FERC Transparency Proposal May Lead to Market Collusion

Originally published in Law360

On Oct. 16, the Federal Energy Regulatory Commission proposed new transparency requirements for interstate natural gas pipelines that could reshape how information about natural gas deliveries to specific power plants circulates through energy markets.

The proposal, part of the long-running North American Energy Standards Board gas-electric harmonization effort, endeavors to improve electric system reliability during extreme weather by requiring interstate pipelines to publicly post information about fuel deliveries for directly connected power plants.

The idea is straightforward: More transparency, shared faster, means fewer surprises. But FERC's latest notice of proposed rulemaking, or NOPR, also raises a subtle but important question familiar to economists and market lawyers alike: Can too much transparency start changing behavior rather than merely reveal it?

The Proposal: Posting Gas Delivery Data for Power Plants

The Oct. 16 NOPR in Standards for Business Practices of Interstate Natural Gas Pipelines would incorporate NAESB Wholesale Gas Quadrant Standard 0.3.30 into FERC's regulations. The standard would require interstate pipelines to post, under a new "Gas Electric Coordination" heading on their public informational websites, the total scheduled quantity of gas delivered to power plants directly connected to their systems.

According to FERC, the purpose of posting fuel deliveries to gas-fired power plants stems from a goal to provide grid operators with real-time insight into gas delivery schedules, improving coordination between the gas and electric sectors.

FERC emphasized that the data will be aggregated by location and delivery point to prevent plant-specific information from being disclosed to the public. Commissioner Judy Chang, in her concurring statement, expressed support for the proposal, noting the need for continued collaboration across the gas supply chain, including upstream supply disruptions like wellhead freezes.

Why Economists and Information Merchants Might Be Paying Attention

If adopted as proposed, the NOPR would make it possible for data analytics professionals to develop a commercially valuable competitive-intelligence product capable of predicting the dispatch behavior of gas-fired power plants in near real time. Interstate pipelines would be required to post standardized, machine-readable data under the new gas electric coordination category — identifying each interconnection point, posting time, nomination cycle and the total scheduled quantity of gas deliveries.

Because these data would be public, updated up to five times per gas day and tied to identifiable locations, interested persons or firms could aggregate the postings across all pipelines and match them with existing generation databases. In most cases, directly connected gas plants interconnect through unique delivery points, so each total scheduled quantity entry would correspond to a single facility's fuel schedule.

With sufficient programming, dispatch curves could be constructed across the day, linking shifts in gas flows to electricity price formation and operating behavior. The absence of confidentiality restrictions or reporting lags means that competing generators could access the same information, making it possible to infer when a rival unit is ramping, constrained or out of service.

The breadth of potential coverage is significant because direct interconnections between large gas-fired generators and interstate pipelines are common in the U.S.

According to the U.S. Energy Information Administration, roughly 75% of natural gas delivered to the electric power sector — about 27 billion cubic feet per day — flows directly from interstate transmission pipelines to power plants, bypassing local distribution companies.

National Renewable Energy Laboratory modeling indicates that approximately 44% of total U.S. gas-fired generation capacity is directly tied into the interstate network, primarily large combined-cycle plants that depend on just-in-time fuel delivery.

With nearly 2,000 gas-fired generating units across roughly 1,000 facilities nationwide, these directly connected plants represent the majority of total output, even if not of plant count.

Because these are the very units whose deliveries would appear in the required postings, the resulting data stream would offer a reasonably comprehensive view of daily and intraday generator fuel scheduling patterns — allowing a well-designed analytics platform to convert pipeline postings into operational intelligence with immediate commercial value.

Economists have long understood that when players in a market can observe each other's actions, they may coordinate their behavior even without explicit collusion. The Folk Theorem in game theory shows that in repeated interactions, cooperative behavior can emerge if players have visibility into each other's actions and can punish deviations.

This coordination does not require direct communication, just shared information access. In the context of electricity markets, where the same firms bid repeatedly in a confined geographic area, transparency about fuel deliveries can turn into a signal for coordination.

For instance, if public postings show low scheduled deliveries to certain plants, competitors may infer that those plants are either unavailable or withholding supply. This type of inference can lead to coordinated bidding without explicit communication, potentially inflating prices or stabilizing behavior at noncompetitive levels.

A Familiar Precedent: Order No. 2001 and the EQR Debate

FERC has navigated this transparency dilemma before. In Order No. 2001 in 2002, the commission established the electric quarterly report system to improve price transparency and oversight of wholesale power sales. Utilities like Alcoa Power Generating Inc. and Pinnacle West Capital Corp. warned that public disclosure of transaction-specific data could expose competitors' strategies and enable coordination.

FERC ultimately dismissed these concerns, arguing that the quarterly reporting delay and aggregation of data would prevent real-time coordination while still enhancing market transparency.

A decade later, in Order No. 768 in 2012, FERC once again focused on the balance between transparency and competition. It concluded that delayed, historical disclosure — typically 30 to 120 days after transactions — appropriately balanced the need for transparency with the risk of enabling coordination.

By contrast, the NOPR would require near-real-time posting of gas delivery schedules, significantly altering the timing and effectiveness of transparency.

Legal and Competitive Implications

Section 220(b)(2) of the Federal Power Act, added by the Energy Policy Act, gives FERC the authority to withhold or condition the release of commercially sensitive data while still promoting transparency.

Although this provision applies to electric markets rather than natural gas pipelines, the principle is the same: transparency should serve reliability and consumer protection without distorting competition.

FERC could adopt a similar approach here by implementing safeguards such as time-delayed postings, broader aggregation across multiple delivery points, or separate confidential feeds for system operators and market monitors. These safeguards would preserve the reliability benefits of enhanced data sharing while limiting the potential for competitive harm.

Absent these safeguards, the proposal could create asymmetries between plants that are directly connected to interstate pipelines and those that rely on nonjurisdictional laterals or intrastate pipelines. Plants with more visibility could gain an unfair advantage in competitive bidding, potentially leading to higher prices or more coordinated behavior in wholesale markets.

Looking Ahead

FERC's gas-electric coordination proposal represents an important step in aligning gas and electricity markets, but it also introduces new risks to market integrity. As FERC works to finalize this rule, stakeholders should consider how to balance the benefits of enhanced reliability with the potential for strategic manipulation of market behavior.

The challenge will be designing transparency that informs operators without inadvertently fostering collusion or strategic bidding. Whether FERC addresses these concerns will determine if the final rule successfully promotes resilience without inadvertently creating a new language for coordination.

Conclusion

The gas-electric coordination NOPR is a recognition of the growing interdependence between the gas and electric sectors. But the proposed rule's transparency requirements may unintentionally foster coordination rather than simply facilitate reliability.

FERC must carefully consider safeguards like aggregation, posting delays or confidentiality measures to ensure that the rule meets its goals without distorting competitive markets. The future of the rule will depend on how the commission addresses these concerns in its final decision.