Federal Register, Volume 85 Issue 247 (Wednesday, December 23, 2020)

[Federal Register Volume 85, Number 247 (Wednesday, December 23, 2020)]
[Notices]
[Pages 83940-83947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28387]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PL20-3-000]

Actions Regarding the Commission's Policy on Price Index
Formation and Transparency, and Indices Referenced in Natural Gas and
Electric Tariffs

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Proposed revised policy statement on natural gas and electric
indices.

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SUMMARY: The Commission's price index policy is set forth in its Policy
Statement on Natural Gas and Electric Price Indices. The Commission
proposes several revisions to that policy to encourage more market
participants to report their transactions to price index developers and
to provide greater transparency into the natural gas price formation
process to increase confidence in the accuracy and reliability of
wholesale natural gas prices. First, the Commission proposes to allow
data providers (market participants that report transaction data to
price index developers) to report either their non-index based next-day
natural gas transactions, their non-index based next-month natural gas
transactions, or both, to price index developers. In addition, the
Commission proposes to encourage data providers to report to all
available Commission approved price index developers and also allow
data providers to self-audit on a biennial basis. The Commission also
proposes to modify the Commission's standards to remain an approved
natural gas price index developer such that price index developers
should: Indicate whether a published index price is assessed in their
published indices and obtain recertification in order for their indices
to continue to be included in FERC-jurisdictional tariffs. Finally, the
Commission proposes to clarify the review period for assessing the
liquidity of price indices submitted for reference in FERC-
jurisdictional tariffs.

DATES: Initial Comments are due March 23, 2021.

ADDRESSES: Comments, identified by docket number, may be filed
electronically at http://www.ferc.gov in acceptable native applications
and print-to-PDF, but not in scanned or picture format. For those
unable to file electronically, comments may be filed by mail addressed
to: Federal Energy Regulatory Commission, Secretary of the Commission,
888 First Street NE, Washington, DC 20426. Hand-delivered comments must
be delivered to: Federal Energy Regulatory Commission, 12225 Wilkins
Avenue, Rockville, Maryland 20852. The Comment Procedures Section of
this document contains more detailed filing procedures.

FOR FURTHER INFORMATION CONTACT:
Evan Oxhorn (Legal Information), Office of the General Counsel,
888 First Street NE, Washington, DC 20426, (202) 502-8183,
Evan.Oxhorn@ferc.gov.
Eric Primosch (Technical Information), Office of Energy Policy and
Innovation, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426, (202) 502-6483, Eric.Primosch@ferc.gov.

SUPPLEMENTARY INFORMATION:
1. The Commission's price index policy is set forth in its Policy
Statement on Natural Gas and Electric Price Indices.\1\ We propose
several revisions to that policy to encourage more market participants
to report their transactions to price index developers and to provide
greater transparency into the natural gas price formation process to
increase confidence in the accuracy and reliability of wholesale
natural gas prices. First, we propose to allow data providers (market
participants that report transaction data to price index developers) to
report either their non-index based next-day natural gas transactions,
their non-index based next-month natural gas transactions, or both, to
price index developers. In addition, we propose to: (1) Encourage data
providers to report to all available Commission approved price index
developers and (2) allow data providers to self-audit on a biennial
basis.\2\ We also propose to modify the Commission's standards to
remain an approved natural gas price index developer such that price
index developers should: (1) Indicate whether a published index price
is assessed in their published indices and (2) obtain recertification
in order for their indices to continue to be included in FERC-
jurisdictional tariffs. Finally, we propose to clarify the review
period for assessing the liquidity of price indices submitted for
reference in FERC-jurisdictional tariffs. We seek comment on these
proposed revisions.
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\1\ 104 FERC ] 61,121 (Initial Policy Statement), clarified,
Order on Clarification of Policy Statement on Natural Gas and
Electric Price Indices, 105 FERC ] 61,282 (2003) (2003 Clarification
Order), clarified, Order Further Clarifying Policy Statement on
Natural Gas and Electric Price Indices, 112 FERC ] 61,040 (2005)
(2005 Clarification Order) (collectively, Policy Statement).
\2\ S&P Global Platts (Platts), Natural Gas Intelligence (NGI),
Argus Media, and Natural Gas Week are examples of price index
developers.
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I. Background

A. The Use of Natural Gas Price Indices in Commission Jurisdictional
Activities

2. Natural gas price indices play a vital role in the energy
industry, as they are used to price billions of dollars of natural gas
and electricity transactions annually in both the physical and
financial markets. A natural gas price index is a weighted average
price derived from a set of fixed-price natural gas transactions \3\
within distinct geographical boundaries that market participants
voluntarily report to a price index developer.
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\3\ The term ``fixed-price natural gas transactions'' refers to
fixed-price next-day delivery, fixed-price next-month delivery, and
physical basis transactions (for next-month delivery). These
transaction types are defined in the FERC Form No. 552: Annual
Report of Natural Gas Transactions (FERC Form No. 552) instructions.
The FERC Form No. 552 requires market participants that annually buy
or sell more than 2.2 trillion British Thermal Units (Btu) of
physical natural gas to provide aggregated data related to their
fixed-price, physical basis, Nymex plus, and index-based
transactions made in the next-day and next-month (bidweek) markets.
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3. Natural gas price indices serve as a proxy for the locational
cost of natural gas in the daily and monthly markets, as many market
participants reference natural gas index prices in their physical and
financial transactions. Interstate natural gas pipelines, public
utilities, Independent System Operators (ISOs), and Regional
Transmission

[[Page 83941]]

Organizations (RTOs) reference natural gas price indices in their FERC-
jurisdictional tariffs for various terms and conditions of service.
State commissions also use natural gas price indices as benchmarks when
reviewing the prudence of natural gas or electricity purchases.
Finally, many natural gas financial derivative contracts that are used
in hedging and speculation settle against natural gas price indices.
4. Given that natural gas price index developers use physical
fixed-price natural gas transactions to calculate the price of
published natural gas price indices, it is important that transaction
reporting is robust and that index development is transparent. The
significant role played by natural gas indices became apparent during
the 2000-2001 Western Energy Crisis, when companies intentionally
misreported transactions to price index developers to manipulate
natural gas index prices in the Western United States.\4\ Subsequently,
in the Energy Policy Act of 2005 (EPAct 2005), Congress amended the
Natural Gas Act (NGA) \5\ to give the Commission additional authority
with respect to natural gas price indices. Pursuant to this authority,
the Commission established guidelines to ensure that natural gas price
indices that are used in tariffs are robust, free from manipulation,
and reflect market fundamentals.\6\
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\4\ See Initial Policy Statement, 104 FERC ] 61,121 at P 8 &
n.1.
\5\ Energy Policy Act of 2005, Public Law 109-58, 119 Stat. 691-
692 (2005) (codified in relevant part at Natural Gas Act of 1938, 15
U.S.C. 717c-1, 717t-1, 717t-2).
\6\ Price Discovery in Natural Gas and Elec. Markets, 109 FERC ]
61,184 (2004) (Price Index Order).
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5. Subsequently, market participants increased the reporting of
their fixed-priced natural gas transactions to price index developers,
which resulted in greater confidence in those indices. However, after
2010, the estimated traded volume of fixed-price natural gas
transactions reported to price index developers began to decline
significantly.\7\ FERC Form No. 552 data show that the estimated volume
of fixed-price transactions voluntarily reported to price index
developers declined by approximately 54% from 2010 until 2019.\8\ At
the same time that fixed-price reporting to price index developers
decreased, the traded volume of natural gas transactions that
referenced natural gas indices, known as index gas, increased. For
example, FERC Form No. 552 data showed that index gas increased from
69% of the traded volumes in the U.S. physical natural gas market in
2010 to 82% in 2019. Figure 1 shows estimated physical natural gas
volumes reported to index developers based on FERC Form No. 552 data.
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\7\ Two index developers now include fixed-price transactions
from the InterContinental Exchange (ICE) to increase the liquidity
of their indices. Staff analysis of the estimated volumes reported
to index developers does not include that supplemental information
from ICE.
\8\ The Commission must estimate the volumes reported to price
index developers on the FERC Form No. 552 because FERC Form No. 552
filers can provide aggregated data for themselves and their
affiliates, some of whom may or may not report to index developers.
Commission staff estimates this volume by calculating the average of
the minimum volume reported (filers with affiliates that all
indicate that they report to price index developers) and the maximum
possible volume reported (filers with at least one affiliate that
indicates that it reports to price index developers).
[GRAPHIC] [TIFF OMITTED] TN23DE20.004

6. Commission staff held a technical conference on June 29, 2017,
which addressed natural gas index liquidity and transparency issues and
potential actions the Commission could consider taking to increase both
the volume of transactions reported to natural gas price index
developers and the transparency of the physical natural gas price
formation process.\9\
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\9\ Docket No. AD17-12-000. A staff-led technical conference
addressing similar issues was held in 2003 in Docket No. AD03-7-000.
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B. Standards for Indices Used in Jurisdictional Tariffs

7. The Commission has a statutory obligation to ensure that the
rates for energy transactions within its jurisdiction are just and
reasonable. Under the NGA and Federal Power Act (FPA), the Commission's
jurisdiction extends to sales of electricity and natural gas for resale
in interstate commerce, interstate transmission of electricity and
natural gas, and the related pricing mechanisms within jurisdictional
tariffs.\10\ One way the Commission ensures just and reasonable
jurisdictional rates is through the review and approval of natural gas
price indices referenced in Commission approved pipeline and ISO/RTO
tariffs.
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\10\ See, e.g., 15 U.S.C. 717(b)-717(d); Natural Gas Policy Act
of 1978, 15 U.S.C. 3431(a)(1)(A)-3431(a)(1)(D); 16 U.S.C. 824(b)-
824(f).
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8. An interstate natural gas pipeline, public utility, ISO, or RTO
proposing to include a price index in its FERC-jurisdictional tariff
bears the burden of

[[Page 83942]]

supporting its proposed index.\11\ In the Price Index Order,\12\ the
Commission stated that, when a pipeline or utility proposes to use a
new natural gas or electric price index reference in a jurisdictional
tariff or to change an existing natural gas price index reference, the
Commission would apply a presumption that the proposed price index
location will result in just and reasonable rates if the pipeline or
ISO/RTO: (1) Proposes to use an index location published by one of the
price index developers that the Commission has previously found to meet
the developer criteria established in the Policy Statement, and (2)
demonstrates that the price index location meets one or more of the
applicable liquidity criteria for the appropriate review period.\13\ If
parties to the proceeding protest the use of the proposed price index
location, they are required to support the protest with evidence that
the selected location does not meet the criteria or show good reason
why the location will not result in just and reasonable rates and
should not be used. An interstate natural gas pipeline or public
utility may also file to reference a price index location that falls
outside of these two parameters. In such a case, the pipeline or
utility bears the burden of showing that the price index location will
result in just and reasonable rates and must support its filing
accordingly.\14\
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\11\ See, e.g., Northern Natural Gas Co., 104 FERC ] 61,182, at
P 10 (2003) (Northern Natural).
\12\ Price Index Order, 109 FERC ] 61,184 at P 68 (citing
Northern Natural, 104 FERC ] 61,182 at P 10).
\13\ Id. P 68.
\14\ Id. P 69.
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9. Under the Policy Statement, reporting by market participants to
price index developers is voluntary. For those market participants that
choose to report to price index developers, in the Policy Statement,
the Commission set forth the following minimum reporting standards for
data providers: (1) Code of conduct--adopting and making public a code
of conduct that employees will follow when buying and selling natural
gas or reporting data to index developers; (2) source of data--having
trade data reported by a department of the company that is independent
from and not responsible for natural gas trading; (3) data reported--
reporting each bilateral transaction between non-affiliated companies
which details the price, volume, whether it was a purchase or a sale,
the delivery/receipt location, and whether it was a next-day or next-
month transaction; (4) error resolution process--cooperating with the
error resolution process adopted by the index developer in a timely
manner; and (5) data retention and review--establishing minimum time
periods for retaining all relevant data related to reported trades.\15\
These standards are designed to create a uniform process of reporting
which provides price index developers assurance that the data they
receive from data providers is accurate and truthful. If the data
provider can demonstrate that it has adopted and followed the standards
for reporting set forth in the Commission's Policy Statement, it will
benefit from a rebuttable presumption that it has submitted its
transactions accurately, timely, and in good faith (Safe Harbor
Policy).\16\
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\15\ Initial Policy Statement, 104 FERC ] 61,121 at P 34.
\16\ Id. P 37.
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10. Under the Policy Statement, becoming a Commission-approved
price index developer is also voluntary. Prior to the Policy Statement,
the Commission evaluated on a case-by-case basis whether a price index
developer's price index was appropriate for inclusion in a FERC-
jurisdictional tariff. In the Policy Statement, the Commission set
forth minimum standards that, if met, establish a presumption that a
price index developer's index location will result in just and
reasonable charges. These standards for index developers include the
following elements: (1) A code of conduct and confidentiality--publicly
disclosing how it will obtain, treat, and maintain price data,
including how it calculates its indices while also entering into
confidentiality agreements with its data providers; (2) completeness--
publishing all available trade information for each hub including:
Total volume, the number of transactions, the high/low range of prices,
and the weighted average price; (3) data verification, error
correction, and monitoring--verifying its data by matching purchases
with sales and contacting data providers over any discrepancies as well
as publishing a notice of the corrected price if a reported price is
significantly erroneous; (4) verifiability--participating in an
independent audit or verification of its processes annually and making
the results of that audit public; and (5) accessibility--providing all
interested customers reasonable access to the data in a timely fashion
and providing the Commission access to the data to conduct an
investigation.\17\ The purpose of these standards is to ensure that
market participants and regulators have confidence that natural gas
price indices published by price index developers that are referenced
in FERC-jurisdictional tariffs are based on consistent, transparent and
verifiable processes and methodologies that help to ensure reliable
prices.
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\17\ Id. P 33.
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11. Under the Commission's market behavior rules,\18\ marketers and
interstate pipelines making jurisdictional sales of natural gas and
jurisdictional sellers of electric energy that have or are seeking
market-based rate authority that elect to report to price index
developers must submit accurate and factual information and report in a
manner consistent with the procedures set forth in the Policy
Statement.\19\
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\18\ The natural gas market behavior rules were codified in 2003
in Order No. 644. Amendment to Blanket Sales Certificates, Order No.
644, 105 FERC ] 61,217 (2003), reh'g denied, 107 FERC ] 61,174
(2004) (codified at 18 CFR 284.288, 18 CFR 284.403); Order Amending
Market-Based Rate Tariffs and Authorizations, 105 FERC ] 61,218
(2003), order on reh'g and clarification, 107 FERC ] 61,175 (2004).
The electric market behavior rules were codified later in 2006.
Conditions for Public Utility Market-Based Rate Authorization
Holders, Order No. 674, 114 FERC ] 61,163 (2006) (codified at 18 CFR
35.41(c)).
\19\ 18 CFR 35.41; 18 CFR 284.288(a); 18 CFR 284.403(a); Initial
Policy Statement, 104 FERC ] 61,121 at P 37. These standards are
also the subject of a Notice of Proposed Rulemaking that is being
issued concurrently with the instant order, in which the Commission
proposes to codify the Safe Harbor Policy at 18 CFR 35.41(c),
284.288(a), and 284.403(a) (2020), 173 FERC ] 61,238 (2020).
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II. Discussion

12. As part of its mandate to ensure just and reasonable rates in
the wholesale electric and natural gas markets, the Commission reviews
its existing policies and regulations from time to time. The
Commission's policies and regulations related to natural gas and
electric price indices date to the early 2000s and were adopted in
response to a lack of confidence in price indices. Since then, the
physical trading of natural gas, the reporting of those transactions,
and the development of price indices by price index developers has
changed.
13. Natural gas price indices are calculated by the voluntary
reporting of fixed-price transactions to price index developers;
however, in recent years, such reporting has declined. FERC Form No.
552 data show that the estimated volume of fixed-price transactions
voluntarily reported to price index developers declined by
approximately 54% from 2010 until 2019. In addition, FERC Form No. 552
data show that an increasing amount of physical natural gas
transactions are being priced off of indices while the prices of those
indices were being calculated based on a decreasing amount of volume of
fixed-price transactions estimated to be

[[Page 83943]]

reported to price index developers. For example, FERC Form No. 552 data
show that in 2019, index gas represented 82% of the traded volumes in
the U.S. physical natural gas market compared to 2010 when index gas
represented 69% of such transactions.
14. As a result of these changes, on June 29, 2017, Commission
staff held a technical conference that addressed index liquidity and
transparency and potential actions the Commission could consider taking
in order to increase both the volume of transactions reported to
natural gas price index developers and the transparency of the physical
natural gas price formation process. Among other things, Commission
staff sought industry input on the existing policies for natural gas
price index developers and the use of price indices in jurisdictional
tariffs set forth in the Policy Statement and the Price Index Order.
15. Post-technical conference comments suggested policy changes
would encourage more parties to engage in price reporting and result in
more reliable, robust, and transparent index formation.\20\ Commenters
suggested several revisions to the Commission's Policy Statement. These
proposed revisions included: (1) Changes to the Commission's Safe
Harbor Policy (including placing the Safe Harbor Policy into the
Commission's regulations); (2) allowing market participants to report
just their next-day or their next-month transactions; (3) encouraging
data providers to report to all available price index developers; and
(4) changes to the data provider price index data audit structure.
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\20\ American Gas Ass'n (AGA), Comments, Docket No. AD17-12-000,
at 3; American Public Gas Ass'n, Comments, Docket No. AD17-12-000,
at 3; Edison Electric Institute, Comments, Docket No. AD17-12-000,
at 8; Energy Intelligence Group, Inc., Comments, Docket No. AD17-12-
000, at 1; NGI, Comments, Docket No. AD17-12-000, at 8; Natural Gas
Supply Ass'n, Comments, Docket No. AD17-12-000, at 12; Platts
Comments, Docket No. AD17-12-000, at 2; Process Gas Consumers Group,
Comments, Docket No. AD17-12-000, at 9; Tenaska Marketing Ventures,
Comments, Docket No. AD17-12-000, at 4 (all filed July 31, 2017);
and Rice Energy Marketing LLC, Comments, Docket No. AD17-12-000, at
4 (filed Aug. 1, 2017).
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16. With information gained at the technical conference, we propose
several revisions to the Commission's natural gas price index policy
applicable to natural gas data providers. These changes are intended to
reduce the reporting burden and, thereby, increase reporting to natural
gas price index developers. Increased price reporting would contribute
to the robustness of the price indices which would lead to more
accurate and reliable index prices referenced in jurisdictional
tariffs.
17. We also propose revisions to the Policy Statement applicable to
natural gas price index developers. These revisions are intended to
reflect changes in how such developers form natural gas price indices
and to ensure that natural gas price index developers continue to
adhere to the Commission's policies. These revisions will increase the
transparency of the natural gas price formation process and maintain
industry confidence in the price indices. Finally, we propose to
clarify the timeframe over which to assess the liquidity for natural
gas and electric price indices referenced in natural gas and electric
tariffs. This revision would ensure that natural gas price indices
referenced in Commission jurisdictional tariffs are liquid at the time
of attestation. We seek comment on these proposed revisions, which we
now describe in detail.

A. Reporting Transactions to Price Index Developers

18. Under the Commission's Policy Statement, a natural gas or
electric data provider should report ``each bilateral, arm's length
transaction between non-affiliated companies in the physical (cash)
markets.'' \21\ These transactions are non-index based transactions and
include both a data provider's next-day and next-month
transactions.\22\ The Commission later acknowledged that physical basis
transactions during bidweek \23\ ``are a significant aspect of
wholesale natural gas markets and utilize or could contribute to the
formation of price indices.'' \24\
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\21\ See Initial Policy Statement, 104 FERC ] 61,121 at P 34
(``[A] data provider should report each bilateral, arm's length
transaction between non-affiliated companies in the physical (cash)
markets at all trading locations.'') (emphasis added). As a part of
outreach with market participants over the past couple of years,
Commission staff have directed market participants to report both
their next-day and next-month transactions, or to not report at all.
\22\ See 2003 Clarification Order, 105 FERC ] 61,282 at P 12 &
n.4 (``As noted in Policy Statement ] 34.3, reportable transactions
are non-index based `bilateral, arm's-length transaction between
non-affiliated companies in the physical (cash) markets at all
trading locations.' Note, however, that if a participant reports
trades to an index developer that publishes only a limited or
regional index, the market participant must report trades in other
areas not covered by the limited or regional index to another index
developer.'').
\23\ Bidweek is a time frame occurring during the last five
business days of every month at which most next-month contracts are
traded. Delivery of these contracts take place the following the
month.
\24\ Transparency Provisions of Section 23 of the Natural Gas
Act, Order No. 704, 121 FERC ] 61,295 (2007), order on reh'g and
clarification, Order 704-A, 124 FERC ] 61,269, at P 89, reh'g
denied, Order No. 704-B, 125 FERC ] 61,302 (2008).
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19. Under the current policy, a data provider should report both
its next-day fixed-price natural gas transactions as well as its next-
month bidweek fixed-price and physical basis natural gas transactions
to price index developers. However, allowing a data provider to report
only next-day transactions or only next-month transactions may ease the
reporting burden on data providers and result in increased reporting.
At the 2017 technical conference, several commenters and panelists
stated that market participants would be more likely to report their
next-month transactions to price index developers if they were given
the option to report only their next-month transactions rather than
both their next-day and next-month transactions.\25\ Many cited the
significant burden of reporting next-day transactions, especially for
those market participants that primarily transact in next-month
markets. Panelists also noted that trading and reported volumes in the
next-month market showed a continued decline relative to the next-day
market. Panelists added that this was a concern among data providers
who trade in the next-month markets due to perceived increased
compliance scrutiny with higher market concentrations from trading in
these comparatively less-liquid markets.
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\25\ Energy Intelligence Group, Inc., Comments, Docket No. AD17-
12-000, at 2; Tenaska Marketing Ventures, Comments, Docket No. AD17-
12-000, at 5; Process Gas Consumers Group, Comments, Docket No.
AD17-12-000, at 9; Platts Comments, Docket No. AD17-12-000, at 2;
Edison Electric Institute, Comments, Docket No. AD17-12-000, at 8;
NGI, Comments, Docket No. AD17-12-000, at 8; American Public Gas
Ass'n, Comments, Docket No. AD17-12-000, at 10; Natural Gas Supply
Ass'n, Comments, Docket No. AD17-12-000, at 12-13 (all comments were
filed July 31, 2017); and Rice Energy Marketing LLC, Comments,
Docket No. AD17-12-000, at 4 (filed Aug. 1, 2017).
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20. Accordingly, to reduce the burden on data providers and
encourage more reporting, we propose to allow data providers to report
either their next-day transactions or their next-month transactions to
price index developers. Data providers may also report both sets of
transactions. This policy revision could benefit reporting in the next-
month market, where reporting to price index developers is most needed,
according to the FERC Form No. 552 data. For instance, the data show
that in 2019, the estimated reported fixed-price and physical basis
volume in the next-month market was smaller than the estimated reported
volume in the next-day market.\26\ But, nonetheless, the

[[Page 83944]]

volume of index gas in the next-month market was larger than the volume
of index gas in the next-day market.\27\ Further, the estimated
voluntarily reported volume for the next-month market for 2019 remain
55% below 2010 levels.\28\
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\26\ Next-month fixed-price and physical basis values were
approximately 88% of the next-day fixed-price values.
\27\ Next-month index gas values were approximately 117% of the
next-day index gas values.
\28\ As mentioned earlier, two price index developers now
include transactions from ICE to increase the level of fixed-price
volumes used to calculate their next-day and next-month indices.
Trading on ICE in the next-day market is more robust than trading in
the next-month market. For example, the inclusion of ICE
transactions in Platts' indices resulted in a 126% increase in
Platts' next-day index volumes but Platts' next-month indices only
resulted in a 76% increase. Thus, although Platts next-day and next-
month index volumes increased with the inclusion of ICE's
transactions in its indices, the benefit to its indices was greater
in the next-day market than the next-month market.
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21. Thus, in order to ease the burden associated with next-month
price reporting, we propose to modify the Policy Statement to allow
market participants to elect to report either all non-index based next-
day transactions, all non-index based bidweek next-month transactions,
or both non-index based next-day and non-index based bidweek next-month
transactions. Under this proposal, whichever set of transactions a data
provider chooses to report (next-day, next-month, or both) it should
submit data on each bilateral, arm's length transaction within that
set.

B. Encouraging Comprehensive Reporting

22. Under the Commission's price index policy, ``[g]enerally, a
market participant need not report to more than one index developer, so
long as the relevant data for all reportable transactions are given to
that developer.'' \29\ Some market participants have interpreted this
language to mean that data providers should not report to more than one
price index developer.\30\ This interpretation is not correct. We
reiterate that ``a participant, of course, may report transactions to
more than one index developer.'' \31\ We strongly encourage data
providers to report to as many Commission approved price index
developers as possible.
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\29\ 2003 Clarification Order, 105 FERC ] 61,282 at P 12.
\30\ See, e.g., Energy Intelligence Group, Inc., Comments,
Docket No. AD17-12-000, at 1-2 (July 31, 2017).
\31\ 2003 Clarification Order, 105 FERC ] 61,282 at P 12.
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23. Although there may be some burden for reporting to additional
price index developers, we understand that the burden of reporting to
multiple price index developers has declined since the issuance of the
Policy Statement.\32\ If more market participants voluntarily report
their transactions to multiple price index developers, it will likely
result in more robust price formation for all price index developers.
Thus, we urge all data providers to report their transaction data to as
many Commission approved price index developers as possible.
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\32\ For example, data providers can now send one email with
price reporting data to multiple index developers.
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C. Reducing the Self-Audit Burden

24. In the Policy Statement, the Commission stated that data
providers should perform a self-audit of their reporting process every
year either by an independent third-party auditor or an internal
auditor. In an effort to encourage price reporting, we propose to allow
data providers to now perform a self-audit on a biennial basis. In
other words, every other year a data provider would perform an audit
covering the previous two years, if choosing this option. This revision
would ease the burden on data providers, potentially increasing the
number of market participants who voluntarily report.\33\
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\33\ The previous data retention period of three years described
in the Initial Policy Statement was superseded by changes to our
regulations and is now five years, and the biennial audit period
does not change the data retention requirements set forth in the
regulations at 18 CFR 284.288 and 18 CFR 284.403.
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25. More specifically, we propose to revise the timing of the
standard that a data provider have an independent auditor review the
implementation of, and adherence to, the data gathering and submission
process adopted by the company so that the audit be undertaken on a
biennial basis. As stated in the Policy Statement, the results of the
audit should be made available to any price index developer to which
the data provider submits trade data, and the data provider should
permit the price index developer to recommend changes to improve the
accuracy and timeliness of data reporting.\34\
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\34\ Initial Policy Statement, 104 FERC ] 61,121 at P 34.
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26. To the extent that the terms and costs for such an external
audit may be overly burdensome, we continue to find that it is
acceptable for internal auditors to perform the self-audits, in order
to avoid raising barriers to voluntary reporting. While there are
advantages to having an independent third-party audit, the independent
audit can be performed by a company's internal auditor, so long as the
internal audit personnel are independent from the trading and reporting
departments and personnel, and the audit follows internal auditing
standards, such as those prescribed by the Institute of Internal
Auditors or other similar generally accepted auditing standards.\35\
Adequately documented and effective audits by an independent internal
or external audit function can serve as an appropriate compliance
control. Relying on these self-audits will ensure that price reporting
by market participants is accurate and reliable to maintain industry
confidence in indices.
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\35\ See the Institute of Internal Auditors' (IIA),
International Standards for the Professional Practice of Internal
Auditing (the Standards) (Oct. 2016), https://na.theiia.org/standards-guidance/Public%20Documents/IPPF-Standards-2017.pdf.
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D. Increasing Confidence in Price Indices

27. Under the price index policy, for the Commission to approve a
price index for use in a jurisdictional tariff, the price index
developer should adopt and make public a written code of conduct and
confidentiality. Specifically, a price index developer's code of
conduct ``should inform customers how the price information was
developed, including index calculation method, relevant formulas and
algorithms, treatment of aberrant data, and use of judgments,
assessments, or similar subjective adjustments.'' \36\ We propose to
clarify that, with respect to assessments, a price index developer's
code of conduct should inform customers how it makes assessments in its
publications and in its data distributions. Price index assessment
transparency would give market participants better information about
the liquidity of certain hub locations.
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\36\ Id. P 33.
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28. A price index developer is considered to use a ``market
assessment'' when it uses market information, other than the trades at
the index's specified location, to determine the value of the index
price. Some price index developers use market assessments to produce
index prices when an insufficient amount of volume or number of
reported deals are available at a given location. In its post-technical
conference comments, the AGA recommended that price index developers
should clearly indicate when they engage in market assessments rather
than calculating price indices based on weighted averages of reported
trades.\37\
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\37\ AGA, Comments, Docket No. AD17-12-000, at 3 (filed July 31,
2017).
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29. We believe that this clarification is timely because the number
of market assessments appears to have recently

[[Page 83945]]

increased. Platts, for instance, published 356 index prices at various
hubs in 2019 without publishing a corresponding number of deals for
those prices.\38\ This represents a significant increase from 2018,
when Platts published 246 index prices without a corresponding number
of deals.
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\38\ Staff calculated this figure by counting the number of
index prices published without a corresponding number of deals.
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30. We agree with AGA that a price index developer should
distinguish assessed index prices from index prices calculated from
weighted averages of reported trades. We propose that price index
developers indicate in their publications and data distributions when
they use a market assessment to calculate a published index price in
order for that price index developer to maintain its status as a
Commission approved price index developer. Specifically, we propose
that price index developers clearly define in their methodology guide a
method to determine if a price assessment is made in its data
distributions.\39\ This revision would give market participants a
mechanism for identifying assessments. The additional clarity provided
by indicating assessed prices should increase the transparency of price
index development and, more generally, natural gas price formation and
provide the market with more information about the liquidity of certain
locations. In turn, such transparency should increase industry's
confidence in price indices.
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\39\ Price index developers publicly post a document which
describes how their indices are calculated. This is commonly
referred to as a methodology guide. See, e.g., Platts, Methodology
and Specifications Guide (March 2020), https://www.spglobal.com/platts/plattscontent/_assets/_files/en/our-methodology/methodology-specifications/na_gas_methodology.pdf.
---------------------------------------------------------------------------

E. Ensuring Price Index Developers' Continued Adherence to the Price
Index Policy

31. In the Policy Statement, the Commission developed five
standards for price index developers to show that their internal
processes were sufficient to become a Commission approved price index
developer and, thus, have their price indices referenced in
jurisdictional tariffs. As detailed above, those five standards
include: (1) A code of conduct and confidentiality; (2) completeness;
(3) data verification, error correction, and monitoring; (4)
verifiability; and (5) accessibility. After the Policy Statement was
issued, 10 price index developers made filings with the Commission
asserting that they complied with these standards. In the Price Index
Order, the Commission approved those price index developers as
satisfying all or substantially all of the standards.\40\ Since then,
the Commission also granted approval to three additional price index
developers.\41\
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\40\ Price Index Order, 109 FERC ] 61,184 at P 24 (Argus Media,
Inc., Bloomberg L.P., Btu/Data Transmission Network, Dow Jones and
Company, Energy Intelligence Group, Inc., Intelligence Press, Inc.
(NGI), ICE, Io Energy LLC, Platts, Powerdex, Inc.).
\41\ Many of the original indices have ceased publication or
been acquired and rebranded and not reapproved. As such, only five
pre-approved price index developers remain: Energy Intelligence
Group, Inc. (Natural Gas Week), Intelligence Press/NGI, Platts,
Powerdex, and Argus Media. Although, it was not pre-approved, SNL
Energy continues to publish indices after purchasing IO Energy and
BTU/Data Transmission Network in 2004 and 2009, respectively.
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32. Under the current Policy Statement, once approved, there is no
verification process to ensure that price index developers continue to
meet these standards. As a result, for most of the currently approved
price index developers, the Commission has not reexamined their
compliance with the price index developer standards in 16 years,
despite the myriad changes in natural gas markets that have occurred
during that time.\42\
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\42\ For example, some price index developers now receive
transactions from ICE, at some hub locations basis transactions are
now being used to create next-day indices, and declines in reporting
have resulted in hubs that were historically liquid to require
routine price assessments.
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33. To ensure that price index developers continue to meet these
standards, we propose to revise the price index policy. A Commission
approved price index developer should now seek re-approval from the
Commission every seven years that it continues to meet the standards.
We propose that, beginning six months after the adoption of this
proposal, interstate natural gas pipelines and public utilities
proposing the use of the indices in jurisdictional tariffs will no
longer be entitled to the rebuttable presumption that a price index
developer's indices produce just and reasonable rates unless the price
index developer has obtained re-approval from the Commission within the
last seven years that it continues to meet the criteria in the Policy
Statement.\43\
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\43\ Consistent with prior practice, price index developers
would file for both initial Commission approval and re-approval in
the PL03-3-000 docket.
---------------------------------------------------------------------------

34. We believe that these proposed changes will confirm that price
index developers continue to meet the Commission's standards, which
will help to ensure that rates which reference price indices remain
just and reasonable.

F. Clarifying Liquidity Standards for Price Index References

35. In the Price Index Order, the Commission adopted a set of
criteria delineating the minimum level of activity at a particular
trading location in order for that price index trading location to be
referenced in a FERC-jurisdictional tariff--effectively known as
liquidity standards.\44\ We propose to clarify these liquidity
standards.
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\44\ Price Index Order, 109 FERC ] 61,184 at P 66.
---------------------------------------------------------------------------

36. The Price Index Order states that interstate natural gas
pipelines and ISOs/RTOs, when proposing new natural gas and electric
price indices to be used in jurisdictional tariffs, should confirm that
the proposed price index location(s) have met the minimum liquidity
standards over a 90-day period for daily or weekly indices, and a six-
month period for monthly indices.\45\ The Price Index Order did not
specify a specific timeframe during which the applicant should show
that the proposed price index location meets the liquidity threshold.
As a result, interstate natural gas pipelines and ISOs/RTOs have used
different 90-day or six month-periods to submit price index location
data in order to assess liquidity.\46\
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\45\ Id. P 65.
\46\ E.g., in Docket No. RP20-59-000, filed on October 10, 2019,
Dominion Energy Transmission Inc. submitted transactions for an
index location for the period from June 4, 2019 to August 30, 2019.
In Docket No. RP19-1395-000, filed on July 24, 2019, Southern
Natural Gas Company, L.L.C. submitted transactions for an index
location on April 1, 2019 to July 16, 2019. Both of these filings
were accepted given that the pipelines provided 90 days of data, but
the latter filing included a more timely review period closer to the
date of filing.
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37. Shifts in regional production and market demand areas have
resulted in changes in the liquidity of natural gas price index hubs
across the U.S. In light of the dynamic and seasonal nature of natural
gas trading, some price indices may not provide a reasonable
representation of natural gas costs consistently enough to be included
within a tariff at the time of attestation. We believe additional
clarity would be helpful to ensure applicants' approach to assessing
liquidity is reflective of the most recent market activity.\47\ While
we continue to find the current minimum levels of activity for each
price index location to be appropriate market activity thresholds, we
propose to modify the review period over which the price index location
should meet the minimum level of activity for all indices

[[Page 83946]]

referenced in FERC-jurisdictional tariffs to at least 180 continuous
days out of the most recent 365 days from the filing date of any such
proposal. We believe that expanding the review period will ensure that
natural gas price index references in FERC-jurisdictional tariffs are
sufficiently liquid which will ultimately benefit customers who are
subject to the tariff provisions.
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\47\ As explained previously, the voluntary reporting of fixed-
price transactions to price index developers has declined in recent
years. This has resulted in fluctuating liquidity for certain
natural gas price index locations.
---------------------------------------------------------------------------

38. Accordingly, we propose to revise the criteria established in
the Price Index Order as follows (revised language shown in italics).
We also propose removing the term ``daily'' from the daily, weekly, and
monthly liquidity requirements to provide clarity to the conditions
that should be met for those types of price indices.\48\
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\48\ The Price Index Order used the term ``daily'' as the metric
for determining the average volume, average number of transactions,
and average number of counterparties required for indices to be
sufficiently liquid for use in jurisdictional tariffs. In this
Revised Policy Statement, we remove the term ``daily'' from the
Commission's index liquidity measurements. We do not believe that
this revision changes the original intent of the criteria as indices
will continue to meet the same minimum liquidity conditions
necessary as before but now for 180 continuous days out of the most
recent 365 days.
---------------------------------------------------------------------------

Daily or hourly indices should meet at least one of the following
conditions, on average, for all non-holiday weekdays for at least 180
continuous days out of the most recent 365 days:
1. Average volume traded of at least 25,000 million Btus (MMBtu)
per day for natural gas or 2,000 Megawatt hours (MWh) per day for
power; or
2. Average number of transactions of five or more per day; or
3. Average-number of counterparties of five or more per day.
Weekly indices should meet at least one of the following conditions
on average for all weeks for at least 180 continuous days out of the
most recent 365 days:
1. Average volume traded of at least 25,000 MMBtu per day for gas
or 2,000 MWh per day for power; or
2. Average number of transactions of eight or more per week; or
3. Average number of counterparties of eight or more per week.
Monthly indices should meet at least one of the following
conditions on average for at least 180 continuous days out of the most
recent 365 days:
1. Average volume traded of 25,000 MMBtu per day for gas or 2,000
MWh per day for power; or
2. Average number of transactions of ten or more per month; or
3. Average number of counterparties of ten or more per month.
39. Aside from the changes to the minimum criteria specifically
discussed above, all other criteria for reflecting adequate liquidity
at referenced points adopted in the Policy Statement would remain
unchanged.

G. Additional Policy Changes to Electric Indices and Electric Price
Index Developers

40. The modifications in this proposed Revised Policy Statement
would apply solely to natural gas price indices and natural gas price
index developers. However, we recognize that the Policy Statement
applied to both the electric and natural gas industries. For that
reason, Commission staff will conduct outreach to explore the need for,
and scope of, any potential policy updates for the electric industry.

III. Information Collection Statement

41. The Paperwork Reduction Act (PRA) requires each federal agency
to seek and obtain the Office of Management and Budget's (OMB) approval
before undertaking a collection of information (including reporting,
record keeping, and public disclosure requirements) directed to ten or
more persons or contained in a rule of general applicability. OMB
regulations require approval of certain information collection
requirements (including deletion, revision, or implementation of new
requirements). Upon approval of a collection of information, OMB will
assign an OMB control number and an expiration date. Respondents
subject to the filing requirements will not be penalized for failing to
respond to the collection of information unless the collection of
information displays a valid OMB control number.
42. The Commission solicits comments from the public on the
Commission's need for this information, whether the information will
have practical utility, the accuracy of the burden estimates, ways to
enhance the quality, utility and clarity of the information collected
or retained, and any suggested methods for minimizing respondents'
burden, including the use of automated information techniques.
Specifically, the Commission asks that any revised burden or cost
estimates submitted by commenters be supported by sufficient detail to
understand how the estimates are generated.
43. This proposed revised policy statement will affect the existing
data collection: FERC-549, NGPA Title III Transactions and NGA Blanket
Certificate Transactions. Estimates of the PRA-related burden and cost
\49\ follow. The following table summarizes the estimated increases and
decreases in burden due to the proposed policy changes above.
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\49\ The Commission staff estimates that industry is similarly
situated in terms of hourly cost (for wages plus benefits). Based on
the Commission's Fiscal Year (FY) 2020 average cost of $172,329/year
(for wages plus benefits, for one full-time employee), $83.00/hour
is used.

Modifications Due to the Proposed Revised Policy Statement in Docket No. Public Law 20-3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual number Average burden (hrs.)
Number of of responses Total number and cost ($) per Total annual burden hrs. and total annual
respondents per respondent of responses response cost ($)
(1) (2) (1) * (2) = (4)................... (3) * (4) = (5)
(3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Proposed Burden Reductions 50
--------------------------------------------------------------------------------------------------------------------------------------------------------
Data Providers--perform biennial 125 .5 62.5 80 hrs.; $6,640....... 5,000 hrs.; $415,000.
self-audit (not annual).
Data Providers--provide month-ahead 9 \52\ 249 2,241 4 hrs.; $332.......... 8,964 hrs.; $744,012.
(not day-ahead on a daily basis)
\51\.
-------------------------------------------------------------------------------------------------------------------
Proposed Reductions............. .............. .............. .............. ...................... 13,964 hrs.; $1,159,012.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Proposed Burden Increases to FERC-549
--------------------------------------------------------------------------------------------------------------------------------------------------------
Price Index Developers--re-certify 6 0.14 0.84 320 hrs.; $26,560..... 268.8 hrs.; $22,310.40.
every 7 yrs..

[[Page 83947]]

Price Index Developers--code of 6 1 6 80 hrs.; $6,640....... 480 hrs.; $39,840.
conduct & confident.; & inform
customers.
Price Index Developers--identify 6 1 6 80 hrs.; $6,640....... 480 hrs.; $39,840.
assessed index price vs. calculated.
-------------------------------------------------------------------------------------------------------------------
Proposed Increases to FERC-549.. .............. .............. .............. ...................... 1,228.8 hrs.; $101,990.40.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Total Proposed Reduction .............. .............. .............. ...................... 12,735.2 hrs.; $1,4057,021.6.
--------------------------------------------------------------------------------------------------------------------------------------------------------

The Commission seeks comments on the burden and cost related to
complying with the proposed revised policy statement.
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\50\ The proposed burden reductions are provided for information
and comment. To be conservative, the Commission may not remove the
hours from its information collection estimates in the OMB-approved
inventory.
\51\ Staff assumes respondents with 2019 estimated volumes of
next-month and physical basis transactions reported to index
developers that exceeded two thirds of their total estimated volumes
reported to index developers will no longer report their next-day
transactions to index developers.
\52\ We are proposing to allow companies to report just monthly,
instead of monthly and daily. The figure (249 annual responses per
respondent) relates to reporting on all non-holiday trading days.
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Title: FERC-549, NGPA Title III Transactions and NGA Blanket
Certificate Transactions.
OMB Control No.: 1902-0086.
Respondents: Natural Gas Data Providers (Market Participants That
Report Transaction Data to Price Index Developers) and Price Index
Developers.
Frequency of Responses: As discussed.
Necessity of the Information:
The collection of this information helps to provide accuracy and
transparency to the formation of natural gas price indices.
Internal Review: These requirements conform to the Commission's
goal for efficient information collection, communication, and
management. The Commission has assured itself, by means of its internal
review, that there is specific, objective support for the burden
estimates associated with the information requirements.
Interested persons may obtain information on the reporting
requirements by contacting the following: Federal Energy Regulatory
Commission, 888 First Street NE, Washington, DC 20426, Attn: Ellen
Brown, Office of the Executive Director, email: DataClearance@ferc.gov,
or phone: (202) 502-8663.

IV. Comment Procedures

44. We invite comments on this proposed Revised Policy Statement
within March 23, 2021.

V. Document Availability

45. The Commission provides all interested persons an opportunity
to view and/or print the contents of this document via the internet
through the Commission's Home Page (http://www.ferc.gov). At this time,
the Commission has suspended access to the Commission's Public
Reference Room, due to the proclamation declaring a National Emergency
concerning the Novel Coronavirus Disease (COVID-19), issued by the
President on March 13, 2020.
46. From the Commission'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.
47. User assistance is available for eLibrary and the Commission's
website during normal business hours from the Commission's 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. Email the Public Reference Room at
public.referenceroom@ferc.gov.
By the Commission. Commissioner Clements is not participating.

Issued: December 17, 2020.
Kimberly D. Bose,
Secretary.
[FR Doc. 2020-28387 Filed 12-22-20; 8:45 am]
BILLING CODE 6717-01-P