Best Practices for Energy Price Indices © Copyright 2003, CCRO. All rights reserved. 1 I. INTRODUCTION Energy market price indices have a significant economic impact both inside and outside the energy trading and marketing arena. Within the energy sector, data from indices forms the basis for many over-the-counter transactions, being used to settle transactions and for general price discovery. Outside the industry, energy price indices guide many economic and business decisions including investment and consumption decisions in energy intensive industries. Robust, transparent, accurate, and timely indices help create a competitive and efficient marketplace, and establish confidence and credibility in the industry. The data gathering and submission process used by market participants and the methodology used by the index developers must therefore be transparent and objectively verifiable. To ensure the accuracy and robustness of the indices, index developers should strive to include transactions from as many verifiable sources as are necessary to adequately represent the market. The Committee of Chief Risk Officers, Inc. (CCRO) provides guidance herein on best practice attributes and processes for data submission by market participants and index construction by index developers. The discussion in this white paper on the data gathering and submission process includes recommendations on the appropriate data to provide, as well as on how companies should provide it to ensure that it is timely, accurate, complete, and auditable. The Committee also sets forth recommendations on the steps and actions needed to ensure that index developers use a transparent and robust methodology in order to provide reliable and accurate indices. Throughout its work, the CCRO consulted with index developers, relevant government agencies, and other industry organizations to develop these guidelines. The CCRO believes that the recommendations put forward in this white paper will contribute substantially towards creating robust and reliable indices. Many of the recommendations will likely have far-reaching organizational and procedural consequences, and represent significant changes to current practices. In particular, the CCRO recommends that data be submitted to index developers on a transaction-by-transaction basis, with all necessary detail, and that this data be forwarded through a department that is independent from the front office. The CCRO proposes that this data be verified prior to submission, and that index developers and data providers go through an error resolution process prior to index publication. Furthermore, the CCRO recommends stringent audits both for data providers and index developers, with a goal to ensure that the data submitted is verifiable, accurate, and complete, and that both data providers and index developers are respectively accountable for data submitted and indices published. At the same time, and with a clear goal to achieve maximum industry participation and hence maximum transparency and robustness, the CCRO believes the recommendations are not so onerous as to prevent data providers from complying. The CCRO has attempted to strike a balance between the goal of increasing the amount of voluntary participation of data providers in submitting data and the goal of increasing the auditibility and verifiability of the data provided. The commercial sensitivity of the data that the CCRO recommends be submitted by data providers to index developers, in particular counterparty name and buy-sell indicator, will require significant changes to the legal framework between