Document ID: FERC-2021-0234-0001
Agency: ferc
Document Type: Proposed Rule
Title: Safe Harbor Policy for Data Providers to Price Index Developers
Posted Date: 2021-03-02T05:00Z

[Federal Register Volume 86, Number 39 (Tuesday, March 2, 2021)]
[Proposed Rules]
[Pages 12132-12135]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28386]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 35 and 284

[Docket No. RM20-7-000]

Safe Harbor Policy for Data Providers to Price Index Developers

AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission proposes to amend its regulations to codify the 
Safe Harbor Policy established in the Commission's Policy Statement on 
Natural Gas and Electric Price Indices. Under the Safe Harbor Policy, 
data providers that report transactions to natural gas and electric 
price index developers consistent with the procedures set forth in the 
Policy Statement are afforded a rebuttable presumption that their 
transaction data is accurate, timely, and submitted in good faith. The 
proposed change does not modify the existing policy and is intended to 
promote voluntary reporting of wholesale natural gas and electricity 
transactions to price index developers by alleviating market 
participant concerns that the Safe Harbor Policy is not binding on the 
Commission.

DATES: Comments are due June 1, 2021.

ADDRESSES: Comments, identified by Docket No. RM20-7-000, 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 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:
Maxwell K. Multer (technical issues), Office of Enforcement, Federal 
Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426 
(202) 502-6756
Evan B. Oxhorn (legal issues), Office of the General Counsel, Federal 
Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426 
(202) 502-8183

SUPPLEMENTARY INFORMATION:

Table of Contents

Paragraph Numbers

I. Background--3.
II. Discussion--9.
III. Environmental Analysis--13.
IV. Regulatory Flexibility Act Certification--14.
V. Comment Procedures--18.
VI. Document Availability--22.

    1. Under the Commission's regulations, a data provider (a market 
participant that reports transaction data to price index developers) 
must submit accurate and factual information to price index developers, 
and not knowingly submit false or misleading information or omit 
material information.\1\ Pursuant to the Commission's Safe Harbor 
Policy, which is currently set forth in the Commission's Policy 
Statement on Natural Gas and Electric Price Indices,\2\ 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. The Commission 
proposes to codify its Safe Harbor Policy in its regulations. The 
proposed change does not modify the existing policy and, together with 
the proposed Revised Policy Statement that the Commission is issuing 
concurrently, is intended to promote voluntary reporting of wholesale 
natural gas and electricity transactions to price index developers.\3\
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    \1\ This requirement is set forth in three regulations, 18 CFR 
35.41(c), 284.288(a), and 284.403(a). Each sets forth the 
requirement in identical language.
    \2\ Policy Statement on Natural Gas and Electric Price Indices, 
104 FERC ] 61,121, at P 37 (Initial Policy Statement), clarified, 
105 FERC ] 61,282 (2003) (2003 Clarification Order), further 
clarified, 112 FERC ] 61,040 (2005) (2005 Clarification Order) 
(collectively, Policy Statement).
    \3\ See Actions Regarding the Commission's Policy on Price Index 
Formation and Transparency, and Indices Referenced in Natural Gas 
and Electric Tariffs, 173 FERC ] 61,237 (2020).
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    2. To codify the Safe Harbor Policy, we specifically propose to 
amend 18 CFR 35.41(c), 284.288(a), and 284.403(a) of the Commission's 
regulations by adding language to indicate: (1) That there will be a 
rebuttable presumption of accuracy, timeliness, and good faith for data 
providers who submit transactions to price index developers in a manner 
consistent with the Policy Statement; and (2) that inadvertent 
reporting errors by such data providers will not constitute violations 
of those regulations.

I. Background

    3. Natural gas 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 index is a weighted average price derived from a 
set of fixed-price \4\ natural gas transactions within distinct 
geographical boundaries that market participants voluntarily report to 
a price index developer.\5\
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    \4\ The term fixed-price refers to a negotiated natural gas 
contract for next-day or 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). 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.
    \5\ S&P Global Platts (Platts), Natural Gas Intelligence (NGI), 
Argus, and Natural Gas Week are examples of price index developers.
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    4. Natural gas indices serve as a proxy for the locational cost of 
natural gas in the daily and monthly markets, as many market 
participants reference index prices in their physical and financial 
transactions. Interstate natural gas pipelines, Independent System 
Operators (ISOs), and Regional Transmission Organizations (RTOs) 
reference natural gas indices in their FERC-jurisdictional tariffs for 
various terms and conditions of service. State commissions also use 
natural gas indices as benchmarks when reviewing the prudence of 
natural gas or electricity purchases. Finally, many natural gas 
financial derivative contracts used in hedging and speculation settle 
against the natural gas price indices.
    5. Given that natural gas price index developers use physical 
fixed-price natural gas transactions to calculate the price of 
published natural gas indices, it is important that the market for 
these transactions be robust, liquid, and transparent. The Commission's 
investigation into the 2000-2001 Western Energy Crisis revealed 
problems in how published natural gas price indices were generated that 
``facilitate[ed], rather than discourage[d], manipulation and 
collusion.'' \6\ Recognizing the need to restore confidence in natural 
gas price

[[Page 12133]]

indices, the Commission began an exhaustive analysis of these and 
related issues in the form of multiple staff white papers, two 
technical conferences, and a follow up staff workshop.
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    \6\ Initial Report on Company-Specific Separate Proceedings and 
Generic Reevaluations; Published Natural Gas Price Data; and Enron 
Trading Strategies, Docket No. PA02-2-000, at 38 (Aug. 13, 2002).
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    6. At the conclusion of these efforts, the Commission issued its 
Policy Statement to explain what the Commission expects of natural gas 
and electric price indices and under what conditions the Commission 
will give industry participants safe harbor protection for good faith 
reporting of transaction data to entities that develop price 
indices.\7\ In particular, the Commission [created] a rebuttable 
presumption that companies and individuals that report trade data to 
price index developers in accordance with the standards adopted here 
are doing so in good faith, and will not be investigated or subjected 
to administrative penalties for inadvertent mistakes made in the course 
of reporting energy transaction information.\8\ Thus, the Commission 
adopted the Safe Harbor Policy for the explicit purpose of 
encourag[ing] more industry participants to contribute to the formation 
of price indices.\9\ Consistent with the Policy Statement, the 
Commission has not investigated or imposed penalties on any companies 
for inadvertent reporting errors.
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    \7\ Initial Policy Statement, 104 FERC 61,121 at P 5.
    \8\ Id.
    \9\ Id.
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    7. After the Policy Statement was issued, the natural gas volumes 
market participants reported to price index developers increased, 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.\10\ 
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.\11\ 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 
the estimated physical natural gas volumes reported to index developers 
based on FERC Form No. 552 data.
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    \10\ 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.
    \11\ 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. 
Staff estimates this volume by calculating the average of the 
minimum volume reported (i.e., the total volume from filers with 
affiliates that all indicate that they report to price index 
developers) and the maximum possible volume reported (i.e., the 
total volume from filers with at least one affiliate that indicates 
that it reports to price index developers).
[GRAPHIC] [TIFF OMITTED] TP02MR21.002

    8. Commission staff held a technical conference on June 29, 2017, 
which addressed index liquidity and transparency issues 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.\12\ In post technical conference comments, a number 
of commenters suggested that placing the Safe Harbor Policy into the 
Commission's regulations would help to provide regulatory certainty 
which in turn would lead to an increase in the number of data providers 
that would report their transactions to price index developers.\13\
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    \12\ Docket No. AD17-12-000. A staff-led technical conference 
addressing similar issues was held in 2003 in Docket No. AD03-7-000.
    \13\ AGA, Comments, Docket No. AD17-12-000, at 7 (filed July 31, 
2017); Tenaska Comments, Docket No. AD17-12-000, at 5 (filed July 
31, 2017).
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II. Discussion

    9. The Commission proposes to revise three sections of its 
regulations, 18 CFR 35.41(c), 284.288(a), and 284.403(a). Although each 
of the three sections applies to different jurisdictional entities, 
they set forth almost identical requirements. Section 35.41(c) applies 
to persons with or seeking authorization to engage in sales for resale 
of electric energy, capacity or ancillary services at market-based 
rates under section 205 of the Federal Power Act. Section 284.288(a) 
applies to interstate pipelines that offer transportation service under 
subparts B or G of part 284. Section

[[Page 12134]]

284.403(a) applies to sales for resale by persons that are not 
interstate pipelines. Each section currently requires that data 
providers reporting transactions to price index developers provide 
accurate, factual information, and not knowingly submit false or 
misleading information or omit material information.
    Reporting must be performed consistent with the procedures set 
forth in the Policy Statement.\14\ The regulations do not incorporate 
the Safe Harbor Policy.
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    \14\ 18 CFR 35.41(c), (Market behavior rules); see also 18 CFR 
284.288(a) (Code of conduct for unbundled sales service) (identical 
language); 18 CFR 284.403(a) (Code of conduct for persons holding 
blanket marketing certificates) (identical language).
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    10. Currently, the Safe Harbor Policy is set forth in the Policy 
Statement, which advises the public about how the Commission intends to 
exercise its discretionary authority. The Policy Statement, however, is 
non-binding.\15\ Although the Commission has never pursued enforcement 
action against a market participant for inadvertent errors in reporting 
transactions to price index developers, concerns nonetheless remain 
among market participants that this potential exists.\16\
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    \15\ See, e.g., Panhandle Eastern Pipe Line Co. v. FERC, 198 
F.3d 266, 269 (D.C. Cir. 1999).
    \16\ See Supra P 8.
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    11. To alleviate these concerns and encourage voluntary reporting 
in order to promote more robust, liquid, and transparent indices, we 
propose to add identical language to 18 CFR 35.41(c), 284.288(a), and 
284.403(a) to incorporate the Safe Harbor Policy into the regulatory 
text. This proposed language states that ``[f]or a Seller who reports 
in a manner consistent with procedures set forth in the Policy 
Statement, there will be a rebuttable presumption that information 
submitted to publishers of electricity or natural gas indices is 
accurate, timely, and submitted in good faith.'' The proposed revisions 
also state that ``[i]nadvertent reporting errors by a Seller who 
reports in a manner consistent with the procedures set forth in the 
Policy Statement shall not constitute violations of this provision.'' 
This action will eliminate any concerns that the Commission might 
choose to depart from the Safe Harbor Policy as set forth in the Policy 
Statement.
    12. By incorporating the Safe Harbor Policy into the Commission's 
regulations, the Commission will provide certainty to the regulated 
industry that, provided that the data provider reports in a manner 
consistent with the Policy Statement, inadvertent errors in reporting 
will not constitute violations of the Commission's regulations 
requiring accurate reporting and will not give rise to civil penalties. 
Under the proposed language, for data providers that report consistent 
with the Policy Statement, only intentional or reckless behavior may 
give rise to liability. Based on industry comments during and after the 
technical conference,\17\ we believe that incorporation of the Safe 
Harbor Policy into the Commission's regulations will provide greater 
certainty to market participants and will lead to increased voluntary 
reporting to price index developers.
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    \17\ See, e.g., American Gas Association, Post-Technical 
Conference Comments, Docket No. AD17-12-000, at 7 (filed July 31, 
2017) (``. . .there is a perception that a ``fat finger'' error 
could result in a party being the subject of an investigation.''); 
Edison Electric Institute, Post-Technical Conference Comments, 
Docket No. AD17-12-000, at 5 (filed July 31, 2017) (``Despite [the 
Policy Statement], as indicated during the technical conference, 
there is a perceived regulatory risk associated with transaction 
reporting and a concern that it will invite costly audits and 
enforcement actions even for inadvertent errors.'').
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III. Environmental Analysis

    13. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\18\ The 
Commission has categorically excluded certain actions from these 
requirements as not having a significant effect on the human 
environment.\19\ The actions proposed here fall within the categorical 
exclusions in the Commission's regulations for rules that are 
clarifying, corrective, or procedural, and for information gathering, 
analysis, and dissemination.\20\ Therefore, an environmental assessment 
is unnecessary and has not been prepared in this Notice of Proposed 
Rulemaking.
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    \18\ Regulations Implementing the National Environmental Policy 
Act of 1969, Order No. 486, FERC Stats. & Regs. 30,783 (1987) 
(cross-referenced at 41 FERC ] 61,284).
    \19\ 18 CFR 380.4.
    \20\ See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5).
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IV. Regulatory Flexibility Act Certification

    14. The Regulatory Flexibility Act of 1980 (RFA) \21\ generally 
requires a description and analysis of proposed rules that will have 
significant economic impact on a substantial number of small entities. 
The RFA does not mandate any particular outcome in a rulemaking. It 
only requires consideration of alternatives that are less burdensome to 
small entities and an agency explanation of why alternatives were 
rejected.
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    \21\ 5 U.S.C. 601-612.
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    15. The Small Business Administration (SBA) size standards for 
natural gas and electric utilities are based on the number of 
employees, including affiliates. Under the SBA's standards, some data 
providers will fall under the following categories and associated size 
thresholds: Natural Gas Distribution and Electric Power Distribution, 
both at 1000 employees.\22\
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    \22\ 13 CFR 121.201 (2020), sector 22 (Utilities), NAICS codes 
221210 (Natural Gas Distribution) and 221122 (Electric Power 
Distribution).
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    16. Because data providers who choose to report their transactions 
are already required to submit data consistent with the Policy 
Statement in order to receive the protections of the Safe Harbor 
Policy, the Commission estimates that there will be no additional 
compliance burden as a result of this proposed rule.
    17. Based on the above, the Commission certifies that 
implementation of the proposed rule will not have a significant impact 
on a substantial number of small entities. Accordingly, no initial 
regulatory flexibility analysis is required.

V. Comment Procedures

    18. The Commission invites interested persons to submit comments on 
the matters and issues proposed in this notice to be adopted, including 
any related matters or alternative proposals that commenters may wish 
to discuss. Comments are due June 1, 2021. Comments must refer to 
Docket No. RM20-7-000, and must include the commenter's name, the 
organization they represent, if applicable, and their address.
    19. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's website at http://www.ferc.gov. The Commission accepts most standard word processing 
formats. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format. Commenters filing electronically do not 
need to make a paper filing.
    20. Commenters that are not able to file comments electronically 
must send an original of their comments to: Federal Energy Regulatory 
Commission, Secretary of the Commission, 888 First Street NE, 
Washington, DC 20426.
    21. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters

[[Page 12135]]

on this proposal are not required to serve copies of their comments on 
other commenters.

VI. Document Availability

    22. 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.
    23. 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.
    24. 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.

List of Subjects

18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and 
recordkeeping requirements.

18 CFR Part 284

    Continental shelf, Natural gas, Reporting and recordkeeping 
requirements.

    By direction of the Commission. Commissioner Clements is not 
participating.

    Dated: December 17, 2020.
Kimberly D. Bose,
Secretary.
    In consideration of the foregoing, the Commission is proposing to 
amend parts 35 and 284, chapter I, title 18, Code of Federal 
Regulations, as follows.

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

0
1. The authority citation for part 35 continues to read as follows:

    Authority:  16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.

0
2. Revise Sec.  35.41(c) to read as follows:

Sec.  35.41  Market behavior rules.

* * * * *
    (c) To the extent Seller engages in reporting of transactions to 
publishers of electricity or natural gas indices, Seller must provide 
accurate and factual information, and not knowingly submit false or 
misleading information or omit material information to any such 
publisher, by reporting its transactions in a manner consistent with 
the procedures set forth in the Policy Statement, issued by the 
Commission in Docket No. PL03-3-000 and any clarifications thereto. For 
a Seller who reports in a manner consistent with procedures set forth 
in the Policy Statement, there will be a rebuttable presumption that 
information submitted to publishers of electricity or natural gas 
indices is accurate, timely, and submitted in good faith. Inadvertent 
reporting errors by a Seller who reports in a manner consistent with 
the procedures set forth in the Policy Statement shall not constitute 
violations of this provision. Seller must identify as part of its 
Electric Quarterly Report filing requirement in Sec.  35.10b of this 
chapter the publishers of electricity and natural gas indices to which 
it reports its transactions. In addition, Seller must adhere to any 
other standards and requirements for price reporting as the Commission 
may order.
* * * * *

PART 284--CERTAIN SALES AND TRANSPORTATION OF NATURAL GAS UNDER THE 
NATURAL GAS POLICY ACT OF 1978 AND RELATED AUTHORITIES

0
3. The authority citation for part 284 continues to read as follows:

    Authority: 15 U.S.C. 717-717z, 3301-3432; 42 U.S.C. 7101-7352; 
43 U.S.C. 1331-1356.

0
4. Revise Sec.  284.288(a) to read as follows:

Sec.  284.288  Code of conduct for unbundled sales service.

    (a) To the extent Seller engages in reporting of transactions to 
publishers of electricity or natural gas indices, Seller must provide 
accurate and factual information, and not knowingly submit false or 
misleading information or omit material information to any such 
publisher, by reporting its transactions in a manner consistent with 
the procedures set forth in the Policy Statement, issued by the 
Commission in Docket No. PL03-3-000 and any clarifications thereto. For 
a Seller who reports in a manner consistent with procedures set forth 
in the Policy Statement, there will be a rebuttable presumption that 
information submitted to publishers of electricity or natural gas 
indices is accurate, timely, and submitted in good faith. Inadvertent 
reporting errors by a Seller who reports in a manner consistent with 
the procedures set forth in the Policy Statement shall not constitute 
violations of this provision. Seller must notify the Commission as part 
of its FERC Form No. 552 annual reporting requirement in Sec.  260.401 
of this chapter whether it reports its transactions to publishers of 
electricity and natural gas indices. In addition, Seller must adhere to 
any other standards and requirements for price reporting as the 
Commission may order.
* * * * *
0
5. Revise Sec.  284.403(a) to read as follows:

Sec.  284.403   Code of conduct for persons holding blanket marketing 
certificates.

    (a) To the extent Seller engages in reporting of transactions to 
publishers of electricity or natural gas indices, Seller must provide 
accurate and factual information, and not knowingly submit false or 
misleading information or omit material information to any such 
publisher, by reporting its transactions in a manner consistent with 
the procedures set forth in the Policy Statement, issued by the 
Commission in Docket No. PL03-3-000 and any clarifications thereto. For 
a Seller who reports in a manner consistent with procedures set forth 
in the Policy Statement, there will be a rebuttable presumption that 
information submitted to publishers of electricity or natural gas 
indices is accurate, timely, and submitted in good faith. Inadvertent 
reporting errors by a Seller who reports in a manner consistent with 
the procedures set forth in the Policy Statement shall not constitute 
violations of this provision. Seller must notify the Commission as part 
of its FERC Form No. 552 annual reporting requirement in Sec.  260.401 
of this chapter whether it reports its transactions to publishers of 
electricity and natural gas indices. In addition, Seller must adhere to 
any other standards and requirements for price reporting as the 
Commission may order.
* * * * *
[FR Doc. 2020-28386 Filed 3-1-21; 8:45 am]
BILLING CODE 6717-01-P