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Day of Decision for FERC

How will the commission answer Congress’ call for energy market transparency?

Fortnightly Magazine - December 2005

market participant, concerning availability and prices both for gas sold at wholesale and transported in interstate commerce, and also for wholesale electric energy and transmission service. Those availability and price data are to be disseminated to FERC and state commissions, wholesale gas and wholesale electric energy buyers and sellers, users of transmission services, and the public. FERC needs to navigate appropriately between fidelity to EPACT to achieve those intended effects and practical concerns of not hamstringing gas and electric markets with excessive bean counting.

FERC will proceed to implement those directives by relying first on existing price publishers and trade-processing services providers as much as possible, and evaluating the degree of price transparency they provide. Certainly, the agency has started a substantial way down that path.

Should FERC determine that adequate price discovery or market transparency is not being provided, it may establish an electronic bulletin board (“electronic information system”) for information dissemination purposes. 4 That single statutory authorization by itself guarantees rapt industry attention to market-price transparency rulemakings. The 2003 Policy Statement on Natural Gas and Electric Price Indexes telegraphed that if voluntary reporting does not increase to the point where indexes are sufficiently robust to support a healthy market, or if FERC-recommended standards were not widely adopted, further action would be considered. 5 Whatever route the agency takes, it would be appropriate to avoid ambiguous rules and procedures so that industry participants will not be confused about what they are required to do, about why and when they are required to do it, and about how the rules will be applied.

Whether it establishes an EPACT bulletin board, FERC is required to exempt from disclosure information it determines to be detrimental to operating an effective market, or information jeopardizing system security. As to what information will be made available, and when, consumers and competitive markets are to be protected from potential collusion or other anticompetitive behaviors facilitated by untimely public disclosure of transaction-specific information.

One deadline embedded in the EPACT market transparency provisions that has been met required FERC and the Commodity Futures Trading Commission (CFTC), without limiting or affecting the latter’s exclusive jurisdiction over contracts for sale of commodities for future delivery, to agree by early 2006 on information sharing, including coordinating information requests to minimize duplication, and treating proprietary trading information appropriately. On Oct. 12, 2005, a FERC/CFTC memorandum of understanding was signed and made effective and available on FERC’s Web site. Finally, gas producers, gas processors, and those users or entities with de minimis market presence are not required to comply with market transparency rule reporting requirements. 6

Market Manipulation Laws Mirror One Another

Under EPACT §§ 315 and 1283, new NGA § 4A, and FPA § 222, market manipulation statutes declare unlawful the direct or indirect use or employment of manipulative or deceptive devices or contrivances. Such devices or contrivances are forbidden in connection either with the purchase or sale of gas or FERC-jurisdictional transportation services, or with the purchase or sale of electric energy or FERC-jurisdictional transmission services, if their use or employment contravenes FERC’s