FERC rule to increase interstate gas price transparency

Nick Snow
Washington Editor

WASHINGTON, DC, Nov. 25 -- The US Federal Energy Regulatory Commission issued on Nov. 20 a final rule that would make interstate natural gas prices more transparent. The rule requires the posting of market information about underlying supply and demand fundamentals.

FERC also issued a notice of inquiry seeking comments on whether certain intrastate pipelines should be required to post details of transactions with individual shippers in a manner comparable to interstate pipelines' reporting requirements.

"As interstate and intrastate pipelines operate seamlessly, often within the same markets, the posting requirements have become necessary because interstate postings alone cannot determine market fundamentals," said FERC Chairman Joseph T. Kelliher.

He said the final rule was rooted in the new authority FERC received under the 2005 Energy Policy Act (EPACT). "Significantly, the transparency authority was discretionary: We were authorized to act to improve transparency of wholesale natural gas markets, but not required to act. We were careful in our use of this new transparency authority, soliciting the views of market participants on what types of information would improve market transparency," he said.

FERC also carefully weighed the burdens of transparency requirements on market participants, according to Kelliher. The final pipeline posting rule reflects this, since types of information that pipelines must disclose have been adjusted, and the rule's regulatory burden has been greatly reduced, he said.

Second use of authority
The final rule is FERC's second exercise of its transparency authority with respect to wholesale gas markets, Kelliher said. The agency issued a final rule in December 2007 that was designed to improve price transparency of wholesale natural gas sales, he indicated. EPACT gave the agency similar discretionary price transparency authority over wholesale power markets, which it has not yet exercised, he said.

"It is important to recognize that our transparency authority allows FERC to collect information from a much broader universe than our traditional regulated community. We are authorized to collect information from market participants, rather than the more narrow classes of 'natural gas companies' and 'public utilities.' The final rule explains our interpretation of the statutory provisions in this area," Kelliher said.

In a separate comment, Commissioner Philip D. Moeller said the new final rule should allow FERC and other market observers to better understand supply and demand fundamentals and provide remedies for potentially manipulative activity.

The rule also will make Texas, Louisiana, Oklahoma, Southern California, and other important gas markets more transparent, and will allow market participants to better understand developing markets, such as the Barnett shale in the Fort Worth area. Many of those new markets are served by both interstate and intrastate pipelines, he noted.

What the rule does
The final rule, RM08-2-000, establishes new posting requirements under Section 23 of the Natural Gas Act. It requires interstate and certain "major" noninterstate pipelines to post daily operational information, such as scheduled volumes and design capacity for certain receipt and delivery points, on their publicly accessible websites, according to FERC.

It identified a major noninterstate pipeline as one not classified as a natural gas company under the Gas Act but delivers on average more than 50 bcf/year of gas over a 3-year period. Such pipelines currently are subject to transparency regulations under Section 23 of the Gas Act, which asserts FERC jurisdiction over any market participant for the purposes of making markets more transparent, the federal energy regulatory agency said.

It said the rule also would require noninterstate pipelines to post daily specified flow information at each receipt or delivery point having a design capacity of 15 MMcfd or more. Noninterstate pipelines that are located entirely upstream of either a processing or treatment plant, deliver more than 95% of their gas directly to retail end-users as measured by average delivers over the previous 3 years, or provide storage would be exempt.

The new rule also will require interstate gas pipelines to post information regarding the provision of no-notice service, as provided by FERC regulations, the agency said. Interstate pipelines will have 60 days following the final rule's publication in the Federal Register to comply with the rule, while major noninterstate pipelines will have 150 days. This will let them make necessary adjustments without affecting service during the current heating season, FERC said.

It said the notice of inquiry would explore whether changes are needed to regulations requiring daily postings of regulations by pipelines operating under Section 311 of the Natural Gas Policy Act, and by Hinshaw pipelines, which generally are intrastate systems that provide interstate services.

Contact Nick Snow at nicks@pennwell.com.

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