FERC Filings
Motion for Clarification of the Electric Power Supply Association re: Price Discovery in Natural Gas and Electric Markets
The Commission Should Clarify The Term "Trading Location"
The first issue addresses the Commission’s use of the term “all trading locations.” Under Section 3 of Paragraph 34, data providers should report “each bilateral arm’s-length transaction between non-affiliated companies in the physical (cash) markets at all trading locations.” Both the term “all” and the term “trading locations” are causing confusion. Thus, companies are unsure about what they need to do to obtain safe harbor protection.
Understandably, companies are reluctant to disclose information at disaggregated delivery points or thinly traded locations, because of the obvious potential for the disclosure of competitively sensitive information to other market participants. Therefore, the Commission should clarify that trading locations for public reporting purposes are points (a) with a high degree of connectivity or interconnection so that multiple buyers and sellers can readily reach each other and (b) that have adequate liquidity, which in turn allows for accurate development of forward price curves.
In the electric industry, the term “trading locations” is simply unclear because it does not have a common meaning to market participants or index developers. It is possible to read the Policy Statement as requiring data providers to report transactions that sink at a specifically-designated delivery point, as opposed to an aggregated reporting location, such as Into Cinergy or COB. Clearly, bus bar delivery points lack the liquidity needed to promote voluntary reporting. The Commission should clarify that reporting at aggregated points satisfies the requirement to report at “trading locations.”
Assuming, however, that the Commission intended to require reporting at more aggregated locations, it is still unclear how to establish “trading locations,” and EPSA urges the Commission to better define the term. For example, the Palo Verde switchyard is highly interconnected and is considered to be a liquid trading point. Is it a “trading location”? Can trades that sink into a trading location, such as Palo Verde or Into Cinergy, simply be reported at those points? Will the pricing reported for a specific delivery point be considered the same as delivery into a designated region for purposes of meeting the reporting requirement at a “trading location”?
An additional problem is created because data providers must report at “trading locations,” while index developers report prices at “trading points” in Section 2 of Paragraph 33. Presumably, these are the points for which price index developers report aggregated transaction prices. Assuming that these terms mean the same thing, additional problems arise. First, index developers do not all use common locations. For example, Platts’ Power Markets Week reports prices at 15 different locations, including six in the west. Bloomberg, on the other hand, lists nine western locations, three of which are not included in Platts. 10X Group lists a total of 12 locations. Among the 12, one eastern and one western location are not included in Platts. The western location reported by 10X Group is on Bloomberg, however. Today, established price index developers already request information on dozens of sometimes inconsistent locations for reporting purposes.
The Policy Statement appears to leave the definition of “trading locations” and/or “trading points” to the interpretation of index providers and data providers, which will be problematic if different entities have different interpretations and competing needs. The Commission needs to provide a clear definition of “trading locations” so that index developers and data providers both clearly understand their respective gathering and reporting responsibilities. Alternatively, to obtain safe harbor protection, data providers could be required to produce data at a wide variety of unanticipated locations. It is quite likely that many of these locations will not be liquid enough to support a reporting requirement for safe harbor protection.
In the gas industry, the Commission’s Order 637 defined “market centers” as “points of interconnection” where “traders can exchange gas and shippers can obtain a variety of services.” These market centers generally represent the intersection of numerous interstate pipelines where, as a result, significant trading activity occurs or is likely to occur. One approach would be for the Commission to specifically identify the points it considers to be trading locations, based on interconnection and/or trading liquidity. Or, the Commission could convene a conference at which data providers and index developers can assist in developing a consensus as to the identity of appropriate “trading locations,” or the characteristics such locations should entail.