The Committee of Chief Risk Officers (CCRO) said it fully supports the concept of a “safe harbor” that would legally protect energy companies who make unintentional, “non-criminal errors” when reporting prices on natural gas and power trades to publishers of price indexes, noting it would pave the way for greater industry participation in the indexes.

The committee, which is made up of the chief risk officers of major energy companies, recommended that FERC take a two-phased approach to developing a standard for data providers to satisfy to qualify for safe harbor protection.

The first phase should call for reporting companies to adopt a written corporate code of ethics and make it available to the public; ensure trading data will be reported by someone other than a trader; provide data on all bilateral, arms-length transactions between non-affiliated companies in the physical cash markets; report data for each reportable transaction separately, including price, volume, delivery/receipt location, transaction date and term (next day or next month); submit to an annual certified audit (either by an internal or external independent auditor) of the process used to report transactions; and establish an “error resolution, error revision and error challenge” process.

These Phase I requirements “will increase and encourage accuracy, transparency and reliability in gas and electricity price indices, and…they constitute a reasonable standard,” the CCRO said. FERC requested proposals addressing safe harbor protections in advance of a three-hour workshop on the issue, which will take place on Wednesday.

Phase II of CCRO’s proposal calls for the Commission to require data reporters to also provide the counterparty identity and buy-sell indicator to published price indexes at a later date. The CCRO cautioned that FERC should make this demand “only at such time as the Commission, in consultation with industry stakeholders, determines that data providers can reasonably address the business and legal issues associated with these elements.”

The CCRO believes a safe-harbor provision should have four key elements:

The current business/legal climate “may not yet permit data providers to provide counterparty and/or buy-sell indicator data,” the committee told the agency [AD03-7-001]. Although the energy industry has begun to take steps in this direction, “the CCRO submits that [it] will require additional time.”

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