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David A. Stawick, Secretary 

Received CFTC 

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November 4, 2009 

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~ Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st St. NW COMMENT 

Washington, DC 20581 

secretary@cftc.gov 

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 Socal Border 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 20, 2009 notice, the Commission sought comment on the Socal Border 

financial basis contract, which is cash-settled on the difference between the price of 

natural gas at the Southern California Border hub for the month of delivery in the first 

publication of the month, as published in Intelligence Press Inc.'s Natural Gas Bidweek 

Survey, and the final settlement price for the New York Mercantile Exchange's Henry 

Hub physically delivered natural gas futures contract for the same calendar month. 

The Commission notes that ICE maintains exclusive rights over IPI's bidweek indices 

and as a result, no other exchange can offer a basis contract based on those indices. 

"While other third-party 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 IPI' s price 

indices," the Commission says. 

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Platts in fact reports monthly bidweek indices at the Southern California Gas Co. pricing 

location and believes its indices reflect the same quality as at its other locations and are 

valid indicators of price values at that location. As shown below, trading volumes 

compiled by Platts at the SoCal Gas point are robust. Platts also notes that NYMEX uses 

Platts' So Cal Gas prices to settle a basis swap contract for that point traded or cleared on 

NYMEX' s Clearport system. 

The Commission has examined the volume and trade data for the ICE contracts for 

second-quarter 2009. To facilitate the Commission's inquiry, Platts has compiled its 

relevant monthly bidweek data for SoCal Gas for that time period. 

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

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

SoCal Gas 305,000 51 205,373 41 445,000 87 

* Volumes in MMBtu/day 

# Total reported deals used in determining index 

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

other contracts that are being considered as significant price discovery contracts 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 ofbidweek 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 

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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. 

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 

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 ofthe amount of trading at each point. Tier 1 

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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.cornl elg N owl elgN otAuthRedir.htm ?ref=/IM.Platts. Content/Methodolo 

gyReferences/MethodologySpecs/tiers.xls 

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 that use 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.corn 

202-383-2140 

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