FERC Filings
Comments of EPSA on Commisions's Efforts to Encourage Voluntary Price Reporting
Comments
The Commission has held technical conferences and provided guidance to data providers and index publishers through issuance of the Policy Statement on reporting and index development and the Market Behavior Rules, and has evaluated the state of current price reporting practices through two surveys. The industry has responded to the Commission’s actions and has initiated actions of its own to improve the quality of published indices and market transparency and to increase the market’s confidence in the price reporting.
EPSA has been committed to working with the Commission to help boost public and market participant confidence in energy prices. Reflecting that commitment, EPSA, along with industry representatives from all along the natural gas and electricity value chains, including brokers and index publishers, formed the Market Price Reporting Action Committee (MPRAC) to assist with the Commission’s efforts. The MPRAC successfully met its two objectives: first, helping the Commission to understand the depth and quality of current reporting data and assisting with its March 2004 survey; and second, assessing whether there are any impediments or deficiencies in price reporting. The MPRAC completed these objectives and informed the Commission of its conclusions in a May 21, 2004, letter.
The MPRAC’s efforts demonstrated the industry’s rapid response in providing the Commission with concrete information that price reporting has improved, with Staff noting the MPRAC’s March 10, 2004 press release in its report. The press release included data and analysis from the Intercontinental Exchange (ICE), the New York Mercantile Exchange (NYMEX), the Natural Gas Intelligence and Platts, showing that both liquidity and reporting had increased and that market participants’ confidence in indices has “increased significantly since November 2002, and that there is increased transparency in natural gas markets.”
The Commission’s March survey further confirmed the MPRAC results, showing that reporting levels have increased and reporting quality has improved. The survey report, however, still expressed concern about the level of market confidence, and admitted that it is difficult to measure. As the basis for that lack of confidence, FERC Office of Market Oversight and Investigations Deputy Director Steve Harvey said during his presentation of the survey results to the Commission that despite volume increases, it still appeared that the majority of reportable transactions were not being reported.
The MPRAC’s Data Team was able to clear up why the survey’s market volumes did not show a larger percentage of the estimated total market. The MPRAC identified that the reason for this gap was that the Staff survey was capturing one “side” of trades, rather than capturing the “deals” between counterparties. The MPRAC analysis showed that by using the “deals” methodology, the survey volumes for daily gas, bid-week gas and daily electric transactions would increase by a substantial average of 20 percent, showing that, indeed, three-fourths of all reportable natural gas volumes are being captured in indices. Additionally, these amounts are expected to increase since more market participants not currently reporting indicated in the survey that they soon will begin reporting data to index publishers. These results portend that soon more than 80 percent of all reportable transactions will be represented in published indices. Certainly, this is a credible market sample that should provide the necessary confidence for market participants relying on published index prices.
The MPRAC has provided the Commission with solid evidence to explain Staff’s reservations expressed in its initial survey analysis. The MPRAC analysis should increase Commission confidence that a significant number of market participants are voluntarily providing index publishers the data needed to provide reliable indices. In addition, the analysis adds to the evidence that reporting has sufficiently improved.
EPSA believes that the Commission took the right step by promoting voluntary reporting as the means to achieve accurate price formation and transparency. As the results of the Staff report indicate, price reporting raises many complex and difficult issues. These include confidential treatment of information, differences between the gas and electric power industries, jurisdictional limitations, the competitive risks of disclosure at illiquid locations, and the variety of legal and regulatory risks associated with reporting. Strong support for voluntary reporting is still the best approach to improving the quality and quantity of price reporting and, in turn, instilling confidence in energy markets.
EPSA feels that Commission initiatives have provided ample progress on price reporting and the quality of indices by putting in place the necessary behavioral remedies to restore market confidence in published prices. As EPSA has asserted on market power issues, Commission policy often requires both structural and behavioral rules to be successful. The Commission’s Policy Statement and Market Behavior Rules provide safeguards against behavioral irregularities. These rules are now adequate to deter future behavior that would undermine market confidence in the natural gas and electricity markets.
The wholesale electricity market has worked to comply with the Policy Statement and Market Behavior Rules, finding that the rules have helped companies streamline their combined wholesale electric and gas marketing operations. The Rules also have given market participant’s compliance officers further guidance that have improved internal controls associated with market rules. Consequently, market participants have found the Rules useful in measuring their own processes, and industry now has a common set of Market Behavior Rules with which to comply.
EPSA has long advocated workably efficient, competitive and broad energy markets, be they natural gas or electric. The Commission and Congress, through a long series of legislative and regulatory pronouncements, have largely achieved this goal in the natural gas industry. While the workably competitive natural gas market is not in need of structural changes that require Commission action, the wholesale electricity market continues to require structural changes that are outside of the scope of the Commission’s focus on price reporting and indices.
Rather than take additional action on price reporting and indices, the Commission can best facilitate increased wholesale electric market transparency and liquidity by continuing its efforts to establish competitive organized markets. The Commission’s goals of electric market transparency and liquidity are best achieved in its efforts to further develop Regional Transmission Organizations (RTOs) nationwide. RTOs can best provide the needed transparent price information needed, but not present, in regions outside organized markets. Therefore, the Commission can achieve greater transparency by continuing its work on establishing organized markets that will make regional price and planning information widely available and transparent.
PJM, as one of the first RTOs, serves as an example of an organized market with adequate price transparency. PJM President Phil Harris asserts that the key value that the PJM RTO delivers to customers is the information value chain of real-time transparent price information. PJM’s information system, with input from a broad stakeholder process, produces the transparent information market participants need to make reliable choices.