Natural gas and electric companies that report prices to index developers are required to include information on trades at all points regardless of whether they are liquid or not, said FERC in a recent order clarifying its July policy statement on energy price indexes (see NGI, July 28).

The Commission rejected an Electric Power Supply Association (EPSA) plea to limit the reporting of trade information to points only with “high connectivity and adequate liquidity.” Given that price index developers must keep all reported trade data confidential, “a participant should be confident it can report all individual trade data regardless of the volume of transactions at a particular location,” the order said [PL03-3-001].

The policy statement and the clarification are part of a three-pronged effort by the Commission to install codes of conduct and anti-manipulation rules into natural gas and electric trading and price reporting (see NGI, Dec. 1). The rules do not require companies to report prices to index developers, but state that if they do, they must follow prescribed practices.

Citing the fact that index developers use different trading locations, the order noted FERC expects developers to “communicate to the industry the specific character of the price locations used in their indices.” The agency then expects companies to “report all trades to match or closely match the characteristics defined by the index developer(s) to which they choose to report.”

It further clarified that an energy company can limit its reporting to only one index developer, “so long as the relevant data for all reportable transactions are given to that developer.” For example, if a company “makes all of its trades on an electronic platform, or has all trades confirmed through an electronic confirmation service, or a combination of both, and all data from such electronic trading or processing is included in a single published index, then the participant is automatically reporting all of its trades,” the order said.

But if a company “executes some trades electronically, but others through other means, then to be reporting ‘each transaction’ for purposes of the safe harbor provisions of the policy statement the participant must report all transactions, including platform-facilitated transactions, to at least one index developer,” it noted.

“The Commission recognizes that reporting to multiple index developers may be burdensome…and there is no requirement to report to multiple index developers if at least one developer is accepting all transaction data. There is also no requirement to report to an index developer that has not affirmatively adopted the standards of the policy statement.”

The agency also clarified that it will not require companies to record or report the time of their trade transactions. “While time data may be helpful, on balance it appears that requiring time data could result in a decrease in reported transactions and thus would be detrimental to the development of more robust indices.” While the reporting of the time of a transaction will be “optional,” FERC said the date still must be reported.

In addition, the order said the annual audit of reporting companies’ data gathering and submission processes can be carried out internally rather than externally. “It is the Commission’s understanding that the terms and costs for such an external audit may be an issue, particularly for smaller companies…The Commission does not want to raise barriers to voluntary reporting,” it noted.

FERC “clarifies that the independent audit may be performed by a company’s internal auditor, so long as the internal audit personnel are independent from the trading and reporting departments and personnel, and the audit follows internal auditing standards such as those prescribed by the Institute of Internal Auditors or other similar generally accepted auditing standards.”

As for the verification of reported data, the order noted that “if the prices reported are certified to be accurate and complete by an appropriate company official (independent from trading) or are the same as those recorded on the books and records of the company in accordance with generally accepted accounting principles…the company need not take additional steps to verify the data.”

Lastly, the order said the agency “will not…impose remedies on companies that follow the policy statement standards but make an inadvertent error” in the reporting of trade data. “In making inquiries into any such instance, the Commission will consider whether the company followed the error correction procedures in [the] policy statement.”

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