Improving indices

April 4, 2003
The regulatory hangover from the Enron Corp. debacle and the California power crisis continues.

Maureen Lorenzetti

The regulatory hangover from the Enron Corp. debacle and the California power crisis continues.

Last month the Federal Energy Regulatory Commission took steps to adjust how much money power marketers and generators owe California consumers because of natural gas index price manipulation.

Last year an administrative law judge made a preliminary calculation that California was due $1.8 billion from power sellers, based on natural gas indices published by trade publications.

More refunds
But ratepayers now may be owed more than originally thought because some energy marketers gave index compilers false trading data.

At a Mar. 26 meeting the agency said it will create its own retroactive natural gas price index so it can recalculate refunds. FERC now believes the new refunds may be as high as $3.3 billion, and investigations may last through the summer.

FERC so far has avoided trying to force index publishers to revise their methodologies. The agency knows its jurisdictional authority in this area is shaky; a sister agency, the Commodities Futures Trading Commission, has broad authority over financial markets, including energy contracts. But like FERC, CFTC has so far stayed clear of imposing new rules to improve data quality.

CFTC, however, has sought to impose fines for what it sees as past bad behavior. El Paso Corp., for example, will pay $20 million to settle allegations that it tried to manipulate natural gas prices published in trade publications such as Platts, an energy information service subsidiary of McGraw-Hill Cos. Dynegy Inc. settled similar charges for $5 million last December; neither company admitted wrongdoing.

FERC role
Rather than issue a specific rule, FERC for now is urging marketers and trade publishers to improve reliability voluntarily, although the agency has not ruled out seeking a more stringent regulatory fix.

In a January staff report, FERC said natural gas price indices developed by the trade press remain "central to the functioning of wholesale natural gas markets." Literally billions of dollars in energy contracts are pegged to published indices, and "customers depend on these to make purchasing decisions," FERC said.

There is a chance FERC may be forced to take a more active role.
Congress is mulling the idea of forcing FERC, or another government entity such as the Energy Information Administration, to take over price reporting or turn it over to a third-party clearinghouse or nonprofit entity.

FERC is holding a technical conference Apr. 24 in which representatives from energy companies and trade publications are expected to attend. Platts and an association made up of 31 energy trading companies called the Committee of Chief Risk Officers are expected to tell FERC and the CFTC they are moving forward with plans to tighten reporting requirements. However, disagreements remain between CCRO and trade publishers on whether price data should be audited and by whom. There are also unresolved issues over confidentiality and counterparty data information.

(Author's e-mail: [email protected])