Safe Harbor Policy for Data Providers to Price Index Developers, 12132-12135 [2020-28386]
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Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Proposed Rules
Issued in Washington, DC, on February 22,
2021.
George Gonzalez,
Acting Manager, Rules and Regulations
Group.
[FR Doc. 2021–03931 Filed 3–1–21; 8:45 am]
BILLING CODE 4910–13–P
Table of Contents
Paragraph Numbers
I. Background—3.
II. Discussion—9.
III. Environmental Analysis—13.
IV. Regulatory Flexibility Act Certification—
14.
V. Comment Procedures—18.
VI. Document Availability—22.
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Parts 35 and 284
[Docket No. RM20–7–000]
Safe Harbor Policy for Data Providers
to Price Index Developers
Federal Energy Regulatory
Commission.
ACTION: Notice of proposed rulemaking.
AGENCY:
The Commission proposes to
amend its regulations to codify the Safe
Harbor Policy established in the
Commission’s Policy Statement on
Natural Gas and Electric Price Indices.
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. The proposed change does
not modify the existing policy and is
intended to promote voluntary reporting
of wholesale natural gas and electricity
transactions to price index developers
by alleviating market participant
concerns that the Safe Harbor Policy is
not binding on the Commission.
DATES: Comments are due June 1, 2021.
ADDRESSES: Comments, identified by
Docket No. RM20–7–000, may be filed
electronically at https://www.ferc.gov in
acceptable native applications and
print-to-PDF, but not in scanned or
picture format. For those unable to file
electronically, comments may be filed
by mail to: Federal Energy Regulatory
Commission, Secretary of the
Commission, 888 First Street NE,
Washington, DC 20426. Hand-delivered
comments must be delivered to: Federal
Energy Regulatory Commission, 12225
Wilkins Avenue, Rockville, Maryland
20852. The Comment Procedures
Section of this document contains more
detailed filing procedures.
FOR FURTHER INFORMATION CONTACT:
Maxwell K. Multer (technical issues),
Office of Enforcement, Federal Energy
Regulatory Commission, 888 First
Street NE, Washington, DC 20426
(202) 502–6756
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SUMMARY:
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Evan B. Oxhorn (legal issues), Office of
the General Counsel, Federal Energy
Regulatory Commission, 888 First
Street NE, Washington, DC 20426
(202) 502–8183
SUPPLEMENTARY INFORMATION:
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1. Under the Commission’s
regulations, a data provider (a market
participant that reports transaction data
to price index developers) must submit
accurate and factual information to
price index developers, and not
knowingly submit false or misleading
information or omit material
information.1 Pursuant to the
Commission’s Safe Harbor Policy,
which is currently set forth in the
Commission’s Policy Statement on
Natural Gas and Electric Price Indices,2
if the data provider can demonstrate
that it has adopted and followed the
standards for reporting set forth in the
Commission’s Policy Statement, it will
benefit from a rebuttable presumption
that it has submitted its transactions
accurately, timely, and in good faith.
The Commission proposes to codify its
Safe Harbor Policy in its regulations.
The proposed change does not modify
the existing policy and, together with
the proposed Revised Policy Statement
that the Commission is issuing
concurrently, is intended to promote
voluntary reporting of wholesale natural
gas and electricity transactions to price
index developers.3
2. To codify the Safe Harbor Policy,
we specifically propose to amend 18
CFR 35.41(c), 284.288(a), and 284.403(a)
of the Commission’s regulations by
adding language to indicate: (1) That
there will be a rebuttable presumption
of accuracy, timeliness, and good faith
for data providers who submit
transactions to price index developers
in a manner consistent with the Policy
1 This requirement is set forth in three
regulations, 18 CFR 35.41(c), 284.288(a), and
284.403(a). Each sets forth the requirement in
identical language.
2 Policy Statement on Natural Gas and Electric
Price Indices, 104 FERC ¶ 61,121, at P 37 (Initial
Policy Statement), clarified, 105 FERC ¶ 61,282
(2003) (2003 Clarification Order), further clarified,
112 FERC ¶ 61,040 (2005) (2005 Clarification Order)
(collectively, Policy Statement).
3 See Actions Regarding the Commission’s Policy
on Price Index Formation and Transparency, and
Indices Referenced in Natural Gas and Electric
Tariffs, 173 FERC ¶ 61,237 (2020).
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Statement; and (2) that inadvertent
reporting errors by such data providers
will not constitute violations of those
regulations.
I. Background
3. Natural gas indices play a vital role
in the energy industry, as they are used
to price billions of dollars of natural gas
and electricity transactions annually in
both the physical and financial markets.
A natural gas index is a weighted
average price derived from a set of
fixed-price 4 natural gas transactions
within distinct geographical boundaries
that market participants voluntarily
report to a price index developer.5
4. Natural gas indices serve as a proxy
for the locational cost of natural gas in
the daily and monthly markets, as many
market participants reference index
prices in their physical and financial
transactions. Interstate natural gas
pipelines, Independent System
Operators (ISOs), and Regional
Transmission Organizations (RTOs)
reference natural gas indices in their
FERC-jurisdictional tariffs for various
terms and conditions of service. State
commissions also use natural gas
indices as benchmarks when reviewing
the prudence of natural gas or electricity
purchases. Finally, many natural gas
financial derivative contracts used in
hedging and speculation settle against
the natural gas price indices.
5. Given that natural gas price index
developers use physical fixed-price
natural gas transactions to calculate the
price of published natural gas indices, it
is important that the market for these
transactions be robust, liquid, and
transparent. The Commission’s
investigation into the 2000–2001
Western Energy Crisis revealed
problems in how published natural gas
price indices were generated that
‘‘facilitate[ed], rather than
discourage[d], manipulation and
collusion.’’ 6 Recognizing the need to
restore confidence in natural gas price
4 The term fixed-price refers to a negotiated
natural gas contract for next-day or next-month
delivery, and physical basis transactions for nextmonth delivery. These transaction types are defined
in the FERC Form No. 552: Annual Report of
Natural Gas Transactions (FERC Form No. 552). The
FERC Form No. 552 requires market participants
that annually buy or sell more than 2.2 trillion
British Thermal Units (Btu) of physical natural gas
to provide aggregated data related to their fixedprice, physical basis, Nymex plus and index-based
transactions made in the next-day and next-month
(bidweek) markets.
5 S&P Global Platts (Platts), Natural Gas
Intelligence (NGI), Argus, and Natural Gas Week are
examples of price index developers.
6 Initial Report on Company-Specific Separate
Proceedings and Generic Reevaluations; Published
Natural Gas Price Data; and Enron Trading
Strategies, Docket No. PA02–2–000, at 38 (Aug. 13,
2002).
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indices, the Commission began an
exhaustive analysis of these and related
issues in the form of multiple staff white
papers, two technical conferences, and
a follow up staff workshop.
6. At the conclusion of these efforts,
the Commission issued its Policy
Statement to explain what the
Commission expects of natural gas and
electric price indices and under what
conditions the Commission will give
industry participants safe harbor
protection for good faith reporting of
transaction data to entities that develop
price indices.7 In particular, the
Commission [created] a rebuttable
presumption that companies and
individuals that report trade data to
price index developers in accordance
with the standards adopted here are
doing so in good faith, and will not be
investigated or subjected to
administrative penalties for inadvertent
mistakes made in the course of reporting
energy transaction information.8 Thus,
the Commission adopted the Safe
Harbor Policy for the explicit purpose of
encourag[ing] more industry
participants to contribute to the
formation of price indices.9 Consistent
with the Policy Statement, the
Commission has not investigated or
imposed penalties on any companies for
inadvertent reporting errors.
7. After the Policy Statement was
issued, the natural gas volumes market
participants reported to price index
developers increased, which resulted in
greater confidence in those indices.
However, after 2010, the estimated
traded volume of fixed-price natural gas
transactions reported to price index
developers began to decline
significantly.10 FERC Form No. 552 data
show that the estimated volume of
fixed-price transactions voluntarily
reported to price index developers
declined by approximately 54% from
2010 until 2019.11 At the same time that
fixed-price reporting to price index
developers decreased, the traded
volume of natural gas transactions that
referenced natural gas indices, known as
index gas, increased. For example, FERC
Form No. 552 data showed that index
gas increased from 69% of the traded
volumes in the U.S. physical natural gas
market in 2010 to 82% in 2019. Figure
1 shows the estimated physical natural
gas volumes reported to index
developers based on FERC Form No.
552 data.
8. Commission staff held a technical
conference on June 29, 2017, which
addressed index liquidity and
transparency issues and potential
actions the Commission could consider
taking in order to increase both the
volume of transactions reported to
natural gas price index developers and
the transparency of the physical natural
gas price formation process.12 In post
technical conference comments, a
number of commenters suggested that
placing the Safe Harbor Policy into the
Commission’s regulations would help to
provide regulatory certainty which in
turn would lead to an increase in the
number of data providers that would
report their transactions to price index
developers.13
9. The Commission proposes to revise
three sections of its regulations, 18 CFR
35.41(c), 284.288(a), and 284.403(a).
Although each of the three sections
applies to different jurisdictional
entities, they set forth almost identical
requirements. Section 35.41(c) applies
to persons with or seeking authorization
to engage in sales for resale of electric
energy, capacity or ancillary services at
market-based rates under section 205 of
the Federal Power Act. Section
284.288(a) applies to interstate pipelines
that offer transportation service under
subparts B or G of part 284. Section
11 The Commission must estimate the volumes
reported to price index developers on the FERC
Form No. 552 because FERC Form No. 552 filers
can provide aggregated data for themselves and
their affiliates, some of whom may or may not
report to index developers. Staff estimates this
volume by calculating the average of the minimum
volume reported (i.e., the total volume from filers
with affiliates that all indicate that they report to
price index developers) and the maximum possible
volume reported (i.e., the total volume from filers
with at least one affiliate that indicates that it
reports to price index developers).
12 Docket No. AD17–12–000. A staff-led technical
conference addressing similar issues was held in
2003 in Docket No. AD03–7–000.
13 AGA, Comments, Docket No. AD17–12–000, at
7 (filed July 31, 2017); Tenaska Comments, Docket
No. AD17–12–000, at 5 (filed July 31, 2017).
7 Initial
Policy Statement, 104 FERC 61,121 at P
5.
8 Id.
9 Id.
10 Two index developers now include fixed-price
transactions from the InterContinental Exchange
(ICE) to increase the liquidity of their indices. Staff
analysis of the estimated volumes reported to index
developers does not include that supplemental
information from ICE.
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II. Discussion
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284.403(a) applies to sales for resale by
persons that are not interstate pipelines.
Each section currently requires that data
providers reporting transactions to price
index developers provide accurate,
factual information, and not knowingly
submit false or misleading information
or omit material information.
Reporting must be performed
consistent with the procedures set forth
in the Policy Statement.14 The
regulations do not incorporate the Safe
Harbor Policy.
10. Currently, the Safe Harbor Policy
is set forth in the Policy Statement,
which advises the public about how the
Commission intends to exercise its
discretionary authority. The Policy
Statement, however, is non-binding.15
Although the Commission has never
pursued enforcement action against a
market participant for inadvertent errors
in reporting transactions to price index
developers, concerns nonetheless
remain among market participants that
this potential exists.16
11. To alleviate these concerns and
encourage voluntary reporting in order
to promote more robust, liquid, and
transparent indices, we propose to add
identical language to 18 CFR 35.41(c),
284.288(a), and 284.403(a) to
incorporate the Safe Harbor Policy into
the regulatory text. This proposed
language states that ‘‘[f]or a Seller who
reports in a manner consistent with
procedures set forth in the Policy
Statement, there will be a rebuttable
presumption that information submitted
to publishers of electricity or natural gas
indices is accurate, timely, and
submitted in good faith.’’ The proposed
revisions also state that ‘‘[i]nadvertent
reporting errors by a Seller who reports
in a manner consistent with the
procedures set forth in the Policy
Statement shall not constitute violations
of this provision.’’ This action will
eliminate any concerns that the
Commission might choose to depart
from the Safe Harbor Policy as set forth
in the Policy Statement.
12. By incorporating the Safe Harbor
Policy into the Commission’s
regulations, the Commission will
provide certainty to the regulated
industry that, provided that the data
provider reports in a manner consistent
with the Policy Statement, inadvertent
errors in reporting will not constitute
14 18 CFR 35.41(c), (Market behavior rules); see
also 18 CFR 284.288(a) (Code of conduct for
unbundled sales service) (identical language); 18
CFR 284.403(a) (Code of conduct for persons
holding blanket marketing certificates) (identical
language).
15 See, e.g., Panhandle Eastern Pipe Line Co. v.
FERC, 198 F.3d 266, 269 (D.C. Cir. 1999).
16 See Supra P 8.
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violations of the Commission’s
regulations requiring accurate reporting
and will not give rise to civil penalties.
Under the proposed language, for data
providers that report consistent with the
Policy Statement, only intentional or
reckless behavior may give rise to
liability. Based on industry comments
during and after the technical
conference,17 we believe that
incorporation of the Safe Harbor Policy
into the Commission’s regulations will
provide greater certainty to market
participants and will lead to increased
voluntary reporting to price index
developers.
III. Environmental Analysis
13. The Commission is required to
prepare an Environmental Assessment
or an Environmental Impact Statement
for any action that may have a
significant adverse effect on the human
environment.18 The Commission has
categorically excluded certain actions
from these requirements as not having a
significant effect on the human
environment.19 The actions proposed
here fall within the categorical
exclusions in the Commission’s
regulations for rules that are clarifying,
corrective, or procedural, and for
information gathering, analysis, and
dissemination.20 Therefore, an
environmental assessment is
unnecessary and has not been prepared
in this Notice of Proposed Rulemaking.
IV. Regulatory Flexibility Act
Certification
14. The Regulatory Flexibility Act of
1980 (RFA) 21 generally requires a
description and analysis of proposed
rules that will have significant
economic impact on a substantial
number of small entities. The RFA does
not mandate any particular outcome in
a rulemaking. It only requires
consideration of alternatives that are
less burdensome to small entities and an
17 See, e.g., American Gas Association, PostTechnical Conference Comments, Docket No.
AD17–12–000, at 7 (filed July 31, 2017) (‘‘. . .there
is a perception that a ‘‘fat finger’’ error could result
in a party being the subject of an investigation.’’);
Edison Electric Institute, Post-Technical Conference
Comments, Docket No. AD17–12–000, at 5 (filed
July 31, 2017) (‘‘Despite [the Policy Statement], as
indicated during the technical conference, there is
a perceived regulatory risk associated with
transaction reporting and a concern that it will
invite costly audits and enforcement actions even
for inadvertent errors.’’).
18 Regulations Implementing the National
Environmental Policy Act of 1969, Order No. 486,
FERC Stats. & Regs. 30,783 (1987) (cross-referenced
at 41 FERC ¶ 61,284).
19 18 CFR 380.4.
20 See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5).
21 5 U.S.C. 601–612.
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agency explanation of why alternatives
were rejected.
15. The Small Business
Administration (SBA) size standards for
natural gas and electric utilities are
based on the number of employees,
including affiliates. Under the SBA’s
standards, some data providers will fall
under the following categories and
associated size thresholds: Natural Gas
Distribution and Electric Power
Distribution, both at 1000 employees.22
16. Because data providers who
choose to report their transactions are
already required to submit data
consistent with the Policy Statement in
order to receive the protections of the
Safe Harbor Policy, the Commission
estimates that there will be no
additional compliance burden as a
result of this proposed rule.
17. Based on the above, the
Commission certifies that
implementation of the proposed rule
will not have a significant impact on a
substantial number of small entities.
Accordingly, no initial regulatory
flexibility analysis is required.
V. Comment Procedures
18. The Commission invites interested
persons to submit comments on the
matters and issues proposed in this
notice to be adopted, including any
related matters or alternative proposals
that commenters may wish to discuss.
Comments are due June 1, 2021.
Comments must refer to Docket No.
RM20–7–000, and must include the
commenter’s name, the organization
they represent, if applicable, and their
address.
19. The Commission encourages
comments to be filed electronically via
the eFiling link on the Commission’s
website at https://www.ferc.gov. The
Commission accepts most standard
word processing formats. Documents
created electronically using word
processing software should be filed in
native applications or print-to-PDF
format and not in a scanned format.
Commenters filing electronically do not
need to make a paper filing.
20. Commenters that are not able to
file comments electronically must send
an original of their comments to:
Federal Energy Regulatory Commission,
Secretary of the Commission, 888 First
Street NE, Washington, DC 20426.
21. All comments will be placed in
the Commission’s public files and may
be viewed, printed, or downloaded
remotely as described in the Document
Availability section below. Commenters
22 13 CFR 121.201 (2020), sector 22 (Utilities),
NAICS codes 221210 (Natural Gas Distribution) and
221122 (Electric Power Distribution).
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Federal Register / Vol. 86, No. 39 / Tuesday, March 2, 2021 / Proposed Rules
on this proposal are not required to
serve copies of their comments on other
commenters.
VI. Document Availability
22. The Commission provides all
interested persons an opportunity to
view and/or print the contents of this
document via the internet through the
Commission’s Home Page (https://
www.ferc.gov). At this time, the
Commission has suspended access to
the Commission’s Public Reference
Room, due to the proclamation
declaring a National Emergency
concerning the Novel Coronavirus
Disease (COVID–19), issued by the
President on March 13, 2020.
23. From the Commission’s Home
Page on the internet, this information is
available on eLibrary. The full text of
this document is available on eLibrary
in PDF and Microsoft Word format for
viewing, printing, and/or downloading.
To access this document in eLibrary,
type the docket number excluding the
last three digits of this document in the
docket number field.
24. User assistance is available for
eLibrary and the Commission’s website
during normal business hours from the
Commission’s Online Support at (202)
502–6652 (toll free at 1–866–208–3676)
or email at ferconlinesupport@ferc.gov,
or the Public Reference Room at (202)
502–8371, TTY (202) 502–8659. Email
the Public Reference Room at
public.referenceroom@ferc.gov.
List of Subjects
18 CFR Part 35
Electric power rates, Electric utilities,
Reporting and recordkeeping
requirements.
Continental shelf, Natural gas,
Reporting and recordkeeping
requirements.
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PART 284—CERTAIN SALES AND
TRANSPORTATION OF NATURAL GAS
UNDER THE NATURAL GAS POLICY
ACT OF 1978 AND RELATED
AUTHORITIES
3. The authority citation for part 284
continues to read as follows:
■
4. Revise § 284.288(a) to read as
follows:
In consideration of the foregoing, the
Commission is proposing to amend
parts 35 and 284, chapter I, title 18,
Code of Federal Regulations, as follows.
PART 35—FILING OF RATE
SCHEDULES AND TARIFFS
1. The authority citation for part 35
continues to read as follows:
■
Authority: 16 U.S.C. 791a-825r, 2601–
2645; 31 U.S.C. 9701; 42 U.S.C. 7101–7352.
2. Revise § 35.41(c) to read as follows:
16:34 Mar 01, 2021
*
*
*
*
(c) To the extent Seller engages in
reporting of transactions to publishers of
electricity or natural gas indices, Seller
must 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, issued by the Commission in
Docket No. PL03–3–000 and any
clarifications thereto. For a Seller who
reports in a manner consistent with
procedures set forth in the Policy
Statement, there will be a rebuttable
presumption that information submitted
to publishers of electricity or natural gas
indices is accurate, timely, and
submitted in good faith. Inadvertent
reporting errors by a Seller who reports
in a manner consistent with the
procedures set forth in the Policy
Statement shall not constitute violations
of this provision. Seller must identify as
part of its Electric Quarterly Report
filing requirement in § 35.10b of this
chapter the publishers of electricity and
natural gas indices to which it reports
its transactions. In addition, Seller must
adhere to any other standards and
requirements for price reporting as the
Commission may order.
*
*
*
*
*
■
By direction of the Commission.
Commissioner Clements is not participating.
Dated: December 17, 2020.
Kimberly D. Bose,
Secretary.
VerDate Sep<11>2014
Market behavior rules.
*
Authority: 15 U.S.C. 717–717z, 3301–3432;
42 U.S.C. 7101–7352; 43 U.S.C. 1331–1356.
18 CFR Part 284
■
§ 35.41
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§ 284.288 Code of conduct for unbundled
sales service.
(a) To the extent Seller engages in
reporting of transactions to publishers of
electricity or natural gas indices, Seller
must 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, issued by the Commission in
Docket No. PL03–3–000 and any
clarifications thereto. For a Seller who
reports in a manner consistent with
procedures set forth in the Policy
Statement, there will be a rebuttable
presumption that information submitted
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12135
to publishers of electricity or natural gas
indices is accurate, timely, and
submitted in good faith. Inadvertent
reporting errors by a Seller who reports
in a manner consistent with the
procedures set forth in the Policy
Statement shall not constitute violations
of this provision. Seller must notify the
Commission as part of its FERC Form
No. 552 annual reporting requirement in
§ 260.401 of this chapter whether it
reports its transactions to publishers of
electricity and natural gas indices. In
addition, Seller must adhere to any
other standards and requirements for
price reporting as the Commission may
order.
*
*
*
*
*
■ 5. Revise § 284.403(a) to read as
follows:
§ 284.403 Code of conduct for persons
holding blanket marketing certificates.
(a) To the extent Seller engages in
reporting of transactions to publishers of
electricity or natural gas indices, Seller
must 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, issued by the Commission in
Docket No. PL03–3–000 and any
clarifications thereto. For a Seller who
reports in a manner consistent with
procedures set forth in the Policy
Statement, there will be a rebuttable
presumption that information submitted
to publishers of electricity or natural gas
indices is accurate, timely, and
submitted in good faith. Inadvertent
reporting errors by a Seller who reports
in a manner consistent with the
procedures set forth in the Policy
Statement shall not constitute violations
of this provision. Seller must notify the
Commission as part of its FERC Form
No. 552 annual reporting requirement in
§ 260.401 of this chapter whether it
reports its transactions to publishers of
electricity and natural gas indices. In
addition, Seller must adhere to any
other standards and requirements for
price reporting as the Commission may
order.
*
*
*
*
*
[FR Doc. 2020–28386 Filed 3–1–21; 8:45 am]
BILLING CODE 6717–01–P
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]]>Agencies
[Federal Register Volume 86, Number 39 (Tuesday, March 2, 2021)]
[Proposed Rules]
[Pages 12132-12135]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28386]
=======================================================================
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Parts 35 and 284
[Docket No. RM20-7-000]
Safe Harbor Policy for Data Providers to Price Index Developers
AGENCY: Federal Energy Regulatory Commission.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Commission proposes to amend its regulations to codify the
Safe Harbor Policy established in the Commission's Policy Statement on
Natural Gas and Electric Price Indices. 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. The
proposed change does not modify the existing policy and is intended to
promote voluntary reporting of wholesale natural gas and electricity
transactions to price index developers by alleviating market
participant concerns that the Safe Harbor Policy is not binding on the
Commission.
DATES: Comments are due June 1, 2021.
ADDRESSES: Comments, identified by Docket No. RM20-7-000, may be filed
electronically at https://www.ferc.gov in acceptable native applications
and print-to-PDF, but not in scanned or picture format. For those
unable to file electronically, comments may be filed by mail to:
Federal Energy Regulatory Commission, Secretary of the Commission, 888
First Street NE, Washington, DC 20426. Hand-delivered comments must be
delivered to: Federal Energy Regulatory Commission, 12225 Wilkins
Avenue, Rockville, Maryland 20852. The Comment Procedures Section of
this document contains more detailed filing procedures.
FOR FURTHER INFORMATION CONTACT:
Maxwell K. Multer (technical issues), Office of Enforcement, Federal
Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426
(202) 502-6756
Evan B. Oxhorn (legal issues), Office of the General Counsel, Federal
Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426
(202) 502-8183
SUPPLEMENTARY INFORMATION:
Table of Contents
Paragraph Numbers
I. Background--3.
II. Discussion--9.
III. Environmental Analysis--13.
IV. Regulatory Flexibility Act Certification--14.
V. Comment Procedures--18.
VI. Document Availability--22.
1. Under the Commission's regulations, a data provider (a market
participant that reports transaction data to price index developers)
must submit accurate and factual information to price index developers,
and not knowingly submit false or misleading information or omit
material information.\1\ Pursuant to the Commission's Safe Harbor
Policy, which is currently set forth in the Commission's Policy
Statement on Natural Gas and Electric Price Indices,\2\ if the data
provider can demonstrate that it has adopted and followed the standards
for reporting set forth in the Commission's Policy Statement, it will
benefit from a rebuttable presumption that it has submitted its
transactions accurately, timely, and in good faith. The Commission
proposes to codify its Safe Harbor Policy in its regulations. The
proposed change does not modify the existing policy and, together with
the proposed Revised Policy Statement that the Commission is issuing
concurrently, is intended to promote voluntary reporting of wholesale
natural gas and electricity transactions to price index developers.\3\
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\1\ This requirement is set forth in three regulations, 18 CFR
35.41(c), 284.288(a), and 284.403(a). Each sets forth the
requirement in identical language.
\2\ Policy Statement on Natural Gas and Electric Price Indices,
104 FERC ] 61,121, at P 37 (Initial Policy Statement), clarified,
105 FERC ] 61,282 (2003) (2003 Clarification Order), further
clarified, 112 FERC ] 61,040 (2005) (2005 Clarification Order)
(collectively, Policy Statement).
\3\ See Actions Regarding the Commission's Policy on Price Index
Formation and Transparency, and Indices Referenced in Natural Gas
and Electric Tariffs, 173 FERC ] 61,237 (2020).
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2. To codify the Safe Harbor Policy, we specifically propose to
amend 18 CFR 35.41(c), 284.288(a), and 284.403(a) of the Commission's
regulations by adding language to indicate: (1) That there will be a
rebuttable presumption of accuracy, timeliness, and good faith for data
providers who submit transactions to price index developers in a manner
consistent with the Policy Statement; and (2) that inadvertent
reporting errors by such data providers will not constitute violations
of those regulations.
I. Background
3. Natural gas indices play a vital role in the energy industry, as
they are used to price billions of dollars of natural gas and
electricity transactions annually in both the physical and financial
markets. A natural gas index is a weighted average price derived from a
set of fixed-price \4\ natural gas transactions within distinct
geographical boundaries that market participants voluntarily report to
a price index developer.\5\
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\4\ The term fixed-price refers to a negotiated natural gas
contract for next-day or next-month delivery, and physical basis
transactions for next-month delivery. These transaction types are
defined in the FERC Form No. 552: Annual Report of Natural Gas
Transactions (FERC Form No. 552). The FERC Form No. 552 requires
market participants that annually buy or sell more than 2.2 trillion
British Thermal Units (Btu) of physical natural gas to provide
aggregated data related to their fixed-price, physical basis, Nymex
plus and index-based transactions made in the next-day and next-
month (bidweek) markets.
\5\ S&P Global Platts (Platts), Natural Gas Intelligence (NGI),
Argus, and Natural Gas Week are examples of price index developers.
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4. Natural gas indices serve as a proxy for the locational cost of
natural gas in the daily and monthly markets, as many market
participants reference index prices in their physical and financial
transactions. Interstate natural gas pipelines, Independent System
Operators (ISOs), and Regional Transmission Organizations (RTOs)
reference natural gas indices in their FERC-jurisdictional tariffs for
various terms and conditions of service. State commissions also use
natural gas indices as benchmarks when reviewing the prudence of
natural gas or electricity purchases. Finally, many natural gas
financial derivative contracts used in hedging and speculation settle
against the natural gas price indices.
5. Given that natural gas price index developers use physical
fixed-price natural gas transactions to calculate the price of
published natural gas indices, it is important that the market for
these transactions be robust, liquid, and transparent. The Commission's
investigation into the 2000-2001 Western Energy Crisis revealed
problems in how published natural gas price indices were generated that
``facilitate[ed], rather than discourage[d], manipulation and
collusion.'' \6\ Recognizing the need to restore confidence in natural
gas price
[[Page 12133]]
indices, the Commission began an exhaustive analysis of these and
related issues in the form of multiple staff white papers, two
technical conferences, and a follow up staff workshop.
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\6\ Initial Report on Company-Specific Separate Proceedings and
Generic Reevaluations; Published Natural Gas Price Data; and Enron
Trading Strategies, Docket No. PA02-2-000, at 38 (Aug. 13, 2002).
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6. At the conclusion of these efforts, the Commission issued its
Policy Statement to explain what the Commission expects of natural gas
and electric price indices and under what conditions the Commission
will give industry participants safe harbor protection for good faith
reporting of transaction data to entities that develop price
indices.\7\ In particular, the Commission [created] a rebuttable
presumption that companies and individuals that report trade data to
price index developers in accordance with the standards adopted here
are doing so in good faith, and will not be investigated or subjected
to administrative penalties for inadvertent mistakes made in the course
of reporting energy transaction information.\8\ Thus, the Commission
adopted the Safe Harbor Policy for the explicit purpose of
encourag[ing] more industry participants to contribute to the formation
of price indices.\9\ Consistent with the Policy Statement, the
Commission has not investigated or imposed penalties on any companies
for inadvertent reporting errors.
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\7\ Initial Policy Statement, 104 FERC 61,121 at P 5.
\8\ Id.
\9\ Id.
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7. After the Policy Statement was issued, the natural gas volumes
market participants reported to price index developers increased, which
resulted in greater confidence in those indices. However, after 2010,
the estimated traded volume of fixed-price natural gas transactions
reported to price index developers began to decline significantly.\10\
FERC Form No. 552 data show that the estimated volume of fixed-price
transactions voluntarily reported to price index developers declined by
approximately 54% from 2010 until 2019.\11\ At the same time that
fixed-price reporting to price index developers decreased, the traded
volume of natural gas transactions that referenced natural gas indices,
known as index gas, increased. For example, FERC Form No. 552 data
showed that index gas increased from 69% of the traded volumes in the
U.S. physical natural gas market in 2010 to 82% in 2019. Figure 1 shows
the estimated physical natural gas volumes reported to index developers
based on FERC Form No. 552 data.
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\10\ Two index developers now include fixed-price transactions
from the InterContinental Exchange (ICE) to increase the liquidity
of their indices. Staff analysis of the estimated volumes reported
to index developers does not include that supplemental information
from ICE.
\11\ The Commission must estimate the volumes reported to price
index developers on the FERC Form No. 552 because FERC Form No. 552
filers can provide aggregated data for themselves and their
affiliates, some of whom may or may not report to index developers.
Staff estimates this volume by calculating the average of the
minimum volume reported (i.e., the total volume from filers with
affiliates that all indicate that they report to price index
developers) and the maximum possible volume reported (i.e., the
total volume from filers with at least one affiliate that indicates
that it reports to price index developers).
[GRAPHIC] [TIFF OMITTED] TP02MR21.002
8. Commission staff held a technical conference on June 29, 2017,
which addressed index liquidity and transparency issues and potential
actions the Commission could consider taking in order to increase both
the volume of transactions reported to natural gas price index
developers and the transparency of the physical natural gas price
formation process.\12\ In post technical conference comments, a number
of commenters suggested that placing the Safe Harbor Policy into the
Commission's regulations would help to provide regulatory certainty
which in turn would lead to an increase in the number of data providers
that would report their transactions to price index developers.\13\
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\12\ Docket No. AD17-12-000. A staff-led technical conference
addressing similar issues was held in 2003 in Docket No. AD03-7-000.
\13\ AGA, Comments, Docket No. AD17-12-000, at 7 (filed July 31,
2017); Tenaska Comments, Docket No. AD17-12-000, at 5 (filed July
31, 2017).
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II. Discussion
9. The Commission proposes to revise three sections of its
regulations, 18 CFR 35.41(c), 284.288(a), and 284.403(a). Although each
of the three sections applies to different jurisdictional entities,
they set forth almost identical requirements. Section 35.41(c) applies
to persons with or seeking authorization to engage in sales for resale
of electric energy, capacity or ancillary services at market-based
rates under section 205 of the Federal Power Act. Section 284.288(a)
applies to interstate pipelines that offer transportation service under
subparts B or G of part 284. Section
[[Page 12134]]
284.403(a) applies to sales for resale by persons that are not
interstate pipelines. Each section currently requires that data
providers reporting transactions to price index developers provide
accurate, factual information, and not knowingly submit false or
misleading information or omit material information.
Reporting must be performed consistent with the procedures set
forth in the Policy Statement.\14\ The regulations do not incorporate
the Safe Harbor Policy.
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\14\ 18 CFR 35.41(c), (Market behavior rules); see also 18 CFR
284.288(a) (Code of conduct for unbundled sales service) (identical
language); 18 CFR 284.403(a) (Code of conduct for persons holding
blanket marketing certificates) (identical language).
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10. Currently, the Safe Harbor Policy is set forth in the Policy
Statement, which advises the public about how the Commission intends to
exercise its discretionary authority. The Policy Statement, however, is
non-binding.\15\ Although the Commission has never pursued enforcement
action against a market participant for inadvertent errors in reporting
transactions to price index developers, concerns nonetheless remain
among market participants that this potential exists.\16\
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\15\ See, e.g., Panhandle Eastern Pipe Line Co. v. FERC, 198
F.3d 266, 269 (D.C. Cir. 1999).
\16\ See Supra P 8.
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11. To alleviate these concerns and encourage voluntary reporting
in order to promote more robust, liquid, and transparent indices, we
propose to add identical language to 18 CFR 35.41(c), 284.288(a), and
284.403(a) to incorporate the Safe Harbor Policy into the regulatory
text. This proposed language states that ``[f]or a Seller who reports
in a manner consistent with procedures set forth in the Policy
Statement, there will be a rebuttable presumption that information
submitted to publishers of electricity or natural gas indices is
accurate, timely, and submitted in good faith.'' The proposed revisions
also state that ``[i]nadvertent reporting errors by a Seller who
reports in a manner consistent with the procedures set forth in the
Policy Statement shall not constitute violations of this provision.''
This action will eliminate any concerns that the Commission might
choose to depart from the Safe Harbor Policy as set forth in the Policy
Statement.
12. By incorporating the Safe Harbor Policy into the Commission's
regulations, the Commission will provide certainty to the regulated
industry that, provided that the data provider reports in a manner
consistent with the Policy Statement, inadvertent errors in reporting
will not constitute violations of the Commission's regulations
requiring accurate reporting and will not give rise to civil penalties.
Under the proposed language, for data providers that report consistent
with the Policy Statement, only intentional or reckless behavior may
give rise to liability. Based on industry comments during and after the
technical conference,\17\ we believe that incorporation of the Safe
Harbor Policy into the Commission's regulations will provide greater
certainty to market participants and will lead to increased voluntary
reporting to price index developers.
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\17\ See, e.g., American Gas Association, Post-Technical
Conference Comments, Docket No. AD17-12-000, at 7 (filed July 31,
2017) (``. . .there is a perception that a ``fat finger'' error
could result in a party being the subject of an investigation.'');
Edison Electric Institute, Post-Technical Conference Comments,
Docket No. AD17-12-000, at 5 (filed July 31, 2017) (``Despite [the
Policy Statement], as indicated during the technical conference,
there is a perceived regulatory risk associated with transaction
reporting and a concern that it will invite costly audits and
enforcement actions even for inadvertent errors.'').
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III. Environmental Analysis
13. The Commission is required to prepare an Environmental
Assessment or an Environmental Impact Statement for any action that may
have a significant adverse effect on the human environment.\18\ The
Commission has categorically excluded certain actions from these
requirements as not having a significant effect on the human
environment.\19\ The actions proposed here fall within the categorical
exclusions in the Commission's regulations for rules that are
clarifying, corrective, or procedural, and for information gathering,
analysis, and dissemination.\20\ Therefore, an environmental assessment
is unnecessary and has not been prepared in this Notice of Proposed
Rulemaking.
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\18\ Regulations Implementing the National Environmental Policy
Act of 1969, Order No. 486, FERC Stats. & Regs. 30,783 (1987)
(cross-referenced at 41 FERC ] 61,284).
\19\ 18 CFR 380.4.
\20\ See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5).
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IV. Regulatory Flexibility Act Certification
14. The Regulatory Flexibility Act of 1980 (RFA) \21\ generally
requires a description and analysis of proposed rules that will have
significant economic impact on a substantial number of small entities.
The RFA does not mandate any particular outcome in a rulemaking. It
only requires consideration of alternatives that are less burdensome to
small entities and an agency explanation of why alternatives were
rejected.
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\21\ 5 U.S.C. 601-612.
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15. The Small Business Administration (SBA) size standards for
natural gas and electric utilities are based on the number of
employees, including affiliates. Under the SBA's standards, some data
providers will fall under the following categories and associated size
thresholds: Natural Gas Distribution and Electric Power Distribution,
both at 1000 employees.\22\
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\22\ 13 CFR 121.201 (2020), sector 22 (Utilities), NAICS codes
221210 (Natural Gas Distribution) and 221122 (Electric Power
Distribution).
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16. Because data providers who choose to report their transactions
are already required to submit data consistent with the Policy
Statement in order to receive the protections of the Safe Harbor
Policy, the Commission estimates that there will be no additional
compliance burden as a result of this proposed rule.
17. Based on the above, the Commission certifies that
implementation of the proposed rule will not have a significant impact
on a substantial number of small entities. Accordingly, no initial
regulatory flexibility analysis is required.
V. Comment Procedures
18. The Commission invites interested persons to submit comments on
the matters and issues proposed in this notice to be adopted, including
any related matters or alternative proposals that commenters may wish
to discuss. Comments are due June 1, 2021. Comments must refer to
Docket No. RM20-7-000, and must include the commenter's name, the
organization they represent, if applicable, and their address.
19. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's website at https://www.ferc.gov. The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software should be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
20. Commenters that are not able to file comments electronically
must send an original of their comments to: Federal Energy Regulatory
Commission, Secretary of the Commission, 888 First Street NE,
Washington, DC 20426.
21. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters
[[Page 12135]]
on this proposal are not required to serve copies of their comments on
other commenters.
VI. Document Availability
22. The Commission provides all interested persons an opportunity
to view and/or print the contents of this document via the internet
through the Commission's Home Page (https://www.ferc.gov). At this time,
the Commission has suspended access to the Commission's Public
Reference Room, due to the proclamation declaring a National Emergency
concerning the Novel Coronavirus Disease (COVID-19), issued by the
President on March 13, 2020.
23. From the Commission's Home Page on the internet, this
information is available on eLibrary. The full text of this document is
available on eLibrary in PDF and Microsoft Word format for viewing,
printing, and/or downloading. To access this document in eLibrary, type
the docket number excluding the last three digits of this document in
the docket number field.
24. User assistance is available for eLibrary and the Commission's
website during normal business hours from the Commission's Online
Support at (202) 502-6652 (toll free at 1-866-208-3676) or email at
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at
[email protected].
List of Subjects
18 CFR Part 35
Electric power rates, Electric utilities, Reporting and
recordkeeping requirements.
18 CFR Part 284
Continental shelf, Natural gas, Reporting and recordkeeping
requirements.
By direction of the Commission. Commissioner Clements is not
participating.
Dated: December 17, 2020.
Kimberly D. Bose,
Secretary.
In consideration of the foregoing, the Commission is proposing to
amend parts 35 and 284, chapter I, title 18, Code of Federal
Regulations, as follows.
PART 35--FILING OF RATE SCHEDULES AND TARIFFS
0
1. The authority citation for part 35 continues to read as follows:
Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42
U.S.C. 7101-7352.
0
2. Revise Sec. 35.41(c) to read as follows:
Sec. 35.41 Market behavior rules.
* * * * *
(c) To the extent Seller engages in reporting of transactions to
publishers of electricity or natural gas indices, Seller must 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, issued by the
Commission in Docket No. PL03-3-000 and any clarifications thereto. For
a Seller who reports in a manner consistent with procedures set forth
in the Policy Statement, there will be a rebuttable presumption that
information submitted to publishers of electricity or natural gas
indices is accurate, timely, and submitted in good faith. Inadvertent
reporting errors by a Seller who reports in a manner consistent with
the procedures set forth in the Policy Statement shall not constitute
violations of this provision. Seller must identify as part of its
Electric Quarterly Report filing requirement in Sec. 35.10b of this
chapter the publishers of electricity and natural gas indices to which
it reports its transactions. In addition, Seller must adhere to any
other standards and requirements for price reporting as the Commission
may order.
* * * * *
PART 284--CERTAIN SALES AND TRANSPORTATION OF NATURAL GAS UNDER THE
NATURAL GAS POLICY ACT OF 1978 AND RELATED AUTHORITIES
0
3. The authority citation for part 284 continues to read as follows:
Authority: 15 U.S.C. 717-717z, 3301-3432; 42 U.S.C. 7101-7352;
43 U.S.C. 1331-1356.
0
4. Revise Sec. 284.288(a) to read as follows:
Sec. 284.288 Code of conduct for unbundled sales service.
(a) To the extent Seller engages in reporting of transactions to
publishers of electricity or natural gas indices, Seller must 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, issued by the
Commission in Docket No. PL03-3-000 and any clarifications thereto. For
a Seller who reports in a manner consistent with procedures set forth
in the Policy Statement, there will be a rebuttable presumption that
information submitted to publishers of electricity or natural gas
indices is accurate, timely, and submitted in good faith. Inadvertent
reporting errors by a Seller who reports in a manner consistent with
the procedures set forth in the Policy Statement shall not constitute
violations of this provision. Seller must notify the Commission as part
of its FERC Form No. 552 annual reporting requirement in Sec. 260.401
of this chapter whether it reports its transactions to publishers of
electricity and natural gas indices. In addition, Seller must adhere to
any other standards and requirements for price reporting as the
Commission may order.
* * * * *
0
5. Revise Sec. 284.403(a) to read as follows:
Sec. 284.403 Code of conduct for persons holding blanket marketing
certificates.
(a) To the extent Seller engages in reporting of transactions to
publishers of electricity or natural gas indices, Seller must 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, issued by the
Commission in Docket No. PL03-3-000 and any clarifications thereto. For
a Seller who reports in a manner consistent with procedures set forth
in the Policy Statement, there will be a rebuttable presumption that
information submitted to publishers of electricity or natural gas
indices is accurate, timely, and submitted in good faith. Inadvertent
reporting errors by a Seller who reports in a manner consistent with
the procedures set forth in the Policy Statement shall not constitute
violations of this provision. Seller must notify the Commission as part
of its FERC Form No. 552 annual reporting requirement in Sec. 260.401
of this chapter whether it reports its transactions to publishers of
electricity and natural gas indices. In addition, Seller must adhere to
any other standards and requirements for price reporting as the
Commission may order.
* * * * *
[FR Doc. 2020-28386 Filed 3-1-21; 8:45 am]
BILLING CODE 6717-01-P
