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FERC Sets Agenda for Technical Conference on Natural Gas Index Liquidity and Transparency

June 14, 2017

Joel L Greene and Melissa A. Alfano

On June 29, 2017, the Federal Energy Regulatory Commission (FERC) will hold a technical conference to discuss liquidity in the natural gas markets and what, if anything, the industry or FERC can do to increase transparency and robustness in natural gas price formation.

The day-long conference will feature three stakeholder panels. The first panel, featuring publishers of natural gas newsletters, will examine the current state of natural gas indices, the degree of industry reliance on index-based contracts rather than fixed-price contracts, and whether natural gas indices accurately reflect market conditions. Since 2008, there has been a steady decrease in fixed price transaction reporting, which the Commission believes may be affecting natural gas price robustness.

The second panel, featuring representatives from industry trade associations and Regional Transmission Organizations and Independent System Operators (RTOs/ISOs), will examine the various uses of natural gas indices, potential concerns with their robustness and liquidity, whether the standards for indices referenced in jurisdictional tariffs accurately capture liquidity, and whether improvements are necessary to ensure that the indices function properly and efficiently.

The technical conference will conclude with a panel of various stakeholders discussing whether FERC or the industry should take action to improve pricing information and, if so, what those improvements should be.

The last time FERC substantively addressed natural gas index liquidity was in its 2004 order, Price Discovery in Natural Gas and Electric Markets, 109 FERC ¶ 61,184. That order adopted minimum criteria for the use of an index point in a jurisdictional tariff that would test liquidity. Several years later, in 2007, FERC issued Order No. 704, which required buyers or sellers of natural gas to file Form 552 with FERC, containing information about the amount of daily or monthly fixed-price trading eligible to be reported to price index publishers. Since then, U.S. natural gas markets have undergone significant changes. Natural gas demand has significantly increased. In 2015, for the first time, natural gas was the primary source of electric generation output. In response to this increased demand, FERC issued Order No. 809, which instituted changes to its regulations relating to the natural gas nomination timeline in an effort to ensure more efficient coordination between the natural gas and electric industries. The June 29 technical conference will be another step towards addressing the challenges presented by the changing natural gas markets.

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