Though the Headlines on the Price Index Saga were grabbed this week by ex-Dynegy trader Michelle Valencia – “I didn’t do anything wrong, the laws are just really vague...” – lots of back room politicking and horse-trading has been going on in the past two weeks, leading up to the next set of government- and industry-sponsored work-out events.
Next week the CCRO is hosting a working session in Houston for all for price/data providers – the trading companies – that on the surface seems to be a seminar on how to write a bullet-proof disclaimer. The group is pressing forward its latest set of recommendations to the industry, which by and large are reasonable and good.
We and other news organizations are generally put off by the apparent effort to help companies shed all responsibility for the veracity of the numbers they submit to index publishers, but, hey, the group doesn’t represent publishers, it represents other interests. In a recent release to the industry, group chief Mike Smith suggests that “a large majority” of CCRO member companies are either now following the “transitional” guidelines for supplying trade numbers to publishers, or are preparing to do so.
We found this hard to swallow. Earlier in the group’s statement, it described how Platts’ Gas Market Report was bleeding red. “The widespread decline in data reported to index developers such as Platts resulted in insufficient data to establish price indices at 30 transaction locations, or hubs, in the March 3 issue of its newsletter, Inside FERC’s Gas Market Report. There was no data available whatsoever at six hubs in that report.” By our count, if only half of the CCRO member base – and nobody else – were to supply that publication with the required data, those indices could be established.
This opinion is shared by another index publisher we spoke to.
In any case, we reckon this workshop is a good exercise and we hope all trading companies – whether CCRO members or not – take part in the exercise – Tuesday, April 15, 9:00 a.m. (CST) at the Hyatt Regency Houston. Register at www.ccro.org.
On April 24th, the FERC is hosting a technical conference on the subject. Lots of folks will be speaking, looks like a not-to-be-missed event. Office of Market Oversight and Investigations chief Bill Hederman will be leading the show. See the agenda at www.ferc.gov/home/AD03-7.pdf. Among the various panels of speakers, we note that Platts is finally taking part in this fateful process. We also note that one other entity has for the first time managed to quietly rate an equal seat at the table. Craig Pirrong, of the University of Houston’s Bauer College of Business, is the titular front man for an emerging play that has the index publishing sector a bit edgy. Pirrong, you’ll note on the agenda is on a panel marked, “governmental or third parties.” Also with Pirrong on the panel are Apache Corp, EIA and NASD. In case you’re out of the loop on this one, we learned a few months back that the U of HBauer School had devised a new model for index gathering and distribution – basically a central repository for data that is both independent and non-profit.
One force behind the play is Ed Bell, a former trading systems chief and now with PA Consulting Group – he’s also a board member of the U of H’s Global Energy Management Institute – that’s the actual group moving this concept. We’ve been speaking to Bell about his ideas for this
new play for quite some time. His subtle efforts have seemingly paid off. The process is effectively designed, Bell tells us, and a few “altruistic” investors to help fund the start-up have been identified. Federal grants in the game plan, we asked?
“No,” Bell tells us, “but we’re willing to consider all options that don’t in any way compromise our independence. Federal grants probably fit that description.” Bell describes the operation simply – the largely electronic process will gather, (receive), vet and clean the data and format for redistribution. He says a Web site and electronic programming interface will be crafted for data providers (traders) to post raw data and to pull down final stuff. The same numbers that Joe’s Trading Co. might see from the U of H operation may one day be the same numbers you see published in industry trade journals. The cost? “We’ll provide information on a cost-plus basis. It will be much less than what trading companies now pay for their indices,” Bell says.
As so it should be.
Traders and regulators may dig this idea, but publishers could take issue. Does that even matter anymore? We’ll see. In the end, the market will decide all. Though Platts probably wouldn’t suffer much financially if suddenly it began running these independent indices instead of its ownhome grown numbers – their original market reporting and other news stories that usually wrap around their numbers wouldn’t really have to change a lick. And after all, do traders only want to know the numbers, or why the numbers act the way they do? Among trade publishers, if the numbers were suddenly supplied independently, such that everybody had access to the same stuff, the winners will be those with the best reporting. Seems to us that’s the way trade publications should be selected anyway. Gathering numbers ain’t exactly journalism; journalism is journalism...lest we forget. No, we think that in the end, if such an independent approach is what the market wants, publishers will still do quite well, so long as the quality of their reporting remains up to snuff. The index providers that may make the loudest stink on this matter are outfits like ICE’s 10X Report group.
The ICE is also trying to build a new brand identity – and revenues – by selling its exchange generated indices through the 10X publications, which, in many people’s opinion offers the most clean and crisp index numbers available today in the power and gas space. The rise of an independent entity may strike a wedge between ICE’s potentially near monopoly on verified trade data publishing, but, were the organization to wrap some strong original market reporting and
news around it’s “alternative” indices, that business model would likely thrive as well. And, in this perfect world, everybody would be happy.
Reprinted with permission of the publisher, Scudder Publishing Group. Copyright 2003. www.scudderpublishing.com
