In the 11th hour, FERC struck from its Wednesday meeting agenda a request by the Committee of Chief Risk Officers (CCRO) that would grant the CCRO's energy data hub and its participants the same "safe harbor" protection that is afforded to companies that currently submit pricing information to index publishers.
The request has not gone unchallenged, as a leading index publisher and trading platform questioned the validity of anointing an experimental data collection concept with the same protections afforded to publishers who have adopted FERC's standards on price indexes.
The safe harbor clause is part of the Federal Energy Regulatory Commission's (FERC) policy statement on Natural Gas and Electric Price Indices, which was issued July 24, 2003. The policy statement provided safe harbor protection to industry participants when they engage in good faith reporting of transactions data to entities that publish price indexes. The safe harbor is a rebuttable presumption that companies and individuals that report data in accordance with the policy statement's standards are doing so in good faith, and will not be investigated or subject to administrative penalties or inadvertent mistakes.
In late April, the CCRO asked the Commission to extend the safe harbor protection to cover its data hub and the hub's participants because "boards of directors and legal advisors are requiring and recommending that companies engage in no reporting of transaction data unless such reporting complies with the safe harbor." The committee holds that this regulatory issue is deterring or preventing some companies from participating in the energy data hub, which is currently in a "demonstration phase."
As a result, the committee is asking FERC to "provide guidance to the industry" that the safe harbor provisions apply not only to participation in the energy data hub, but also to the energy data hub itself.
"Although the energy data hub does not intend itself to be a publisher of price indices, but instead intends to serve as a data source for price index developers, the hub itself will need the protection of the safe harbor," the CCRO said. "Therefore, we request that the Commission make clear that the safe harbor in the policy statement applies to the hub's activities, if the hub adopts the minimum standards set forth in the policy statement."
The CCRO also asked the Commission to "make clear" that the hub will not be used as a target for investigations by FERC into transaction data by the participating companies. "This will provide confidence to potential participants that the Commission and the energy data hub intend to work cooperatively to provide data to an array of recipients that includes the Commission, similar to the arrangement the Commission has with other industry sources of transaction data," the committee said.
In comments filed at FERC, Platts, a publisher and index developer, said the CCRO has asked the Commission to clarify that the safe harbor protections in FERC's policy statement would apply to its "energy data hub" experiment, even though the experiment admittedly "does not fit the definition of 'price index developers' in the policy statement." For a number of reasons, Platts said it considers the CCRO request "extraordinarily premature" and urges the Commission to deny the request.
"The CCRO's request is akin to a nonexistent company informing FERC that it wants to become a price index publisher at some unspecified point in the future and needs the Commission to give it a helping hand by asking the Commission to extend now the finding that it complies with the policy statement standards," the publisher said. Platts pointed out that itself and other publishers have "successfully labored long and hard" over the past two years, working with the Commission and the gas and electric industries, to rebuild confidence in published indices.
"As a consequence of those efforts, the Commission in its Nov. 19, 2004 order (PL03-005) found that Platts and nine other publishers have met the standards set out in the policy statement," Platts said. "It would be hugely unfair to those publishers to accord the same treatment to the data hub experiment, which has not shown it meets any of the standards."
Platts also pointed out that having a data hub furnish index publishers with anonymous data, would contravene its ability to "independently verify that data or meet their policy statement responsibility to follow up directly with data providers." Index publishers are expected to "immediately [contact] data providers about any data discrepancies," the publisher said in its filing.
"As it currently understands the data hub concept, Platts does not believe it would be able to use data from a hub due to this fundamental drawback -- Platts cannot, under its own and under FERC's standards, work with anonymous data," the publisher said. "Contrary to the CCRO's claim that a hub would increase transparency, Platts views the proposal that index developers would receive only anonymous data as a huge step backward in transparency."
Platts also took issue with the CCRO's statement that the data hub "is an independently operated repository for transaction data coming from all types of energy market participants."
The publisher said that despite use of the present tense, "the energy data hub does not exist." Platts also said that the experiment is not independently operated; it is operated by the CCRO, which says it represents companies that account for approximately half of the power and natural gas transactions in the U.S. "While the CCRO's April 25 filing and May 11 presentation repeatedly state that the hub would be independently operated, neither makes clear what the ownership/operating structure would be or how that independence would be achieved," Platts said.
Raising the specter that the hub's independence may already have been compromised is the idea of "Access Levels" outlined in the CCRO presentation found at http://ccro.org. "To encourage maximum data contribution by the member companies, the greatest detail levels will only be available to those contributing data," the CCRO wrote in its presentation.
In other words, competitors would see more details of each others' dealmaking than would those that are not reporting to the hub or the price publishers. Platts takes issue with this policy, and asks whether this apparent asymmetrical data distribution practice is pro-competition. Under the current system, prices are collected and published by truly independent and neutral publishers such as NGI, Platts and the eight other publishers deemed to be in compliance with the standards set out in FERC's policy statement.
Calling the CCRO's requests "unusual," the IntercontinentalExchange said that while it leaves the merits of the requests and the energy data hub itself to the Commission, it believes that it "would be inappropriate for the Commission to grant these requests conferring unique and preferential standing to an individual commercial initiative."
If the Commission decides to grant the CCRO's requests, IntercontinentalExchange said it would expect all provisions to apply equally to any entity that collects transaction data for distribution while complying with the requirements for index publishers in FERC's policy statement. "With regard to Intercontinental specifically, we would expect both the ICE Trading Platform and the eConfirm trade confirmation system to qualify for all three provisions," the company said.
The CCRO's request does have its supporters. In a letter thanking Commission Chairman Pat Wood for his "leadership in consistently supporting Commission and industry efforts to improve price reporting in the physical natural gas markets," the American Public Gas Association (APGA) said last week that his "recent public remarks on the need for a market-initiated independent data hub were timely and have been instrumental in keeping this important issue in play."
The APGA said that because of the growth and the complexities of global energy markets, it is crucial to establish efficient, transparent, timely and accurate price discovery and reporting mechanisms. Noting that privately published indices "certainly have a role to play," the group said other constructs such as an independent hub are, as Wood has remarked, an "idea whose time has come."
The APGA said in the letter it has not endorsed the CCRO's specific proposal for an energy data hub, but that its members are supportive of continued open discussions of the independent hub concept.
"We look forward to hearing the thoughts and views of all four commissioners on the state of physical price reporting and the Commission's appropriate role in improving the public's access to abundant and transparent natural gas price data," the APGA said.
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