NGI Article on FERC Reporting Requirement for CA

Sort of a follow-up to our discussion yesterday in the 2:30
meeting/conference call. Pretty good article, I thought.

NGI's Daily Gas Price Index
published : May 23, 2001
FERC Bows to Capitol Hill Pressure with Reporting Requirement
FERC's plan to impose a (price and volume) reporting requirement on
transporters and sellers into the California natural gas market (RM01-9) has
drawn mixed reactions from industry, but most agree that the Commission was
pressed by Congress to take this action.
The Commission's action is in response to "increasing pressure" from Congress
to deal with the escalating gas prices on the West Coast, said Jerald V.
Halvorsen, president of the Interstate Natural Gas Association of America
(INGAA), which represents interstate gas pipelines. "Every time they go there
[Capitol Hill] they get slapped around. They're all on the firing line right
now," he noted, adding that "I would be doing exactly the same thing if I
were them."
FERC is going to be "very closely watched and will be pushed all summer by
the California delegation" in Congress to do something about high gas prices
in Southern California, Halvorsen said. "I think that if they find anything
out of line [in the market], they will move very swiftly" to take corrective
action.
If they should find some "funny business" in the intrastate pipeline market,
"I could even see them going to the California Public Utilities Commission
and saying 'this doesn't look right.'" FERC "will leave no rock unturned" in
its effort to collect information, he believes.
INGAA views FERC's reporting requirement initiative "as part of an overall
effort to better understand what's going on in California," Halvorsen said
(see Daily GPI, May 22). He believes this will be a serious effort by the
Commission to detect anything "fishy" in the California gas market. Others,
however, see it as FERC simply going through the motions to appease federal
and California lawmakers.
Dynegy's chief attorney Phil Esposito questioned whether FERC's price
collection exercise would "result in any intelligible data. Each transaction
needs to be viewed in context, along with transportation, hedging and deals
with counterparties. We can provide a lot of data, but I doubt it will be
very useful." He predicted the proposed order would generate "reams and reams
of data," but it would be difficult to recreate the whole picture. "Then what
happens if they go ahead on the basis of an incomplete picture?" Meanwhile,
Dynegy is "not overly excited about having to do all that paperwork. We've
got a dozen ongoing civil suits" relating to California and also are
providing information for the California attorney general investigation and
FERC's electric price investigation.
Once the Commission has the data, Esposito continued, "what are they going to
do with it? Require parties to sell at the end of the pipe at the same price
they paid at the beginning of the pipe, plus transportation? Then, who's
going to buy firm transportation?"
A San Diego Gas and Electric spokesperson said the price information was
something SDG&E had asked for in its case at FERC seeking to re-install price
caps on transportation to the border in the secondary market. The utility had
also asked for an unbundling of commodity plus transportation transactions,
which is also part of the data FERC seeks to collect.
Other market and political sources suggested that the collection of price
information was an attempt to pacify California and federal legislators,
noting that time required to put the proposal in place plus the collection of
data on a quarterly basis, puts any derived solutions off for at least six
months. "They're not going to find anything. Each trading company has dozens
of guys watching the market full time, buying gas, selling gas, hedging it,
pooling it. Gas is going east from San Juan one hour and west the next hour,"
one source said.
"This is just FERC trying to show they're doing something, trying to cover
their ass. We're in a war. The object on the other side is to save Gray
Davis' political career," another source commented.
In a proposed order last Friday, FERC outlined its plan to impose price and
volume reporting requirements on all sellers of natural gas, and interstate
pipelines and local distribution companies (LDCs) serving the California
market. FERC is seeking to gauge what percentage of the volumes destined for
California is domestically produced gas sold by marketing affiliates of
pipelines and LDCs in sale-for-resale transactions. These are the only sales
that FERC has jurisdiction to regulate.
The Commission proposes to collect the data on a quarterly basis (30 days
after the end of a quarter) in a "standardized format." It then "[will]
aggregate the data submitted and analyze it promptly" to "determine what
action, if any, is warranted" with respect to California gas prices. FERC has
asked for industry comments on its proposal within 30 days, and is seeking
emergency clearance from the Office of Management and Budget.