Seven energy brokerage companies have formed a new group, the Energy Brokers Association (EBA) in Washington, DC, that seeks to restore the credibility of the energy trading industry by establishing codes of conduct and standards for over-the-counter (OTC) physical and derivative transactions involving a range of energy products.

The association primarily is targeted at energy brokers, who put together the buyers and sellers of natural gas, crude oil, refined products, electricity, weather derivatives, coal and environmental products, said Alan Kurzer, president of TFS Energy LLC in Stamford, CT, one of the founding members of the new group. But energy companies will be welcome to join as well, he noted.

Kurzer said the association was formed in response to the current turmoil in the energy trading industry. “We want to help improve the market going forward,” he told NGI. The seeds of the group were planted last April, he noted, when the seven founding members “began talking about the [state of the] industry and the need to be proactive.”

The goal “is to promote the overall good of the energy industry,” as well as identify the “fair expectations” of energy companies and the public when dealing with OTC energy brokers, said Chris Edmonds, president of EBA and senior vice president of market development for brokerage firm APB Financial LLC.

The founding members — the only members of the association so far — include Amerex Group, APB Financial LLC, GFI Group Inc., Natsource LLC, Prebon Energy Inc., Starsupply Petroleum LLC and TFS Energy. The group currently is using the DC law offices of Howrey & Simon as its headquarters, said Kurzer, but he noted it expects to hire staff shortly.

The EBA “recognizes the need for all key players in the energy markets to define and adopt reliable practices and standards in order to improve and advance the industry, both now and in the future,” the group said in a press statement. “The Energy Brokers Association will work with energy companies and associations, other financial industry participants and governmental agencies to address financial, regulatory and operation issues. [It] will also more clearly define the role of OTC brokers in the market.”

Kurzer said the association hopes to work “very closely” with the Committee of Chief Risk Officers (CCRO) in its effort to develop best practices for the governance, valuation, credit risk management and disclosure of energy trading activities. “We’ve already been in contact with them,” he noted, adding the new association could help the committee achieve their goals.

A number of energy companies have exited the “speculative” trading business due to credit and liquidity problems, but they still “are trading [hedging] to manage their own risks,” and so there is a need for improved practices, Kurzer said. “Every company first entered the [trading] marketplace to hedge. So there will always be a marketplace [for that]. Whether companies continue to speculate as much as they did…will change,” however.

He also said the association may eventually play a role in providing more objectivity to prices on energy trades. Prices reported by a broker — who he called “an unbiased source, a middleman; we’re not taking a position” — would be more impartial than the prices submitted by energy companies to energy newsletters that publish price indices, Kurzer believes.

Membership fees for brokers would be $10,000 a year, while fees for associate members (anyone in related businesses) would be $5,000, he noted. Further information about EBA is available at the group’s web site at https://www.energybrokersassoc.org.

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