Energy experts at the University of Houston will add their voice to the debate over improving the reliability of published energy prices Thursday by proposing that the school serve as the industry's central depository for trading data.
The Global Energy Management Institute at the university's Bauer College of Business is also seeking to verify the accuracy of the data it receives and then sell it to companies that develop price indices against which billions of dollars of energy contracts are pegged.
The group's director will present the proposal, which is based in part on systems used by the financial industry, at a workshop the Federal Energy Regulatory Commission is holding on energy price reporting.
Disclosures last year that traders from a handful of trading companies supplied false data to index developers have raised concerns about the accuracy of published prices and sent the energy industry scrambling to develop more controlled and verifiable methods for collecting and releasing pricing data.
The university believes trading companies should be required to submit details of each energy deal they do to a single collection service in order to create complete and accurate pricing information.
It's not clear whether FERC has the authority, or inclination, to mandate energy price reporting, however. Nor is it clear who could give the institute approval for its plan.
The university group could begin collecting and verifying price information by the end of the year, if it gets the go-ahead to move forward, according to Ed Bell , a member of the institute's board and a partner in energy consulting firm PA Consulting Group.
"I don't know what a clear, green light looks like," Bell said. "Who's driving this bus? Is it the Committee of Chief Risk Officers? Is it FERC? Is it the trade associations? I'm not sure where the leadership for this industry is going to come."
FERC staff has recommended that the regulators establish the process for developing standards for energy price reporting with input from the industry and other government agencies. Thursday's technical conference should kick off this process, staff said.
Still, the regulators have told the institute they won't designate any one group to serve as the industry's price collection service, Bell said.
Neither will the Committee of Chief Risk Officers, which represents more than 30 trading companies and has issued its own recommendations for improving price indices that call for companies to report details of each transaction they do.
The committee has invited the institute to present its proposal at the committee's May meeting. It's examining the feasibility of the industry using an independent third party to collect and verify pricing data and protect the confidentiality of market sensitive information, according to committee chairman Mike Smith.
Trading companies have expressed concern over reporting counterparty names and other sensitive market information and are working to put in place the contract and confidentiality requirements that will protect this information. That takes time and money, however, and is threatening to slow the development of more reliable indices.
The University of Houston's energy institute said its proposal would eliminate that hassle by allowing trading companies and index developers to sign just one contract, rather than multiple ones with various index developers.
The institute aims to operate as a not-for-profit data collector that sells the information it collects, minus the market sensitive information, to index publishers, research institutions and other interested parties at a price that will allow it to cover its operating costs.
The counterparty data would be available only to regulators. All data, and the institute, should be subject to audit, according to the group's proposal.
This system should encourage competition among index developers, which should improve the quality of indices, the institute said.
The university said it's working with technology firms to develop a system that will allow it to collect and protect market sensitive data.
"The technology of what needs to happen is not all that hard," Bell said. "It's more a matter of process and buy in."
The institute hasn't yet determined how much it would cost to set up and operate a central collection service. Bell offered a very rough estimate of $5 million to set up the operations and another $5 million a year to keep it running.
Bell and Craig Pirrong, the institute's energy markets director, presented their proposal to a number of industry trade groups in advance of Thursday's FERC workshop.
They plan to set up similar meetings at later dates with members of Congress who have proposed legislation relating to energy price reporting, Bell said.
