Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Justice Department Comments on FERC’s Proposed Natural Gas Market Transparency Rules, (Feb 4, 2013)

By Tobias J. Gillett, J.D., LLM.

In response to a Notice of Inquiry, the Department of Justice has submitted comments to the Federal Energy Regulatory Commission (FERC) on the possible competitive effects of proposed changes to FERC’s natural gas market transparency regulations.

The Justice Department’s February 1 comments emphasize that transparency can have both positive and negative effects on a market. Increased transparency can permit regulators and the public to more easily monitor the market, can increase short-run efficiency by signaling suppliers about how much to produce, and can increase long-run efficiency by signaling suppliers and potential suppliers about how much to invest in future productive capacity.

However, increased transparency can also permit suppliers to coordinate their activities more easily, and thus to raise prices to the detriment of consumers, the Justice Department observed. Greater transparency allows suppliers who have agreed among themselves to monitor compliance with the agreement, and to punish those who deviate from it. This becomes more likely in markets subject to factors such as high concentration, high impediments to entry, homogeneous products, low elasticity of demand, and smaller and more frequent sales.

The Justice Department suggested that FERC should “consider marginal effect of the regulation on transparency; that is, the change in transparency, and the associated benefits and costs, brought about by the regulation.” If the increased risk of coordination outweighs the benefits of enhanced efficiency and market monitoring, then the regulation should not be implemented, but if the benefits outweigh the costs, then perhaps it should be implemented.

The Justice Department also recommended several possible safeguards FERC could employ. FERC could maintain the confidentiality of firm- or transaction-specific information, a solution that would permit FERC to monitor the market while preventing the use of the information for coordination, but “would eliminate the benefits that transparency can have on efficiency, and on the ability of the public to monitor markets.” FERC could also release that information only under certain circumstances, when it believed the benefits would outweigh the drawbacks.

In addition, FERC could aggregate data, making it less useful for monitoring deviation from an agreement. It could mask certain information, such as the identity of parties, for the same reasons. Finally, it could delay release of information, increasing the likelihood of deviations and reducing the value of the information for coordination.

The Justice Department emphasized that FERC should consider the impact of transparency in relation to its current proposed regulations, which would involve the dissemination of disaggregated, transaction-specific information, rather than the aggregated information for which the regulations previously called.

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