July 11, 2014 / 10:21 AM / 3 years ago

Planned EU power, gas price data seen to hurt pricing agencies

* ACER plans to publish power and gas indexes from 2015

* Analysts say could compete with OTC price assessments

* Pricing agencies say their news, analysis adds value

By Susanna Twidale

LONDON, July 11 (Reuters) - Europe’s power and gas pricing agencies, already under scrutiny on fears their data is vulnerable to market manipulation, are also at risk of losing business once regulators start collecting prices and plan to publish indexes next year.

Under new European Commission rules, companies will from next year have to report all trades in the EU’s 1 trillion euro ($1.4 trillion) a year wholesale power and gas market to the Agency for the Cooperation of Energy Regulators (ACER).

This data will then probably be published in the form of indexes, but ACER does not plan to compete with the business of energy pricing, ACER director Alberto Pototschnig told Reuters.

“There will still be a business (for agencies) to interpret what is happening in the markets,” he said.

Market participants said, however, that regulator-backed indexes, if published daily, combined with freely available market information on exchanges, could provide stiff competition for pricing firms such as Reed Elsevier’s ICIS Heren, McGraw Hill-owned Platts and Argus Media.

“If everyone has to report and they (ACER) publish the data promptly and publicly, then it could well become indices that the market will start to use to structure things like longer-term contracts,” Energy Aspects analyst Trevor Sikorski said.

Pricing agencies contact traders to ask what deals they have done or what bids and offers they have seen and then work out aggregate prices, which are then sold to market participants and observers.

Each uses its own methodology such as setting prices at a defined cut-off time each trading day, known as a Market on Close (MOC), or calculating daily average prices or different types of indexes.

STILL VALUE

The pricing agencies said the value of their assessments is not just related to raw data, because they also publish news, analysis and comment on what is happening in the market.

“Platts’ role as an independent price reporting organization is not only to provide the market with numerical assessments of value, but also to explain why the price is the price,” a spokeswoman for the company said.

An ICIS spokeswoman said it welcomed tougher regulation and all the added transparency it brings to energy markets, while a spokeswoman for Argus said it did not see the ACER plans to launch price assessments as a threat to its business.

Reuters competes with pricing agencies in providing energy information and data.

Traders said, however, that indexes published by the regulators could be seen as more reliable than from the agencies, because ACER’s data would be based on mandatory reporting by all power and gas trading companies instead of a relatively small number of calls made by price reporters every day.

“When you allow an index to be based on a trader’s price submission (to an agency) you are opening the market up to abuse ... The index should be based on an independently collected pile of trade data,” said an energy trader with an independent trading house who did not want to be identified because he is not authorized to speak with the press.

Gas and power prices, used by everyone from major energy traders, utilities, industrial users to government statisticians, so far are set in two main ways.

The first is through an exchange, where bids and offers for contracts are displayed and the prices of completed trades are clearly visible on a bourse’s online platform.

The second is to get access to prices from the so-called Over-the-Counter (OTC) market, which is less transparent because trades are not centrally published.

Although some broker groups have begun publishing trading data more publicly, the most established way to access OTC market information is to buy it from pricing agencies.

The agencies’ role in the markets has come under scrutiny in Britain after a whistleblower, who worked for ICIS Heren, claimed in 2012 that gas traders were manipulating price assessments.

British regulators concluded last November that no evidence of the alleged market manipulation could be found..

$1 = 0.7331 Euros Editing by Henning Gloystein and Jane Baird

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