Frequently asked questions

Q: Will this initiative improve the wholesale electricity markets in the West?

A: Yes. The increase in the number of trades reported and the granularity of information provided improves the market by increasing price transparency in three ways:

  • the increase in the number of trades reported creates a more statistically valid price index.
  • the granularity in the information reported allows the index developer to verify the accuracy of many more trades, and enables inclusion of those trades in the aggregate index.
  • the expanded information will significantly reduce any potential opportunities for fraud or manipulation of an index, as has happened in the past.

Q: Is the scope of participation in this initiative large enough to provide real benefits?

A: Yes. Seven utilities have already committed and several others have expressed interest in the initiative. The significance of a group making a public commitment to support the FERC voluntary guidelines by providing enhanced data reporting should not be underestimated. Even greater benefits will be achieved by expanding the number of WMTI participants and there is a strong continuing effort to encourage even more participation throughout the industry.

Q: What is expanded data reporting?

A: When reporting trades to index developers, industry practice has been to report the trades in aggregate form with a total volume and average price computed by the data provider.

The companies voluntarily participating in WMTI have agreed to report on each individual buy and sell transaction and, where permitted by the counterparty, also provide the name of the counterparty to the transaction. When the counterparty is identified for a buy and sell transaction, the index developer can match up the two sides of the transaction to verify the accuracy of the reported information.

Q: What is the significance of providing information about counterparties?

A: Counterparty information is an important tool that allows index developers to verify the reported trades. A reporting utility cannot provide counterparty information unless the counterparty has explicitly agreed for their information to be shared. All of the utilities participating in this initiative have signed agreements allowing their information to be shared when reported to the index developer or are otherwise pursuing overcoming contractual barriers to such disclosure.

Counterparty information will only be made available to the index developer, and will not be shared with any other entity.

Q: What are the benefits of a more transparent index?

A: Price transparency allows wholesale electricity market participants to transact with confidence. It leads to liquidity because companies feel that the index price is indeed representative of market activity. A liquid market not only allows financial institutions to offer derivative products, but it allows utilities the ability to more efficiently manage their customer’s needs. A transparent and liquid market also guards against illegal manipulation of the market.

Q: Do you anticipate a favorable reaction by FERC to this initiative?

A: Yes. FERC has expressed significant interest in improving the quality and quantity of information provided to price index developers in both the wholesale electric and gas industries. A Policy Statement issued in July 2003 outlined "desirable characteristics" for price indices and voluntary guidelines for both price data providers as well as index developers. This initiative supports the guidelines for data providers and complements a November 2004 decision issued by FERC that specifically identified Dow Jones as one of the index developers who have adopted the standards in the Policy Statement.