[Federal Register: July 7, 2003 (Volume 68, Number 129)]
[Proposed Rules]
[Page 40207-40213]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07jy03-32]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 284
[Docket No. RM03-10-000]
Amendments to Blanket Sales Certificates
June 26, 2003.
AGENCY: Federal Energy Regulatory Commission, DOE.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Federal Energy Regulatory Commission (Commission) is
proposing to amend the blanket certificates for unbundled gas sales
services held by interstate natural gas pipelines and the blanket
marketing certificates held by persons making sales for resale of gas
at negotiated rates in interstate commerce to require that pipelines
and all sellers for resale adhere to a code of conduct with respect to
gas sales. The purpose of the proposed revisions is to ensure the
integrity of the gas sales market that remains within the Commission's
jurisdiction. The notice of proposed rulemaking (NOPR) is another part
of the Commission's continuing effort to restore confidence in the
nation's energy markets.
DATES: Comments are due August 6, 2003.
ADDRESSES: Comments may be filed electronically via the eFiling link on
the Commission's Web site at http://www.ferc.gov. Commenters unable to
file comments electronically must send an original and 14 copies of
their comments to: Federal Energy Regulatory Commission, Office of the
Secretary, 888 First Street NE., Washington, DC 20426. Refer to the
Comment Procedures section of the preamble for additional information
on how to file comments.
FOR FURTHER INFORMATION CONTACT: David Faerberg, Office of the General
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426, (202) 502-8275, david.faerberg@ferc.gov;
Horatio Cipkus, Office of Markets, Tariffs and Rates, Federal
Energy Regulatory Commission, 888 First Street, NE., Washington, DC
20426, (202) 502-8927, horatio.cipkus@ferc.gov.
SUPPLEMENTARY INFORMATION:
Before Commissioners: Pat Wood, III, Chairman; William L. Massey,
and Nora Mead Brownell.
[[Page 40208]]
I. Introduction
1. The Federal Energy Regulatory Commission (Commission) is
proposing to amend the blanket certificates for unbundled gas sales
services held by interstate natural gas pipelines and the blanket
marketing certificates held by persons making sales for resale of gas
at negotiated rates in interstate commerce to require that pipelines
and all sellers for resale adhere to a code of conduct with respect to
gas sales. The purpose of the proposed revisions is to ensure the
integrity of the gas sales market that remains within the Commission's
jurisdiction. This notice of proposed rulemaking (NOPR) is another part
of the Commission's continuing effort to restore confidence in the
nation's energy markets. Contemporaneously with this NOPR, the
Commission is also issuing an order proposing to require sellers of
electricity at market-based rates to adhere to certain behavioral rules
when making sales of electricity.
II. Background
2. A decade ago, as a result of changes in the natural gas
industry, Congressional legislation and various Commission rulemaking
proceedings restructuring the gas industry, the Commission issued
blanket certificates to allow pipelines and other persons selling
natural gas to make sales for resale of natural gas at market-based or
negotiated rates. These certificates were granted in two final rules
issued by the Commission: Order No. 636 \1\ and Order No. 547.\2\
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\1\ Order No. 636, Pipeline Service Obligations and Revisions to
Regulations Governing Self-Implementing Transportation Under part
284 of the Commission's regulations, and Regulation of Natural Gas
Pipelines After Partial Wellhead Decontrol, FERC. Stats. & Regs. ]
30,939 (1992), order on reh'g, Order No. 636-A, FERC. Stats. & Regs.
] 30,950 (1992), order on reh'g, Order No. 636-B, 61 FERC. ] 61,272
(1992), aff'd in part, rev'd in part, United Distribution. Cos. v.
FERC, 88 F.3d 1105 (DC Cir. 1996), cert. denied, 137 L. Ed. 2d 845,
117 S. Ct. 1723, 117 S. Ct. 1724 (1997), on remand, Order No. 636-C,
78 FERC. ] 61,186 (1997), order on reh'g, Order No. 636-D, 83 FERC ]
61,210 (1998).
\2\ Regulations Governing Blanket Marketer Sales Certificates,
FERC Stats. & Regs. ] 30,957 (1992), order on reh'g and
clarification, 62 FERC ] 61,239 (1993).
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3. In Order No. 636, the Commission required all pipelines that
provide open-access transportation to offer their sales services on an
unbundled basis. To this end, the Commission issued to pipelines
holding a blanket transportation certificate under subpart G of part
284 of the Commission's regulations, or performing transportation under
subpart B, a blanket certificate authorizing firm and interruptible
sales for resale.\3\ The Commission required that all firm and
interruptible sales services be provided as unbundled services under
the blanket sales certificate. The Commission found that this form of
regulation would enable the pipelines to compete directly with other
gas sellers on the same terms at prices determined in a competitive
market. The unbundled sales services were also afforded pregranted
abandonment.
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\3\ 18 CFR 284.281-287 (2002).
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4. In Order No. 636, the Commission authorized pipelines to make
unbundled sales at market-based rates because it concluded that, after
unbundling, sellers of short-term or long-term firm gas supplies
(whether they be pipelines or other sellers) will not have market power
over the sale of natural gas. The Commission's determination was also
based on Congress' express finding that a competitive market exists for
gas at the wellhead and in the field. The Commission indicated that it
was instituting light-handed regulation, relying upon market forces at
the wellhead or in the field to constrain unbundled pipeline sales for
resale gas prices within the Natural Gas Act's ``just and reasonable''
standard. In addition, the requirement that pipelines provide open
access transportation from the wellhead to the market also permitted
the Commission to exercise light-handed regulation over jurisdictional
gas sales. Finally, the Commission stated that it would be regulating
the pipeline sales in the same manner as it had done for sales for
resale by marketers.
5. The Commission also determined that a pipeline as a gas merchant
would be the functional equivalent of a pipeline's marketing affiliate.
The Commission concluded that Order No. 497's \4\ standards of conduct
would apply to the relationship between the pipeline transportation
function and its merchant function. Accordingly, the regulations
issuing pipelines blanket sales certificates included standards of
conduct and reporting requirements. The purpose of imposing Order No.
497's requirements was to ensure that the pipeline did not favor itself
as a merchant over other gas suppliers in performing its transportation
function.
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\4\ Inquiry Into Alleged Anticompetitive Practices Related to
Marketing Affiliates of Interstate Pipelines, Order No. 497, 53 FR
22139 (June 14, 1988), FERC Statutes and Regulations, Regulation
Preambles 1986-1990 ] 30,820 (1988), order on rehearing, Order No.
497-A , 54 FR 52781 (Dec. 22, 1989), FERC Statutes and Regulations,
Regulation Preambles 1986-1990 ] 30,868 (1989), order extending
sunset date, Order No. 497-B, 55 FR 53291 (Dec. 28, 1990), FERC
Statutes and Regulations, Regulation Preambles 1986-1990 ] 30,908
(1990), order extending sunset date and amending final rule, Order
No. 497-C, 57 FR 9 (Jan. 2, 1992), FERC Statutes and Regulations ]
30,934 (1991), reh'g denied, 57 FR 5815, 58 FERC ] 61,139 (1992),
aff'd in part and remanded in part, Tenneco Gas v. Federal Energy
Regulatory Commission, 969 F.2d 1187 (DC Cir. 1992), order on
remand, Order No. 497-D, 57 FR 58978 (Dec. 14, 1992), FERC Statutes
and Regulations ] 30,958 (1992), order on reh'g and extending sunset
date, Order No. 497-E, 59 FR 243 (Jan. 4, 1994), FERC Statutes and
Regulations ] 30,987 (Dec. 23, 1994), order on reh'g, Order No. 497-
F, 59 FR 15336 (Apr. 1, 1994), 66 FERC ] 61,347 (1994).
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6. In Order No. 547, as part of the industry restructuring begun by
Order No. 636, the Commission issued blanket certificates to all
persons who are not interstate pipelines authorizing them to make
jurisdictional gas sales for resale at negotiated rates with pregranted
abandonment.\5\ The blanket certificates were issued by operation of
the rule itself and there was no requirement for persons to file
applications seeking such authorization. The Commission determined that
the competitive gas commodity market would lead all gas suppliers to
charge rates that are sensitive to the gas sales market and cognizant
of the variety of options available to gas purchasers. The Commission
further stated that, in a competitive market, the basis for the rate to
be negotiated between a willing buyer and seller is a commercial, not
regulatory, matter. The requirement that pipelines provide open access
transportation from the wellhead to the market also permitted the
Commission to exercise light-handed regulation over jurisdictional gas
sales. The Commission also determined that marketing certificates
issued by the final rule are of a limited jurisdiction. The Commission
held that the holders of marketing certificates are not subject to any
other regulation under the Natural Gas Act jurisdiction of the
Commission by virtue of transactions under the certificates.
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\5\ 18 CFR 284.401-402 (2002).
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III. Events in Western Energy Markets in 2000
7. In March 2003, in Docket No. PA02-2-000, the Commission Staff
concluded its Fact Finding Investigation of Potential Manipulation of
Electric and Gas Prices and issued a Final Report on Price Manipulation
in Western Markets (Final Report). A key conclusion of the Final Report
is that markets for natural gas and electricity in California are
inextricably linked, and that dysfunctions in each fed off one another
during the California energy crisis. Staff found that spot gas prices
rose to extraordinary levels, facilitating the unprecedented price
increase in the electricity market. The Final Report found that
dysfunctions in the natural
[[Page 40209]]
gas market appear to stem, at least in part, from efforts to manipulate
price indices compiled by trade publications. The Final Report stated
that reporting of false data and wash trading are examples of efforts
to manipulate published price indices.
8. While the Final Report contained numerous recommendations which
will not be discussed here, the Staff did recommend that
Sec. Sec. 284.284 and 284.402 of the Commission's regulations be
amended to provide explicit guidelines or prohibitions for trading
natural gas under Commission blanket certificates. The specific
recommendations include: (1) Conditioning natural gas companies'
blanket certificates on providing accurate and honest information to
entities that publish price indices; (2) conditioning blanket
certificates on retaining all relevant data for three years for
reconstruction of price indices; (3) establishing rules banning any
form of prearranged wash trading; and (4) prohibiting the reporting of
trades between affiliates to industry indices.
IV. The Commission's Proposal
A. Introduction
9. Over the past decade, the combination of wellhead decontrol
mandated by Congress, open access transportation and the unbundling of
pipeline gas sales from transportation increased efficiency and
competition both in the gas commodity market and the transportation
market. The Commission's open access and unbundling initiatives were
supplemented by the actions of state regulators who also saw the need
to begin to open local distribution company (LDC) systems by allowing
large industrial and commercial customers to purchase their own gas and
transport that gas both on the interstate pipeline and on the LDC's
facilities. As a result of the Commission and state open access and
unbundling efforts, more efficient and competitive markets developed
that would reduce overall gas prices to customers.
10. The Commission's NGA jurisdiction to regulate the prices
charged by sellers of natural gas has been substantially narrowed by
the Natural Gas Policy Act of 1978 (NGPA) and Congress' subsequent
enactment of the Natural Gas Wellhead Decontrol Act of 1989. The end
result of these statutory provisions is that the only sales of natural
gas that the Commission currently has jurisdiction to regulate are
sales for resale of domestic gas by pipelines, local distribution
companies (LDCs), or their affiliates so long as they do not produce
the gas that they sell.\6\ The Commission believes that reliance on
competition for gas sales within its jurisdiction has been successful.
It has been shown that the wellhead deregulation and reliance on
competition in the natural gas industry has provided substantial
economic benefits, including among other things, ``[l]ower national
energy costs to consumers by over $600 billion as compared to
continuation of tight regulations.'' \7\ However, the Commission
believes that, in light of Staff's determinations in the Final Report,
it is the Commission's responsibility to ensure the integrity of the
gas sales market that remains within the Commission's jurisdiction.
Accordingly, pursuant to the Commission's authority under section 7 of
the Natural Gas Act, the Commission proposes to revise Sec. 284.288 of
its regulations, which is currently reserved, to require that pipelines
providing unbundled sales service adhere to a code of conduct when
making gas sales. The Commission also proposes to add a new
Sec. 284.403 to part 284, subpart L to require persons holding blanket
marketing certificates under Sec. 284.402 to adhere to a code of
conduct when making gas sales.\8\
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\6\ See, Reporting of Natural Gas Sales to the California
Market, 96 FERC ] 61,119 at 61,463, reh'g, 97 FERC ] 61,029 (2001),
and San Diego Gas and Electric Company, et al., 101 FERC ] 61,161 at
P 10 (2002).
\7\ Center for the Advancement of Energy Markets, California
Here We Come: The Lessons Learned from Natural Gas Deregulation by
Dr. Rodney Lemon (August 2001).
\8\ Section 284.5 of the Commission's regulations also states
that ``[t]he Commission may prospectively, by rule or order, impose
such further terms and conditions as it deems appropriate on
transactions authorized by this part.''
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B. Proposed Code of Conduct
11. As a general matter, the Commission will prohibit pipelines
making unbundled gas sales and persons making sales for resale in
interstate commerce from engaging in actions or transactions without a
legitimate business purpose that manipulate or attempt to manipulate
market prices, market conditions, or market rules for natural gas or
that result in prices that do not reflect the legitimate forces of
supply and demand. The prohibited actions or transactions include but
are not limited to pre-arranged offsetting trades of the same product
among the same parties, which involve no economic risk, and no net
change in beneficial ownership (sometimes called ``wash trades'') and
collusion with another party for the purpose of creating market prices
at levels differing from those set by market forces. The Commission
considers a legitimate business purpose to be an action consistent with
appropriate behavior in a competitive market which is taken to further
a firm's business objectives without engaging in manipulative, illegal,
or otherwise anti-competitive acts. Engaging in manipulation, for
example, in order to maximize profits is not a legitimate business
purpose.
12. The Final Report found that wash trading adversely affected the
California energy markets. A wash trade is a prearranged pair of trades
of the same product between the same parties or an affiliate of a
party, involving no economic risk and no net change in beneficial
ownership between the parties or any affiliate. Such transactions do
not appear to serve any legitimate business purpose. The Staff found
that wash trading damages the integrity of the market because it can,
among other things, create false liquidity, send false price signals,
increase trading revenue figures, and adversely affect index prices
reported for a market.
13. The Commission will require that blanket sales certificate
holders provide complete, accurate and factual information when
reporting transactions to publishers of gas price indices. The blanket
sales certificate holder must notify the Commission of whether it
engages in such reporting. The basis for this condition is the Final
Report's finding that the process for reporting natural gas prices
indices was fundamentally flawed. Staff found that gas traders had the
ability and incentive to manipulate published prices because natural
gas was the fuel input for generators that set the price for
electricity in California. Further, the Commission could not
independently verify price indices and there did not appear to be a
systematic, reliable verification process employed by publishers of
natural gas price indices. The Commission finds that accurate price
indices are necessary in order to have a properly functioning
competitive gas market.
14. In addition, the Commission is considering various options for
addressing concerns regarding the validity of price indices. On April
24, 2002, we convened a public conference in Docket No. AD03-7-000,
together with the Commodity Futures Trading Commission (CFTC), to
consider natural gas price formation issues, including the development
of alternative index formation models. At that conference and from
comments submitted thereafter, we have received valuable
[[Page 40210]]
input helping us refine the options available. We are hopeful that the
process begun on April 24th will lead to a solution. To that end, we
have conducted a follow-up conference, also with CFTC participation,
for both natural gas and electricity indices at which we further
explored the options presented and attempted to move toward a consensus
solution.
15. While we have indicated herein that we are considering
requiring jurisdictional entities to report transactions to an entity
responsible for index creation, we note that our efforts toward
resolution of this issue will be in Docket No. AD03-7-000. Proposed
284.288(a)(1) and 284.403(a)(1) state that pipelines and blanket
marketing certificate holders will be required to adhere to other
standards or requirements as the Commission may order. Based upon our
review of the record developed in Docket No. AD03-7-000, we may issue
such an order to be implemented at the same time as the rules set forth
herein.
16. The Commission will require blanket sales certificate holders
to retain all relevant data for three years for reconstruction of price
indices. This condition is also related to the Staff's findings that
natural gas price indices were manipulated. During its investigation
Staff found that there were significant barriers to the verification of
natural gas price indices due, in large part, to the fact that many gas
traders did not retain business records of their transactions for any
significant length of time. Requiring pipelines and other
jurisdictional gas sellers to maintain such records should promote
transparent markets and either reduce or eliminate manipulation of gas
price indices.
17. The Commission will also prohibit blanket sales certificate
holders from reporting any transactions between affiliates to industry
indices. The Final Report determined, as with wash trades, that there
are certain types of transactions between affiliates that do not appear
to have any legitimate business purpose. For example, the Final Report
identified certain transactions between Enron affiliates that were
completed at prices different from the true market and involved no net
gain or loss to Enron as a whole. Staff found that transactions between
affiliates were designed to give the impression of volatility or to
affect average prices reported through market indices. Arms length
transactions, on the other hand, provide useful price information to
the broader market and provide a firm foundation for buyers and
sellers.
C. Jurisdictional and Procedural Issues
18. The Commission is concerned with the effect of the proposed
regulations on the natural gas market. Since the Commission's NGA
jurisdiction to regulate the prices charged by sellers of natural gas
has been substantially narrowed, the Commission seeks comment on
whether application of the code of conduct to only part of the natural
gas market will have any adverse effects on the natural gas market. For
example, could jurisdictional sellers of natural gas restructure their
businesses so as to avoid adherence to the code of conduct, could
blanket certificate holders face a competitive disadvantage due to
compliance with the code of conduct, or could there be any negative
impact on natural gas prices?
19. Sections 284.288(b) and 284.403(b) require that pipelines and
blanket marketing certificate holders notify the Commission whether or
not they engage in reporting transactions to publishers of gas indices.
In order to comply with this requirement, pipelines and blanket
marketing certificate holders must submit a filing with the Commission
within 30 days after the effective date of the rule indicating whether
or not they are engaging in such reporting. Any person who does not
submit a filing with the Commission and continues to make gas sales
would be making them without Commission authority and would be subject
to the Commission taking remedial action.
D. Remedies
20. The Commission proposes that violation of the code of conduct
may result in the disgorgement of unjust profits, suspension or
revocation of the blanket sales certificate or other appropriate non-
monetary remedies. The Commission seeks comment on this issue.
21. The Commission also proposes a time limit in which a person may
file a complaint against a blanket sales certificate holder for
violation of the code of conduct. A person will be required to file a
complaint against the certificate holder no later than 60 days after
the end of the calendar quarter in which the alleged violation
occurred, unless that person could not have known of the alleged
violation, in which case the 60-day time limit will run from the
discovery of the alleged violation. The Commission believes this
properly balances the interests of persons who may have been adversely
affected by violations of the code of conduct against the needs of
blanket sales certificate holders for finality in their gas sales
transactions. The 60-day time limit would not apply to any action or
investigation initiated by the Commission or its Staff.
V. Information Collection Statement
22. The proposed rule would require jurisdictional gas sellers to
retain certain records for three years and also require them to notify
the Commission whether or not they engage in the reporting of natural
gas sales transactions to publishers of gas indices. The collection of
information contained in this proposed rule has been submitted to the
Office of Management and Budget (OMB) for review under the section
3507(d) of the Paperwork Reduction Act of 1995.\9\ OMB's regulations
require OMB to approve certain information collection requirements
imposed by agency rule.\10\ The Commission identifies the information
provided for under this rule as FERC-549.
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\9\ 44 U.S.C. 3507(d).
\10\ 5 CFR 1320.11.
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23. Comments are solicited on the need for this information,
whether the information will have practical utility, the accuracy of
the provided burden estimates, ways to enhance the quality, utility,
and clarity of the information to be collected, and any suggested
methods for minimizing respondents' burden, including the use of
automated information techniques. The burden estimates for complying
with this proposed rule are as follows:
[[Page 40211]]
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Total
Data collection Number of Number of Hours per annual
respondents responses response hours
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FERC-549:
(Reporting).............................................. 222 222 1 222
(Recordkeeping).......................................... 222 222 2 444
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Totals............................................... .............. ........... 3 666
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Total annual hours for Collection (reporting + recordkeeping) = 666.
Information Collection Costs: The Commission seeks comments on the
cost to comply with these requirements. It has projected the average
annualized cost of all respondents to be:
Annualized Capital Startup Costs: 666 / 2080 x $117,041 = $37,475.
This is a one time cost for the implementation of the proposed
requirements.
24. OMB's regulations require it to approve certain information
collection requirements imposed by agency rule. The Commission is
submitting notification of this proposed rule to OMB.
Title: FERC-549, Gas Pipeline Rates: Natural Gas Policy Act,
Section 311 Transactions.
Action: Proposed Data Collection.
OMB Control No. 1902-0086.
25. Respondents will not be penalized for failure to respond to the
collection of information unless the collection of information displays
a valid OMB control number or the Commission has provided justification
as to why the control number should not be displayed.
Respondents: Businesses or other for profit.
Frequency of Responses: On occasion.
Necessity of Information: The proposed rule would revise the
Commission's regulations to require that pipelines who provide
unbundled sales service or persons holding blanket marketing
certificates adhere to a code of conduct when making gas sales. In
addition, the Commission will require blanket sales certificate holders
to maintain certain data for a period of three years. The addition of
the codes of conduct, retention of data and standards for accuracy are
efforts by the Commission to ensure the integrity of the natural gas
market that remains within its jurisdiction.
Internal review: The Commission has reviewed the requirements
pertaining to blanket sales certificates and has determined the
proposed revisions are necessary to ensure the integrity of the gas
sales market that remains within its jurisdiction. These requirements
conform to the Commission's plan for efficient information collection,
communication, and management within the natural gas industry. The
Commission has assured itself, by means of internal review, that there
is specific, objective support for the burden estimates associated with
the information requirements.
26. Interested persons may obtain information on the information
requirements by contacting the following: Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426 (Attention:
Michael Miller, Office of the Executive Director, Phone (202) 502-8415,
fax: (202) 273-0873, e-mail: michael.miller@ferc.gov.)
27. For submitting comments concerning the collection of
information(s) and the associated burden estimate(s), please send your
comments to the contact listed above and to the Office of Management
and Budget, Office of Information and Regulatory Affairs, Washington,
DC 20503, (Attention: Desk Officer for the Federal Energy Regulatory
Commission, phone: (202) 395-7856, fax: (202) 395-7285).
VI. Environmental Analysis
28. 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.\11\ The
Commission has categorically excluded certain actions from these
requirements as not having a significant effect on the human
environment.\12\ The actions proposed to be taken here fall within
categorical exclusions in the Commission's regulations for rules that
are clarifying, corrective, or procedural, for information gathering,
analysis, and dissemination, and for sales, exchange, and
transportation of natural gas that requires no construction of
facilities.\13\ Therefore, an environmental assessment is unnecessary
and has not been prepared in this rulemaking.
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\11\ Order No. 486, Regulations Implementing the National
Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. &
Regs. Preambles 1986-1990 ] 30,783 (1987).
\12\ 18 CFR 380.4.
\13\ See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5), 380.4(a)(27).
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VII. Regulatory Flexibility Act Certification
29. The Regulatory Flexibility Act of 1980 (RFA) \14\ generally
requires a description and analysis of final rules that will have
significant economic impact on a substantial number of small entities.
The Commission is not required to make such analyses if a rule would
not have such an effect.\15\
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\14\ 5 U.S.C. 601-612.
\15\ 5 U.S.C. 605(b).
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30. The Commission does not believe that this rule would have such
an impact on small entities. Most of the entities required to comply
with the proposed regulations would be pipelines, LDCs or their
affiliates who do not meet the RFA's definition of a small entity
whether or not they are under the Commission's jurisdiction.\16\ It is
likely that any small entities selling natural gas would be making gas
sales that are no longer subject to the Commission's jurisdiction.
Therefore, the Commission certifies that this rule will not have a
significant economic impact on a substantial number of small entities.
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\16\ 5 U.S.C. 601(3).
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VIII. Comment Procedures
31. 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 30 days from publication in the Federal
Register. Comments must refer to Docket No. RM03-10-000 and must
include the commenter's name, the organization they represent, if
applicable, and their address in their comments. Comments may be filed
either in electronic or paper format.
32. Comments may be filed electronically via the eFiling link on
the Commission's Web site at http://www.ferc.gov. The Commission
accepts most standard word processing formats and commenters may attach
additional files with supporting information in certain other file
formats. Commenters filing electronically do not need to make
[[Page 40212]]
a paper filing. Commenters that are not able to file comments
electronically must send an original and 14 copies of their comments
to: Federal Energy Regulatory Commission, Office of the Secretary, 888
First Street NE., Washington, DC 20426.
33. 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 on this proposal are
not required to serve copies of their comments on other commenters.
IX. Document Availability
34. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's
Public Reference Room during normal business hours (8:30 a.m. to 5 p.m.
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.
35. From FERC's Home Page on the Internet, this information is
available in the Federal Energy Regulatory Records Information System
(FERRIS). The full text of this document is available on FERRIS in PDF
and WordPerfect format for viewing, printing, and/or downloading. To
access this document in FERRIS, type the docket number excluding the
last three digits of this document in the docket number field.
36. For assistance with FERRIS, the FERRIS helpline can be reached
at 1-866-208-3676, TTY (202) 502-8659, or at
FERCOnLineSupport@ferc.gov.
List of Subjects in 18 CFR Part 284
Continental shelf; Incorporation by reference; Natural gas;
Reporting and recordkeeping requirements.
By direction of the Commission. Commissioner Massey concurred in
part with a separate statement attached. Commissioner Brownell
concurred with a separate statement attached.
Magalie R. Salas,
Secretary.
In consideration of the foregoing, the Commission proposes to amend
part 284, Chapter I, Title 18, Code of Federal Regulations, as follows.
PART 284--CERTAIN SALES AND TRANSPORTATION OF NATURAL GAS UNDER THE
NATURAL GAS POLICY ACT OF 1978 AND RELATED AUTHORITIES
1. The authority citation for part 284 continues to read as
follows:
Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7532;
43 U.S.C.1331-1356.
2. Section 284.288 is added to read as follows:
Sec. 284.288 Code of conduct for unbundled sales service.
(a) A pipeline that provides unbundled natural gas sales service
under Sec. 284.284 is prohibited from engaging in actions or
transactions without a legitimate business purpose that manipulate or
attempt to manipulate market prices, market conditions, or market rules
for natural gas or that result in prices that do not reflect the
legitimate forces of supply and demand. Prohibited actions and
transactions include but are not limited to:
(1) Pre-arranged offsetting trades of the same product among the
same parties, which involve no economic risk, and no net change in
beneficial ownership (sometimes called ``wash trades''); and
(2) Collusion with another party for the purpose of creating market
prices at levels differing from those set by market forces.
(b) To the extent a pipeline that provides unbundled natural gas
sales service under Sec. 284.284 engages in reporting of transactions
to publishers of gas price indices, the pipeline shall provide
complete, accurate and factual information to any such publisher. The
pipeline shall notify the Commission of whether it engages in such
reporting for all sales. In addition, the pipeline shall adhere to such
other standards and requirements for price reporting as the Commission
may order;
(c) A pipeline that provides unbundled natural gas sales service
under Sec. 284.284 must retain all relevant data and information
necessary for the reconstruction of price indices for three years;
(d) A pipeline that provides unbundled natural gas sales service
under Sec. 284.284 is prohibited from reporting any natural gas sales
transactions between the pipeline and its affiliates to industry
indices.
(e) Violation of the preceding paragraphs may result in
disgorgement of unjust profits, suspension or revocation of a
pipeline's blanket certificate under Sec. 284.284 or other appropriate
non-monetary remedies.
(f) Any person filing a complaint against a pipeline for violation
of paragraphs (a) through (d) of this section must do so no later than
60 days after the end of the calendar quarter in which the alleged
violation occurred unless that person could not have known of the
alleged violation, in which case the 60-day time limit will run from
the discovery of the alleged violation.
Sec. 284.402 [Amended]
3. The second sentence of paragraph (a) of Sec. 284.402 is
removed.
4. Section 284.403 is added to read as follows:
Sec. 284.403 Code of conduct for persons holding blanket marketing
certificates.
(a) Any person making natural gas sales for resale in interstate
commerce pursuant to Sec. 284.402 is prohibited from engaging in
actions or transactions without a legitimate business purpose that
manipulate or attempt to manipulate market prices, market conditions,
or market rules for natural gas or that result in prices that do not
reflect the legitimate forces of supply and demand. Prohibited actions
and transactions include but are not limited to:
(1) Pre-arranged offsetting trades of the same product among the
same parties, which involve no economic risk, and no net change in
beneficial ownership (sometimes called ``wash trades''); and
(2) Collusion with another party for the purpose of creating market
prices at levels differing from those set by market forces.
(b) To the extent a blanket marketing certificate holder engages in
reporting of transactions to publishers of gas price indices, the
blanket certificate holder shall provide complete, accurate and factual
information to any such publisher. The blanket marketing certificate
holder shall notify the Commission of whether it engages in such
reporting for all sales. In addition, the blanket marketing certificate
holder shall adhere to such other standards and requirements for price
reporting as the Commission may order;
(c) A blanket marketing certificate holder must retain all relevant
data and information necessary for the reconstruction of price indices
for three years;
(d) A blanket marketing certificate holder is prohibited from
reporting any natural gas sales transactions between the blanket
marketing certificate holder and its affiliates to industry indices.
(e) Violation of the preceding paragraphs may result in
disgorgement of unjust profits, suspension or revocation of a persons's
blanket certificate under Sec. 284.402 or other appropriate non-
monetary remedies.
(f) Any person filing a complaint against a blanket marketing
certificate holder for violation of paragraphs (a) through (d) of this
section must do so no
[[Page 40213]]
later than 60 days after the end of the calendar quarter in which the
alleged violation occurred unless that person could not have known of
the alleged violation, in which case the 60-day time limit will run
from the discovery of the alleged violation.
Massey, Commissioner, concurring in part:
I wholeheartedly support conditions to all market-based tariffs
that declare manipulation off limits. Such outrageous behavior has
cast a pall over the promise of energy markets and has brought some
companies to dire financial straits. These tariff conditions should
deter bad behavior in the future. If they fail to do so, then at
least the Commission will have industry wide legal tools to provide
appropriate remedies. I commend Chairman Wood's strong leadership in
developing this proposal.
I am writing separately to express my concern with one aspect of
today's proposal. I would not limit the monetary penalty for tariff
violations to disgorgement of unjust profits. Market manipulation
can raise the market prices paid by all market participants and
collected by all sellers. The Natural Gas Act requires that all
rates and charges be just and reasonable. Where the market has been
manipulated so as to affect the market price, that price is not just
and reasonable and is therefore unlawful. Simply requiring that bad
actors disgorge their individual profits does not make the market
whole because all sellers received the unlawful price caused by the
manipulation. The narrow remedy of profit disgorgement is not an
adequate remedy for the adverse effect of the bad behavior on the
market price, and may not be an adequate deterrent to future
behavior. The appropriate remedy may be that the manipulating seller
makes the market whole.\1\ Unfortunately, today's order appears to
take this remedy off of the table. I would prefer to tailor the
remedy to the circumstances of each case. I encourage comments on
this issue.
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\1\ The Commission has accepted the make the market whole remedy
as part of a settlement for withholding generation from the
California PX market. See 102 FERC ] 61,108 (2003).
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For these reasons, I concur in part with today's order.
William L. Massey,
Commissioner.
Brownell, Commissioner, concurring:
Today we issue a Notice of Proposed Rulemaking (NOPR) to amend
the blanket certificates for unbundled gas sales service held by
persons making sales for resale at negotiated rates in interstate
commerce to require that sellers adhere to a code of conduct. The
stated purpose of the proposed revisions is to ensure the integrity
of the gas market that remains within the Commission's jurisdiction.
Importantly, the NOPR attempts to balance three goals:
[sbull] Effective remedies on behalf of customers in the event
anti-competitive behavior or other market abuses occur;
[sbull] Clearly delineated ``rules of the road'' to persons
making sales for resale at negotiated rates in interstate commerce,
at the same time, not impairing the Commission's ability to provide
remedies for market abuses whose precise form and form can not be
envisioned today; and
[sbull] Reasonable bounds within which conditions on market
conduct will be implemented so as not to create unlimited regulatory
uncertainty for individual market participants or harm to the
marketplace in general.
I appreciate the need to balance these goals but still have some
fundamental concerns about the proposal, particularly Sections
284.288(a) and 284.403(a). Scarcity pricing is a market response to
a supply and demand imbalance. What constitutes legitimate forces of
supply and demand and what defines scarcity pricing? I also fear
that as the precise definition of manipulation develops over time we
will end up with overly proscriptive ``rules of the road'' that will
dampen innovative, legitimate business tools. Finally, I am
concerned the proposed regulations could lead to the segmentation of
the as commodity market. The only sales of natural gas that the
Commission currently has jurisdiction to regulate are sales for
resale of domestic gas by pipelines, local distribution companies,
or their affiliates so long as they do not produce the gas that they
sell. Could blanket certificate holders face a competitive
disadvantage due to compliance with the code of conduct, or could
there be any negative impact on natural gas prices? I ask for your
comment on whether application of the code of conduct to only part
of the natural gas market will have any adverse effects on the
natural gas market.
Nora Mead Brownell,
Commissioner.
[FR Doc. 03-16820 Filed 7-3-03; 8:45 am]
BILLING CODE 6717-01-P