D(-3/ 

The McGraw· Hill Companies 

plaits 

November 6, 2009 

David A. Stawick, Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st St. NW 

Washington, DC 20581 

secretary@cftc.gov 

Received· CFTC 

Records Section 

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COMMENT 

Re: Notice oflntent, Pursuant to the Authority in Section 2(h)(7) of the Commodity 

Exchange Act and Commission Rule 36.3(c)(3), to Undertake a Determination Whether 

the NWP Rockies Financial Basis Contract, Offered for Trading on the 

IntercontinentalExchange, Inc., Performs a Significant Price Discovery Function 

Comments of Platts 

Platts, the energy information division of The McGraw-Hill Companies, Inc., submits 

these comments for consideration by the Commodity Futures Trading Commission (the 

"Commission") in proceedings on whether certain contracts offered for trading on 

IntercontinentalExchange, Inc. ("ICE"), an exempt commercial market ("ECM"), are 

significant price discovery contracts within the meaning of Section 2(h)(7) of the 

Commodity Exchange Act because they perform a significant price discovery function. 

Platts has considerable experience and knowledge in assessing prices in a number of 

physical energy markets globally, including the market addressed in this proceeding, and 

is submitting these comments, along with relevant data, in an effort to assist the 

Commission in its review. 

® 

In an October 22, 2009 notice, the Commission sought comment on the NWP Rockies 

Financial Basis ("NWR") contract, which is cash-settled based on the difference between 

the bidweek price index for a particular calendar month at the Northwest Pipeline Corp., 

Rocky Mountains hub, as published in Platts' Inside FERC's Gas Market Report, and the 

final settlement price ofthe New York Mercantile Exchange's Hemy Hub natural gas 

futures contract for the same calendar month. 

Platts licenses use of its published indices to ICE for purposes of settlement of the NWR 

contract, as well as others, and thus has an interest in this proceeding. 

Platts publishes its monthly bidweek indices on a subscription basis on the first business 

day of each month for gas to flow that month. In formulating its monthly gas indices, 
which it has published for more than 20 years, Platts follows a public, well-defined 

methodology. Platts will summarize elements below. The full methodology is available 

at: 

http://www.platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/na 

gas methodology.pdf 

Platts collects data for US gas spot transactions firsthand from buyers and sellers, 

regardless of whether the transaction is completed on an electronic platform, bilaterally 

or through a broker. The data is submitted from a central point in the mid- or back office 

(i.e., a segment of the reporting entity that does not have a commercial interest in the 

reported prices). The reporting entity must certify that it is making a good-faith effort to 

report completely and accurately and is obligated to make reasonable efforts to inform 

Platts in the case of any errors or omissions. 

The monthly bidweek survey includes fixed-price physical deals negotiated during the 

last five business days ofthe month for delivery throughout the next month. For certain 

markets, it also includes physical basis deals in which the basis value is negotiated on one 

of the first three days of bid week and the price is set by the final closing value of the 

near-month NYMEX futures contract plus or minus the negotiated basis. Platts' current 

policy is to use physical basis deals for points east of the Rocky Mountains, except in the 

Permian Basin region at Waha, El Paso Natural Gas Co., Permian Basin and 

Transwestem Pipeline Co., Permian Basin. Platts does not use physical basis prices in its 

monthly indices for the Northwest Pipeline, Rocky Mountains point. 

In determining its monthly indices, Platts relies on straightforward quantitative analysis 

on the collected transactional data, including the volume-weighted average, the median, 

the simple average, the mode and the midpoint. Platts editors use volume-weighted 

averages as the foundation for their determination of index values. At pricing points with 

robust dealmaking and a generally normal distribution curve, the index is the simple 

volume-weighted average. This applies to the large majority ofbidweek indices that 

Platts publishes. 

Because survey samples of reported trading at any individual pricing point can vary 

under different market conditions, the volume-weighted average alone is not always a 

valid indicator of average dealmaking over the five-day bidweek period. Survey samples 

can vary with participation levels and the completeness of data elements reported. In a 

market with low liquidity and/or high volatility, a single party with one or two largevolume deals reported at an extreme end of the market's price range can significantly 

move a volume-weighted average away from the average value at which most parties 

traded. In these situations, Platts editors also consider the median of the price series, 

which tends to represent the centerpoint of trading better than the volume-weighted 

average. 

At points where trading is robust and the distribution of reported transactions is generally 

normal, the volume-weighted average and the median are usually aligned with each other. 

If the two measures significantly diverge and Platts' analysis finds that the characteristics 

of the survey sample are creating an unrepresentative skew of the volume-weighted 

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average, either the median is used as the index or the average of the median and the 

volume-weighted average is used. 

In limited instances, in illiquid markets where there is insufficient trade data to calculate 

a representative monthly index, Platts publishes an assessment in lieu of an index. In 

these cases, Platts will examine other market information to determine whether it can 

publish a valid assessment. Ifthat is not possible, Platts will publish no index price for 

the month, designated as "N.A." 

Platts has detailed public policies on data verification and corrections. Platts also has a 

Compliance staff independent of its Editorial staffthat reviews the work of all North 

American natural gas market reporters at least twice a year. Further, all Platts editors 

must comply with both a Platts Code of Ethics and The McGraw-Hill Companies' Code 

of Business Ethics which, among other things, prohibit editorial personnel and their 

spouses from trading in commodities or stocks, bonds or options of companies in the 

industries covered by their publications. 

Platts also is committed to providing the public with full transparency on the amount of 

data in its monthly gas surveys. Since July 2003, Platts has grouped its monthly price 

points into three tiers to aid understanding of the amount of trading at each point. Tier 1 

includes points with volumes of at least 100,000 MMBtu/day and at least 10 trades; Tier 

2 includes points with volumes of25,000 to 99,999 MMBtu/day and at least five trades; 

and Tier 3 includes points with volumes below 25,000 MMBtu/day and/or fewer than 

five trades. Platts publishes the tier, volumes and number of trades for each point on its 

public web site. The file is available at: 

http://www.platts.com/elqNow/elgNotAuthRedir.htm?ref=/IM.Platts.Content/Methodolo 

gyReferences/MethodologySpecs/tiers.xls 

In this proceeding, the Commission is examining whether the NWR financial basis 

contract traded on ICE meets the criteria for a significant price discovery contract. The 

Commission has examined the volume and trade data for those contracts for secondquarter 2009. To facilitate the Commission's inquiry, Platts has compiled the relevant 

monthly bidweek data for that pricing location for that time period in the table below. In 

short, trading at the Northwest, Rockies pricing location for each of the three months of 

the period examined met the criteria for Tier 1, indicating a robust trading market. 

Price location April 09 April 09 May09 May09 June 09 June 09 

Volume* deals# volume* deals# volume* deals# 

Northwest, Rockies 733,516 122 764,194 140 572,275 108 

* Volumes in MMBtu/day 

# Total reported deals used in determining index 

While Platts takes no position on whether the ICE contracts should be designated as 

significant price discovery contracts under Section 2(h)(7) of the Commodity Exchange 

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Act, it believes that the settlement mechanisms in those contracts using physical gas price 

indices by Platts are appropriate measures of price values at those locations. 

Platts would be pleased to answer any additional questions the Commission may have as 

it considers these issues. 

Respectfully submitted, 

By /s/ __ _ 

Larry Foster 

Global Editorial Director, Power 

Platts 

1200 G St. NW, Suite 1000 

Washington, DC 20005 

larry_ foster@platts.com 

202-383-2140 

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