October 26, 2009 

Received CFTC 

Records Section 

;o(DL?/ocr Natural Gas Supply AssoCiation 

.....:. 0 g ..., .. e.g. :::! ---+--------- ---~ ----- ------c:::r-o--------; -----------

COMMENT -~ ~ : Secretary of the Commission 

Three Lafayette Centre 

115521stStreet1 NW 

Washington, DC 20581 

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Re: Natural Gas Supply Association Comments on Whether 13 ICE N~aE 

Gas Contracts Perform SPDC Functions (Federal Register Dockets 74 FR 52188,jD F~ 

52186, 74 FR 52207, 74 FR 52196, 74 FR 52198, 74 FR 52190, 74 FR 52192, 74 FR52206, 74":f 

FR 52208,74 FR 52194,74 FR 52210,74 FR 52200 and 74 FR 52202) ' 

Dear Mr. Stawick: 

The Natural Gas Supply Association ("NGSA") appreciates the opportunity to 

comment on the Commodity Futures Trading Commission ("the Commission") October 

9, 2009 Notice of Intent ("NOI") to determine whether 13 financially-settled natural gas 

contracts offered for trading on the Intercontinental Exchange, Inc. ("ICE") perform 

significant price discovery ("SPDC") functions. 

Established iri 1965, NGSA encourages the use of natural gas within a balanced national 

energy policy and promotes the benefits of compe-titive markets to ensure reliable and 

efficient transportation and delivery of natural gas and to increase the supply of natural 

gas to U.S. customers. NGSA' s members produce and market approximately onethird of the U.S. natural gas supply. Representing many of the major natural gas market 

participants, NGSA has an interest in the outcome of this proceeding. 

NGSA appreciates the Commission's efforts to ensure a robust and competitive 

marketplace. Nevertheless, NGSA is concerned that the contracts in question do not 

embody an appropriate combination of key characteristics, as defined by the 

Commission, necessary for final SPDC designation. While NGSA acknowledges that 

the CFTC has discretion in this regard, any unnecessary SPDC designations and 

associated position limits risk unintended consequences, particularly with regard to 

liquidity and cost, in an energy commodity market that is already one of the most 

efficient in the world. For the record of this proceeding and further Commission 

consideration, we are submitting an NGSA-commissioned analysis of physical natural 
Page 2 of4 

gas price formation and transparency in the U.S. by former Commissioner William 

Albrecht. 

The Commodity Exchange Act (CEA) notes that, in order to establish whether a contract 

performs a significant price discovery function, the Commission shall consider as core 

principles price linkage, arbitrage, material price reference, and material liquidity for 

such a determination. 1 In considering these core principles, the Commission considers 

___ :the_follo_wing -~--------- ----------------~-- ----

• Price Linkage: does the contract rely on a daily or final settlement price or other 

price~o£-a contract listed on aDeM or DTEF? 

• Arbitrage: is the price of the contract sufficiently related to the price of a contract 

listed on a DCM or DTEF to permit arbitrage on a frequent/recurring basis? 

• Material Price Reference: are cash market bids, offers or transactions in a 

commodity based on-or determined by referencing-the SPDC prices on a 

frequent/ recurring basis? · 

• Material Liquidity: is the volume of trading on the ECM sufficient to have an 

effect on contracts listed on a futures exchange? 

As of this time, the Commission has applied these core principles to a single SPDC 

determination, the ICE Henry Hub "look-alike" swap. In that instance, the 

characteristics of that contract mirrored and were deemed to have potential influence 

on the NYMEX futures values and the underlying physical contracts traded at the 

benchmark Hemy Hub pipeline confluence in Erath, La. 

In the proposed contracts now under consideration, however, the swaps referenced 

have characteristics that are materially different than the previous designation. The 

contracts for which the Commission is proposing SPDC status generally contain a 

pricing term which consists of the Henry Hub NYMEX futures expiry price for the 

month and basis differential. 2 The basis differential is produced by reference to the 

price for a location published by a publication such as Platts Inside FERC Gas Market 

Report. Thus, the pricing mechanism for the floating price for a location downstream of 

Henry Hub is the NYMEX price for a month deducted from the Platts price for the 

affected location. 

As a result, the fundamental variable market driven price is the NYMEX price. As the 

NYMEX price is a futures contract traded on a regulated exchange subject to reporting 

and position limits, the pricing for the "basis" location is materially dependent on the 

futures price and is derivative of it. The other element of pricing is the Platts price 

which is the product of a well vetted process to identify the price of transactions for the 

1 Commodity Exchange Act§ 2(h)(7) II CFTC Commission Rule 36.3 (c)(3). 2 See. for example, the Dominion -South Financial Basis Contract. 
Page 3 of4 

period at the location. The floating price (the difference between these two inputs) is the 

aspect of the contract that provides pricing mechanism to establish the relevant price 

that hedges the risk at the referenced location. It is not the trading of the contract itself. 

Unlike the Henry Hub "look alike" contract (which has been fonnd to be a SPDC), the 

"basis" contract is not the economic equivalent of the Henry Hub futures contract. Its 

purpose is to hedge price risk at a particular location by reference to the nnderlying 

---pricediscO-v:e:ry-contract-for-North-American-natural-gas,the-He:my-Hub-futul'es--· ·---~---­

contract. Its price is largely determined by trading in the Hemy Hub futures contract, 

not by trading in the "basis" contract. 

The criteria the Commission is to use to consider whether a contract is an SPDC include 

whether the "extent to which, on a frequent and reoccurring basis, bids, offers, or 

transactions in a commodity are directly based upon, or are determined by referencing 

the prices generated by" the subject contract. While many contracts settle by reference 

to the Henry Hub futures contract, NGSA is not aware of any material use of a "basis" 

contract used as a price reference in any material way. As the settlement mechanism in 

the contract is Platts minus NYMEX Henry Hub, there is no reason commercial parties 

would need to reference the swap when they could reference the transparent and 

readily available price indicators: the NYMEX price and the Platts price. 

Further, as opposed to the Henry Hub futures contract, the "basis" contracts do not, to 

NGSA' s knowledge, have a material effect on other agreements, contracts, or 

transactions listed for trading" ... on a designated contract market'' as is required to be 

designated a SPDC. The "basis" contracts are derivative of the Hemy Hub futures 

contract, not the other way aronnd. NGSA is not aware of contracts which are 

derivative of the 'ibasis" contracts. 

It is important to keep in mind, as noted above, the ICE Henry Hub "look-alike" 

contract is already a SPDC, and provides the most direct market protection for the 

nnderlying physical transactions at the various locations. It is often the referenced price 

for negotiated contracts together with the Henry Hub fixed-price contract published in 

Inside FERC and other trade publications. Again, the Commission has already taken 

steps to secure the Henry Hub basis contract from excessive speculation risk. Without 

careful application of each of the SPDC core principles, premature SPDC designations 

risk hampering market development and expansion of potentially valuable riskmanagemenftools. As can be seen from the foregoing, the subject contracts do not 

meetmaterial elements of the SPDC criteria and do not merit SPDC status. 

Inappropriate SPDC designation would subject the contracts to unnecessary 

government interventions and could nnintentionally result in inefficiencies and 

increased costs in the market. 
Page 4 of4 

As Dr. Albrecht notes, "a major challenge for regulators is to balance the benefits and 

costs of new rules and regulations, and recognize that a healthy market does not 

necessarily mean declining or less volatile pricing." 

As shown above, the subject contracts do not merit SPDC status: such status would 

provide limited market value; and the imposition of such status could increase costs to 

market participants. 

Respectfully submitted, 

Jennifer Fordham 

Director, Energy Markets and Government Affairs 

Natural Gas Supply Association 

805 15th Street, NW, Suite 510 

Washington, DC 20005 

202-326-9317 (direct) 
PRICE TRANSPARENCY IN THE US NATURAL GAS MARKET 

William P. Albrecht 

July 14, 2009 

~~-----~---~~- -~---·-----~~~-

EXECUTIVE SUMMARY 

• - The u.s. natural gas market hasundergone significant changes sih_c_e-the deregulatiorfof 

natural gas wellhead prices in 1989. It has evolved into a highly price transparent market, 

arguably the most price transparent commodity market in the world. This evolution has 

been driven by market forces, technology and governmental oversight. 

• The U.S. natural gas market consists of two interrelated parts: the physical market and the 

financial market. 

• The financial market is comprised of transactions involving financial instruments based 

upon the price of natural gas that do not typically result in delivery of the physical 

commodity. These instruments include exchange-traded futures and options and a wide 

variety of OTC swaps. 

• The financial market provides real-time prices on a wide variety of natural gas derivatives 

that are available to all market participants. 

• The physical market is comprised of transactions involving the actual commodity. 

Participants in this market can negotiate a fixed price for a transaction or they can use a 

price index that is based upon recent fixed price transactions. 

• Efforts to use the number of fixed price transactions as a measure of market health or 

transparency are misguided. The important question is whether the there is enough price 

transparency to enable buyers and sellers to informed decisions in their transaction. 

• An examination of the interaction between the physical and financial U.S. natural gas 

markets shows ~hat there is enough transparency. In fact, the combination of transparency 

on both the physical and financial sides of the market makes the overall market close to 

being completely transparent. 

• A significant amount of government oversight exists. Efforts to expand this overs.ight should 

be based upon a careful evaluation of likely costs and benefits. 

1 
The U.S. relies upon natural gas for about 25 percent of its energy needs and will likely 

rely even more heavily upon it in the future based on the current U.S. climate goals. It is 

essential, therefore, that the natural gas market be efficient in both the short run and the long 

run. Fortunately, over the past twenty years, the U.S. natural gas market has been transformed 

into an extremely efficient one. 

The catalyst for this transformation was the 1989 deregulation of natural gas wellhead 

prices. This action allowed prices to be determined by market forces (the interaction between 

supply and demand). Today, the U.S. natural gas market, unlike any other natural gas market in 

the world is very competitive, liquid, transparent and efficient. Natural gas prices over the . 

long-term reflect supply and demand, leading to efficient use of natural gas by all sectors of the 

economy. Price deregulation has benefitted producers, consumers and the economy as a 

whole. 1 

Despite tremendous market-driven enhancements to transparency and efficiency in the 

market over the last 20 year, the performance of the natural gas market remains a point of 

considerable debate. This ongoing debate is driven largely by concerns related to the relatively 

high natural gas commodity prices in the summer of 2008, natural gas price volatility, and the 

influx of passive money investment in the U.S. natural gas futures market. These observations 

were not unique to the natural gas commodity market and in fact were characteristic of many 

energy and non-energy commodities. Many commodities exhibited bullish behavior during that 

time period driven partly by a weak dollar and a strong global economy. Nevertheless, the 

1 See Hayek {1945) and Grossman and Stiglitz {1980) (and many others) for a discussion of the role of markets and 

trading in generating the information necessary for efficient use of resources. 

2 
concerns with commodity prices in the summer of 2008 and recent years ~ave led some to 

express concern about the degree of price transparency and speculation in the U.S. market for 

natural gas and to suggest regulatory and policy changes to improve the market. 

The purpose of this paper is to address these concerns about transparency. ·In order to ----·---------···· ------ -------- ---------

do this we begin with a brief look at the structure of the natural gas market. 

Market Structure 

The U.S. natural gas market is essentially comprised of two parts; the physical market 

and the financial market. The two parts serve different purposes, but they are closely related. 

The interaction of the two parts ensures that both reflect the same underlying fundamentals. 

The physical market is comprised of transactions involving the actual commodity (primarily 

methane). The financial market is comprised of transactions involving financial instruments 

that are based upon the price of natural gas, but typically do not result in delivery of the 

physical commodity. 

3 
The Physical Market 

The physical natural gas market emerged decades ago and is simply a marketplace for 

the purchase and sale of natural gas. The Federal Energy Regulatory Commission (FERC) is 

obligated under the Energy Policy Act of 2005 (EPAct) to ensure that the U.S. natural gas market 

is competitive and efficient. The physical natural gas market is comprised of thousands of 

people buying and selling natural gas at locations all over the U.S. and the world. In these 

transactions, they arrange to move that natural gas from point A to point B for various 

purposes, but ultimately for consumption. 

Unique relative to the rest of the world, U.S. market participants have the ability to 

store a large quantity of natural gas. Natural gas from storage is used to bridge the gap 

between daily production and daily seasonal consumption. Because there are specific 

operational limits on each storage facility 2 and because storage operators charge fees each 

month on the quantity of natural gas in storage, natural gas is typicaiJy not stored for more than 

a season. U.S. storage is most heavily relied upon in the winter, to meet cyclical demand, thus, 

it is usually filled by November 1 and emptied by March 31 each year. Storage withdrawals are 

typically used to help meet peak season demand. Most natural gas storage capability is 

controlled by the local natural gas utilities. 

Henry Hub in louisiana is the delivery point for pricing the natural gas futures contract 

(discussed later), but it is only one of the many physical natural gas market centers in the U.S. 

2 Natural gas can be stored in several ways, including above ground in liquid form but the majority of storage 

capability is in depleted natural gas wells. Each storage facility has defining physical characteristics that are used 

to set safe limits for operating pressures, total quantities that can be stored, and the amount that can be injected 

and withdrawn each day. 

4 
Henry Hub is the nexus of 16 intra- and interstate natural gas pipeline systems that draw 

supplies from the on-shore and off-shore Gulf of Mexico production area. The pipelines serying 

the Henry Hub provide access to market areas throughout the U.S. East Coast, the Gulf Coast, 

the Midwest, and up to the Canadian border. 

--- ------- - ------ -------· 

Prior to the prevalence of computers, this entire activity of buying and selling natural 

gas took place over the phone (e.g. a buyer calling a seller and arranging for delivery). As the 

market became more geographically diverse and interconnected, the need to standardize and 

computerize this activity emerged. The concept of the natural gas "bid week" emerged, and 

the market-driven, voluntary Gas Industry Standards Board (GISB), now the North American 

Energy Standards Board (NAESB), came into being to help ensure that buyers and sellers of 

natural gas spoke the same language. A 10 AM delivery of natural gas, for example, means 10 

AM Central time. Bid week, the last five business days of the month, became the time for most 

of the physical purchasing and selling of natural gas. Although market participants can still 

transact at any time of the month, bid week became the time when the majority of physical 

transactions for the next month's delivery are consummated. A significant number of 

transactions are "fixed price" contracts in which the buyer and seller agree upon a price for gas 

to be delivered daily for the next month. Thousands of these transactions are reported to 

several publications which quickly convert these prices into monthly locational price indices 

that are available on the first business day following the last day of bid week. These indices, in 

turn, are used as the basis for pricing for those firms that do not choose to enter into fixed price 

contracts (or are prohibited from using them by state or local regulators). 

5 
In addition to the publications' monthly indices, several publications survey the market 

for daily transaction prices that are used to form and publish a daily index that is made 

available the morning of the next business day. Participants in the natural gas market have the 

ability to buy and sell natural gas throughout the day as well. This system of index price 

--------------------------------:-

formation and discovery is unique to the U.S. natural gas market and contributes substantially 

to price transparencyand competitive pFicing. In short, the U.S. natural gas market has 

extensive physical market data that provide unparalleled transparency for the monthly and 

daily natural gas markets at dozens of different market locations throughout the U.S. 

The Financial Market 

The financial market consists of transactions in futures, options, swaps and similar 

financial instruments based upon natural gas prices. 3 The largest volume of such transactions 

occurs in the New York Mercantile Exchange (NYMEX) natural gas futures contract. (Average 

daily trading volume was just over 153,000 contracts in 2008.) 

The futures market is the generic (or standard) contract for price insurance on a 

particular commodity. Shortly after the deregulation of wellhead prices, NYMEX formed the 

natural gas futures contract based on the way the physical natural gas market was already 

working. Instead of buying or selling natural gas on a real-time or next month basis, the NYMEX 

futures contract provides market participants with the ability to buy or sell a contractual right 

to buy or sell a standardized amount of natural gas at a particular point in the future at a 

3

Kyle (1985) provides a very useful conceptual overview of the activity in such a financial market. 

6 
standardized location. The standardized contract4 is for 10,000 MMBtu delivered or sold at 

Henry Hub the next month or any month during the next ten years or more. This translates to 

approximately 333 MMBtu every day the next month, enough natural gas to serve about 1200 

households. 5 An end user that has agreed to buy natural gas at an indexed price for a year, 

--- -~---- --- ~-- ----------~~---~----~--------··------

for example, may choose to buy a futures contract to hedge (or protect itself) against a price 

-increase. An inuease in prices would then provide a gain on the future to offset the increase in 

cost of the index purchase. The consumer normally would not take the future to delivery since 

their physical requirement is satisfied by the index purchase. 6 

The futures market mirrors the existing and most prevalent physical market practice of 

buying natural gas in one month for delivery every day the following month at one of the larger 

physical market centers, the Henry Hub. NYMEX, with the oversight of the Commodity Futures 

Trading Commission (CFTC), established the third business day prior to the end of the month in 

which the contract expired as the final settlement day for the futures contract to allow time for 

settlement and verification. This means that holders of a futures contract at the time of 

contract settlement become obligated to buy or sell (depending on the contract) 10,000 

MMBtu of natural g9s the following month at Henry Hub. Unlike the physical market, the 

futures market allows for price discovery across time since entities are buying price insurance 

for what may be years ahead. Although the futures contract provides an excellent means to 

ensure price insurance for a future period, it does not necessarily reflect what the actual price 

4 Standardized contracts increase transaction speed (since parties do not have to negotiate a series of ever 

changing specifications) but they do not allow for customization. 5

While this sounds like a large quantity, consider that today's typical 500 MW natural gas fired power generator 

requires approximately 84,000 MMBtu (more than 250 standard contracts) to run for one day. 6

Less than one percent of all futures transactions result in an actual physical transaction. · 

7 
will be in the physical market. It is simply a tool available within the market for making 

standardized transactions that provide the right to a certain commodity price at a certain point 

in the future. 

The futures market is only a part of the financial market for natural gas. There are also --------------

exchange-traded options as well as numerous over-the-counter {OTC) natural gas financial 

instruments. These OTC instruments can be broadly categorized as basis swaps, index swap 

futures, and swing swap futures. 7 Hundreds of these are cleared on NYMEX and the 

Intercontinental Exchange {ICE). This means the prices of these transactions are readily 

available on NYMEX or ICE electronic screens. The number of such instruments keeps growing. 

In March 2009, for example, ICE began clearing an additional 22 natural gas swaps. Thus, 

market transparency grows steadily as more instruments are developed due to the efforts of 

market participants and the evolving technology that permits and encourages enhanced 

transparency. The ability for market participants to enter into non-standardized, non-cleared 

transactions is an equally important feature of the market that fosters liquidity, allowing 

market participants an opportunity to recognize factors other than cash as collateral. 

All of these instruments (exchange-traded and OTC) are used to protect against 

unwanted risk. (They provide insurance.) And, as isthe case for futures, they can be used to 

attempt to profit from expected price changes (speculation) or from misaligned prices 

(arbitrage). Some market participants use these instruments only for insurance. Others use 

them only for speculation. Many of the transactions are by commercial users who use them for 

7 Basis swaps are used to manage the difference between the price at a particular location and the price at Henry 

Hub. Index swaps manage the difference between the monthly and daily index at a particular point. Swing swaps 

manage exposure to the Gas Daily price at a location. 

8 
both purposes. These users buy and sell in the physical market and use the financial market to 

hedge unwanted risk. They also use the financial market for arbitrage when prices within or 

across the markets are misaligned. Some market participants do nothing but arbitrage among 

different parts of the financial market (say, June and September futures). Because of the 

--- --- ---------

transparency of both financial and physical markets, arbitrage quickly and efficiently keeps 

prices in all markets aligned. Abnormal relationships among different-markets are quickly 

corrected unless there are supply and demand reasons for such differentials. 

Price Transparency 

Some buyers have argued that price transparency is low because natural gas price 

indices are based on incomplete access to information regarding the number of trades and the 

terms of such trades. In this paper deals, transparency means price transparency. 

To remedy this, they have asked FERC to mandate price reporting or collect 

information so that the ratio between fixed and indexed priced transactions can be 

determined. 8 Those suggesting this approach, however, have lost sight of the big picture and 

are asking the wrong question. The important question is not whether a certain percentage of 

sales is at a fixed price. It is whether there is enough price transparency for market participants 

to make well-informed decisions when buying and selling. It is clear that, in the U.S. natural gas 

market, the answer is yes. 

Over the last 10 years, this transparency has grown to a level that is unrivaled by other 

commodities. In the physical market, a number of publishers follow rigorous FERC established 

procedures for the collection and publication of volume and price information for transactions 

8 Post Technical Conference Comments, Docket No. AD06-11, American Public Gas Association, November 1, 2006. 

9 
occurring at a great many points across the U.S. This pricing information is available for daily 

and monthly transactions. This pricing information is provided to the publishers by many 

voluntary market participants who follow equally rigorous FERC established procedures for the 

reporting of this data. Violations of these reporting and publishing procedures are subject to 

stringent enforcement action from FERC. The integrity of this structure has been wellestablished for overfive years and pricing information is available within the market for more 

than 25 Bcf per dal, an amount equal in size to one-third to one-half of total U.S. natural gas 

consumption. This level of transparency stems from only one of many natural gas price index 

publishers that are among the numerous sources providing price transparency to the market. 

In the financial market, the NYMEX and ICE electronic platforms provide real time 

transparency for futures, options and a large (and growing) number of swaps. This growth is 

driven by the private sector. Transparency in the financial market is driven by improved 

technology and increased market participant demand for better or additional risk management 

tools. 

The combination of the transparency on both the financial side and the physical side 

makes the overall U.S. natural gas market very transparent, arguably the most transparent 

commodity market in the world. The information available about prices and fundamentals 

from all sources enables all markets participants to make informed decisions about buying and 

selling in both the physical and financial markets. Given the high level of transparency that 

9 See http://www.naturalgas.org/business/marketactivity.asp, Platts Inside FERC Bidweek Natural Gas Price Survey 

Statistics. 

10 
already exists, however, there is some question as to whether any benefits of the new 

regulations will be significant and whether they will be worth the cost. 

Other Commodity Markets 

Just as transparency has increased in the U.S. natural gas market so it has in other --------------------------

commodity markets. There has been some move toward increased transparency in European 

natural gas markets, but they fail far short of the U.S. market on both the physical side and the 

financial side. The commodity markets that are closest in transparency to the U.S. natural gas 

market are the U.S. markets for oil and grains (corn, wheat, soybeans). These grain markets are 

generally considered very transparent; for years many have considered them the most 

transparent commodity markets in the world. Arguably, this is no longer the case. Let us see 

why. 

As with natural gas, there are also physical and financial markets in grain. In recent 

years, the physical markets in grains have not been as transparent as the physical market in 

natural gas. Elevator grain price bases (the difference between the futures prices and the cash 

price paid to the farmer), for example, have not been as transparent as gas prices. The latter 

have been available on a real time basis for several years on NYMEX and ICE (financial markets) 

for many locations, thereby providing information to physical market participants. The elevator 

bases, however, while publicly quoted, were not as readily available. This is now changing with 

the introduction of CME cleared basis swaps in corn, soybeans and wheat (approved by the 

CFTC on March 20, 2009). The introduction of these instruments will, in time, significantly 

enhance physical grain market transparency. There remain, however, significant differences 

between grain and natural gas swaps. The grain basis swaps are based upon regional price 

11 
indices rather than individual elevator prices. The natural gas basis swaps are based upon 

specific locations, thus providing a higher degree of transparency. Not all delivery points for 

natural gas have exchange-cleared basis swaps, but many additional delivery points are traded 

with OTC basis swaps, 

------------- ----------------------------

These recent developments in grain markets illustrate several important points about 

commodity markets. One is that they are dynamic and constantly evolving as trading 

technology evolves. A second is that change is primarily driven by market participants, not 

regulators. A third is that the physical and financial markets are indeed part of the sam~ 

market. These developments also illustrate the difficulty of comparing transparency across 

markets in such a dynamic environment. 

From the perspective of public policy, it does not really matter whether the U.S. natural 

gas market is more or less transparent than other markets. (Just as it does not matter whether 

index prices are derived from a large number of fixed-price transactions.) The real issue is 

whether the level of transparency in a particular market is sufficient to provide participants 

with the information they need in order to make informed decisions. Are prices available in 

real time and do they reflect supply and demand? In the natural gas market, the answer is yes. 

It is doubtful whether there are any regulatory steps that will increase transparency and 

whether these steps will have significant enough benefits to justify their costs. 10 

To sum up, the critical point with respect to transparency is that there are many 

thousands of market participants and they have prompt access to prices in the physical 

10 There is one regulatory change that would improve the market. State and local regulators should ease their 

restrictions on the use of futures and other financial instruments by natural gas utility companies. 

12 
market and real time access to prices in the financial markets. In the physical market, 

participants can use this information as the basis for negotiating a fixed price transaction or 

they can base the price upon an index that is based upon fixed price transactions. In the financial 

market, they can use this information to buy, sell, hedge, speculate and arbitrage over time and 

location. The combination of transparency on both the financial side and the physical side 

make the U.S. natural gas market very close to being completely price transparent. 

Conclusion 

Markets are not perfect and do not always perform as desired; such is the nature of any 

real world institution. Unfortunately, if a market does not perform precisely as some wish, 

there is frequently pressure on regulators to change the rules. But they cannot make things 

perfect. Nor should they try to satisfy everyone who complains. This is often very difficult to 

do when faced with strong political pressure to do something about some perceived 

inefficiency or unfairness or undesired pricing level. There is, therefore, the very real danger 

that overzealous regulation will generate inefficiencies that will then be used to justify more 

regulation. Thus, a major challenge for regulators is to balance the benefits and costs of new 

rules and regulations and recognize that a healthy market does not necessarily mean declining 

or less volatile prices. 

It was inevitable that a change as dramatic as price deregulation of the U.S. natural gas 

market and the ensuing evolution of the natural gas market would generate losers as well as 

winners. That is simply the result of a market that works. Certainly, continued regulatory 

oversight is appropriate and some increased regulatory oversight may be desirable; but we 

13 
should also realize that regulation often does not lead to a better use of resources. In his 

classic article, The Theory of Economic Regulation, Nobelist George Stigler (1971) shows that 

the primary effect of regulation is usually reduced competition. In fact, although well meaning, 

many of the proposed actions to address concerns regarding fixed price transactions in the 

natural gas market would actually reduce competition and efficiency. 

REFERENCES 

Grossman, S.J. and J.E. Stiglitz 1980. "On the Impossibility of lnformationally Efficient 

Markets." American Economic Review, vol. 70, BNo.3 (June), pp. 393-408. 

Hayek, F. 1945. "The Use of Knowledge in Society." Americim Economic Review, Vol. 35, No.4, 

(September), pp. 519-30. 

Kyle, A.S. 1985. "Continuous Auctions and Insider Trading." Econometrica, Vol. 53, No. 6 

(November), pp. 1315-36. 

Stigler, G. 1971. "The Theory of Economic Regulation." The Bell Journal of Economics and 

Management Science. 

14 

\-. 
ABOUT THE AUTHOR 

William P. Albrecht 

EDUCATION 

AB Princeton University, 1956 (Philosophy) 

M.A. University of South Carolina, 1962 (Economics) 

---------,M~k-'fale-l:Jniversity,-1963-(Eeonomies}------------------------------· ·------------

Ph.D. Yale University, 1965 (Economics) 

EMPLOYMENT 

Commissioned Officer, U.S. Navy 1956-1961 (Engineering Officer on destroyer escort, 1956-

1959; Associate Professor of Naval Science, 1959-1961) 

Instructor (Economics), University of South Carolina, Summer 1961 

Acting Instructor (Economics), Yale University, 1964-1965 

Assistant Professor of Economics, University of Iowa, 1965-1970 

Associate Professor of Economics, University of Iowa, 1970-1982 

Legislative Assistant to Senator Dick Clark, January-December, 1974 

Professor of Economics, University of Iowa, 1982-2007 

Associate Dean, College of Business Administration, University of Iowa, 1984-1988 

Visiting Professor, University ofthe Andes, Merida, Venezuela, Spring 1986 

Commissioner, Commodity Futures Trading Commission, 1988-1993 

Acting Chairman, Commodity Futures Trading Commission, Jan-Aug 1993 

Director, Institute for International Business, University of Iowa, 1999-2005 

Justice Professor of International Business, University of Iowa, 2000-2007 

Professor Emeritus, University of Iowa, 2007-present 

15 
PUBLICATIONS 

Irving Kovarsky and William P. Albrecht, Black Employment, Iowa State University Press, 1970. 

William P. Albrecht, Economics, Prentice-Hall, Inc., 1974. 

---------------~-~~----------------- -----~---- -----·-·-----------------·--------

William P. Albrecht, Economics, 2nd ed., Prentice-Hall, Inc., 1979. 

William P. Albrecht, Macroeconomic Principles, Prentice-Hall, Inc., 1979. 

William P. Albrecht, Microeconomic Principles, Prentice-Hall, Inc., 1979. 

William P. Albrecht, Economics, 3rd ed., Prentice-Hall, Inc., 1983. 

William P. Albrecht, Macroeconomic Principles, 2nd ed., Prentice-Hall, Inc., 1983. 

William P. Albrecht, Microeconomic Principles, 2nd ed., Prentice-Hall, Inc., 1983. 

William P. Albrecht, Economics, 4th ed., Prentice-Hall, Inc., 1986. 

William P. Albrecht, Macroeconomic Principles, 4th ed., Prentice-Hall, Inc., 1986. 

William P. Albrecht, Microeconomic Principles, 4th ed., Prentice-Hall, Inc., 1986. 

Articles and Notes 

William P. Albrecht, "The Prospects for Price Stability in 1966," Iowa Business Digest, March 

1966. 

William P. Albrecht, "The Relationship Between Wage Changes and Unemployment in 

Metropolitan and Industrial labor Markets," Yale Economic Essays, Fall 1966, pp. 279-341. 

William P. Albrecht, "lnter'market and lntertemporal Differences in the Relationship Between 

WageChanges and Unemployment," Mississippi Valley Journal of Business and Economics, Winter 1970, 

pp. 51-58. 

William Knoke and William P. Albrecht, "Economics ofthe Sweetener Industry," MSU Business 

Topics, Winter 1970, pp. 43-48. 

William P. Albrecht, "Economic Policy and Politics," The State of the Economy, Proceedings of a 

conference sponsored by the College of Business Administration, The University of Iowa, 1975. · 

William P. Albrecht, "Why Regulation Fails," The Journal of Economics, 1977, pp. 235-236. 

16 
William P. Albrecht and Thomas Pogue, "AFDC Tax Rates, Work Incentives, and Welfare Reform: 

A Comment," National Tax Journal, June 1978, pp. 91-95. 

William P. Albrecht and Thomas Pogue, "Changes in Taxes and Transfers: Implications for 

Stagflation," The Journal of Economics, 1978, pp. 1-5. 

William P. Albrecht, "The New Regulation and the Theory of Economic Regulation," The Journal 

ef-~cenomics, 1-980;-pp~-1-2. ·· ~---·-·-·------- ------·------------·· 

William P. Albrecht, "Welfare Reform: An Idea Whose Time Has Come and Gone," in Paul 

-Sommers, ed., Welfare Reform in Ameriea: Perspectives and Prospects, Kluwer Nijoff, 1982. -

William P. Albrecht, "The Deficit: Malignant or Benign?", The Iowa Economic Forecast, 

September 1983. 

William P. Albrecht, "La Contribucion de Keynes a Ia Ciencia Economica," Facultad de Economia, 

lnstituto de Investigaciones Economicas y Sociales, Universidad de los Andes, 1987. 

William P. Albrecht, "The World's Largest Debtor," Iowa Business, Fall1988. 

William P. Albrecht, "Much Ado About Margins", FIA Review, May/June 1990, pp. 27-29. 

William P. Albrecht, "A Trader's Fable: Once Upon a Time in Marketland", Commodities Law 

Letter, June 1990, p. 6, 7. 

William P. Albrecht, "Commodity Futures Trading Commission" The New Palgrave Dictionary of 

Money and Finance, 1992, pp. 394-95. 

William P. Albrecht, "Regulatory Reform: A Research Agenda", in Research Frontiers in Futures 

and Options: An Exchange of Ideas, A Symposium in Honor of Thomas A. Hieronymous, Office for 

Futures and Options Research, University of Illinois at Urbana-Champaign, 1993, pp. 35-42. 

William P. Albrecht, "Cross Registration Border Check," Futures Industry, May-June 1993, pp. 15-

17. 

William P. Albrecht, "How Many Regulators? How Many Regulations?" Managed Account -

Reports, August 1993, pp. 21-22. 

William P. Albrecht, Corinne Bronfman and Harold C. Messenheimer, "Regulatory Regimes: The 

Interdependence of Rules and Regulatory Structure", Andrew Lo, ed., Industrial Organization and 

Regulation ofthe Securities Industry, NBER, The University of Chicago Press, 1995, pp. 9-33. 

William P. Albrecht, "Comment on Institutional and Regulatory Influences on Price Discovery in 

Cash and Futures Bond Markets," in Andrew Lo, ed., Industrial Organization and Regulation ofthe 

Securities Industry, NBER, The University of Chicago Press, 1995, pp. 265-67. 

17 
William P. Albrecht, "The Regulation of Exchange-Traded Derivatives: The Need for a 

Comparative Institution Approach," Journal of Corporation law, Fall1995, pp. 111-29. 

William P. Albrecht, "Emerging Asian Markets: Evolution of Derivatives Exchanges," Catalyst 

Institute Update, Third Quarter, 1997. 

William P. Albrecht, "Should International Capital Flows Be Regulated", The Financial Regulator, 

March 1998, pp. 26-29. 

~-~~ -~~-~- ~~- ---·-~----~~~- -----~--------~ --~~------~ 

William P. Albrecht, "Reforming US Regulatory Structure" Futures Industry, February-March 

1999, pp. 14-16. 

William P. Albrecht, "The Evolution of Derivatives Exchanges in Asia's Emerging Markets; Some 

Observations and lessons", Catalyst Institute, February 1999, pp. 1-41. 

William P. Albrecht, "The Evolution of Derivatives Exchanges in Asia's Emerging Markets; Some 

Observations and lessons", Futures and Derivatives law Report, May 1999, pp. 1-12. 

William P. Albrecht, "The Development of Derivative Products in Asian Capital Markets", ASAF 

Electronic Journal, February 2001, pp. 8-13. 

CURRENT RESEARCH 

Regulation of Financial Services 

Financial Markets and Economic Development 

18 
OTHER ACTIVITIES 

Candidate for U.S. Congress, 1970 

First Vice President, Midwest Economic Association, 1981-1982 

Weekly television commentary, "Money Talk," 1985-86 

~~~,Beard-ef-QireeteFS,--Iewa-h'lsuranee Edueatien-Fund,--lne;,.--1986-1988--~----- -------------- --~-

Board of Directors, University of Iowa Community Credit Union, 1987-1988 

Publisher's Advisory Board, Futures, 1993-1994 

Chairman, Task Force on Derivatives, International Organization of Securities Coin missions, 

1993-1994 

Director, Derivatives Project, Emerging Markets Committee, International Organization of 

Securities Commissions, 1994-1996 

Global Scholar, University of Iowa, 1996-98 

Consultant to World Bank and governments on the regulation offutures and options markets 

Catalyst Institute Scholar, 1996-1999 

19