THE SOURCE - Winter 2017 - 19

indices did not meet FERC's standard for
liquidity. Staff further found that of all 125
indices used in pipeline tariffs, 13 were
illiquid during the past year by the PRAs'
standards. Thus, many APGA members
rely on flawed indices.
Platts' "Assessment" When There is
No Data
Platts for years has regularly made
a "price assessment" at an illiquid point
where it manufactures a price based on
other data. In other words, in the absence
of concrete data-reported fixed-price
trades of gas-the PRAs make their best
guess. Platt's Inside FERC Gas Market
Report for January 2017 listed seven
locations "assessed by Platts and deviated
from the standard volume weighted
average methodology in" ways described
in the publication, including using
"historical bidweek price differentials."
Why Don't They Report?
While there is no question that
PRAs are dealing with paltry data, it
is less clear whether this is a result of
lazy price reporters or a dearth of fixed
price transactions on which to report.
Argus Media claims that for the past
three years, fixed price trades have
been stable at around 15 percent of all
volumes submitted on Form 552, but
that is historically low. Staff reported
that there has been an 18 percent decline
in fixed price quantities since 2009 and
acknowledged this is a concern. In 2016,
monthly fixed price trading decreased
4.87 percent. The ratio of index-priced
gas to fixed-priced gas has increased
dramatically since 2009 from about 4 to
1 to 7.5 to 1. If that is what the market is
doing voluntarily, then there is little for
FERC to do. On the other hand, if price
reporters are just being diffident, there is
a role for FERC to play.
Fourteen summers ago, FERC heard
that an obstacle to increased voluntary
reporting is the concern that companies
making a mistake when reporting price
data to PRAs could be subject to FERC
enforcement-in light of Congress' new
$1 million a day penalty authority. Despite
the safe harbor then created by a new
Policy Statement, that sentiment remains

today: why bother to report prices if there
is a risk and a potential cost of being
audited or examined by the government?
Private v. Public Solution
The prospect of lessening competition
in this marketplace of price indices could
lead to a government solution. The
industry has always relied on a private
competition model for price indices.
A price reporter can report to at least
seven entities, but Platts dominates the
marketplace. Some have suggested that
another model be employed where
prices are reported to a single portal that
can be accessed by all vendors. Others
have called for a non-profit to handle the
data as do swap data repositories under
Dodd-Frank. Alternatively the Energy
Information Administration (EIA) could
collect all data.
Platts' solution was a 2016
collaboration and agreement with the
Intercontinental Exchange or ICE so that
Platts could include some transactions
traded on ICE in its price indices. This
should help add liquidity to the market.
Yet it increases the market power of the
dominant PRA. End users complained to
FERC that their subscription prices have
increased since.
Steps FERC Should Take
Section 316 of the Energy Policy Act
of 2005 directs FERC 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." Clearly there
are too many free riders in the price
reporting market. What can be done?
First, if FERC dangles the potential of a
government solution to price reporting,
the industry will sit up and take notice
as that approach generally is disfavored,
as is mandatory reporting. FERC should
also express interest in whether the index
market is competitive or whether one PRA
has too much market power. Exploring
the idea of a single price reporting portal
would tee that up.
Second, a proposed rulemaking
proceeding in which FERC's policy is

elevated to a set of regulations would
be an excellent forum to further vet
this problem. FERC could encourage
price reporting by promulgating a clear
regulation that price reporters have a
rebuttable presumption of good faith that
requires FERC to make a high showing
of malevolent intent or probable cause
(scienter) for any enforcement action to
be brought against a price reporter. This
effort could codify a code of conduct
for price reporters so that they could be
certain that they were in compliance. If
price reporters follow their processes in
good faith adhering to a code of conduct,
they should not be held accountable for
simple errors that may occur.
Relatedly, FERC could fiddle with audit
rules to indicate that audits would not
be penal for price reporters. One large
marketer had just that experience in 2015,
yet a perception of entanglement persists.
Last, FERC should focus on the ailing
monthly index market so important to
APGA members. FERC's current Policy
Statement states that companies which
report fixed price deals to PRAs, must
submit all their reportable deals. FERC
should modify this policy to encourage the
current standard but also allow a reporting
entity to elect to report just its monthly
transactions and not be bound to submit
daily transactions as well. This could boost
the liquidity of monthly indices upon which
APGA members heavily rely.
Conclusion
State regulators were mysteriously
absent from the FERC conference. They
should take an interest in whether their
ratepayers are paying accurate prices.
Gas retailers must be vigilant. They
should routinely evaluate the accuracy
of the index prices that they are paying.
This means monitoring the NYMEX price
and traded natural gas basis contracts
for comparison. The risk of price indices
can be reduced by purchasing some
gas on a financial basis and fixing prices
or hedging. They owe their consumers
nothing less.
Mr. Gregg is a partner at McCarter and
English, LLP and serves as APGA's General
Counsel.
THE SOURCE | WINTER 2017, VOL. 10, ISSUE 2 19



Table of Contents for the Digital Edition of THE SOURCE - Winter 2017

A Vision from Our Industry: Listen, Define, Allocate, Execute
First Person
APGA Events
Q&A: Chairman Chatterjee
Furnace Rule Update
Delivering the Needs of Customers Through Legislative Action
Reaching Your Future Customers
Whistling In The Dark: Shortcomings of Natural Gas Indices Persist
Growth in Renewable Natural Gas
Legislative Outlook
The Pipeline
Marketing Matters
At Last
THE SOURCE - Winter 2017 - intro
THE SOURCE - Winter 2017 - ebelly1
THE SOURCE - Winter 2017 - ebelly2
THE SOURCE - Winter 2017 - A Vision from Our Industry: Listen, Define, Allocate, Execute
THE SOURCE - Winter 2017 - cover2
THE SOURCE - Winter 2017 - 3
THE SOURCE - Winter 2017 - 4
THE SOURCE - Winter 2017 - 5
THE SOURCE - Winter 2017 - 6
THE SOURCE - Winter 2017 - 7
THE SOURCE - Winter 2017 - First Person
THE SOURCE - Winter 2017 - 9
THE SOURCE - Winter 2017 - APGA Events
THE SOURCE - Winter 2017 - Q&A: Chairman Chatterjee
THE SOURCE - Winter 2017 - Furnace Rule Update
THE SOURCE - Winter 2017 - 13
THE SOURCE - Winter 2017 - Delivering the Needs of Customers Through Legislative Action
THE SOURCE - Winter 2017 - 15
THE SOURCE - Winter 2017 - Reaching Your Future Customers
THE SOURCE - Winter 2017 - 17
THE SOURCE - Winter 2017 - Whistling In The Dark: Shortcomings of Natural Gas Indices Persist
THE SOURCE - Winter 2017 - 19
THE SOURCE - Winter 2017 - 20
THE SOURCE - Winter 2017 - Growth in Renewable Natural Gas
THE SOURCE - Winter 2017 - 22
THE SOURCE - Winter 2017 - Legislative Outlook
THE SOURCE - Winter 2017 - 24
THE SOURCE - Winter 2017 - The Pipeline
THE SOURCE - Winter 2017 - Marketing Matters
THE SOURCE - Winter 2017 - 27
THE SOURCE - Winter 2017 - At Last
THE SOURCE - Winter 2017 - 29
THE SOURCE - Winter 2017 - 30
THE SOURCE - Winter 2017 - cover3
THE SOURCE - Winter 2017 - cover4
THE SOURCE - Winter 2017 - outsert1
THE SOURCE - Winter 2017 - outsert2
THE SOURCE - Winter 2017 - outsert3
THE SOURCE - Winter 2017 - outsert4
THE SOURCE - Winter 2017 - outsert5
THE SOURCE - Winter 2017 - outsert6
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