No. RM07-10-000                                                          - 16 -


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, seventy-four 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.

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


       28
            New 18 CFR 260.401(b).
       29
        MidAmerican Comments at 1 & 5; see also Statoil Comments at 4-5 (supporting
annual reporting requirement).
Docket No. RM07-10-000                                                         - 17 -


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 price indices.” 34 The Producer Coalition 35 also supported the annual reporting

       30
        Wisconsin Companies Comments at 4.
       31
        Id.
       32
        Id. at 6.
       33
        Id.
       34
        PSCNY Comments at 2.
Docket No. RM07-10-000                                                          - 18 -


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


       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.
Docket No. RM07-10-000                                                           - 19 -


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 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

       40
        Id.
       41
        Id.
       42
        DCP Comments at 4-6.
       43
        Platts Comments at 4-7.
       44
        Id. at 5.
Docket No. RM07-10-000                                                          - 20 -


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


       45
         Id. at 7.
       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.
Docket No. RM07-10-000                                                          - 21 -


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

       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

       50
        Id.
       51
        Calpine Comments at 4.
       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).
Docket No. RM07-10-000                                                          - 22 -


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




       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.
Docket No. RM07-10-000                                                          - 23 -


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



       61
         IPAA Comments at 3-4.
       62
         INGAA Comments at 8.
       63
         Id. at 9.
       64
         Oklahoma IPA Comments at 3.
Docket No. RM07-10-000                                                          - 24 -


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, royalty-in-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



       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)).
Docket No. RM07-10-000                                                            - 25 -


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

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 5) 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 end-use customers should not be required to report end-use

purchases because end-use 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-




           71
            MSCG Comments at 8.
           72
            Id.
           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.
Docket No. RM07-10-000                                                         - 26 -


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

       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.
Docket No. RM07-10-000                                                          - 27 -


towards full transparency in the physical market,” but stated that the Commission should

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

       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.
Docket No. RM07-10-000                                                        - 28 -


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 royalty owners,

including for the monitoring of price index reliability. 90




       86
         MSCG Comments at 9.
       87
         Texas Alliance Comments at 12.
       88
         EnCana Marketing Comments at 10.
       89
         MSCG Comments at 9.
       90
         NARO Comments at 4; see also Mewbourne Oil Company Comments at 5.
Docket No. RM07-10-000                                                          - 29 -


       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

       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.
Docket No. RM07-10-000                                                            - 30 -


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 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




       95
         EPSA Comments at 7-8.
       96
         Calpine Comments at 4-5.
       97
         NGSA Comments at 15.
       98
         Id.
       99
         NGSA Reply Comments at 4.
Docket No. RM07-10-000                                                          - 31 -


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


       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.
Docket No. RM07-10-000                                                           - 32 -


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




       105
            NGSA Comments at 2.
       106
            Id.
       107
            Id.
       108
            NOPR at P 68.
       109
            MSCG Comments at 9; Statoil Comments at 6-7.
Docket No. RM07-10-000                                                         - 33 -


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


       110
            AGA Comments at 4.
       111
            NGSA Comments at 15-16.
       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.
Docket No. RM07-10-000                                                         - 34 -


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

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




       116
             NEM Comments at 7.
       117
             NEM Comments at 8.
       118
             Sequent Comments at 7.
       119
             Sequent Comments at 7.
Docket No. RM07-10-000                                                             - 35 -


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;




       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).
Docket No. RM07-10-000                                                            - 36 -


           d. the volume of transactions that were priced at fixed prices for next-month

                 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 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:
Docket No. RM07-10-000                                                        - 37 -


        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.
Docket No. RM07-10-000                                                           - 38 -


61.    The final rule includes further instructions regarding certain specific categories of

reportable and non-reportable 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.

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
Docket No. RM07-10-000                                                           - 39 -


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 cross-checked

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 Lewis-Raymond, American Gas Association)
(surmising that we currently cannot know the amount of fixed-price 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 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.
Docket No. RM07-10-000                                                        - 40 -


      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 website 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
Docket No. RM07-10-000                                                        - 41 -


         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 website at

         http://www.ferc.gov/docs-filing/eforms.asp#552.


      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.
Docket No. RM07-10-000                                                       - 42 -


      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 “Next-Month 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 website 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.”
Docket No. RM07-10-000                                                          - 43 -


      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” 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.
Docket No. RM07-10-000                                                            - 44 -


       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

       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.
Docket No. RM07-10-000                                                          - 45 -


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.

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




       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).
Docket No. RM07-10-000                                                          - 46 -


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

fixed-price 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




       129
         See, supra, at P 11.
Docket No. RM07-10-000                                                           - 47 -


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 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


       130
           Section 23(a)(1) of the Natural Gas Act; 15 U.S.C. 717t-2(a)(1) (2000 & Supp.
V 2005).
       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)).
Docket No. RM07-10-000                                                           - 48 -


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 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.


       134
         DCP Comments at 5.
Docket No. RM07-10-000                                                          - 49 -


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.
Docket No. RM07-10-000                                                          - 50 -


              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 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




       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).
Docket No. RM07-10-000                                                           - 51 -


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

         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.
Docket No. RM07-10-000                                                          - 52 -


and, thus, have a much greater pricing effect there. In the NOPR, we indicated that we

do not expect annual physical 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
       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.
Docket No. RM07-10-000                                                           - 53 -


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 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 –




       143
         Wisconsin Companies Comments at 5.
Docket No. RM07-10-000                                                           - 54 -


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.



         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).
Docket No. RM07-10-000                                                          - 55 -


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 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


       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).
Docket No. RM07-10-000                                                         - 56 -


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

       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.
Docket No. RM07-10-000                                                           - 57 -


minimal, it 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.

              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


       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.
Docket No. RM07-10-000                                                           - 58 -


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 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




       155
           Section 23(a)(1) of the Natural Gas Act, 15 U.S.C. 717t-2(a)(1) (2000 & Supp.
V 2005).
Docket No. RM07-10-000                                                         - 59 -


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


       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
Docket No. RM07-10-000                                                           - 60 -


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 index-priced, 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 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


       160
             Section 23(b)(2) of the Natural Gas Act, 15 U.S.C. 717t-2(b)(2) (2000 & Supp.
V 2005).
Docket No. RM07-10-000                                                         - 61 -


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.




       161
        See, e.g., AF&PA Comments at 5-7; NGSA Comments at 12-14; Industrial
Energy Consumers of America Comments at 3.
Docket No. RM07-10-000                                                           - 62 -


              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

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




       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.
Docket No. RM07-10-000                                                             - 63 -


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 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



       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).
       165
         However, a seller of electricity under market-based 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).
Docket No. RM07-10-000                                                          - 64 -


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

       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.
Docket No. RM07-10-000                                                          - 65 -


market participants with blanket certificate authority that were data providers subject to

§ 284.403 of the Commission’s regulations. 169 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


       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 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.
Docket No. RM07-10-000                                                          - 66 -


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, Wisconsin

Companies, underscored its difficulties in providing an aggregated report. 174 Others,

       171
         15 U.S.C. 717.
       172
         15 U.S.C. 717f.
       173
         Id.
       174
         Wisconsin Companies at 6.
Docket No. RM07-10-000                                                            - 67 -


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.




       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.
Docket No. RM07-10-000                                                           - 68 -


              5.     Reportable Volumes Based on Contracted Delivery

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
Docket No. RM07-10-000                                                         - 69 -


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


       177
         Platts Comments at 4, 5 & 7.
       178
         APGA Reply Comments at 1 & 3.
       179
         AGA Reply Comments at 7.
       180
         Platts Comments at 4-7
Docket No. RM07-10-000                                                          - 70 -


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 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 ‘Next-

Day’ 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 website 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
Docket No. RM07-10-000                                                           - 71 -


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 website 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 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.




       181
         APGA Reply Comments at 2.
Docket No. RM07-10-000                                                        - 72 -


              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.

              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


       182
      MSCG Comments at 9-10; Statoil Comments at 6-7; AGA Comments at 4;
NGSA Comments at 15-16.
Docket No. RM07-10-000                                                          - 73 -


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



       183
         INGAA Comments at 9.
       184
         Shell Comments at 8.
       185
         Shell Comments at 8.
Docket No. RM07-10-000                                                         - 74 -


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



       186
         Id.
       187
         See, e.g., Shell Comments at 8; NGSA Comments at 15.
Docket No. RM07-10-000                                                           - 75 -


the physical transaction was executed, it may have either contributed to or used spot

market price information regardless 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


       188
         NGSA Comments at 15.
       189
         Id.
Docket No. RM07-10-000                                                           - 76 -


participants, this instruction has been removed and a market participant may not include

volume information related to physically-settled future contracts.

       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 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.




       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.
Docket No. RM07-10-000                                                         - 77 -


              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 fixed-priced 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 two-day transactions, achieving

substantially the same economic result and avoiding reporting.


       192
         See, e.g., APGA at 5-8.
Docket No. RM07-10-000                                                         - 78 -


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

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


       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 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.
Docket No. RM07-10-000                                                          - 79 -


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 Commission does not share APGA’s confidence that mandating


       195
         APGA Comments at 6.
Docket No. RM07-10-000                                                             - 80 -


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
Docket No. RM07-10-000                                                          - 81 -


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 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

       196
           Section 23(a)(4) of the Natural Gas Act; 15 U.S.C. 717t-2(a)(4) (2000 & Supp.
V 2005).
       197
             NEM Comments at 6-7.
Docket No. RM07-10-000                                                           - 82 -


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 keeping, and public disclosure (collections of
Docket No. RM07-10-000                                                          - 83 -


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 No. Form 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:

Data              No. Of          No. of         Estimated       Total          Estimated
Collection        Respondents     Responses      Annual          Annual         Start-Up
                                  per            Burden          Hours For      Burden Per
                                  Respondent     Hours per       All            Respondent
                                                 Respondent      Respondents
Part 260
FERC-552
Annual            1,500           1 per year     4 hours         6,000          40 hours
Reporting
Requirement

       198
           5 CFR 1320.11.
       199
           44 U.S.C. 3507(d).
Docket No. RM07-10-000                                                          - 84 -


Information Collection Costs: The average annualized cost for each respondent is

projected to be the following:

                          Annualized             Annual Costs Annualized Costs
                          Capital/Startup Costs               Total
                          (10 year amortization)
FERC-552
Annual                $400                         $400           $800
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.

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, N.E., Washington,
Docket No. RM07-10-000                                                        - 85 -


D.C. 20426, [Attention: Michael Miller, Office of the Chief Information Officer], phone:

(202) 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, D.C. 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 Office of Information and Regulatory Affairs, Office of Management and Budget,

725 17th Street, N.W., Washington, D.C. 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 e-mail

address: oira_submission@omb.eop.gov. Please reference the docket number of this

rulemaking in your submission.

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,

       200
         Order No. 486, Regulations Implementing the National Environmental Policy
Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs, ¶ 30,783 (1987).
Docket No. RM07-10-000                                                           - 86 -


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



       201
         18 CFR 380.4(a)(5) & (a)(27).
       202
         5 U.S.C. 601-612.
Docket No. RM07-10-000                                                          - 87 -


for annual reporting of physical natural gas transactions will have minimal impact 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 that 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
Docket No. RM07-10-000                                                        - 88 -


hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, N.E., Room 2A,

Washington D.C. 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 website during normal

business hours from FERC Online Support at 202-502-6652 (toll free at 1-866-208-3676)

or email 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.

X.     Effective Date and Congressional Notification

137.   These regulations are effective [Insert date 30 days after publication in the

FEDERAL REGISTER]. 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.
Docket No. RM07-10-000                                                       - 89 -


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.

(SEAL)



                                         Kimberly D. Bose,
                                            Secretary.
Docket No. RM07-10-000                                                          - 90 -


       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

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
Docket No. RM07-10-000                                                          - 91 -


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.

PART 284 – CERTAIN SALES AND TRANSPORATION OF NATURAL GAS
UNDER THE NATURAL GAS POLICY ACT OF 1978 AND RELATED
AUTHORITIES

3.       The authority citation for part 284 continues to read as follows:

         Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352; 43 U.S.C.

1331-1356.

4.       In § 284.288, paragraph (a) is 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
Docket No. RM07-10-000                                                          - 92 -


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:

§ 284.403     Code of conduct for persons holding blanket marketing certificates.

       (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, must shall adhere to any other

standards and requirements for price reporting as the Commission may order.
Docket No. RM07-10-000                                                   - 93 -


*      *      *      *      *

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.
Docket No. RM07-10-000                                                     - 94 -


Note: The following appendix will not be published in the Code of Federal Regulations.

                              Appendix A to Final Rule:
    Docket No. RM07-10-000                                                                                           - 95 -



                                    THIS FILING IS                                                               Form No. 552
    Item 1: □ An Initial (Original) Submission OR □ Resubmission No. ___                                  OMB No. 1902-0242
                                                                                                          Expires (mm/dd/yyyy)




         FERC TRANSACTION REPORT
      FERC FORM No. 552: Annual Report of
           Natural Gas Transactions


      These reports are mandatory under the Natural Gas Act, Section 23(a)(2), and 18 CFR Parts 260.401. Failure to
       report may result in criminal fines, civil penalties, and other sanctions as provided by law. The Federal Energy
                   Regulatory Commission does not consider these reports to be of a confidential nature.




Exact Legal Name of Respondent (Company)                                                           Year of Report
                                                                                                   End of


    FERC FORM No. 552 (New)
Docket No. RM07-10-000                                                                   - 96 -


                       INSTRUCTIONS FOR FILING THE FERC FORM NO. 552

                                      GENERAL INFORMATION

I      Purpose

     FERC Form No. 552 collects transactional information from natural gas market participants.
The filing of this information is necessary to provide information regarding the size of the physical
gas market, the use of the natural spot markets, and the use of fixed and index price transactions.
This form is considered to be a non-confidential public use form.

II.    Who Must Submit

     Wholesale natural gas buyers and sellers must fill out the form annually if they make use of a
blanket sales certificate under § 284.402 or § 284.284 or if their natural gas purchases or sales were
greater than 2.2 million (2,200,000) MMBtus in the reporting year.

     If a natural gas market participant is required to fill out Form No. 552 because it makes use of a
blanket sales certificate under § 284.402 or § 284.284, but its natural gas purchases and sales were
each lower than 2.2 million (2,200,000) MMBtus in the reporting year, then it is not required to report
the schedule of Form No. 552 that collects volumetric information.

III.   What and Where to Submit

       (a) Submit FERC Form No. 552 electronically through the submission software at
             http://www.ferc.gov/docs-filing/eforms.asp#552.

       (b) The Corporate Officer Certification must be submitted electronically as part of the FERC
           Form No. 552 filing.

       (c)   Users may obtain additional blank copies of FERC Form No. 552 for reference free of
             charge from: http://www.ferc.gov/docs‐filing/eforms.asp#552. Copies may also be
             obtained from the Public Reference and Files Maintenance Branch, Federal Energy
             Regulatory Commission, 888 First Street, NE, Room 2A, Washington, DC 20426 or by
             calling (202) 502-8371.

IV. When to Submit:

    The FERC Form No. 552 must be filed by May 1st of the year following the reporting year (18
C.F.R. § 260.401).

V.     Where to Send Comments on Public Reporting Burden.

           The public reporting burden for the FERC Form No. 552 collection of information is
       estimated to average 4 hours per response, including the time for reviewing instructions,
       searching existing data sources, gathering and maintaining the data-needed, and completing
       and reviewing the collection of information. This estimate was noted in the Notice of Purposed
       Rulemaking and in the Final Rule (RM07-10-000) and addressed by commenters.
Docket No. RM07-10-000                                                                    - 97 -


        Filers may send additional comments regarding these burden estimates or any aspect of
    these collections of information, including suggestions for reducing burden, to the Federal
    Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426 (Attention:
    Information Clearance Officer); and 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). No person shall be subject to any penalty if any collection of
    information does not display a valid control number (44 U.S.C. § 3512 (a)).


                                     GENERAL INSTRUCTIONS

  I. All respondents (i.e., wholesale natural gas buyers and sellers that make use of a blanket
     sales certificate under § 284.402 or § 284.284 or that purchase or sell more than 2.2 million
     (2,200,000) MMBtus in the reporting year) must identify themselves annually by filling-out the
     first part of Form No. 552.

 II. Aggregation across affiliates is permitted, though not required. If a respondent is aggregating
     volumes across affiliates, the respondent must fill in the “Schedule of Reporting Companies”
     which lists those affiliates and a separate “Price Index Reporting” schedule for each affiliate.

 III. Asset managers may not report aggregated information for their customers in Form No. 552.

 IV. Report all gas quantities in Trillion British Thermal Unit (TBtu) unless the schedule specifically
     requires the reporting in another unit of measurement.

 V. For reported volumes, enter whole numbers only, except where otherwise noted.

 VI. Report volumes of physical natural gas as explained in the definitions.

VII. Complete each question fully and accurately, even if it has been answered in a previous
     report. Enter the word "None" where it truly and completely states the fact.

VIII. Enter the month, day, and year for all dates. Use customary abbreviations. The "Date of
      Report" included in the header of each page is to be completed only for resubmissions
      (see IX. below).

 IX. For any resubmissions, submit the electronic filing using the form submission only. Please
     explain the reason for the resubmission in a footnote to the data field.

 X. Footnote and further explain as necessary.

 XI. Do not make references to reports of previous periods/years or to other reports in lieu of
     required entries, except as specifically authorized.

XII. For further assistance in filling out Form No. 552, 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 website at
     http://www.ferc.gov/docs‐filing/eforms.asp#552.
       Docket No. RM07-10-000                                                                   - 98 -



                                                  DEFINITIONS

I.        Affiliate– An affiliate means a person who controls, is controlled by or is under common control with
          another person.

II.       Blanket Certificate – A blanket certificate means either (i) a blanket marketing certificate granted to a
          person that is not an interstate pipeline pursuant to 18 CFR § 284.402 or (ii) a blanket certificate for
          unbundled sales service granted to an interstate pipeline pursuant to 18 CFR § 284.284.

III.      Date of Report – The date the report is submitted to the Commission.

IV.       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 directly refer to futures prices, for the purpose of this form, are not “Fixed Price” transactions.

V.        Next-Day Delivery – Delivery of a transaction executed prior to NAESB nomination deadline
          (11:30am 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 website at
          http://www.ferc.gov/docs‐filing/eforms.asp#552.

VI.       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.

VII.      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 Final Rule discusses a variety of particular instances. Among
          these, the following physical natural gas volumes should be included in volumetric data submitted in
          the Form No. 552:

          a. cash-out, imbalance makeup and operational volumes reported by pipelines; and
          b. 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.

          The following physical natural gas volumes should be excluded in volumetric data submitted in the
          Form No. 552:

          a. sales to and purchases by end-users,
          b. sales or purchases outside the United States of America,
          c. transactions take place among affiliates,
     Docket No. RM07-10-000                                                                    - 99 -


        d. any type of financially-settled transaction,
        e. volumes traded in futures contracts, even those that go to physical delivery, and
        f.   volumes of imported LNG traded prior to regasification and exported LNG traded after
             liquefaction.

VIII.   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 website at http://www.ferc.gov/docs‐
        filing/eforms.asp#552.

IX.     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.

X.      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.

XI.     Reportable Locations – Those locations (hubs, pipelines, regions, etc.) where “Price Index
        Publishers” collect “Fixed Price” information for transactions with “Next-Day” or “Next-Month
        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 website at http://www.ferc.gov/docs‐filing/eforms.asp#552.

XII.    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.”

XIII.   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” and 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.

XIV.    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.
        Purchases by end users should be excluded.

XV.     Wholesale Natural Gas Sales – The “Quantity” of “Physical Natural Gas” sold by the “Reporting
        Company” 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. Purchases by end users should be excluded.
  Docket No. RM07-10-000                                                             - 100 -


XVI.   Year of Report – The calendar year for which the report is being submitted.
Docket No. RM07-10-000                                                                                                         - 101 -



                                         ANNUAL REPORT OF NATURAL GAS TRANSACTIONS
                                            IDENTIFICATION OF RESPONDENT
01 Exact Legal Name of Respondent                         02 Year of Report
                                                          End of

03 Previous Name and Date of Change (If name changed during year)


04 Address of Principal Office at End of Year (Street, City, State, Zip Code)


05 Name of Contact Person                                          06 Title of Contact Person


07 Address of Contact Person (Street, City, State, Zip Code)


08 Email Address of Contact Person


09 Telephone of Contact Person, Including Area Code             10 This Report is:                         11 Date of Report
                                                                (1) □ An Original                          (MM,DD,YYYY)
                                                                (2) □ A Resubmission

                                      ANNUAL CORPORATE OFFICER CERTIFICATION
The undersigned officer certifies that:




I have examined this report and to the best of my knowledge, information, and belief all statements of fact contained in this report are
accurate and complete statements of the business affairs of the respondent.




12 Name                                                            13 Title


14 Signature                                                       15 Date Signed


Title 18, U.S.C. 1001, makes it a crime for any person knowingly and willingly to make to any Agency or Department of the United
States any false, fictitious or fraudulent statements as to any matter within its jurisdiction.




FERC FORM NO. 552 (NEW)                                             Page 1
Docket No. RM07-10-000                                                                                                  - 102 -



Name of Respondent*                                    This Report is:               Date of Report*         Year/Period of Report*
                                                       (1)  An Original             (Mo, Da, Yr)              End of Year/Qtr
                                                       (2)  A Resubmission             /    /

                                                           List of Schedules
Enter in column (d) the terms “none,” “not applicable,” or “NA” as appropriate, where no information or amounts have been reported
for certain pages. Omit pages where the responses are “none,” “not applicable,” or “NA.”



Line                       Title of Schedule                    Reference     Date Revised                    Remarks
No.                                                             Page No.

                                 (a)                                (b)              (c)                         (d)
  1      Schedule of Reporting Companies                             3
  2      Price Index Reporting                                       4
  3      Purchases and Sales Information                             5
  4
  5
  6
  7
  8
  9
 10
 11
 12
 13
 14
 15
 16
 17
 18
 19
 20
 21
 22
 23
 24
 25
 26
 27
 28
 29
 30
 31
 32
 33
 34
 35
 36
 37
Total

FERC FORM NO. 552 (NEW)                                                     Page 2
Docket No. RM07-10-000                                                                                                           - 103 -



Name of Respondent*                                        This Report is:                Date of Report*            Year/Period of Report*
                                                           (1)  An Original              (Mo, Da, Yr)                 End of Year/Qtr
                                                           (2)  A Resubmission              /    /

                                                   Schedule of Reporting Companies
If the Respondent is reporting collectively for multiple affiliates*, list the exact legal name of those affiliate in this form. Respondent
should complete the next schedule, Price Index Reporting, for each of these companies separately. Respondent should complete the
“Purchase and Sales Information” schedule only once for these companies collectively.

* An asterisk means that the previous term is explained in more detail in the definitions.



Line                               List the Exact Legal Names of all Affiliates* Reported by Respondent* below
No.
                                                                          (a)
   1
   2
   3
   4
   5
   6
   7
   8
   9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25




FERC FORM NO. 552 (NEW)                                                          Page 3
Docket No. RM07-10-000                                                                                                         - 104 -




Name of Respondent*                                       This Report is:            Date of Report*            Year/Period of Report*
                                                          (1)  An Original          (Mo, Da, Yr)                     End of Year
                                                          (2)  A Resubmission          /     /
Name of Reporting Company*                                Reporting Company is:
                                                          (1)  Same as Respondent
                                                          (2)  An affiliate of Respondent (other affiliates reported separately)

                                                         Price Index Reporting
Even if the Respondent is reporting collectively for multiple affiliate, the Respondent still must complete this schedule for each of its
affiliates separately.

When answering yes/ no questions, to select yes enter 1 in the yes column and 0 in the no column of the appropriate row. To select no
enter 1 in the no column and 0 in the yes column of the appropriate row.

* An asterisk means that the previous term is explained in more detail in the definitions.




Line                                                         Question                                                         Yes      No
No.
                                                                   (a)                                                         (b)     (c)
  1       At any time during the report year, did the Reporting Company* operate under a Blanket Certificate*?
  2       Did the Reporting Company report any transaction information to price index publishers* during the report
          year*?
  3       If no on either lines 1 or 2, skip the question on line 4 and move to line 5.
  4       If yes on line 2, did the Reporting Company’s reporting comply with the regulations governing reporting to
          price index publishers pursuant to 18 CFR § 284.403?
  5       Were the Reporting Company’s* total wholesale natural gas purchases* greater than 2.2 TBtu for the Report
          Year*?
  6       Were the Reporting Company’s* total wholesale natural gas sales* greater than 2.2 TBtu delivered in the
          Report Year?
  7       If no on both lines 5 and 6, Reporting Company is not required to go to the next schedule and has completed
          Form No. 552. If yes on either line 5 or 6, Reporting Company is required to complete the next schedule




FERC FORM NO. 552 (NEW)                                              Page 4
Docket No. RM07-10-000                                                                                                           - 105 -



Name of Respondent*                                        This Report is:            Date of Report*            Year/Period of Report*
                                                           (1)  An Original          (Mo, Da, Yr)                     End of Year
                                                           (2)  A Resubmission          /     /
Name of Reporting Company*                                 Reporting Company is:
                                                           (1)  Same as Respondent
                                                           (2)  An affiliate of Respondent (other affiliates reported separately)

                                                    Purchase and Sales Information
If the Respondent is reporting collectively for multiple affiliates, the Respondent should complete this schedule for all of its affiliate
companies collectively.

* An asterisk means that the previous term is explained in more detail in the definitions.



Line                                            Item                                                Purchases                   Sales
No.                                                                                                  (TBtu)                    (TBtu)

                                                  (a)                                               (b)                      (c)
  1       How much physical natural gas* did the Respondent buy and sell in the prior
          calendar year?
  2       Of the amounts reported on line 1, what quantities were contracted at fixed
          prices* for next-day delivery* at locations reportable* to publishers of next-
          day gas price indices*?
  3       Of the amounts reported on line 1, what quantities were contracted at prices
          that refer to* published next-day gas price indices?
  4       Of the amounts reported on line 1, what quantities were contracted at fixed
          prices for next-month delivery* at locations reportable (see definition) to
          publishers of next-month gas price indices?
  5       Of the amounts reported on line 1, what quantities were contracted at prices
          that refer to published next-month gas price indices?
  6       Of the amounts reported on line 1, what quantities were not contracted at
          fixed prices for next-day delivery nor fixed prices for next-month delivery at
          locations reportable to publishers of gas price indices, nor were they
          contracted at prices that refer to published next-day or next-month gas price
          indices?
  7       If there is a difference between Respondent’s purchases reported on line 6 and its purchases reported on line 1 less purchases
          on lines 2, 3, 4 and 5, please explain the difference in the space below.




  8       If there is a difference between Respondent’s sales reported on line 6 and its sales reported on line 1 less sales on lines 2, 3, 4
          and 5, please explain the difference in the space below.




FERC FORM NO. 552 (NEW)                                               Page 5
                             121 FERC ¶ 61,293
                        UNITED STATES OF AMERICA
                 FEDERAL ENERGY REGULATORY COMMISSION

                                     18 CFR Part 284

                                 Docket No. RM08-2-000

         Pipeline Posting Requirements under Section 23 of the Natural Gas Act

                                   (December 21, 2007)

AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of Proposed Rulemaking.

SUMMARY: In this Notice of Proposed Rulemaking, the Commission proposes to

require both interstate and certain major non-interstate pipelines to post capacity, daily

scheduled flow information and daily actual flow information. This proposal

incorporates one contained in an earlier Notice of Proposed Rulemaking to require the

posting of capacity and daily actual flow information by some intrastate pipelines, with

some changes. Under this proposal, interstate pipelines would be required to post daily

actual flow information in addition to their currently required posting of capacity and

daily scheduling information. Non-interstate pipelines would be required to post daily

scheduled flow information in addition to the earlier Notice of Proposed Rulemaking

proposal to require posting capacity and daily actual flow information. The posting

proposal would facilitate price transparency in markets for the sale or transportation of

physical natural gas in interstate commerce to implement section 23 of the Natural Gas

Act.
Docket No. RM08-2-000                                                         -2-

DATES: Comments are due [Insert_Date 45 days from publication in the FEDERAL

REGISTER]. Reply comments are due [Insert_Date 75 days from publication in the

FEDERAL REGISTER].

ADDRESSES: You may submit comments, identified by docket number by any of the

following methods:

      • Agency Web Site: <http://ferc.gov> Follow the instructions for submitting

comments via the eFiling link found in the Comment Procedures section of the preamble.

Documents created electronically using word processing software should be filed in

native applications or print-to-PDF format and not in a scanned format.

      • MAIL/HAND DELIVERY: Commenters unable to file comments electronically

must mail or hand deliver an original and 14 copies of their comments to: Federal Energy

Regulatory Commission, Secretary of the Commission, 888 First Street, N.E.,

Washington, D.C. 20426. Please refer to the Comment Procedures section of the

preamble for additional information on how to file paper comments.
Docket No. RM08-2-000                  -3-

FOR FURTHER INFORMATION CONTACT:

Stephen J. Harvey (Technical)
Office of Enforcement
Federal Energy Regulatory Commission
888 First Street NE
Washington, D.C. 20426
(202)502-6372
Stephen.Harvey@ferc.gov

Charles Whitmore (Technical)
Office of Enforcement
Federal Energy Regulatory Commission
888 First Street NE
Washington, D.C. 20426
(202)502-6256
Charles.Whitmore@ferc.gov

Eric Ciccoretti (Legal)
Office of Enforcement
Federal Energy Regulatory Commission
888 First Street NE
Washington, D.C. 20426
(202)502-8493
Eric.Ciccoretti@ferc.gov

SUPPLEMENTARY INFORMATION:
                         UNITED STATES OF AMERICA
                  FEDERAL ENERGY REGULATORY COMMISSION


Pipeline Posting Requirements under                   Docket No. RM08-2-000
Section 23 of the Natural Gas Act

                        NOTICE OF PROPOSED RULEMAKING

                                   (December 21, 2007)

I.    Introduction and Summary of Proposal

1.    On April 19, 2007, the Commission issued a Notice of Proposed Rulemaking

(Initial NOPR) to implement section 23 of the Natural Gas Act, which was added to the

act by the Energy Policy Act of 2005 (EPAct 2005). 1 In the Initial NOPR, the

Commission proposed an annual reporting requirement for certain natural gas sellers and

buyers and a daily posting requirement for intrastate pipelines. 2 The Commission also

asked in the Initial NOPR whether posting requirements for interstate pipeline should be

changed.3

2.    Concurrently, the Commission is issuing a Final Rule with respect to the annual

reporting requirement. With respect to the pipeline posting proposal, based on Staff


      1
        Transparency Provisions of Section 23 of the Natural Gas Act, 72 FR 20791
(Apr. 26, 2007), FERC Stats. and Regs. ¶ 32,614 (2007). Congress enacted section 23 of
the Natural Gas Act as part of the Energy Policy Act of 2005. Energy Policy Act of
2005, Pub. L. No. 109-58, 119 Stat. 594 (2005).
      2
          Initial NOPR at P 1-2.
      3
          Initial NOPR at P 43.
Docket No. RM08-2-000                                                             -2-


experience as well as the comments received, the Commission has determined to issue

the instant notice of proposed rulemaking (NOPR) to develop the record more fully with

respect to the posting proposal. The Initial NOPR may not have given sufficient notice to

interstate pipelines of changes that seem necessary to implement adequately section 23 of

the Natural Gas Act. In addition, the Commission believes that more information

regarding the technical implementation of daily posting of actual flow information by

interstate pipelines is required in order to consider the costs and benefits of such a

regulatory change. For those purposes, the Commission incorporates by reference the

Initial NOPR and all comments filed in response to the Initial NOPR in Docket No.

RM07-10-000 with respect to the pipeline posting proposal.

3.     The Commission intends the instant proposal to make available the information

needed to track daily flows of natural gas adequately throughout the United States.

Specifically, the Commission proposes to require both interstate pipelines and major non-

interstate pipelines 4 to post daily information regarding their capacity, scheduled flow

volumes, and actual flow volumes at major points and mainline segments. The proposal

would result in both interstate and non-interstate pipelines posting the same types of

information.



       4
       In the Initial NOPR, the Commission used the term “intrastate pipeline;” herein,
the Commission uses the term “non-interstate pipeline” – a point explained further below.
Docket No. RM08-2-000                                                              -3-


4.     For interstate pipelines, this proposal would add to the existing posting

requirements in § 284.13(d) a requirement to post daily actual flow volume. 5 To bring

the requirements for major non-interstate pipelines into alignment with the existing and

proposed posting requirements for interstate pipelines, this proposal adds to the proposal

in the Initial NOPR a requirement that major non-interstate pipelines post daily scheduled

flow volumes. 6 For the purposes of this NOPR, a “major non-interstate pipeline” is

defined as one that is not a “natural gas company” under section 1 of the Natural Gas

Act 7 and that flows greater than 10 million (10,000,000) MMBtus of natural gas per year,

with two exceptions. 8 The first exception is non-interstate pipelines that fall entirely

upstream of a processing plant. 9 The second exception is non-interstate pipelines that

deliver more than ninety-five percent (95%) of the natural gas volumes they flow directly

to end-users. 10

5.     With these proposed additions of flow information from major non-interstate

pipelines to the information already available from interstate pipelines, market observers,

       5
           Proposed 18 CFR 284.13(d).
       6
           Proposed 18 CFR 284.14(a).
       7
           15 U.S.C. 717.
       8
           Proposed 18 CFR 284.1.
       9
           Proposed 18 CFR 284.14(b)(1).
       10
            Proposed 18 CFR 284.14(b)(2).
Docket No. RM08-2-000                                                                -4-


such as the Commission, state commissions and market participants, could develop a

better understanding of the supply and demand conditions that directly affect the U.S.

wholesale natural gas markets. Market participants would have a better basis for

evaluating the prices at which they transact. Consequently, this proposal to increase

information from non-interstate pipelines and from interstate pipelines would directly

“facilitate price transparency for the sale… of physical natural gas in interstate

commerce” as authorized in the natural gas transparency provisions. 11

6.     The Commission’s proposal would apply to major non-interstate pipelines even

though section 1 of the Natural Gas Act 12 excludes them from the Commission’s

ratemaking authority under sections 4 and 5 of the Natural Gas Act 13 and the

Commission’s certificate authority under section 7 of the Natural Gas Act. 14 As

discussed below, Congress placed market participants, which include non-interstate

pipelines, within the Commission’s transparency authority under section 23 of the

Natural Gas Act to ensure “the dissemination, on a timely basis, of information about the




       11
            Section 23(a)(1) of the Natural Gas Act, 15 U.S.C. 717t-2(a)(1) (2000 & Supp.
V 2005).
       12
            15 U.S.C. 717.
       13
            15 U.S.C. 717c; 15 U.S.C. 717d.
       14
            15 U.S.C. 717f.
Docket No. RM08-2-000                                                             -5-


availability and prices of natural gas sold at wholesale and in interstate commerce.” 15

Aware that the pre-EPAct 2005 limits on the Commission’s authority would have left

gaps in the transparency of the wholesale, physical natural gas markets, Congress did not

restrict the Commission’s transparency authority to those same limits in enacting section

23 of the Natural Gas Act. As we stated in the Initial NOPR: “While distinctions

between intrastate and interstate natural gas markets may be meaningful from a legal

perspective, they are not meaningful from the perspective of market price formation.” 16

Congress was aware of the legal distinctions between natural gas markets in enacting

EPAct 2005 and, in choosing to use the term “any market participant” indicated that these

distinctions should not apply to the Commission’s transparency authority. At the same

time, by not amending section 1 of the Natural Gas Act, Congress retained the legal

distinctions between intrastate and interstate pipelines for the purposes of delineating the

entities subject to the Commission’s authority over ratemaking in sections 4 and 5 and

over certification of construction and sales of new facilities and transportation services in

section 7 of the act.

7.     The Commission issues this NOPR in order to solicit further comment on

requiring actual flow information from both interstate and non-interstate pipelines and to

       15
            Section 23(a)(2) of the Natural Gas Act, 15 U.S.C. 717t-2(a)(2) (2000 & Supp.
V 2005).
       16
            Initial NOPR at P 20.
Docket No. RM08-2-000                                                             -6-


consider whether the posting requirements for both interstate and non-interstate pipelines

should be similar. In the Initial NOPR, the Commission did not propose to require the

posting of actual flow information by interstate pipelines, but it did seek comment on

such posting. 17 Further comment in response to the instant NOPR will allow the

Commission to give more consideration to requiring actual flow information on interstate

pipelines, in particular the technical issues associated with quick posting of that

information. In addition, the Commission seeks further comment regarding how the

posting requirements should apply to storage facilities and regarding its daily pipeline

posting proposal for major non-interstate pipelines.

8.     To address implementation issues associated with the posting proposal, such as

obtaining and posting actual flow information and obtaining and posting information

from storage facilities, the Commission directs Staff to conduct a technical conference

before comments on this NOPR are due.

II.    The Commission’s Transparency Authority Over Non-Interstate Pipelines
       under Section 23 of the Natural Gas Act

9.     At the outset, the Commission addresses the jurisdictional issues raised by its

proposal in the Initial NOPR. In the Initial NOPR, the Commission explained how

section 23 of the Natural Gas Act authorizes the Commission to require an intrastate

pipeline to post information regarding its transportation of natural gas, even though

       17
            Initial NOPR at P 43.
Docket No. RM08-2-000                                                                -7-


section 1 of the Natural Gas Act excludes such companies from the Commission’s

authority to regulate transportation of natural gas under sections 4, 5, and 7 of the Natural

Gas Act. 18

       A.         Comments

                  1.   Comments: Section 23 of the Natural Gas Act

10.    The Texas Pipeline Association (TPA) 19 argued that, contrary to the Commission’s

explanation, the plain language of section 23 of the Natural Gas Act shows that the term

“market participant” is limited to those entities that participate in wholesale interstate

natural gas markets and does not include intrastate pipelines. 20 TPA concluded that the

plain language of section 23 of the Natural Gas Act does not support the Commission’s

assertion of authority to collect information from intrastate pipelines because they do not

participate in markets for the sale or transportation of natural gas in interstate

commerce. 21




       18
            Initial NOPR at P 11-18, 21-24, & 37.
       19
         Eight entities expressed support for the Texas Pipeline Association’s comments:
Atmos Energy Corporation, Copano Energy, L.L.C., Crosstex Energy Services, LP, DCP
Midstream, LLC, Enbridge Energy Co., Inc., Gas Processors Association, Kinder Morgan
Texas Intrastate Pipeline Group, Targa Resources, Inc..
       20
            Comments of TPA at 16-17.
       21
            Id.
Docket No. RM08-2-000                                                             -8-


11.    Enterprise Products Partners L.P. (Enterprise) also asserted that an entity must be

participating in the interstate market to be a “market participant” under section 23 of the

Natural Gas Act. Enterprise reasoned that an entity subject to the Commission’s

authority under section 23 but not to its authority under other sections of the Natural Gas

Act is an entity that “participat[es] in the interstate market (whether by buying, selling,

shipping or trading physical natural gas) but not already subject to [Natural Gas Act]

jurisdiction as natural gas companies.” 22 According to Enterprise, the Commission’s

proposal to impose posting requirements on intrastate pipelines bears no relation to

Congress’s intention to restrict the Commission’s jurisdiction to entities participating in

the interstate market. 23

12.    Similarly, the Railroad Commission of Texas argued that the term “market

participant” does not indicate that Congress contemplated the expansion of Commission

authority to include intrastate pipelines as asserted by the Commission. 24 The Railroad

Commission of Texas explained that there is no reference at all in the relevant statutory

provisions or legislative history of EPAct 2005 to intrastate pipelines, the intrastate

natural gas market or intrastate gas flows and no express indication that the


       22
            Comments of Enterprise at 13.
       23
            Id.
       24
        Comments of Railroad Commission of Texas at 6-7; see also Comments of
Atmos Pipeline-Texas at 6-7.
Docket No. RM08-2-000                                                             -9-


Commission’s authority was being extended in any manner over “intrastate” market

participants. 25

13.     One commenter, Enterprise, contended that the Commission does not have the

authority to require posting of information by intrastate pipelines because Congress

limited the information that may be collected from market participants to “information

about natural gas sold at wholesale and in interstate commerce.” 26 Enterprise interpreted

Congress’s use of the word “about” as limiting language and asserted that Congress

deliberately chose the word “about” as opposed to “affect” or “at least impacts” in order

to stress that the Commission does not have the authority to compel reporting for any

activity that might have some impact on the interstate wholesale natural gas markets. 27

        2.       Comments: Section 1(b) of the Natural Gas Act

14.     TPA argued that section 1(b) of the Natural Gas Act precludes the Commission

from prescribing rules under its section 23 authority that apply to intrastate transportation

or sale of natural gas. 28 TPA asserted that Congress has consistently respected the

distinction between interstate and intrastate pipelines which first appeared in section 1(b)


        25
             Comments of Railroad Commission of Texas at 7.
        26
             Comments of Enterprise Products Partners, L.P. at 11 (emphasis in original).
        27
             Id. at 11-12.
        28
             Comments of TPA at 7; see also Comments of Louisiana Office of Conservation
at 5.
Docket No. RM08-2-000                                                            - 10 -


of the Natural Gas Act and was recognized by Congress in amendments to the Natural

Gas Act and in the Natural Gas Policy Act of 1978. 29 TPA referred to numerous

appellate court decisions that recognized this distinction in reviewing the Commission’s

jurisdiction. 30

15.      Several commenters argued that if Congress intended the transparency provisions

to cover intrastate pipelines, it would have amended section 1 of the Natural Gas Act. 31

TPA argued that if Congress intended to expand the Commission’s authority over

intrastate transportation of natural gas, it would have amended section 1(b) to include

new posting obligations for intrastate pipelines for all daily flows and capacity at major

points. 32 TPA explained that, in EPAct 2005, Congress amended section 1(b) of the

Natural Gas Act to include application to the importation or exportation of natural gas in

foreign commerce and to persons engaged in such importation or exportation. 33 TPA

contended that without a similar amendment to section 1(b) to provide for the posting of



         29
              Comments of TPA at 9.
         30
              Id. at 11 (citations omitted).
         31
        Comments of TPA at 10-11; Comments of Enterprise at 15; Comments of
Louisiana Office of Conservation at 5; Comments of Railroad Commission of Texas at 6-
7.
         32
              Comments of TPA at 10-11.
         33
              Id. (citing EPAct 2005 section 311 (amending section 1(b) of the Natural Gas
Act)).
Docket No. RM08-2-000                                                           - 11 -


information Congress cannot “cross the jurisdictional line” by imposing a posting

requirement on intrastate pipelines. 34

       3.       Comments: Section 1(c) of the Natural Gas Act

16.    Several commenters, such as the Railroad Commission of Texas, asserted that the

Commission’s proposal to require intrastate pipelines to post information impermissibly

intrudes on states’ regulation of natural gas transportation. 35 Cranberry Pipeline

Corporation argued that the Commission cannot have jurisdiction over intrastate

transactions when those transactions are already subject to the jurisdiction of the state

regulatory commission. 36 Similarly, DCP argued that the Commission ignored section

1(c) of the Natural Gas Act which exempts intrastate transportation because it is viewed

as a matter of local concern subject to regulation by the states. 37

       4.       Comments: Other

17.    TPA argued that there is no indication in the legislative history of section 23 that

Congress intended to modify the Commission’s jurisdiction to include intrastate




       34
            Comments of TPA at 11.
       35
         Comments of Railroad Commission of Texas at 8-9; see also Reply Comments
of the RRC of Texas at 8; Reply Comments of the Texas Pipeline Association at 12.
       36
            Comments of Cranberry Pipeline Corporation at 8 (internal citations omitted).
       37
            Comments of DCP Midstream, LLC at 7 (internal citations omitted).
Docket No. RM08-2-000                                                            - 12 -


transportation.38 Atmos Energy Corporation (Atmos) and the Railroad Commission of

Texas similarly stated that there is no reference at all in the relevant statutory provisions

or legislative history of EPAct 2005 to intrastate pipelines, the intrastate natural gas

market or intrastate gas flows and certainly no express indication that the FERC’s

authority was being extended in any manner over “intrastate” market participants. 39

18.    DCP Midstream, LLC argued that intrastate pipelines should not be held to the

same reporting burden as interstate pipelines because intrastate pipelines have not

submitted to the jurisdiction of the Commission. The burdens that an interstate pipeline

assumes, DCP contended, accompany a certificate of public convenience and necessity

and should not be imposed on an intrastate pipeline. DCP asserted that the Commission’s

policy historically has been that only gas pipelines that affirmatively accepted a

jurisdictional certificate to provide transportation in interstate commerce would be

subject to Commission regulation, such as daily scheduled volume or pipeline capacity

reporting. 40

19.    Atmos argued that the Commission’s interpretation of Natural Gas Act section 23

is inconsistent with the Commission’s prior analysis of its own jurisdiction in Order No.


       38
            Comments of TPA at 21.
       39
         Comments of Atmos at 12 (internal citations omitted); Comments of the
Railroad Commission of Texas at 6-7 (internal citations omitted).
       40
            Comments of DCP Midstream, LLC at 9-10.
Docket No. RM08-2-000                                                            - 13 -


670 41 and Order No. 636. 42 Atmos pointed to Order No. 670, in which the Commission

interpreted the phrase “any entity” from section 4A of the Natural Gas Act to encompass

any person or form of organization, regardless of its legal status, function or activities,

and further concluded that this language did not specifically exclude entities engaged in

non-jurisdictional activities. 43 Atmos also described the Commission interpreting the

phrase “in connection with” from section 4A so as to conclude that not every common-

law fraud that touches a jurisdictional transaction would constitute market

manipulation.44 According to Atmos, in Order No. 670, the Commission further

determined, that had Congress intended to expand the Commission’s jurisdiction so

significantly as to give it anti-manipulation authority over non-jurisdictional transactions

such as first sales of natural gas, sales of imported natural gas, sales of imported liquefied



       41
          Prohibition of Energy Market Manipulation, Order No. 670, 71 FR 4244
(Jan. 26, 2006), FERC Stats. & Regs. ¶ 31,202 (2006) (Order No. 670).
       42
         Pipeline Service Obligations and Revisions to Regulations Governing Self-
Implementing Transportation; and Regulation of Natural Gas Pipelines After Partial
Wellhead Decontrol, Order No. 636, 57 FR 13267 (Apr. 16, 1992), FERC Stats. & Regs.
¶ 30,939 (1992), order on reh’g, Order No. 636-A, 57 FR 36128 (Aug. 12, 1992), FERC
Stats & Regs. ¶ 30,950 (1992), order on reh’g, Order No. 636-B, 61 FERC ¶ 61,272
(1992), order on reh’g, 62 FERC ¶ 61,007 (1993), aff’d in part and remanded in part sub
nom, United Distribution Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 1996), order on remand,
Order No. 636-C, 78 FERC ¶ 61,186 (1997) (Order No. 636).
       43
            Comments of Atmos at 9.
       44
            Id. at 9-10.
Docket No. RM08-2-000                                                             - 14 -


natural gas, or sales and transportation by entities exempt from Commission regulation

under Natural Gas Act section 1(b), then it would have done so explicitly. 45

20.    As to Order No. 636, Atmos argued that the Commission’s assertion of

transparency authority over intrastate pipelines is contrary to its holdings in that order, in

which the Commission held that a non-interstate pipeline “providing service under

section 311 of the [Natural Gas Policy Act of 1978] is not required to meet the service

requirements of the Commission’s Order No. 636 such as offering firm service, having a

capacity release program, posting available capacity electronically, offering flexible

receipt and delivery points, or unbundling distinct services.” 46 By contrast, the pipeline

posting proposal, asserted Atmos, would not only extend daily posting requirements to

section 311 transportation by intrastate pipelines, but also to transportation that is purely

intrastate in nature. 47




       45
            Id. at 9 (internal citations omitted).
       46
            Id. at 15 (emphasis in original).
       47
         Id. at 12 (internal citations omitted). Atmos stated that it would not object if the
Commission limits the posting requirements applicable to intrastate pipelines to section
311 transportation or other activity regulated under the Natural Gas Policy Act of 1978.
Id.
Docket No. RM08-2-000                                                           - 15 -


21.    Some commenters, such as the Railroad Commission of Texas, expressed concern

that a requirement for intrastate pipelines to post information would lead to further

regulation of those intrastate pipelines. 48

        B.      Discussion

22.    The Commission proposes here to require major non-interstate pipelines to post

information regarding capacity, scheduled flow volumes, and actual flow volumes. 49

This proposal would impose posting requirements on major non-interstate pipelines in a

limited way. The Commission does not intend to regulate the intrastate operations of

those non-interstate pipelines; nor do we intend to regulate the rates or terms and

conditions of intrastate service for those non-interstate pipelines. The Commission

proposes to require those non-interstate pipelines only to post information.

23.    In the Initial NOPR, the Commission used the term “intrastate pipeline.” In this

proposal, the Commission uses the term “non-interstate pipeline.” The latter term more

accurately describes the scope of the proposed rule, which is issued pursuant to section

23 of the Natural Gas Act. 50 This section applies to both interstate and non-interstate

pipelines, a point explained further below, and does not use the term “intrastate pipeline.”

In this NOPR, the Commission proposes to collect important information about the

       48
            Comments of the Railroad Commission of Texas at 8-9.
       49
            Proposed 18 CFR 284.14(a).
       50
            15 U.S.C. 717t-2 (2000 & Supp. V 2005).
Docket No. RM08-2-000                                                            - 16 -


physical, natural gas market from certain pipelines in the continental United States

regardless of whether the pipeline is an intrastate pipeline, a Hinshaw pipeline, or any

other type of pipeline that is not an interstate pipeline under the Natural Gas Act. The

subjects of the posting requirement proposed herein are set by their participation in the

physical, natural gas market not by their legal status under section 1 of the Natural Gas

Act. 51

24.       The proposed posting requirements for non-interstate pipelines are consistent with

Congress’s intent as expressed in section 23 of the Natural Gas Act. There, Congress

permitted the Commission to impose on a broad set of market participants requirements

for a limited purpose, i.e., to obtain and disseminate “information about the availability

and prices of natural gas at wholesale and in interstate commerce.” 52 At the same time,

as the Commission explicitly acknowledges, Congress did not expand the Commission’s

authority to impose on the same set of market participants requirements related to the

Commission’s traditional regulatory activities, e.g., ratemaking under sections 4 and 5 of

the Natural Gas Act and certification of construction and sales and transportation services

under section 7 of the Natural Gas Act.




          51
               15 U.S.C. 717.
          52
               Section 23(a)(2) of the Natural Gas Act, 15 U.S.C. 717t-2(a)(2) (2000 & Supp.
V 2005).
Docket No. RM08-2-000                                                              - 17 -


25.    Congress placed non-interstate pipelines within the Commission’s transparency

authority under section 23 of the Natural Gas Act in order to ensure – for the entirety of

the wholesale, physical natural gas market – transparency of price and availability,

including transparency of market price formation. Aware that the pre-EPAct 2005 limits

on the Commission’s authority would have left gaps in the transparency of the wholesale,

physical natural gas markets, Congress did not restrict the Commission’s transparency

authority to those same limits in enacting section 23 of the Natural Gas Act. As we stated

in the Initial NOPR, “While distinctions between intrastate and interstate markets may be

meaningful from a legal perspective, they are not meaningful from the perspective of

market price formation.” 53 Congress was aware of the legal distinctions between non-

interstate and interstate natural gas markets in enacting EPAct 2005. In choosing to use

the term “any market participant” and focusing section 23 on “information about the

availability and prices of natural gas at wholesale and in interstate commerce,” Congress

indicated that these distinctions should not apply to the Commission’s transparency

authority. At the same time, by not amending section 1, Congress retained the legal

distinctions between intrastate and interstate markets for the purposes of delineating the

entities subject to the Commission’s authority over ratemaking in sections 4 and 5 and

over construction of natural gas facilities in section 7 of the Natural Gas Act.


       53
            Initial NOPR at P 20.
Docket No. RM08-2-000                                                             - 18 -


       1.         Discussion: Section 23 of the Natural Gas Act

26.    The language in section 23 of the Natural Gas Act supports the Commission’s

authority to require non-interstate pipelines to post information about capacity, scheduled

flow volumes and actual flow volumes. In section 23(a)(1), Congress directed the

Commission to “facilitate price transparency in markets for the sale or transportation of

physical natural gas in interstate commerce….” 54 In section 23(a)(2), Congress

authorized the Commission to “provide for the dissemination, on a timely basis, of

information about the availability and prices of natural gas sold at wholesale and in

interstate commerce….” 55 Congress expressly delegated to the Commission the task of

adopting rules to give life to this provision 56 and, in section 23(a)(3), provided that the

Commission may “obtain the information” about the availability and prices of natural gas

sold at wholesale and in interstate commerce from “any market participant.” 57

27.    Congress could have limited the Commission’s transparency authority to obtaining

information from any “natural gas company” subject to the Commission’s traditional

regulatory authority. It did not do so. Instead, in using the broad new term “any market

participant,” Congress deliberately expanded the universe subject to the Commission’s

       54
            15 U.S.C. 717t-2(a)(1) (2000 & Supp. V 2005).
       55
            15 U.S.C. 717t-2(a)(2) (2000 & Supp. V 2005).
       56
            Id.
       57
            15 U.S.C. 717t-2(a)(3) (2000 & Supp. V 2005).
Docket No. RM08-2-000                                                            - 19 -


transparency authority beyond “natural gas compan[ies].” 58 The term “any market

participant” is not defined in the Natural Gas Act; however, it is not on its face limited to

entities made subject to the Natural Gas Act under section 1. 59 Indeed, the language of

section 23 indicates that entities excluded from the Commission’s authority under section

1 of the Natural Gas Act would be included in section 23. First, in section 23, Congress

did not reference the limitations of section 1 explicitly (discussed further below).

Second, in section 23, Congress did not use the term “natural gas company” from section

2(6), which is defined as “a person engaged in the transportation of natural gas in

interstate commerce, or the sale in interstate commerce of such gas for resale.” 60 This

limiting term is used in section 1 of the Natural Gas Act to limit the Commission’s

authority, for instance, under sections 4, 5, and 7 of the Natural Gas Act. 61 These

approaches would have been the simplest ways for Congress to have indicated an intent

to limit the Commission’s transparency authority in the same manner it limited the

Commission’s comprehensive regulatory authority in other sections of the Natural Gas

Act. Thus, commenters’ arguments that the Commission has authority to obtain


       58
         Contrary to the assertions of Bridgeline Holdings, L.P. (Bridgeline), Comments
of Bridgeline at 6, this grant of transparency authority is not an implied grant.
       59
            Initial NOPR at P 12.
       60
            15 U.S.C. 717a(6).
       61
            15 U.S.C. 717c, 717d & 717f.
Docket No. RM08-2-000                                                            - 20 -


information only from those subject to the Commission’s authority under section 1 of the

Natural Gas Act are inconsistent with the language of the statute.

28.    In granting the Commission broad authority to obtain information, the Congress

not only used the new term “market participant” but it also specifically referred to “any”

market participant, instead of limiting the Commission’s authority to obtain information

from market participants subject to the Commission’s traditional Natural Gas Act

jurisdiction. The word “any” gives the term it modifies (in this case, “market

participant”) an expansive meaning. 62

29.    In addition, in section 23(d)(2), Congress created a de minimis exception to the

other provisions in section 23. Specifically, Congress instructed the Commission to

create a de minimis exception for gatherers and producers, which section 1(b) of the

Natural Gas Act explicitly excludes from Commission’s traditional regulation. If, as

some commenters asserted, Congress did not intend to give the Commission authority

over any entity excluded by section 1(b) of the Natural Gas Act, a de minimis exception


       62
           Norfolk S. Rwy. Co. v. Kirby, 543 U.S. 14, 31-32 (2004) (the word “any” gives
the word it modifies an expansive reading); Department of Housing and Urban Dev. v.
Rucker, 535 U.S. 125, 130-31 (2002); TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001)
(one must give effect to each word in a statute so that none is rendered superfluous);
United States v. Gonzales, 520 U.S. 1, 5 (1997) (“any” is an expansive term, meaning
“one or some indiscriminately of whatever kind,”); New York v. EPA, 443 F.3d 880,
885-87 (D.C. Cir. 2006) (the word “any” is broadly construed to reflect Congress’ intent
that all types of physical changes are subject to the Clean Air Act’s New Source Review
program).
Docket No. RM08-2-000                                                          - 21 -


would have been unnecessary; in other words, section 23(d)(2) would have been

surplusage. Congress is not presumed to enact surplus language. 63 To avoid this

improper result, the Commission interprets section 23 of the Natural Gas Act to give

effect to the de minimis language by interpreting the term “any market participant” to

include those entities otherwise excluded from the Commission’s Natural Gas Act

jurisdiction by section 1(b) of the act.

30.    The Commission disagrees that the term “about” in section 23 is a limiting term as

asserted by Enterprise. In the Initial NOPR, the Commission described the information

proposed to be collected from intrastate pipelines as information “about” interstate,

wholesale natural gas markets because the flows on intrastate pipelines affect interstate,

wholesale natural gas markets. 64 The Commission used the term “pertains” as a

synonym for “about.” Indeed, contrary to Enterprise’s reading, we read the term “about”

as broader than the terms “affect” or “impacts.” Information may be “about” a subject

without “affecting” it; hence, flow information may be “about natural gas sold at

wholesale and in interstate commerce” even if it does not “affect” such natural gas (even

though it normally does).



       63
         City of Roseville v. Norton, 348 F.3d 1020, 1028 (D.C. Cir. 2003) (citing
Babbitt v. Sweet Home Chapter of Community for a Great Oregon, 515 U.S. 687, 698
(1995)).
       64
            Initial NOPR at P 15.
Docket No. RM08-2-000                                                           - 22 -


31.    More specifically, as explained below, the information that would be posted by

major non-interstate pipelines is “information about the availability and prices of natural

gas sold at wholesale and in interstate commerce.” 65 There is a relationship between

capacity and flow information on non-interstate pipelines and the interstate, natural gas

market because non-interstate flows affect the supply and demand fundamentals that

underlie the market. As explained below, posted flow information from only interstate

pipelines cannot provide a complete picture of natural gas flows in the United States – or

even of those flows directly relevant to the pricing of natural gas flowing in interstate

commerce. 66 To avoid such incompleteness, the Commission sets forth the proposal to

require major non-interstate pipelines to post flow information. This proposal would

provide a complete picture of natural gas supply and demand fundamentals without the

gaps that would appear were the non-interstate pipelines excluded by section 1 of the

Natural Gas Act also excluded by section 23 of the Natural Gas Act. In enacting section

23 of the Natural Gas Act, Congress sought to avoid any such gaps in the transparency of

the physical natural gas markets by avoiding the legal distinctions set forth in section 1 of

the Natural Gas Act.




       65
            Section 23(a)(2) of the Natural Gas Act, 15 U.S.C. 717t-2(a)(2) (2000 & Supp.
V 2005).
       66
            See below at P 50-59.
Docket No. RM08-2-000                                                             - 23 -


       2.       Discussion: Section 1(b) of the Natural Gas Act.

32.    The Commission disagrees with commenters who argued that section 1(b) of the

Natural Gas Act precludes the Commission from imposing the daily posting requirement

on intrastate pipelines. Section 1(b) of the Natural Gas Act provides that the “provisions

of this chapter . . . shall apply to the transportation of natural gas in interstate commerce,

to the sale in interstate commerce of natural gas for resale . . .” and that such provisions

“shall not apply to any other transportation or sale of natural gas.” 67 These arguments

ignore the fact that, in section 23, Congress provided the Commission a new and broad

grant of authority that goes beyond prior Commission jurisdiction over natural gas

companies to facilitate transparency in the wholesale natural gas markets.

33.    In stating that the Commission may obtain information from “any market

participant,” 68 Congress contemplated that the transparency provisions would differ from

other provisions of the Natural Gas Act as to the entities covered by the Commission’s

authority. Commenters’ reliance on section 1 of the Natural Gas Act, therefore,

improperly ignores the intent of Congress to subject a different set of entities to the

Commission’s transparency authority as evidenced by Congress’s use of the term “any

market participant.” In light of this intent, commenters’ reliance on case law setting forth


       67
            Section 1(b) of the Natural Gas Act, 15 U.S.C. 717(b).
       68
            Section 23(a)(3) of the Natural Gas Act, 15 U.S.C. 717t-2(a)(3) (2000 & Supp.
V 2005).
Docket No. RM08-2-000                                                           - 24 -


the limits on the Commission’s authority under section 1 of the Natural Gas Act is

misplaced.

34.    The Commission does not find persuasive the argument that Congress could have

expressed its intent to subject intrastate pipelines to the Commission’s transparency

authority only by amending section 1 of the Natural Gas Act. First, altering the

exceptions in section 1, as commenters suggested, is not the only way to alter the statute

to give the Commission transparency authority. Indeed, it would have been more

cumbersome for the Congress to take that approach. Instead of that approach, the

Commission interprets the addition of section 23 as providing the Commission

transparency authority over non-interstate pipelines. This latter interpretation is the more

reasonable interpretation of section 23 and reflects Congress’s intent to subject non-

interstate pipelines to only the Commission’s transparency authority. Second, it could be

stated equally that if Congress intended to exclude intrastate (or non-interstate) pipelines

from the Commission’s authority under section 23 of the Natural Gas Act, it would have

used the term “natural gas company” in section 23, instead of the term “any market

participant.”

35.    Commenters’ arguments that section 23 should be interpreted consistent with pre-

EPAct 2005 case law are likewise misplaced. Those cases apply the jurisdictional limits

set forth in section 1 of the Natural Gas Act. These arguments run afoul of the principle

of statutory construction that “Congress is presumed to be aware of an administrative or
Docket No. RM08-2-000                                                            - 25 -


judicial interpretation of a statute.” 69 Thus, Congress was presumably aware that prior to

the enactment of section 23, the Natural Gas Act, as explained by TPA, “limit[ed] the

gathering of intrastate data to gathering it from companies falling under the

Commission’s jurisdiction.” 70 In using the term “any market participant,” Congress

signaled its intent to expand the Commission’s transparency authority beyond the

universe of natural gas companies to which it would otherwise be limited. 71

         3.    Discussion: Section 1(c) of the Natural Gas Act

36.      Several commenters, including a state commission, contended that the pipeline

posting proposal as applied to intrastate pipelines would improperly interfere with states’

regulation of intrastate pipelines as set forth in section 1(c) of the Natural Gas Act,

commonly known as the Hinshaw amendment. Section 1(c) of the Natural Gas Act

reads:

         69
            Lorillard v. Pons, 434 U.S. 575, 580 (1978) (internal citations omitted); accord
2A Norman J. Singer, Sutherland Statutory Construction sec. 45.12 (5th ed. 1992)
(“legislative language will be interpreted on the assumption that the legislature was aware
of . . . judicial decisions”).
         70
        Comments of Texas Pipeline Association at 13 (citing Union Oil v. FPC,
542 F.2d 1036, 1039 (9th Cir. 1976)).
         71
          TPA observed that courts have held that the Commission cannot exceed its
statutory authority. Reply Comments of TPA at 16-17 (citing Transmission Agency of
Northern California v. FERC, 495 F.3d 663 (D.C. Cir. 2007) and United Distribution
Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 1996)). This is an unremarkable and unassailable
conclusion, but one that provides no guidance where the issue is not whether the
Commission may exceed its statutory authority but what is the extent of the
Commission’s transparency authority.
Docket No. RM08-2-000                                                          - 26 -


       The provisions of this chapter shall not apply to any person engaged in or
       legally authorized to engage in the transportation in interstate commerce or
       the sale in interstate commerce for resale, of natural gas received by such
       person from another person within or at the boundary of a State if all the
       natural gas so received is ultimately consumed within such State, or to any
       facilities used by such person for such transportation or sale, provided that
       the rates and service of such person and facilities be subject to regulation
       by a State commission. 72

The Commission’s proposal does not impermissibly interfere with states’ regulation of

Hinshaw pipelines. Under the Commission’s proposal, states will continue to regulate

the rates and services of those companies. As stated, section 23 of the Natural Gas Act

does not authorize the Commission to undertake such comprehensive regulation and the

Commission does not propose to do so. The Commission would require only that non-

interstate pipelines, including Hinshaw pipelines, post information regarding their flows.

Section 1(c) of the Natural Gas Act, in light of the later enacted EPAct 2005, does not

preclude such a posting requirement.

       4.       Discussion: Other

37.    The Commission disagrees with DCP’s argument that the burden of a posting

requirement is related to the Commission’s grant of a certificate of convenience and

necessity under section 7 of the Natural Gas Act. DCP’s argument ignores the mandate

Congress set forth in the transparency provisions for the Commission to facilitate

transparency. Nothing in section 23 indicates or even implies that the Commission’s


       72
            15 U.S.C. 717(c).
Docket No. RM08-2-000                                                          - 27 -


transparency authority depends on whether a market participant has a certificate of public

convenience and necessity. Indeed, the use of the modifier “any,” as discussed above,

demonstrates that Congress had not intention to limit the Commission authority to

disseminate adequate information about the natural gas market.

38.    Contrary to commenters’ assertions, the Commission’s interpretation of section 23

is consistent with the Commission’s interpretation of section 4A of the Natural Gas Act,

which Congress also enacted in EPAct 2005. In Order No. 670, the Commission stated

that Congress chose the undefined term “any entity” in section 4A as a broader term than

the existing defined term of “natural gas company.” 73 Similarly, in interpreting section

23, Congress chose the undefined term “any market participant” in section 23 as a

broader term than the existing defined term “natural gas company.” Also, in Order No.

670, to determine the transactions subject to the Commission’s market manipulation

authority, the Commission interpreted the section 4A phrase “in connection with”

broadly. 74 To delineate what type of information the Commission could obtain and

disseminate, in section 23 of the Natural Gas Act, Congress used the term “about,” which



       73
            Order No. 670 at P 18.
       74
            Section 4A of the Natural Gas Act reads:

       It shall be unlawful for any entity, directly or indirectly, to use or employ,
       in connection with the purchase or sale of natural gas or the purchase or
       sale of transportation services subject to the jurisdiction of the Commission,

                                                                            (continued…)
Docket No. RM08-2-000                                                           - 28 -


is a concept similarly as broad as the concept described by the phrase “in connection

with.”

39.      The Commission’s interpretation of section 23 is also consistent with its holdings

in Order No. 636. 75 As described in subsequent orders, the Commission has not

“requir[ed] intrastate pipelines to introduce all the features of open-access service that we

have required of interstate pipelines” because requiring intrastate pipelines to do so

“could make it unduly burdensome to participate in interstate markets, contrary to the

intent of the [Natural Gas Policy Act of 1978].” 76 Here, the Commission proposes to

impose only a posting burden on non-interstate pipelines that is equivalent to the posting

requirements of interstate pipelines. In other respects, the burden on non-interstate

pipelines remains far less than that on interstate pipelines in keeping with the Natural Gas


         any manipulative or deceptive device or contrivance…in contravention of
         [Commission] rules and regulations.

15 U.S.C. 717t-2c-1 (2000 & Supp. V 2005). In Order No. 670, the Commission
observed that the Supreme Court interpreted the phrase “in connection with”
broadly in interpreting section 10(b) of the Securities Exchange Act. As noted in
that order, section 4A “closely track[s] the prohibited conduct language in section
10(b) of the Securities Exchange Act of 1934, Securities Exchange Act of 1934,
15 U.S.C. 78j(b), and specifically dictate[s] that the terms ‘manipulative or
deceptive device or contrivance’ are to be used “as those terms are used in section
10(b) of the Securities Exchange Act of 1934.” Order No. 670 at P 6.
         75
          See, e.g., Order No. 636, FERC Stats. & Regs. ¶ 30,939, at 30,406 (permitting,
but not requiring intrastate pipelines, to offer open-access, contract storage).
         76
              EPGT Texas Pipeline, L.P., 99 FERC ¶ 61,295, at 62,252 (2002).
Docket No. RM08-2-000                                                           - 29 -


Policy Act of 1978. While in the past, the Commission exempted intrastate pipelines

from open-access requirements, such as electronic bulletin boards, 77 any change in that

exemption would be justified in order to further the Commission’s transparency goals as

set forth in section 23 of the Natural Gas Act.

40.    Finally, the Commission recognizes commenters’ concern that the Commission’s

proposal could appear to lead to further regulation. As explained above, however, the

Commission’s transparency authority over non-interstate pipelines is limited to obtaining

and disseminating information. The Commission has no interest in comprehensive

regulation of non-interstate pipelines. The Commission reiterates, section 1 of the

Natural Gas Act continues to exclude non-interstate pipelines from such comprehensive

regulation. 78

III.   Interstate Pipeline Posting Requirements

41.    In the Initial NOPR, the Commission sought comment on whether it should revise

its posting requirements applicable to interstate pipelines to require posting actual flow

information. 79 The Commission raised the question because we proposed to require

intrastate pipelines to post actual flow information, a requirement beyond that applied to

interstate pipelines under § 284.13(d)(1) of the Commission’s regulations, and because

       77
            Order No. 636-B, 61 FERC ¶ 61,272, at 61,992, n.26.
       78
            15 U.S.C. 717.
       79
            Initial NOPR at P 43.
Docket No. RM08-2-000                                                             - 30 -


posting of actual flow information could provide useful information regarding actual

capacity use, for instance, by giving insight into the use of no-notice service. 80 In this

regard, Commission Staff observed that its ability to monitor flows in the interstate

pipeline system is limited in certain locations, by the lack of actual flow information. In

the case of “no-notice” service, 81 specifically, interstate pipeline schedules do not reflect

actual flows. Consequently, information about interstate flows in areas using no-notice

service is less useful. In its comments on the Initial NOPR, the Natural Gas Supply

Association (NGSA) observed that, “[o]n heating season peak days or days with wide

intra-day weather swings, no-notice volumes can be significant; therefore, scheduled flow

volumes are not a proxy for physical flow and, thus, do not necessarily provide an

accurate picture of underlying market fundamentals.” 82 Similarly, Commission Staff

observed that the gap between scheduled and actual flows occurs most commonly in the

northern tier of the country, particularly, where a pipeline serves a local distribution

company with significant space heating demand. In such circumstances, market

observers find it more difficult to ascribe price behavior to physical changes in flows.

42.    Public posting of information reflecting no-notice service could also prevent other

forms of misconduct with direct effects on natural gas in interstate commerce.
       80
            Initial NOPR at P 43.
       81
            See 18 CFR 284.7(a)(4).
       82
            NGSA Comments at 10.
Docket No. RM08-2-000                                                          - 31 -


Commission investigations of interstate and intrastate pipeline activity resulted in two

settlements in which the settling party admitted it sought to obtain and exploit non-public

storage inventory information to gain a competitive advantage in wholesale gas

markets. 83 Though this proposal would make public flow information, not storage

information, the importance of the non-public information is analogous. These

admissions indicate that the lack of public flow information provides the opportunity for

parties to engage in manipulative or unduly discriminatory behavior. By making major

non-interstate pipeline flow information public, such transparency could discourage

market participants from engaging in such manipulative or unduly discriminatory

activity.

43.    In this NOPR, the Commission proposes to require interstate pipelines to post

actual flow information in addition to the capacity and scheduled flow information that

interstate pipelines are currently required to post. Accordingly, the Commission proposes

adding to § 284.13(d) this requirement: “An interstate pipeline must also provide in the




       83
         Dominion Resources, Inc., 108 FERC ¶ 61,110 (2004) (Dominion Resources,
DTI and DEC admit that DTI violated section 161.3(f) of the Commission’s regulations,
former 18 CFR 161.3(f) (2003)); The Williams Companies, Inc., 111 FERC ¶ 61,392
(2005) (Transco admits that it violated section 161.3(f) of the Commission’s regulations,
former 18 CFR 161.3(f) (2002)).
Docket No. RM08-2-000                                                            - 32 -


same manner [as other information is provided] access to information on actual flowing

volumes at receipt points, on the mainline, at delivery points, and in storage fields.” 84

44.    In response to the Initial NOPR, several commenters supported requiring interstate

pipelines to post actual flow volumes. 85 The NGSA asserted that posting of actual flow

data “could lead to even more accurate and near real-time indication of underlying

market supply and demand fundamentals” 86 The National Association of Royalty

Owners (NARO) contended that requiring interstate pipelines to post actual flow volumes

would allow an “apples to apples” comparison with the postings of intrastate pipelines. 87

45.    The Interstate Natural Gas Association of America (INGAA) opposed any

proposal for interstate pipelines to post actual flows. INGAA contended that: (1)

scheduled flows are adequate for market participants to estimate demand and supply

conditions in order to price market transactions; (2) actual flows include operational data

that is not relevant and may be counterproductive, such as flows reflecting maintenance

activities, storage injection and withdrawal schedules, line pack management, balancing

at interconnects, and blending to meet quality specifications not related to commercial

flows and (3) the no-notice activity that would be captured by posting actual flows does

       84
            Proposed 18 CFR 284.13(d).
       85
            See, e.g., NGSA at 10; and Apache Corp. at 8-9.
       86
            NGSA Comments at 10.
       87
            NARO Comments at 4.
Docket No. RM08-2-000                                                            - 33 -


not reflect trading activity, but rather reflects storage withdrawals. 88 Williston Basin

Interstate Pipeline Company (Williston) indicated that scheduled flow volumes were

adequate and actual volumes not necessary. 89

46.    In order to effectively balance the benefits of the additional flow information with

the costs of such a requirement, the Commission seeks further information regarding both

the benefits of the additional information available if actual flow volumes were posted by

interstate pipelines, and the costs imposed on interstate pipelines to develop and post that

information. In providing comments on this proposal, the Commission encourages

commenters to support their comments by providing specific examples.

47.    Regarding benefits, is information lost by not providing actual flows? What is the

extent of any such lost information? How extensive is the use of no-notice service? Is

information regarding operational flows, such as flows reflecting maintenance activities,

storage injection and withdrawal schedules, line pack management, balancing at

interconnects, and blending to meet quality specifications, useful to understand supply

and demand fundamentals? Does the no-notice activity that would be captured by

posting actual flows reflect trading activity or does it reflect storage withdrawals? Can

trading activity and storage withdrawals be considered as separate activities? How?



       88
            INGAA Comments at 3-4.
       89
            Williston Reply Comments at 4.
Docket No. RM08-2-000                                                           - 34 -


48.    Regarding costs, how is actual flow information collected today for operational,

balancing, billing or other purposes? What process changes, if any, would be required

for interstate pipelines to post actual flow information? How much time after flow

would be required before such information would be available for posting? Would

posting actual volumes reveal any information that might be harmful to any competitive

interests? How could it be harmful?

IV.    Postings by Non-Interstate Pipelines

49.    In the Initial NOPR, the Commission proposed to require certain intrastate

pipelines to post daily information regarding the capacity and actual flows at major

receipt and delivery points and mainline segments. In the instant NOPR, the Commission

proposes to require non-interstate pipelines to post scheduled flow information in

addition to capacity and actual flow information.90 Only a “major non-interstate

pipeline” would be required to post information. For the purposes of this NOPR, a

“major non-interstate pipeline” is defined as one that is not a “natural gas company”

under section 1 of the Natural Gas Act and that flows greater than 10 billion cubic feet of

natural gas per year, with two exceptions. 91 The first exception is non-interstate pipelines

that fall entirely upstream of a processing plant. 92 The second exception is non-interstate

       90
            Proposed 18 CFR 284.14(a).
       91
            Proposed 18 CFR 284.1.
       92
            Proposed 18 CFR 284.14(b)(1).
Docket No. RM08-2-000                                                            - 35 -


pipelines that deliver more than ninety-five percent (95%) of the natural gas volumes

they flow directly to end-users. 93

       A. Rationale

50.    Through the information that would be obtained from the daily posting

requirement on major non-interstate pipelines, the Commission, market participants, and

the public could obtain a picture of daily supply and demand conditions that directly

affect U.S. wholesale natural gas markets – a picture that is currently incomplete without

information from major non-interstate pipelines. 94 Consequently, this proposal to

increase information from certain major non-interstate pipelines would directly “facilitate

price transparency for the sale… of physical natural gas in interstate commerce” as

authorized in the natural gas transparency provisions. 95

51.    The posted information from major non-interstate pipelines would qualify as, in

the words of the transparency provisions, “information about the availability and prices

of natural gas sold at wholesale and in interstate commerce.” 96 Notwithstanding their


       93
            Proposed 18 CFR 284.14(b)(2).
       94
            In this section, the Commission reiterates its discussion from the Initial NOPR.
       95
            Section 23(a)(1) of the Natural Gas Act, 15 U.S.C. 717t-2(a)(1) (2000 & Supp.
V 2005).
       96
        Section 23(a)(2) of the Natural Gas Act, 15 U.S.C.A. 717t-2(a)(2) (2000 &
Supp. V 2005).
Docket No. RM08-2-000                                                             - 36 -


status under section 1 of the Natural Gas Act, most major non-interstate pipelines today

transport or buy and sell wholesale natural gas that eventually enters or at least impacts

the interstate natural gas market. Further, supply and demand in non-interstate markets

have a direct effect on prices of gas destined for interstate markets because both intrastate

and interstate consumers draw on the same sources of supply. This is the case because of

the statutory, regulatory and market changes that have taken place in the last three

decades.

52.    In the Natural Gas Policy Act of 1978, Congress allowed an intrastate pipeline to

transport natural gas in interstate commerce on behalf of any interstate pipeline or local

distribution company served by an interstate pipeline, without losing its intrastate

status. 97 Congress likewise permitted an intrastate pipeline to sell natural gas to any

interstate pipeline or any local distribution company served by any interstate pipeline,

without losing its intrastate status. 98 In addition, at the same time that the Commission

issued Order No. 636 in 1992, it promulgated a new subpart of Part 284 (revised several

times in the past 15 years) that provides blanket authority to any person who is not an

interstate pipeline (including intrastate pipelines) to make sales for resale of natural gas in
       97
         See section 311(a)(2) of the Natural Gas Policy Act of 1978, 15 U.S.C.
3371(a)(2); see also 18 CFR part 284, subpart C (Certain Transportation by Intrastate
Pipelines).

       98
         See section 311(b) of the Natural Gas Policy Act of 1978, 15 U.S.C. 3371(b);
see also 18 CFR part 284, subpart D (Certain Sales by Intrastate Pipelines).
Docket No. RM08-2-000                                                            - 37 -


interstate commerce. 99 This authorization is a limited jurisdiction sales certificate, which

means that the holder does not become subject to the panoply of Natural Gas Act

regulation by exercising its rights under the certificate. 100

53.    The market understandably reacted to these statutory and regulatory changes since

1978. As relevant here, natural gas sold at or destined to be sold at wholesale in the

interstate market is frequently exchanged or the transactions consummated at market

hubs where interstate and non-interstate pipelines interconnect (e.g., Waha, Katy,

Houston Ship Channel, and Carthage in Texas and at Henry Hub in Louisiana). Prices

formed at these hubs are, in effect, prices for wholesale transactions in interstate

commerce, even if a portion of the gas priced at each market hub is consumed intrastate.

In addition, transfer of natural gas can take place directly between parties who ship gas

on both interstate and non-interstate pipelines at any pipeline interconnection.

54.    Currently, through the availability of information regarding daily scheduled flows

of natural gas through interstate pipelines, market participants have an increased, daily

understanding of natural gas markets, including regional conditions and the pipeline

capacity available to resolve different geographic supply/demand balances. This is due in

part to Order No. 637, where the Commission required posting of capacity and scheduled
       99
            Order No. 636 FERC Stats. & Regs. ¶ 30,939, at 30,391.

       100
          See 18 CFR part 284, subpart L (Certain Sales for Resale by Non-interstate
Pipelines).
Docket No. RM08-2-000                                                           - 38 -


volume information on interstate pipelines with the direct intention of allowing shippers

to monitor capacity availability. 101 Accordingly, interstate pipelines must post available

capacity information, specifically:

       the availability of capacity at receipt points, on the mainline, at delivery
       points, and in storage fields, whether the capacity is available directly
       from the pipeline or through capacity release, the total design capacity of
       each point or segment on the system; the amount scheduled at each point
       or segment whenever capacity is scheduled, and all planned and actual
       service outages or reductions in service capacity. 102

In Order No. 637, the Commission anticipated that such postings would provide useful

information regarding supply and demand fundamentals:The changes to the

Commission’s reporting requirements will enhance the reliability of information about

capacity availability and price that shippers need to make informed decisions in a

competitive market as well as improve shippers’ and the Commission’s ability to monitor

marketplace behavior to detect, and remedy anticompetitive behavior. 103


       101
           Regulation of Short-Term Natural Gas Transportation Services, and Regulation
of Interstate Natural Gas Transportation Services, Order No. 637, 65 FR 10156, at 10204-
10205, (Feb. 25, 2000), FERC Stats. & Regs. ¶ 31,091, at 31,320-31,321 (2000); order
on reh’g, Order No. 637-A, 65 FR 35706 (June 5, 2000), FERC Stats. & Regs. ¶ 31,099
(2000); order on reh’g, Order No. 637-B, 65 FR 47284 (Aug. 2, 2000), affirmed in
relevant part, Interstate Natural Gas Ass’n of America v. FERC, 285 F.3d 18 (D.C. Cir.
2002), order on remand, 101 FERC ¶ 61,127 (2002), order on reh’g, 106 FERC ¶ 61,088
(2004), aff’d sub nom., American Gas Ass’n v. FERC, 428 F.3d 255 (D.C. Cir. 2005)
(Order No. 637).
       102
             18 CFR 284.13(d).
       103
             Order No. 637, 65 FR at 10169.
Docket No. RM08-2-000                                                            - 39 -


55.    Today, interested market participants as well as commercial vendors retrieve this

information from the websites of interstate pipelines to obtain schedule information that

is then used to estimate a variety of supply and demand conditions including geographic

and industrial sector consumption, storage injections and withdrawals and regional

production in almost real-time. 104 Market participants have come to rely on this

information to help price transactions. Commission Staff has also come to rely on this

information to perform its oversight and enforcement functions. In fact, market observers

believe that posting of this information contributes to market transparency by revealing

the underlying volumetric (or availability) drivers behind price movements. 105

56.    Notwithstanding the contribution of posted interstate schedule information to the

transparency of price and availability of natural gas, this information cannot provide a

complete picture of natural gas flows in the United States – or even those flows directly

relevant to the pricing of natural gas flowing in interstate commerce. Several major U.S.

natural gas pricing points sit at the confluence of multiple interstate and non-interstate

pipelines. A recent study by the U.S. Department of Energy’s Energy Information

Administration (EIA) identified twenty-eight national market centers or pricing hubs, of

       104
          See, e.g., Comments of Bentek Energy, LLC., Docket No. AD06-11-000 (filed
Oct. 10, 2006).
       105
          See, e.g., Comments of Platt’s, at 11-13, Docket No. AD06-11-000
(information regarding the supply and demand of natural gas explains prices and such
information is available from interstate pipelines, but not intrastate pipelines).
Docket No. RM08-2-000                                                                                  - 40 -


which thirteen are served by a combination of interstate and non-interstate pipelines. 106

The table below shows the capacity of interstate and non-interstate pipelines connected to

each of these thirteen hubs.

               Table 1: Inter- and Intrastate Pipeline Delivery Capacity at
                         Selected U.S. Natural Gas Pricing Points
                                                       Receipt and Delivery Capacity
                                                 Interstate Pipelines    Non-interstate
          Hub Name                   State            (MMcfd)          Pipelines (MMcfd)
       Carthage                       TX                        1,120                1,355
       Henry Hub                      LA                        2,770                1,215
       Katy – Enstor                  TX                        1,370                3,815
       Katy – DEFS                    TX                          260                2,360
       Mid Continent                  KS                        1,112                  627
       Moss Bluff                     TX                        1,050                1,800
       Nautilus                       LA                        1,200                1,350
       Perryville                     LA                        3,652                  350
       Aqua Dulce                     TX                          855                  835
       Waha - Lone Star               TX                          810                1,140
       Waha – Encina                  TX                          525                  800
       Waha - El Paso                 TX                        1,165                1,660
       Waha – DEFS                    TX                          300                1,850
       Source: Unpublished Energy Information Administration update to March 2005 of information presented in
       Natural Gas Market Centers and Hubs: A 2003 Update, October 2003.



57.    Many of these pricing points are closely connected to other regions of the United

States, influencing prices across the country. The figure below shows the location and



       106
          Department Of Energy, Energy Information Administration, Natural Gas
Market Centers And Hubs: A 2003 Update, Oct. 2003, http://www.eia.doe.gov/pub/
oil_gas/natural_gas/feature_articles/2003/market_hubs/mkthubs03.pdf
Docket No. RM08-2-000                                                          - 41 -


flow patterns of natural gas moving between interstate and non-interstate markets through

several of these pricing points.


                                  Figure 1
 Texas and Louisiana Market Hubs and Their Connection to Other Regions in the
                               United States




58.    One pricing point directly connected to both interstate and non-interstate pipelines

is Henry Hub, Louisiana, the location for delivery of natural gas under the New York

Mercantile Exchange’s (NYMEX) futures contract. Monthly settlement of NYMEX’s

Henry Hub natural gas future contract has become important in determining a variety of
Docket No. RM08-2-000                                                            - 42 -


monthly index prices used to set natural gas prices in a variety of transactions, some in

interstate commerce, particularly along the East Coast and Gulf Coast of the United

States. The nature of this influence is detailed in Commission Staff’s 2006 State of the

Markets Report. 107

59.    Further, purchasers of natural gas in interstate commerce draw on the same

sources of supply as users and buyers of natural gas in intrastate commerce. For

example, much of the recent Barnett Shale development in the Fort Worth basin flows

into intrastate systems before moving into interstate markets. In total, slightly more than

forty percent of total on-shore production in Texas is connected to interstate pipelines,

less than sixty percent in Louisiana and less than eighty percent in Oklahoma. 108 Though

daily volume flowing from non-interstate into interstate pipelines can be estimated, the

supply dynamics that make these volumes available cannot.

60.    The daily posting of flow information by major non-interstate pipelines would

provide several benefits to the functioning of natural gas markets in ways that would

protect the integrity of physical, interstate natural gas markets, protect fair competition in

       107
           Federal Energy Regulatory Commission, 2006 State of the Markets Report at
48-50 (Jan. 2007), www.ferc.gov/market-oversight/market-oversight.asp, (follow link to
the State of the Markets Full Report).

       108
           Bentek Energy, LLC analysis of supply scheduled into interstate pipelines
compared with EIA data from its table Natural Gas Gross Withdrawals and Production
for Texas and Oklahoma available at
http://tonto.eia.doe.gov/dnav/ng/ng_prod_sum_dcu_NUS_m.htm.
Docket No. RM08-2-000                                                          - 43 -


those markets and consequently serve the public interest by better protecting consumers.

First, by providing a more complete picture of supply and demand fundamentals, these

postings would improve market participants’ ability to assess supply and demand and to

price physical natural gas transactions. Second, during periods when the U.S. natural gas

delivery system is disturbed, for instance due to hurricane damage to facilities in the Gulf

of Mexico, these postings would provide market participants a clearer view of the effects

on infrastructure, the industry, and the economy as a whole. Finally, these postings

would allow the Commission and other market observers to identify and remedy

potentially manipulative activity. We discuss each of these points in turn.

61.    First, the proposed daily capacity and volume postings by major non-interstate

pipelines would improve market participants’ ability to assess supply and demand and

price physical natural gas transactions by providing a more complete picture of supply

and demand fundamentals. 109 As discussed above and noted in comments filed in these

proceedings, interstate pipeline information does not provide a complete picture of the




       109
          See, e.g., Comments of Platt’s at 11, Docket No. AD06-11-000 (filed Nov. 1,
2006) (explaining that, to understand prices, “the marketplace must look to… information
on [the] availability of and demand for natural gas….”).
Docket No. RM08-2-000                                                           - 44 -


supply and demand fundamentals that apply to interstate commerce because much of the

natural gas in the U.S. is moved through the non-interstate pipeline system. 110

62.    Second, the proposed daily non-interstate pipeline capacity and volume postings

would provide market participants – and the Commission in its market oversight efforts –

a clearer view of the effects on infrastructure, the industry, and the economy as a whole

during periods when the U.S. natural gas delivery system is disturbed. For example, after

landfall of hurricanes Katrina and Rita in late 2005, even the most interested of

governmental and commercial market observers were not able to obtain complete

information regarding the output by potentially-damaged production facilities. 111 By

monitoring receipt and delivery points for production facilities on interstate pipelines,

market observers were able to obtain only a limited sense of production facility output. 112

Similarly, market participants, state commissions and other market observers were unable


       110
           See Comments of Platt’s at 13, Docket No. AD06-11-000 (filed Nov. 1, 2006)
(stating that much of the fundamental supply and demand data is missing from natural
gas markets and advocating for reporting by intrastate pipelines).
       111
          See, e.g., Comments of Public Service Commission of New York (NYPSC) at
2; Comments of Bentek Energy LLC at 15-16 & 21-22; Comments of APGA at 3-4;
Comments of NARO at 2; Transcript of the Oct. 13, 2006 Technical Conference (Tr.), at
25, Transparency Provisions of the Energy Policy Act of 2005, Docket No. AD06-11-000
(Comments of Sheila Rappazzo, Chief of Policy Section of the Office of Gas and Water
of the New York State Department of Public Service).
       112
          Tr. 25 (Comments of Sheila Rappazzo) (describing how after the 2005
hurricanes data availability differed widely).
Docket No. RM08-2-000                                                               - 45 -


to assess effects on natural gas consumption in the Gulf Coast, including consumption by

the petrochemical industry, for some period. The significance and duration of these

effects on this industry – vulnerable to energy price and availability disruptions – remain

unclear. This proposal would allow interested governmental and private parties to gain a

much better picture of disruptions in natural gas flows in the case of future hurricanes in

the Gulf region. 113

63.    Third, the proposed daily non-interstate pipeline capacity and volume postings

would allow the Commission and other market observers to identify and remedy

potentially manipulative activity more actively by tracking price movement in the context

of natural gas flows. 114 In particular, information regarding availability on non-interstate

pipelines could be used to track manipulative or unduly discriminatory behavior intended


       113
            Along these lines, this proposal is consistent with a recent Commission final
rule and a proposed survey by EIA. On August 23, 2006, the Commission revised its
reporting regulations to require jurisdictional natural gas companies to report damage to
facilities due to a natural disaster or terrorist activity that results in a reduction in pipeline
throughput or storage deliverability. Revision of Regulations to Require Reporting of
Damage to Natural Gas Pipeline Facilities, Order No. 682, 71 FR 51098 (Aug. 29, 2006),
FERC Stats. and Regs. ¶ 31,227 (2006), order on reh’g, 118 FERC ¶ 61,118 (2007). On
January 30, 2007, EIA proposed to survey natural gas processing plants “to monitor their
operational status and assess operations of processing plants during a period when natural
gas supplies are disrupted.” Agency Information Collection Activities, 72 FR 4248
(Jan. 30, 2007). The purpose of the survey would be to “inform the public, industry, and
the government about the status of supply and delivery activities in the area affected by
the disruption.” Id.

       114
             See Comments of NGSA at 8-10.
Docket No. RM08-2-000                                                            - 46 -


to cause harm to consumers by distorting market prices in interstate commerce. For

example, Commission Staff overseeing markets routinely check for unused interstate

pipeline capacity between geographically distinct markets with substantially different

prices as a sign that flows may be managed to manipulate prices. Given the importance

of non-interstate pipeline connections to thirteen major pricing hubs, including Henry

Hub, as discussed above, the lack of flow information on non-interstate pipelines hinders

the Commission’s market oversight and enforcement efforts.

64.    This benefit comports with EPAct 2005, in which Congress directed the

Commission to facilitate price transparency in physical, interstate natural gas markets

“with due regard for the public interest, the integrity of those markets, fair competition,

and the protection of consumers.” 115 By this language, Congress intended that the

improvement of Commission market oversight activities is a legitimate justification for

proposing rules under the natural gas transparency provisions. Monitoring and

preventing manipulative or unduly discriminatory activity would meet the Commission’s

responsibility for ensuring the integrity of the physical interstate natural gas markets.

The proposal to make non-interstate pipeline information available to the public would

assist the Commission in fulfilling that responsibility.



       115
             Section 23(a)(1) of the Natural Gas Act, 15 U.S.C. 717t-2(a)(1) (2000 & Supp.
V 2005).
Docket No. RM08-2-000                                                          - 47 -


       B.     Revisions to the Proposal Set Forth in the Initial NOPR

65.    The Commission has developed a more particular definition of the types of non-

interstate pipelines that would be required to post. The Commission is not interested in

burdening smaller non-interstate pipelines like gathering systems, or individual

consumers to post daily information regarding capacity, scheduled flow volumes, and

actual flow volumes at major points and mainline segments. Consequently, the

Commission has altered its proposal from the initial NOPR that used the term “intrastate

pipeline” to the current proposal which defines “major non-interstate pipeline” to capture

directly U.S. wholesale natural gas transportation systems of significant size and

contribution to overall wholesale gas flows across the United States. The Commission

seeks comment on this proposal. In providing comments, again, the Commission

encourages commenters to support their comments by providing specific examples.

66.    The Commission also proposes to limit the daily posting requirement by limiting

the definition of “major non-interstate pipeline” based on whether the non-interstate

pipeline flows more than 10 million MMBtus of natural gas per year. The intention is to

focus on non-interstate pipelines of significant size and that consequently make a

significant contribution to wholesale U.S. natural gas flows. Too low a limit would pick

up non-interstate pipelines too small to contribute to wholesale market flows of natural

gas. Too high a limit would lose information about flows that affect wholesale pricing,

either directly by losing information at major hubs, or less directly by missing important
Docket No. RM08-2-000                                                             - 48 -


components of wholesale demand or supply not attached to interstate pipelines. By way

of contrast, Platts reports that total reporting for its next-month indices at all geographical

locations across the country over the past 12 months (November 2006 through October

2007) totaled only a little more than 8 billion cubic feet last year. 116 Thus, by rough

comparison, movements of that size on a pipeline could easily affect wholesale prices in

any particular location. According to EIA statistics from its 2005 Form 176 filings by

companies that do business (at least in part) as intrastate pipelines, the 10 million MMBtu

threshold would capture 102 pipelines.117 The number of these non-interstate pipelines

qualifying as major non-interstate pipelines required to post information would be further

reduced by the other criteria, such as excluding non-interstate pipelines that fall entirely

upstream of processing plants and those that deliver more than ninety-five percent (95%)

of the natural gas volumes they flow directly to end-users.

67.    The Commission seeks comment on these criteria. For the volume criterion, are

average flows of 10 billion cubic feet of natural gas per year too low a threshold for non-

interstate pipelines to require posting at major points and mainline segments? Too high?




       116
          As reported on the natural gas.org informational website, maintained by the
Natural Gas Supply Association, http://www.naturalgas.org/business/marketactivity.asp
(as of November 29, 2007).
       117
         See Comments of Bentek Energy, LLC, Attachment A, Docket Nos. RM07-10-
000 and AD06-11-000 (filed Aug. 21, 2006).
Docket No. RM08-2-000                                                           - 49 -


68.    The Commission would exempt from the daily posting requirement two types of

non-interstate pipelines that meet the volume criterion. First, a major non-interstate

pipeline that lies entirely upstream of a processing plant would be exempt. 118 The

Commission seeks comment on its proposed exemption of a non-interstate pipeline that

lies entirely upstream of processing plants. If these non-interstate pipelines were

excluded from the pipeline posting requirement, would significant information useful for

determining price and availability of natural gas likely be lost?

69.    Second, the Commission proposes to exempt any major non-interstate pipeline

that makes greater than ninety-five percent (95%) of its deliveries directly to end-users.

The Commission seeks comment on this exemption. 119 If these non-interstate pipelines

were excluded from the pipeline posting requirement, would significant information

useful for determining price and availability of natural gas likely be lost? Overall, are

there any other categories of major non-interstate pipelines that should be exempt from

the daily posting requirements?

70.    The comments on the Initial NOPR inform the Commission’s revised proposal to

limit posting to major non-interstate pipelines. In its comments on the Initial NOPR,

affiliates Agave Energy Corp. and Yates Petroleum Corp. (Agave-Yates) urged the



       118
             Proposed 18 CFR 284.214(b)(1).
       119
             Proposed 18 CFR 284.214(b)(2).
Docket No. RM08-2-000                                                          - 50 -


Commission to limit the requirement for daily posting of flow data to those intrastate

pipelines with receipt or delivery points connected to the 13 major market hubs served by

both interstate and intrastate pipelines. 120 Bentek Energy LLC (Bentek) proposed

determining on a case by case basis which intrastate pipelines should post.121 As for this

approach, Bentek observed that it “would solve the issue of small regional pipelines

being too small to meet a threshold applied nationally, but would require considerable

analysis by the Commission to implement [including] ongoing analysis as pricing points

change periodically.” 122 The Commission seeks further comment on which non-

interstate pipelines should be subject to the daily posting proposal.

71.    The Commission seeks comment on whether this proposal would meet the three

purposes discussed above. Specifically, would the proposal: (1) provide a more

complete picture of supply and demand fundamentals and improve market participants’

ability to assess supply and demand and to price physical natural gas transactions;

(2) provide, during periods when the U.S. natural gas delivery system is disturbed, for

instance due to hurricane damage to facilities in the Gulf of Mexico, a clearer view of the

effects on infrastructure, the industry, and the economy as a whole; and (3) allow the

Commission and other market observers to identify and remedy potentially manipulative
       120
             Comments of Agave-Yates at 9-10; Reply Comments of Agave-Yates at 1-2.
       121
             Reply Comments of Bentek Energy LLC at 6.
       122
             Reply Comments of Bentek Energy LLC at 6.
Docket No. RM08-2-000                                                          - 51 -


activity? 123 Alternatively, would these three purposes be met if the Commission limited

the pipeline posting proposal to those non-interstate pipelines with receipt or delivery

points connected to the 13 major market hubs served by both interstate and intrastate

pipelines?

72.    In the Initial NOPR, the Commission sought comment on how to define “major”

receipt and delivery points and mainline segments on intrastate pipelines for the purpose

of any posting requirement. Developing an operational definition of “major” receipt and

delivery points and mainline segments on major non-interstate pipelines is crucial to

making the proposal work effectively and reasonably. The Commission stated that it

“does not wish to include extremely small points connected to one or a few customers,

which it would consider burdensome and possibly even anti-competitive in certain

cases.” 124

73.    Commenters provided suggestions for which receipt and delivery points on non-

interstate pipelines should be subject to the posting requirement. The NARO commented

that it would like to see as many points posted as possible explaining that more than

ninety percent of flows in Texas occur in pipelines that move more than 5,000




       123
              See, supra, at P 61-64.
       124
              Initial NOPR at P 39.
Docket No. RM08-2-000                                                           - 52 -


MMBtu/day. 125 The Texas Alliance of Energy Producers (Texas Alliance) said that the

definition of “major points” should capture flows at locations used to establish market

prices (i.e., index points), with the definition crafted to capture enough points to reduce

the opportunity for market manipulation. 126 The Petroleum Association of Wyoming

(PAW) said the definition of “major points” should be limited to those on interstate

pipelines. 127 Copano Energy LLC, in its reply comments, said that (at most) the posting

requirement should apply to major market hubs and centers identified by the Energy

Information Administration and other current market hubs or centers for which a daily

price is published by a nationally recognized industry publication. 128 Crosstex Energy

Services stated that the Commission should, at most, require the posting of available

capacity and scheduled flow volumes (not actual flow information) at receipt and

delivery points (not segments) at the 13 major interstate/intrastate pricing hubs identified

in the NOPR as directly affecting interstate pricing. 129 The Kinder Morgan Texas

Intrastate Pipeline Group (Kinder Morgan) stated that posting of scheduled quantities at




       125
             NARO Comments at 2-3.
       126
             Texas Alliance Comments at 12.
       127
             PAW Comments at 2.
       128
             Copano Reply Comments at 3.
       129
             Crosstex Reply Comments at 8.
Docket No. RM08-2-000                                                           - 53 -


major hub points where index prices are published would be less burdensome than the

NOPR proposal. 130

74.    Comments on the Initial NOPR on how to define “major” receipt and delivery

points and mainline segments, in many cases, focused less on developing effective

operational definitions than they did on jurisdictional and burden issues. The goal of the

pipeline posting proposal is to allow the development of a more complete and more

immediate picture of wholesale natural gas flows across the United States, regardless of

the traditional regulatory authority under which a particular pipeline operates, at a

reasonable cost. To accomplish this task, the Commission needs to develop a stronger

record about the possible measurement points on major non-interstate pipelines that could

contribute valuable information at a reasonable trade-off with costs of implementation.

Consequently, the Commission seeks further comment on which points should be posted

by major non-interstate pipelines. In order to effectively balance the benefits of a better

understanding of national natural gas flows based on more detailed flow information

against the costs of the equipment and systems necessary to deliver that information, the

Commission seeks comment regarding how to determine the points at which it should

require posting of flow information. Again, the Commission encourages commenters to

support their assertions with specific examples.


       130
             Kinder Morgan Reply Comments at 12.
Docket No. RM08-2-000                                                           - 54 -


75.    In particular, related to Kinder Morgan’s comments, could sufficient information

be developed with posting only of flows in and out of major pipeline hubs? In that case,

how should those hubs be determined? Should they be limited only to those hubs for

which index prices are produced? By looking only at flows into and out of major

pipeline hubs for which index prices are produced, would market participants lose

information important to the assessment of national supply and demand balances lost?

What other criteria could be used to make the determination of points to be posted? Is a

volumetric limit sufficient? If a line sees flows in both directions during the day, is a net

directional flow for the day valuable, or confusing?

V.     Storage Information and Non-Public Postings

76.    Prompted by comments of storage providers in response to the Initial NOPR, the

Commission seeks comment on how its posting proposal herein would affect storage

providers. By way of background, in its comments, Enstor Operating Company (Enstor),

an independent gas storage service provider with market-based rates, said it should not be

required to post information regarding scheduled flows because gas storage information

is readily available. 131 If required to post information, the Commission should provide

for non-public reporting and analysis of flow data and disseminate such information to




       131
             Comments of Enstor at 4.
Docket No. RM08-2-000                                                           - 55 -


the public only in aggregated form. 132 Enstor stated that if its flow information were

public, it would lose negotiating strength in the marketplace because its customers with

multiple service options would know storage capacity available at its facility, even

though it would have no knowledge of such customers’ needs and limited knowledge

about capacity levels at competing, regulated storage facilities. 133 Enstor cautioned that

release of flow data from individual storage facilities would lead to the practice of

reading other market participants’ movements and buying or selling in front of

anticipated future movements to take advantage of resulting price swings, which would

raise prices. 134 Without non-public treatment of its flow data, Enstor contended that its

margins would be squeezed and it would make less money. 135 Enstor added that

aggregated information disseminated by the Commission would be more useful to end-

users than disaggregated data. 136

77.    In order to assess the concerns expressed by Enstor (notably the only storage

provider to raise this concern), the Commission seeks comments on the following

questions. Regarding flows of gas in the United States, does existing gas storage

       132
             Comments of Enstor at 9.
       133
             Comments of Enstor at 8; Reply Comments of Enstor at 5.
       134
             Reply Comments of Enstor at 6.
       135
             Reply Comments of Enstor at 8.
       136
             Reply Comments of Enstor at 10.
Docket No. RM08-2-000                                                            - 56 -


information provide the same value of the information that would be collected in the

Commission’s proposal? Interested commenters should compare the benefits of requiring

storage providers to post flow information publicly with the benefits and costs of

providing information to the public only in aggregated form. Those address this issue

should address whether non-public reporting to the Commission would support the goals

of the natural gas transparency provisions to “facilitate price transparency for the sale…

of physical natural gas in interstate commerce”? 137 Further, commenters addressing the

application of the pipeline posting proposal to storage facility should answer the

following questions: Can individual storage facilities lose negotiating strength when its

customers know the supply of available storage capacity? Would release of flow data

from individual storage facilities lead to increased prices? How many storage facilities

would likely face this situation if required to post flow information? Would fewer

storage facilities face this situation if the pipeline posting proposal were modified to

reduce the number of points to be posted, for example, by limiting posting to lines

running into or out of major pipeline hubs?

VI.    Information Collection Statement

78.    The Office of Management and Budget (OMB) regulations require it to approve

certain reporting and recordkeeping (information collection) requirements imposed by an

       137
             Section 23(a)(1) of the Natural Gas Act, 15 U.S.C. 717t-2(a)(1) (2000 & Supp.
V 2005).
Docket No. RM08-2-000                                                           - 57 -


agency. 138 In this NOPR, the Commission makes two proposals that would require the

posting or collection of information, one for interstate and one for major non-interstate

pipelines. 139 The Commission is submitting notification of these proposed information

collection requirements to OMB for its review and approval under section 3507(d) of the

Paperwork Reduction Act of 1995. 140

79.    One proposal, to require interstate pipelines to post actual flow information, would

impose an additional information collection burden on interstate pipelines. The other

proposal, to require major non-interstate pipelines to post actual flow information, would

impose an additional information collection burden on major non-interstate pipelines.

Interstate and major non-interstate pipelines already collect flow information for major

receipt and delivery points. Certain non-interstate pipelines have asserted in the Initial

NOPR that costs would be quite high if additional equipment was needed to meet quick

posting deadlines. However, given that this information is used in their business within

fairly quick periods, the Commission still believes that the burden that would be imposed




       138
             5 CFR 1320.11.
       139
          The OMB regulations cover both the collection of information and the posting
of information. 5 CFR 1320.3(c). Thus, the proposal to post information would create an
information collection burden.
       140
             44 U.S.C. 3507(d).
Docket No. RM08-2-000                                                          - 58 -


by this proposed requirement is largely for the collection and posting of this information

in the required format. 141

80.    OMB regulations require OMB to approve certain information collection

requirements imposed by agency rule. The Commission is submitting notification of this

proposed rule to OMB.




       141
          See 5 CFR 1320.3(b)(2) (“The time, effort, and financial resources necessary to
comply with a collection of information that would be incurred by persons in the normal
course of their activities (e.g., in compiling and maintaining business records) will be
excluded from the “burden” if the agency demonstrates that the reporting, recordkeeping,
or disclosure activities needed to comply are usual and customary.”)
Docket No. RM08-2-000                                                         - 59 -


Public Reporting Burden:

The start-up and annual burden estimates for complying with this proposed rule are as

follows:

      Data              No. Of        No. of      Estimated        Total       Estimated
    Collection        Respondents     Daily        Annual         Annual       Start-Up
                          142
                                     Postings      Burden        Hours For     Burden Per
                                       per        Hours per         All        Respondent
                                    Respondent   Respondent     Respondents


Part 284
FERC-551
Major Non-
Interstate Pipeline      102           365           365           37,230       2,080 hours
Postings
Additional
Interstate Pipeline      109           365           365           39,785        520 hours
Postings
Total                    211            -              -           77,015                -


The total annual hours for collection (including recordkeeping) for all respondents is

estimated to be 77,015 hours.

        142
           The Commission estimated the number of respondents for major non-interstate
pipelines from EIA information. See Department of Energy, Energy Information
Administration, U.S. Intrastate Natural Gas Pipeline Systems,
http://www.eia.doe.gov/pub/oil_gas/natural_gas/analysis_publications/ngpipeline/PIPEin
tra.xls. The Commission estimated the number of respondents that would be interstate
pipelines also from EIA information. See Department of Energy, Energy Information
Administration, Thirty Largest U.S. Interstate Natural Gas Pipeline Systems, 2005,
http://www.eia.doe.gov/pub/oil_gas/natural_gas/analysis_publications/ngpipeline/MajorI
nterstatesTable.html (Listing thirty largest interstate pipelines and referencing seventy-
nine other interstate pipelines).
Docket No. RM08-2-000                                                           - 60 -


Information Posting Costs: The average annualized cost for each respondent is projected

to be the following (savings in parenthesis):

                                    Annualized        Annual Costs Annualized Costs Total
                                Capital/Startup Costs
                               (10 year amortization)
FERC-551
Major Non-Interstate
Pipeline Postings                     $20,800              $36,500              $57,300
Additional Interstate
Pipeline Postings                      $5,200              $36,500              $41,700




Title: FERC- 551.

Action: Proposed Information Posting and Information Filing.

OMB Control No: 1902-0243.

Respondents: Business or other for profit.

Frequency of Responses: Daily posting requirements and annual filing requirements.

Necessity of the Information: The daily posting of additional flow information by

interstate and major non-interstate pipelines is necessary to provide information regarding

the price and availability of natural gas to market participants, state commissions, the

FERC and the public. The posting would contribute to market transparency by aiding the

understanding of the volumetric/availability drivers behind price movements; it would

provide a better picture of disruptions in natural gas flows in the case of disturbances to
Docket No. RM08-2-000                                                          - 61 -


the pipeline system; and it would allow the monitoring of potentially manipulative or

unduly discriminatory activity.

Internal Review: The Commission has reviewed the requirements pertaining to natural

gas pipelines and determined they are necessary to provide price and availability

information regarding the sale of natural gas in interstate markets.

81.    These requirements conform to the Commission's plan for efficient information

collection, communication, and management within the natural gas industry. The

Commission has assured itself, by means of internal review, that there is specific,

objective support for the burden estimates associated with the information posting

requirements. The Commission seeks comment on these estimates.

82.    Interested persons may obtain information on the reporting requirements by

contacting: Federal Energy Regulatory Commission, 888 First Street, N.E., Washington,

D.C. 20426, [Attention: Michael Miller, Office of the Chief Information Officer], phone:

(202) 502-8415, fax: (202) 208-2425, e-mail: Michael.Miller@ferc.gov. Comments on

the requirements of the proposed rule also may be sent to the Office of Information and

Regulatory Affairs, Office of Management and Budget, Washington, D.C. 20503

[Attention: Desk Officer for the Federal Energy Regulatory Commission].

83.    Comments on the requirements of the proposed rule may also be sent to the Office

of Information and Regulatory Affairs, Office of Management and Budget, Washington,
Docket No. RM08-2-000                                                          - 62 -


D.C. 20503 [Attention: Desk Officer for the Federal Energy Regulatory Commission]

(202)395-4650 or oira_submission@omb.eop.gov.

VII.   Environmental Analysis

84.    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. 143 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 require no construction of

facilities. 144 Therefore, an environmental assessment is unnecessary and has not been

prepared in this rulemaking.

VIII. Regulatory Flexibility Act

85.    The Regulatory Flexibility Act of 1980 (RFA) 145 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


       143
         Order No. 486, Regulations Implementing the National Environmental Policy
Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs., Regulations Preambles 1986-
1990 ¶ 30,783 (1987).
       144
             18 CFR 380.4(a)(5) and (a)(27).

       145
             5 U.S.C. 601-612.
Docket No. RM08-2-000                                                            - 63 -


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. The proposal to

require daily postings by interstate and non-interstate pipelines will not impact small

entities. Natural gas pipelines are classified under NAICS code, 486210, Pipeline

Transportation of Natural Gas. 146 A natural gas pipeline is considered a small entity for

the purposes of the Regulatory Flexibility Act if its average annual receipts are less than

$6.5 million. 147 The Commission does not believe that any pipeline that would be

required to post under the proposal in this NOPR has receipts less than $6.5 million.

Thus, the daily posting proposal will not impact small entities.



       146
          This industry comprises establishments primarily engaged in the pipeline
transportation of natural gas from processing plants to local distribution systems. 2002
North American Industry Classification System (NAICS) Definitions,
http://www.census.gov/epcd/naics02/def/ND486210.HTM.
       147
           See U.S. Small Business Administration, Table of Small Business Size
Standards,
http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf
(effective July 31, 2006).
Docket No. RM08-2-000                                                         - 64 -


IX.    Comment Procedures

86.    The Commission incorporates by reference the comments filed in Docket No.

RM07-10-000 into the instant docket and will consider them in this proceeding. In

addition, the Commission invites interested persons to submit comments on the matters

and issues proposed in this notice to be adopted, including any related matters or

alternative proposals that commenters may wish to discuss. Comments are due

[Insert_Date 45 days from publication in the FEDERAL REGISTER]. Reply

comments are due [Insert_Date 75 days from publication in the FEDERAL

REGISTER]. Comments must refer to Docket No. RM08-2-000, and must include the

commenter's name, the organization they represent, if applicable, and their address in

their comments. Comments may be filed either in electronic or paper format.

87.    Comments may be filed electronically via the eFiling link on the Commission's

web site at http://www.ferc.gov. The Commission accepts most standard word

processing formats. Documents created electronically using word processing software

should be filed in native applications or print-to-PDF format and not in a scanned format.

Commenters filing electronically do not need to make a paper filing. Commenters that

are not able to file comments electronically must send an original and 14 copies of their

comments to: Federal Energy Regulatory Commission, Secretary of the Commission,

888 First Street, N.E., Washington, DC, 20426.
Docket No. RM08-2-000                                                          - 65 -


88.   All comments will be placed in the Commission's public files and may be viewed,

printed, or downloaded remotely as described in the Document Availability section

below. Commenters on this proposal are not required to serve copies of their comments

on other commenters.

X.    Document Availability

89.   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 5:00 p.m. Eastern time) at 888 First Street, N.E., Room 2A,

Washington D.C. 20426.

90.   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.

91.   User assistance is available for eLibrary and the FERC’s website during normal

business hours from FERC Online Support at 202-502-6652 (toll free at 1-866-208-3676)

or email at ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
Docket No. RM08-2-000                                                       - 66 -


8371, TTY (202)502-8659. E-mail the Public Reference Room at

public.referenceroom@ferc.gov.

List of subjects in 18 CFR Part 284

Continental Shelf; Incorporation by reference; Natural gas; Reporting and recordkeeping
requirements.

      By direction of the Commission.



                                        Nathaniel J. Davis, Sr.,
                                          Deputy Secretary.
Docket No. RM08-2-000                                                           - 67 -


    For the reasons discussed in the preamble, the Federal Energy Regulatory
Commission proposes to amend 18 CFR chapter I as follows:

1.      The authority citation for part 284 continues to read as follows:

        Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352; 43 U.S.C.

1331-1356.

2.      In § 284.1, paragraphs (d) is added to read as follows:

§ 284.1        Definitions.

*       *      *      *       *

        (d)    Major non-interstate pipeline means a pipeline that fits the following

criteria:

        (1)    It is not a “natural gas company” under section 1 of the Natural Gas Act;

and

        (2)    It flows annually more than 10 million (10,000,000) MMBtus of natural gas

measured in average receipts or in deliveries for the past 3 years.

3.      In § 284.13, paragraph title and paragraph (d)(1) are revised to read as follows:

§ 284.13       Reporting requirements for interstate pipelines.

*       *      *      *       *

        (d)    Capacity and flow information. (1) *     *   * An interstate pipeline must

also provide in the same manner access to information on actual flowing volumes at

receipt points, on the mainline, at delivery points, and in storage fields. This information

must be posted within 24 hours from the close of the gas day on which gas flows, i.e., on
Docket No. RM08-2-000                                                          - 68 -


or before 9:00 a.m. central clock time for flows occurring on the gas day that ended 24

hours before.

*      *        *      *      *

4.     Section 284.14 is added to read as follows:

§ 284.14. Flow information of major non-interstate pipelines.

       (a)      Daily posting requirement. A major non-interstate pipeline must provide

on a daily basis on an Internet web site and in downloadable file formats, in conformity

with § 284.12 of this chapter, equal and timely access to information relevant to the

capacity of major points and mainline segments and the amount scheduled at each such

major point or mainline segment whenever capacity is scheduled. A major non-interstate

pipeline must also provide in the same manner access to information on actual flowing

volumes at major points and mainline segments. This information must be posted within

24 hours from the close of the gas day on which gas flows, i.e., on or before 9:00 a.m.

central clock time for flows occurring on the gas day that ended 24 hours before.

       (b)      Exemptions to daily posting requirement. The following categories of

major non-interstate pipelines are exempt from the reporting requirement of § 284.14(a):

       (1)      Those that fall entirely upstream of a processing plant; and

       (2)      Those that deliver more than ninety-five percent (95%) of the natural gas

volumes they flow directly to end-users.
Docket No. RM08-2-000                                                       - 69 -


      (3)    To determine eligibility for the exemption in paragraph 284.14(b)(2), a

major non-interstate pipeline must measure volumes by average deliveries over the

preceding three calendar years.
                           ABA Committee on Regulation of
                          Futures and Derivative Instruments

                    Panel on Current Trends in the Energy Markets

     Federal Energy Regulatory Commission Report and Conference on Enforcement


                                    February 2, 2008


                                                     By:    Kenneth M. Raisler
                                                            Olufisayo P. Oketunji
                                                            Sullivan & Cromwell LLP




I.       Introduction

                On November 14, 2007, the staff of the Federal Energy Regulatory

Commission (the “Commission”) issued a report (the “Report”) on the Commission’s

enforcement activity under the Energy Policy Act of 2005 (“EPAct2005”). The Report

outlined in detail the Commission’s enforcement policies and provided previously

unreleased data about the Commission’s enforcement program. Several days later, on

November 16, 2007, the Commission held a round table (the “Conference”) with various

participants of the energy industry to discuss the subject of enforcement. The stated

purpose of the Conference was to examine the Commission’s implementation of its

expanded enforcement authority under EPAct2005. More specifically, the Commission

sought, through the Conference, to engage in a self-assessment of its enforcement

program as implemented during the two years since enactment of EPAct2005.

                This memorandum provides a summary of the Report and its purposes and

summarizes the discussions engaged in and the issues raised during the Conference.
Particularly, with respect to the Conference, this memorandum focuses on the first and

second panels before the Commission, and, in particular, on their discussions with the

Commission.

II.    The Report

               In issuing the Report, the staff of the Commission sought to provide the

energy industry with insight on the Commission’s enforcement activity pursuant to its

expanded powers. The Commission oversees various aspects of the electric, natural gas,

hydroelectric, and oil pipeline industries in the United States by administering the Federal

Power Act (“FPA”), the National Gas Act (“NGA”), the Natural Gas Policy Act of 1978

(“NGPA”), and the Interstate Commerce Act (“ICA”, together with the FPA, NGA and

NGPA, the “Acts”). Prior to the enactment of EPAct2005, the Commission was

authorized to assess civil penalties of up to $11,000 per day per violation for various

violations of the Acts. However, as a result of the Western energy crisis of 2000, in 2005

Congress enacted EPAct2005 which (i) expanded the Commission’s jurisdiction, granting

the Commission the ability to assess substantial civil penalties for virtually all violations

of the Acts, and (ii) expanded the Commission’s enforcement authority, granting the

Commission the power to assess stronger criminal and civil penalties. Specifically,

EPAct2005 increased the Commission’s penalty authority from $11,000 to $1,000,000

per day per violation of the Acts. In the two years since enactment of EPAct2005, the

Commission levied thirteen civil penalties against energy market participants, ranging

from $300,000 to $10,000,000.

               As a result of the energy industry’s focus on the Commission’s levying of

such substantial civil penalties, the Report sought to reinforce to the industry that it was


                                             -2-
the policy of the Commission to be “firm but fair” and that, in practice, the Commission

has balanced the exercise of its enforcement power with exercise of prosecutorial

discretion. In particular, the Report illustrated that many violations brought to the

Commission’s attention did not result in sanctions and that factors including compliance

culture, self-reporting and cooperation played crucial roles in the Commission’s

determination of what, if any, remedy to seek in particular situations. To illustrate, the

Report released data on the Commission’s disposition of self-reported violations and

investigations since2005. The Staff noted that of the 74 self-reported violations brought

to the Commission’s attention since 2005, over half, 49, were closed without sanction and

only 12 resulted in civil penalties. Similarly, with respect to investigations, the Staff

noted that of the 64 investigations opened since 2005, over half, 47, were closed without

penalty and only 13 resulted in civil penalties. Based on the high percentage of self-

reported violations and investigations not resulting in enforcement action by the

Commission, the Report sought to dispel the industry’s concerns with respect to the

Commission’s enforcement activity and sought to reinforce that the Commission’s

enforcement policy was focused on encouraging compliance through the exercise of

prosecutorial discretion.

III.   The Conference on Enforcement

               Several days after issuing the Report the Commission convened the

Conference. The purposes of the Conference were threefold: (i) to discuss the results of

the Commission’s enforcement activity, (ii) to learn about the market’s reaction to, and

understanding of, the Commission’s enforcement policy and (iii) to receive proposals

with respect to methods for achieving maximum compliance with the Acts. The


                                             -3-
Commission invited a diverse group of market participants to address it as panelists. The

panels included representatives of energy entities, energy practitioners, former

Commission members and representatives of the regional regulators of energy entities.

The panels were divided into three groups. The first panel consisted of former members

of the Commission. The second panel consisted of energy practitioners. The third panel

consisted of members of the regional regulatory entities.

       A.      Commission Policy and Objectives

               The first panel appearing before the Commission consisted of former

members of the Commission. The panel included Mr. William L. Massey of Covington

and Burling LLP, Mr. Clifford M. Naeve of Skadden, Arps, Slate, Meagher and Flom and

Mr. Donald F. Santa, President of the Intestate Gas Association of America. The

panelists were asked to focus on three things: (i) proposals aimed at achieving maximum

compliance with regulatory requirements, (ii) suggestions as to the best approach for

balancing firmness with fairness in the Commission’s enforcement policy, and (iii)

general comments with respect to the Commission’s overall enforcement policy.

               With respect to achieving maximum compliance, a common thread

resonating among the panelists was the necessity for greater clarity from the Commission

with respect to regulatory requirements. The panelists overwhelmingly agreed that

maximum compliance could not be achieved to the extent that ambiguities existed in the

rules and regulations. The panelists also noted the need for swifter resolution of

ambiguities. The Commission conceded the existence of ambiguity in the area of

Standards of Conduct and sought the panelists’ input as to other areas of ambiguity in the




                                            -4-
rules and regulations. Several other areas of ambiguity were identified including the

rules and regulations related to asset management, market manipulation and the QF rules.

               The panelists also offered other proposals regarding the achievement of

maximum compliance that the Commission appeared to be receptive to. These proposals

included (i) the expansion of the no-action letter program to provide more guidance for

market participants, (ii) the utilization of warning notices and letters of reprimand, (iii) a

suggestion that the Commission designate enforcement personnel who have visited many

companies and reviewed many compliance programs as compliance consultants to whom

market participants could direct compliance questions, (iv) a suggestion that compliance

staff be organized along regional lines in order to build familiarity with discrete groups of

market participants and facilitate improved communication, (v) a suggestion that the

Commission release updated staff reports on its enforcement activities, such as the one

released prior to the Conference, which elaborated on the underlying facts and reasoning,

not only in cases resulting in penalties, but also in investigations where no penalty was

imposed and (vi) a suggestion that the Commission release lists of most frequently

observed offenses and frequently asked questions as a means to facilitate awareness of

potential areas of violations before such violations materialized. In sum, the consensus

was that market participants were in need of greater guidance from the Commission and

the Commission appeared receptive to this concern. While the Commission did not say

which proposals it favored it did identify many of the foregoing proposals as worthy of

consideration and it resolved to consider the proposal further.

               With respect to balancing firmness with fairness, the panelists proposed

that the Commission provide market participants with a compliance road map, greater


                                              -5-
education with respect to rules and more clarity with respect to the elements of good

compliance programs. While the panelists agreed that the Commission was not in the

position to provide a “model” compliance program because entities’ operations were all

very different, there was a consensus that the Commission, based on its audits and review

of many compliance programs, could set forth a list identifying key elements of a good

compliance program. Panelists also suggested that the Commission (i) issue a list of core

regulatory requirements, noting that guidance as to key areas of concern would lead to

increased compliance in those areas and (ii) publish an audit checklist detailing the

various aspects of an entity’s operation that the Commission identified as important.

               With respect to overall enforcement policy, the panelists suggested that

because perfect compliance was unachievable for many reasons including the breadth and

complexity of the rules, employee turnover, the necessity to constantly train employees,

inadvertent human error, the lack of good compliance training programs and the lack of

good overall compliance program models, the Commission should focus less on

individual violations and more on compliance culture. While indicating that compliance

culture was a factor in its enforcement policy, the Commission made it clear that the

threat of harm, even where harm did not actually occur, was the most important factor in

its enforcement policy.

               A key issue with respect to overall enforcement policy that was repeatedly

raised was the issue of forbearance, specifically with respect to self-reported violations.

Several panelists argued that market participants were hesitant to self-report due to a lack

of clarity with respect to whether the Commission gave credit for self-reporting. The

panelist’s views on the amount of credit the Commission should afford self-reporters


                                             -6-
ranged from forbearance to full amnesty. The Commission rejected the idea of amnesty

as inherently unfair to market participants which vigorously pursued and achieved

compliance and would operate as a disincentive to the industry.

               Another suggestion raised by the panelists was the adoption of a written

schedule of penalties similar to that of the Nuclear Regulatory Commission (“NRC”).

The Commission rejected this proposal as impractical given the breadth and complexity

of the rules it administered. The Commission was, however, willing to considering

adopting a penalty schedule in discrete contexts such as in the context of reliability

standards and other contexts where the number of rules and regulations were more

manageable and would be conducive to a penalty schedule.

       B.      Practitioner’s Perspective

               The second panel appearing before the Commission, consisting primarily

of energy market practitioners, included Mr. Mark Hanafin, CEO of Shell Energy North

America, Ms. Barbara Keffernan of Schiff Hardin LLP, Mr. Paul Korman of Van Ness

Feldman, Mr. Richard Meyer, Senior Regulatory Counsel, National Rural Electric

Cooperative Association, Mark Perlis of Dickstein Shapiro LLP and Andrea Wolfman of

Thelen Reid Brown Raysman & Steiner LLP. The market practitioners were asked to

focus their comments on (i) the challenges of working with clients to comply with the

Commission’s regulations and (ii) market participants’ attitudes towards self-reporting.

               With respect to the challenges faced in complying with the Commission’s

regulations, the panelists expressed concerns with the Commission’s investigative

process. First, several panelists noted that during the non-public investigative stage the

staff’s role should be less prosecutorial. Panelists, based on their experiences, expressed


                                             -7-
the concern that non-public investigations should be aimed at fact finding rather than at

trying to prove violations. Additionally, panelists noted that while it was the staff’s

practice to work with practitioners to facilitate their provision of information to the

Commission in a manner such that the attorney-client privilege would not be waived, the

practice was not yet official Commission policy and they suggested that the practice be

made Commission policy.

               Another challenge faced by practitioners was with respect to the process at

the post-investigative stage. It was noted that post-investigation, if a settlement had not

been reached, it was the Commission’s general policy to issue an order to show cause

which not only adopted as fact the staff’s allegations but also used the alleged facts as the

basis of a proposed fine. The panelists expressed the view that this procedure placed a

burden on entities to prove that no violation occurred and created the appearance of pre-

judging on the part of the Commission. One panelist suggested that the Commission look

to the SEC’s procedure in similar situations which, upon issuance of an order to show

cause setting forth the allegations, only further set forth the hearing date but did not set

forth a proposed penalty. The panelists argued that penalties, if any, should be based on

the outcome of fact determinations made at the hearing and the setting forth of a penalty

prior to the hearing created an appearance of unfairness.

               The panelists raised several issues with respect to market participant’s

attitudes towards self-reporting. The panelists noted that market participants were

concerned about the benefits, if any, of self-reporting and were uncertain as to the likely

outcome of self-reporting. Regarding the benefit of self-reporting, several panelists noted

that there was a perception in the market that a self-report, even where there was no


                                              -8-
harm, could be expected to result in fines of $500,000 to $1 million. To this end, one

panelist suggested forbearance in the early stages of enforcement, noting that forbearance

would help the Commission avoid the result of entities failing to vigorously examine

their actions for fear of uncovering many violations and incurring millions of dollars in

penalties. The Commission acknowledged this perception and noted that it was its hope

the staff report and future staff reports would address the perception and demonstrate to

market participants that self-reports, more often than not, resulted in no penalties.

               With respect to the uncertainty in the outcome of self-reporting, panelists

noted that a lack of understanding within the market as to the seriousness of discovered

violations contributed to uncertainty in assessing outcomes. This, the panel suggested,

was a result of the perception that the Commission viewed all violations as equally

serious. One panelist suggested that the Commission could address this issue by drawing

upon the experience of the Environmental Protection Agency (the “EPA”) and employ a

chart matrix which identified each rule and its seriousness based on the nature of the

violation and the level of harm caused or threatened by the violation. The Commission

noted that due to the breadth and complexity of the rules it administered, it would be

difficult to develop a matrix all of the rules which would be useful for market participants

to look to for guidance.

               Apart from understanding the seriousness of a violation, another key issue

identified as being faced by market participants was the lack of clarity as to the likely

outcome of self-reporting. One panelist noted that it would be helpful for market

participants to understand the difference in outcomes between self-reporting and waiting

for the Commission to discover a violation on its own. Panelists noted that the


                                             -9-
Commission’s enforcement record with other entities did not provide guidance on this

issue as market participants only resources were intentionally vague settlements which

tended to include as few facts as possible. Several panelists suggested that the

Commission publish information about enforcement investigations which included facts

and reasoning which still protected the identity of the involved party. One panelist

suggested that another means to address the uncertainty of outcomes and to clarify the

Commission’s policy on self-reporting was for the Commission to draw upon another

procedure of the EPA. The panelist noted that the EPA emphasizes self-reporting and the

adoption of comprehensive compliance programs by providing a 100% credit for self-

reported violations discovered as part of a company’s comprehensive compliance

program and a 75% credit for self-reported violations that were not discovered as a part

of a comprehensive compliance program. The Commission appeared receptive to this

suggestion noting merit in the idea of credits for self-reports and resolving to take it into

consideration.

                 In conclusion, the Commission appeared receptive to many of the ideas

offered by the panelists and appeared to agree with the panelists that its most important

objective was to provide clarity in the rules. Additionally, the Commission noted that

there would be a thirty day period for public comment on the Conference and specifically

sought that the public provide comments related to areas of ambiguity in the rules and

regulations.




                                             -10-

								
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