Calm Before the Regulatory Reform

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Calm Before the Regulatory Reform Powered By Docstoc                        September 2010

        Calm Before the
       Regulatory Reform
                           Dodd-Frank: What
Financial Reform
                           Does it Really Do?
Impacts on Energy                        page 8
                 page 17     Fin Reg: The
                             Tale of Two
                                     page 13
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Publisher’s Note
                                    The Calm Before the Regulatory Reform
                                       The Dodd-Frank Wall Street Reform and Consumer Act, signed into law on July 21,
                                    2010, includes significant changes to the over-the-counter (OTC) energy derivatives
                                    market. The OTC derivatives market is extremely complex and heretofore lacked
                                    transparency and oversight. The Dodd-Frank Act gives the US Commodity Futures
                                    Trading Commission (CFTC) unprecedented authority and requires federal agencies
                                    to develop new regulatory rules. There are myriad points of view. Some are encour-
                                    aged that, at last, OTC derivative trades will be transparent. Others are quite con-
                                    cerned that the new rules could strain markets and drive up costs. That’s where the
Patsy Wurster                       storm of controversy is brewing.
                                       Brian Scheid, Platts gas market reporter for regulatory issues, has followed the leg-
                                    islation closely. Brian opens this issue of Insight with an objective overview of the
                                    Dodd-Frank reforms and outlines the five areas that will likely be the most contro-
                                    versial in the coming months.
                                       Then, in the following articles we open up the floor to a variety of experts who
                                    represent differing opinions and points of view. The goal of this issue of Insight is to
                                    shed some light on the impact of the Dodd-Frank Act and the CFTC rules that are
                                    being drafted.
                                       You can continue to follow the debate in many Platts publications, including Inside
                                    FERC, Inside Energy, Megawatt Daily, Gas Daily and Oilgram News. You can find these
                                    publications on
                                       Platts Insight elaborates on key topics discussed at many of Platts’ conferences and
                                    in articles written by Platts’ distinguished editorial contributors and other recognized
                                    leaders in the field. Copies of this issue will be distributed to more than 10,000 indus-
                                    try professionals, including subscribers of selected Platts publications, such as Inside
                                    FERC, Inside Energy, Global Power Report, Oilgram News, Gas Daily and Megawatt Daily.
                                       I hope you gain some new Insight from this issue!

                                                                                                                                                    Patsy Wurster
                                                                                                                                          Publisher, Platts Insight

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                                                                                                                                                                        September 2010 insight 1
      1 Publisher’s Note                                                    14 For Utilities, Strong End-User Exemption
           Patsy Wurster
                                                                               a Priority in Financial Reform
                                                                                   Richard McMahon

      4 Energy Companies Brace For Dodd-                                    17 Financial Reform Impacts on
        Frank Reforms                                                          Energy Suppliers
           Brian Scheid
                                                                                   Dan Dolan

      8 Dodd-Frank: What Does it Really Do?                                 20 Financial Reform Law Could Hurt
           Sean Cota                                                           Transparency, Cost Jobs
                                                                                   Misty McGowen

    11 Rules Now CFTC’s Job                                                 22 Dodd-Frank and the Move to Clearing
           Tyson Slocum                                                            Paul Cusenza and Randi Abernethy

                                                                            26 Managing Market Data in the
    13 Fin Reg: The Tale of Two Cities                                         Back Office
           Steve Bartlett                                                          Eric Fishhaut


Steve Bartlett is president and     Sean Cota is president and CEO       Dan Dolan serves as vice                Misty McGowen is a director of
CEO of The Financial Services       of Cota & Cota Inc and has more      president of policy research and        federal relations at the American
Roundtable (The Roundtable),        than 30 years of experience in the   communications at the Electric          Petroleum Institute. Before join-
and has served in that role since   retail fuels industry, serving as    Power Supply Association (EPSA).        ing API in October 2009, she was
June 1999. Previously, he was the   president of his family businesses   He is responsible for coordinat-        employed as a legislative aide
mayor of Dallas, Texas (1991-95),   in Vermont and New Hampshire.        ing research, reports, studies          in Senator Crapo’s Washington,
a member of the United States       He is a member of the CFTC’s         and analysis as well as managing        D.C., office. She received her JD
Congress (1983-91), and on the      Energy and Environment Markets       state regulatory and legislative ini-   from the University of Arkansas
Dallas City Council (1977-81).      Advisory Committee, and he is        tiatives for EPSA. He is part of the    and her BA from the University of
                                    vice chairman for PMAA and sev-      management team that develops           Central Arkansas.
                                    eral other national boards. Sean     electricity policy for the organiza-
                                    has testified for the US Senate       tion and he oversees the develop-
                                    four times, the House twice and      ment of energy trading policy,
                                    the CFTC three times with a focus    including policy and advocacy on
                                    on energy market transparency.       financial regulatory reform legisla-
                                                                         tion and implementation.

2 insight September 2010
Richard McMahon is executive director of        Brian Scheid joined Platts’ Washington, DC      Tyson Theron Slocum joined Public Citizen’s
finance and energy supply for the Edison         office in May 2010 as an associate edi-          Energy Program in 2000 and is director. He
Electric Institute. He directs the industry’s   tor with Inside FERC’s Gas Market Report,       covers the regulation of electricity, natural gas
finance and Wall Street activities including     covering the natural gas futures market and     and petroleum markets, including commod-
financial analysis, investor relations, ac-      regulatory issues. In recent months, his fo-    ity futures and FERC-jurisdictional matters to
counting and tax issues. He leads EEI’s Cam-    cus has been on the US Commodity Futures        promote stronger transparency measures. He
paign to Invest in America’s Electric Future.   Trading Commission’s rulemaking process         was appointed to serve on the CFTC’s Energy
Also, he leads the industry’s advocacy on       needed to implement the Dodd-Frank Wall         & Environmental Markets Advisory Committee.
OTC derivatives and financial reform before      Street Reform and Consumer Protection           Tyson has expertise in federal subsidies for
the Congress and the CFTC. Previously he        Act. He previously worked for a newsletter      energy, and promotes focusing them on ef-
served as EEI’s director, competitive strate-   covering international trade policy and has     ficiency, renewable energy and mass transit.
gies and policy, in EEI’s Energy Services       worked as reporter for four different daily     He is the author of numerous reports on these
Group, was the founder of the EnviroTech        newspapers in Connecticut, New Jersey           subjects, and has testified before the US
Venture Capital Fund and worked in manage-      and Pennsylvania. He is a graduate of           Congress. Prior to Public Citizen, Tyson was a
ment positions at the National Association      Boston College.                                 policy analyst at the Institute on Taxation and
of Securities Dealers in the NASDAQ stock                                                       Economic Policy. He received his BA from the
market. He holds a BA and MBA in finance.                                                        University of Texas at Austin.

Special Contributors

Randi Abernethy joined LCH.Clearnet in 2006     Paul Cusenza is CEO of Nodal Exchange LLC,      Eric Fishhaut is a founder of GlobalView
as a senior manager within corporate strat-     a new service with LCH.Clearnet which pro-      Software and currently manages its
egy. She has been involved in developing        vides trading and central counterparty clear-   technologies and strategic relationships
numerous initiatives, most recently estab-      ing of cash-settled nodal power contracts in    along with customer services. He has over
lishing and running clearing services for       North America. He joined Nodal Exchange         25 years experience in computer program
nodal power futures with Nodal Exchange.        in January of 2008. He was a co-founder and     design and solution development. Before
In 1997, Randi joined Goldman Sachs as an       co-president of 23andMe, a personal genet-      joining GlobalView, he was an associate
Operations Analyst. She moved to Pricewa-       ics company, and the senior vice president      partner at Skidmore, Owings and Merrill as
terhouse Coopers in 2004. Randi holds an        of marketing and alliance management at         head of computer systems development for
MBA from London Business School and a           Perlegen Sciences. Mr. Cusenza holds a          architecture. Eric studied for his masters at
BSc from the London School of Economics.        MBA from the Harvard Business School and        the University of Minnesota Graduate School
                                                a BSE in mechanical engineering from the        for Architecture and received his Bachelor
                                                University of Michigan.                         of Arts from Colorado College.

                                                                                                                          September 2010 insight 3

              Energy Companies
              Brace For Dodd-Frank
              Brian Scheid, Associate Editor, Inside FERC’s Gas Market Report

              From new position limits to protections for whistleblowers,
              energy firms fear impact of new reforms, as lobbyists push to
              lessen the blow.

                             Minutes after President Barack Obama         and Consumer Protection Act gives the
                           signed the sweeping financial regulatory        US Commodity Futures Trading Com-
                           reform into law on July 21, Senate Banking     mission unprecedented new oversight
                           Chairman Christopher Dodd, a Connecti-         and regulatory authority over the OTC
                           cut Democrat, said the legislation would       markets, opening the door for the agency
                           finally bring light into the long opaque        to do everything from setting position
                           over-the-counter derivatives market.           limits across markets to expanding their
                             Financial operators, Dodd proclaimed,        enforcement of market manipulation in
                           “will no longer be able to operate in the      ways the agency has never done before.
                           shadows,” of the more than $600 tril-            The potential impact on US energy com-
                           lion market.                                   panies may not be clear until all of the
                             Just two weeks later, however, Dodd’s        mandates are in place, a process that will
                           rhetoric before a crowded room at the At-      not fully take shape for nearly a year and
                           lantic Council took on a much more con-        will require federal agencies to draft, pro-
                           ciliatory tone, admitting that he was “wor-    pose and finalize hundreds of new regu-
                           ried” that the new derivatives regulations     latory rules, a process that is expected to
                           could be weakened by multi-million dol-        attract thousands of public comments and
                           lar lobbying efforts aimed at the arduous,     dozens of contentious hearings.
                           year-long rulemaking process. The deriva-        In total, the Dodd-Frank Act requires
                           tives portion of the bill was in “some jeop-   federal agencies to develop at least 243
                           ardy” of being gutted by lobbyists, partic-    new rules and 67 studies, according to an
                           ularly of the large financial institutions by   analysis by the law firm Davis Polk. The
                           which the new law was motivated.               CFTC must develop at least 60 new rules,
                             “It’s an area where most people don’t        including at least 41 on derivatives alone.
                           understand it very well and yet it’s a very      The CFTC has set an ambitious goal to
                           lucrative area,” Dodd said on August 4.        have all its mandated rules proposed be-
                           “Given the combination of being highly         fore the end of the year and energy com-
                           lucrative and highly complex, that’s usu-      panies have launched a multi-million
                           ally a pretty good environment for peo-        dollar lobbying campaign to ensure that
                           ple to pull off some stuff.”                   the impact of the new law on their bot-
                             The Dodd-Frank Wall Street Reform            tom lines will be minimal.

4 insight September 2010

  “There are a lot of unknowns, and           though it has yet to be proposed. The pro-
there’s going to be a lot of attention paid   posal will, ultimately, need to be approved
to the most minute details because every-     by at least three of the five CFTC commis-
thing has a billion dollars behind every      sioners and four of those five have already
period and comma,” said Andrew Lowen-         expressed concerns about it.
thal, president of the government rela-         “Just because staff comes up with a
tions firm Porterfield, Lowenthal & Fettig      proposal, that doesn’t mean we’re go-
and a former chief of staff at the CFTC.      ing to accept it,” said Commissioner Bart
  Commercial end users such as ener-          Chilton, a Democrat, last month.
gy producers and distributors fear they         Chilton said he has reservations about
could be hit by new, costly margin or         setting the same position limits on all
clearing requirements, despite the inclu-     commodities, due to the “idiosyncratic
sion of an exemption. Market insiders         nature” of all markets.
contend the new rules could push US             Commissioner Michael Dunn, another
derivatives business offshore, US oil and     Democrat, said he is concerned about an
gas multinational companies remain            arbitrage being created by the new limits
concerned that new disclosure require-        causing firms to flee US markets for off-
ments will disadvantage them and many         shore markets without similar limits.
in the market are worried they could be         Commissioners Scott O’Malia and Jill
inadvertently caught up in broad defini-       Sommers, the two Republican commis-
tions of large financial entities.             sioners, said they are uneasy about placing
  “With the basic assumption that the         limits in a long-opaque OTC derivatives
financial community doesn’t want any           market the CFTC has never regulated.
regulation, all rules will be contested,”       CFTC Chairman Gary Gensler, a major
said Sean Cota, a member of the Com-          proponent of energy position limits, has
modity Market Oversight Coalition.            said he will not comment on the propos-
  With billions at stake, energy firms         al until it is unveiled.
are targeting nearly every corner of the
mammoth new law. At more than 2,300           Uncertainty Over Margin Requirements
pages, lobbyists and industry insiders          One of the most nagging concerns
said it’s unclear which corner of the         within the energy industry is one that
legislation they plan to target most ag-      has already been publicly addressed by
gressively, but there are five areas energy    Dodd and Senate Agriculture Commit-
firms will be following closely.               tee Chairman Blanche Lincoln, an Ar-
                                              kansas Democrat who wrote the bulk of
Position Limits in Energy Markets             the law’s derivatives language.
  The new law requires the CFTC to set          Utility and producer groups feel that
position limits in both energy futures and    they will be able to avoid clearing re-
OTC derivative markets by early next year.    quirements in the legislation, but com-
The proposal is expected to build off a       mercial end users still fear that the law
proposal the CFTC unveiled in January to      will give federal regulators the authority
impose position limits in four exchange-      to impose margin requirements on their
traded energy futures contracts: natural      uncleared swaps, despite assurances, in
gas, crude oil, heating oil and gasoline.     writing, from Dodd and Lincoln that
  That earlier proposal, which the CFTC       the legislation does not allow regulators
has formally withdrawn in order to make       to impose margin on end users.
way for the new proposal, was one of the        Even Gensler has said publicly that
most contentious efforts in the CFTC’s        there is nothing in the legislation al-
36-year history, drawing more than            lowing regulators to impose such mar-
8,000 comments, including massive op-         gin and that CFTC has no plans to draft
position from energy firms who claimed         such a rule to allow it.
the limits would strain markets and sad-        However, numerous energy lobbyists,
dle firms with excess new costs.               led by the National Gas Supply Associa-
  The forthcoming proposal is already         tion, have expressed fears that potential
controversial within the CFTC even            margin requirements could negate the

                                                                                            September 2010 insight 5

                           benefits of an end-user exemption to             gas companies to disclose, for the first
                           clearing requirements.                          time, how much they pay foreign gov-
                             In an analysis of the legislation, the        ernments for access to their oil, gas and
                           law firm Stroock & Stroock & Lavan               other mineral resources.
                           wrote that it is “unclear” how regulators         The provision, which is being fought by
                           will “interpret and implement their stat-       the American Petroleum Institute, the US
                           utory mandate on this issue.”                   Chamber of Commerce and the National
                                                                           Association of Manufacturers, requires
                           Access to Clearing                              these firms to report any payments made
                             The new law requires the majority of          to non-US government for a variety of
                           swaps trading in the OTC market to be           projects, including exploration, extrac-
                           cleared, but small and medium-sized             tion and export, within a foreign gov-
                           firms fear that derivatives clearing orga-       ernment’s jurisdiction. Those payments
                           nizations will be controlled by the big-        include taxes, royalties, fees, production
                           gest US banks, keeping smaller dealers          entitlements and bonuses.
                           out of the OTC derivatives market.                The provision “will really put US oil
                             At a public roundtable on new provisions      and natural gas companies at a competi-
                           in the reform law at CFTC headquarters on       tive disadvantage,” said Misty McGow-
                           August 20, 2010, Jason Kastner, vice chair-     en, director of federal relations with API.
                           man of the Swaps and Derivatives Markets          Senators Benjamin Cardin, a Maryland
                           Association, said smaller firms fear that        Democrat, and Richard Lugar, an Indi-
                           by using large capital and margin require-      ana Republican, included the disclosure
                           ment for entry, major market player could       measure in the financial reform legisla-
                           keep smaller players out of clearinghouses      tion during the conference proceedings
                           and, ultimately, out of the OTC derivatives     aimed at resolving the differences be-
                           market entirely.                                tween the House and Senate versions of
                             “What we don’t want is the same 10            the bill.
                           guys holding all the risk, and concentrat-        The Cardin-Lugar measure was en-
                           ing that in a clearinghouse,” Kastner said.     dorsed by a number of human rights and
                           “If we’re going to be really clever about       global development organizations, in-
                           keeping people out of the system, the sys-      cluding the Revenue Watch Institute and
                           tem is not going to work effectively.”          the Publish What You Pay coalition.
                             However, representatives of the market’s
                           biggest players, including Morgan Stanley       Whistleblower Protections
                           and JP Morgan, argue that allowing in              The law also includes new incentives
                           smaller players that cannot meet mini-          for individuals to report allegations of
                           mum capital and margin requirements             securities and commodities trading viola-
                           will increase risk and could increase the       tions to the CFTC and the Securities and
                           potential of another economic meltdown.         Exchange Commission, entitling whis-
                             “Certainly open access is an important        tleblowers to as much as a 30% share of
                           part of the Dodd-Frank Act, but it is cer-      resulting monetary penalties, as well as
                           tainly not the primary driver of the act,”      complete anonymity and protection from
                           said Jonathan Short, senior vice president,     retribution from their employer.
                           general counsel and corporate secretary            “It gives the right of any corporate em-
                           of IntercontinentalExchange. “I’m not           ployee or manager, or even the member
                           saying that eviscerates open access; it cer-    of a board of a corporation, to confiden-
                           tainly doesn’t. But I think there’s a balance   tially drop the dime on corporate crime
                           there and the members of the clearing-          and no one will know,” said David Co-
                           house will be the parties that are under-       lapinto, general counsel for the National
                           writing this risk and responsible for it.”      Whistleblowers Center.
                                                                              These new protections are expected to
                           Foreign Payments Disclosure Provision           lead to a spike in the number of fraud and
                             Tucked into the miscellaneous provi-          manipulation cases that CFTC officials
                           sions section of the bill is a new require-     must take up, and are expected to lead to
                           ment for all US multinational oil and           a bonanza for the legal community. ■

6 insight September 2010
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              Dodd–Frank: What
              Does it Really Do?
              Sean Cota, President, Cota & Cota Inc

                              The Dodd–Frank Wall Street Reform                                               these numbers. The total worldwide
                            and Consumer Protection Act (P.L.111-                                             stock market capital value is $44 trillion
                            203) and its 16 Titles of law, touch on                                           and the world bond market is $82 tril-
                            nearly every aspect of banking, invest-                                           lion, but in 2009 the unregulated “Dark
                            ment, and consumer credit protection.                                             Market” of derivatives was $605 trillion,
                            Energy regulation is generally impacted                                           where the US portion was $300 trillion
                            under the derivatives title which regulates                                       (Figure 1). These derivative markets were
                            over-the-counter (OTC) trading rules.                                             opaque, and highly leveraged at an av-
                                                                                                              erage leverage rate of 35 to 1. In some
                            Derivatives: Why Do We Care?                                                      of these markets, like currency trading,
                               Willie Sutton, the famous depression                                           it is common to have 200 times lever-
                            era bank robber, when asked why he                                                age. In energy trading, these derivatives
                            robbed banks said, “That’s where the                                              allowed infinite leverage. For example,
                            money is.” Derivatives make up the vast                                           you, as a small business, go down to
                            majority of the financials. The 2009 US                                            your local bank loan officer, explain
                            federal discretionary budget is approxi-                                          that you are pretty good in Vegas, you’ve
                            mately $1.2 trillion dollars, the total                                           got $1,000 dollars, and ask if they will
                            budget is $3.5 trillion, total US GDP is                                          front you $200,000, and the loan officer
                            $14 trillion, and world GDP is $70 tril-                                          agrees. Furthermore, you take that loan
                            lion. The scale of derivatives dwarfs                                             and begin a cycle of buying and selling a

                            1. 2009 world financial perspective.
                                                                                                      United States                       World

                            $500.0                                                                                                                                      $605.0
                             $100.0                                                                  $70.0                                                       $300.0
                              $50.0                $1.2                                                                     $44.2                 $82.3
                                          Federal                                                                  $14.3
                                       Discretionary        Federal B ud                                                                   $31.1
                                          B udget                                  (purchasing            S tock M arke
                                                                                                                        t           B ond M arke
                                                                                  power parity)               V alue                             t          Unregulated
                                                                                                                                        V alue
                            Note: 2009 figures adjusted to US dollars. All figures in trillions. GDP is from CIA World Book. Derivatives are from the Bank of International Settlements
                            and is their educated guess as the market is unregulated.

                            Source: Sean Cota

8 insight September 2010

commodity that contributes to the run-       commodity becomes too risky, margin
up in pricing of the commodity. The im-      for the contract parties is increased to
pact of large, leveraged, deals trading in   cover the additional risk. If these mar-
Dark Markets created most of the bubble      gins are not enough to cover the de-
that resulted in the economic collapse at    faults, the clearing members of the ex-
the end of 2008.                             change also function as guarantors.
                                                Trading on exchanges creates a trans-
The 2005 Commodity Market Takeover           parent trading venue, and a “mark-to-
  Although derivatives have been             market” valuation. Many traditional
around for decades, they made a sig-         OTC market derivatives were not val-
nificant impact in 2005 when financial         ued on company’s balance sheets. De-
speculation in energy trading began          rivatives, much like a lease, show up
to increase. The classic economic prin-      on income statements as either income
ciple of “supply and demand” became          or expense. The true asset or liability
less important to the pricing in energy      would show up as a footnote on the bal-
markets. Today’s energy markets have         ance sheet with an undetermined val-
often seen huge amounts of demand            ue. In this way many companies were
destruction, inventory builds and ex-        able to move profits or losses to differ-
cess capacity builds, without significant     ent financial periods without penalty
impacts on price. Enron was one of the       to their financial ratios. Depending on
first large players in energy derivatives,    how the Financial Accounting Stan-
but the trading patterns that began in       dards Board (FASB) interprets the new
2005, and remain with us today, pale         law, the “mark to market” function of
by comparison. Today, commodity              exchange trading may provide real val-
markets are valued more by the flows of       ue to financial statements.
capital into these markets where many           Leverage and margin requirements
large, passive investors believe that they   are crucial functions of exchanges. For
are diversifying their investments into      those buying US equities on margin, le-
a new “asset class.” In reality, they are    verage was limited to 2 times or 50% of
distorting the traditional markets by        the stock value. The traditional margin
artificially raising price contango over      requirements of commodities is 5% or
the outer months, while not realizing        20 times leverage and another specula-
that these contango value charges are        tive “carrying” margin of generally 5%
coming out of their rates of return.         if held the next month. In addition, if
                                             the market moves against your position,
What Does Dodd-Frank Do                      you will need to post additional margin
in Derivatives?                              for the exchange to handle the increased
  Exchange Trading and Clearing              risk of the exchange to your contract.
  The first significant changes are in         This will have positive effects. First,
exchange trading and clearing. In the        volatility will decrease over time, and
world of OTC derivatives, there is no        market trading ranges will give a clearer
systemic risk guarantor except some-         signal to producers and buyers of com-
times the US taxpayer. The first clue that    modities, so they can rely on supply and
a party to a bilateral derivative is going   demand again to make their long term
to go bad, is when they go bad. There are    capital planning in a more predictable
no ratings, no guaranteeing parties, and     way. Second, large “out of the money”
due to the standard ISDA contract, few       bets which have a tendency to pull the
if any remedies. With the new Dodd-          market in their direction, will need to
Frank requirements, the vast majority        spend more capital to make these trades.
of OTC derivatives will need to be ex-          Transparency: Dark Markets Will
change traded and exchange cleared. If       See the Light of Day
one of the two parties in an exchange           While the Dodd-Frank law allows for
traded contract defaults, the exchange       existing grandfathered derivatives to
functions as the guarantor. If a market      continue until maturity, they will, for
becomes too volatile, or the underlying      the first time, be recorded. This report-

                                                                                         September 2010 insight 9

                            ing requirement will extend to non-         exchange clearing they will not be pro-
                            cleared and traded contracts, includ-       tected if a trade goes bad. If your coun-
                            ing “end user” exempted transactions,       terparty in an OTC derivative was Bear
                            and overnight held positions where the      Stearns at the time of its collapse, your
                            detailed trading data tracked by CFTC       swap contract would have gone bad
                            were reported daily. Under the new law,     with little timely recourse.
                            most transaction types, amounts and
                            parties, will be reported with new in-      Short and Long Term Impacts
                            formation feeds.                               CFTC Rulemaking; Who’s on First?
                              Aggregate Position Limits                    The Dodd-Frank law gives the CFTC
                              The CFTC had authority before the         approximately one year to write the
                            Dodd-Frank law to impose aggregate          administrative rules. Energy is first in
                            position limits, but under the new law      the pecking order. By March 2011, en-
                            they will be required. An example of        ergy regulations should be written and
                            the problem of a lack of transparency       implementation begun. If the unregu-
                            and position limits was the trading of      lated trading markets are captured in
                            the now defunct Amaranth Advisors           the way Congress intends, there should
                            that drove their position at one point in   be greatly reduced volatility. If the lim-
                            2006 natural gas contracts to 80% of all    its on leverage reduces the speculative
                            US natural gas production. Therefore,       longs, we could see a decline in the
                            aggregate limits are particularly impor-    markets. In the following 180 day peri-
                            tant in finite commodities like food and     od, the CFTC will focus on agriculture
                            energy where the physical market can        products, and lastly, the pure financial
                            be overwhelmed by financial trades.          instruments like interest rate swaps.
                            Aggregate limits will also impact many         Deleveraging of Markets
                            of the commodity index funds, as their         A not often reported point is the im-
                            trading volumes are huge, and their         pact of moving to exchanges as a mech-
                            speculative trading caused much of the      anism for deleveraging. As these swaps
                            artificial contango in recent years.         move to exchanges there is no way to
                                                                        avoid the deleveraging. This will cause
                            What Dodd-Frank Fin-Reg Won’t Do            downward pressure on commodity
                              Overseas Trading Venues                   markets, and for the consuming parts of
                              Of the US OTC derivative market vol-      these markets, a resurgence of demand.
                            ume, 50% to 70% of the trading will            Truth in Financial Reporting and a
                            be touched by the new law. Foreign          World With Reduced Leverage
                            venues for trading like London, Dubai,         As derivatives emerge on balance
                            and Singapore are not covered, and will     sheets of public companies in the next
                            be largely able to do what they have        year, financials ratios will change. In
                            traditionally done. However, overseas       the case of companies that have used
                            governments are now drafting laws to        derivatives to move profits and losses
                            follow on the lead of the US. The Unit-     from one year to another, those acts will
                            ed Kingdom is scaling down and per-         become transparent. This will generate
                            haps eliminating the FSA and return-        regained trust, and the large amounts of
                            ing financial regulation to the Bank of      cash sitting on the sidelines, or in com-
                            England. The French and German gov-         modities, will be reapplied to the better
                            ernments are considering creating a Eu-     disclosed companies, and our economy
                            ropean Union institution like the CFTC      will begin a real stock market recovery.
                            with our new model as a base.                  The gambling that has occurred in
                              End Users Exemption                       our markets is nothing new, and not
                              Traditional physical players in the US    always bad. The industries that rely on
                            commodity markets will be exempted,         these markets will, for the first time in
                            except for reporting. While this will       many years, be able to play at an honest
                            save many players the margin cost that      gambling table. This is good for physical
                            they may have otherwise needed to           markets, and it will be the beginning of
                            provide, if these participants do not use   a sustained and resurgent recovery. ■

10 insight September 2010

Rules Now CFTC’s Job
Tyson Slocum, Director, Public Citizen’s Energy Program

  President Obama’s signing into law of          The challenge at the CFTC is that there
the Dodd-Frank Wall Street reform act         are five decision makers; the Commis-
marked more than a year and a half of         sioners serve set terms and there’s a rela-
contentious Congressional debate on           tive partisan balance. Over the last year,
the response to Wall Street’s implosion.      Chairman Gary Gensler has struggled at
Central to the banks’ 2008 collapse was       times to secure a third vote on critical is-
the runaway use of derivatives and the        sues like energy position limits. With the
inability of Wall Street to properly as-      congressional fight serving as a preview,
sign risk associated with the trading of      the wrangling over the CFTC definitions
these increasingly complex derivative         for swaps, swap dealers, major swap par-
products. While there was little debate       ticipants, eligible contract participants
on the need for stronger regulations over     and designated contract markets will be
Wall Street among policy experts, banks       fierce. As an organization representing
waged a $800 million campaign to de-          households, we will be urging the CFTC
rail and weaken the legislation. Public       to write loophole-proof rules to ensure
Citizen joined forces with labor and end-     that consumers have access to fairly- and
user interests to play a role in countering   competitively-priced markets.
these efforts. While we had a number             And we’ll shine a light on the deci-
of victories, our job was definitely made      sions that will be made at the Office of
easier when Senator Blanche Lincoln           Financial Research in the newly created
pushed to force banks to spin off their       Financial Stability Oversight Council.
swaps desks—a proposal that so con-           This Treasury-staffed office will play
sumed the banks’ lobbying efforts that        a critical role in leading the economic
many of our priority issues on reigning       analyses which will serve as the justifi-
in the OTC market got through. Now the        cation for rulemakings and continued
action moves from Congress to the regu-       action in derivative markets. In the con-
lators at the CFTC.                           stant war of facts and figures that influ-
  At issue is the writing and execution       ences policy debates in D.C., ensuring
of the Act’s proposed new rules and           that this Office of Financial Research is
definitions concerning the regulation          staffed by experts—and not ideological
of derivatives. Remember, the five major       hacks—will be critical.
banks exploited newly deregulated over-          We all benefit when energy commodi-
the-counter petroleum and natural gas         ty markets are transparent. Restoring reg-
markets (courtesy of the Enron-influ-          ulatory oversight to OTC trades will help
enced Commodity Futures Moderniza-            ensure that supply and demand funda-
tion Act of 2000) to replace pit exchang-     mentals—rather than speculators—drive
es and floor traders with their own OTC        the pricing of energy commodities. We
“dark markets” where price discovery          understand that speculation plays a role
and transparency were limited. Any stu-       in commodity markets—we just don’t
dent of markets understands that sectors      want it to play as commanding a role as it
of the economy operating nontranspar-         has of late. Reducing speculative activity
ently invite collusive and anti-competi-      won’t return us to an era of $1/gallon gas-
tive behaviors. Banks made their biggest      oline, but it will curtail the harmful lev-
profits over the last few years off com-       els of price volatility that wreaked havoc
modity price volatility.                      for energy end users and households. ■

                                                                                             September 2010 insight 11

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Fin Reg: The Tale
of Two Cities
Steve Bartlett, President and CEO, The Financial Services Roundtable

  The 2,300 page far-ranging financial             ◆  Derivatives & Proprietary Trading.
reform bill that President Obama signed              The law requires greater transparency
into law is the proverbial “tale of two cit-         for derivatives and proprietary trad-
ies”: legislation that will do a lot of good,        ing, which is a good thing. However,
and could do some real mischief as well.             it also requires new capital, margin,
  First the good news: the Dodd-Frank                and collateral standards yet to be de-
Act will bring greater certainty and stabil-         termined by the regulators. If over-
ity to a sector that has been in turmoil.            done, the economy could seriously
The creation of a Systemic Risk Oversight            suffer from a loss of credit.
Council will oversee the entire financial          ◆ Consumer Protections. The financial
system with a focus on preventing future             services industry supports stronger
crises. The past was all about regulating            consumer protection. As an industry,
within silos; the future will focus on sys-          we accept our responsibility to use
temic risk. Providing the Treasury Secre-            this new law to finance the Ameri-
tary with explicit resolution authority to           can economy with integrity, respect,
close a large financial institution should            and fairness. In the past year, we have
make “too big to fail” a relic of the past,          implemented a number of credit card,
and avoid collateral damage shock waves              overdraft and mortgage reforms. How-
through the entire system. And the law               ever, well-capitalized, well-managed
really got it right with the strengthening           financial services firms are integral to
of mortgage lending standards; the basic             the health of the economy and Amer-
principle of “ability to repay” should al-           ican consumer. Dodd-Frank does not
ways govern the decision to lend.                    require that consumer protection be
  The mischief in the law, however, could            consistent with safety and soundness.
lead to significant loss of available credit          If poorly implemented, consumers
for consumers and business alike. We                 could be hurt if credit dries up.
should not further restrict the healthy           We’re going to make this new law work,
competitiveness of the free market at a         and in many ways the industry has al-
time when our nation is struggling to           ready begun. We’ve increased our com-
emerge from a prolonged recession.              mitment to small business lending. We
  Among the most egregious of the pro-          conduct 26,000 financial literacy sessions
visions:                                        a year. We’ve repaid 75% of TARP. And we
  ◆ Debit Cards. The introduction of            have increased bank capital by 31% during
     debit cards is an innovation that          the past two years. There is more to do, but
     is so ubiquitous that we take it for       we have made a good start.
     granted. Debit cards are typically           The Wall Street Reform and Consumer
     free to consumers, with a very small       Protection Act will require attentive vigi-
     transaction fee paid by merchants to       lance by all parties. We have our work cut
     the banks. Dodd-Frank reverses that,       out for us, and we pledge to work with
     and imposes price controls on the          the President, the Congress, the new and
     merchant fee, which could shift the        existing regulatory agencies and, above
     cost of debit cards to consumers.          all, our customers to get it right. ■

                                                                                               September 2010 insight 13

              For Utilities, Strong
              End-User Exemption
              a Priority in Financial
              Richard McMahon, Executive Director, Finance and Energy Supply,
              Edison Electric Institute

                              With the signing of the Dodd-Frank              Now, as federal agencies endeavor to
                            Wall Street Reform and Consumer                apply the numerous laws contained in
                            Protection Act (H.R. 4173) on July 21,         H.R. 4173, it is vital that they keep this in
                            2010, the President and Congress not           mind and maintain Congress’s intent in
                            only took great strides toward reform-         its careful writing of the final legislation.
                            ing the nation’s financial system, they            Let’s review the record: Electric
                            also ensured that some of the things           companies and numerous other in-
                            that weren’t broken in that system did         dustries use over-the-counter deriva-
                            not inadvertently get “fixed.”                  tives trading as a means of managing
                              Namely, the legislation preserved            commercial risk. As end users of these
                            the legitimate use of over-the-counter         important fi nancial instruments,
                            (OTC) derivatives as a way for end us-         utilities and others have successfully
                            ers—such as utilities and energy com-          mitigated fi nancial volatility and pro-
                            panies—to manage risk.                         tected their companies and custom-
                                                                           ers from the dramatic price swings in
                                                                           commodities markets.
                                                                              By reducing a company’s exposure
                                                                           to substantial or severe swings in fuel
                                                                           prices—the natural gas used to gener-
                                                                           ate electricity, for example—the use
                                                                           of OTC derivatives as a “hedge” helps
                                                                           to insulate electricity customers from
                                                                           price volatility. OTC derivatives also
                                                                           help provide utilities with access to
                                                                           lower-cost capital, which in turn pro-
                                                                           motes new infrastructure investments
                                                                           and business growth, both of which
                                                                           create jobs in this recovering economy.
                                                                              Put simply, these useful financial in-
                                                                           struments help to reduce various costs
                                                  Courtesy: Getty Images
                                                                           for electric utilities, including those

14 insight September 2010

for fuels and purchases of wholesale       ordinary course of business. Congress
electricity. Those savings are passed      does not intend to regulate end users as
directly to customers in their electric    Major Swap Participants or Swap Deal-
bills. Recognizing all of this, Congress   ers just because they use swaps to hedge
included an end-user exemption in          or manage the commercial risks associ-
H.R. 4173.                                 ated with their business.
   Now that fi nancial reform is law,         “For example,” the senators contin-
federal agencies including the Com-        ued, “the Major Swap Participant and
modity Futures Trading Commission          Swap Dealer definitions are not intend-
(CFTC) and Securities and Exchange         ed to include an electric or gas utility
Commission (SEC) are charged with          that purchases commodities that are
writing the detailed rules that will       used either as a source of fuel to pro-
bring the law into effect. Both agen-      duce electricity or to supply gas to retail
cies have recognized the importance
of the end-user exemption by estab-        OTC derivatives also help provide utilities with
lishing rulemaking teams specifically
focused on implementing the exemp-         access to lower-cost capital, which in turn
tion. Furthermore, the CFTC and SEC
are already reaching out to industry
                                           promotes new infrastructure investments and
groups—including the Edison Electric       business growth, both of which create jobs.
Institute and its member companies—
for input regarding the end-user ex-       customers and that uses swaps to hedge
emption and other important aspects        or manage the commercial risks associ-
of the new law.                            ated with its business.”
   Other rulemaking teams are focusing       The senators understand the value to
on key definitions in the new law—in-       electric companies—and their millions
cluding “Swap,” “Swap Dealer” and          of customers—of over-the-counter de-
“Major Swap Participant.” For this ef-     rivatives trades. Such trades—called
fort specifically, the CFTC and SEC         “over-the-counter” because they take
have begun a joint Advance Notice of       place directly between two parties in-
Proposed Rulemaking (ANOPR) process        stead of through centralized clearing-
and are seeking public comment.            houses or exchanges—help contain
   As written in the Act, these defi ni-    costs for commodities including fuel,
tions may seem intuitive, but they are     and—as already mentioned—that cost
so crucial that Senators Dodd and Lin-     savings goes directly to customers.
coln (Chairmen of the Senate Banking         EEI and the broader energy indus-
and Agriculture Committees, respec-        try have long supported the critical
tively, and two framers of the Senate      goals of financial reform, including
version of the legislation), in a letter   enhanced regulatory oversight and the
that preceded H.R. 4173’s signing,         reduction of systemic risk. As this next
re-emphasized Congress’s intent and        stage of the process continues, EEI re-
the importance of the end user to the      mains both vigilant and optimistic that
economy. Specifically, the two Sena-        industry and the federal agencies can
tors wanted to make sure utility com-      collaborate in a way that will maintain
panies, in trading derivatives, do not     the full public benefits of the end-user
get defi ned as “Swap Dealers” or “Ma-      exemption, while achieving effective
jor Swap Participants.”                    oversight of both financial institutions
   Dodd and Lincoln wrote: “In imple-      and commercial businesses.
menting the Swap Dealer and Major            The electric industry is working with
Swap Participant provisions, Congress      the CFTC to ensure that Congress’s in-
expects the regulators to maintain         tent in providing the end-user exemp-
through rulemaking that the defini-         tion will not be obstructed through
tion of Major Swap Participant does        rules that would weaken the exemption
not capture companies simply because       and would not focus appropriately on
they use swaps to hedge risk in their      systemically important entities. ■

                                                                                         September 2010 insight 15
                    Reach Key Decision Makers Worldwide
                       Platts Readers Circle The Globe

    Advertise in Platts Newsletters                                                                                                                                                                

    • Thousands of energy professionals                                                                                                                                    Gas Daily
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                                                                 MARKET cane-related production shut-ins helped send the August
                                                                                                                                                    Daily price survey ($/MMBtu)
                                                                                                                                                  NATIONAL AVERAGE PRICE: 4.440

                                                                                                                                                   Trans. date:            6/29

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                                                                                                                         (continued on page 2)     NGPL, Texok zone          4.490      -0.155   4.41-4.53 4.46-4.52  524        76
                                                                                                                                                                                                 4.50-4.53 Contents 31
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                                                                                          pany CEOs, who met privately with US Interior
                                                                                                                                                   Tx. Gas, zone 1

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                                                                                                                                                                                                 4.53-4.64 4.55-4.61

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                                                                                                                                                                                               4.49-4.60 4.53-4.59 1076 142

                                                                                                                                                                                                         CNPC starts on Ningxia refinery expansion

                                                                                                                                                                                                       Megawatt Daily
                                                                                          Department officials on June 28, have urged               South-Corpus Christi
                                                                                                                                                                                                         project                                        2
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                                                                              d th N ti government not d reimposed deepwatert t ensure safety.

      is read by industry decision-makers.                                                drilling moratorium that was struck down last
                                                                                          week by a federal court judge.
                                                                                               But the drillers left the hour-long meeting
                                                                                          with Interior Secretary Ken Salazar feeling
                                                                                          that government concerns over the possibility
                                                                                          of a second oil spill would almost certainly
                                                                                                                                                    Drillers, along with representatives of oil
                                                                                                                                                majors ExxonMobil, ConocoPhillips, BP and
                                                                                                                                                Chevron, met June 28 at Interior headquar-
                                                                                                                                                ters with Salazar, Deputy Secretary David
                                                                                                                                                Hayes, Wilma Lewis, assistant secretary for
                                                                                                                                                Land and Minerals Management, Michael
                                                                                                                                                                                                         Indian oil demand rises 6% in April, May
                                                                                                                                                                                                         Arrow eyes Indian coalbed methane output
                                                                                                                                                                                                         by 2014
                                                                                                                                                                                                         India players puzzle over gasoil pricing plan 3


                                                                                                                                                                                                                                                          Wednesday, June 30, 2010
                                                                                          result in a new moratorium.                           Bromwich, the newly named head of the
                                                                                               The CEOs of Seahawk Drilling, Noble Cor-         Bureau of Ocean Energy Management (for-                  Europe, Middle East & Africa
                                                                                                                         Obama makes case for bill with carbon price
                                                                                          poration, Ensco, Pride International, Rowan           merly the Minerals Management Service)

    • Deliver your message to the right
                                                                                                                                                                                                               Day-ahead markets for delivery Jun 30 ($/MWh)
                                                                                          Companies, Hercules Offshore, Diamond Off-            and Interior Chief of Staff Tom Strickland,
                                                                                                                              President Barack Obama on Tuesday urged a bipartisan                       Iraqi cabinet approves Shell gas gathering
                                                                                          shore Drilling and Delta Towing sent a letter         according to a source who attended the                         venture
                                                                                                                                                                                                         joint ERCOT                Index Change        4
                                                                                                                                                                                                                                                       Range  Deals Volume Avg $/Mo
                                                                                          on June 29 to Salazar.          group of senators at the White House to move legislation this
                                                                                               The drillers reiterated that recent govern- carbonRepresentatives from but, trade groups,
                                                                                                                          year that prices           dioxide emissions two while the idea                Output reduced at fields off Norway after
                                                                                          ment orders boosting safety requirements thethe American Petroleum Institute and the Senate gas leak
                                                                                                                          of starting with       electric power sector was discussed,
                                                                                                                                                                                                               ERCOT, North         41.83 -6.56 40.75 -42.55    33 2,050    48.61
                                                                                                                          leaders are still seeking consensus on what can pass in July.                        ERCOT, Houston       41.94 -6.94 41.70 -43.10     8     400  49.62

      person at the right time in the                                                                                         Senate Majority Leader Harry Reid plans to bring an ener-
                                                                                                                          gy and climate bill to a vote before the Senate takes up the
                                                                                                                          Supreme Court nomination of Elena Kagan next month, said
                                                                                                                          Reid spokesman Jim Manley. But what that bill will contain,
                                                                                                                          including whether it will have a carbon price, has yet to be
                                                                                                                                                                                                               ERCOT, West
                                                                                                                                                                                                               ERCOT, South

                                                                                                                                                                                                               ERCOT, North
                                                                                                                                                                                                               ERCOT, Houston
                                                                                                                                                                                                               ERCOT, West
                                                                                                                                                                                                                                    38.75 -7.61 38.75 -38.75 N.A.
                                                                                                                                                                                                                                    42.09 -6.22 41.25 -42.50

                                                                                                                                                                                                                                    27.86 -2.52 27.50 -29.00
                                                                                                                                                                                                                                    28.00 -3.00 28.00 -28.00 N.A.
                                                                                                                                                                                                                                    26.62 -0.13 26.50 -27.05

                                                                                                                                                                                                                                                                18 1,275



      right place.
                                                                                                                                                                                                               ERCOT, South         27.60 -2.92 27.50 -28.00     9     600  28.29
                                                                                                                          determined, he said.
                                                                                                                              “Many in [the Democratic] caucus think that [a carbon                            Southeast            Index Change       Range  Deals Volume Avg $/Mo
                                                                                                                          price] is the right way to go. We haven’t made a final decision
                                                                                                                                                                                  (continued on page 10)        VACAR                   42.00 -8.00 42.00 -42.00 N.A.   N.A.   48.99
                                                                                                                                                                                                                Southern, into          42.86 -3.14 42.00 -44.00   6    350    48.02
                                                                                                                         Democrats to address issue tied to end-users                                           Florida                 74.00 3.50 74.00 -74.00 N.A.    N.A.   67.28

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Financial Reform
Impacts on Energy
Dan Dolan, Vice President of Policy Research & Communications,
Electric Power Supply Association

  The recent signing into law of the         collateral and margin requirements for
sprawling Dodd-Frank Wall Street Re-         participants. If all end-user transactions
form and Consumer Protection Act             were forced to clear, the collateral for
raises a number of questions about the       the average energy supplier would be
legislation’s potential impacts on the       between $200 to $400 million per year,
hedging and risk management tools used       and could, in some instances, rise to as
by energy suppliers. Can energy suppli-      much as $1 billion; additional costs that
ers continue to use customized hedging       would ultimately be borne by consum-
transactions? What will be the collateral    ers. The considerable cash requirements
requirements and will they negatively        for companies to access clearinghouses
impact balance sheets? Will there be in-     would leave energy suppliers with less
creased costs or volatility for consumers?   capital available for important infra-
  What is clear is that Congress has         structure investments, whether envi-
increased the oversight and transpar-        ronmental upgrades at existing facilities
ency of the derivatives markets and has      or new power plant development.
provided an appropriate framework, an           Rather then tying up such substan-
overall blueprint, for regulating mar-       tial amounts of cash in clearinghouses,
ket participants. The legislation distin-    energy suppliers today often enter into
guishes between systemically-impor-          customized agreements with their coun-
tant financial entities, whether banks,       terparties in the OTC markets in which
hedge funds or others, and commercial        their physical assets or existing credit ar-
end users whose primary business is          rangements are used as collateral. Such
outside the financial markets, such as        customized contracts allow energy sup-
energy suppliers. The bill requires that     pliers to cost-effectively engage in hedg-
transactions between financial entities,      ing and risk management that facilitates
which make up the vast majority of the       investment and helps keep prices for
activity in the derivatives markets, oc-     consumers stable and affordable. These
cur on cleared exchanges (or “clearing-      risk management tools also allow for the
houses”). Commercial end users, on the       efficient deployment of capital toward
other hand, may continue to choose to        clean energy infrastructure investments
use the clearinghouses or individually       needed to meet new environmental stan-
negotiated, bilateral contracts in the       dards while reliably serving consumers.
over-the-counter markets (OTC).                 The many questions posed by this
  While there are a number of ben-           historic bill in part stem from the broad
efits to clearinghouses, one substantial      way the legislation was written, leav-
drawback is that they have high cash         ing implementation of the details to

                                                                                            September 2010 insight 17

                            the Commodity Futures Trading Com-            concern in a letter to their colleagues
                            mission (CFTC) and other government           in the House, saying that commercial
                            agencies. The CFTC, the primary regula-       end users and their customers should be
                            tor of the derivatives markets, now has       protected from “burdensome costs as-
                            roughly one year to write the specific         sociated with margin requirements and
                            regulations required by the new law.          mandatory clearing.”
                               One significant issue the CFTC must            It is important to recognize that as part
                            resolve is determining who will be clas-      of the new legislation, all organizations
                            sified as a financial entity (stated in the     that use derivatives will now be subject
                            bill as a “major swap participant” or         to CFTC regulation; neither the excep-
                            “swap dealer”) and therefore required to      tions to clearing or margin nor capital
                            execute their transactions on a clearing-     requirements create “loopholes” in the
                            house. Recognizing the low risk posed         regulation. In fact, as part of the bill,
                            by commercial end users to the finan-          any commercial entity that wishes to
                            cial markets, and the value of the OTC        participate in the OTC markets will have
                            markets, Congress created a commercial        to certify its ability to meet its financial
                            end-user exception to the mandatory           obligations to the derivatives contracts.
                            clearing requirement. The bill, however,      Going forward, regulators will for the
                            left it to the CFTC to more precisely clas-   first time have access to information on
                            sify who are the financial entities and        every transaction regardless of whether
                            thereby determine who does and does           it occurs on a clearinghouse or in the
                            not qualify for the exception. Given that     OTC markets. For energy suppliers, this
                            energy suppliers primarily use the de-        new financial regulation will come in
                            rivatives markets to manage their com-        addition to the existing state and Federal
                            mercial risks, the specific purpose for        Energy Regulatory Commission rigorous
                            which Congress wrote the exception to         oversight of their physical commod-
                            clearing, energy suppliers should clearly     ity activities. This increased transpar-
                            qualify for the exception and not be des-     ency and regulatory oversight is a major
                            ignated as financial entities.                 achievement and was actively supported
                               Regulators will also determine how cap-    by an unprecedented collaboration of
                            ital and margin requirements will be set      energy stakeholders, serving every con-
                            for financial entities. While such require-    sumer of electricity and natural gas in
                            ments are important, they must not un-        the country.
                            intentionally punish commercial end us-          This unique cross section of the energy
                            ers who do not pose a systemic risk to the    industry worked with Congress to ap-
                            economy and did not contribute to the fi-      propriately balance increased regulation
                            nancial crisis. Capital and margin require-   with access to risk management tools
                            ments should therefore be established for     that help ensure stable, reliable energy
                            those transactions between financial enti-     supplies. These groups are now active
                            ties, but not those in which a commercial     participants in the regulatory process to
                            end user is a counterparty. This distinc-     help develop the details on these issues.
                            tion, based on who is the counterparty,       Congress must also continue to play an
                            is necessary since requirements imposed       active role in the legislation’s implemen-
                            on any one party will be priced into the      tation to ensure that its intent behind
                            transaction costs and increase the costs      the reforms is fulfilled.
                            of the contract. If increased transactional      By following the sound blueprint creat-
                            costs are imposed on commercial end-us-       ed by this historic new law, regulators can
                            er transactions, they would quickly push      effectively construct the solid, safe and
                            many of these companies out of the OTC        efficient markets that Congress intended,
                            markets, eliminating the benefits of the       market participants depend on and the
                            exception to clearing.                        public expects. As a result, energy suppli-
                               Senators Christopher Dodd (D-CT)           ers will be able to continue making the in-
                            and Blanche Lincoln (D-AR), two of            frastructure investments to fuel a cleaner,
                            the principal authors of the derivatives      stronger economy while keeping energy
                            portion of the bill, highlighted this         supplies affordable for consumers. ■

18 insight September 2010
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              Financial Reform
              Law Could Hurt
              Transparency, Cost Jobs
              Misty McGowen, Director of Federal Relations, American Petroleum Institute

                              The American Petroleum Institute sup-     governments accountable. Moreover, to
                            ports the laudable goals of transparency    the extent a host government does not
                            and accountability in the Dodd-Frank        prefer to disclose payments, it could ter-
                            Wall Street Reform and Consumer             minate the business relationship with
                            Protection Act. However, provisions         the reporting company. At least one host
                            requiring companies listed on the US        nation has already admonished a major
                            Securities and Exchange Commission          international oil company about report-
                            (SEC) to report all payments to foreign     ing. US oil and gas companies operat-
                            countries related to oil, natural gas and   ing abroad support jobs in the US, and,
                            mineral extraction is a unilateral ap-      if host governments terminate business
                            proach to revenue disclosure that may       relationships, US jobs could be at risk.
                            do little or nothing to increase financial      Transparency is already being pursued
                            transparency and accountability. These      in a better way. We support the volun-
                            provisions could also create an unlevel     tary Extractive Industries Transparency
                            playing field for listed companies, many     Initiative (EITI), a multilateral, multi-
                            of which are US companies employing         stakeholder global effort to promote
                            thousands of Americans that compete         revenue transparency in resource-rich
                            around the globe for access to crucial      countries. Through EITI, host govern-
                            energy resources. Additionally, the law     ments, all energy companies operating
                            lacks clarity on the question of whether    within the country and civil society
                            margin will be required in transactions     organizations work together to ensure
                            involving energy end users. Taken to-       accurate reporting and third party
                            gether, these provisions could signifi-      verification of payments made to host
                            cantly discourage creation of vitally       governments. EITI has only been fully
                            needed US jobs.                             operational since 2006, but the organi-
                              Proponents of the revenue disclosure      zation has made great progress. Twenty-
                            provisions claim that forcing disclosure    eight “candidate” countries, including
                            of payments companies make to host          Iraq and Nigeria, are in various stages of
                            oil and natural gas-producing nations       being certified as EITI-compliant. The
                            will increase transparency. However,        Dodd-Frank Wall Street Reform and
                            requiring only certain oil and natural      Consumer Protection Act, which ap-
                            gas companies to report and not others      plies only to SEC-reporting companies
                            does not paint an accurate picture of the   and has no verification mechanism,
                            total amount of revenue a host govern-      could undermine further progress.
                            ment receives. Unless citizens have ac-        Besides doing little to increase trans-
                            cess to correct and complete informa-       parency, the disclosure requirement in
                            tion, they will be unable to hold their     the legislation could damage the in-

20 insight September 2010

ternational competitiveness of oil and       post margin for their transactions. We
natural gas companies. The language          appreciate Senate Agriculture Commit-
requires companies listed on the ex-         tee Chairman Lincoln and Banking
change to report in detail all oil and       Committee Chairman Dodd’s letter
gas project-related payments to foreign      clarifying that the legislation does not
governments. As a result, every com-         provide regulators with the authority
petitor bidding on future oil and gas        to impose margin on end users. Post-
projects in the same host country or in      ing margin can harm job creation by
other countries can, with the click of a     driving up costs without doing any-
mouse, have access to payment infor-         thing to reduce systemic risk. Energy
mation, from which they can discover         commodities account for about half
which bids have won business before
and how to bid more successfully in the      If the ultimate objective is to further the goals
future. Meanwhile, listed companies
will have no such access to similar in-      of transparency and accountability, detailed
formation that they can use to sharpen
their competitive edge.                      project payment information is unnecessary.
   If the ultimate objective is to further
the goals of transparency and account-       of one percent of the notional value
ability, detailed project payment infor-     of all over-the-counter (OTC) deriva-
mation is unnecessary. What’s really         tives. Still, these OTC derivatives serve
important is the total amount of mon-        an important function for the oil and
ey the host country is receiving and—        natural gas industry and thousands of
more important—what it is doing with         other businesses in the United States.
it. Hong Kong is the only other jurisdic-    They are used as a risk-management
tion with a law requiring reporting, but     tool to hedge against fluctuations in
it does not require anywhere near the        commodity prices, interest rates and
level of detailed project-level reporting    currency exchange rates, creating mar-
as the US law.                               ket stability and keeping costs down for
   Importantly, the disclosure require-      businesses and the consumers who use
ments do not apply to some of our            their products.
toughest competitors, including the            With such a low percentage of out-
Russian company Gazprom and the              standing notional value, energy de-
China National Petroleum Company.            rivatives do not create systemic risk to
As a result, these and other companies       the US financial system. In contrast,
not required to file with our SEC have        compliance with margin requirements
access to valuable financial information      could drain billions in working capital
about US-listed companies, while US-         from the nation’s oil and natural gas
listed companies, including some of the      industry at a time when that capital
largest US-based companies and biggest       could be used to expand infrastructure,
employers, are deprived of the same.         invest in new technologies and create
The national oil companies are very          American jobs.
active internationally and becoming            Common sense changes in how we
more so. In virtually all nations where      regulate our financial industries are
oil and gas are developed, companies         certainly welcome. But some provi-
not listed with our SEC are competing        sions in the Dodd-Frank law may not
for business. And that includes many         accomplish what proponents intend
national oil companies.                      and could discourage the creation of
   Separately, the failure of the finan-      new jobs at a time when our economic
cial reform act to provide clarity on        recovery is struggling. To that end, we
the question of whether margin will be       look forward to a constructive dialogue
required in transactions involving end       and working relationship with the SEC
users could present significant econom-       and the CFTC as these agencies work
ic challenges if end users are ultimately    through the rulemaking process for
required to pay pass-through costs or        implementing the law. ■

                                                                                         September 2010 insight 21
Sponsored Content

              Dodd-Frank and the
              Move to Clearing
              Paul Cusenza, Chief Executive Officer, Nodal Exchange, and
              Randi Abernethy, Senior Manager, Group Corporate Strategy, LCH.Clearnet

                              After the financial crisis of 2008,       counterparty. In doing so, the clearing
                            the leaders of the G20 countries met       house becomes the buyer to the seller,
                            in Pittsburgh in September, 2009 and       and the seller to the buyer, effectively
                            stated: “All standardized OTC deriva-      shielding the counterparties from each
                            tive contracts should be traded on ex-     other while remaining market neutral
                            changes or electronic trading platforms,   as the central counterparty. In contrast,
                            where appropriate, and cleared through     in a bilateral transaction, the parties to
                            central counterparties by end-2012 at      the transaction deal directly with each
                            the latest.” On July 21, 2010, President   other and are exposed to any failure to
                            Obama signed and enacted the Dodd-         deliver on the contract.
                            Frank Wall Street Reform and Consum-          It should be noted that the central
                            er Protection Act (Dodd-Frank), which      counterparty typically only deals with
                            brings comprehensive reform to the         its own clearing members, rather than
                            regulation of over-the-counter (OTC)       directly with trading participants.
                            derivatives. Dodd-Frank will require       These clearing members are generally
                            standardized derivative transactions to    banks and they in turn have a clear-
                            be moved into central clearing houses      ing relationship with the trading par-
                            to lower risk in the financial system,      ticipants. This structure provides an
                            while providing exemptions for those       additional layer of protection as the
                            end users who are hedging. By requir-      clearing member must manage a partic-
                            ing clearing for many OTC transac-         ipant’s default and make good on any
                            tions, Dodd-Frank extends the benefits      of the defaulting participant’s obliga-
                            of counterparty risk reduction that        tions; only if the clearing member itself
                            clearing houses have been providing to     defaults does the central counterparty
                            futures marketplaces since the 1890s.      (e.g., LCH.Clearnet) become involved
                            Notably, in the recent financial crisis,    in the default process.
                            while the US federal government had to
                            intervene to avoid catastrophic system-    Margining
                            ic failure from a default chain reaction     Margining, both initial and varia-
                            in bilateral dealings, centrally cleared   tion, is used to manage risk in a cleared
                            futures markets functioned with no         environment. Initial margin provides
                            loss to counterparties.                    the clearing house funds to cover likely
                                                                       price movement during the liquidation
                            What is Clearing?                          process in the event of a default, while
                              The cornerstone of clearing is a pro-    the variation margin is collected daily
                            cess called novation, in which the         to ensure that losses do not accumu-
                            clearing house becomes a party to both     late in the account. An exchange, such
                            sides of the transaction—the central       as Nodal Exchange, which provides a

22 insight September 2010

trading platform for power futures, pro-     ing Inc failed to make their margin
vides daily price marks that are used        calls to LCH.Clearnet Ltd. LCH.Clear-
by the clearing house to determine           net declared these two Lehman entities
variation margin. Each day the clearing      in default. By making this declaration,
house collects variation margin from         LCH.Clearnet assumed those entities’
the clearing members that have had           positions, which summed to a multi-
prices move against them and cred-           trillion dollar notional amount across
its the same amounts to the clearing         several asset classes, including OTC in-
members on the equal and opposite po-        terest rate swaps, repos, exchange trad-
sitions. Initial margin is held through      ed commodities, equities and financial
settlement in order to ensure that the       derivatives. By taking on all of these
clearing house or clearing member has        positions, LCH.Clearnet had taken on
funds to cover a defaulting portfolio’s      the risk inherent in these positions,
price changes while the liquidation          which it now needed to manage.
process is occurring.                          Typically, the next steps in managing
   It should be noted that not all initial   such a default would entail analyzing
margin calculations are the same. For ex-    the defaulter’s portfolio of positions to
ample, Nodal Exchange and LCH.Clear-         determine: 1) which were client posi-
net use Value-at-Risk (VaR) margining        tions that could be transferred to an-
for the power market they serve because      other clearing member and 2) which
of the greater effectiveness and capital     were house positions that need to be
efficiency of being able to account for       hedged and then liquidated. Unfortu-
many correlated positions (Nodal Ex-         nately, in the Lehman case this exer-
change offers over 1,800 locations and       cise was made more difficult because
over 50,000 different expiries).             Lehman had co-mingled client posi-
                                             tions with house positions.
What Happens in a Default?                     With the markets swinging wildly in
  One of the most significant benefits         September, 2008, LCH.Clearnet worked
of the clearing model resides in the         feverishly to ascertain as much infor-
safety and protection afforded to all        mation about the Lehman accounts as
of the clearing house’s members when         possible and after about 36 hours began
one of those members goes into default       transferring client positions to other
and can no longer meet its obligations.      clearing members.
When such an event occurs, the clear-          With the transfer process underway,
ing house acts so that the defaulter         LCH.Clearnet was also ascertaining the
pays, not the survivors. The implication     optimum way to manage the Lehman
of this perspective is that all the non-     house positions. There are a few options
defaulting members of a clearing house       available, all with the same end goal—
should be protected and insulated from       disposal of the positions. LCH.Clear-
the systemic risk that would otherwise       net’s disposal options included going
result from a default. This difference be-   to the market directly to liquidate the
tween cleared and non-cleared markets        portfolio, having a dealer unwind the
was made obvious when summing the            book on an agency basis for the clear-
losses following the Lehman Brothers         ing house, or auctioning off the posi-
default. While the other clearing mem-       tions as a package. For the Lehman de-
bers of the clearing house came out of       fault, LCH.Clearnet chose the auction
the Lehman default with no loss direct-      process as being the most effective.
ly from the cleared markets, the same          For the auctions, LCH.Clearnet pack-
cannot be said for Lehman’s trading          aged the house positions into port-
partners in the non-cleared markets.         folios of each asset class, which were
                                             then bid on by other clearing mem-
The Lehman Brothers Story                    bers of LCH.Clearnet. Once the auc-
  On Monday September 15, 2008,              tion of each portfolio was complete,
Lehman Brothers International Europe         the winner of the portfolio would as-
and Lehman Brothers Special Financ-          sume the portfolio with immediate ef-

                                                                                         September 2010 insight 23

                            fect. One by one each of the portfolios      cleared markets no longer need to worry
                            were auctioned off, and within 5 days,       about the credit quality of their counter-
                            LCH.Clearnet’s risk had fallen by 90%.       party, nor do they need to limit them-
                            The OTC interest rate swap portfolio,        selves to parties with whom they have
                            which had stood at $9 trillion in notion-    established bilateral credit thresholds. In
                            al value, was then auctioned off through     the FTR power markets more than half
                            an established process with swap traders,    of the awards in the past year were to
                            and took a further 14 days to liquidate.     entities that were not rated investment-
                            By October 3 the entire Lehman portfo-       grade (ǔ44% not rated and ǔ7% rated
                            lio that LCH.Clearnet had assumed had        below investment-grade); many insti-
                            been successfully managed.                   tutions would deem these entities not
                               In this case, about 35% of Lehman’s       creditworthy and not be able to trade
                            initial margin was required to hedge         with them directly. By having more pos-
                            the risk, manage and auction the to-         sible counterparties in a cleared environ-
                            tal house portfolio. LCH.Clearnet            ment and not needing to worry about
                            was then able to return a significant         their credit risk, both better pricing and
                            amount (65% of the initial margin) to        greater liquidity are achieved.
                            the Lehman administrators. More im-             There has been a lot of recent discus-
                            portantly, however, LCH.Clearnet had         sion around the cost of clearing. While
                            succeeded in its objective of protecting     it is true that the benefits of clearing
                            all other market participants from the       come with the obligations to post ini-
                            systemic counterparty risk which oth-        tial and variation margin, the cost of
                            erwise would have materialized, and          clearing needs to be measured against
                            forcing the defaulter, rather than the       the costs, both implicit and explicit,
                            survivors, to pay for the deault.            of bilateral transactions. In a bilateral
                               In contrast, after Lehman’s default       transaction, the trader is directly ex-
                            the surviving participants in the PJM        posed to the counterparty’s risk of de-
                            Interconnection Financial Transmis-          fault, and this risk must be factored in
                            sion Rights (FTR) markets, which were        as a cost of transacting bilaterally. A
                            not cleared, had to share the impact of      report authored by the Committee of
                            an $18 million loss.                         Chief Risk Officers (CCRO)1 prior to
                                                                         the recent financial crisis estimated
                            Why Clear?                                   this default cost of trading bilaterally
                              Mitigating counterparty risk, while        to be 84 basis points (0.84%) of the
                            a key reason to participate in cleared       total transaction value for each trans-
                            markets, is only one of many reasons         action, which was more than their to-
                            to use clearing. Netting of positions, an    tal estimated cost of clearing. Defaults
                            expanded universe of possible trading        happen irregularly whereas margining
                            parties and lower transaction costs pro-     is daily, but in the long run clearing is
                            vide additional incentives to clear.         actually less expensive than having to
                              By using standardized contracts that       incur defaults.
                            are all kept in one portfolio, the cleared
                            market structure allows for easy netting     Summary
                            of positions. Participants in cleared          Clearing provides many benefits by
                            markets only need to hold collateral on      reducing systemic risk, increasing trans-
                            their true exposure. In bilateral trans-     parency, enhancing market liquidity
                            actions, while the risk of the exposure      and fair pricing and reducing the true
                            can be offset with additional transac-       cost of transactions when defaults are
                            tions, all the resulting positions must      properly accounted for through time.
                            still be tracked, and varying collateral     The new Dodd-Frank requires that the
                            requirements between the bilateral           market evolve to clearing. This should
                            transactions can potentially mean inef-      benefit both trading participants and
                            ficient capital usage.                        society in general. ■
                              Clearing also provides new trading           1
                                                                            “Market Clearing in the Energy Industry,”
                            partner possibilities, as participants in    Committee of Chief Risk Officers, February 2006

24 insight September 2010
           Register by October 29, 2010 and SAVE $300

6th Annual

California Power
Markets Forum
Procurement Approaches, Meeting Renewables/GHG
Goals and Investor Project Finance Challenges
December 6–7, 2010 • The Whitcomb Hotel • San Francisco, California

Attend Platts timely 6th Annual California Power Markets Forum, being held December
6–7, 2010 in San Francisco, California.

Gain the latest information about the California Power Market:
      • Is there a least regrets approach to transmission build-out and how do independent
        transmission companies participate?
      • Developing a Tradable REC market in California — Restrictions on
        out-of-state resources
      • Exchange trading and clearing of California nodal power contracts
      • Load serving entity long-term planning and procurement processes
      • What role will CHP play in resource diversification, energy independence, and
        greenhouse gas reduction in California’s future?
      • What is the impact of AB 32 on resource procurement?
      • How should investors manage the risks associated with diametrically opposing
        views on more renewable generation and NIMBY?

Don’t miss these foremost California power players:
Southern California Edison • PG&E • Iberdrola Renewables • Calpine Corp.
Mirant California LLC • Constellation Energy • Commodities Group • California PUC
California ISO • John Hancock • RBS Sempra • RBS Global Banking & Markets
BNP Paribas • Prudential Capital Group • Union Bank of California • California Cogeneration
Council • Powerex Corp. • TURN • Western Power Trading Forum • Winston & Strawn LLP
Stoel Rives LLP • Hydrogen Energy • California, LLC • Nodal Exchange, LLC • LCH.Clearnet

For a complete agenda, more information, or to register and SAVE $300, please visit or call us at 866-355-2930 (toll-free in the US)
or 781-430-2100 (direct).

For sponsorship opportunities, contact:          For media and press inquiries, contact:
Joshua Vernon                                    Gina Herlihy
Tel: 781-430-2113                                Tel: 781-430-2109               
                                                                         Registration Code: PC035-INS
Sponsored Content

              Managing Market Data
              in the Back Office
              Eric Fishhaut, SVP Technology Strategy, GlobalView Software Inc

                              Today’s energy trading environments      Centralize the Data
                            rely heavily on information technol-         The key element to achieving data
                            ogy infrastructure for decision support,   convergence in the enterprise is to cen-
                            operational management and critical        tralize the data storage and eliminate
                            strategies. The systems for marketing,     unnecessary redundancy. Establish
                            trading, finance, risk management, pro-     a single database for market data and
                            duction planning and other processes       think of it as a service for all applica-
                            demand shared data resources while         tions. In typical environments, this
                            supporting unique global applications.     can only be accomplished through
                            The design and implementation of stra-     step-by-step re-engineering of complex
                            tegic global information systems con-      systems that have been established
                            tinues to be challenging and requires a    over time using both internally pro-
                            solid understanding of the issues at the   duced and externally supplied soft-
                            functional level.                          ware. But the benefits can be quickly
                              Budget-reducing forces combined          demonstrated. Productivity and ac-
                            with technology evolution and grow-        curacy of energy professionals can be
                            ing user needs are driving the energy      dramatically improved by utilizing one
                            industry towards a more efficient mod-      database for all price discovery and
                            el. System providers offer software ap-    business applications.
                            plications and services that allow mul-      A simple, yet elegant, design is the
                            tiple data sources to be combined and      best approach. Using a hub and spoke
                            distributed throughout the enterprise.     method with the central database at the
                            While there are a number of vendors        core yields many benefits. Each applica-
                            that provide a market information dis-     tion requiring market data can interface
                            play application that can aggregate and    directly with the database using a set of
                            display a multitude of data sources, few   common methods to communicate. Bi-
                            have focused on the specific needs of       directional data flow can be managed
                            the energy trading back office.             at the central database with access con-
                              A sound approach to managing             trols that provide security and database
                            market data for both the front office       consistency. The same controls can be
                            and the back office will pay for itself     used for both import and extraction of
                            many times over in both time savings       data and for both internal and external
                            and error reductions, not to mention       data sources.
                            elimination of duplication. For trad-
                            ing operations to expand and evolve,       One Interface
                            the key element is the use of enabling       With a centralized data repository, a
                            technology that lets professionals         singular interface to the data can be
                            monitor the markets, make sound de-        established. The interface should pro-
                            cisions and conduct transactions in        vide access for both input and output
                            transparent fashion.                       of data, but in a multitude of flavors

26 insight September 2010

to meet varying needs. A superior in-      time and cost control. Outsourcing the
terface will offer several methods in-     efforts of data collection to a proven ser-
cluding XML web services, .NET and         vice only makes sense to keep up with
C# programming, flat fi le transfer and      the constantly changing technology
others. These can operate as real-time,    of delivery methods and format along
timed or pre-scheduled frequencies         with the dynamically expanding data
while using request-response snap-         universe. Leave it to the professionals
shots or subscription based connec-        and don’t reinvent the wheel.
tions. The key is to have multiple op-
tions and flexibility to meet the varied    Reliable and Consistent Data
needs of the applications that will link     Nothing is more important than the
to the central database.                   reliability of the data collection and
                                           consistency of data in the central data-
Consolidate Data Collection                base. The data collection process must
  The energy market information in-        operate 24 by 7 and handle the many
dustry continues to be highly segment-     anomalies and exceptions that occur.
ed. There are countless sources of data    Errors created at the data source are
that are key to energy trading profes-     common and many providers issue cor-
sionals in their business decisions,       rected data. Timely and thorough pro-
back-office operations and the ability      cessing of these corrections is vital to
to interact with counterparties. Many      maintaining accurate data. As an added
provide the benchmark price informa-       feature, tracking the corrections as a
tion that underlies both short-term and    discrete audit process with notifications
long-term contract deals.                  can prove invaluable for back-office
  The evolution of the Internet and the    functions. Knowing of the corrections
plummeting costs of worldwide net-         as quickly as possible so that proper ac-
working have dramatically changed          tion can be taken saves significant time
the landscape of information delivery.     and money.
With cost barriers of distribution re-
moved, the explosion in the number of      Timely Delivery
data sources and the ways they deliv-        In many cases, back-office processes
er data continues. For mission critical    are delayed significantly due to the
market price data and news, there are      time needed to collect and process
numerous companies offering various        the required data. One key function
services. Several categories of provid-    of the data system is to deliver the
ers produce data, including exchanges,     data in a timely way. The best data
market assessment publishers, brokers,     management service will provide the
government agencies, industry organi-      data with little or no delay from the
zations, system operators and banks.       time it is published. Straight through
And don’t leave out the data produced      processing of distributed data yields
internally, which becomes even more        multiple advantages. Given almost in-
valuable when intermingled with ex-        stant access to a vast amount of data
ternal sources. There are no standards     essential to their work, professionals
for formats and delivery methods.          save time, their most precious com-
There are live feeds, file transfers, web   modity. Having the data earlier can
scrapes and every possible variety of      save many hours in addition to pro-
data collection method. As the choic-      viding a business edge by running
es expand, so does the complexity of       processes earlier.
managing the numerous sources. Once
required data sources are identified, or-   Automate Data Flow
ganizing commercial terms and tech-          Process efficiency and speed can
nical means of delivery can be an ex-      be improved by eliminating the need
haustive challenge.                        for manual data entry and transfers
  There are many benefits to using an       to multiple applications, while also
aggregated source, most importantly        reducing errors. By replacing home-

                                                                                         September 2010 insight 27

                                   grown and varied data collection                        cies while managing the growing vol-
                                   processes with a single data source                     ume of transactions and information
                                   service, automation of back-office                      sources. The convergence of data and
                                   functions can be achieved with daily                    systems can bring many benefits and
                                   and intraday information transfers.                     advantages.
                                   By creating a simple and logical data                     Using an integrated and consolidated
                                   flow through the back-office systems,                   data management approach, users can
                                   information can be shared as need-                      have access to price discovery, perform
                                   ed and duplication avoided. Systems                     price and trend analysis, and access
                                   with disparate purposes can oper-                       key data for back-office needs from a
                                   ate independently while still using                     single, central data repository. This
                                   a single source as the origin for the                   simplification of systems and methods
                                   core market price data. True benefits                   reduces errors, increases accuracy and
                                   through technology can be realized                      reduces overall costs thus increasing
                                   when the many different enterprise                      productivity. Using one common da-
                                   systems can finally be integrated via                   tabase to store and access price infor-
                                   data flow.                                              mation from all external and internal
                                                                                           sources can greatly simplify systems
                                   Summary                                                 management and gain greater data in-
                                     The explosion of market data and in-                  tegrity, while reducing overall IT costs.
                                   creased pressure to harness it presents                 In the competitive global energy busi-
                                   many challenges to today’s energy                       ness, the advances in process gained
                                   concerns. The race is on to implement                   by superior data management can
                                   solutions that will create new efficien-                 yield real dividends. ■

                                                                                    Develop qualified leads using the
                                                                                    power of the North American Energy
                                                                                    Business Directory.
     UDI North American                                                             The UDI North American Energy Business Directory
                                                                                    is a must-have for any company’s sales and marketing
     Energy Business Directory                                                      professionals.

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     The Energy Business Directory includes:                          The North American Energy Business Directory also includes
       • Over 30,000 key executives and managers                      integrated data management software which allows you to:
       • Over 9,000 electric power companies, industry suppliers,       • Search, select, and export data
        associations and regulatory bodies in the US and Canada         • Target prospects, create spreadsheets,
       • Each electric company profile includes, as available:            and generate mailing lists
          Ý energy-related products and services                                                                          Subscr
                                                                      To purchase the UDI North American Energy
          Ý current financial and system design summary
                                                                      Business Directory, visit
          Ý site configuration and staffing
                                                                      or call your nearest Platts office.

     For more information about Platts UDI databases and directories, visit, or call your nearest Platts office:

     North America                    Latin America                 Europe/Middle East/Africa           Asia-Pacific
     +1-800-PLATTS8 (toll-free)       +54-11-4804-1890              +44-20-7176-6111                    +65-6530-6430
     +1-212-904-3070 (direct)

28 insight September 2010
                                         Platts Top 250 Global Energy Companies
                                                   Awards and Leadership Dinner
                                                       Marina Bay Sands • Singapore • November 2, 2010

Celebrate the unveiling of the
2010 Platts Top 250 Global Energy Companies!
Learn more at: or

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