FERC's proposal to bolster reporting to price indexes draws general support

Proposed changes to the Federal Energy Regulatory Commission's policy statement on gas and electric indexes drew general support from an array of stakeholders, although some market players sought further steps to encourage more price reporting.

Seeking to bolster physical natural gas price indexes and transparency, FERC proposed Dec. 17 to tweak standards for price index developers and adjust requirements for those reporting data to index developers.

To ease burdens on market players reporting data, FERC proposed to allow them to report either next-day or next-month transactions, or both, rather than mandating that both be reported.

It also proposed to let those reporting data self-audit on a biennial basis, rather than annually. Further, it encouraged data providers to report to all available commission-approved price index developers, stopping short of a contested step to require such reporting.

In the interest of transparency, it proposed that developers disclose whether a price is assessed, as opposed to calculated as a volume-weighted average. The commission also would require indexes to be re-approved once every seven years to be included in FERC-jurisdictional tariffs.

S&P Global Platts is among the price reporting agencies publishing gas price indices.

A handful of gas consumer, utility and producer groups welcomed FERC's proposal.

The Natural Gas Supply Association called it a step toward encouraging liquidity and price transparency. The proposal to allow data providers to report either daily or monthly transactions will likely enhance the level of reporting, it said. And the change in frequency of audits would ease the regulatory burden on data providers and encourage more reporting, it added.

But it also urged FERC to take a more targeted approach to audits, with a well-defined scope and limited duration.

Parallel power recommendation

The Electric Power Supply Association urged FERC to "finalize these changes" as well as to propose parallel modifications for the electric industry. And the American Gas Association and Edison Electric Institute also offered support.

The American Forest & Paper Association and Process Gas Consumers Group, in joint comments, also jumped on board, but want the commission to go further to "encourage reporting by arguably the most critical cohort of potential data providers, natural gas marketers." Worried about consolidation in the index developer industry, they suggested FERC consider the possibility of a nonprofit or government-maintained source of data or else consider a minimum threshold number of developers that would trigger an investigation of adequate competition.

EQT Energy welcomed the changes but eyed further steps, such as bolstering liquidity requirements or ensuring developers seeking re-approval meet two of three liquidity metrics at each price location.

The American Public Gas Association, which has raised concerns that its members suffer because of a lack of liquidity in index price formations at some locations, found the proposals to be "sensible reforms that should receive a broad consensus of support." But calling attention to the impact of historic index prices in mid-February on calculated pipeline penalties, the group requested that FERC specifically include the operation of price indexes in its Office of Enforcement's ongoing examination of wholesale gas and electric market activity during February 2021.

View from index publishers

Index providers themselves were either supportive or neutral on FERC's proposals, while calling attention to steps they've already taken to boost liquidity or transparency.

Platts supported FERC's proposal to require index developers to obtain recertification every seven years to be included in FERC tariffs; it suggested integrity of the process would be strengthened if price-reporting agencies demonstrated adherence to the International Organization of Securities Commission's principles for oil price-reporting agencies.

Natural Gas Intelligence was mostly neutral or supportive but cautioned against going beyond what is now in the proposal with regard to encouraging data providers to report to as many commission-approved developers as possible.

"Even as such language might seem to benefit NGI on the surface, it risks the potential for the unintended consequence of actually reducing price reporting as price reporters may determine the clear benefits of price reporting are outweighed by the additional resources that may be required by reporting to 'more than one' commission-approved index developer," it said.

Argus Media supported most of the changes, but warned of unintended negative consequences of a proposed change to the review period for liquidity assessments.

"Expanding the review period may have the unintended and undesired effect of reducing the number of [indexes] that qualify for FERC-jurisdictional tariffs, with the result being that only a core group of very liquid hubs may meet the newly proposed liquidity standards," it said.