
[Federal Register: September 26, 2008 (Volume 73, Number 188)]
[Rules and Regulations]               
[Page 55726-55749]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26se08-9]                         

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 260, 284 and 385

[Docket No. RM07-10-001; Order No. 704-A]

 
Transparency Provisions of Section 23 of the Natural Gas Act

Issued September 18, 2008.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Order on Rehearing and Clarification.

-----------------------------------------------------------------------

SUMMARY: The Federal Energy Regulatory Commission affirms its basic

[[Page 55727]]

determinations in Order No. 704, while granting rehearing in part and 
clarification regarding requirements that certain natural gas market 
participants report information regarding their reporting of 
transactions to price index publishers and their blanket sales 
certificate status. These natural gas market participants must report 
annually certain information regarding their physical natural gas 
transactions for the previous calendar year. As clarified in the Order 
on Rehearing and Clarification, certain market participants engaged in 
a de minimis volume of transactions will not be required to report 
information regarding their transactions for the calendar year. The 
reported information will make it possible to assess the formation of 
index prices and the use of index pricing in natural gas markets. These 
regulations facilitate price transparency in markets for the wholesale 
sale of physical natural gas in interstate commerce as contemplated by 
section 23 of the Natural Gas Act, 15 U.S.C. 717t-2.

DATES: Effective Date: This rule will become effective October 27, 
2008. The revisions to FERC Form No. 552 are applicable for the 
reporting of transactions occurring in calendar year 2008.

FOR FURTHER INFORMATION CONTACT:
Matthew L. Hunter (Technical), Office of Enforcement, Federal Energy 
Regulatory Commission, 888 First Street NE., Washington, DC 20426, 
(202) 502-6409. Matthew.Hunter@ferc.gov.
Christopher J. Peterson (Technical), Office of Enforcement, Federal 
Energy Regulatory Commission, 888 First Street NE., Washington, DC 
20426, (202) 502-8933, Christopher.Peterson@ferc.gov.
Gabe S. Sterling (Legal), Office of Enforcement, Federal Energy 
Regulatory Commission, 888 First Street NE., Washington, DC 20426, 
(202) 502-8891, Gabriel.Sterling@ferc.gov.

SUPPLEMENTARY INFORMATION:
    Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. 
Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

I. Introduction

    1. On December 26, 2007, the Commission issued Order No. 704, which 
imposed an annual reporting requirement on certain natural gas market 
participants.\1\ The order requires certain natural gas buyers and 
sellers to file annually FERC Form No. 552 and report summary 
information about physical natural gas transactions for each calendar 
year.
---------------------------------------------------------------------------

    \1\ Transparency Provisions of Section 23 of the Natural Gas 
Act, Order No. 704, 74 FR 1014 (Jan. 4, 2008), FERC Stats. & Regs. ] 
31,260.
---------------------------------------------------------------------------

    2. Order No. 704 has its genesis in the Energy Policy Act of 2005 
(EPAct 2005).\2\ EPAct 2005 added section 23 of the Natural Gas Act 
(NGA), 15 U.S.C. Sec.  717t-2 (2000 & Supp. V 2005) to authorize the 
Commission ``to facilitate price transparency in markets for the sale 
or transportation of physical natural gas in interstate commerce, 
having due regard for the public interest, the integrity of those 
markets, and the protection of consumers.'' Section 23 further provides 
that the Commission may issue such rules as it deems necessary and 
appropriate to ``provide for the dissemination, on a timely basis, of 
information about the availability and prices of natural gas sold at 
wholesale and interstate commerce to the Commission, State commissions, 
buyers and sellers of wholesale natural gas, and the public.''
---------------------------------------------------------------------------

    \2\ Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 
(2005).
---------------------------------------------------------------------------

    3. Section 23 of the NGA enhances the Commission's authority to 
ensure confidence in the nation's natural gas markets. The Commission's 
market-oriented policies for the wholesale natural gas industry require 
that interested persons have broad confidence that reported market 
prices accurately reflect the interplay of legitimate market forces. 
Without confidence in the fairness of price formation, the true value 
of transactions is very difficult to determine. Further, price 
transparency makes it easier for us to ensure that jurisdictional 
prices are ``just and reasonable.'' \3\
---------------------------------------------------------------------------

    \3\ See sections 4 and 5 of the Natural Gas Act, 15 U.S.C. 
sections 717c and 717d.
---------------------------------------------------------------------------

    4. The performance of Western electric and natural gas markets 
early in the decade shook confidence in posted market prices for 
energy. In examining these markets, the Commission's staff found that 
some companies submitted false information to the publishers of natural 
gas price indices, so that the resulting reported prices were 
inaccurate and untrustworthy.\4\ As a result, questions arose about the 
legitimacy of published price indices, remaining even after the 
immediate crisis passed. Moreover, market participants feared that the 
indices might have become even more unreliable, since reporting (which 
has always been voluntary) declined to historically low levels in late 
2002.
---------------------------------------------------------------------------

    \4\ See Initial Report on Company-Specific Separate Proceedings 
and Generic Reevaluations; Published Natural Gas Price Data; and 
Enron Trading Strategies--Fact Finding Investigation of Potential 
Manipulation of Electric and Natural Gas Prices, Docket No. PA02-2-
000 (August 2003).
---------------------------------------------------------------------------

    5. One of the Commission's responses to these developments was the 
issuance, on July 24, 2003, of a Policy Statement on Electric and 
Natural Gas Price Indices (Policy Statement) that explained our 
expectations of natural gas and electricity price index developers and 
the companies that report transaction data to them.\5\ The Policy 
Statement, among other things, directed the Commission's staff to 
continue to monitor price formation in wholesale markets, including the 
level of reporting to index developers and the amount of adherence to 
the Policy Statement standards by price index developers and by those 
who provide data to them.\6\ In adhering to this directive, Commission 
staff documented improvements in the number of companies reporting 
prices from back offices, adopting codes of conduct, and auditing their 
price reporting practices.\7\ These efforts resulted in significant 
progress in the amount and quality of both price reporting and the 
information provided to market participants by price indices.\8\ It is 
against this backdrop that Congress passed EPAct 2005 and provided us 
with expanded authority to mandate additional reporting and improve 
market confidence through greater price transparency.
---------------------------------------------------------------------------

    \5\ Price Discovery in Natural Gas and Electric Markets, 104 
FERC ] 61,121 (2003).
    \6\ Id. P 43.
    \7\ Federal Energy Regulatory Commission, Report on Natural Gas 
and Electricity Price Indices, at 2, Docket Nos. PL03-3-004 et al. 
(2004).
    \8\ See, e.g., GENERAL ACCOUNTING OFFICE, NATURAL GAS AND 
ELECTRICITY MARKETS: FEDERAL GOVERNMENT ACTIONS TO IMPROVE PRIVATE 
PRICE INDICES AND STAKEHOLDER REACTION (December 2005).
---------------------------------------------------------------------------

    6. In an April 19, 2007 Notice of Proposed Rulemaking, the 
Commission proposed regulations consistent with these new 
responsibilities.\9\ The April 2007 NOPR contained both an annual 
transaction reporting requirement for market participants as well as a 
daily posting requirement for pipelines. On December 26, 2007, the 
Commission issued Order No. 704 regarding the annual reporting 
requirement. The daily pipeline posting requirement proposal was 
separated from the annual filing requirement and a new Notice of 
Proposed Rulemaking regarding the pipeline posting requirement was 
issued concurrently in Docket No. RM08-2-000.\10\
---------------------------------------------------------------------------

    \9\ Transparency Provisions of Section 23 of the Natural Gas 
Act, 72 FR 20791 (Apr. 26, 2007), FERC Stats. and Regs. ] 32,614 
(2007) (April 2007 NOPR).
    \10\ Pipeline Posting Requirements under Section 23 of the 
Natural Gas Act, 73 FR 1116 (Jan. 7, 2008), FERC Stats. and Regs. ] 
32,626 (2007). A technical conference has been held in Docket No. 
RM08-2-000 and the pipeline posting requirement is pending further 
action by the Commission.

---------------------------------------------------------------------------

[[Page 55728]]

    7. Order No. 704 required natural gas wholesale market 
participants, including a number of entities that may not otherwise be 
subject to the Commission's traditional NGA jurisdiction, to identify 
themselves and report summary information about their physical natural 
gas transactions on an annual, calendar year basis. To facilitate such 
reporting, Order No. 704 created FERC Transaction Report FERC Form No. 
552: Annual Report of Natural Gas Transactions (Form No. 552) and 
various implementing regulations. Form No. 552 is to be filed by May 1, 
2009, for transactions occurring in calendar year 2008 and by May 1 of 
each year thereafter for each previous calendar year.
    8. Thirteen requests for rehearing or clarification of Order No. 
704 were timely filed. No request for rehearing or clarification argues 
that the rule is unnecessary or should not have been issued. Rather, 
the requests seek modification or clarification of specific aspects of 
Order No. 704. Commission staff held two technical conferences during 
which potential filers of Form No. 552 and other industry stakeholders 
discussed the form. Stakeholders at these two technical conferences 
represented a broad spectrum of market participants and observers, 
including producers, interstate pipelines, intrastate pipelines, 
natural gas marketers, commodities traders, local distribution 
companies (LDCs), electric generation end-users, industrial end-users, 
and natural gas price index developers. Many conference participants 
filed comments following one or both of these conferences.
    9. As discussed below, we largely affirm Order No. 704, granting a 
limited number of rehearing requests and clarifying the order.

II. Discussion

A. The Value of Aggregated Annual Data Regarding Volumes That Utilize, 
Contribute to, or Could Contribute to the Development of Price Indices

    10. Order No. 704 focused primarily on ``price formation in spot 
markets'' and accordingly sought information about the ``amount of 
daily or monthly fixed-price trading that [is] eligible to be reported 
to price index publishers as compared to the amount of trading that 
uses or refers to price indices.'' \11\ As we stated in the order, the 
``information collected under this requirement is focused specifically 
on daily and monthly physical spot or `cash' market activity and the 
contracting based on the prices developed in those markets.'' \12\ The 
rationale for this focus is that a ``[b]etter understanding of the role 
and functioning of wholesale natural gas spot markets can increase 
confidence that posted market prices of natural gas accurately reflect 
the interplay of legitimate market forces.'' \13\ Additionally, 
information on price index utilization and formation would greatly 
enhance the Commission's efforts to monitor price formation in the 
wholesale markets in support of the Commission's market-oriented 
policies.\14\ As we explained, ``without confidence in the basic 
processes of price formation, market participants cannot have faith in 
the value of their transactions, the public cannot believe that the 
prices they see are fair, and it is more difficult for the Commission 
to ensure that jurisdictional prices are `just and reasonable.' '' \15\
---------------------------------------------------------------------------

    \11\ Order No. 704 at P 3. See also id. P 13.
    \12\ Id. P 67.
    \13\ Id.
    \14\ Id. P 7 and 62.
    \15\ Id. P 66 (citing sections 4 and 5 of the NGA, 15 U.S.C. 
sections 717c and 717d).
---------------------------------------------------------------------------

    11. Our recognition of the importance of price formation on market 
confidence is, of course, not new. The Commission has often remarked on 
the need to ensure price transparency and accurate price reporting, 
including, for example, our 2003 Policy Statement on price reporting to 
index developers. As we there recognized:

    Price indices are widely used in bilateral natural gas and 
electric commodity markets to track spot and forward prices. They 
are often referenced in contracts as a price term; they are related 
to futures markets and used when futures contracts go to delivery; 
basis differentials in indices are used to hedge natural gas 
transportation costs; indices are used in many gas pipeline tariffs 
to settle imbalances or determine penalties; and state commissions 
use indices as benchmarks in reviewing the prudence of gas or 
electricity purchases. Since index dependencies permeate the energy 
industry, the indices must be robust and accurate and have the 
confidence of market participants for such markets to function 
properly and efficiently.\16\
---------------------------------------------------------------------------

    \16\ Policy Statement at P 6.

    We continue to believe that ensuring price transparency is a vital 
policy goal, especially as it relates to transactions that utilize, 
contribute, or could contribute to a price index.
    12. Section 23(a)(4) of the NGA requires us to ``consider the 
degree of transparency provided by existing price publishers and 
providers of trade processing services, and [] rely on such publishers 
and services to the maximum extent possible.'' We have reviewed 
existing price index publications and, while the Commission recognizes 
the substantial value that these publications have enhancing market 
transparency, we determine that the additional data required on Form 
No. 552 is necessary. Section 23 is consistent with our belief that 
transparency is furthered by shedding light on price indices and their 
formation.
    13. The Commission reiterates that the focus of Form No. 552's data 
collection is transactions that utilize an index price, contribute to 
index price formation, or could contribute to index price formation. 
Specifically, the Commission finds that volumes reportable on Form No. 
552 should include volumes that utilize next-day or next-month price 
indices, volumes that are reported to any price index publisher, and 
any volumes that could be reported to an index publisher even if the 
respondent has chosen not to report to a publisher. By ``could be 
reported to an index publisher,'' we mean bilateral, arms-length, fixed 
price, physical natural gas transactions between non-affiliated 
companies at all trading locations.\17\ Transactions that do not occur 
at a specific location currently designated by an index developer as a 
reporting location are nonetheless reportable on Form No. 552.
---------------------------------------------------------------------------

    \17\ We note that this understanding tracks closely with our 
discussion of transactions that are reportable to index developers 
in the Policy Statement. See Policy Statement at P 34.
---------------------------------------------------------------------------

    14. This focus on index price-related transactions will increase 
market participant confidence by providing greater transparency in the 
use of index prices and how well index prices reflect market forces. 
This data will also allow the Commission's staff, state commissions, 
and all other industry observers to evaluate the level of index price 
usage at both a company level and nationally.\18\ Data on index 
development and use would be of substantial value in the Commission's 
transparency and market monitoring missions.
---------------------------------------------------------------------------

    \18\ Further, as discussed in greater detail below, observers 
will be able to parse data to compare activities of purchasers and 
sellers in the market.
---------------------------------------------------------------------------

    15. We also clarify that Form No. 552 does not seek the broader 
range of transaction data necessary to evaluate the size of the 
national physical natural gas market. While Order No. 704 mentioned 
such a calculation as one result of the data to be collected,\19\ we 
elect not to craft Form No. 552 to

[[Page 55729]]

capture the data necessary to calculate a national market. At this 
time, we do not believe that such data would further the transparency 
of the natural gas markets other than determining an aggregate 
approximation of the entirety of physical gas transactions. Further, 
unless volumes that utilize price indices or that could contribute to 
such indices were separately reported on Form No. 552 (with an 
additional, substantial reporting burden), the analytical benefits 
noted above would be lost. Lastly, any attempt to rationally estimate 
the size of the physical gas market on a national level would require 
reporting from a substantially larger group of respondents than the 
narrower focus adopted in Order No. 704. Respondents would necessarily 
include smaller market participants for whom the reporting burden would 
be undue. For these reasons, we reiterate and emphasize our 
determination that data provided on Form No. 552 should be limited to 
transactions that utilize, contribute to, or could contribute to index 
price formation. However, the Commission understands that the natural 
gas market is ever evolving and dynamic. At a future date we may elect 
to amend Form No. 552 to obtain additional information necessary to 
facilitate transparency of the market.
---------------------------------------------------------------------------

    \19\ Order No. 704 at PP 18 and 69. Similarly, P 5 of the order 
indicates that an understanding ``in broad terms'' of the extent of 
the natural gas market is a goal of the rule.
---------------------------------------------------------------------------

B. Both Sales and Purchase Data Are To Be Included on Form No. 552

    16. Order No. 704 required the annual reporting both of relevant 
natural gas sales and purchases. We explained that purchase information 
was the opposing side of a sale transaction and, thus, was as relevant 
to the Commission's transparency mission as the reporting of sales.\20\ 
Further, we noted that we have often found the reporting of purchase 
information beneficial both independent of sales figures and as a 
cross-check on such volumes.\21\
---------------------------------------------------------------------------

    \20\ Id. P 86.
    \21\ Id. PP 85-86.
---------------------------------------------------------------------------

    17. Although we understand that some participants in the technical 
conferences objected to the collection of purchase data in various 
contexts, we continue to believe that purchase data is a vital 
component to Form No. 552 and the Commission's transparency goals. Not 
only is purchase information important as a cross-check on reported 
sales volumes, but it has independent value. If only sales were 
reported on Form No. 552, Commission staff, state commissions, and 
other market observers would be unable to discern, for example, whether 
significant numbers of gas purchasers were transacting under contracts 
referencing an index price. Analysis of Form No. 552 purchase 
information will also provide trend data regarding purchase activity, 
which would be very useful for those charged with monitoring the 
natural gas markets. With purchase data, the public will be able to 
discern which purchasers are utilizing index-based contracts, whether 
there is geographic disparity regarding use of price indices among 
purchasers, the overall reliance upon gas price indices by purchasers, 
and other information relevant to market analysis and market 
confidence. While we acknowledge that removing purchases from volumes 
that must be reported on Form No. 552 would somewhat reduce the 
reporting burden on certain market participants, we continue to believe 
that the substantial benefits of having such data publicly available 
outweigh this burden.

C. The De Minimis Reporting Threshold

    18. Section 23(d)(2) of the NGA requires the Commission to exempt 
from new transparency reporting requirements ``natural gas producers, 
processors or users who have a de minimis market presence.'' \22\ 
Consistent with this directive, Order No. 704 provided that most buyers 
or sellers of less than a de minimis volume of natural gas are not 
required to submit Form No. 552.\23\ The order set the de minimis 
threshold at 2.2 million MMBtus; that is, annual sales plus annual 
purchases of more than 2.2 million MMBtus required a market participant 
to report transaction information. In setting this threshold, the 
Commission ``sought to require reporting from a sufficient number of 
significant market participants to ensure, in the aggregate, an 
accurate picture of the physical natural gas market as a whole.'' \24\ 
The Commission explained that:

    \22\ 15 U.S.C. section 717t-2(d)(2).
    \23\ Form No. 552 must be submitted by any section 204.402 or 
section 284.284 blanket certificate holder even if the entity has 
aggregate purchases and sales less than the de minimis threshold. 
Such an entity must provide identification information on Form No. 
552 and must answer questions regarding price reporting to price 
index publishers, but need not submit Form No. 552's aggregate 
volume data. Order No. 704 at P 60.
    \24\ Id. P 78.
---------------------------------------------------------------------------

    [T]he [2.2 million MMBtu] figure was based on the simple 
calculation of one-ten thousandth (1/10,000th) of the annual 
physical volumes consumed in the United States, which is 
approximately 22 trillion cubic feet (Tcf) (or roughly 22 billion 
MMBtus). Looked at another way, a de minimis market participant 
would trade the equivalent of less than one standard NYMEX futures 
contract per day. Although a market participant that contracts for 
1/10,000th of the nation's annual physical volume may appear to have 
little effect on natural gas prices, that participant may be 
transacting only at one location and, thus, have a much greater 
pricing effect there.
Requests for Clarification or Rehearing
    19. Copano Energy L.L.C. (Copano) requests rehearing of the de 
minimis threshold and argues that 2.2 million MMBtu is such a low 
threshold so as to render meaningless the NGA's directive that the 
Commission exempt from annual reporting requirements market 
participants that have a de minimis market presence.\25\ Copano argues 
that the Congressional purpose behind the de minimis threshold was to 
exclude entities that are too small to have an impact on market prices 
in the interstate, wholesale gas market. Copano states that a threshold 
one-hundred times as large (i.e., 220 million MMBtu/year) would 
represent less than 1 percent of annual physical volumes of gas 
consumed in the country and ``would therefore have no ability to impact 
prices in the wholesale, interstate natural gas market.'' \26\ Copano 
notes that Order No. 704 justifies the selected threshold by noting 
that even small amounts of gas purchases can have a price effect at 
certain locations.\27\ Copano believes that this reinforces its 
conclusion that a threshold should be established that measures market 
presence at market hubs.\28\ Instead of a single-number de minimis 
threshold, Copano suggests a two-pronged approach that considers both 
the impact of a market participant's transactions on the overall 
wholesale gas market (a twenty-two million MMBtu threshold) and the 
impact of a market participant's transactions at market hubs (5 percent 
of the total jurisdictional sales at the hub).\29\
---------------------------------------------------------------------------

    \25\ Copano comments at 8.
    \26\ Id. 5.
    \27\ Id. at 6.
    \28\ Id. at 7.
    \29\ Id. at 7-8.
---------------------------------------------------------------------------

    20. American Public Gas Association (APGA) requests clarification 
of section 260.401(b) of the Commission's regulations. As currently 
written, the regulation exempts an entity that does not hold a blanket 
sales or marketing certificate from the reporting requirement if the 
entity either made fewer than 2.2 million Dth of wholesale sales or 2.2 
million Dth of wholesale purchases. APGA proposes that the Commission 
clarify this language so as to ensure that an entity with fewer than 
2.2 million MMBtu of purchases is exempted from reporting purchases and 
an entity with fewer than 2.2 million

[[Page 55730]]

MMBtu of sales is exempted from reporting sales.\30\
---------------------------------------------------------------------------

    \30\ APGA comments at 2.
---------------------------------------------------------------------------

    21. Shell requests that the Commission clarify whether purchases 
and sales should be aggregated for purposes of calculating an entity's 
total reportable volumes.\31\ Additionally, Shell seeks guidance 
regarding how market participants are to determine whether they fall 
into the de minimis exception when part of the relevant total sales or 
purchases are to an affiliate or under other circumstances.\32\ Shell 
also requests clarification as to whether volumes that total exactly 
2.2 TBtu fall into or out of the de minimis exception as the rule 
references amounts above and below the threshold, but not precisely at 
the threshold.\33\
---------------------------------------------------------------------------

    \31\ Shell is, collectively, Shell Gulf of Mexico, Shell 
Offshore, Inc., Shell Rocky Mountain Production LLC, and SWEPI LP. 
Shell comments at 28.
    \32\ Id. at 28-29.
    \33\ Id. at 29.
---------------------------------------------------------------------------

Commission Determination
    22. Regarding the appropriate de minimis threshold, we affirm our 
findings in Order No. 704 and retain the 2.2 million MMBtu level. As 
the Commission stated in Order No. 704, even market participants with 
total reportable volumes slightly above the threshold may have a 
significant effect on local wholesale markets.\34\ While it is possible 
that a respondent that exceeds the de minimis threshold exemption does 
not actually contribute to price formation, it is certain that some do 
and, in any event, market observers cannot yet know with any degree of 
assuredness which market participants have or do not have local price 
relevance. Likewise, these entities may rely upon price indices for a 
sizeable portion of their natural gas transactions. Form No. 552 seeks 
data only for volumes that either reference price indices or could 
contribute to the formation of price indices. A number of transactions 
are not reportable (as identified on Form No. 552, as discussed in 
Order No. 407, and as clarified in this order). Market participants 
should bear in mind that the Commission is not seeking data on all gas 
sales and purchases made by an entity, but rather a subset of these 
transactions.\35\
---------------------------------------------------------------------------

    \34\ Order No. 704 at P 81.
    \35\ For example, we clarify below that a bundled retail 
transaction made at a state-approved tariff rate is not reportable. 
We anticipate that this clarification will significantly limit the 
reporting obligation on smaller market participants.
---------------------------------------------------------------------------

    23. Nothing in Copano's request for rehearing provides new 
information regarding the establishment of a proper de minimis 
threshold. While we acknowledge that there are a number of rational 
ways to establish a de minimis threshold consistent with our 
Congressional mandate, we continue to believe that 2.2 million MMBtu is 
an appropriate threshold for the reasons expressed herein and in Order 
No. 704.
    24. Regarding APGA and Shell's requests involving how volumes are 
to be calculated to determine whether an entity meets or exceeds the de 
minimis threshold, the Commission clarifies that an entity that has 2.2 
million MMBtu of reportable sales or purchases must file Form No. 552. 
That is, a potential respondent with either reportable purchases equal 
to or greater than 2.2 million MMBtu or reportable sales \36\ equal to 
or greater than 2.2 million MMBtu must submit the form. The following 
table, regarding reportable purchase and sale volumes, explains how the 
de minimis threshold will apply:
---------------------------------------------------------------------------

    \36\ Reportable sales include off-system, balancing, and other 
assorted reportable sales as discussed elsewhere in this order.

------------------------------------------------------------------------
                                    Reportable        Does the entity
   Reportable sales volumes      purchase volumes         report?
------------------------------------------------------------------------
>= 2.2 million MMBtu..........  >= 2.2 million     Yes, both sales and
                                 MMBtu.             purchases.
>= 2.2 million MMBtu..........  < 2.2 million      Yes, both sales and
                                 MMBtu.             purchases.
< 2.2 million MMBtu...........  >= 2.2 million     Yes, both sales and
                                 MMBtu.             purchases.
< 2.2 million MMBtu...........  < 2.2 million      No (unless the entity
                                 MMBtu.             has a blanket
                                                    certificate, in
                                                    which case it will
                                                    provide non-volume
                                                    information only).
------------------------------------------------------------------------

    25. We also clarify that sales and purchase volumes do not ``net 
each other out'' for purposes of determining whether an entity meets or 
exceeds the de minimis threshold. Additionally, an entity that must 
file Form No. 552 must report both reportable sales and reportable 
purchases regardless of the total volumes associated with each 
component volume. For example, if a potential respondent has annual 
reportable sales of 2.0 million MMBtu and reportable purchases of 3.0 
million MMBtu, then it must file Form No. 552 as its purchases exceed 
the de minimis threshold of 2.2 million MMBtu. Further, it would report 
both its sales and purchases on the form.\37\
---------------------------------------------------------------------------

    \37\ APGA's request for clarification on this point is therefore 
denied.
---------------------------------------------------------------------------

    26. We further clarify that, if a transaction is reportable on Form 
No. 552, then volumes associated with the transaction should be counted 
towards the threshold. The converse is also true: if a transaction 
volume would not be included on the form, then volumes associated with 
it should not be counted towards the threshold. We emphasize that not 
all physical natural gas purchases and sales count towards the 
threshold.\38\
---------------------------------------------------------------------------

    \38\ As detailed herein, physical transactions of companies that 
fall below the de minimis threshold are excluded from the data 
collected by Form No. 552. Physical transactions need not be 
reported if they are not Next-Day or Next-Month transactions as 
those terms are defined in Form No. 552. In this same vein, 
financial transactions, transactions between affiliates, and 
traditional retail transactions (as discussed below), are not 
reportable on Form No. 552.
---------------------------------------------------------------------------

    27. If a company chooses to aggregate volumes from affiliates, then 
such volumes are aggregated for purposes of determining whether the 
corporation meets or exceeds the de minimis threshold. In response to 
Shell's requested clarification, Order No. 704 already makes clear that 
``a company with multiple affiliates may choose to report separately or 
in aggregate, as best meets its needs.'' \39\ A company with multiple 
affiliates that chooses to aggregate must, however, aggregate all of 
its affiliates' data (i.e., it may not choose to aggregate some 
affiliates but not others). Consistent with Shell's other requests, we 
have modified Form No. 552 to make clear that entities that meet or 
exceed the de minimis volume must submit the form.
---------------------------------------------------------------------------

    \39\ Order No. 704 at PP 60 and 97.
---------------------------------------------------------------------------

    28. Regarding the format of amounts reported on Form No. 552, the 
Commission will require that volumetric entries on Form No. 552 be 
rounded to the nearest tenth of a TBtu. We understand that there was 
some confusion among participants at the technical conferences 
regarding the rounding of volume figures on Form No. 552. Form No. 552 
currently requests reporting of volumes to the nearest TBtu (i.e. , a 
reportable volume of 2.499 TBtu would be reported as 2.0 TBtu). We

[[Page 55731]]

direct respondents to round volumes up or down, as appropriate, to the 
nearest tenth of a TBtu. Rounding to the nearest tenth of a TBtu will 
make the reporting obligation consistent with the proposed de minimis 
threshold volume calculation, which is measured to the nearest tenth of 
a TBtu. Further, more precise reporting of data would allow for a more 
accurate review of market activity and we believe that aggregating 
volumes to the nearest tenth of a TBtu would be no more burdensome for 
respondents than the rounding currently required in the form.

D. Certain End-Use Transactions Should Be Reported on Form No. 552

    29. Several commenters to the April 2007 NOPR objected to the 
inclusion of end-use transactions in the annual report.\40\ Order No. 
704 addressed these concerns by exempting certain types of transactions 
from the reporting requirement. The order states that the rule 
``focuses the reporting requirement solely on wholesale buyers and 
sellers by excluding retail transactions.'' \41\ The order did not 
require ``end-use customers or retail buyers'' to report transaction 
information unless those entities also made wholesale sales or 
purchases that were greater than the de minimis threshold.\42\ 
Likewise, the order stated that ``a transaction made to an end-user is 
not to be included in the volumes reported on the form.'' \43\
---------------------------------------------------------------------------

    \40\ These commenters included American Forest & Paper 
Association (AF&PA), Industrial Energy Consumers of America (IECA), 
and Natural Gas Supply Association (NGSA).
    \41\ Order No. 704 at P 3.
    \42\ Id. P 90.
    \43\ Id.
---------------------------------------------------------------------------

    30. However, the order did not adequately distinguish between two 
distinct types of end-use transactions (i.e. transactions that utilize 
or could contribute to a price index and transactions to customers as 
part of a bundled retail sale). The American Gas Association (AGA) and 
the National Energy Marketers Association (NEM), for example, 
specifically argued in comments on the April 2007 NOPR that end-use 
sales at retail should be excluded from the reporting requirement.\44\ 
These types of end-use transactions involved retail service provided by 
a LDC to consumers subject to the LDC's state commission-approved 
tariff. Other commenters argued for a broader exemption, including all 
end-use transactions.\45\ These types of transactions would include not 
only bundled retail service subject to traditional state jurisdiction, 
but also direct end-use deliveries by interstate pipelines (an activity 
traditionally subject to the Commission's jurisdiction).
---------------------------------------------------------------------------

    \44\ AGA NOPR comments at 3; NEM NOPR comments at 5. See also 
NGSA NOPR comments at 12.
    \45\ AF&PA NOPR comments at 5.
---------------------------------------------------------------------------

    31. Order No. 704 correctly, though summarily, describes these 
participants' comments,\46\ but then proceeded to utilize the term 
``retail'' interchangeably with ``end-use'' when describing 
transactions that would be exempt from the reporting requirement.\47\ 
For example, under a section entitled, ``Exclusion of Retail 
Transactions,'' the order states that ``[a]lthough some transactions 
reported to indices may include purchases by large end-users, the 
Commission is generally interested in wholesale prices.'' \48\ Our 
exclusion in Order No. 704 is aimed at traditional retail transactions 
(i.e., those that are in markets functionally separate from the 
wholesale markets) rather than other end-use transactions involving 
volumes in the wholesale market--although the language of the rule's 
exclusion could easily be read so as to reach to all end-use 
transactions.
---------------------------------------------------------------------------

    \46\ Order No. 704 at PP 39-40.
    \47\ See, e.g., Order No. 704 at PP 60, 89, and 90.
    \48\ Id. P 90.
---------------------------------------------------------------------------

Requests for Clarification or Rehearing
    32. NGSA requests clarification or rehearing regarding a seller's 
obligation to exclude end-use volumes from volumes reported on Form No. 
552. NGSA quotes paragraph 90 of Order No. 704 indicating that ``a 
transaction made to an end-user is not to be included in the volumes 
reported on the form.'' \49\ NGSA argues that requiring the seller to 
delineate between end-use and non-end-use customers is unduly 
burdensome and that requiring such disclosure to sellers from 
purchasers would limit market liquidity.\50\ NGSA requests that the 
Commission clarify that, when in doubt, it is acceptable for a seller 
to include end-use volumes in Form No. 552.\51\ Any exclusion of end-
use transactions should be applied from the buyers' perspective, argues 
NGSA.\52\
---------------------------------------------------------------------------

    \49\ NGSA comments at 3.
    \50\ Id. 4.
    \51\ Id.
    \52\ Id. 5.
---------------------------------------------------------------------------

    33. We understand that a number of participants at the technical 
conference (including AGA, Encana,\53\ and others) had both substantive 
and technical questions regarding Order No. 704's references to ``end-
use'' transactions and ``retail'' transactions. There was significant 
confusion regarding whether certain types of transactions to consumers 
of natural gas were reportable. AGA filed supplemental comments in the 
docket requesting various clarifications regarding an LDC's 
responsibility to report sales to end-users, among other 
transactions.\54\
---------------------------------------------------------------------------

    \53\ Encana Marketing (USA) Inc. (distinct from its joint 
rehearing request as part of the Canadian Suppliers).
    \54\ AGA supplemental comments at 3-5.
---------------------------------------------------------------------------

Commission Determination
    34. The Commission clarifies here that there will be no categorical 
exclusion of end-use transactions from Form No. 552. Nevertheless, Form 
No. 552 will collect only information regarding that subset of end-use 
transactions that relies upon price indices or that could be utilized 
to form a price index. Accordingly, as we explain below, reporting of 
traditional, bundled retail transactions made by an LDC at a state-
approved tariff rate (i.e., the majority of transactions to retail 
customers) would not contribute to the Commission's transparency 
mission and are not subject to reporting. We believe that this is a 
``bright-line'' rule easily understood by potential respondents.\55\
---------------------------------------------------------------------------

    \55\ NGSA's request for rehearing or clarification of this issue 
is, therefore, denied.
---------------------------------------------------------------------------

    35. While Order No. 704 utilized the phrase ``retail'' transactions 
interchangeably with ``end-use'' transactions,\56\ the overall thrust 
of our order was that transactions that are typically perceived to be 
at retail are not reportable while transactions that utilize, 
contribute to, or may contribute to price indices should be reportable. 
Depending upon the type of transactions involved, end-use transactions 
can have a substantial impact on price formation and the functioning of 
the wholesale markets, particularly in localized areas.
---------------------------------------------------------------------------

    \56\ See, e.g., Order No. 704 at PP 60, 89, and 90.
---------------------------------------------------------------------------

    36. While precise data is not readily available (indeed, obtaining 
that data is one of the goals of Form No. 552), it is our experience 
and industry common knowledge that many end-use transactions utilize 
price indices and/or could be relied upon to form price indices. End-
use transactions, specifically transactions involving large consumers 
of natural gas that compete directly with wholesale market 
participants, are very relevant to the Commission's transparency 
mission. For example, use of natural gas for power generation has 
increased markedly since 2000. According to annual figures from the 
Energy Information Administration (EIA), natural gas used to produce 
electric power is up from 14.2 Bcf/d in 2000 to 18.8 Bcf/d in 2007, an 
increase of 32 percent. As a result, natural gas generation's share of 
overall gas use is up, too. In 2000, EIA figures indicate

[[Page 55732]]

that natural gas used for power generation accounted for 18 percent of 
total U.S. natural gas consumption; by the end of 2007 it represented 
30 percent.\57\ On a peak day in the summer, natural gas generation's 
share of gas use can be much higher. According to EIA, the U.S. 
delivered a total of 21.3 Tcf of natural gas to consumers in 2007 or on 
average about 58.3 Bcf per day.\58\ On August 8, 2007, estimates of gas 
use for power generation reached 38 Bcf/d or 65 percent of 2007 average 
daily gas use.\59\ Moreover, in many regional power markets, natural 
gas is the marginal fuel during the majority of hours power plants are 
being dispatched, therefore a better understanding of how natural gas 
indices are formed will aid the Commission and the public in 
understanding power market dynamics. For these reasons, we conclude 
that where a transaction could contribute to the formation of price 
indices and/or relies upon a price index, the transaction should be 
reportable even if the reporting entity is a natural gas end-user.
---------------------------------------------------------------------------

    \57\ Derived from information provided by EIA on their Natural 
Gas Navigator Web site, http://tonto.eia.doe.gov/dnav/ng/hist/
n3045us2a.htm.
    \58\ Derived from information provided by EIA on their Natural 
Gas Navigator Web site, http://tonto.eia.doe.gov/dnav/ng/ng_sum_
lsum_dcu_nus_a.htm.
    \59\ Derived from the ``U.S. Power Burn Report'', Bentek Energy, 
LLC.
---------------------------------------------------------------------------

    37. Requiring end-users to supply transaction data if the 
transaction utilizes, contributes to, or could contribute to price 
index formation is well within EPAct 2005's Congressional mandate. The 
Commission accurately stated in Order No. 704 that price formation in 
natural gas markets makes no distinction between transactions that are 
traditionally jurisdictional to the Commission and those that are 
not.\60\ Congress, recognizing this fact, gave the Commission expansive 
jurisdiction under the transparency provisions of EPAct 2005. The 
Commission's traditional jurisdiction under sections 4, 5, and 7 of the 
NGA is limited to ``natural gas companies.'' \61\ In contrast, section 
23(a) of the NGA directs the Commission ``to facilitate price 
transparency in markets for the sale or transportation of physical 
natural gas in interstate commerce'' \62\ including obtaining 
information from ``any market participant.'' \63\ There is no 
applicable statutory limitation on the collection of information that 
may involve transportation through distribution-level facilities, as 
applies to the Commission's traditional jurisdiction.\64\
---------------------------------------------------------------------------

    \60\ Order No. 704 at P 6.
    \61\ 15 U.S.C. section 717b-717i.
    \62\ 15 U.S.C. section 717t-2(a)(1).
    \63\ 15 U.S.C. section 717t-2(a)(3)(A).
    \64\ Section 1(b) of the NGA, 15 U.S.C. section 717(b), provides 
in part that the Commission's jurisdiction generally does not apply 
to ``the local distribution of natural gas.''
---------------------------------------------------------------------------

    38. In addition, the first sentence of section 23(a)(2) gives the 
Commission broad authority to ``prescribe such rules as the Commission 
determines necessary and appropriate to carry out the purposes of this 
section,'' i.e. facilitating price transparency. This broad grant of 
authority is followed, in the second sentence of the section, with the 
requirement that the ``rules shall provide for the dissemination on a 
timely basis of information about the availability and prices of 
natural gas sold at wholesale and in interstate commerce.'' The 
requirement in the second sentence, including the reference to ``gas 
sold at wholesale,'' does not limit the broad authority granted by the 
first sentence. Rather, the rules required by the second sentence 
should be viewed as a subset of the rules the first sentence of section 
23(a)(2) authorizes the Commission to adopt. Put another way, section 
23(a)(2) should be interpreted as providing that the Commission may 
adopt rules collecting information about any transactions, including 
non-wholesale end-use transactions, if necessary to facilitate price 
transparency, but such rules must include the collection of information 
about wholesale transactions in interstate commerce.
    39. This interpretation is buttressed by the fact that section 
23(a)(3)(A) expressly permits the Commission to obtain ``the 
information described in paragraph (2) from any market participant,'' a 
term which includes end-users. EPAct 2005's de minimis threshold 
requirement in section 23(d)(2) provides further support for this 
position. That provision states:

    The Commission shall not require natural gas producers, 
processors, or users who have a de minimis market presence to comply 
with the reporting requirements of this section.\65\
---------------------------------------------------------------------------

    \65\ 15 U.S.C. section 717t-2(d)(2) (emphasis added).

    The logical corollary to this Congressional directive is that a 
user that has greater than de minimis market presence could be made 
subject to the reporting requirement. By establishing a de minimis 
threshold volume of 2.2 million MMBtu (and, as further explained 
herein, exempting traditional retail transactions from reporting), the 
Commission appropriately limits reporting by end-users only to those 
users with a more than a de minimis market presence and only to those 
end-use transactions that utilize, contribute to, or could contribute 
to price index formation.
    40. While a large industrial end-user may not be a customer ``at 
wholesale,'' it is doubtless a ``market participant'' in the interstate 
wholesale energy market and its actions may have a direct impact on the 
wholesale market or market indices, especially in a localized area. We 
also note that the collection of information on an annual basis is 
qualitatively different than our customary regulation of rates, terms, 
and conditions applicable to natural gas companies. Requiring reporting 
from large end-users that engage in 2.2 million MMBtu of annual sales 
or purchase transactions (other than transactions associated with 
bundled retail tariff service) is a conservative outcome compared to 
the broad authority granted to us by Congress in section 23 of the NGA. 
Our approach strikes a balance between the data that the Commission 
requires to meet its transparency-related obligations and the burden 
placed upon market participants to provide this data.
    41. However, not all end-use transactions have the potential to 
contribute to the formation of price indices or rely upon price 
indices. For example, traditional retail transactions, even those 
involving annual volumes greater than the de minimis threshold, neither 
utilize an index for a price nor contribute to index price formation. 
These retail transactions are not relevant to the Commission's 
transparency goals. A bundled retail transaction through an LDC at a 
state-approved tariff rate is properly excluded from purchase and sales 
volumes to be reported on Form No. 552.\66\ The reporting burden on 
retail consumers would greatly outweigh any minimal transparency 
benefit. To the extent that a potential respondent purchases or sells 
gas at a bundled retail tariff rate, it should not

[[Page 55733]]

count those volumes towards the de minimis threshold and, if required 
to submit Form No. 552, it would not include those volumes in its 
report.\67\ We note that this ``bright-line'' clarification would also 
resolve NGSA's concerns regarding a selling entity's ability to 
identify what purchasers are consuming gas--if gas is sold by an LDC 
under a bundled retail tariff rate, then it need not be reported.
---------------------------------------------------------------------------

    \66\ We have drawn a parallel distinction in the electric 
context. In Order No. 888, the Commission exercised its jurisdiction 
over unbundled transmission to end-users in interstate commerce, yet 
declined to exert jurisdiction over bundled retail transmission. See 
Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities; Recovery 
of Stranded Costs by Public Utilities and Transmitting Utilities, 
Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ] 
31,036, at p. 31,781 (1996). The U.S. Supreme Court approved of this 
distinction in New York v. FERC, 535 U.S. 1, 28 (2002). While not a 
jurisdictional question, in this rulemaking, we incorporate a 
similar distinction between unbundled natural gas transactions to 
consumers (which are reportable in Form No. 552 if they utilize or 
contribute to the formation of a price index) and bundled 
transactions through an LDC subject to state-approved tariff rates 
(which are not reportable).
    \67\ One caveat is that, if the end-user or other market 
participant holds a blanket certificate from the Commission, it 
must, at a minimum, submit the identification and price reporting 
data required on Form No. 552.
---------------------------------------------------------------------------

    42. This proposed approach is similar, though not identical, to the 
Commission's jurisdictional reach over natural gas transportation 
service to end-users. FERC exerts its customary jurisdiction over 
direct transportation of natural gas from an interstate pipeline to an 
end-user.\68\ However, the Commission has traditionally declined to 
exercise jurisdiction over transportation to ``retail customers in a 
localized geographical area behind either a town border station or 
behind facilities * * * that connect to rural delivery points outside 
the boundaries of towns.'' \69\ Where transportation to an end-user 
occurs in interstate commerce and not as part of local distribution, 
the Commission has jurisdiction.
---------------------------------------------------------------------------

    \68\ See, e.g., Public Utilities Commission of the State of 
California v. FERC, 900 F.2d 269 (D.C. Cir. 1990).
    \69\ Kinder Morgan Interstate Gas Transmission LLC, 99 FERC ] 
61,186, at n.30 (2002).
---------------------------------------------------------------------------

    43. We conclude that exempting from reporting those volumes 
associated with bundled retail transactions made at state-approved 
tariff rates, while including volumes associated with direct pipeline-
to-end-user and other end-user transactions, is appropriate. This 
modification regarding the reportability of certain end-use 
transactions necessitates changes to the language of Form No. 552.\70\
---------------------------------------------------------------------------

    \70\ One such modification is the definition of ``Physical 
Natural Gas Transactions'' in the Definitions portion of current 
Form No. 552. The definition clearly indicates that reportable 
volumes are only those that utilize, contribute to, or may 
contribute to the formation of price indices. The definition also 
explicitly excludes volumes associated with bundled retail sales and 
purchases at state-approved tariff rates.
---------------------------------------------------------------------------

E. Respondents Need Not Distinguish Between Transactions Based Upon 
Location

    44. Order No. 704 provided that a market participant must 
categorize transaction volumes by whether each transaction was made at 
a ``reportable location.'' Reportable locations are locations where 
index developers currently collect fixed-price information for 
transactions with Next-Day or Next-Month Delivery obligations, and 
produce index prices. Thus, Order No. 704 tied the meaning of ``fixed-
price'' reported volumes to volumes that may be reported to index 
developers at specific points. To this end, we directed our staff to 
list on the Commission's Web site all reportable locations at which 
fixed-price volumes were to be reported on Form No. 552.\71\
---------------------------------------------------------------------------

    \71\ Order No. 704 at PP 60 and 101-102.
---------------------------------------------------------------------------

Requests for Rehearing and Clarification
    45. NGSA requests rehearing of Order No. 704 so as to require 
submission of data at all trading locations rather than limited to 
specific reportable locations.\72\ NGSA argues that this approach would 
be consistent with the Policy Statement on price reporting.\73\ 
Further, NGSA states that designated ``reportable locations'' will 
change over time, hampering the Commission's long-term analysis of the 
market.\74\ NGSA argues that limiting reported data only to specific 
reportable locations would be more burdensome to most respondents than 
reporting all aggregate, relevant data.\75\ Lastly, NGSA asserts that 
different index developers utilize different means to collect data at 
the same index point and, thus, data collected from market participants 
for particular reportable points will not offer a reasonable comparison 
to reported indices.\76\
---------------------------------------------------------------------------

    \72\ NGSA comments at 5.
    \73\ Id. at 6 (citing the Policy Statement).
    \74\ Id. at 6-7.
    \75\ Id. at 7.
    \76\ Id.
---------------------------------------------------------------------------

    46. Participants at the technical conferences echoed some of these 
themes. The NiSource Companies (NiSource) and Encana, for example, 
questioned how reporting was to be accomplished for certain reportable 
locations given that different reporting services defined the locations 
in multiple ways.
Commission Determination
    47. We grant rehearing of Order No. 704 on this issue and provide 
that respondents need not categorize volumes based upon whether such 
volumes relate to transactions at specific price index locations. We 
agree with NGSA that: (1) It would be substantially less burdensome for 
market participants to provide aggregate data regarding their 
transactions than to differentiate between volumes that occur within or 
outside reportable locations; (2) defining workable ``reportable 
locations'' would be difficult, would require substantial detail 
regarding geographic scope and types of transactions at specific 
locations, and would unduly complicate respondents' Form No. 552 
responses; and (3) specific reportable locations would change on a 
yearly basis, limiting the value of data collected by location. We also 
understand that participants at the technical conferences indicated a 
substantial preference for this modification.
    48. The Policy Statement provides that the minimum standards for 
data providers include a commitment to report ``each bilateral, arm's-
length transaction between non-affiliated companies in the physical 
(cash) markets at all trading locations.'' \77\ Modification of Form 
No. 552 to eliminate data collected at specific reporting locations 
would make the annual reporting obligation consistent with the Policy 
Statement. Consequently, for respondents that already comply with the 
Policy Statement standards, data collection and reporting on Form No. 
552 would be significantly less burdensome. In fact, we believe that it 
would be easier for most entities that do not comply with the Policy 
Statement standards to provide aggregate data for all reportable 
transactions rather than to segregate data regarding transactions at 
specific locations.
---------------------------------------------------------------------------

    \77\ Policy Statement at P 34 (emphasis added).
---------------------------------------------------------------------------

    49. Further, comments by conference participants and NGSA's request 
for rehearing make clear that it would be administratively difficult to 
geographically define each reportable location in a way that would 
capture all transactions that were eligible for reporting to the 
various price indices. This is due to the fact that different data 
collection methodologies are used by index developers at the same point 
as well as the fact that different index developers accept different 
transactions from these points to form indices.
    50. For these reasons, we grant rehearing of Order No. 704 and 
determine that respondents need only provide aggregated data for 
reportable transactions at all transaction locations. Respondents need 
not provide data segregated by reportable location.\78\
---------------------------------------------------------------------------

    \78\ Consistent with the determination, we will no longer direct 
the Commission's staff to retain a list of reportable locations on 
the Commission's Web site.
---------------------------------------------------------------------------

F. Balancing, Cash-out, Operational, and In-Kind Transactions Are 
Reportable

    51. In Order No. 704, we required market participants to report 
sale and purchase volumes related to cash-outs,

[[Page 55734]]

imbalance make-ups, and operations.\79\ We noted that, while some 
volumes related to such transactions are not utilized to create price 
indices, many volumes do refer to or utilize such indices.\80\ The 
Commission concluded that the data collected from such transactions is 
useful in assessing how spot prices are being used commercially. 
Specifically, the order required market participants to include on Form 
No. 552 volumes related to royalty-in-kind transactions and purchases 
and sales related to production and gathering functions.\81\
---------------------------------------------------------------------------

    \79\ Order No. 704 at P 107.
    \80\ Id. P 108.
    \81\ Id.
---------------------------------------------------------------------------

Requests for Rehearing or Clarification
    52. Regarding transactions on interstate pipelines, Shell and NGSA 
seek rehearing of Order No. 704 so as to exclude cash-out, imbalance 
makeup, and operational volumes from the realm of reportable 
transactions. Both Shell and NGSA argue that such transactions do not 
affect the interstate natural gas market, though they may often rely 
upon natural gas indices for their price.\82\ Shell states that data 
regarding such transactions may not reflect actual market activity as 
prices may vary according to whether the pipeline or shipper owes gas 
and there is a one-month lag on the timing of many makeup 
transactions.\83\ For this reason, the use of index prices in makeup 
transactions, Shell argues, does not reflect the value of natural gas 
for purposes of assessing wholesale natural gas spot markets and will 
actually distort relevant data received by the Commission.\84\ In the 
alternative, if rehearing on this point is denied, Shell seeks 
clarification that, if a pipeline provides imbalance cash-out data, 
then shippers need not provide the identical data on Form No. 552.\85\ 
NGSA reiterates many of these arguments, adds that pipeline balancing 
transactions are governed by the pipeline's tariff, and argues that 
balancing should not be considered a purchase or sale in the wholesale 
market.\86\
---------------------------------------------------------------------------

    \82\ Shell comments at 14-15; NGSA comments at 11.
    \83\ Shell comments at 14-15.
    \84\ Id. at 15.
    \85\ Id. at 16.
    \86\ NGSA comments at 9-10. NGSA repeats many of these same 
arguments in its subsequent supplemental comments at 4-6. See also 
Shell comments at 15-16 (stating in passing that imbalance trading 
transactions should not be considered a purchase or sale).
---------------------------------------------------------------------------

    53. Regarding intrastate pipelines, Copano seeks clarification or 
rehearing regarding whether ``non-interstate pipeline'' market 
participants must report, and include for purposes of meeting the de 
minimis threshold, volumes related to cash-outs and other operational 
activities.\87\ Copano argues, much as does Shell and NGSA regarding 
interstate pipelines, that these sorts of transactions are operational 
in nature, are not based on market conditions, and provide no benefit 
to the Commission's transparency goals.\88\
---------------------------------------------------------------------------

    \87\ Copano comments at 8-9.
    \88\ Id. at 9-10.
---------------------------------------------------------------------------

    54. Regarding transactions involving end-users, AF&PA and IECA, in 
a joint submittal, seek clarification or rehearing to exempt balancing-
type transactions from reporting. Additionally, these entities request 
that blanket certificate holders under section 284.402, that hold such 
a certificate solely by virtue of their status as a pipeline customer 
engaged in balancing or cash out transactions pursuant to a consumer 
level gas service contract, be allowed to forego filing of Form No. 
552.\89\ AF&PA and IECA argue that the benefit of obtaining this 
information is minimal compared to the burden of reporting the data. 
They contend that: (1) Such transactions are often ``involuntary'' and 
that it may be very difficult for end-users to determine whether their 
balancing activity exceeds the de minimis threshold; (2) the applicable 
volumes already likely are reported at the pipeline level; and (3) 
balancing transactions that occur pursuant to individual end-use 
contracts will not factor appreciatively into wholesale price 
formation.\90\ They also state that it is likely that many end-user 
blanket certificate holders under section 284.402 do not know that they 
hold such certificate authority or that balancing provisions in 
existing contracts with pipelines could trigger the rule's annual 
reporting requirement.\91\
---------------------------------------------------------------------------

    \89\ AF&PA/IECA comments at 6.
    \90\ Id. at 4-6.
    \91\ Id. at 6-7.
---------------------------------------------------------------------------

    55. Shell seeks clarification that ``in-kind'' balancing 
transactions of all stripes are not reportable transactions under the 
rule as such transactions do not involve a ``sale'' or a ``purchase.'' 
\92\ Relatedly, NGSA requests clarification or rehearing, as necessary, 
that the entity that purchases or sells royalty-in-kind interests is 
responsible for reporting royalty-in-kind transactions--not well 
operators.\93\ NGSA argues that well operators do not necessarily have 
knowledge of the contractual relations of royalty interest holders.\94\
---------------------------------------------------------------------------

    \92\ Shell comments at 15-16.
    \93\ NGSA comments at 12-13.
    \94\ Id. at 12.
---------------------------------------------------------------------------

    56. Shell also seeks clarification regarding the location that 
cash-out, in-kind, or other imbalance transactions occur for purposes 
of determining whether the transaction occurs at a ``reportable 
location.'' \95\ Shell requests further clarification as to whether 
such transactions are considered ``next-day,'' ``next-month,'' or 
``other'' for purposes of completing Form No. 552.\96\ Finally, Shell 
seeks clarification that all production-related balancing activities, 
such as those between producers and working interest owners, are not to 
be reported.\97\ We understand that producers at the technical 
conferences requested similar clarification from staff.
---------------------------------------------------------------------------

    \95\ Shell comments at 17.
    \96\ Id.
    \97\ Id.
---------------------------------------------------------------------------

    57. In supplemental comments, NGSA suggests that, if the Commission 
continues to require the submission of cash-out transaction data 
(including thermal reduction volumes), such data should be reported on 
a separate line on Form No. 552.\98\
---------------------------------------------------------------------------

    \98\ NGSA supplemental comments at 4.
---------------------------------------------------------------------------

    58. A significant number of commenters at the technical conferences 
raised questions regarding balancing transactions of various types. 
Commenters wished to know whether balancing transactions were to be 
reported on a ``net'' basis for each year or whether activity in each 
direction (cash-ins and cash-outs) should be separately accounted.
Commission Determination
    59. We deny the requests for rehearing. Balancing, cash-out, 
operational, in-kind, and similar transactions must be reported on Form 
No. 552 if they rely upon, contribute to, or could contribute to a 
price index.
    60. Section 23 of the NGA requires that our data collection have 
``due regard'' for ``the integrity of [the physical natural gas] 
markets, [and] fair competition.'' \99\ Public confidence in the 
reporting of natural gas prices to gas price index developers and the 
reasonable use and reliance on such indices in the market is squarely 
within the Commission's purview. This includes not just transactions 
that directly impact wholesale price formation, but also transactions 
that reference indices. As we stated in Order No. 704, one of the goals 
of Form No. 552 is to allow the Commission to ``not only understand the 
transactions used to formulate price indices; it is to understand how 
influential price indices are in the overall transacting of

[[Page 55735]]

natural gas in U.S. wholesale markets.'' \100\ It has been our 
experience that a significant number of balancing, cash-out, and 
similar transactions include references to price indices. Understanding 
the magnitude of this reliance on price indices is therefore a 
legitimate policy goal. Form No. 552 will provide this information and 
we can conceive of no less intrusive way to obtain this relevant data.
---------------------------------------------------------------------------

    \99\ 15 U.S.C. section 717t-2(a)(1).
    \100\ Order No. 704 at P 73.
---------------------------------------------------------------------------

    61. In any event, we do not agree with the proposition that 
balancing transactions, as described by commenters, could not 
themselves contribute to the formation of price indices. The fact that 
a purchase or sale is made for operational or balancing, rather than 
market, reasons is irrelevant. This includes, for example, base or 
cushion gas purchases for storage facilities, balancing between 
pipelines or between a supplier and a customer, and purchases of gas 
for compression. Some portion of these transactions could be utilized 
to establish index prices. Balancing, cash-out, operational, and in-
kind transactions should therefore be reportable on Form No. 552 to the 
same extent as other types of transactions.\101\
---------------------------------------------------------------------------

    \101\ As with the reporting of purchase and sale transactions, 
we clarify that balancing transactions should be reported for both 
cash-ins and cash-outs and not on a net basis.
---------------------------------------------------------------------------

    62. Further, reporting of balancing transactions by all entities 
subject to the annual reporting requirement is entirely appropriate. 
Specifically, balancing transactions involving end-users are likely a 
significant total of natural gas contracts that reference price 
indices. Understanding the prevalence of such contracts may allow the 
Commission and other market observers to assess weaknesses in price 
index development.\102\
---------------------------------------------------------------------------

    \102\ Technical requests regarding how these types of 
transactions should be reported on Form No. 552 are addressed 
through clarifications discussed elsewhere in this order. Regarding 
the request for clarification by AF&PA and IECA on this point, the 
Commission declines to clarify the Final Rule in the manner 
suggested by the commenters. While AF&PA and IECA did not supply 
sufficient detail in their request regarding the transactions of 
concern to their members for us to offer more specific guidance, we 
expect that the clarifications provided in this order will allow 
these organizations' members to determine both whether they must 
submit Form No. 552 and the transaction volumes that must be 
reported therein.
---------------------------------------------------------------------------

    63. For all these reasons, we continue to require that reportable 
sales and purchases on Form No. 552 include balancing, cash-out, 
operational, and in-kind transactions that utilize, contribute to, or 
could contribute to the formation of a price index.

G. Safe Harbor

    64. In Order No. 704, we noted our intent not to prosecute or 
penalize companies for inadvertent reporting errors on Form No. 
552.\103\ However, we drew a clear distinction between the safe harbor 
provided to voluntary reporting to price index publishers in the Policy 
Statement and the mandatory annual report required by Order No. 
704.\104\ The Commission rejected calls to include a similar safe 
harbor for the submission of Form No. 552.
---------------------------------------------------------------------------

    \103\ Order No. 704 at P 114.
    \104\ Id.
---------------------------------------------------------------------------

Requests for Rehearing or Clarification
    65. Shell notes that the Commission stated that it ``does not 
intend to prosecute or penalize parties for inadvertent errors in 
reporting,'' but did not include a safe harbor provision for market 
participants that attempt to comply in good faith with Order No. 704. 
Shell urges the Commission to adopt an explicit, rebuttable presumption 
of good faith as it did in the Policy Statement on price 
reporting.\105\
---------------------------------------------------------------------------

    \105\ Shell comments at 29-31.
---------------------------------------------------------------------------

    66. Powerex Corporation (Powerex) notes that, in the April 2007 
NOPR, the Commission responded to queries from ``several data providers 
* * * as to whether they may report certain classes of products traded, 
but not others.'' \106\ The April 2007 NOPR stated that ``a data 
provider remains eligible for the safe harbor provisions if it reports 
certain products, but not others, provided that it provides all of the 
same type of transactions and that it notifies the Commission which 
products it will report in its annual filing or other notification.'' 
\107\ The Commission stated that it would repeat this safe harbor 
clarification in the final rule. However, no such clarification was 
included in Order No. 704.
---------------------------------------------------------------------------

    \106\ Powerex comments at 5.
    \107\ Id.
---------------------------------------------------------------------------

    67. In supplemental comments to the technical conferences, AGA 
requests that the Commission institute a ``pilot program'' for 
compliance with Order No. 704 for calendar year 2008 data.\108\ AGA 
suggests that the Commission not penalize market participants that make 
good faith efforts to complete Form No. 552 but ``make errors'' or 
``include data that is inconsistent with the way other market 
participants have completed the form.'' \109\ NGSA, in supplemental 
comments, requests that the Commission adopt a safe harbor for 2008 
calendar-year data, including allowing respondents ``to base 
information * * * on transaction data collected using existing 
processes and systems.'' \110\
---------------------------------------------------------------------------

    \108\ AGA supplemental comments at 2-3.
    \109\ Id.
    \110\ NGSA supplemental comments at 3.
---------------------------------------------------------------------------

Commission Determination
    68. The Commission herein adopts a one-year safe harbor, covering 
transactions occurring in calendar year 2008 and reported on Form No. 
552 on May 1, 2009. However, we decline to extend this safe harbor for 
additional calendar year reporting.
    69. The Policy Statement includes a safe harbor provision that 
grants a data provider that adopts the Policy Statement standards a 
rebuttable presumption that data submitted to index developers is 
accurate, timely, and submitted in good faith.\111\ However, a similar 
perpetual safe harbor is not warranted regarding the reporting of data 
on Form No. 552. The Policy Statement set forth standards that data 
providers could choose to adopt should they voluntarily elect to 
provide data to price index developers. One goal of the Policy 
Statement was to ``encourage [industry participants] voluntarily to 
report energy transactions to the providers of price indices.'' \112\ 
The safe harbor that we adopted in the Policy Statement was a direct 
extension of this policy goal.
---------------------------------------------------------------------------

    \111\ See Policy Statement at P 37.
    \112\ Id. P 3.
---------------------------------------------------------------------------

    70. Form No. 552 is a mandatory annual filing adopted consistent 
with EPAct 2005, not the voluntary reporting of price data to an index 
developer. There is no policy need to provide an incentive for the 
filing of Form No. 552 similar to the encouragement to reporting price 
data to index developers. Other mandatory forms, such as FERC Form No. 
2, do not include such a safe harbor. For this reason, we are not 
persuaded that a perpetual safe harbor is warranted.
    71. However, a one-year safe harbor (including data collected for 
calendar year 2008 and reported by May 1, 2009) is appropriate. Market 
participants have begun data collection for the current calendar year 
without the benefit of an order on rehearing of Order No. 704. We 
acknowledge that this Order on Rehearing and Clarification is issued 
well after respondents' data collection has been underway for 2008. 
Further, we herein offer a number of clarifications of Order No. 704 
that may impact such data collection activities. A one-time safe harbor 
for the 2009 Form No. 552 is, under these unique circumstances, 
reasonable. Consistent with the Policy Statement, the

[[Page 55736]]

Commission finds that respondents submitting Form No. 552 in 2009 will 
benefit from a rebuttable presumption that the data provided is 
accurate and submitted in good faith. Further, we do not intend to 
penalize respondents for errors in reporting on Form No. 552 provided 
that respondents use reasonable efforts to comply with the regulations 
regarding and instructions for Form No. 552. We emphasize that the 
Commission expects respondents submitting Form No. 552 in 2009 to do so 
in good faith and on a timely basis.

H. Additional Clarifications

    72. In addition to resolution of the rehearing and clarification 
issues discussed above, we clarify a number of minor or technical 
aspects of Form No. 552.
Some Volumes Associated With Transactions Outside the Lower 48 States 
Should Be Reported
    73. The Canadian Association of Petroleum Producers (CAPP), 
Canadian Suppliers,\113\ and Powerex request clarification, or in the 
alternative, rehearing, that reported data should include only sales or 
purchases made inside the geographic boundaries of the United 
States.\114\ Marathon Oil Company (Marathon) and NGSA request 
clarification or rehearing regarding the scope of the rule vis-
[agrave]-vis natural gas production in Alaska.\115\ AGA, in 
supplemental comments, also requests that the Commission address this 
issue.\116\
---------------------------------------------------------------------------

    \113\ Collectively, Encana Marketing (USA) Inc., Nexen Marketing 
(USA) Inc., Petro-Canada Hydrocarbons Inc., and Talisman Energy Inc.
    \114\ CAPP comments at 1; Canadian Suppliers comments at 3; 
Powerex comments at 6-7.
    \115\ Marathon comments at 4-5; NGSA comments at 13-14.
    \116\ AGA supplemental comments at 6-9.
---------------------------------------------------------------------------

    74. Regarding transactions involving possible international 
transportation, we clarify that: (1) Volumes originating outside the 
lower 48 states and delivered at locations outside the lower 48 states 
are not reportable; (2) volumes originating from inside the lower 48 
states and delivered outside the lower 48 states are reportable; and 
(3) volumes delivered inside the lower 48 states are reportable. Thus, 
any volumes that originate or are delivered into the lower 48 states 
should be reported on Form No. 552 to the same extent as purely 
domestic volumes. Form No. 552 is designed to capture all transactions 
that reference price indices or that could contribute to price indices 
and these types of international transactions are not categorically 
excluded.
Transactions Related to Exploration Activities, Production Area 
Operations, and Gathering Functions Are Not Exempted From Reporting
    75. Shell and NGSA request clarification or rehearing of Order No. 
704 so as to categorically exclude exploration activities, production 
area operations, and gathering functions from reporting. They argue 
that the entirety of the Commission's rationale for including these 
transactions is that these transactions often make use of price 
indices.\117\ They also argue that these transactions do not impact the 
wholesale interstate gas market and are excluded from traditional NGA 
regulation under section 1(b) of the Act.\118\
---------------------------------------------------------------------------

    \117\ Shell comments at 9; NGSA comments at 11-12.
    \118\ Shell comments at 10; NGSA comments at 11.
---------------------------------------------------------------------------

    76. In Order No. 704, the Commission stated that, ``while these 
transactions may not affect the formation of price indices in wholesale 
markets, these transactions often make use of price indices * * * to 
the extent that transfers of value take place based on price indices, 
it is important that the Commission and other market observers be able 
to understand the extent of that transfer and its dependency on price 
indices as well.'' \119\ As explained in the order, determining the 
scope of price index reliance in the market is a significant goal of 
this rulemaking. The public availability of this data will increase 
market transparency and confidence. Transactions involving exploration 
activities, production area operations, and gathering functions that 
rely upon or could contribute to the creation of price indices are to 
be reported in the same manner as other types of transactions.
---------------------------------------------------------------------------

    \119\ Order No. 704 at P 108.
---------------------------------------------------------------------------

Transactions Involving Unprocessed Gas Are Not Reportable
    77. Hess Corporation (Hess) requests rehearing of Order No. 704 so 
as to exclude entities engaged in transactions behind a processing 
plant priced pursuant to a percentage-of-proceeds contract under which 
the producer is entitled to receive a percentage of the proceeds 
realized by the buyer upon resale of the natural gas.\120\ Similarly, 
the Oklahoma Independent Petroleum Association (OIPA) seeks rehearing 
of Order No. 704 so as to exempt producers of natural gas that sell 
wellhead gas at the initial first sales point under a percentage of 
proceeds contract.\121\
---------------------------------------------------------------------------

    \120\ Hess comments at 1.
    \121\ OIPA comments at 2.
---------------------------------------------------------------------------

    78. We agree with Hess and OIPA that transactions regarding 
unprocessed gas should not be reported on Form No. 552 and should not 
be counted when determining whether an entity falls below the de 
minimis threshold. Transactions involving unprocessed natural gas are 
not relevant to wholesale price formation.
A Customer of an Asset Manager Is Responsible for Reporting Volumes 
Managed by the Asset Manager
    79. Order No. 704 states that asset managers may not aggregate 
customer volumes and report the same on Form No. 552.\122\ NGSA 
requests that the Commission clarify that individual customers of asset 
managers are responsible for the submission of Form No. 552 and 
reporting volumes managed by the asset manager as well as any other 
reportable sales or purchases.\123\
---------------------------------------------------------------------------

    \122\ Order No. 704 at P 98.
    \123\ NGSA comments at 15.
---------------------------------------------------------------------------

    80. We clarify the rule in the manner suggested by NGSA. In Order 
No. 704, we stated that asset managers may not report aggregated 
information for their customers.\124\ However, this statement should 
not be read so as to relieve customers that hire asset managers from 
their obligation to file Form No. 552 if they are required to do so. 
Individual customers of asset managers (assuming that their activities 
do not fall below the de minimis threshold) are responsible for 
reporting volumes both as managed by an asset manager and independently 
sold and purchased. The Commission also notes that an asset manager, to 
the extent that its market activities are not undertaken on behalf of 
an asset management client, may itself be required to submit Form No. 
552.
---------------------------------------------------------------------------

    \124\ Order No. 704 at P 98.
---------------------------------------------------------------------------

A Public Joint Action Agency May Report an Aggregate of Members' 
Volumes
    81. Order No. 704 does not directly address the filing of Form No. 
552 by public joint action agencies. APGA requests clarification that a 
public joint action agency may aggregate members' annual volume data 
for purposes of the report.\125\ APGA notes that, in Order No. 704, 
aggregation is permitted between privately-owned affiliates.\126\
---------------------------------------------------------------------------

    \125\ APGA comments at 2-3.
    \126\ Id. at 2 (citing Order No. 704 at P 94).
---------------------------------------------------------------------------

    82. We clarify that public joint action agencies, such as certain 
members of APGA, will be allowed to report members' data on an 
aggregate basis in the same manner as corporate affiliates. We see no 
reason to treat public joint action agencies differently from private

[[Page 55737]]

corporate families. Allowing a public joint action agency to report 
members' volumes will significantly reduce the reporting burden on 
those members. Of course, members of public joint action agencies and 
affiliates within a corporate family remain free to report separately, 
should they wish. Additionally, we clarify that arms-length 
transactions between members of a public joint action agency may be 
reportable transactions.
Physically-Settled Non-NYMEX Options Are Reportable
    83. Order No. 704 excluded from reporting NYMEX options that 
physically settle. The rationale for this exclusion was that data 
regarding these transactions did not necessarily relate to fixed-price 
spot price formation, the data was readily available to the public 
through NYMEX, and reporting these volumes on Form No. 552 would be 
duplicative and burdensome.\127\ However, Order No. 704 does not 
explicitly address non-NYMEX transactions that result in physical flow. 
When such options are exercised, they result in physical deliveries in 
the wholesale market. NGSA requests clarification and, if needed, 
rehearing to ensure that physically-settled, non-NYMEX options are 
included in reported volumes.\128\
---------------------------------------------------------------------------

    \127\ Order No. 704 at P 113.
    \128\ NGSA comments at 14.
---------------------------------------------------------------------------

    84. We agree with NGSA and grant the requested clarification. A 
physically-settled non-NYMEX transaction must be reported on Form No. 
552 if it utilizes or could contribute to the formation of a price 
index.
Certain ``NYMEX Plus'' Contracts Are Reportable
    85. Order No. 704 excluded from reporting any type of financially-
settled transaction.\129\ NEM requests clarification regarding 
reporting of ``NYMEX Plus'' contract volumes. Specifically, NEM 
requests clarification regarding the definition of Physical Natural Gas 
on Form No. 552.\130\ The form excludes from reporting ``any type of 
financially-settled transaction.'' NEM is uncertain whether NYMEX Plus 
contracts fall into this exclusion. NEM explains that under a NYMEX 
Plus contract an entity purchases or sells a volume of gas on a 
wholesale basis at a reportable location for a month or series of 
months with the price determined by reference to the monthly settlement 
price of a NYMEX futures contract plus an adder.\131\ NEM is unsure 
whether such volumes should be reported on Form No. 552 line 5 as 
``prices that refer to published next-month gas price indices'' or line 
6 (the ``other'' category).\132\ NEM is also uncertain as to: (1) The 
calendar year and months in which contract volumes related to a multi-
month or multi-year NYMEX Plus contract should be reported; and (2) the 
price that should be reported on Form No. 552 if a price is to be set 
at a future date.\133\
---------------------------------------------------------------------------

    \129\ Order No. 704 at P 111 and Form No. 552, Definition VII, 
Physical Natural Gas.
    \130\ NEM comments at 4-6.
    \131\ Id. at 3.
    \132\ Id. at 3-4.
    \133\ NEM comments at 4-5.
---------------------------------------------------------------------------

    86. Based upon the facts as detailed by NEM, the Commission 
believes that only a subset of NYMEX Plus contracts should be reported. 
Specifically, we clarify that NYMEX Plus transactions are reportable 
only when: (1) Executed during bid week and that can contribute to a 
next-month price index, or (2) they utilize a NYMEX settlement price 
during bid week that can contribute to a next-month index. In that 
regard, the Commission is adding a new line between current lines 6 and 
7 to page 5 of Form No. 552 for the purpose of reporting data regarding 
NYMEX Plus and other ``triggered'' physical gas transactions.
    87. Further, we clarify that, for all contracts where deliveries 
occur or may occur over multiple calendar years and such volumes are 
reportable, only volumes attributable for delivery that use or may 
contribute to the formation of price indices during the subject 
calendar year should be reported on Form No. 552. In Order No. 704, the 
Commission indicated that transactions are to be reported based upon 
whether their expected delivery dates are within the reporting year--
contract formation dates are irrelevant.\134\ For example, for a 
contract that could contribute to the formation of a price index and 
requires deliveries at times between July of the first year through 
February of the next, the respondent should report July-December 
volumes for the Form No. 552 corresponding to the first year's volumes 
and January-February volumes in the next year's Form No. 552. For a 
multi-year contract that relies on a price index to establish a price, 
the relevant volumes should be reported in the year in which the index 
is referenced.
---------------------------------------------------------------------------

    \134\ Order No. 704 at P 60.
---------------------------------------------------------------------------

Bid-Week, Fixed Price Differential Physical Basis Transactions Tied to 
the Last Day of Settlement Are Reportable
    88. NGSA requests rehearing such that the definition of ``Fixed 
Price'' in Form No. 552 includes bid-week fixed price differential 
physical basis transactions tied to the last day of settlement.\135\ 
NGSA notes that these agreements form a material portion of the 
reported transactions at index points.\136\ AGA, in supplemental 
comments in the docket, suggests that physical basis transactions be 
reported on a separate line on Form No. 552.\137\ NGSA argues that 
including these volumes would ease the administrative burden on 
respondents as these volumes would not need to be monitored and removed 
from aggregate volume numbers.\138\
---------------------------------------------------------------------------

    \135\ These types of transactions involve transfers of physical 
natural gas utilizing basis differentials. The transactions are 
executed during the bid-week at a fixed differential to the last day 
of settlement.
    \136\ NGSA comments at 8.
    \137\ AGA supplemental comments at 5-6.
    \138\ NGSA comments at 8.
---------------------------------------------------------------------------

    89. The Commission agrees that Form No. 552 should include bid-
week, fixed price differential physical basis transactions. These 
transactions are a significant aspect of wholesale natural gas markets 
and utilize or could contribute to the formation of price indices. 
Consistent with AGA's recommendation, we will include a new line item 
in Form No. 552, requiring the reporting of all physical basis 
transactions, including fixed differential basis transactions that can 
contribute to or rely upon a price index.
All Data Provided on Form No. 552 Will Be Publicly Available
    90. At least one participant at the technical conference requested 
that the Commission act to protect allegedly proprietary information 
contained in completed Form No. 552. Specifically, the concern was 
raised by Samson Resources Company (Samson) that, by requiring 
submission of data based upon transactions at specific locations, the 
form would provide sensitive commercial information to competitors who 
may already know the point or points where the respondent transacts. 
Samson also claimed that the names of affiliates should be confidential 
as well.
    91. We reiterate that Form No. 552 data will be publicly available. 
In Order No. 704, the Commission addressed requests that data included 
on Form No. 552 be treated as confidential or proprietary.\139\ We 
found that Congress directed the Commission to provide aggregate 
information to the public. We balanced this transparency goal with the 
asserted need for confidentiality. Among the factors we considered 
were: (1) Data would be reported in the aggregate; (2) no specific 
pricing information would be reported; (3) data

[[Page 55738]]

would be reported on a national level, not locally or regionally; and 
(4) data would not be reported until four months following the 
reporting year.\140\ We see no reason to modify our determination in 
this regard. We note, however, that our determination herein to 
eliminate the reporting of data at specific reportable locations, 
further reduces any concerns that reported data is commercially 
sensitive.
---------------------------------------------------------------------------

    \139\ Order No. 704 at PP 82-84.
    \140\ Id. P 83.
---------------------------------------------------------------------------

We Decline To Modify the Effective Date of the Rule
    92. Under Order No. 704, respondents must submit Form No. 552 no 
later than May 1, 2009 for data collected in calendar year 2008.\141\ 
We understand that one participant at the technical conference 
requested that the Commission delay reporting of data until 2010 (for 
calendar year 2009 data). NiSource argued that it did not have the 
ability to electronically record data required by Form No. 552 and, 
given that the Commission had yet to issue an order on rehearing, it 
may be very difficult or impossible for some companies to comply with a 
2009 filing date.
---------------------------------------------------------------------------

    \141\ Id. P 105.
---------------------------------------------------------------------------

    93. The Commission declines to modify the effective date of the 
rule or the date by which Form No. 552 is first to be filed. We note 
that no entity raised this issue on rehearing or a formal request for 
clarification. We have confidence in respondents' capabilities to 
report the general volume data requested on Form No. 552 by the May 1, 
2009 filing date. With the adoption of a one-year safe harbor, 
discussed above, concerns regarding the difficulty of collecting 2008 
data for reporting in 2009 should be mitigated.
We Do Not at This Time Establish Additional Formal Procedures To 
Address Market Participant Questions Regarding Form No. 552
    94. NEM requests that the Commission establish ongoing procedures 
in which staff may offer informal advice to market participants 
regarding reporting requirements in Form No. 552. NEM proposes a 
``technical compliance forum'' to include a combination of measures 
such as an additional hotline, a designated interactive Web page for 
industry questions regarding Form No. 552 (including a Frequently Asked 
Questions page), designation of specific staff members to field 
questions, and periodic technical conferences leading up to the May 
2009 filing deadline.\142\ Additionally, AGA and Merrill Lynch 
Commodities (Merrill Lynch), during the technical conference process, 
suggested that staff complete and distribute a sample Form No. 552 
based upon various types of transactions. AGA also requested in 
supplemental comments that the Commission commit to provide further 
guidance on the reporting obligation following submission of annual 
reports in 2009.\143\
---------------------------------------------------------------------------

    \142\ NEM comments at 2.
    \143\ AGA supplemental comments at 3.
---------------------------------------------------------------------------

    95. We do not believe that additional informational or educational 
outreach regarding Form No. 552 is necessary at this time. To the 
extent that additional clarification is necessary following the 
issuance of this Order on Rehearing and Clarification, requests for 
further clarification and rehearing are permitted and additional 
technical conferences may be held at our discretion. Further, we note 
that, once entities begin to complete Form No. 552 with calendar year 
2008 data, respondents may direct informal questions through 
appropriate means, including the new compliance help desk.\144\
---------------------------------------------------------------------------

    \144\ See Obtaining Guidance on Regulatory Requirements, 123 
FERC ] 61,157 (2008).
---------------------------------------------------------------------------

The Reach of the Safe Harbor Provision in the Policy Statement On 
Natural Gas and Electric Price Indices
    96. Referring to the 2003 Policy Statement, Order No. 704 stated, 
in passing, that ``[a] market participant that does not hold blanket 
sales certificates is not required to comply with the Policy Statement 
processes, nor does it receive the safe harbor available in the Policy 
Statement.'' \145\ Southern Company Services, Inc. (SCS) requests 
clarification of this statement. SCS argues that non-jurisdictional 
entities have engaged in price reporting while relying on an 
interpretation of the Policy Statement's safe harbor provision. SCS 
argues that the Policy Statement safe harbor applies to any ``data 
provider'' regardless of whether the provider is a certificate 
holder.\146\
---------------------------------------------------------------------------

    \145\ Order No. 704 at P 96.
    \146\ SCS comments at 2-3.
---------------------------------------------------------------------------

    97. SCS's request is effectively a request to clarify the Policy 
Statement, not Order No. 704. The referenced comment was not a 
prerequisite to our determinations in the order. SCS's request is 
inappropriate as a request for clarification of Order No. 704.

III. Information Collection Statement

    98. The Office of Management and Budget (OMB) regulations require 
that OMB approve certain reporting, recordkeeping, and public 
disclosure (collections of information) imposed by an agency.\147\ The 
information collection requirements for Form No. 552 respondents were 
approved under OMB Control Nos. 1902-0242. This order further revises 
these requirements in order to more clearly state the obligations 
imposed in Order No. 704, but does not substantively alter those 
requirements. OMB approval of this order is therefore unnecessary. 
However, the Commission will send a copy of this order to OMB for 
informational purposes only.
---------------------------------------------------------------------------

    \147\ 5 CFR 1320.
---------------------------------------------------------------------------

IV. Environmental Analysis

    99. 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.\148\ The 
actions taken here fall within categorical exclusions in the 
Commission's regulations for information gathering, analysis, and 
dissemination, and for sales, exchange, and transportation of natural 
gas that requires no construction of facilities.\149\ Therefore, an 
environmental assessment is unnecessary and has not been prepared in 
this rulemaking.
---------------------------------------------------------------------------

    \148\ Order No. 486, Regulations Implementing the National 
Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & 
Regs ] 30,783 (1987).
    \149\ 18 CFR 380.4(a)(5) and (a)(27).
---------------------------------------------------------------------------

V. Regulatory Flexibility Act

    100. The Regulatory Flexibility Act of 1980 (RFA) \150\ generally 
requires a description and analysis of rules that will have significant 
economic impact on a substantial number of small entities. The RFA 
requires consideration of regulatory alternatives that accomplish the 
stated objectives of a proposed rule and that minimize any significant 
economic impact on such entities. The RFA does not, however, mandate 
any particular outcome in a rulemaking. At a minimum, agencies are to 
consider the following alternatives: Establishment of different 
compliance or reporting requirements for small entities or timetables 
that take into account the resources available to small entities; 
clarification, consolidation, or simplification of compliance and 
reporting requirements for small entities; use of performance rather 
than design standards; and exemption for certain or all small entities 
from coverage of the rule, in whole or in part.
---------------------------------------------------------------------------

    \150\ 5 U.S.C. 601-612.
---------------------------------------------------------------------------

    101. The annual reporting requirement set forth in the Order on 
Rehearing and Clarification will not have a significant economic impact 
on a substantial number of small entities. The requirement for annual 
reporting of

[[Page 55739]]

physical natural gas transactions will have minimal impact on small 
entities. By incorporating a de minimis exemption into the regulations, 
the Commission has reduced the number of small entities subject to the 
requirements; de minimis entities without blanket sales certificates 
will not be required to report. This reporting requirement will affect 
small entities but the burden on them will be minimal. For each entity, 
small or otherwise, that is required to comply with the annual 
reporting requirement, the Commission estimates that the compliance 
would require a one-time cost of approximately $4,000 and an annual 
cost thereafter of $400. Although some costs would increase for market 
participants with a greater number of transactions, we expect that that 
increase would be likely offset because such entities would have 
already compiled information regarding their transactions in the 
aggregate. This amount is not a significant burden on small entities. 
The de minimis exemption provides a regulatory alternative that will 
reduce the economic impact on certain small entities from coverage of 
the rule. Accordingly, the Commission certifies that the order will not 
have a significant economic impact on a substantial number of small 
entities.

VI. Document Availability

    102. 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.
    103. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    104. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from FERC Online Support at 202-502-
6652 (toll free at 1-866-208-3676) or e-mail at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. E-mail the Public Reference Room at 
public.referenceroom@ferc.gov.

VII. Effective Date

    105. Changes to Order No. 704 adopted in this Order on Rehearing 
and Clarification will become effective October 26, 2008.
    The Commission orders:
    The requests for clarification and rehearing are granted in part 
and denied in part as discussed in the body of this order.

List of Subjects

18 CFR Part 260

    Natural gas, Reporting and recordkeeping requirements.

18 CFR Part 284

    Continental shelf; Natural gas; Reporting and recordkeeping 
requirements.

18 CFR Part 385

    Administrative practice and procedure; Electric power; Penalties; 
Pipelines; Reporting and recordkeeping requirements.

    By the Commission.
Kimberly D. Bose,
Secretary.

0
In consideration of the foregoing, the Commission amends Chapter I, 
Title 18, Code of Federal Regulations to read as follows:

PART 260--STATEMENTS AND REPORTS (SCHEDULES)

0
1. The authority citation for part 260 continues to read as follows:

    Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352.


0
2. Sec. 260.401 is revised as follows:
0
a. Paragraph (a) is amended by removing the word ``reporting'' between 
the words ``annual'' and ``report.''
0
b. Paragraph (b)(1) introductory text is amended by removing the word 
``wholesale,'' between the words ``in'' and ``physical'' and removing 
the word ``As'' and inserting the words, ``However, as'' at the 
beginning of the final sentence.
0
c. Paragraph (b)(1)(i) is amended by removing the word ``and'' at the 
end of the paragraph.
0
d. Paragraph (b)(1)(ii) is revised and paragraph 260.401(b)(1)(iii) is 
added to read as follows:


Sec.  260.401  FERC Form No. 552, Annual Report of Natural Gas 
Transactions.

* * * * *
    (b) * * *
    (1) * * *
    (ii) It engages in reportable physical natural gas sales that 
amount to less than 2,200,000 MMBtus for the previous calendar year; 
and
    (iii) It engages in reportable physical natural gas purchases that 
amount to less than 2,200,000 MMBtus for the previous calendar year.
* * * * *

PART 284--CERTAIN SALES AND TRANSPORTATION OF NATURAL GAS UNDER THE 
NATURAL GAS POLICY ACT OF 1978 AND RELATED AUTHORITIES

0
3. The authority citation for Part 284 continues to read as follows:

    Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352; 
43 U.S.C. 1331-1356.


0
4. Section 284.403(a) is amended by removing the word ``must'' in the 
final sentence, and inserting the word ``Seller'' in its place.

    Note: The following appendix will not be published in the Code 
of Federal Regulations.

BILLING CODE 6717-01-P

[[Page 55740]]

[GRAPHIC] [TIFF OMITTED] TR26SE08.420


[[Page 55741]]


[GRAPHIC] [TIFF OMITTED] TR26SE08.421


[[Page 55742]]


[GRAPHIC] [TIFF OMITTED] TR26SE08.422


[[Page 55743]]


[GRAPHIC] [TIFF OMITTED] TR26SE08.423


[[Page 55744]]


[GRAPHIC] [TIFF OMITTED] TR26SE08.424


[[Page 55745]]


[GRAPHIC] [TIFF OMITTED] TR26SE08.425


[[Page 55746]]


[GRAPHIC] [TIFF OMITTED] TR26SE08.426


[[Page 55747]]


[GRAPHIC] [TIFF OMITTED] TR26SE08.427


[[Page 55748]]


[GRAPHIC] [TIFF OMITTED] TR26SE08.428


[[Page 55749]]


[GRAPHIC] [TIFF OMITTED] TR26SE08.429

[FR Doc. E8-22358 Filed 9-25-08; 8:45 am]

BILLING CODE 6717-01-C
