The McGraw· Hill Companies 

plaits 

October 26, 2009 

David A. Stawick, Secretary 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st St. NW 

Washington, DC 20581 

secretary@cftc.gov 

COMMENT 

tJ9-!3 

® 

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

Exchange Act and Commission Rule 36.3(c)(3), to Undertake a Determination Whet.b:cr 

the SNJ Financial Basis Contract, Offered for Trading on the IntercontinentalExcha~, 

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 markets addressed in this proceeding, and is 

submitting these comments, along with relevant data, to aid the Commission's review. 

In October 9, 2009 notices, the Commission sought comment on nine contracts that are 

cash-settled on the difference between the monthly final settlement price for the New 

York Mercantile Exchange ("NYMEX") Hemy Hub gas futures contract and bidweek 

indices published by Platts in its Inside FERC 's Gas Market Report (!FER C). Those nine 

contracts, as described by IFERC and the Commission's notices, respectively, are: 

• Columbia Gas Transmission Corp., Appalachia ("TCO") 

• Dominion Transmission Inc., Appalachia ("Dominion South") 

• El Paso Natural Gas Co., Permian Basin ("Permian") 

• El Paso Natural Gas Co., San Juan Basin ("San Juan") 

• Houston Ship Channel ("HSC") 

• Texas Eastern, zone M-3 ("TETCO-M3") 

• Transco, zone 6 N.Y. ("Zone 6-NY") 

• Natural Gas Pipeline Co. of America, Texok zone ("NGPL TxOk") 

• Waha ("Waha") 

1 
Platts licenses use of its published indices to ICE for purposes of settlement ofthe 

contracts listed above, 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 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 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. 

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. 

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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 

ofthe survey sample are creating an unrepresentative skew ofthe volume-weighted 

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." 

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 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=IIM.Platts.Content/Methodolo 

gy References/MethodologySpecs/tiers.xls 

In this proceeding, the Commission is examining whether certain financial basis 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 secondquarter 2009. To facilitate the Commission's inquiry, Platts has compiled the relevant 

monthly bidweek data for those pricing locations for that time period in the table below. 

In short, trading at each of the pricing locations for each of the three months of the period 

examined met the criteria for Tier 1, indicating robust trading markets at those locations. 

3 
Price location April 09 April 09 May09 May09 June 09 June 09 

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

TCO 456,695 79 451,132 73 510,334 86 

Dominion South 325,854 55 464,778 84 152,822 35 

Permian 668,132 122 490,600 100 509,100 102 

San Juan 619,826 122 586,356 110 861,584 152 

HSC 354,200 47 225,000 28 670,676 99 

TETCO-M3 665,271 107 897,624 118 822,684 113 

Zone 6-NY 208,100 35 198,327 32 150,000 29 

NGPL TxOk 958,549 165 866,000 163 569,798 105 

Waha 345,000 59 429,584 80 450,884 76 

* Volumes in MMBtulday 

# Total reported deals used in determining index 

In addition to the nine ICE contracts that settle off the difference between the NYMEX 

Henry Hub futures contract and the Platts IFERC bidweek indices, the Commission has 

proposed to designate four other ICE contracts as significant price discovery contracts: 

• Chicago city-gates ("Chicago") 

• PG&E Malin, Ore. ("Malin") 

• PG&E city-gate ("PG&E city-gate") 

• Nova, AECO-C (AECO") 

The Chicago, Malin and PG&E city-gate contracts settle on the difference between the 

NYMEX Henry Hub futures contract and monthly indices published by Intelligence 

Press, Inc. (IPI) in NGI 's Bidweek Survey. The AECO contract settles on the difference 

between the NYMEX Henry Hub contract and the AECO-C & Nova Inventory Transfer 

price reported by Canadian Enerdata, Ltd.'s Canadian Gas Price Reporter. Transactions 

used to calculate the monthly Alberta price are conducted on the Natl,rral Gas Exchange 

(NGX). 

With respect to all four contracts, the Commission notes that ICE maintains exclusive 

rights over IPI's bidweek indices and over NGX's Alberta gas price index and as a result, 

no other exchange can offer a basis contract based on those indices. "While other thirdparty price providers produce natural gas price indices for a variety of trading centers, 

those indices may not be the same in value or quality" as the IPI and NGX indices, the 

Commission says. 

Platts in fact reports monthly indices at all four of those price locations and believes its 

indices reflect the same quality as at its other locations and are valid indicators of price 

values at those four locations. As shown below, trading volumes compiled by Platts at 

those pricing locations are robust. Platts also notes that NYMEX uses Platts' Chicago, 

Malin and PG&E city-gate prices to settle basis swap contracts for those points traded or 

cleared on NYMEX's Clearport system. 

4 
.. 1 r • 

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

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

Chicago 645,525 144 67,897 29 299,663 67 

Malin 163,700 38 285,102 58 299,962 62 

PG&E Citygate 438,180 91 331,191 69 253,491 51 

AECO 1,649,412 326 1,739,613 345 2,646,359 535 

* Volumes in MMBtulday 

#Total re[J_orted 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 

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 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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