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FERC, CFTC, and State Energy Law Developments

The Federal Energy Regulatory Commission (FERC) proposed revisions to its Policy Statement on Natural Gas and Electric Price Indices (Policy Statement) on December 17 to encourage market participants to report transactions to price index developers and to provide greater transparency into the natural gas price formation process. It also issued a Notice of Proposed Rulemaking (NOPR) proposing to amend three sections of its regulations to codify the Safe Harbor Policy set forth in its Policy Statement.

Proposed Revisions to the Policy Statement

Noting the significant decline in price reporting over the last decade, FERC proposed several revisions to the Policy Statement to reduce the reporting burden and encourage more parties to report prices to natural gas price index developers. FERC stated that an increase in reporting would contribute to the robustness of the price indices and lead to more accurate and reliable index prices referenced in jurisdictional tariffs. FERC proposed revisions that are intended to reflect changes in how natural gas price index developers form natural gas price indices and to increase the transparency of the natural gas price formation process. These revisions include:

  • Allowing market participants who report transaction data to price index developers (“data providers”) to report either their non-index based next-day natural gas transactions, their non-index based next-month natural gas transactions, or both, to price index developers, rather than requiring data providers to provide both its next-day and next-month transactions
  • Encouraging data providers to report to as many FERC-approved price index developers as possible
  • Allowing data providers to self-audit on a biennial basis, instead of an annual basis
  • Requiring price index developers to indicate when they engage in market assessments to determine the price indices, rather than calculating price indices based on weighted averages of reported trades
  • Requiring price index developers to seek re-approval from FERC every seven years by demonstrating that they continue to meet the five standards set forth in the Policy Statement that demonstrate that their internal processes are sufficient to become FERC-approved price index developers, and thus have their price indices referenced in jurisdictional tariffs
  • Clarifying the review period for assessing the liquidity of price indices referenced in FERC-jurisdictional tariffs

These proposed revisions apply only to natural gas price indices and natural gas price index developers. FERC stated that its staff will explore the need for and the scope of any potential policy updates for the electric industry.

NOPR to Codify Safe Harbor Policy

Under the Safe Harbor Policy, data providers that report transactions to natural gas and electric price index developers consistent with the procedures set forth in the Policy Statement are afforded a rebuttable presumption that their transaction data is accurate, timely, and submitted in good faith. FERC proposed to incorporate the Safe Harbor Policy into 18 C.F.R. Sections 35.41(c), 284.288(a), and 284.403(a) to encourage voluntary reporting to promote more robust, liquid, and transparent indices. The revisions are also intended to provide certainty that inadvertent errors in reporting will not constitute violations of FERC’s regulations requiring accurate reporting and will not result in civil penalties.