The natural gas industry would like to maintain the status quo of voluntarily reporting trades to support gas price indexes, but the electric power industry is lobbying the Federal Energy Regulatory Commission for changes.
"If the goal is to have transparent and accurate gas pricing available to all market participants in real time, the commission should consider making mandatory the real-time reporting of trades on an electronic exchange," the Independent Market Monitor for the PJM Interconnection wrote in comments submitted to the agency.
"An exchange would ensure transparency and reveal the actual liquidity of the market trading points as well as actual prices, in real time," the market monitor said in July 31 comments filed in response to a June FERC technical conference held to gather suggestions on improving the markets. "The issue of access to that data would need to be addressed. An exchange would permit more efficient price formation on high demand days as well as normal demand days. The result would be to make the market more competitive."
At the technical conference and in submitted comments, the electric power industry as represented by PJM, gas trade associations and other market participants focused on issues related to gas index liquidity and transparency, price discovery in gas and electric markets, and the formation of gas prices.
The gas groups generally liked the way price indexes work to promote liquidity and transparency. They said the system accurately reveals gas prices used in commercial transactions to parties that buy and sell the commodity in the U.S. In this system, price reporting agencies ask traders to provide details of their trades and then aggregate the results. Such price reporting agencies include S&P Global Platts and Argus Media Inc.
The PJM independent monitor disagreed with the accuracy of such a system. "The extent to which the indices represent the market is unclear," the comments said, and among the problems, "it is not completely clear what proportion of the volume of physical trades is reported to PRAs."
The Natural Gas Supply Association was confident in the strength of the gas market and the role of indexes, however. "The indices accurately represent the price that sellers and buyers agree to, and thus the market value of the natural gas traded," NGSA said in an Aug. 1 statement issued a day after it filed its comments. "The indices are one of many tools contributing to natural gas market transparency and facilitating sound decision-making. Independent corporate assessments of underlying fundamentals must remain at the heart of natural gas transaction decisions regardless of whether the transaction occurs at a fixed price, at index or at a hybrid of the two."
"Participants have vast, almost real-time information on which to base sound transaction decisions," according to NGSA, a group that represents companies that produce and market natural gas.
NGSA explained that it should be an individual company's decision to report prices after it weighs regulatory risk against commercial risk, and the decision to report should be voluntary so that regulations do not distort transaction decisions. "The decision not to price-report by any of the entities with the largest increases in marketed volumes in 2016 may suggest that the perceived or real cost of price reporting outweighs the benefit," the group said.
NGSA recommended three things to FERC staff. Companies should be permitted to report either monthly or daily market transactions, without a requirement to report in both markets. FERC's audit process should become "less onerous and more efficient" through a commission move to hold the audit every other year. And FERC staff should rely on the company's price-reporting audit reports "to improve efficiency and limit duplication of the commission's price reporting audits," the group said.
The American Gas Association, which represents the nation's natural gas utilities, said it supported continued monitoring of price reporting and index formation by FERC. The group made suggestions to help the commission encourage price reporting. AGA observed that during the technical conference, several panelists thought the gas market is generally healthy, with an "abundance of trading," but some were concerned that not all fixed-price transactions are being reported to price reporting agencies.
The Interstate Natural Gas Association of America said the status quo works well for the pipeline industry it represents.
"FERC's current regulatory model for the use of natural gas price indices in FERC-jurisdictional tariffs remains appropriate," INGAA Vice President and General Counsel Joan Dreskin wrote in July 31 comments. "Due to this well-functioning regulatory model, INGAA members have substantial confidence in natural gas price indices as they are used in FERC-jurisdictional natural gas [pipeline] tariffs. INGAA members benefit from access, at reasonable terms and conditions, to multiple price index developers, and hope that this access continues. This availability, coupled with the proven regulatory model, allows natural gas pipeline tariffs to function effectively and efficiently." (FERC dockets AD17-12, PL03-3, AD03-7)
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