Reporting of Natural Gas Sales to the California Market

AGENCY:

Federal Energy Regulatory Commission.

ACTION:

Notice of decision not to seek an extension of reporting period.

SUMMARY:

On July 25, 2001, the Federal Energy Regulatory Commission (Commission) issued an order imposing certain reporting requirements on natural gas sellers and transporters serving the California market for the period ending January 31, 2002 (see 66 FR 40245, August 2, 2001). The Commission, by this notice, will not seek an extension of the reporting period provided for in the July 25, 2001 order.

DATES:

The reporting period will terminate with the report covering activities ending January 31, 2002.

FOR FURTHER INFORMATION CONTACT:

Jacob Silverman, Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 208-2078.

SUPPLEMENTARY INFORMATION:

On July 25, 2001, the Commission issued an order (July 25 order) imposing a reporting requirement on natural gas sellers and transporters serving the California market for the six-month period August 2001, through January 2002. The order stated that the Commission believed the reporting period should cover the same period as the Commission's mitigation plan regarding wholesale electricity prices in California and the West, and therefore the Commission intended to seek an extension of the reporting requirement, and approval by Office of Management and Budget (OMB), through September 30, 2002, to coincide with the termination date of the mitigation order. However, in light of changed circumstances since the July 25th order, the Commission has decided that it will not seek an extension of the reporting requirement. This action is in the public interest because the price disparity that was the reason for imposing the reporting requirement no longer exists, and the continued submissions may not lead to a further understanding of the California gas market.

The July 25 order stated that the information was needed by the Commission to help it understand why the disparity between the price of natural gas in California and the prices in the remainder of the country had occurred, and was continuing, by gaining a better understanding of how the California market operates. The July 25 order explained that due to the emergency nature of the California price disparity, the Commission sought emergency processing by OMB for the collection of information under 5 CFR § 1320.13 (2001). Under that procedure the OMB approval is limited to 180 days. Accordingly, the order provided for the information to be submitted monthly for the six-month period covering August 1, 2001, through January 31, 2002, with the reports due 30 days after the end of each month. The first report was due October 1, 2001, and the last will be due March 1, 2002.

The purpose of the reporting requirement was to investigate why there was a substantial disparity between spot natural gas prices in California and the rest of the nation by gaining a better understanding of how the California market operates. A preliminary analysis of the data furnished to date indicates that the data for the six month period ending January 31, 2002, will provide information about the California market, as well as some guidance on how to improve data collection and processing should another emergency reoccur. However, the crisis which led the Commission to impose the reporting requirement no longer exists. In May 2001, when the Commission first proposed to impose a reporting requirement, 95 FERC ¶ 61,262, the spot price of natural gas in the California market, as that order noted, ranged between $11.79 and $18.80, while the price range in all other markets was between $4 and $7. However, natural gas prices are now, and have been for a number of months, far lower than they were last spring in California, as well as in the rest of the country. Currently, as reported in Platts Gas Daily, the spot price of natural gas at the California border is less than $3.00, which is generally in line with the spot price elsewhere in the country and, in fact, lower than the price at some city gates in the East. Similarly, the monthly California Regional Average contract index price reported in Platts Gas Daily Price Guide was $2.44, while the National Average price was $2.34.

While the July 25 order stated the Commission intended to seek approval from OMB to extend the reporting requirement, market conditions, as shown above, have subsequently changed dramatically. As a result, the reason for imposing a special reporting requirement for sales of natural gas to the California market—that the California market is suffering unique difficulties—has largely disappeared. Furthermore, since the price of natural gas in California for the past few months has remained fairly stable and has not shown any significant disparity from the price of gas in the rest of the country, the continued collection and analysis of data relating to the California market is unlikely to add incrementally to what is being learned from the initial six months of data. Thus, at this time there is no reason to extend a special reporting requirement with respect to gas sales in only California, when there is no similar reporting requirement in other parts of the country.

The Commission is currently undertaking a comprehensive review of the information it should collect in order to monitor energy markets throughout the country. Since the crisis in California has now ceased, the Commission concludes that any further reporting requirement covering the California gas market is best developed as part of this comprehensive review of reporting requirements of all energy markets.

On December 11, 2001, Indicated Shippers, who are certain major producers and marketers subject to the California reporting requirement, filed a petition requesting that the Commission not extend the reporting requirement beyond the current expiration date. The basis of the petition was similar to the discussion above that the current market conditions in the California gas market do not justify extending the reporting requirement for gas sales in that market. The California Electricity Oversight Board filed a protest to the petition asserting that current market conditions were irrelevant because “there is no principled reason to assume that current market stability inherently eliminates future abuse of California's natural gas market.”

The Commission has concluded that the reason for imposing a special reporting requirement for sales of gas in the California market no longer exists. While there is no guarantee that the disparity in the prices could not again occur, at this time there is no basis to assume that it will. We are well into the winter season, and the California gas market has not exhibited any conditions that now warrant imposing the reporting requirement there, as compared to any other market. Thus, the concern by the California Electricity Oversight Board that the price disparity could reoccur, is not a sufficient reason to extend the reporting requirement. However, should the price disparity reoccur, the Commission will be in a better position to determine what action it should take as a result of the submissions to date.

The Commission concludes that extending a reporting requirement that is limited to the California market would not further the Commission's goal of achieving more transparency of the national energy market. The Commission's decision not to extend the reporting requirement at this time does not represent any lessening of the Commission's intent to closely monitor that market, but reflects the Commission's conclusion that since the crisis that led to the imposition of the reporting requirement has ceased, the resources that would have to be devoted to the extension, would be better utilized in other areas, particularly the more comprehensive ongoing review of data collection by the Commission, discussed above.

Accordingly, the Commission will not seek an extension of the existing reporting period.

Federal Energy Regulatory Commission

[Docket No. RM01-9-000]

Reporting of Natural Gas Sales to the California Market

WOOD, Chairman, and BROWNELL, Commissioner, concurring:

We write separately to add that the data collected thus far has provided the Commission with valuable information on how the California natural gas market operates, such as, the proportion of sales in California under long and short-term contracts, the extent to which the prices in gas sales contracts are fixed, the extent of utilization of interstate transportation capacity to California, the nature of the purchasers under the sales contracts (e.g., marketers, LDCs, or end users), and also the approximate proportion of sales in the California market that are subject to the Commission's jurisdiction. This information will provide a reference point that will enable the Commission to effectively craft a more focused reporting requirement should it appear that a price disparity may again resurface in the California market and such a reporting requirement is needed. More importantly, it provides us useful information for our current effort to comprehensively revise all of our reporting requirements to reflect the present state of the energy markets.

Pat Wood, III,

Chairman.

Nora Mead Brownell,

Commissioner.