U.S. group unveils standards for price indices

Beset by prosecutors' charges of fake natural gas trades, a group of 31 large U.S. energy traders yesterday pledged to move forward with a plan to disclose details of every transaction to publishers of price indices, to help restore confidence in the market.

Since the collapse of industry giant Enron Corp and the California energy crisis of 2000-2001, much of the industry has been hit with credit problems, a sharp drop in trading volume, and investigations into trading practices.

The Committee of Chief Risk Officers (CCRO) set up some new guidelines and said these would boost confidence in price indices and trade in the foundering power market. The guidelines require individual traders to sign legal disclosure deals with publishers and could take months to implement.

Indices published by Platt's and other newsletters are used to price billions of dollars worth of short- and long-term U.S. energy contracts.

U.S. natural gas prices bounced to record highs this week amid frigid weather, strong heating demand, and market concerns about lagging gas inventories.

The CCRO efforts are being closely watched by global energy markets due to concerns that the standards proposed could be applied to the wider arena of global crude oil trading.

The industry group proposed an arrangement under which traders would electronically submit raw, deal-by-deal data on their energy trades to index publishers, identifying both the buyer and the seller in each trade. Many indices are now based on aggregated data gathered through telephone polls with traders, which can be less accurate.

CCRO group members include big utilities like Dominion Resources Inc and Exelon Corp as well as merchant trading companies like Duke Energy Corp, Dynegy Inc. and El Paso Corp.

Together, CCRO claims that its members account for over half of all U.S. electricity and natural gas trades.

The recommendations are the latest proposals designed to head off any federal regulation of price reporting.

The Federal Energy Regulatory Commission recently said it would consider asking the U.S. Energy Information Administration to compile natural gas price indices if the industry could not solve the problem.

And Republican Rep. Joe Barton of Texas, who is drafting electricity legislation, said earlier this month the bill might include provisions to make the FERC responsible for ensuring the accuracy of natural gas price indices.

The voluntary CCRO effort could head off such efforts, said CCRO Executive Director Mike Smith and formerly with CCRO member Mirant Corp. Such an effort will likely take weeks or months, and involve trading companies making individual legal deals with publishers.

"If the industry fails to bring forth a solution on a voluntary basis, we may face the realities of somebody mandating something," he said.

The National Energy Marketers Association, which represents many natural gas traders, is preparing its own guidelines. And Platt's, the leading publisher of energy price indices, has announced new standards for gathering data, including asking corporate officers to certify the accuracy of trading data.

Platt's is owned by McGraw-Hill Cos. Inc.

The U.S. natural gas industry has been rocked in recent months by revelations of some traders reporting fake prices to Platt's Inside FERC Gas Market Report.

Platt's applauded the new CCRO guidelines. "We're very pleased with it. We think it's a strong step forward," said Brian Jordan, an editorial director for Platt's.

Some traders have already signed legal documents allowing them to turn over deal-specific information, he said.

Federal prosecutors have charged two gas traders - Todd Geiger, formerly of El Paso, and Michelle Maria Valencia, formerly of Dynegy - with submitting false data to Platt's.

The Commodity Futures Trading Commission and FERC are also investigating fake trades by natural gas and power firms.

The CCRO's guidelines would require energy firms to certify the accuracy of the data through a department separate from its traders - such as a corporate risk control office.

They would also create new legal guidelines between energy firms and index publishers to protect the confidentiality of the deals, because of industry concerns that public knowledge of trading patterns could give competitors an advantage.

"If I find a big article about my position in the paper the next day, that would be absolutely disastrous," said Jesco von Kistowski, managing director of RWE Trading Americas Co., an arm of German utility RWE AG.

Member companies will amend their legal contracts with trading partners, spelling out the new disclosure terms.

The CCRO also said that energy firms and publishers should audit their data for accuracy annually. However, it did not require audits to be done by an external, independent entity.

Some industry-watchers were sceptical of the CCRO effort. "It's a big game of passing the buck here," said Ed Bell at PA Consulting Group.

"They're (industry) kind of frozen like a deer in the headlights," he said, adding: "This industry needs a solution and it needs it now."

Platt's is one of several news organisations reporting on the natural gas and power industry. Reuters Group Plc, the global news and information provider, also publishes news and spot market data about the industry.