The McGrow·Hill Companies 

plaits Received CFTC Reco~qs $action 

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November 4, 2009 

David A. Stawick, Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st St. NW 

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secretary@cftc.gov 

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 Hemy Financial Swing Contract; Hemy Financial Basis Contract; and Hemy 

Financial Index Contract, Offered for Trading on the IntercontinentalExchange, Inc., 

Perform Significant Price Discovery Functions 

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 ~ection 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 markets 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 20, 2009 notice, the Commission sought comment on three contracts that 

are cash-settled on prices reported by Platts. Specifically, the Henry Financial Swing 

contract is a daily contract that is cash-settled based on the spot gas price at Hemy Hub as 

published by Platts' Gas Daily. The Hemy Financial Basis contract is a monthly contract 

that is cash-settled based on the difference between the bidweek index price for a given 

month at Hemy Hub, as published in Platts' Inside PERC's Gas Market Report, and the 

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

contract for the same calendar month. The Hemy Financial Index contract is a monthly 

contract that is cash-settled based on the arithmetic average of the daily gas spot price at 

Hemy Hub as published by Platts' Gas Daily less the bidweek index price for Hemy Hub 

as reported in the first issue of Platts' Inside PERC's Gas Market Report in the month in 

which the gas flows. These comments by Platts pertain to all three contracts. 

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

contracts listed above, as well as others, and thus has an interest in this proceeding. 

Platts publishes on a subscription basis its daily gas prices for each business day and its 

monthly bidweek indices on the first business day of each month for gas to flow that 

month. In formulating its daily and monthly gas spot prices, which have been 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 of the 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 monthly 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. Physical basis transactions at Hemy Hub are 

included in Platts' monthly assessments. 

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 monthly 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 large-volume 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 volumeweighted average. 

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

normal, the monthly 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 volumeweighted 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. If that is not possible, Platts will publish no index price for 

the month, designated as "N .A." 

The daily price survey includes fixed-price physical deals completed prior to the pipeline 

nomination deadline of 11:30 am CT for next-day delivery in North America. 

Transactions done on Friday usually are for flow on Saturday, Sunday and Monday 

inclusive. Platts publishes three price components: the midpoint (the volume-weighted 

average), the common range and the absolute range. The daily midpoint, commonly 

called the GDA (Gas Daily average), is the volume-weighted average of all the deals 

reported to Platts for each point, excepting any outliers that are not used. The absolute 

range shows the absolute low and high of deals reported, excluding outliers that are not 

used. The common range is 50% of the absolute range and is built around the midpoint. 

The daily survey relies solely on a volume-weighted average of reported transactions; no 

assessments using other factors are included. 

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

Compliance staff independent of its Editorial staff that 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 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/elqNotAuthRedir.htm?ref=/IM.Platts.Content/Methodolo 

gyReferences/MethodologySpecs/tiers.xls 

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In both its daily and monthly published price tables, Platts shows volumes and number of 

deals for every trading location. 

In this proceeding, the Commission is examining whether certain contracts traded on ICE 

meet the criteria for a significant price discovery contract.. The Commission has 

examined the volume and trade data for those contracts for second-quarter 2009. To 

facilitate the Commission's inquiry, Platts has compiled the relevant daily and monthly 

bidweek data for Henry Hub for that time period in the table below. 

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

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

Henry Hub monthly 551,000 28 274,000 22 549,100 24 

Henry Hub daily'' 645,524 90 822,000 103 662,045 89 

* Volumes in MMBtulday 

# Total reported deals used in determining index or midp_oint 

"Monthly_ averages of daily volume and reported deals used in determining midpoint 

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 

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

indices and midpoints published 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 Is! __ _ 

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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