Best Practices for Energy Price Indices © Copyright 2003, CCRO. All rights reserved. 4 II. ATTRIBUTES FOR DATA GATHERING AND SUBMISSION PROCESS AND INDEX CONSTRUCTION AND METHODOLOGY Sound implementation of the best practices proposed in this paper should result in indices that are reliable, accurate, and representative. The following are desirable attributes for the data gathering and submission process, the index construction methodology, and the corporate governance that oversees and protects the entire process: • Representative and Complete – The index should be reflective of actual prices obtained during the index reporting/coverage period and have the widest possible coverage of market activity. • Robust and Reliable – The methodology an index developer uses should stand the test of time and be consistent under a variety of market conditions during any given regime.1 An index should employ a methodology or a model that reflects the economic underpinnings of the market for the commodity and product that it seeks to represent. • Confidential – To protect data providers and index developers, index developers should treat data submitted by data providers as commercially sensitive and confidential and should not violate any contractual obligations of the data providers or the index developers. Similarly, index developers may require data providers to treat confidentially any disclosed methodologies and processes. • Independent and Objective – Departments within a data providing company with an economic interest in the outcome of the price index, in particular the front office, should be excluded from the process of gathering and providing information. Similarly, employees and departments within an index developer should not have any economic interest in the information being provided to them beyond the pure commercialization of the finished index itself. • Accountable – Data providers should designate a noncommercial group within the data- providing company. This group should be responsible and accountable for ensuring the completeness and accuracy of the data. The same integrity and accountability are required of the index developers for ensuring a complete and accurate index. • Maintain Integrity – Internal safeguards against manipulation of the data gathering and submission process as well as index construction need to be in place to ensure that the data is accurate and complete, resulting in an index that is representative of market activity. • Auditable – All transaction data provided by market participants and used by index developers needs to be traceable and verifiable throughout the process. Furthermore, the methodology used by index developers should be audited to verify that it satisfies the properties of a robust index and coincides with the methodology published by the index developer. 1 Regimes may pertain to different degrees of market openness, e.g., an index built with the assumption of an open market may not be correct if a market is restructured to include price caps.