The Federal Energy Regulatory Commission (the Commission or FERC) recently issued a notice of proposed rulemaking (NOPR) to implement new reporting requirements under its expanded authority under Section 23 of the Natural Gas Act (NGA), which was added by the Energy Policy Act of 2005 (EPAct). The Commission is proposing a new annual reporting requirement for certain buyers and sellers of natural gas and a daily requirement for intrastate pipelines to post the capacities and volumes of natural gas that flow through major points on their systems. The Commission is requesting comments on both of these proposals as well as comments on its current reporting requirements and procedures. Comments are due by June 11, 2007.

Annual Reporting of Gas Transactions

The Commission is proposing that market participants buying or selling more than a de minimis volume of natural gas “be required to report aggregate numbers and volumes of relevant transactions in an annual filing” using an electronic form on the FERC Internet web site. This reporting requirement will apply to companies both traditionally jurisdictional and others.

The Commission proposes defining a de minimis market participant as one that engages in physical gas transactions that amount by volume to less than 2,200,000 MMBtus annually. This amount is based on an estimate of 1/10,000th of the annual physical volumes consumed in the United States, or the equivalent of less than one standard NYMEX futures contract per day. All market participants using blanket certificate authority, even if its sales are de minimis, would continue to be required to report their identification information, and report whether they provide transaction information to any price index publisher, and whether any such reporting complies with the regulations governing reporting to price index publishers, but the report would be on an annual basis rather than only when their reporting status changed as is currently the rule.

The information required to be reported by all participants engaging in transactions that together involve 2,200,000 MMBtus or more annually would include: (1) the total amount of physical natural gas transactions by number and volume; (2) a breakdown of the transactions by purchases and sales; (3) a breakdown of the purchases and sales by whether they were conducted in monthly or daily spot markets; and (4) a breakdown of the purchases and sales by type of pricing, in particular whether the pricing was fixed or indexed. The definition of “physical natural gas transactions” includes all sales and purchases of gas with an obligation to deliver or receive the gas physically, even if the gas is not physically transferred; the only exception to this is physically-settled futures contracts where delivery is never made.

The NOPR explains that FERC is electing to continue to reject calls for mandatory reporting of all fixed-price transactions because FERC believes that the potential hazards of mandatory reporting outweigh the expected benefits. For example, mandatory reporting rules would create an incentive for wholesale buyers and sellers to structure transactions to avoid reporting requirements rather than basing the structure of deals on the market economics of the transaction. Moreover, mandatory reporting might cause parties to shift from fixed-price transactions to indexed-price transactions to avoid reporting requirements and this would cause indices to be less reliable. Finally, FERC believes that broad availability of detailed transaction data might prove to be anticompetitive, whereas the proposed rule provides for information to be aggregated. The information would be reported to FERC without specific price information, it would be aggregated over a year and no transaction-specific data would be included. Moreover, FERC says it will publish the information on an aggregated, national level, “and not by point or even region.”

Intrastate Pipeline Posting Requirement

FERC also is proposing to require intrastate pipelines to post actual flow information daily. The Commission says the proposed reporting requirement will give FERC and market participants a “clearer view of the effects on infrastructure, the industry, and the economy as a whole during periods when the U.S. natural gas delivery system is disturbed,” e.g., during outages resulting from hurricanes. It also will help the Commission to “identify and remedy potentially manipulative activity more actively by tracking price movement in the context of natural gas flows.” For example, unused intrastate pipeline capacity between geographically distinct markets could signal that flows are being used to manipulate prices. The Commission notes that its proposal is for posting actual flow information rather than requiring the reporting of scheduled volumes, as required for interstate pipelines. This difference is explained as necessary based on FERC’s understanding that gas can flow on intrastate pipelines without ever being scheduled because of the variety of selling arrangements and regulatory regimes.