On November 17, 2015, the Federal Energy Regulatory Commission (FERC) issued an order terminating its inquiry on potentially requiring jurisdictional sellers to submit quarterly reports on natural gas transactions.
Three years ago, FERC issued a Notice of Inquiry and requested comments on its proposal to require quarterly reporting of every natural gas transaction within its jurisdiction under the Natural Gas Act (NGA) that entails physical delivery for the next day (or, next day gas) or for the next month (or, next month gas). Section 23 of the NGA directs FERC “to facilitate price transparency in markets for the sale or transportation of physical natural gas in interstate commerce” and grants FERC the authority to require market participants to submit information on the availability and prices of natural gas sold at wholesale and in interstate commerce.
FERC stated that requiring market participants to report these data points on a regular basis “would facilitate price transparency in the natural gas market by enabling buyers and sellers of natural gas to better understand the trading and prices that contribute to the daily and monthly indices.” It also stated that the additional information would “enhanc[e] its ability to identify the potential for manipulation in the natural gas markets, to examine more efficiently the manipulative behavior, and to assess the effects of manipulation.” It considered requiring market participants to report, for all jurisdictional transactions for delivery of next day or next month gas: (1) the name, address, and contact information of the trading company; (2) the name and location of its holding company; (3) the product traded (i.e., next day or next month gas), (4) trade execution method (i.e., exchange or off-exchange, and the name of the exchange or broker); (5) settlement type (i.e., fixed or index price); (6) volume of natural gas traded; (7) location or hub; (8) price; (9) date and time of the transaction; (10) counterparty; and (11) the index publisher(s) to which each transaction was reported. FERC also considered releasing transactional information to the public on a quarterly basis one month after it is reported to FERC.
FERC sought comments on whether the reporting requirement would provide useful information for improving natural gas market transparency. It also sought comments to specific questions related to: (1) which data elements should be reported and how it should be reported; (2) possible public dissemination of any data reported; (3) the scope of the reporting requirement and whether transactions that are outside of FERC’s jurisdiction under Section 1(b) of the NGA should be reported; and (4) the burden of such reporting on market participants and whether FERC should discontinue existing public data reporting requirements through Form No. 552 after receiving a full year of transactional data.
FERC received 34 sets of comments in response to the Notice of Inquiry. Many commenters stated that the reporting requirement would not enhance natural gas market transparency and urged FERC not to move forward with imposing the reporting requirement. They noted that the requirement would apply to only natural gas sales within FERC’s jurisdiction, which is a small portion of the total natural gas sales, and therefore would not enhance natural gas market transparency. Commenters also noted that the reporting requirement raises the potential for unintended market efficiency risks that outweigh the transparency gains or improved surveillance and raised concerns over the release of the transactional data, which could reveal market sensitive positions and affect the competitiveness of natural gas markets.
To better assess whether the reporting requirement would enhance market transparency, in July 2013, FERC issued data requests to certain natural gas marketers for information about what portion of the total natural gas sales are jurisdictional sales.
In the Order Terminating Proceeding, FERC stated that, in light of the additional physical natural gas market data to which it has gained access, the proposed reporting requirement is not necessary at this time. FERC currently has access to multiple sources of data that provide market transparency and can be used to detect market manipulation. Natural gas market participants that buy or sell more than 2.2 Bcf annually of wholesale natural gas for next day or next month delivery report their annual sales and purchase volumes by product and transaction type on an annual basis through the Form No. 552. FERC receives tick data (i.e., market data that shows the price and volume of every consummated trade) from the Intercontinental Exchange for physical and financial natural gas transactions and natural gas futures tick data from NYMEX. FERC has access to Large Trader Report data from the Commodity Futures Trading Commission. It also has access to information about the transactions that contribute to the formation of daily and monthly indices reported by Platts and the daily indices reported by Natural Gas Intelligence.
FERC’s focus on fraud and market manipulation and its continued and increasing surveillance over natural gas sales remain a key priority, as reflected in the recent Report of Enforcement. FERC also recently issued a notice of proposed rulemaking to amend its regulations to require regional transmission organizations and independent system operators to electronically deliver to FERC data required from its market participants on an ongoing basis that would (1) identify the market participants through a common alpha-numeric identifier; (2) list their “Connected Entities,” which includes entities that have certain ownership, employment, debt, or contractual relationships to the market participants; and (3) describe the nature of the relationship of each Connected Entity. FERC explained that this information with help in its screening and investigative efforts to detect market manipulation.