[Federal Register: January 4, 2008 (Volume 73, Number 3)]
[Rules and Regulations]
[Page 1013-1042]
[DOCID:fr04ja08-8]

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Part IV

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Parts 260, 284, and 385

Transparency Provisions of Section 23 of the Natural Gas Act; Final
Rule

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 260, 284 and 385

[Docket No. RM07-10-000; Order No. 704]

Transparency Provisions of Section 23 of the Natural Gas Act

Issued December 26, 2007.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final Rule.

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SUMMARY: In the final rule, the Commission promulgates regulations that
require certain natural gas market participants to report information
regarding their reporting of transactions to price index publishers and
their blanket sales certificate status, and to report annually certain
information regarding their wholesale, physical natural gas
transactions for the previous calendar year. Certain market
participants engaged in a de minimis volume of transactions will not be
required to report information regarding their transactions for the
calendar year. The reported information will make it possible to
estimate the size of the physical U.S. natural gas market, to assess
the use of index pricing in that market, and to determine the size of
the fixed-priced trading market that produces the information. These
regulations facilitate price transparency in markets for the wholesale
sale of physical natural gas in interstate commerce.

DATES: Effective Date: This rule will become effective February 4,
2008.

FOR FURTHER INFORMATION CONTACT: Stephen J. Harvey (Technical), Office
of Enforcement, Federal Energy Regulatory Commission, 888 First Street,
NE., Washington, DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>    Christopher J. Peterson (Technical), Office of Enforcement, Federal
Energy Regulatory Commission, 888 First Street, NE., Washington, DC
20426,<PHONE_NUMBER><EMAIL_ADDRESS>    Eric Ciccoretti (Legal), Office of Enforcement, Federal Energy
Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202) 502-8493<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Before Commissioners: Joseph T. Kelliher,
Chairman; Suedeen G. Kelly, Marc Spitzer, Philip D. Moeller, and Jon
Wellinghoff.

I. Background

    1. In this final rule, the Commission promulgates regulations that
require certain natural gas market participants to report annually
certain information regarding their wholesale, physical natural gas
transactions, their reporting of transactions to price index
publishers, and their blanket certificate status. This rule arises from
a Notice of Proposed Rulemaking (NOPR) issued on April 19, 2007, which
set forth two proposals, an annual reporting requirement proposal and a
daily pipeline posting proposal.\1\ This rule addresses the annual
reporting requirement. The Commission addresses the daily pipeline
posting proposal concurrently in a Notice of Proposed Rulemaking in a
separate docket, Docket No. RM08-2-000.
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    \1\ Transparency Provisions of Section 23 of the Natural Gas
Act, 72 FR 20791 (Apr. 26, 2007), FERC, Stats. and Regs. ] 32,614
(2007).
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    2. The Commission largely adopts the annual reporting proposal in
the NOPR issued in this docket, with a few changes and a few
clarifications. The final rule requires that any buyer or seller of
more than a de minimis volume of natural gas report aggregate volumes
of relevant transactions in an annual filing using a new form,
Commission Form No. 552. A market participant buying or selling less
than a de minimis volume that operates under blanket sales certificate
authority pursuant to Sec.  284.402 or Sec.  284.284 of the
Commission's regulations must also submit a Form No. 552 for
identification and certain reporting purposes, but is not required to
report aggregate volumes of relevant transactions. A market participant
that buys or sells less than a de minimis volume but that does not
operate under blanket sales certificate authority need not submit a
Form No. 552. Filings of the form will be due on May 1 of each year,
starting on May 1, 2009 for the calendar year 2008.
    3. The significant changes from the proposal in the NOPR fall
generally into four categories. The first category of changes focuses
the reporting requirement solely on wholesale buyers and sellers by
excluding retail transactions. The second category of changes, intended
to focus on price formation in the spot markets, narrows the questions
on new Form No. 552 to obtain information about the amount of daily or
monthly fixed-priced trading that are eligible to be reported to price
index publishers as compared to the amount of trading that uses or
refers to price indices. The third category of changes expands the
number of companies that must state publicly whether or not they report
to index price publishers. The last category involves other
clarifications of questions raised in comments and changes made to
streamline completion of the form.
    4. In promulgating the final rule, the Commission exercises its new
transparency authority under section 23 of the Natural Gas Act
(transparency provisions).\2\ Congress added the transparency
provisions in enacting the Energy Policy Act of 2005 (EPAct 2005).\3\
The transparency provisions direct the Commission ``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, and the protection of
consumers,'' \4\ and further allow the Commission to ``prescribe such
rules as the Commission determines necessary and appropriate to carry
out the purposes of [the transparency provisions]''--rules that ``shall
provide for the dissemination, on a timely basis, of information about
the availability and prices of natural gas sold at wholesale and
interstate commerce to the Commission, State commissions, buyers and
sellers of wholesale natural gas, and the public.'' \5\
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    \2\ Section 23 of the Natural Gas Act, 15 U.S.C. 717t-2 (2000 &
Supp. V 2005).
    \3\ Energy Policy Act of 2005, Pub. L. 109-58, 119 Stat. 594
(2005).
    \4\ Section 23(a)(1) of the Natural Gas Act, 15 U.S.C. 717t-
2(a)(1) (2000 & Supp. V 2005).
    \5\ Section 23(a)(2) of the Natural Gas Act, 15 U.S.C. 717t-
2(a)(2) (2000 & Supp. V 2005).
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    5. The final rule will facilitate transparency of the price
formation process in natural gas markets by collecting information to
understand in broad terms the size of the natural gas market and the
use of fixed prices and of index prices. Currently, because of the way
transactions take place in the natural gas industry, there is no way to
estimate in even the broadest terms the overall size of the natural gas
market or its breakdown by types of contract provision, including
pricing and term (e.g., spot or for delivery farther in the future).\6\
As noted by the price index developer Platts, the question of what is
the total size of the traded market has ``hung over the gas market for
years.'' \7\ More particularly, there is no way to determine important
volumetric relationships between (a) the fixed-

price, day-ahead or month-ahead transactions that form price indices;
and (b) transactions that use price indices. Without the most basic
information about these volumetric relationships, the Commission has
been hampered in its oversight and its ability to assess the adequacy
of price-forming transactions. Market participants are likewise unable
to evaluate their use of indexed transactions. Typically, market
participants rely on index-priced transactions as a way to reference
market prices without taking on the risks of active trading. These
market participants rely on index prices, often whether or not those
prices are derived from a robust market of fixed-price transactions.
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    \6\ In its supplemental comments, Platts provided information
regarding its use of physical basis transactions in compiling
monthly indices. Supplemental Comments of Platt's, Transparency
Provisions of the Energy Policy Act, Docket No. AD06-11-000 (filed
Feb. 23, 2007).
    \7\ Comments of Platts at 6, Transparency Provisions of the
Energy Policy Act, Docket No. AD06-11-000 (filed Nov. 1, 2006).
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    6. Price formation in natural gas markets makes no distinction
between transactions that are jurisdictional to the Commission under
the Natural Gas Act, absent new section 23 of that statute, and those
that are not. While the Commission's traditional jurisdiction under
sections 4, 5, and 7 of the Natural Gas Act is limited to ``natural gas
compan[ies],'' \8\ this limitation is not applicable to the
Commission's jurisdiction under the transparency provisions.\9\ As a
consequence, in order to assess the size and structure of U.S. natural
gas markets, information about wholesale natural gas transactions is
required from a market participant regardless of whether it is subject
to the Commission's traditional jurisdiction.
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    \8\ See 15 U.S.C. 717b-717i.
    \9\ Section 23 of the Natural Gas Act, 15 U.S.C. 717t-2 (2000 &
Supp. V 2005).
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    7. By obtaining information about natural gas transactions, the
final rule would further the Commission's efforts to monitor price
formation in the wholesale natural gas markets, which support the
Commission's market-oriented policies for the wholesale natural gas
industries. Those policies in turn require that interested persons have
broad confidence that reported market prices accurately reflect the
interplay of legitimate market forces. Without confidence in the basic
processes of price formation, market participants cannot have faith in
the value of their transactions, the public cannot believe that the
prices they see are fair, and it is more difficult for the Commission
to ensure that jurisdictional prices are ``just and reasonable.'' \10\
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    \10\ See sections 4 and 5 of the Natural Gas Act, 15 U.S.C.
717c, 717d; sections 205 and 206 of the Federal Power Act, 16 U.S.C.
824d, 824e.
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    8. The performance of Western electric and natural gas markets
early in the decade shook confidence in posted market prices for
energy. In examining these markets, the Commission's Staff found, inter
alia, that some companies submitted false information to the publishers
of natural gas price indices, so that the resulting reported prices
were inaccurate and untrustworthy.\11\ As a result, questions arose
about the legitimacy of published price indices, remaining even after
the immediate crisis passed. Moreover, market participants feared that
the indices might have become even more unreliable, since reporting
(which has always been voluntary) declined to historically low levels
in late 2002.
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    \11\ See ``Initial Report on Company-Specific Separate
Proceedings and Generic Reevaluations; Published Natural Gas Price
Data; and Enron Trading Strategies--Fact Finding Investigation of
Potential Manipulation of Electric and Natural Gas Prices,'' Docket
No. PA02-2-000 (Aug. 2003).
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    9. The Commission recognized concerns about price discovery in
electric and natural gas markets as early as January 2003, when, prior
to passage of EPAct 2005, the Commission made use of its existing
authority under the Natural Gas Act and the Federal Power Act to help
restore confidence in natural gas and electricity price indices. The
Commission expected that, over time, improved price discovery processes
would naturally increase confidence in market performance. On July 24,
2003, the Commission issued a Policy Statement on Electric and Natural
Gas Price Indices (Policy Statement) that explained its expectations of
natural gas and electricity price index developers and the companies
that report transaction data to them.\12\ On November 17, 2003, the
Commission adopted behavior rules for certain electric market
participants in its Order Amending Market-Based Rate Tariffs and
Authorizations relying on section 206 of the Federal Power Act to
condition market-based rate authorizations,\13\ and for certain natural
gas market participants in Amendments to Blanket Sales Certificates,
relying on section 7 of the Natural Gas Act to condition blanket
marketing certificates.\14\ The behavior rules bar false statements and
require certain market participants, if they report transaction data,
to report such data in accordance with the Policy Statement. These
participants must also notify the Commission whether or not they report
prices to price index developers in accordance with the Policy
Statement.\15\ On November 19, 2004, the Commission issued an order
that addressed issues concerning price indices in natural gas and
electricity markets and adopted specific standards for the use of price
indices in jurisdictional tariffs.\16\
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    \12\ 104 FERC ] 61,121 (2003). Subsequently, in the same
proceeding, the Commission issued an Order on Clarification of
Policy Statement on Natural Gas and Electric Price Indices, 105 FERC
] 61,282 (2003) (Order on Clarification of Policy Statement) and an
Order on Further Clarification of Policy Statement on Natural Gas
and Electric Price Indices, 112 FERC ] 61,040 (2005) (Order on
Further Clarification of Policy Statement).
    \13\ Investigation of Terms and Conditions of Public Utility
Market-Based Rate Authorizations, 105 FERC ] 61,218, at P 1 (2003),
superseded in part by, Conditions for Public Utility Market-Based
Rate Authorization Holders, Order No. 674, 71 FR 9695 (Feb. 27,
2006), FERC Stats. and Regs. ] 31,208 (2006).
    \14\ Amendments to Blanket Sales Certificates, Order No. 644, 68
FR 66323 (Nov. 26, 2003), FERC Stats. and Regs. ] 31,153, at P 1
(2003) (citing 15 U.S.C. 717f), reh'g denied, 107 FERC ] 61,174
(2004).
    \15\ Certain portions of the behavior rules were rescinded in
Amendments to Codes of Conduct for Unbundled Sales Service and for
Persons Holding Blanket Marketing Certificates, Order No. 673, 71 FR
9709 (Feb. 27, 2006), FERC Stats. and Regs. ] 31,207 (2006). The
requirements to report transaction data in accordance with the
Policy Statement and to notify the Commission of reporting status
were retained in renumbered sections. 18 CFR 284.288(a), 284.403(a).
    \16\ Price Discovery in Natural Gas and Electric Markets, 109
FERC ] 61,184, at P 73 (2004).
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    10. In the Policy Statement, among other things, the Commission
directed Staff to continue to monitor price formation in wholesale
markets, including the level of reporting to index developers and the
amount of adherence to the Policy Statement standards by price index
developers and by those who provide data to them.\17\ In adhering to
this directive, Commission Staff documented improvements in the number
of companies that reported prices from back offices, that adopted codes
of conduct, and that audited their price reporting practices.\18\ These
efforts resulted in significant progress in the amount and quality of
both price reporting and the information provided to market
participants by price indices.\19\ Further, in conformance with this
directive, Commission Staff recently concluded audits of three natural
gas market participants with blanket certificate authority that were
data providers subject to Sec.  284.403 of the Commission's
regulations.\20\
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    \17\ Policy Statement at P 43.
    \18\ Federal Energy Regulatory Commission, ``Report on Natural
Gas and Electricity Price Indices,'' at 2, Docket No. PL03-3-004
(2004).
    \19\ See, e.g., General Accountability Office, ``Natural Gas and
Electricity Markets: Federal Government Actions to Improve Private
Price Indices and Stakeholder Reaction'' (December 2005).
    \20\ The audits found general compliance with the price
reporting standards. See April 5, 2007 letter issued to Anadarko
Energy Services Co. in Docket No. PA06-11-000 by Director, Office of
Enforcement and attached Audit of Price Index Reporting Compliance;
April 5, 2007 letter issued to BG Energy Merchants, LLC in Docket
No. PA06-12-000 by Director, Office of Enforcement and attached
Audit of Price Index Reporting Compliance; April 5, 2007 letter
issued to Marathon Oil Co. in Docket No. PA06-13-000 by Director,
Office of Enforcement, and attached Audit of Price Index Reporting
Compliance.

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    11. Congress recognized that the Commission might need expanded
authority to mandate additional reporting to improve market confidence
through greater price transparency and included in EPAct 2005 authority
for the Commission to obtain information on wholesale electric and
natural gas prices and availability. Under the Federal Power Act \21\
and the Natural Gas Act,\22\ the Commission has long borne a
responsibility to protect wholesale electric and natural gas consumers.
EPAct 2005 emphasized the Commission's responsibility for protecting
the integrity of the markets themselves as a way of protecting
consumers in an active market environment. In particular, Congress
directed the Commission to facilitate price transparency ``having due
regard for the public interest, the integrity of [interstate energy]
markets, [and] fair competition.'' \23\ In the new transparency
provisions of section 23 of the Natural Gas Act, Congress provided that
the Commission may, but is not obligated to, prescribe rules for the
collection and dissemination of information regarding the wholesale,
interstate markets for natural gas, and authorized the Commission to
adopt rules to assure the timely dissemination of information about the
availability and prices of natural gas and natural gas transportation
in such markets.\24\
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    \21\ 16 U.S.C. 824 et seq.
    \22\ 15 U.S.C. 717 et seq.
    \23\ Section 23(a)(1) of the Natural Gas Act, 15 U.S.C. 717t-
2(a)(1) (2000 & Supp. V 2005); see also section 220 of the Federal
Power Act, 16 U.S.C. 824t (2000 & Supp. V 2005) (identical
language).
    \24\ Section 23(a)(2) & (3) of the Natural Gas Act, 15 U.S.C.
717t-2(a)(2) & (3) (2000 & Supp. V 2005).
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II. Overview of Final Rule

    12. In this final rule, the Commission largely adopts the proposal
in the NOPR, with a few changes and a few clarifications. The final
rule requires that any buyer or seller of more than a de minimis volume
of natural gas report aggregate volumes of relevant transactions in an
annual filing using a new form, Commission Form No. 552. A market
participant that buys or sells less than a de minimis volume and that
operates under blanket sales certificate authority under Sec.  284.402
or Sec.  284.284 of the Commission's regulations must also submit a
Form No. 552 for identification and certain reporting purposes, but is
not required to report aggregate volumes of relevant transactions. A
market participant that buys or sells less than a de minimis volume but
that does not operate under blanket sales certificate authority need
not submit a Form No. 552. Filings of the form will be due on May 1 of
each year, starting on May 1, 2009 for the calendar year 2008.
    13. The significant changes from the proposal in the NOPR fall
generally into four categories. The first category of changes focuses
the reporting requirement solely on wholesale buyers and sellers by
excluding retail transactions. The second category of changes, intended
to focus on price formation in the spot markets, narrows the questions
on new Form No. 552 to obtain information about the amount of daily or
monthly fixed-price trading that are eligible to be reported to price
index publishers as compared to the amount of trading that uses or
refers to price indices. The third category of changes expands the
number of companies that must state publicly whether or not they report
to index price publishers. The last category involves other
clarifications of questions raised in comments and changes made to
streamline completion of the form.
    14. On Form No. 552, certain wholesale natural gas buyers and
sellers must identify themselves to the Commission and report summary
information about their physical natural gas transactions for the
previous calendar year including:
    a. the total volume of transactions for the previous calendar year;
    b. the volume of transactions that were priced at fixed prices for
next-day delivery and were reportable to price index publishers;
    c. the volume of transactions priced by reference to next-day gas
price indices;
    d. the volume of transactions that were priced at fixed prices for
next-month delivery and were reportable to price index publishers; and,
    e. the volume of transactions priced by reference to next-month gas
price indices.
    15. As defined in Form No. 552, a transaction is ``reportable to
price index publishers'' if it is made at a reportable location where a
price index publisher collects information for fixed-price transactions
with next-day or next-month delivery obligations in order to create a
price index. As these locations may change over time, Commission Staff
will post each year a list for the coming year of current ``Reportable
Locations'' for each price index publisher on the Commission Web site
at http://www.ferc.gov/docs-filing/eforms.asp#552. This information

will allow a market participant to determine whether a transaction
should be classified on Form No. 552 as a reportable transaction, i.e.,
one made at a reportable location.
    16. In addition, on the form, a natural gas seller must state
whether it operates under blanket certificate authority under Sec.
284.402 of the Commission's regulations, whether it reports
transactions to price index publishers, and whether any such reporting
complies with the standards provided in Sec.  284.403(a).\25\
Similarly, an interstate pipeline must state whether it operates under
blanket certificate authority under Sec.  284.284 of the Commission's
regulations, whether it reports transactions to price index publishers
and whether any such reporting complies with the standards provided in
Sec.  284.288(a).\26\
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    \25\ In its regulations, the Commission grants automatically
blanket certificates of convenience and necessity under section 7 of
the Natural Gas Act to interstate natural gas pipelines ``to provide
unbundled firm and interruptible sales,'' 18 CFR 284.284 (blanket
certificates for unbundled sales services), and to any person who is
not an interstate pipeline ``to make sales for resale at negotiated
rates,'' 18 CFR 284.402 (blanket market certificate).
    \26\ The Commission recognizes that few if any interstate
natural gas pipelines still make wholesale sales. Nevertheless, if
they were to sell gas at wholesale in interstate commerce, they
would be subject to the final rule. More relevant, of course, is the
fact that all of their affiliates making wholesale sales in
interstate commerce would be subject to the final rule.
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    17. The final rule requires these holders of blanket sales
certificates and, also, wholesale buyers and sellers of more than a de
minimis volume in the reporting year to report to the Commission on
Form No. 552 whether they report transactions to natural gas price
index publishers.\27\ Sellers with blanket sales authority must
indicate whether such reporting complies with the Commission's
standards for such reporting. Prior to this final rule, such sellers
were required to notify the Commission only when it changed their
practice regarding such reporting. The final rule will make
notifications of reporting status more reliable.
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    \27\ New 18 CFR 260.401.
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    18. The final rule is designed to permit an annual estimate of (a)
the size of the physical domestic natural gas market, (b) the use of
index pricing in that market, (c) the size of the fixed-price trading
market that produces price indices from the subset reported to index
publishers, and (d) the relative size of major traders. Obtaining such
estimates requires information from all significant buyers and sellers
of wholesale natural gas in the United States. The final rule creates
an annual requirement that buyers and sellers of more than a de minimis
volume of

natural gas report volumes of relevant transactions to the Commission.
    19. Although the natural gas transparency provisions authorize the
Commission to require reporting of detailed transaction-by-transaction
information from wholesale natural gas buyers and sellers, the
Commission will collect a more limited set of aggregate information
designed to assess the market.

III. Notice of Proposed Rulemaking

    20. In the NOPR, the Commission proposed that buyers and sellers of
more than a de minimis volume of natural gas be required to report
aggregate numbers and volumes of relevant transactions in an annual
filing. The Commission proposed a form for this reporting, which was
attached to the NOPR as ``Form [X].''
    21. Under the proposed reporting requirement, certain natural gas
buyers and sellers would have had to identify themselves to the
Commission and report summary information about physical natural gas
transactions for the previous calendar year including: (a) Their total
amount of physical natural gas transactions by number and volume; (b)
the breakdown of their transactions by purchases and sales; (c) the
number and volume breakdown of their purchases and sales by whether
they were conducted in monthly or daily spot markets; and (d) the
number and volume breakdown of their purchases and sales by type of
pricing, in particular whether that pricing was fixed or indexed.
    22. In addition, under the proposal, a natural gas seller would
have been required to state whether it operates under blanket
certificate authority under Sec.  284.402 of the Commission's
regulations, whether it reports transactions to price index publishers
and whether any such reporting complies with the standards provided in
Sec.  284.403(a). Similarly, an interstate pipeline would have been
required to state whether it operates under blanket certificate
authority under Sec.  284.284 of the Commission's regulations, and
whether it reports transactions to price index publishers and whether
any such reporting complies with the standards provided in Sec.
284.288(a).
    23. In response to the NOPR, seventy-four entities filed comments.
Commission Staff held an informal workshop to discuss implementation
and other technical issues associated with the proposals set forth in
the NOPR on July 24, 2007. Following the workshop, twenty-nine entities
filed reply comments.

IV. Comments on the Notice of Proposed Rulemaking

A. Merits of Annual Reporting Requirement

    24. As an initial matter, no commenter asserted that the Commission
lacked jurisdiction to implement the annual reporting proposal or
lacked jurisdiction over market participants required to report, i.e.,
``any buyer or seller that engaged in wholesale physical natural gas
transactions the previous calendar year.'' \28\
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    \28\ New 18 CFR 260.401(b).
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    25. The vast majority of commenters on this issue supported the
annual reporting proposal, although many suggested refinements. For
instance, MidAmerican Energy Company and PacifiCorp (MidAmerican)
supported the reporting proposal and praised FERC's ``sensible
approach,'' which would ``help market participants and state and
federal regulators better understand the natural gas market and pricing
process.'' \29\ Similarly, Wisconsin Electric Power Company and
Wisconsin Gas Company LLC (the Wisconsin Companies) supported the
reporting proposal stating that the ``benefits of such a reporting
regime outweigh the expenditures of resources necessary to implement.''
\30\ The Wisconsin Companies cautioned, however, that ``[a]ny further
frequency or granularity in the reporting requirements * * * would be
unduly burdensome.'' \31\ The Wisconsin Companies proposed changes to
the information reported, suggesting a simple breakdown for transaction
information between monthly or daily spot markets would be insufficient
and suggesting obtaining information about transactions of longer than
a month and intraday transactions.\32\ The Wisconsin Companies reasoned
that these categories of transactions ``make up a substantial amount of
the purchases and sales conducted by the Companies and therefore need
to be included in the reporting.'' \33\
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    \29\ MidAmerican Comments at 1 & 5; see also Statoil Comments at
4-5 (supporting annual reporting requirement).
    \30\ Wisconsin Companies Comments at 4.
    \31\ Id.
    \32\ Id. at 6.
    \33\ Id.
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    26. The Public Service Commission of New York (PSCNY) supported the
annual reporting proposal as a way to ``provide critical information to
analyze the important volumetric relationships between the fixed-price
day-ahead or month-ahead transactions that form price indices.'' \34\
The Producer Coalition \35\ also supported the annual reporting
proposal as a way to create greater market confidence and transparency.
The information obtained from the requirement, according to the
Producers Coalition, would result in greater understanding of the
prices and availability of physical natural gas in interstate commerce
and allow for assessment of the ratio of fixed-price transactions to
index-priced transactions.\36\ AGA supported the annual reporting of
transaction data ``because it could provide valuable information
regarding the size of the physical natural gas markets.'' \37\
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    \34\ PSCNY Comments at 2.
    \35\ The Producer Coalition consists of three independent
producers: Forest Oil Corporation; Hydro Gulf of Mexico LLC; and,
Newfield Exploration Company.
    \36\ Producer Coalition at 3.
    \37\ AGA Comments at 3.
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    27. In opposition to the annual reporting proposal, Morgan Stanley
Capital Group Inc. (MSCG) contended that the Commission did not
establish in the NOPR a clear connection between the required annual
reporting and the statutory goal to achieve price transparency in the
physical gas markets.\38\ For its part, MSCG asserted its confidence in
the markets and contended it did not need the information that would be
provided through the annual reporting requirement proposal.\39\ MSCG
observed that the price indices are already good and are getting better
which renders any annual reporting requirement an unnecessary
burden.\40\ MSCG described the proposal as an ``additional regulatory
intervention to benefit the publishers' commercial enterprise.'' \41\
Also in opposition, DCP Midstream LLC (DCP) objected to the annual
reporting proposal as unnecessary given that there are other sources
available for the information sought in the proposal.\42\
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    \38\ MSCG Comments at 7.
    \39\ Id.
    \40\ Id.
    \41\ Id.
    \42\ DCP Comments at 4-6.
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    28. Platts, a price index publisher, proposed revisions to the
annual reporting proposal. Platts contended that as drafted the annual
reporting proposal could provide misleading information regarding the
universe of fixed-price transactions and create a misleading comparison
of fixed-priced transactions and index-priced transactions.\43\ This
problem arises, according to Platts, because the proposed definition of
fixed-price transactions lumped together two

categories of fixed-price transactions: (a) Fixed-price transactions
that are eligible for inclusion in a published price index
(``indexable'' as described by Platts); and (b) fixed-price
transactions that are not eligible. Without distinguishing these two
categories, the information reported could not be used to determine the
percentage of fixed-price transactions that are reported to price index
publishers.\44\ Platts summarized the problem: ``the proposed reporting
form would sweep up far more physical fixed-price deals than are
eligible for inclusion in Platts's indices. Rather than enabling a
comparison of apples to apples, it would compare apples and fruit
salad.'' \45\
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    \43\ Platts Comments at 4-7.
    \44\ Id. at 5.
    \45\ Id. at 7.
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    29. To avoid this problem, Platts recommended that the Commission
distinguish between ``transactions that are eligible to be included in
[published price] indices and those that are not.'' \46\ In support of
this recommendation, American Public Gas Association (APGA) advocated
changing the survey form to obtain data to determine ``what proportion
of reportable fixed-price transactions are actually being reported'' to
index publishers.\47\ APGA asserted that, when survey data are
collected, FERC should ``be able to determine once and for all whether
the indices, on the basis of which hundreds of millions of dollars of
natural gas are traded, are grounded in fixed-price transactions
representing most of the fixed-price transactions being consummated in
the market.'' \48\
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    \46\ Id. at 4.
    \47\ APGA Reply Comments at 1; see also AGA Reply Comments at 7
(supporting ``capture'' of transactions eligible to be reported to a
price index publisher).
    \48\ APGA Reply Comments at 3.
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    30. Platts, in its comments, also suggested that all companies--not
just blanket certificate holders--notify the Commission annually of
their price reporting status.\49\ Additionally, Platts suggested that
all companies affirm that their price reporting practices comply with
the Policy Statement procedures.\50\
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    \49\ Platts Comments at 8.
    \50\ Id.
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    31. Calpine Corporation (Calpine) contended that the Commission
should avoid collection of information that is available elsewhere. As
an example, Calpine suggested that a market participant that submits
information on its fossil-fuel purchases to the U.S. Department of
Energy's Energy Information Administration (EIA) not be required to
file an annual report at the Commission.\51\
---------------------------------------------------------------------------

    \51\ Calpine Comments at 4.
---------------------------------------------------------------------------

B. De Minimis Threshold

    32. In the NOPR, the Commission proposed to define a de minimis
market participant as a market participant that engages in physical
natural gas transactions that amount by volume to less than 2,200,000
MMBtus annually and to exclude such de minimis market participants from
reporting transaction information.\52\ Several commenters sought to
increase the de minimis threshold.\53\ MSCG supported a higher de
minimis volume based on 200 standard futures contracts per day as a way
to focus only on large sellers.\54\ Northwest Industrial Gas Users
(Northwest Industrials) argued for increasing the annual volume
threshold significantly from the proposed 2,200,000 MMBtus per year to
136,000,000 MMBtu per year.\55\ Independent Oil & Gas Association of
West Virginia proposed a greater de minimis threshold of 10,000,000
MMBtu/year.\56\ A greater de minimis threshold would reduce the burden,
it contended, for some of its small producer-members.\57\ The Wisconsin
Companies called for a greater de minimis threshold because the
threshold set forth in the NOPR uses ``physical volumes consumed [and,
thus], may ignore the reality of daisy chain sales; that is, many
transactions can occur before natural gas ultimately reaches the
consumer.'' \58\
---------------------------------------------------------------------------

    \52\ NOPR at P 52.
    \53\ MSCG Comments at 10; Northwest Industrial Gas Users
Comments at 7-10; Independent Oil & Gas Association of West Virginia
at 3-4.
    \54\ MSCG Comments at 10; see also INGAA Comments at 8
(supporting MSCG's de minimis proposal).
    \55\ Northwest Industrials at 7-10.
    \56\ West Virginia Independents Comments at 3-4.
    \57\ Id.
    \58\ Wisconsin Companies Comments at 5.
---------------------------------------------------------------------------

    33. Some commenters supported the Commission's proposed de minimis
threshold.\59\ The Texas Alliance of Energy Producers (Texas Alliance)
contended that the de minimis threshold for annual transaction
reporting is reasonable.\60\ IPAA advocated setting the de minimis
threshold as a function of the market size rather than setting it as a
fixed number.\61\
---------------------------------------------------------------------------

    \59\ See, e.g., APGA Comments at 10.
    \60\ Texas Alliance Comments at 12.
    \61\ IPAA Comments at 3-4.
---------------------------------------------------------------------------

    34. The Interstate Natural Gas Association of America (INGAA)
sought clarification that a de minimis market participant need only
file basic identification and whether it reports transactions to index
price publishers.\62\
---------------------------------------------------------------------------

    \62\ INGAA Comments at 8.
---------------------------------------------------------------------------

C. Exclusion of Certain Transactions

    35. Commenters sought to exclude certain transactions from the
reporting requirement. INGAA sought to exclude interstate pipeline
transactions associated with cash-out and operations because such
information is already reported by some in Form No. 2 and on electronic
bulletin board (EBB) postings and because such operational transactions
would only distort assessment of the quantity of gas available for
trading in the interstate market.\63\ The Oklahoma Independent
Petroleum Association (Oklahoma IPA) sought to exclude transactions
priced pursuant to a ``percentage of proceeds'' contract under which a
producer is required to sell any gas produced and receive the
percentage of proceeds realized by the buyer.\64\ Oklahoma IPA argued
that sellers of such contracts have no influence on the price for the
sale of gas.\65\ Along those lines, Oklahoma IPA argued that the de
minimis threshold is too low.\66\
---------------------------------------------------------------------------

    \63\ Id. at 9.
    \64\ Oklahoma IPA Comments at 3.
    \65\ Id. at 3; see also Hess Corporation Comments at 4-6.
    \66\ Oklahoma IPA Comments at 3.
---------------------------------------------------------------------------

    36. Shell sought to exclude reporting transactions that are related
to operational functions and transactions between affiliates.\67\ As
transactions related to operational functions, Shell included imbalance
make-up, royalty-in-kind payments, gas provided for processing such as
plant thermal reduction (shrinkage), and purchases and sales related to
the production and gathering function.\68\ Such transactions, Shell
contended, are not part of the wholesale market and their reporting
would not provide a meaningful benefit.\69\ As to affiliate
transactions, Shell noted that the Commission's Policy Statement
excludes transactions between affiliate companies.\70\
---------------------------------------------------------------------------

    \67\ Shell Comments at 8.
    \68\ Id.
    \69\ Id. at 8-9.
    \70\ Id. at 9 (citing Price Discovery in Natural Gas and
Electric Markets, Policy Statement on Natural Gas and Electric Price
Indices, 104 FERC ] 61,121 (2003) (Policy Statement)).
---------------------------------------------------------------------------

    37. MSCG supported the exclusion of financially settled
transactions from the proposed reports, claiming that the Commission
lacks jurisdiction over natural gas futures contracts that are not
settled through physical delivery.\71\ Further, MSCG asserted that the
Commission's memorandum of understanding with the Commodity Futures
Trading Commission could facilitate obtaining such information.\72\
---------------------------------------------------------------------------

    \71\ MSCG Comments at 8.
    \72\ Id.

---------------------------------------------------------------------------

    38. The Natural Gas Supply Association (NGSA) sought clarification
that a market participant did not need to report the following
transactions: (1) liquefied natural gas (LNG) import transactions prior
to regasification; (2) natural gas exports from LNG liquefaction
facilities; (3) transactions related to export for re-import; (4)
transactions among affiliates; (5) sales and purchases in Alaska; and
(6) sales to or purchases by an end-user.\73\
---------------------------------------------------------------------------

    \73\ NGSA Comments at 15.
---------------------------------------------------------------------------

    39. Several commenters sought to exclude retail transactions
involving end-use customers from reporting. In its reply comments, the
American Forest & Paper Association contended that end-use customers
should not be required to report end-use purchases because end-use
purchases do not play a role in setting index prices.\74\ NGSA sought
clarification that the Commission did not intend to require the
reporting of non-wholesale transactions in the annual report.\75\ NGSA
contended that the Commission must limit reporting to wholesale
transactions made in interstate commerce because section 23 of the
Natural Gas Act limits the information the Commission may obtain to
wholesale transactions in interstate commerce.\76\
---------------------------------------------------------------------------

    \74\ AF&PA Comments at 5-7; see also NGSA Comments at 12-14;
Industrial Energy Consumers of America Comments at 3.
    \75\ NGSA Comments at 14.
    \76\ NGSA Comments at 12; see also Honeywell Reply Comments at
2.
---------------------------------------------------------------------------

    40. AGA called for the Commission to exclude reporting of retail
sales or volumes transported for others under retail choice
programs.\77\ The National Energy Marketers Association (NEM) requested
that retail transactions be exempt from any reporting requirement.\78\
---------------------------------------------------------------------------

    \77\ AGA Comments at 3.
    \78\ NEM Comments at 4-7.
---------------------------------------------------------------------------

    41. EnCana Marketing seeks clarification that the reporting
requirement only applies to transactions in the United States.\79\
---------------------------------------------------------------------------

    \79\ EnCana Marketing Comments at 5.
---------------------------------------------------------------------------

D. Mandatory Reporting of Fixed-Price Transactions to Publishers

    42. Some commenters advocated for the Commission to use its
transparency authority to require mandatory reporting of fixed-price
transactions directly to price index publishers or indirectly to them
through the Commission. APGA sees the annual reporting proposal set
forth in the NOPR ``as an important first step in the journey towards
full transparency in the physical market,'' but stated that the
Commission should go further and seek mandatory reporting of fixed-
price transactions.\80\
---------------------------------------------------------------------------

    \80\ APGA Comments at 5-8.
---------------------------------------------------------------------------

    43. In contrast, other commenters objected to any mandatory
reporting of fixed-price transactions.\81\ For instance, concurring
with the Commission's reasoning set forth in the NOPR, the NEM opposed
mandatory reporting, saying that voluntary reporting with a safe harbor
for a good-faith effort is sufficient.\82\
---------------------------------------------------------------------------

    \81\ Platts also supports FERC's ``continued reliance on
voluntary price reporting.'' Platts Comments at 2; see also Electric
Energy Institute (EEI) and the Alliance of Energy Suppliers Reply
Comments at 3; ONEOK Energy Services Co. L.P. Comments at 3.
    \82\ NEM Comments at 2-3.
---------------------------------------------------------------------------

E. Purchases and Sales

    44. Several commenters objected to reporting of information
regarding purchases. Several parties asserted that double-counting
would result from the inclusion of purchases and sales.\83\ EnCana
Marketing (USA) Inc. (EnCana Marketing) called for reporting on only
sales of natural gas and not for purchases.\84\ EnCana Marketing
asserted there is no value in reporting purchases ``other than to
enlarge the universe of market participants obligated to undertake the
new reporting requirement.'' \85\
---------------------------------------------------------------------------

    \83\ See, e.g., Northwest Industrials Reply Comments at 4.
    \84\ EnCana Marketing at 8-9.
    \85\ Id. at 9.
---------------------------------------------------------------------------

    45. MSCG stated that the Commission should require the reporting of
only sales, not purchases, contending that requiring buyers to report
purchases would be overreaching.\86\ The Texas Alliance contended it
would be more efficient to require only the purchaser and/or recipient
of gas from producers to file a report.\87\
---------------------------------------------------------------------------

    \86\ MSCG Comments at 9.
    \87\ Texas Alliance Comments at 12.
---------------------------------------------------------------------------

F. Frequency of Reporting

    46. Several commenters support reporting no more frequently than
annually. EnCana Marketing contended that reporting more frequently
than annually would be burdensome while not providing a significant
benefit.\88\ MSCG contended that any reporting should be annual, unless
a clear connection can be established that more frequent reporting
results in greater transparency.\89\ In contrast, the National
Association of Royalty Owners (NARO) favored monthly transaction
reporting rather than just annual reporting; it stated that monthly as
well as regional reporting would be more useful to royalty owners,
including for the monitoring of price index reliability.\90\
---------------------------------------------------------------------------

    \88\ EnCana Marketing Comments at 10.
    \89\ MSCG Comments at 9.
    \90\ NARO Comments at 4; see also Mewbourne Oil Company Comments
at 5.
---------------------------------------------------------------------------

G. Codification of Price Index Policy

    47. In the NOPR, the Commission sought comment on whether to codify
the price index policy standards into the regulations. The regulations
describe the price index policy standards by reference to the Policy
Statement.\91\ NARO supported codification of the price index policy
standards because the enforcement power of the Commission is necessary
to protect the integrity of the data.\92\ MSCG opposed such
codification.\93\
---------------------------------------------------------------------------

    \91\ Title 18 of the CFR, section 284.403(a) reads, in relevant
part:
    ``To the extent Seller engages in reporting of transactions to
publishers of electricity or natural gas indices, Seller shall
provide accurate and factual information, and not knowingly submit
false or misleading information or omit material information to any
such publisher, by reporting its transactions in a manner consistent
with the procedures set forth in the Policy Statement on Natural Gas
and Electric Price Indices, issued by the Commission in Docket No.
PL03-3-000 and any clarifications thereto.''
    See also 18 CFR 284.288(a) (identical language).
    \92\ NARO Comments at 5; see also MidAmerican Comments at 10.
    \93\ MSCG Comments at 12.
---------------------------------------------------------------------------

H. Aggregation of Data

    48. The Wisconsin Companies call for the discretion to submit
separate reports because ``[a] requirement for [combination utilities]
to submit a single annual report is problematic in that the separation
of these business units currently prevents the sharing of market
information that would be relevant to the reporting requirements.''
\94\
---------------------------------------------------------------------------

    \94\ Wisconsin Companies Comments at 6.
---------------------------------------------------------------------------

    49. The Electric Power Supply Association (EPSA) called for
companies to have the option to file either aggregated data for all its
affiliate companies that buy and sell natural gas or individual reports
for each entity that buys or sells gas.\95\ Similarly, Calpine
Corporation called for the Commission to allow companies to aggregate
data from subsidiaries in order to reduce the burden on industry and to
provide the benefit of eliminating double-counting of intracompany
transactions.\96\
---------------------------------------------------------------------------

    \95\ EPSA Comments at 7-8.
    \96\ Calpine Comments at 4-5.
---------------------------------------------------------------------------

    50. NGSA wanted clarification that the annual transaction report,
with a few exceptions, applies to all nonaffiliated third parties, and
one report can be filed on behalf of all entities in a corporate
family.\97\ NGSA advocated exclusion of sales between affiliates
because such information

would not be meaningful.\98\ NGSA contended that such exclusion is
consistent with the price index reporting standards set forth in the
Policy Statement, which ``prohibit the reporting of sales between
affiliates to price index developers.'' \99\
---------------------------------------------------------------------------

    \97\ NGSA Comments at 15.
    \98\ Id.
    \99\ NGSA Reply Comments at 4.
---------------------------------------------------------------------------

    51. On a similar issue, AGA and Duke Energy Ohio, Inc. sought
clarification on the reporting obligations of asset managers.\100\
---------------------------------------------------------------------------

    \100\ AGA Comments at 3; Duke Energy Ohio, Inc. Comments at 8-9.
---------------------------------------------------------------------------

I. Public Filing

    52. Several commenters supported maintaining as non-public any
aggregated transaction data to be filed.\101\ NGSA contended that ``the
annual aggregated transactional information could cause competitive
harm to the market by potentially revealing corporate proprietary
trading strategies of a company particularly [if it has] geographically
concentrated trading or supply portfolios.'' \102\ Pacific Gas &
Electric (PG&E) contended that data filed by market participants should
be maintained as non-public for one year following the calendar year
for which the data pertain to avoid revealing competitive buying
strategies.\103\ Enbridge contended that each entity should have the
option to file information non-publicly.\104\
---------------------------------------------------------------------------

    \101\ Nicor Gas Company Comments at 6; Statoil Natural Gas LLC
Comments at 5; PG&E Comments at 6; NGSA Reply Comments at 2.
    \102\ NGSA Reply Comments at 2.
    \103\ PG&E Comments at 6.
    \104\ Enbridge Comments at 26.
---------------------------------------------------------------------------

    53. NGSA advocated that any reporting be non-public. NGSA argued
that even ``annual aggregated transactional information could cause
competitive harm to the market by potentially revealing corporate
proprietary trading strategies of a company, particularly for companies
with geographically concentrated trading or supply portfolios.'' \105\
NGSA explained that making public ``the percentage of a company's
portfolio that is index-based or fixed-price-based and the percentage
of natural gas sold in the monthly and daily markets'' would reveal the
company's ``procurement strategy and risk profile,'' thus reducing its
competitiveness in future deals.\106\ To address this concern, NGSA
suggested not publicly disclosing the individual company filings or
``redacting the identity of the market participant making the filing.''
\107\
---------------------------------------------------------------------------

    \105\ NGSA Comments at 2.
    \106\ Id.
    \107\ Id.
---------------------------------------------------------------------------

J. Filing Date

    54. In the NOPR, the Commission proposed an annual filing deadline
of February 15 and asked for comment on whether this deadline would be
unduly burdensome.\108\ MSCG and Statoil called for a deadline of April
30.\109\ AGA recommended a filing date of May 1.\110\ NGSA recommended
a filing date of either May 1 or April 18, which is the filing deadline
of FERC Form No. 2.\111\
---------------------------------------------------------------------------

    \108\ NOPR at P 68.
    \109\ MSCG Comments at 9; Statoil Comments at 6-7.
    \110\ AGA Comments at 4.
    \111\ NGSA Comments at 15-16.
---------------------------------------------------------------------------

K. Safe Harbor

    55. Several commenters requested that the Commission adopt a safe
harbor for good faith compliance with the reporting obligation.\112\
The Commission should state, according to AGA, that it will not
``prosecute, penalize or otherwise impose remedies on parties for
inadvertent errors in * * * reporting.'' \113\
---------------------------------------------------------------------------

    \112\ AGA Comments at 6-7; NGSA Comments at 16-17; PG&E Comments
at 6; Suez Energy North America, Inc. Comments at 10-12.
    \113\ AGA Comments at 7.
---------------------------------------------------------------------------

L. Information Collection Burden

    56. NEM and Sequent Energy Management, L.P. (Sequent) stated that
the Commission significantly underestimated in the NOPR the cost burden
imposed by the annual reporting proposal.\114\ NEM stated an estimate
that it would take approximately 200 hours annually to comply with the
reporting requirement.\115\ NEM explained that because market
participants' data is not currently stored in a format that could be
used to fill out the proposed form, market participants would need to
develop ancillary information technology systems to store such data at
significant cost.\116\ NEM also stated that although the proposal would
require annual reporting, data collection would be needed daily, which
would be costly.\117\ Sequent pointed out that the Commission estimate
overlooks the costs of legal and regulatory compliance for each annual
report.\118\ Sequent also stated that the cost burden estimate ignores
asset management arrangements because an annual reporting requirement
would trigger renegotiation of those asset management contracts.\119\
---------------------------------------------------------------------------

    \114\ NEM Comments at 7; Sequent Comments at 6-7.
    \115\ NEM Comments at 8.
    \116\ NEM Comments at 7.
    \117\ NEM Comments at 8.
    \118\ Sequent Comments at 7.
    \119\ Sequent Comments at 7.
---------------------------------------------------------------------------

V. Commission Determination

    57. On the basis of the comments, the Commission has determined to
adopt in large part the proposed annual reporting of certain natural
gas transaction information, but to modify its proposal in several
ways. Specifically, the Commission adopts rules here to require certain
market participants to report annually information about their
wholesale, physical natural gas transactions delivered in the previous
calendar year in the United States of America on a form, Form No.
552.\120\ For purposes of the annual reporting requirement, a market
participant is defined as ``any buyer or seller that engaged in
wholesale, physical natural gas transactions in the previous calendar
year.'' \121\ Specifically, on Form No. 552, a market participant must
provide the Commission with contact information and answer questions
about whether it sells pursuant to a blanket sales certificate and
whether it reports to price index publishers. A market participant that
sold or purchased more than a specified de minimis volume of natural
gas during the previous calendar year, regardless of whether it holds a
blanket sales certificate, must also provide the following information:
---------------------------------------------------------------------------

    \120\ As we stated in the NOPR, although the standard contract
for the most significant natural gas futures market traded on the
New York Mercantile Exchange (NYMEX) requires physical delivery, the
vast majority of those transactions do not go to delivery. For the
purposes of the reporting requirement, the Commission excludes
volumes of futures transactions from reporting.
    \121\ New 18 CFR 284.401(b).
---------------------------------------------------------------------------

    a. The total volume of transactions for the previous calendar year;
    b. The volume of transactions that were priced at fixed prices for
next-day delivery and were reportable to price index publishers;
    c. The volume of transactions priced by reference to next-day gas
price indices;
    d. The volume of transactions that were priced at fixed prices for
next-month delivery and were reportable to price index publishers; and,
    e. The volume of transactions priced by reference to next-month gas
price indices.
    58. The final rule will also require a market participant to report
whether it operated under a blanket sales certificate under the
Commission's regulations, Sec.  284.402 or Sec.  284.284. This
information will allow the Commission to measure overall market
activity of the entities subject to its jurisdiction under the Natural
Gas Act as well as allow the Commission to maintain records of such
entities. The final rule will require a market participant to indicate
whether it

reports transactions to any price index publishers, and, if so, whether
their reporting conforms to the standards set forth in Sec.  248.403 or
Sec.  248.288, as applicable. This information will allow the
Commission to ensure the accuracy of price indices and to monitor
adherence to the Commission's transaction reporting standards.
    59. The final rule retains several of the specific proposals
presented in the NOPR: the de minimis threshold is to remain the same;
all filings are to be made public; both purchases and sales are to be
reported; and the filing will be annual.
    60. The final rule makes several changes to the proposal in the
NOPR. They include the following:
    a. Reporting will be limited to buyers and sellers only of
wholesale natural gas delivered in the United States, i.e., it excludes
sales to end-users.
    b. All wholesale buyers and sellers of natural gas operating under
a blanket sales certificate and all others buying or selling more than
the de minimis volume must provide contact information, indicate
whether they are operating under a blanket sales certificate, and
whether they report prices to an index publisher. In the NOPR, the
Commission did not propose asking wholesale buyers and sellers that are
not operating under a blanket sales certificate whether they report
prices to index publishers.
    c. A company with multiple affiliates may choose to report
separately or in aggregate, as best meets its needs. In the NOPR, we
assumed that reporting would be by affiliate or subsidiary.
    d. The questions on the form now request data relating to
transactions with expected deliveries in the reporting year, rather
than transaction dates.
    e. The form no longer requests the number of transactions.
    f. The definitions of fixed-price transactions in the form have
been changed to tie more directly to those volumes that could be
reported to index providers. To clarify those terms, the Commission
will establish a web site defining reportable locations previous to
each reporting year, and providing links to active index publishers and
their reporting definitions.
    61. The final rule includes further instructions regarding certain
specific categories of reportable and non-reportable transactions. The
final rule also discusses some general issues raised by commenters
including safe harbor provisions, mandatory reporting of fixed-price
transactions to price index publishers, and possible effects of the
rule on price index publishers.
    62. By obtaining the volume of transactions conducted for each
significant market participant, the Commission, market participants and
others will be able to determine the overall level of activity of
market participants in the physical natural gas market. In particular,
the information will provide regularly an estimate of (a) the size of
the physical U.S. domestic natural gas market, (b) the use of index
pricing in that market, (c) the size of the fixed-price trading market
that produces price indices, and (d) the relative sizes of major
traders.
    63. This information will improve the understanding of index
pricing by interested entities, including the market participants and
state commissions who use them. The volume break-down of transactions
by price type, fixed-price or index-price, should permit an overall
assessment of the ratio of index-using transactions to price-forming
transactions, i.e., fixed-price transactions. At present, we do not
know how much fixed-price transactions are a part of the universe of
natural gas transactions, although they may be the minority of natural
gas transactions.\122\ The Commission has taken several steps to
restore confidence in natural gas index prices and their formation. By
obtaining information regarding the extent that market participants
make fixed-price transactions, market participants will be able to
evaluate their confidence in the index prices that are formed by those
fixed-price transactions.
---------------------------------------------------------------------------

    \122\ Tr. at 32 (Comments of Ms. Jane Lewis-Raymond, American
Gas Association) (surmising that we currently cannot know the amount
of fixed-price transactions and the amount of fixed-price trades
that make up an index).
---------------------------------------------------------------------------

    64. By collecting sales and purchases information, results may also
be cross-checked to ensure that information is accurate. In effect,
total sales should roughly equal total purchases, with some allowance
for de minimis buyers and sellers.

A. Definitions

    65. Definitions used in this final rule for development of Form No.
552 include the following:
    a. Affiliate--An affiliate means a person who controls, is
controlled by or is under common control with, another person.\123\
---------------------------------------------------------------------------

    \123\ A market participant has the option of including an
affiliate's information in its reporting on Form No. 552. This is a
matter of convenience for companies subject to the final rule. Their
affiliations are irrelevant to whether they are required to report
under the final rule. If they satisfy the criteria of a reporting
market participant, they must report. Therefore, the Commission
intends to allow market participants to determine whether their
relationships permit one company to report on behalf of another
company. Accordingly, the definitions of ``affiliate'' used
elsewhere in the Commission's regulations, e.g., in Part 358, are
not germane.
---------------------------------------------------------------------------

    b. Fixed Price--A ``Physical Natural Gas'' price determined by
agreement between buyer and seller and not benchmarked to any other
source of information. For example, Physical Basis transactions that
refer directly to futures prices, for the purpose of this form, are not
``Fixed Price'' transactions.
    c. Next-Day Delivery--Delivery of a transaction executed prior to
NAESB nomination deadline (11:30 am Central Prevailing Time) on one day
for uniform physical delivery over the next pipeline day. Transactions
done for Friday are usually for flow on Saturday, Sunday, and Monday
inclusive. Trading patterns may vary in the case of holidays or the end
of a month that occurs on a weekend. Commission Staff will maintain
links to price index publishers' descriptions of their processes for
receiving price information and publishing indices on the ferc.gov Web
site at http://www.ferc.gov/docs-filing/eforms.asp#552.

    d. Next-Month Delivery--Delivery of a transaction executed during
the last five (5) business days of one month for uniform physical
delivery over the next month.
    e. Physical Natural Gas--Natural gas transactions that contain an
obligation to deliver natural gas at a specified location and at a
specified time, with the exception of physically-delivered futures
contracts. It is not necessary that natural gas actually be delivered
under the transactions, only that the delivery obligation existed in
the agreement when executed. Certain Physical Natural Gas transactions
may not remain in existence through the time of delivery because they
were traded away or ``booked out.'' For purposes of this form, these
transactions should be included whether they went to delivery or not.
The only exception, notwithstanding its delivery obligation, is futures
contracts traded on the New York Mercantile Exchange which should not
be reported in this form.
    f. Price Index Publisher--Companies that report price indices for
U.S. wholesale natural gas markets. The list of companies can change
over time. Commission Staff will maintain a list of relevant ``Price
Index Publishers'' with links to their descriptions of their processes
for receiving price information and publishing indices on the ferc.gov
Web site at http://www.ferc.gov/docs-filing/eforms.asp#552.

    g. Prices that Refer to (Daily or Monthly) Price Indices--Prices
for ``Wholesale Natural Gas Purchases'' or ``Sales'' that reference
directly a daily or monthly index price published by a ``Price Index
Publisher'' rather than a ``Fixed Price'' or a price that refers
directly to some other benchmark.
    h. Quantity--Amount of purchases or sales expressed in units of
energy ``British Thermal Units'' (Btu). One million BTUs (MMBtu) are,
by definition, the same as one Dekatherm (Dth). A volume of one billion
cubic feet (Bcf) of natural gas contains approximately one trillion
Btus (TBtu or million MMBtu) of energy depending on the exact energy
content of the natural gas. The quantities to be reported in the
``Purchase and Sales Information'' schedule should be measured in
TBtus.
    i. Reportable Locations--Those locations (hubs, pipelines, regions,
etc.) where ``Price Index Publishers'' collect ``Fixed Price''
information for transactions with ``Next-Day'' or ``Next-Month
Delivery'' obligations, and produce index prices. These locations may
change over time. Commission Staff will maintain a list of current
``Reportable Locations'' with links to ``Price Index Publishers''
descriptions of their processes for receiving price information and
publishing indices on the ferc.gov Web site at http://www.ferc.gov/docs-filing/eforms.asp#552
.

    j. Reporting Company--The person, corporation, licensee, agency,
authority, or other legal entity or instrumentality on whose behalf the
report is being submitted by the ``Respondent.''
    k. Respondent--The person, corporation, licensee, agency,
authority, or other legal entity or instrumentality that is submitting
the report either on its own behalf, or on behalf of itself and/or its
affiliates. A Respondent may choose to either report for all its
affiliates collectively, or may choose to have each of its affiliates
report separately as their own ``Respondent.'' If reporting
collectively, the reporting ``Respondent'' must report for each
``Affiliate'' in the ``Schedule of Reporting Companies'' and the
``Price Index Reporting Schedule,'' and collectively for all its
affiliates in the ``Purchase and Sales Information'' schedule.
    l. Wholesale Natural Gas Purchases--The ``Quantity'' of ``Physical
Natural Gas'' purchased by the ``Reporting Company'' during the ``Year
of Report,'' with the exception of certain futures contracts.
    m. Wholesale Natural Gas Sales--The ``Quantity'' of ``Physical
Natural Gas'' sold by the ``Reporting Company'' during the ``Year of
Report'' to customers that do not use all the natural gas they buy
themselves under contracts with physical delivery obligations, with the
exception of physically-delivered futures contracts.

B. Facilitating Price Transparency

    66. The annual reporting requirement will make the price formation
process more transparent and aid the Commission's efforts to monitor
price indices and the integrity of wholesale natural gas markets. These
efforts follow the directive of Congress in the transparency provisions
to facilitate price transparency ``having due regard for the public
interest, the integrity of [the physical natural gas] markets, [and]
fair competition.'' \124\ By monitoring and reporting on price indices
and their influence over wholesale natural gas pricing in the United
States, the Commission ensures that market participants can have
confidence in the oversight of published price indices, a basic
building block of price formation. We reiterate that, without
confidence in the basic processes of price formation, market
participants cannot have faith in the value of their transactions, the
public cannot believe that the prices they see are fair, and it is more
difficult for the Commission to ensure that jurisdictional prices are
``just and reasonable.'' \125\
---------------------------------------------------------------------------

    \124\ Section 23(a)(1) of the Natural Gas Act, 15 U.S.C. 717t-
2(a)(1) (2000 & Supp. V 2005).
    \125\ See sections 4 and 5 of the Natural Gas Act, 15 U.S.C.
717c & 717d.
---------------------------------------------------------------------------

    67. The information gained from the annual reporting requirement
will make the price formation process more transparent by providing a
better understanding of the size of the physical natural gas market,
the use of fixed and indexed prices in that market, and the formation
of price indices. The information collected under this requirement is
focused specifically on daily and monthly physical spot or ``cash''
market activity and the contracting based on the prices developed in
those markets. The requirement will not create additional information
concerning other types of wholesale natural gas contracting practices
in the United States, such as long-term, fixed-price transactions,
swaps and other financially-settled transactions and futures. Better
understanding of the role and functioning of wholesale natural gas spot
markets can increase confidence that posted market prices of natural
gas accurately reflect the interplay of legitimate market forces.
    68. In promulgating these regulations to improve the transparency
of the natural gas markets, the Commission exercises its authority
under the transparency provisions. Under the Natural Gas Act,\126\ the
Commission has long borne a responsibility to protect wholesale
electric and natural gas customers.\127\ The transparency provisions of
EPAct 2005 added new authority for protecting the integrity of the
markets themselves as a way of protecting customers in an active market
environment.\128\ As discussed above, Congress's grant of transparency
authority followed the Commission's earlier efforts at monitoring the
price formation process.\129\ Congress recognized that the Commission
might need expanded authority to mandate additional reporting to
improve market confidence through greater price transparency and
included in EPAct 2005 authority for the Commission to obtain
information on the availability and prices of sales of wholesale
natural gas.
---------------------------------------------------------------------------

    \126\ 15 U.S.C. 717 et seq.
    \127\ See sections 4 and 5 of the Natural Gas Act, 15 U.S.C.
717c, 717d; sections 205 and 206 of the Federal Power Act, 16 U.S.C.
824d, 824e.
    \128\ See section 23(a)(1) of the Natural Gas Act, 15 U.S.C.
717t-2(a)(1) (2000 & Supp. V 2005).
    \129\ See, supra, at P 11.
---------------------------------------------------------------------------

    69. Pursuant to this grant of authority, the final rule continues
the Commission's efforts to monitor price index formation and to
increase transparency of the price formation process, and, thus,
protect the integrity of the physical natural gas markets. The final
rule increases transparency by allowing, for the first time, the
Commission and other market observers to determine an annual estimate
of (a) the size of the physical domestic natural gas market, (b) the
use of index pricing in that market, (c) the size of the fixed-price
trading market that produces price indices from the subset reported to
index publishers, and (d) the relative size of major traders.
    70. The information to be reported in the annual reporting
requirement falls well within the Commission's transparency authority.
In section 23 of the Natural Gas Act, Congress provided the Commission
a broad grant of authority to obtain and disseminate ``information
about the availability and prices of natural gas sold at wholesale and
in interstate commerce.'' \130\ Information about the volume of
wholesale, physical gas transactions and about the type of pricing used
for those transactions is ``information about the availability and
prices of natural gas

sold at wholesale and in interstate commerce.'' \131\
---------------------------------------------------------------------------

    \130\ Section 23(a)(1) of the Natural Gas Act; 15 U.S.C. 717t-
2(a)(1) (2000 & Supp. V 2005).
    \131\ Id.
---------------------------------------------------------------------------

    71. The information sought in the final rule is not obtainable
elsewhere. Section 23(a)(4) of the Natural Gas Act requires the
Commission to ``consider the degree of price transparency provided by
existing price publishers and providers of trade processing services *
* *.'' \132\ As we stated in the NOPR, because of the way transactions
currently take place in the natural gas industry, there is no way to
estimate in even the grossest terms the overall size of the natural gas
market or its breakdown by types of contract provision, including
pricing (fixed prices or prices using or referring to price indices)
and term (e.g., spot transactions for next-day or next-month delivery
or forward transactions for longer-term delivery).\133\ Further,
currently there is no way to determine important volumetric
relationships between the fixed-price, day-ahead or month-ahead
transactions that form price indices or to determine the use of price
indices themselves.
---------------------------------------------------------------------------

    \132\ Section 23(a)(4) of the Natural Gas Act; 15 U.S.C. 717t-
2(a)(4) (2000 & Supp. V 2005).
    \133\ NOPR at 50 (``As noted by the price index developer
Platt's, the question of what is the total size of the traded market
has `hung over the gas market for years.' '') (citing Comments of
Platts at 6, Transparency Provisions of the Energy Policy Act,
Docket No. AD06-11-000 (filed Nov. 1, 2006)).
---------------------------------------------------------------------------

    72. In comments on the NOPR, no commenter pointed to a source for
similar information. DCP contended that ``the information that is
available through the price index publishers is the same information
that is being requested [in the annual reporting proposal] and it is
the actual data that makes up the index prices that represent the price
of natural gas on any given day at any given location.'' \134\ The
information to be reported on Form No. 552 is not the same. The
information to be reported will include information regarding
transactions that could be (i.e., are qualified to be) but are not
reported to price index publishers, therefore, such information is not
available from price index publishers. The amount of market activity
that could form price indices as opposed to the amount that actually
does form price indices is an important fact that has been missing in
the discussion of the Commission's market price policies, leading to
confusion and undermining confidence in indices.
---------------------------------------------------------------------------

    \134\ DCP Comments at 5.
---------------------------------------------------------------------------

    73. Further, the Commission's goal is not only to understand the
transactions used to formulate price indices; it is to understand how
influential price indices are in the overall transacting of natural gas
in U.S. wholesale markets. The information to be reported on Form No.
552 will allow market participants to evaluate their use of indexed
transactions. Typically, market participants rely on index-priced
transactions as a way to reference market prices without taking on the
risks of active trading. These market participants rely on index
prices, often whether or not those prices are derived from a robust
market of fixed-price transactions. Such information is not available
elsewhere.
    74. Also, the annual reporting requirements will allow the
Commission, market participants and the public to estimate the amount
of activity of significant wholesale traders relative to the overall
market. Information on significant traders' activity allows the
Commission and the public to understand the impact of the largest
traders on the price formation process, improving natural gas market
transparency.
    75. The Commission directs Staff to monitor the information
received in the filings of Form No. 552, to determine whether the
information received meets the goals set forth in this preamble.
Although in future years the Commission Staff may change the reportable
locations and may change the format of Form No. 552 in order to make
the form easier to complete and to make the information submitted
easier to analyze, the substance of Form No. 552 will remain the same
absent Commission action.

C. Reporting Requirements Retained From the Notice of Proposed
Rulemaking

    76. The final rule retains several of the features of the annual
reporting proposal presented in the NOPR: (1) The de minimis threshold
remains the same; (2) all filings are to be made publicly; (3) both
purchases and sales are to be reported; and (4) the form is to be
submitted annually.
1. De Minimis Threshold
    77. In the final rule, the Commission retains the volumetric de
minimis threshold proposed in the NOPR and clarifies its
application.\135\ A market participant is required to report its
transactions annually if it engages either in wholesale sales that
amount to 2,200,000 MMBtus or more or wholesale purchases that amount
to 2,200,000 MMBtus or more. Each market participant operating under a
blanket certificate under Sec.  284.284 or Sec.  284.402 must file a
Form No. 552. However, if a market participant operating under a
blanket certificate under Sec.  284.284 or Sec.  284.402 buys or sells
less than the de minimis volumes in the reporting year, it is not
required to provide information about the volumes of its transactions.
A market participant that does not operate under a blanket certificate
under Sec.  284.284 or Sec.  284.402, and that buys or sells less than
the de minimis volumes in the reporting year, is not required to file a
Form No. 552. The creation here of a de minimis threshold is consistent
with the transparency provisions. Notwithstanding Congress's broadening
of the scope of the Commission's jurisdiction in new section 23 of the
Natural Gas Act with respect to transparency, Congress mandated that
the Commission exempt ``natural gas producers, processors or users who
have a de minimis market presence [from compliance] with the reporting
requirements of this section.'' \136\
---------------------------------------------------------------------------

    \135\ New 18 CFR 284.401(a) (defining de minimis market
participant). The regulations define a market participant as ``any
buyer or seller that engaged in physical natural gas transactions
for the previous calendar year.'' New 18 CFR 284.401(b).
    \136\ Section 23(d)(2) of the Natural Gas Act, 15 U.S.C. 717t-2
(2000 & Supp. V 2005).
---------------------------------------------------------------------------

    78. In proposing in the NOPR a de minimis threshold for reporting
which would apply to market participants, the Commission sought to
require reporting from a sufficient number of significant market
participants to ensure, in the aggregate, an accurate picture of the
physical natural gas market as a whole. To this end, the Commission
proposed in the NOPR to define such a de minimis market participant as
a market participant that engages in physical natural gas transactions
that amount by volume to less than 2,200,000 MMBtus annually.\137\ This
figure was based on the simple calculation of one-ten thousandth (1/
10,000th) of the annual physical volumes consumed in the United States,
which is approximately 22 trillion cubic feet (Tcf) (or roughly 22
billion MMBtus).\138\ Looked at another way, a de minimis market
participant would trade the equivalent of less than one standard NYMEX
futures contract per day. Although a market participant that contracts
for 1/10,000th of the nation's annual physical volume may appear to
have little effect on natural gas prices, that participant may be
transacting only at one location and, thus, have a much greater pricing
effect there. In the NOPR, we indicated that we do not expect annual
physical

volumes consumed in the United States to remain constant, however the
figure of 22 Tcf was a useful snapshot of consumption and a useful
starting-point for setting the de minimis exemption.
---------------------------------------------------------------------------

    \137\ New 18 CFR 260.401.
    \138\ U.S. Department of Energy, Energy Information
Administration, Natural Gas Summary, Data Series: Total Consumption,
2006, http://tonto.eia.doe.gov/dnav/ng/ng_sum_lsum_dcu_nus_a.htm
.

---------------------------------------------------------------------------

    79. As requested by INGAA, the Commission clarifies that each
market participant that (a) either holds a blanket certificate under
Sec.  284.284 or Sec.  284.402, or (b) buys or sells more than the de
minimis volumes in the reporting year must report: identification
information; whether it holds a blanket certificate under Sec.  284.284
or Sec.  284.402; whether it reports transactions to price index
publishers, and, if so, whether its reporting conforms to the
applicable regulations. A market participant that holds a blanket
certificate under Sec.  284.284 or Sec.  284.402 but that buys or sells
less than the de minimis volumes in the reporting year must complete
the form except it need not report its volumes.
    80. Several commenters, including MSCG,\139\ Northwest Industrial
Gas Users,\140\ and the Independent Oil & Gas Association of West
Virginia,\141\ proposed greater de minimis thresholds. Other
commenters, including the Texas Alliance,\142\ supported the proposed
threshold. No commenter suggested a lesser threshold. The proposed
threshold is small enough to allow the Commission to accurately
determine the size of the physical natural gas market, while at the
same time, large enough to exclude market participants, who in the
aggregate, do not contribute significantly to that market.
---------------------------------------------------------------------------

    \139\ MSCG Comments at 10.
    \140\ Northwest Industrial Gas Users Comments at 7-10.
    \141\ Independent Oil & Gas Association of West Virginia
Comments at 3-4.
    \142\ Texas Alliance Comments at 12.
---------------------------------------------------------------------------

    81. The spot wholesale natural gas markets that create index
prices--those markets that involve fixed-price trading for next-day or
next-month delivery at reportable locations and that are actually
reported to price index publishers--make up only a tiny part of the
overall wholesale natural market in the United States. This is true
whether one compares those particular trading volumes to total U.S.
consumption or whether, as Wisconsin Companies points out in their
comments \143\ (in support of a higher de minimis threshold) an
appropriate total trading volume would also include those transactions
that take place between the production and consumption of natural gas.
When the spot wholesale natural gas markets that create index prices
are then broken down among many varied geographical locations, even
very small market participants can be very important in narrow regional
contexts. It is conceivable that these small, local wholesale market
participants do not actually contribute to price formation in this type
of trading, but the Commission and other market observers are in no
position to know at this time. If these small, local wholesale market
participants do contribute to this type of price formation--which would
be a healthy thing for these markets--such contribution would not be
detectable if the de minimis threshold were set too high.
---------------------------------------------------------------------------

    \143\ Wisconsin Companies Comments at 5.
---------------------------------------------------------------------------

2. Public Filing
    82. A market participant must submit Form No. 552, in a public
filing. Some commenters objected to filing the form publicly because,
in their view, public filing of the annual report could reveal
confidential trading strategies.\144\ The Commission finds these
commenters' concerns are misplaced and ignore Congress's directive in
the transparency provisions. Public access to Form No. 552 data would
comport with the transparency provisions which require that any such
rules ``provide for the dissemination, on a timely basis, of
information * * * to the public.'' \145\ The transparency provisions
further direct the Commission to ``rely on [existing price publishers
and providers of trade processing services] to the maximum extent
possible.'' \146\ By requiring public filings by market participants,
the Commission would provide an opportunity for trade publications and
commercial vendors to aggregate the information filed and provide any
analysis should a desire for such services arise in the energy
information marketplace.
---------------------------------------------------------------------------

    \144\ See, e.g., PG&E Comments at 6. 0
    \145\ Section 23(a)(2) of the Natural Gas Act, 15 U.S.C. 717t-2
(2000 & Supp. V 2005).
    \146\ Section 23(a)(4) of the Natural Gas Act, 15 U.S.C. 717t-
2(a)(4) (2000 & Supp. V 2005).
---------------------------------------------------------------------------

    83. Under the transparency provisions, the Commission is required
to balance confidentiality concerns with the transparency goal that the
information collected be disseminated publicly. The annual filing
requirement balances these two statutory requirements. By requiring a
company to file its report publicly, the requirement adheres to
Congress's directive that ``[t]he rules shall provide for the
dissemination, on a timely basis, of information about the availability
and prices of natural gas at wholesale and in interstate commerce to
the Commission, State commissions, buyers and sellers of wholesale
natural gas, and the public.'' \147\ Because the filing requires
aggregated information and does not require reporting of price
information or of transaction-specific information, the annual
reporting requirement adheres to Congress's other directive ``to ensure
that consumers and competitive markets are protected from the adverse
effects of potential collusion or other anticompetitive behaviors that
can be facilitated by untimely public disclosure of transaction-
specific information.'' \148\ The annual reporting requirement avoids
facilitating anti-competitive behavior in several ways: (i) Reported
information would not include specific price information; (ii) reported
information would be aggregated information over a period of one year
and not transaction-specific information; (iii) reported information
would be made on an aggregated, national level, and not by point or
even region; and (iv) information would not be reported until four
months after the end of the reporting year.
---------------------------------------------------------------------------

    \147\ Section 23(a)(2) of the Natural Gas Act, 15 U.S.C. 717t-
2(a)(2) (2000 & Supp. V 2005).
    \148\ Section 23(b)(2) of the Natural Gas Act, 15 U.S.C. 717t-
2(b)(2) (2000 & Supp. V 2005).
---------------------------------------------------------------------------

    84. This approach is consistent with the opinion of the U.S.
Department of Justice, which observed that the Commission ``may be able
to achieve the benefits of transparency while limiting its potential
harm by aggregating, masking, and lagging the release of such
information.'' \149\ The Commission determines that ``masking'' or
permitting filings on a confidential basis is unnecessary to avoid
potential harm. The aggregation of the information and lagging of
public filing is sufficient to avoid such harm.\150\ Any potential harm
from the public filing of Form No. 552 would be minimal given the
aggregation of data, both aggregation across the nation and aggregation
across the calendar year, and given the lagging of the public filing of
information until May 1 of the year following the reporting year. In
circumstances in which any potential harm is minimal, it

is not the Commission's practice to permit confidential filings.\151\
In addition, smaller market participants whose operations are limited
to a smaller region of the country are likely to transact less than the
de minimis amount required to report their transaction information.
Further, without public filings by market participants, market
observers would not be able to estimate the relative size of major
traders.
---------------------------------------------------------------------------

    \149\ Comments of the U.S. Department of Justice, Antitrust
Division, Transparency Provisions of the Energy Policy Act, Docket
No. AD06-11-000 (filed Jan. 25, 2007). The Department of Justice's
comments focused on the electricity markets, although it did note
that the same general considerations that applied to electricity
markets also applied to natural gas markets.
    \150\ This is consistent with our approach regarding the
individual transaction data reported on Electric Quarterly Reports.
For that much more detailed reporting of individual transactions,
the Commission found that a delay of 30 days for reporting
individual transaction data in EQR filings would greatly reduce the
usefulness of the data as a tool for collusion. Revised Public
Utility Filing Requirements, Order No. 2001, 67 FR 31043 (May 8,
2002), FERC Stats. & Regs. ] 31,127 (2002) at P 17.
    \151\ This is consistent with our approach regarding the
individual transaction data reported on Electric Quarterly Reports.
For that much more detailed reporting of individual transactions,
the Commission found that a delay of 30 days for reporting
individual transaction data in EQR filings would greatly reduce the
usefulness of the data as a tool for collusion. Revised Public
Utility Filing Requirements, Order No. 2001, 67 FR 31043 (May 8,
2002), FERC Stats. & Regs. ] 31,127 (2002) at P 17.
---------------------------------------------------------------------------

3. Purchases and Sales
    85. Several commenters, including EnCana Marketing,\152\ MSCG,\153\
and the Texas Alliance,\154\ objected to the inclusion of purchases as
well as sales in the reporting requirement. While the Commission
appreciates these commenters' concerns, it believes that volume
information on purchases as well as sales is necessary for developing a
complete and accurate picture of the size of the natural gas spot
market. For example, it will permit the Commission Staff to cross-check
information. Also, as discussed above, spot prices are formed in only a
very tiny fraction of all wholesale U.S. natural gas transactions,
which are then broken down among many varied geographical locations.
Verifying the amount of such trading becomes far more difficult. At the
level of de minimis volume set forth herein, this type of cross-
verification becomes more important than it would otherwise. In this
regard, Staff's experience implementing the Electronic Quarterly
Reports suggests that purchase transactions are quite important in
developing a comprehensive picture of trading activity.
---------------------------------------------------------------------------

    \152\ EnCana Marketing Comments at 8-9.
    \153\ MSCG Comments at 9.
    \154\ Texas Alliance Comments at 12.
---------------------------------------------------------------------------

    86. Although the language of the natural gas transparency
provisions address sales of natural gas, it does not limit the
Commission from seeking information about natural gas purchases as well
as sales. They are simply different sides of the same transaction.
Congress directed the Commission to ``facilitate price transparency in
markets for the sale * * * of physical natural gas in interstate
commerce,'' but that language does not limit the Commission to seeking
information regarding only sales.\155\ Purchases of physical natural
gas are also a part of such markets; there is no market for the sale of
natural gas that does not include purchases. Nor does the natural gas
transparency provision language that provides for the ``dissemination *
* * of information about the availability and prices of natural gas
sold at wholesale and interstate commerce'' restrict the
Commission.\156\ As a practical matter, information regarding purchases
of natural gas is necessary to evaluate the reliability of information
regarding sales of natural gas. Both types of information are necessary
to obtain a useful gauge of price transparency in natural gas markets.
---------------------------------------------------------------------------

    \155\ Section 23(a)(1) of the Natural Gas Act, 15 U.S.C. 717t-
2(a)(1) (2000 & Supp. V 2005).
    \156\ Section 23(a)(2) of the Natural Gas Act, 15 U.S.C. 717t-
2(a)(2) (2000 & Supp. V 2005) (emphasis added).
---------------------------------------------------------------------------

    87. MSCG expressed a further concern about double-counting if
purchases and sales are included.\157\ Form No. 552 requires that
purchases clearly be reported separately from sales. Given the clear
identification of sales as opposed to purchases in the form, the
Commission remains confident that its Staff and other users of this
information will be capable of not mixing these separate sets of
numbers in their analyses.
---------------------------------------------------------------------------

    \157\ MSCG Comments at 9.
---------------------------------------------------------------------------

4. Annual Reporting
    88. The Commission retains from the NOPR the requirement that Form
No. 552 be submitted annually. Commenters provided a variety of
perspectives on the frequency of filing, but none supported less
frequently than annually. NARO favored monthly, regional
reporting.\158\ EnCana Marketing and MSCG commented that more frequent
reporting would not provide a significant benefit.\159\ Annual,
national information alone will significantly improve both the
Commission's and others' understanding of index pricing. Annual
reporting should provide a useful amount of information to assess the
volume break-down of transactions by price type, fixed-priced or index-
priced, and the ratio of index-using transactions to price-forming
transactions, i.e., fixed-priced transactions. A more granular
breakdown, which would result from more frequent reporting or from
regional reporting, would be more likely to reveal the strategies of
particular market participants, raising the concerns Congress in the
transparency provisions cautioned the Commission to avoid, that is,
``the adverse effects of potential collusion or other anticompetitive
behaviors that can be facilitated by untimely public disclosure of
transaction-specific information.'' \160\
---------------------------------------------------------------------------

    \158\ NARO Comments at 4; see also Mewbourne Oil Company
Comments at 5.
    \159\ EnCana Marketing Comments at 10 and MSCG Comments at 9.
    \160\ Section 23(b)(2) of the Natural Gas Act, 15 U.S.C. 717t-
2(b)(2) (2000 & Supp. V 2005).
---------------------------------------------------------------------------

D. Reporting Requirements Changed From the Notice of Proposed
Rulemaking

    89. In the final rule, the Commission changes several features of
the reporting requirement proposal presented in the NOPR: (1) Retail
(end-use) transactions are excluded; (2) basic contact information must
be reported; (3) a market participant must indicate whether it reports
transactions to price index publishers; (4) a market participant may
report in the aggregate for its affiliates; (5) volumes are to be
reported based on delivery date, not execution date; (6) a market
participant must report volume information but not the number of
transactions; (7) volumes of transactions must be broken down by
whether they are reportable to price index publishers; and (8) the
filing deadline is changed to May 1 of each year.
1. Exclusion of Retail Transactions
    90. Several commenters objected to the inclusion of purchases in
the form because end-use customers would be required to file annual
reports.\161\ Although some transactions reported to indices may
include purchases by large end-users, the Commission is generally
interested in wholesale prices. On balance, restricting reporting only
to clearly wholesale transactions should provide a reasonable set of
data for assessing wholesale price activity, without burdening retail
or end-use customers. Consequently, the Commission does not require
end-use customers or retail buyers to report transaction information
unless they also make wholesale sales or purchases of natural gas
greater than the de minimis threshold. Likewise, a transaction made to
an end-user is not to be included in the volumes reported on the form.
Of course, if the end-use customer holds a blanket marketing
certificate under Sec.  284.402, it must report on Form No. 552 that it
holds such certificate and whether it reports to price index
publishers.
---------------------------------------------------------------------------

    \161\ See, e.g., AF&PA Comments at 5-7; NGSA Comments at 12-14;
Industrial Energy Consumers of America Comments at 3.

---------------------------------------------------------------------------

2. Basic Contact Information and Use of Blanket Sales Certificates
    91. Each market participant, including a de minimis market
participant, must provide contact information and indicate on Form No.
552 whether or not it operates under blanket certificate authority
under Sec.  284.402 or Sec.  284.284 of the Commission's regulations.
This information from a market participant will provide the Commission
with basic information regarding participants in wholesale natural gas
markets necessary to monitor their behavior systematically as well as a
measure of the number of holders of Natural Gas Act blanket sales
certificates and contact information for those blanket sales
certificate holders. This combination of information will permit some
break down of market information between jurisdictional and non-
jurisdictional components, which is in turn useful for effective
oversight and monitoring for market manipulation.\162\
---------------------------------------------------------------------------

    \162\ The Commission has the authority to police against
manipulation of natural gas markets in connection with
jurisdictional transactions. Prohibition of Energy Market
Manipulation, Order No. 670, 71 FR 4244 (Jan. 26, 2006), FERC Stats.
& Regs. ] 31,202 (2006), at P 4, 21-24.
---------------------------------------------------------------------------

3. Status of Reporting to Price Index Publishers
    92. Each market participant must state on Form No. 552 whether it
reports transactions to price index publishers. If so, it must also
state whether its reporting complies with the standards for reporting
provided in Sec.  284.403(a) or Sec.  284.288(a), which in turn
incorporate the reporting procedures of the Policy Statement on Natural
Gas and Electric Price Indices.\163\ Prior to this final rule, a
blanket sales certificate holder did not need to report whether it
reports transactions to a price index publisher; it needed only report
whether it changes that reporting status.\164\ To simplify the
reporting, instead of a letter notification only upon a change in
company policy, under this final rule, a market participant, including
a blanket sales certificate holder, must notify the Commission annually
of its price index reporting practices.\165\ The Commission amends
Sec.  284.288(a) and Sec.  284.403(a) in this final rule accordingly.
---------------------------------------------------------------------------

    \163\ Policy Statement on Natural Gas and Electric Price
Indices, 104 FERC ] 61,121 (2003).
    \164\ See former 18 CFR 284.403(a) (blanket marketing
certificate holder); former 18 CFR 284.288(a) (unbundled sales
certificate holder). In Order No. 644, the Commission required each
holder of a blanket sales certificate to notify the Commission
whether it engages in reporting of its transactions to publishers of
electricity or natural gas price indices according to the standards
set out in the Commission's Policy Statement on Price Indices.
Amendments to Blanket Sales Certificates, Order No. 644, 68 FR 66323
(Nov. 26, 2003), FERC Stats & Regs. ] 31,153 (2003), at P 70-72
(amending 18 CFR 284.403(a) and 18 CFR 284.288(a)), reh'g denied,
107 FERC ] 61,174 (2004).
    \165\ However, a seller of electricity under market-based rates
will continue to be obligated to notify the Commission of its
reporting status upon a change in status. See 18 CFR 35.37(c).
---------------------------------------------------------------------------

    93. The Commission also requires a holder of blanket sales
certificate to notify the Commission annually about its reporting of
transaction information to price index publishers and whether any such
reporting conforms to the Policy Statement. After the Policy
Statement's notification requirement took effect, we observed that
blanket marketing certificate holders may have overlooked this
requirement and we provided the opportunity for blanket marketing
certificate holders to notify the Commission by August 1, 2005 of their
reporting status.\166\ Based on Commission Staff's experience
monitoring price indices and adherence to the Policy Statement, as
discussed in the introduction, the Commission believes that
notification on an annual basis would make the information more
reliable. As a further benefit, a filing company would have the
opportunity to review their practices in coordination with their
response to the data collection proposal described above.
---------------------------------------------------------------------------

    \166\ Order on Further Clarification of Policy Statement at P
21.
---------------------------------------------------------------------------

    94. In the NOPR, the Commission sought comment on whether the
procedures set forth in the Policy Statement for reporting to price
index publishers should be codified.\167\ Of those who commented on
this provision, some supported codification; some opposed
codification.\168\ The Commission will not codify these procedures. The
Commission believes that the regulations read in conjunction with the
Policy Statement are sufficiently clear to price index publishers and
those who report to price index publishers. In this regard, for
example, this year, Commission Staff concluded audits of three natural
gas market participants with blanket certificate authority that were
data providers subject to Sec.  284.403 of the Commission's
regulations.\169\ Commission Staff found that these three companies
generally complied with the standards in the Policy Statement and found
the regulations sufficiently clear to perform the audits and ensure
compliance with the regulations.
---------------------------------------------------------------------------

    \167\ NOPR at P 70.
    \168\ MidAmerican supported codification as a way to add clarity
to the regulations. MidAmerican Comments at 10; see also NARO
Comments at 5. MSCG opposed codification. MSCG Comments at 12; see
also ONEOK Energy Service Co. Comments at 5.
    \169\ See April 5, 2007 letter issued to Anadarko Energy
Services Co. in Docket No. PA06-11-000 by Director, Office of
Enforcement and attached Audit of Price Index Reporting Compliance;
April 5, 2007 letter issued to BG Energy Merchants, LLC. in Docket
No. PA06-12-000 by Director, Office of Enforcement and attached
Audit of Price Index Reporting Compliance; April 5, 2007 letter
issued to Marathon Oil Co. in Docket No. PA06-13-000 by Director,
Office of Enforcement, and attached Audit of Price Index Reporting
Compliance.
---------------------------------------------------------------------------

    95. In the final rule, in contrast to the proposal in the NOPR, a
market participant with sales or purchases greater than or at the de
minimis level must state whether it reports its transactions to a price
index publisher regardless of whether it operates under a blanket sales
certificate. Platts, in its comments, suggested that all companies--not
just blanket certificate holders--notify the Commission annually of
their price reporting status.\170\ In fact, the processes used in the
formation of wholesale natural gas prices by market participants have
no regard for whether or not those participants operate under blanket
certificates. In order to clearly assess the effectiveness of the index
formation process, the Commission needs to collect the information
about reporting to price index publishers from each market participant
including market participants that section 1 of the Natural Gas Act
\171\ excludes from the Commission's certificate authority under
section 7 of the Natural Gas Act.\172\
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    \170\ Platts Comments at 8.
    \171\ 15 U.S.C. 717.
    \172\ 15 U.S.C. 717f.
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    96. However, only a company operating pursuant to a blanket sales
certificate must state on Form No. 552 whether its reporting to price
index publishers conforms to the Commission's Policy Statement. Platts
suggested that all companies affirm that their price reporting
practices comply with the Policy Statement procedures.\173\ But, the
Policy Statement standards apply only to holders of blanket sales
certificates. A market participant that does not hold blanket sales
certificates is not required to comply with the Policy Statement
processes, nor does it receive the safe harbor available in the Policy
Statement. Consequently, there is no value to the Commission in
collecting and publicizing the compliance of companies with policies
that do not apply to them.
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    \173\ Id.
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4. Aggregated Reporting
    97. In reporting transactions on Form No. 552, a market participant
may, but is not required to, aggregate information from its affiliates.
One commenter,

Wisconsin Companies, underscored its difficulties in providing an
aggregated report.\174\ Others, including EPSA, Calpine and NGSA,
sought the ability to file an aggregate report.\175\ Given the comments
both for and against aggregation and the ease with which Staff can
process the information in either form, the Commission provides the
option to reporting companies. A company must indicate on Form No. 552
the affiliates for which it is reporting. If an affiliate or subsidiary
holds a blanket certificate pursuant to Sec.  284.284 or Sec.  284.402,
each affiliate must report separately that it has such a certificate.
Similarly, if an affiliate reports transactions to price index
publishers, it must report so separately.
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    \174\ Wisconsin Companies at 6.
    \175\ EPSA Comments at 7-8; Calpine Comments at 4-5; NGSA
Comments at 15.
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    98. By contrast, asset managers may not report aggregated
information for their customers in Form No. 552. Several commenters
sought clarification on the reporting obligations of asset
managers.\176\ It is unlikely that transactions between asset managers
and their clients would be used to create price indices, although such
transactions may use price indices. Given the variety and diversity of
services available from asset managers, and the interest of the
Commission in tracking the amount of wholesale natural gas activity
that both creates and relies on spot price indices, information about
the use of price indices would be lost if such aggregation were
permitted.
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    \176\ AGA Comments at 3; Duke Energy Ohio, Inc. at 8-9.
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5. Reportable Volumes Based on Contracted Delivery
    99. Unlike in the NOPR, Form No. 552 now requires reporting based
on date of contracted delivery and not date of execution. Although
there were no comments on this issue, in Staff's experience, for many
market participants, this approach may also simplify collection of data
by permitting use of more direct accounting information. The
Commission's goal in obtaining data is to evaluate the creation and use
of price information in the market, specifically the creation and use
of spot price indices. Because wholesale natural gas price indices are
based on fixed-priced trading for next-day or next-month delivery,
delivery dates for the transactions of particular interest will not
differ by more than a month from execution date. Consequently,
reporting transactions by delivery date gives a sufficiently accurate
picture of the use of price indices and how well price indices reflect
fixed-priced transactions. Even though not pointed out in comments, the
trade-off of some information lost for what is likely to be much
simpler gathering of information by respondents is a reasonable one.
6. Eliminate Reporting Numbers of Transactions
    100. In another change from the NOPR, Form No. 552 does not require
market participants to report the number of their transactions.
Although this part of the proposal did not prompt comments, this change
streamlines the form and reduces the burden of reporting without
significantly reducing the value of the information. Volume information
is more relevant for monitoring the amount of market activity used in
creating price indices and using those indices. On reflection, the
number of transactions is not needed to obtain greater transparency of
the price formation process, consequently Form No. 552 does not include
it.
7. Conform Reporting Definitions to Those Used by Price Index
Publishers
    101. In several other respects, the reported information requested
on the final Form No. 552 differs from the information on the form
proposed in the NOPR. In response to the comments of Platts \177\ as
supported by APGA \178\ and AGA,\179\ Form No. 552 distinguishes more
directly those fixed-priced transactions that are reportable to price
index publishers from those that are not. Platts' expressed concern
that information collected from the proposed form would not effectively
show the ratio of market activity that forms index prices to the market
activity eligible to form index prices.\180\ As proposed in the NOPR,
all next-month and next-day fixed price transactions would have been
reported, instead of only those transactions that were actually
eligible for inclusion in price indices. The changes in the final Form
No. 552 should allow the Commission, market participants and the public
to assess in a more focused way the amount of fixed price transactions
that contribute to the formation of price indices. In effect, the
change allows a more precise calculation of the proportion of those
transactions that could be reported to price publishers to those that
are reported to them.
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    \177\ Platts Comments at 4, 5 & 7.
    \178\ APGA Reply Comments at 1 & 3.
    \179\ AGA Reply Comments at 7.
    \180\ Platts Comments at 4-7.
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    102. To implement this change, a market participant must categorize
certain volumes by whether the transaction was made at a ``reportable
location'' regardless of whether the transaction was actually reported
to a price index publisher. As stated on Form No. 552, a ``reportable
location'' transaction is ``a location (hubs, pipelines, regions, etc.)
where `Price Index Publishers' collect `Fixed Price' information for
transactions with `Next-Day' or `Next-Month Delivery' obligations, and
produce index prices.'' As these locations may change over time,
Commission Staff will maintain a list of current ``Reportable
Locations'' for each price index publisher on the Commission Web site
at http://www.ferc.gov/docs-filing/eforms.asp#552. This information

will allow a market participant to determine whether a transaction
should be classified on Form No. 552 as a reportable transaction, i.e.,
one made at a reportable location. Commission Staff will list the price
index publishers and the index price points no later than December 20
of the year previous to the report year. The first annual report will
be due in 2009 for transactions delivered in 2008.
    103. Although generally supportive of making a distinction based on
whether a transaction is reportable, APGA raised the concern that a
market participant that does not report transactions to price index
publishers will not easily understand which transactions are
reportable.\181\ To address this concern, Form No. 552 provides more
information regarding these distinctions than the form proposed in the
NOPR. In particular, Form No. 552 asks for transactions with particular
price and term characteristics (i.e., fixed-priced transactions for
next-day or next-month delivery) at reportable locations. To provide a
common understanding of reportable locations, the Commission Staff will
maintain a list of current ``Reportable Locations'' with links to
``Price Index Publishers'' descriptions of their processes for
receiving price information and publishing indices on the ferc.gov Web
site at http://www.ferc.gov/docs-filing/eforms.asp#552.

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    \181\ APGA Reply Comments at 2.
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    104. In addition, the Commission believes that appropriately
reporting those transactions needed to establish wholesale natural gas
market prices represents a significant public good. The Commission
believes that a market participant, should consider reporting in a
responsible way, and to do so must become aware of which of its
transactions are reportable. The burden imposed on market participants
to

understand and distinguish its reportable from its non-reportable
transactions is easily balanced by the benefits of improving public
knowledge of how much market activity, though reportable, is not
reported. The benefits accrue to the Commission and all market
participants, who will be able to evaluate the usefulness of the price
indices better.
8. Filing Date
    105. Unlike in the NOPR, Form No. 552 will have a filing deadline
of May 1 in the year after the reporting year. In this regard, the
Commission agrees with the commenters who sought more time for filing
than permitted by the February 15 deadline proposed in the NOPR.\182\
Because the data used for the form would come from the accounting and
other official records of the market participants reporting, the
response to Form No. 552 must be coordinated with a variety of other
regular annual financial and regulatory reports. May 1 was the latest
filing date recommended in comments. Given the aggregate nature of the
data, a time lag of four months from the reporting year should keep the
information timely while providing market participants the time needed
to coordinate a new regulatory filing with other obligations.
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    \182\ MSCG Comments at 9-10; Statoil Comments at 6-7; AGA
Comments at 4; NGSA Comments at 15-16.
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E. Clarification of Other Reporting Issues

    106. Several commenters requested clarification as to reportable
volumes. The Commission will address these in turn, first those that
must be reported and then those that do not need to be reported.
1. Reportable Volumes
    107. Interstate pipelines must report sale and purchase volumes
related to cash-outs, imbalance makeups and operations. INGAA advocated
that transactions associated with cash-out and operations be excluded
from Form No. 552 because similar information is available from Form
No. 2 and from pipeline electronic bulletin boards (EBBs), and the
volumes used are not available for trading.\183\ Similarly, Shell
indicated that imbalance makeup volumes should be excluded.\184\ The
Commission finds these commenters' views unpersuasive. The partial
availability of information on Form No. 2 submissions and through EBBs
does not provide a complete view of that information in an assessment
of wholesale natural gas market activity. In addition, while it is true
that volumes of sales and purchases related to pipeline cash-out and
operations are unlikely to be used to create price indices, such sales
and purchases do use price indices as a way of transferring value among
market participants. Consequently, the information is useful in
assessing how spot prices are being used commercially in the nation.
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    \183\ INGAA Comments at 9.
    \184\ Shell Comments at 8.
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    108. Market participants must include on Form No. 552 sale and
purchase volumes attributable to royalty-in-kind transactions, gas
provided for processing such as plant thermal reduction, and purchases
and sales related to the production and gathering function. Shell
advocated excluding these transactions from reporting.\185\ While these
transactions may not affect the formation of price indices in wholesale
markets, these transactions often make use of price indices. Again, to
the extent that transfers of value take place based on price indices,
it is important that the Commission and other market observers be able
to understand the extent of that transfer and its dependency on price
indices as well.
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    \185\ Shell Comments at 8.
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    109. NGSA further sought clarification regarding transactions
related to export for re-import.\186\ The sale of these volumes,
assuming they could be identified, has an effect on overall wholesale
markets and could, potentially, either help create or make use of price
indices, consequently they should be reported. If such transactions
take place among affiliates, they should be excluded (as explained
below).
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    \186\ Id.
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2. Non-Reportable Volumes
    110. The instructions to Form No. 552 now explicitly exclude
volumes due to transactions among affiliates. Several commenters
emphasized the importance of excluding volumes transacted among
affiliates.\187\ A transaction between affiliates is not part of the
price formation process in wholesale natural gas markets.
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    \187\ See, e.g., Shell Comments at 8; NGSA Comments at 15.
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    111. Market participants may not include any type of financially-
settled transaction on Form No. 552. However, transactions with
physical delivery obligations must be reported--whether those
transactions actually continued through delivery or not. When the
physical transaction was executed, it may have either contributed to or
used spot market price information regardless of its later disposition.
In other words, sales or purchase obligations that were ``booked out''
must be included. The Commission intends ``physical natural gas
transaction'' to mean a sale or purchase of natural gas with an
obligation to deliver or receive physically, even if the natural gas is
not physically transferred due to some offsetting or countervailing
trade. Thus, even if the transaction does not go to physical delivery,
it would still be included as a physical transaction.
    112. In response to NGSA,\188\ the Commission clarifies that a
market participant should not include volumes of imported LNG traded
prior to regasification. LNG traded prior to regasification is not
wholesale natural gas, though it is a source of natural gas through
regasification itself. NGSA further sought clarification regarding
natural gas exports from LNG liquefaction facilities.\189\ LNG traded
after liquefaction is also not wholesale natural gas, consequently a
market participant must exclude such volumes.
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    \188\ NGSA Comments at 15.
    \189\ Id.
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    113. Unlike in the NOPR, Form No. 552 no longer requests
information on NYMEX contracts that go to physical delivery because the
purpose of the form is to focus on fixed-priced spot transactions and
how they are used. Further, information attributable to such contracts
is available from NYMEX. Consequently, to reduce the burden on market
participants, this instruction has been removed and a market
participant may not include volume information related to physically-
settled future contracts.

F. Other Issues Raised by Commenters

1. Safe Harbor Policy
    114. Many commenters requested a ``safe harbor'' for
reporting.\190\ The Commission set forth a ``safe harbor policy''
provision in the Policy Statement for voluntary reporting to price
index publishers.\191\ As requested by commenters, the Commission