Document ID: FERC-2020-1637-0001
Agency: ferc
Document Type: Notice
Title: Proposed Revised Policy Statement: Actions Regarding the Commission's Policy on Price Index Formation and Transparency, and Indices Referenced in Natural Gas and Electric Tariffs
Posted Date: 2020-12-23T05:00Z

[Federal Register Volume 85, Number 247 (Wednesday, December 23, 2020)]
[Notices]
[Pages 83940-83947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28387]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PL20-3-000]

Actions Regarding the Commission's Policy on Price Index 
Formation and Transparency, and Indices Referenced in Natural Gas and 
Electric Tariffs

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Proposed revised policy statement on natural gas and electric 
indices.

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SUMMARY: The Commission's price index policy is set forth in its Policy 
Statement on Natural Gas and Electric Price Indices. The Commission 
proposes several revisions to that policy to encourage more market 
participants to report their transactions to price index developers and 
to provide greater transparency into the natural gas price formation 
process to increase confidence in the accuracy and reliability of 
wholesale natural gas prices. First, the Commission proposes to allow 
data providers (market participants that report transaction data to 
price index developers) to report either their non-index based next-day 
natural gas transactions, their non-index based next-month natural gas 
transactions, or both, to price index developers. In addition, the 
Commission proposes to encourage data providers to report to all 
available Commission approved price index developers and also allow 
data providers to self-audit on a biennial basis. The Commission also 
proposes to modify the Commission's standards to remain an approved 
natural gas price index developer such that price index developers 
should: Indicate whether a published index price is assessed in their 
published indices and obtain recertification in order for their indices 
to continue to be included in FERC-jurisdictional tariffs. Finally, the 
Commission proposes to clarify the review period for assessing the 
liquidity of price indices submitted for reference in FERC-
jurisdictional tariffs.

DATES: Initial Comments are due March 23, 2021.

ADDRESSES: Comments, identified by docket number, may be filed 
electronically at http://www.ferc.gov in acceptable native applications 
and print-to-PDF, but not in scanned or picture format. For those 
unable to file electronically, comments may be filed by mail addressed 
to: Federal Energy Regulatory Commission, Secretary of the Commission, 
888 First Street NE, Washington, DC 20426. Hand-delivered comments must 
be delivered to: Federal Energy Regulatory Commission, 12225 Wilkins 
Avenue, Rockville, Maryland 20852. The Comment Procedures Section of 
this document contains more detailed filing procedures.

FOR FURTHER INFORMATION CONTACT: 
     Evan Oxhorn (Legal Information), Office of the General Counsel, 
888 First Street NE, Washington, DC 20426, (202) 502-8183, 
Evan.Oxhorn@ferc.gov.
    Eric Primosch (Technical Information), Office of Energy Policy and 
Innovation, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-6483, Eric.Primosch@ferc.gov.

SUPPLEMENTARY INFORMATION: 
    1. The Commission's price index policy is set forth in its Policy 
Statement on Natural Gas and Electric Price Indices.\1\ We propose 
several revisions to that policy to encourage more market participants 
to report their transactions to price index developers and to provide 
greater transparency into the natural gas price formation process to 
increase confidence in the accuracy and reliability of wholesale 
natural gas prices. First, we propose to allow data providers (market 
participants that report transaction data to price index developers) to 
report either their non-index based next-day natural gas transactions, 
their non-index based next-month natural gas transactions, or both, to 
price index developers. In addition, we propose to: (1) Encourage data 
providers to report to all available Commission approved price index 
developers and (2) allow data providers to self-audit on a biennial 
basis.\2\ We also propose to modify the Commission's standards to 
remain an approved natural gas price index developer such that price 
index developers should: (1) Indicate whether a published index price 
is assessed in their published indices and (2) obtain recertification 
in order for their indices to continue to be included in FERC-
jurisdictional tariffs. Finally, we propose to clarify the review 
period for assessing the liquidity of price indices submitted for 
reference in FERC-jurisdictional tariffs. We seek comment on these 
proposed revisions.
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    \1\ 104 FERC ] 61,121 (Initial Policy Statement), clarified, 
Order on Clarification of Policy Statement on Natural Gas and 
Electric Price Indices, 105 FERC ] 61,282 (2003) (2003 Clarification 
Order), clarified, Order Further Clarifying Policy Statement on 
Natural Gas and Electric Price Indices, 112 FERC ] 61,040 (2005) 
(2005 Clarification Order) (collectively, Policy Statement).
    \2\ S&P Global Platts (Platts), Natural Gas Intelligence (NGI), 
Argus Media, and Natural Gas Week are examples of price index 
developers.
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I. Background

A. The Use of Natural Gas Price Indices in Commission Jurisdictional 
Activities

    2. Natural gas price indices play a vital role in the energy 
industry, as they are used to price billions of dollars of natural gas 
and electricity transactions annually in both the physical and 
financial markets. A natural gas price index is a weighted average 
price derived from a set of fixed-price natural gas transactions \3\ 
within distinct geographical boundaries that market participants 
voluntarily report to a price index developer.
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    \3\ The term ``fixed-price natural gas transactions'' refers to 
fixed-price next-day delivery, fixed-price next-month delivery, and 
physical basis transactions (for next-month delivery). These 
transaction types are defined in the FERC Form No. 552: Annual 
Report of Natural Gas Transactions (FERC Form No. 552) instructions. 
The FERC Form No. 552 requires market participants that annually buy 
or sell more than 2.2 trillion British Thermal Units (Btu) of 
physical natural gas to provide aggregated data related to their 
fixed-price, physical basis, Nymex plus, and index-based 
transactions made in the next-day and next-month (bidweek) markets.
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    3. Natural gas price indices serve as a proxy for the locational 
cost of natural gas in the daily and monthly markets, as many market 
participants reference natural gas index prices in their physical and 
financial transactions. Interstate natural gas pipelines, public 
utilities, Independent System Operators (ISOs), and Regional 
Transmission

[[Page 83941]]

Organizations (RTOs) reference natural gas price indices in their FERC-
jurisdictional tariffs for various terms and conditions of service. 
State commissions also use natural gas price indices as benchmarks when 
reviewing the prudence of natural gas or electricity purchases. 
Finally, many natural gas financial derivative contracts that are used 
in hedging and speculation settle against natural gas price indices.
    4. Given that natural gas price index developers use physical 
fixed-price natural gas transactions to calculate the price of 
published natural gas price indices, it is important that transaction 
reporting is robust and that index development is transparent. The 
significant role played by natural gas indices became apparent during 
the 2000-2001 Western Energy Crisis, when companies intentionally 
misreported transactions to price index developers to manipulate 
natural gas index prices in the Western United States.\4\ Subsequently, 
in the Energy Policy Act of 2005 (EPAct 2005), Congress amended the 
Natural Gas Act (NGA) \5\ to give the Commission additional authority 
with respect to natural gas price indices. Pursuant to this authority, 
the Commission established guidelines to ensure that natural gas price 
indices that are used in tariffs are robust, free from manipulation, 
and reflect market fundamentals.\6\
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    \4\ See Initial Policy Statement, 104 FERC ] 61,121 at P 8 & 
n.1.
    \5\ Energy Policy Act of 2005, Public Law 109-58, 119 Stat. 691-
692 (2005) (codified in relevant part at Natural Gas Act of 1938, 15 
U.S.C. 717c-1, 717t-1, 717t-2).
    \6\ Price Discovery in Natural Gas and Elec. Markets, 109 FERC ] 
61,184 (2004) (Price Index Order).
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    5. Subsequently, market participants increased the reporting of 
their fixed-priced natural gas transactions to price index developers, 
which resulted in greater confidence in those indices. However, after 
2010, the estimated traded volume of fixed-price natural gas 
transactions reported to price index developers began to decline 
significantly.\7\ FERC Form No. 552 data show that the estimated volume 
of fixed-price transactions voluntarily reported to price index 
developers declined by approximately 54% from 2010 until 2019.\8\ At 
the same time that fixed-price reporting to price index developers 
decreased, the traded volume of natural gas transactions that 
referenced natural gas indices, known as index gas, increased. For 
example, FERC Form No. 552 data showed that index gas increased from 
69% of the traded volumes in the U.S. physical natural gas market in 
2010 to 82% in 2019. Figure 1 shows estimated physical natural gas 
volumes reported to index developers based on FERC Form No. 552 data.
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    \7\ Two index developers now include fixed-price transactions 
from the InterContinental Exchange (ICE) to increase the liquidity 
of their indices. Staff analysis of the estimated volumes reported 
to index developers does not include that supplemental information 
from ICE.
    \8\ The Commission must estimate the volumes reported to price 
index developers on the FERC Form No. 552 because FERC Form No. 552 
filers can provide aggregated data for themselves and their 
affiliates, some of whom may or may not report to index developers. 
Commission staff estimates this volume by calculating the average of 
the minimum volume reported (filers with affiliates that all 
indicate that they report to price index developers) and the maximum 
possible volume reported (filers with at least one affiliate that 
indicates that it reports to price index developers).
[GRAPHIC] [TIFF OMITTED] TN23DE20.004

    6. Commission staff held a technical conference on June 29, 2017, 
which addressed natural gas index liquidity and transparency issues and 
potential actions the Commission could consider taking to increase both 
the volume of transactions reported to natural gas price index 
developers and the transparency of the physical natural gas price 
formation process.\9\
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    \9\ Docket No. AD17-12-000. A staff-led technical conference 
addressing similar issues was held in 2003 in Docket No. AD03-7-000.
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B. Standards for Indices Used in Jurisdictional Tariffs

    7. The Commission has a statutory obligation to ensure that the 
rates for energy transactions within its jurisdiction are just and 
reasonable. Under the NGA and Federal Power Act (FPA), the Commission's 
jurisdiction extends to sales of electricity and natural gas for resale 
in interstate commerce, interstate transmission of electricity and 
natural gas, and the related pricing mechanisms within jurisdictional 
tariffs.\10\ One way the Commission ensures just and reasonable 
jurisdictional rates is through the review and approval of natural gas 
price indices referenced in Commission approved pipeline and ISO/RTO 
tariffs.
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    \10\ See, e.g., 15 U.S.C. 717(b)-717(d); Natural Gas Policy Act 
of 1978, 15 U.S.C. 3431(a)(1)(A)-3431(a)(1)(D); 16 U.S.C. 824(b)-
824(f).
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    8. An interstate natural gas pipeline, public utility, ISO, or RTO 
proposing to include a price index in its FERC-jurisdictional tariff 
bears the burden of

[[Page 83942]]

supporting its proposed index.\11\ In the Price Index Order,\12\ the 
Commission stated that, when a pipeline or utility proposes to use a 
new natural gas or electric price index reference in a jurisdictional 
tariff or to change an existing natural gas price index reference, the 
Commission would apply a presumption that the proposed price index 
location will result in just and reasonable rates if the pipeline or 
ISO/RTO: (1) Proposes to use an index location published by one of the 
price index developers that the Commission has previously found to meet 
the developer criteria established in the Policy Statement, and (2) 
demonstrates that the price index location meets one or more of the 
applicable liquidity criteria for the appropriate review period.\13\ If 
parties to the proceeding protest the use of the proposed price index 
location, they are required to support the protest with evidence that 
the selected location does not meet the criteria or show good reason 
why the location will not result in just and reasonable rates and 
should not be used. An interstate natural gas pipeline or public 
utility may also file to reference a price index location that falls 
outside of these two parameters. In such a case, the pipeline or 
utility bears the burden of showing that the price index location will 
result in just and reasonable rates and must support its filing 
accordingly.\14\
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    \11\ See, e.g., Northern Natural Gas Co., 104 FERC ] 61,182, at 
P 10 (2003) (Northern Natural).
    \12\ Price Index Order, 109 FERC ] 61,184 at P 68 (citing 
Northern Natural, 104 FERC ] 61,182 at P 10).
    \13\ Id. P 68.
    \14\ Id. P 69.
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    9. Under the Policy Statement, reporting by market participants to 
price index developers is voluntary. For those market participants that 
choose to report to price index developers, in the Policy Statement, 
the Commission set forth the following minimum reporting standards for 
data providers: (1) Code of conduct--adopting and making public a code 
of conduct that employees will follow when buying and selling natural 
gas or reporting data to index developers; (2) source of data--having 
trade data reported by a department of the company that is independent 
from and not responsible for natural gas trading; (3) data reported--
reporting each bilateral transaction between non-affiliated companies 
which details the price, volume, whether it was a purchase or a sale, 
the delivery/receipt location, and whether it was a next-day or next-
month transaction; (4) error resolution process--cooperating with the 
error resolution process adopted by the index developer in a timely 
manner; and (5) data retention and review--establishing minimum time 
periods for retaining all relevant data related to reported trades.\15\ 
These standards are designed to create a uniform process of reporting 
which provides price index developers assurance that the data they 
receive from data providers is accurate and truthful. If the data 
provider can demonstrate that it has adopted and followed the standards 
for reporting set forth in the Commission's Policy Statement, it will 
benefit from a rebuttable presumption that it has submitted its 
transactions accurately, timely, and in good faith (Safe Harbor 
Policy).\16\
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    \15\ Initial Policy Statement, 104 FERC ] 61,121 at P 34.
    \16\ Id. P 37.
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    10. Under the Policy Statement, becoming a Commission-approved 
price index developer is also voluntary. Prior to the Policy Statement, 
the Commission evaluated on a case-by-case basis whether a price index 
developer's price index was appropriate for inclusion in a FERC-
jurisdictional tariff. In the Policy Statement, the Commission set 
forth minimum standards that, if met, establish a presumption that a 
price index developer's index location will result in just and 
reasonable charges. These standards for index developers include the 
following elements: (1) A code of conduct and confidentiality--publicly 
disclosing how it will obtain, treat, and maintain price data, 
including how it calculates its indices while also entering into 
confidentiality agreements with its data providers; (2) completeness--
publishing all available trade information for each hub including: 
Total volume, the number of transactions, the high/low range of prices, 
and the weighted average price; (3) data verification, error 
correction, and monitoring--verifying its data by matching purchases 
with sales and contacting data providers over any discrepancies as well 
as publishing a notice of the corrected price if a reported price is 
significantly erroneous; (4) verifiability--participating in an 
independent audit or verification of its processes annually and making 
the results of that audit public; and (5) accessibility--providing all 
interested customers reasonable access to the data in a timely fashion 
and providing the Commission access to the data to conduct an 
investigation.\17\ The purpose of these standards is to ensure that 
market participants and regulators have confidence that natural gas 
price indices published by price index developers that are referenced 
in FERC-jurisdictional tariffs are based on consistent, transparent and 
verifiable processes and methodologies that help to ensure reliable 
prices.
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    \17\ Id. P 33.
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    11. Under the Commission's market behavior rules,\18\ marketers and 
interstate pipelines making jurisdictional sales of natural gas and 
jurisdictional sellers of electric energy that have or are seeking 
market-based rate authority that elect to report to price index 
developers must submit accurate and factual information and report in a 
manner consistent with the procedures set forth in the Policy 
Statement.\19\
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    \18\ The natural gas market behavior rules were codified in 2003 
in Order No. 644. Amendment to Blanket Sales Certificates, Order No. 
644, 105 FERC ] 61,217 (2003), reh'g denied, 107 FERC ] 61,174 
(2004) (codified at 18 CFR 284.288, 18 CFR 284.403); Order Amending 
Market-Based Rate Tariffs and Authorizations, 105 FERC ] 61,218 
(2003), order on reh'g and clarification, 107 FERC ] 61,175 (2004). 
The electric market behavior rules were codified later in 2006. 
Conditions for Public Utility Market-Based Rate Authorization 
Holders, Order No. 674, 114 FERC ] 61,163 (2006) (codified at 18 CFR 
35.41(c)).
    \19\ 18 CFR 35.41; 18 CFR 284.288(a); 18 CFR 284.403(a); Initial 
Policy Statement, 104 FERC ] 61,121 at P 37. These standards are 
also the subject of a Notice of Proposed Rulemaking that is being 
issued concurrently with the instant order, in which the Commission 
proposes to codify the Safe Harbor Policy at 18 CFR 35.41(c), 
284.288(a), and 284.403(a) (2020), 173 FERC ] 61,238 (2020).
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II. Discussion

    12. As part of its mandate to ensure just and reasonable rates in 
the wholesale electric and natural gas markets, the Commission reviews 
its existing policies and regulations from time to time. The 
Commission's policies and regulations related to natural gas and 
electric price indices date to the early 2000s and were adopted in 
response to a lack of confidence in price indices. Since then, the 
physical trading of natural gas, the reporting of those transactions, 
and the development of price indices by price index developers has 
changed.
    13. Natural gas price indices are calculated by the voluntary 
reporting of fixed-price transactions to price index developers; 
however, in recent years, such reporting has declined. FERC Form No. 
552 data show that the estimated volume of fixed-price transactions 
voluntarily reported to price index developers declined by 
approximately 54% from 2010 until 2019. In addition, FERC Form No. 552 
data show that an increasing amount of physical natural gas 
transactions are being priced off of indices while the prices of those 
indices were being calculated based on a decreasing amount of volume of 
fixed-price transactions estimated to be

[[Page 83943]]

reported to price index developers. For example, FERC Form No. 552 data 
show that in 2019, index gas represented 82% of the traded volumes in 
the U.S. physical natural gas market compared to 2010 when index gas 
represented 69% of such transactions.
    14. As a result of these changes, on June 29, 2017, Commission 
staff held a technical conference that addressed index liquidity and 
transparency and potential actions the Commission could consider taking 
in order to increase both the volume of transactions reported to 
natural gas price index developers and the transparency of the physical 
natural gas price formation process. Among other things, Commission 
staff sought industry input on the existing policies for natural gas 
price index developers and the use of price indices in jurisdictional 
tariffs set forth in the Policy Statement and the Price Index Order.
    15. Post-technical conference comments suggested policy changes 
would encourage more parties to engage in price reporting and result in 
more reliable, robust, and transparent index formation.\20\ Commenters 
suggested several revisions to the Commission's Policy Statement. These 
proposed revisions included: (1) Changes to the Commission's Safe 
Harbor Policy (including placing the Safe Harbor Policy into the 
Commission's regulations); (2) allowing market participants to report 
just their next-day or their next-month transactions; (3) encouraging 
data providers to report to all available price index developers; and 
(4) changes to the data provider price index data audit structure.
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    \20\ American Gas Ass'n (AGA), Comments, Docket No. AD17-12-000, 
at 3; American Public Gas Ass'n, Comments, Docket No. AD17-12-000, 
at 3; Edison Electric Institute, Comments, Docket No. AD17-12-000, 
at 8; Energy Intelligence Group, Inc., Comments, Docket No. AD17-12-
000, at 1; NGI, Comments, Docket No. AD17-12-000, at 8; Natural Gas 
Supply Ass'n, Comments, Docket No. AD17-12-000, at 12; Platts 
Comments, Docket No. AD17-12-000, at 2; Process Gas Consumers Group, 
Comments, Docket No. AD17-12-000, at 9; Tenaska Marketing Ventures, 
Comments, Docket No. AD17-12-000, at 4 (all filed July 31, 2017); 
and Rice Energy Marketing LLC, Comments, Docket No. AD17-12-000, at 
4 (filed Aug. 1, 2017).
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    16. With information gained at the technical conference, we propose 
several revisions to the Commission's natural gas price index policy 
applicable to natural gas data providers. These changes are intended to 
reduce the reporting burden and, thereby, increase reporting to natural 
gas price index developers. Increased price reporting would contribute 
to the robustness of the price indices which would lead to more 
accurate and reliable index prices referenced in jurisdictional 
tariffs.
    17. We also propose revisions to the Policy Statement applicable to 
natural gas price index developers. These revisions are intended to 
reflect changes in how such developers form natural gas price indices 
and to ensure that natural gas price index developers continue to 
adhere to the Commission's policies. These revisions will increase the 
transparency of the natural gas price formation process and maintain 
industry confidence in the price indices. Finally, we propose to 
clarify the timeframe over which to assess the liquidity for natural 
gas and electric price indices referenced in natural gas and electric 
tariffs. This revision would ensure that natural gas price indices 
referenced in Commission jurisdictional tariffs are liquid at the time 
of attestation. We seek comment on these proposed revisions, which we 
now describe in detail.

A. Reporting Transactions to Price Index Developers

    18. Under the Commission's Policy Statement, a natural gas or 
electric data provider should report ``each bilateral, arm's length 
transaction between non-affiliated companies in the physical (cash) 
markets.'' \21\ These transactions are non-index based transactions and 
include both a data provider's next-day and next-month 
transactions.\22\ The Commission later acknowledged that physical basis 
transactions during bidweek \23\ ``are a significant aspect of 
wholesale natural gas markets and utilize or could contribute to the 
formation of price indices.'' \24\
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    \21\ See Initial Policy Statement, 104 FERC ] 61,121 at P 34 
(``[A] data provider should report each bilateral, arm's length 
transaction between non-affiliated companies in the physical (cash) 
markets at all trading locations.'') (emphasis added). As a part of 
outreach with market participants over the past couple of years, 
Commission staff have directed market participants to report both 
their next-day and next-month transactions, or to not report at all.
    \22\ See 2003 Clarification Order, 105 FERC ] 61,282 at P 12 & 
n.4 (``As noted in Policy Statement ] 34.3, reportable transactions 
are non-index based `bilateral, arm's-length transaction between 
non-affiliated companies in the physical (cash) markets at all 
trading locations.' Note, however, that if a participant reports 
trades to an index developer that publishes only a limited or 
regional index, the market participant must report trades in other 
areas not covered by the limited or regional index to another index 
developer.'').
    \23\ Bidweek is a time frame occurring during the last five 
business days of every month at which most next-month contracts are 
traded. Delivery of these contracts take place the following the 
month.
    \24\ Transparency Provisions of Section 23 of the Natural Gas 
Act, Order No. 704, 121 FERC ] 61,295 (2007), order on reh'g and 
clarification, Order 704-A, 124 FERC ] 61,269, at P 89, reh'g 
denied, Order No. 704-B, 125 FERC ] 61,302 (2008).
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    19. Under the current policy, a data provider should report both 
its next-day fixed-price natural gas transactions as well as its next-
month bidweek fixed-price and physical basis natural gas transactions 
to price index developers. However, allowing a data provider to report 
only next-day transactions or only next-month transactions may ease the 
reporting burden on data providers and result in increased reporting. 
At the 2017 technical conference, several commenters and panelists 
stated that market participants would be more likely to report their 
next-month transactions to price index developers if they were given 
the option to report only their next-month transactions rather than 
both their next-day and next-month transactions.\25\ Many cited the 
significant burden of reporting next-day transactions, especially for 
those market participants that primarily transact in next-month 
markets. Panelists also noted that trading and reported volumes in the 
next-month market showed a continued decline relative to the next-day 
market. Panelists added that this was a concern among data providers 
who trade in the next-month markets due to perceived increased 
compliance scrutiny with higher market concentrations from trading in 
these comparatively less-liquid markets.
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    \25\ Energy Intelligence Group, Inc., Comments, Docket No. AD17-
12-000, at 2; Tenaska Marketing Ventures, Comments, Docket No. AD17-
12-000, at 5; Process Gas Consumers Group, Comments, Docket No. 
AD17-12-000, at 9; Platts Comments, Docket No. AD17-12-000, at 2; 
Edison Electric Institute, Comments, Docket No. AD17-12-000, at 8; 
NGI, Comments, Docket No. AD17-12-000, at 8; American Public Gas 
Ass'n, Comments, Docket No. AD17-12-000, at 10; Natural Gas Supply 
Ass'n, Comments, Docket No. AD17-12-000, at 12-13 (all comments were 
filed July 31, 2017); and Rice Energy Marketing LLC, Comments, 
Docket No. AD17-12-000, at 4 (filed Aug. 1, 2017).
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    20. Accordingly, to reduce the burden on data providers and 
encourage more reporting, we propose to allow data providers to report 
either their next-day transactions or their next-month transactions to 
price index developers. Data providers may also report both sets of 
transactions. This policy revision could benefit reporting in the next-
month market, where reporting to price index developers is most needed, 
according to the FERC Form No. 552 data. For instance, the data show 
that in 2019, the estimated reported fixed-price and physical basis 
volume in the next-month market was smaller than the estimated reported 
volume in the next-day market.\26\ But, nonetheless, the

[[Page 83944]]

volume of index gas in the next-month market was larger than the volume 
of index gas in the next-day market.\27\ Further, the estimated 
voluntarily reported volume for the next-month market for 2019 remain 
55% below 2010 levels.\28\
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    \26\ Next-month fixed-price and physical basis values were 
approximately 88% of the next-day fixed-price values.
    \27\ Next-month index gas values were approximately 117% of the 
next-day index gas values.
    \28\ As mentioned earlier, two price index developers now 
include transactions from ICE to increase the level of fixed-price 
volumes used to calculate their next-day and next-month indices. 
Trading on ICE in the next-day market is more robust than trading in 
the next-month market. For example, the inclusion of ICE 
transactions in Platts' indices resulted in a 126% increase in 
Platts' next-day index volumes but Platts' next-month indices only 
resulted in a 76% increase. Thus, although Platts next-day and next-
month index volumes increased with the inclusion of ICE's 
transactions in its indices, the benefit to its indices was greater 
in the next-day market than the next-month market.
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    21. Thus, in order to ease the burden associated with next-month 
price reporting, we propose to modify the Policy Statement to allow 
market participants to elect to report either all non-index based next-
day transactions, all non-index based bidweek next-month transactions, 
or both non-index based next-day and non-index based bidweek next-month 
transactions. Under this proposal, whichever set of transactions a data 
provider chooses to report (next-day, next-month, or both) it should 
submit data on each bilateral, arm's length transaction within that 
set.

B. Encouraging Comprehensive Reporting

    22. Under the Commission's price index policy, ``[g]enerally, a 
market participant need not report to more than one index developer, so 
long as the relevant data for all reportable transactions are given to 
that developer.'' \29\ Some market participants have interpreted this 
language to mean that data providers should not report to more than one 
price index developer.\30\ This interpretation is not correct. We 
reiterate that ``a participant, of course, may report transactions to 
more than one index developer.'' \31\ We strongly encourage data 
providers to report to as many Commission approved price index 
developers as possible.
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    \29\ 2003 Clarification Order, 105 FERC ] 61,282 at P 12.
    \30\ See, e.g., Energy Intelligence Group, Inc., Comments, 
Docket No. AD17-12-000, at 1-2 (July 31, 2017).
    \31\ 2003 Clarification Order, 105 FERC ] 61,282 at P 12.
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    23. Although there may be some burden for reporting to additional 
price index developers, we understand that the burden of reporting to 
multiple price index developers has declined since the issuance of the 
Policy Statement.\32\ If more market participants voluntarily report 
their transactions to multiple price index developers, it will likely 
result in more robust price formation for all price index developers. 
Thus, we urge all data providers to report their transaction data to as 
many Commission approved price index developers as possible.
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    \32\ For example, data providers can now send one email with 
price reporting data to multiple index developers.
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C. Reducing the Self-Audit Burden

    24. In the Policy Statement, the Commission stated that data 
providers should perform a self-audit of their reporting process every 
year either by an independent third-party auditor or an internal 
auditor. In an effort to encourage price reporting, we propose to allow 
data providers to now perform a self-audit on a biennial basis. In 
other words, every other year a data provider would perform an audit 
covering the previous two years, if choosing this option. This revision 
would ease the burden on data providers, potentially increasing the 
number of market participants who voluntarily report.\33\
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    \33\ The previous data retention period of three years described 
in the Initial Policy Statement was superseded by changes to our 
regulations and is now five years, and the biennial audit period 
does not change the data retention requirements set forth in the 
regulations at 18 CFR 284.288 and 18 CFR 284.403.
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    25. More specifically, we propose to revise the timing of the 
standard that a data provider have an independent auditor review the 
implementation of, and adherence to, the data gathering and submission 
process adopted by the company so that the audit be undertaken on a 
biennial basis. As stated in the Policy Statement, the results of the 
audit should be made available to any price index developer to which 
the data provider submits trade data, and the data provider should 
permit the price index developer to recommend changes to improve the 
accuracy and timeliness of data reporting.\34\
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    \34\ Initial Policy Statement, 104 FERC ] 61,121 at P 34.
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    26. To the extent that the terms and costs for such an external 
audit may be overly burdensome, we continue to find that it is 
acceptable for internal auditors to perform the self-audits, in order 
to avoid raising barriers to voluntary reporting. While there are 
advantages to having an independent third-party audit, the independent 
audit can be performed by a company's internal auditor, so long as the 
internal audit personnel are independent from the trading and reporting 
departments and personnel, and the audit follows internal auditing 
standards, such as those prescribed by the Institute of Internal 
Auditors or other similar generally accepted auditing standards.\35\ 
Adequately documented and effective audits by an independent internal 
or external audit function can serve as an appropriate compliance 
control. Relying on these self-audits will ensure that price reporting 
by market participants is accurate and reliable to maintain industry 
confidence in indices.
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    \35\ See the Institute of Internal Auditors' (IIA), 
International Standards for the Professional Practice of Internal 
Auditing (the Standards) (Oct. 2016), https://na.theiia.org/standards-guidance/Public%20Documents/IPPF-Standards-2017.pdf.
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D. Increasing Confidence in Price Indices

    27. Under the price index policy, for the Commission to approve a 
price index for use in a jurisdictional tariff, the price index 
developer should adopt and make public a written code of conduct and 
confidentiality. Specifically, a price index developer's code of 
conduct ``should inform customers how the price information was 
developed, including index calculation method, relevant formulas and 
algorithms, treatment of aberrant data, and use of judgments, 
assessments, or similar subjective adjustments.'' \36\ We propose to 
clarify that, with respect to assessments, a price index developer's 
code of conduct should inform customers how it makes assessments in its 
publications and in its data distributions. Price index assessment 
transparency would give market participants better information about 
the liquidity of certain hub locations.
---------------------------------------------------------------------------

    \36\ Id. P 33.
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    28. A price index developer is considered to use a ``market 
assessment'' when it uses market information, other than the trades at 
the index's specified location, to determine the value of the index 
price. Some price index developers use market assessments to produce 
index prices when an insufficient amount of volume or number of 
reported deals are available at a given location. In its post-technical 
conference comments, the AGA recommended that price index developers 
should clearly indicate when they engage in market assessments rather 
than calculating price indices based on weighted averages of reported 
trades.\37\
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    \37\ AGA, Comments, Docket No. AD17-12-000, at 3 (filed July 31, 
2017).
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    29. We believe that this clarification is timely because the number 
of market assessments appears to have recently

[[Page 83945]]

increased. Platts, for instance, published 356 index prices at various 
hubs in 2019 without publishing a corresponding number of deals for 
those prices.\38\ This represents a significant increase from 2018, 
when Platts published 246 index prices without a corresponding number 
of deals.
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    \38\ Staff calculated this figure by counting the number of 
index prices published without a corresponding number of deals.
---------------------------------------------------------------------------

    30. We agree with AGA that a price index developer should 
distinguish assessed index prices from index prices calculated from 
weighted averages of reported trades. We propose that price index 
developers indicate in their publications and data distributions when 
they use a market assessment to calculate a published index price in 
order for that price index developer to maintain its status as a 
Commission approved price index developer. Specifically, we propose 
that price index developers clearly define in their methodology guide a 
method to determine if a price assessment is made in its data 
distributions.\39\ This revision would give market participants a 
mechanism for identifying assessments. The additional clarity provided 
by indicating assessed prices should increase the transparency of price 
index development and, more generally, natural gas price formation and 
provide the market with more information about the liquidity of certain 
locations. In turn, such transparency should increase industry's 
confidence in price indices.
---------------------------------------------------------------------------

    \39\ Price index developers publicly post a document which 
describes how their indices are calculated. This is commonly 
referred to as a methodology guide. See, e.g., Platts, Methodology 
and Specifications Guide (March 2020), https://www.spglobal.com/platts/plattscontent/_assets/_files/en/our-methodology/methodology-specifications/na_gas_methodology.pdf.
---------------------------------------------------------------------------

E. Ensuring Price Index Developers' Continued Adherence to the Price 
Index Policy

    31. In the Policy Statement, the Commission developed five 
standards for price index developers to show that their internal 
processes were sufficient to become a Commission approved price index 
developer and, thus, have their price indices referenced in 
jurisdictional tariffs. As detailed above, those five standards 
include: (1) A code of conduct and confidentiality; (2) completeness; 
(3) data verification, error correction, and monitoring; (4) 
verifiability; and (5) accessibility. After the Policy Statement was 
issued, 10 price index developers made filings with the Commission 
asserting that they complied with these standards. In the Price Index 
Order, the Commission approved those price index developers as 
satisfying all or substantially all of the standards.\40\ Since then, 
the Commission also granted approval to three additional price index 
developers.\41\
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    \40\ Price Index Order, 109 FERC ] 61,184 at P 24 (Argus Media, 
Inc., Bloomberg L.P., Btu/Data Transmission Network, Dow Jones and 
Company, Energy Intelligence Group, Inc., Intelligence Press, Inc. 
(NGI), ICE, Io Energy LLC, Platts, Powerdex, Inc.).
    \41\ Many of the original indices have ceased publication or 
been acquired and rebranded and not reapproved. As such, only five 
pre-approved price index developers remain: Energy Intelligence 
Group, Inc. (Natural Gas Week), Intelligence Press/NGI, Platts, 
Powerdex, and Argus Media. Although, it was not pre-approved, SNL 
Energy continues to publish indices after purchasing IO Energy and 
BTU/Data Transmission Network in 2004 and 2009, respectively.
---------------------------------------------------------------------------

    32. Under the current Policy Statement, once approved, there is no 
verification process to ensure that price index developers continue to 
meet these standards. As a result, for most of the currently approved 
price index developers, the Commission has not reexamined their 
compliance with the price index developer standards in 16 years, 
despite the myriad changes in natural gas markets that have occurred 
during that time.\42\
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    \42\ For example, some price index developers now receive 
transactions from ICE, at some hub locations basis transactions are 
now being used to create next-day indices, and declines in reporting 
have resulted in hubs that were historically liquid to require 
routine price assessments.
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    33. To ensure that price index developers continue to meet these 
standards, we propose to revise the price index policy. A Commission 
approved price index developer should now seek re-approval from the 
Commission every seven years that it continues to meet the standards. 
We propose that, beginning six months after the adoption of this 
proposal, interstate natural gas pipelines and public utilities 
proposing the use of the indices in jurisdictional tariffs will no 
longer be entitled to the rebuttable presumption that a price index 
developer's indices produce just and reasonable rates unless the price 
index developer has obtained re-approval from the Commission within the 
last seven years that it continues to meet the criteria in the Policy 
Statement.\43\
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    \43\ Consistent with prior practice, price index developers 
would file for both initial Commission approval and re-approval in 
the PL03-3-000 docket.
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    34. We believe that these proposed changes will confirm that price 
index developers continue to meet the Commission's standards, which 
will help to ensure that rates which reference price indices remain 
just and reasonable.

F. Clarifying Liquidity Standards for Price Index References

    35. In the Price Index Order, the Commission adopted a set of 
criteria delineating the minimum level of activity at a particular 
trading location in order for that price index trading location to be 
referenced in a FERC-jurisdictional tariff--effectively known as 
liquidity standards.\44\ We propose to clarify these liquidity 
standards.
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    \44\ Price Index Order, 109 FERC ] 61,184 at P 66.
---------------------------------------------------------------------------

    36. The Price Index Order states that interstate natural gas 
pipelines and ISOs/RTOs, when proposing new natural gas and electric 
price indices to be used in jurisdictional tariffs, should confirm that 
the proposed price index location(s) have met the minimum liquidity 
standards over a 90-day period for daily or weekly indices, and a six-
month period for monthly indices.\45\ The Price Index Order did not 
specify a specific timeframe during which the applicant should show 
that the proposed price index location meets the liquidity threshold. 
As a result, interstate natural gas pipelines and ISOs/RTOs have used 
different 90-day or six month-periods to submit price index location 
data in order to assess liquidity.\46\
---------------------------------------------------------------------------

    \45\ Id. P 65.
    \46\ E.g., in Docket No. RP20-59-000, filed on October 10, 2019, 
Dominion Energy Transmission Inc. submitted transactions for an 
index location for the period from June 4, 2019 to August 30, 2019. 
In Docket No. RP19-1395-000, filed on July 24, 2019, Southern 
Natural Gas Company, L.L.C. submitted transactions for an index 
location on April 1, 2019 to July 16, 2019. Both of these filings 
were accepted given that the pipelines provided 90 days of data, but 
the latter filing included a more timely review period closer to the 
date of filing.
---------------------------------------------------------------------------

    37. Shifts in regional production and market demand areas have 
resulted in changes in the liquidity of natural gas price index hubs 
across the U.S. In light of the dynamic and seasonal nature of natural 
gas trading, some price indices may not provide a reasonable 
representation of natural gas costs consistently enough to be included 
within a tariff at the time of attestation. We believe additional 
clarity would be helpful to ensure applicants' approach to assessing 
liquidity is reflective of the most recent market activity.\47\ While 
we continue to find the current minimum levels of activity for each 
price index location to be appropriate market activity thresholds, we 
propose to modify the review period over which the price index location 
should meet the minimum level of activity for all indices

[[Page 83946]]

referenced in FERC-jurisdictional tariffs to at least 180 continuous 
days out of the most recent 365 days from the filing date of any such 
proposal. We believe that expanding the review period will ensure that 
natural gas price index references in FERC-jurisdictional tariffs are 
sufficiently liquid which will ultimately benefit customers who are 
subject to the tariff provisions.
---------------------------------------------------------------------------

    \47\ As explained previously, the voluntary reporting of fixed-
price transactions to price index developers has declined in recent 
years. This has resulted in fluctuating liquidity for certain 
natural gas price index locations.
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    38. Accordingly, we propose to revise the criteria established in 
the Price Index Order as follows (revised language shown in italics). 
We also propose removing the term ``daily'' from the daily, weekly, and 
monthly liquidity requirements to provide clarity to the conditions 
that should be met for those types of price indices.\48\
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    \48\ The Price Index Order used the term ``daily'' as the metric 
for determining the average volume, average number of transactions, 
and average number of counterparties required for indices to be 
sufficiently liquid for use in jurisdictional tariffs. In this 
Revised Policy Statement, we remove the term ``daily'' from the 
Commission's index liquidity measurements. We do not believe that 
this revision changes the original intent of the criteria as indices 
will continue to meet the same minimum liquidity conditions 
necessary as before but now for 180 continuous days out of the most 
recent 365 days.
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    Daily or hourly indices should meet at least one of the following 
conditions, on average, for all non-holiday weekdays for at least 180 
continuous days out of the most recent 365 days:
    1. Average volume traded of at least 25,000 million Btus (MMBtu) 
per day for natural gas or 2,000 Megawatt hours (MWh) per day for 
power; or
    2. Average number of transactions of five or more per day; or
    3. Average-number of counterparties of five or more per day.
    Weekly indices should meet at least one of the following conditions 
on average for all weeks for at least 180 continuous days out of the 
most recent 365 days:
    1. Average volume traded of at least 25,000 MMBtu per day for gas 
or 2,000 MWh per day for power; or
    2. Average number of transactions of eight or more per week; or
    3. Average number of counterparties of eight or more per week.
    Monthly indices should meet at least one of the following 
conditions on average for at least 180 continuous days out of the most 
recent 365 days:
    1. Average volume traded of 25,000 MMBtu per day for gas or 2,000 
MWh per day for power; or
    2. Average number of transactions of ten or more per month; or
    3. Average number of counterparties of ten or more per month.
    39. Aside from the changes to the minimum criteria specifically 
discussed above, all other criteria for reflecting adequate liquidity 
at referenced points adopted in the Policy Statement would remain 
unchanged.

G. Additional Policy Changes to Electric Indices and Electric Price 
Index Developers

    40. The modifications in this proposed Revised Policy Statement 
would apply solely to natural gas price indices and natural gas price 
index developers. However, we recognize that the Policy Statement 
applied to both the electric and natural gas industries. For that 
reason, Commission staff will conduct outreach to explore the need for, 
and scope of, any potential policy updates for the electric industry.

III. Information Collection Statement

    41. The Paperwork Reduction Act (PRA) requires each federal agency 
to seek and obtain the Office of Management and Budget's (OMB) approval 
before undertaking a collection of information (including reporting, 
record keeping, and public disclosure requirements) directed to ten or 
more persons or contained in a rule of general applicability. OMB 
regulations require approval of certain information collection 
requirements (including deletion, revision, or implementation of new 
requirements). Upon approval of a collection of information, OMB will 
assign an OMB control number and an expiration date. Respondents 
subject to the filing requirements will not be penalized for failing to 
respond to the collection of information unless the collection of 
information displays a valid OMB control number.
    42. The Commission solicits comments from the public on the 
Commission's need for this information, whether the information will 
have practical utility, the accuracy of the burden estimates, ways to 
enhance the quality, utility and clarity of the information collected 
or retained, and any suggested methods for minimizing respondents' 
burden, including the use of automated information techniques. 
Specifically, the Commission asks that any revised burden or cost 
estimates submitted by commenters be supported by sufficient detail to 
understand how the estimates are generated.
    43. This proposed revised policy statement will affect the existing 
data collection: FERC-549, NGPA Title III Transactions and NGA Blanket 
Certificate Transactions. Estimates of the PRA-related burden and cost 
\49\ follow. The following table summarizes the estimated increases and 
decreases in burden due to the proposed policy changes above.
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    \49\ The Commission staff estimates that industry is similarly 
situated in terms of hourly cost (for wages plus benefits). Based on 
the Commission's Fiscal Year (FY) 2020 average cost of $172,329/year 
(for wages plus benefits, for one full-time employee), $83.00/hour 
is used.

                                Modifications Due to the Proposed Revised Policy Statement in Docket No. Public Law 20-3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Annual number                   Average burden (hrs.)
                                         Number of     of responses    Total number      and cost ($) per      Total annual burden hrs. and total annual
                                        respondents   per respondent   of responses          response                          cost ($)
                                                 (1)             (2)     (1) * (2) =  (4)...................  (3) * (4) = (5)
                                                                                 (3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Proposed Burden Reductions 50
--------------------------------------------------------------------------------------------------------------------------------------------------------
Data Providers--perform biennial                 125              .5            62.5  80 hrs.; $6,640.......  5,000 hrs.; $415,000.
 self-audit (not annual).
Data Providers--provide month-ahead                9        \52\ 249           2,241  4 hrs.; $332..........  8,964 hrs.; $744,012.
 (not day-ahead on a daily basis)
 \51\.
                                     -------------------------------------------------------------------------------------------------------------------
    Proposed Reductions.............  ..............  ..............  ..............  ......................  13,964 hrs.; $1,159,012.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Proposed Burden Increases to FERC-549
--------------------------------------------------------------------------------------------------------------------------------------------------------
Price Index Developers--re-certify                 6            0.14            0.84  320 hrs.; $26,560.....  268.8 hrs.; $22,310.40.
 every 7 yrs..

[[Page 83947]]

 
Price Index Developers--code of                    6               1               6  80 hrs.; $6,640.......  480 hrs.; $39,840.
 conduct & confident.; & inform
 customers.
Price Index Developers--identify                   6               1               6  80 hrs.; $6,640.......  480 hrs.; $39,840.
 assessed index price vs. calculated.
                                     -------------------------------------------------------------------------------------------------------------------
    Proposed Increases to FERC-549..  ..............  ..............  ..............  ......................  1,228.8 hrs.; $101,990.40.
--------------------------------------------------------------------------------------------------------------------------------------------------------
        Net Total Proposed Reduction  ..............  ..............  ..............  ......................  12,735.2 hrs.; $1,4057,021.6.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Commission seeks comments on the burden and cost related to 
complying with the proposed revised policy statement.
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    \50\ The proposed burden reductions are provided for information 
and comment. To be conservative, the Commission may not remove the 
hours from its information collection estimates in the OMB-approved 
inventory.
    \51\ Staff assumes respondents with 2019 estimated volumes of 
next-month and physical basis transactions reported to index 
developers that exceeded two thirds of their total estimated volumes 
reported to index developers will no longer report their next-day 
transactions to index developers.
    \52\ We are proposing to allow companies to report just monthly, 
instead of monthly and daily. The figure (249 annual responses per 
respondent) relates to reporting on all non-holiday trading days.
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    Title: FERC-549, NGPA Title III Transactions and NGA Blanket 
Certificate Transactions.
    OMB Control No.: 1902-0086.
    Respondents: Natural Gas Data Providers (Market Participants That 
Report Transaction Data to Price Index Developers) and Price Index 
Developers.
    Frequency of Responses: As discussed.
    Necessity of the Information:
    The collection of this information helps to provide accuracy and 
transparency to the formation of natural gas price indices.
    Internal Review: These requirements conform to the Commission's 
goal for efficient information collection, communication, and 
management. The Commission has assured itself, by means of its internal 
review, that there is specific, objective support for the burden 
estimates associated with the information requirements.
    Interested persons may obtain information on the reporting 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street NE, Washington, DC 20426, Attn: Ellen 
Brown, Office of the Executive Director, email: DataClearance@ferc.gov, 
or phone: (202) 502-8663.

IV. Comment Procedures

    44. We invite comments on this proposed Revised Policy Statement 
within March 23, 2021.

V. Document Availability

    45. The Commission provides all interested persons an opportunity 
to view and/or print the contents of this document via the internet 
through the Commission's Home Page (http://www.ferc.gov). At this time, 
the Commission has suspended access to the Commission's Public 
Reference Room, due to the proclamation declaring a National Emergency 
concerning the Novel Coronavirus Disease (COVID-19), issued by the 
President on March 13, 2020.
    46. From the Commission's Home Page on the internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    47. User assistance is available for eLibrary and the Commission's 
website during normal business hours from the Commission's Online 
Support at (202) 502-6652 (toll free at 1-866-208-3676) or email at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
public.referenceroom@ferc.gov.
    By the Commission. Commissioner Clements is not participating.

    Issued: December 17, 2020.
Kimberly D. Bose,
Secretary.
[FR Doc. 2020-28387 Filed 12-22-20; 8:45 am]
BILLING CODE 6717-01-P