Dodd Frank Isn't the Only Regulatory Regime for Global Energy Firms

Posted on December 20, 2012
Posted By: Thomas Lord
 
The Dodd Frank has been the primary focus for many of us has been in utility and energy industry. But there are other changes in the world of regulation and it would be helpful to compare what is happening in three areas: The US, the European Union ("EU") and Canada. In some ways, Dodd Frank may be the straightest forward of the group.

Entering 2013, the US Dodd Frank regime starts to take hold -- real time reporting of swaps by swap dealers starts early in 2013 with swap data repository ("SDR") reporting for "other commodity swaps" -- meaning any swap on a commodity that could be physically delivered. The data and reporting requirements may seem onerous but let us examine the EU regime under something named "REMIT".

REMIT is the "Regulation for Energy Market Integrity and Transparency" being developed by the EU at this time. On October 23, 2012 the Agency for Coordination of Energy Regulators ("ACER") Recommendations on REMIT Records of Energy Transactions was issued. It purpose was to assist in the definition of the records to be reported to identify "the precise identification of the wholesale energy products bought and sold, the price and quantity agreed, the dates and times of execution, the parties to the transaction and the beneficiaries of the transaction and any other relevant information". This does not cover swaps markets -- this covers wholesale physical markets.

Understand, this is not just transaction data -- in the report it calls for "a mandatory reporting of nomination/scheduling information and records of transactions on balancing market through TSOs, with the possibility of third parties reporting on their behalf." The REMIT regime covers the entire wholesale energy market on a transaction level reporting basis. In addition, there is a requirement for the disclosure of inside information. As the report states:

The concept of "inside information" comprises on the one hand only those transparency information that is likely to have a significant effect on the prices of wholesale energy products, but on the other hand goes even beyond and also includes other information that a reasonable market participant would be likely to use as part of the basis of its decision to enter into a transaction relating to, or to issue an order to trade in, a wholesale energy product, insofar as this information is likely to have a significant effect on the prices of wholesale energy products.

The registration data required to be submitted from participants includes an item designated as "Publication Inside Information" which is defined as "place of publication of insider information if different from the website of the market participant". European wholesale market participants are required to publicly disclose on the market that they receive just in discussion with counter parties or that arises from their internal scheduling.

The swap market regulations of the EU fall under both the Market in Financial Instruments Directive ("MiFID" -- it comes in both MiFID 1 and MiFID 2) and the European Market Infrastructure Regulation ("EMIR") regulations. MiFID was targeted more directly are the pure financial markets -- interest rate swaps, credit default swaps, etc. -- while EMIR was directed at energy commodity swaps but there are overlaps. The combination has subtle differences from Dodd Frank in how they approach clearing and mandatory electronic execution. The important point to note is that Dodd Frank, REMIT, EMIR, and MiFID all have operational, control, data and reporting requirements that overlap without being completely consistent.

In Canada, the Canadian Securities Administrators are working on provincial level rules that would coordinate with the G-20 accord on reporting of swap data and the more specific US Dodd Frank rules. One of the more contentious points in the initial proposals was that there would be no de minimis threshold hold for requirements for swap dealer registration. As initially proposed, if a company did not act as a pure price taker, they would be classified as a swap dealer. The CSA proposals did not appear to affect the physical market the way that Dodd Frank and REMIT are likely to but they may have more impact on corporate activity in the market place if the de minimis levels are not addressed. The CSA's initial approach is also to coordinate with the US SDR regime and its attendant issues.

This overview will not serve as a primer on what is required of energy and utility firms but is intended to raise the following points:

  1. US energy and utilities firms operating in Canadian markets may find significant new compliance issues arising in the coming year;

  2. European energy and utility firms will soon face the challenge of addressing multiple data and control requirements that overlap but that are not identical;

  3. As regulators in different jurisdictions begin to create data requirements that exceed those in a company's parent jurisdiction, how does a firm avoid "contamination" from the more intrusive data requirements into the parent jurisdiction -- the "if you have the data over there, why can't you give it to me here?" problem.

The concept of an appropriate global governance data set while retaining discrete jurisdictional data may have value to firms. The question will be whether coordination, fragmentation of data models with attendant support costs and ability to generate management data from these disparate systems is of greater value than greater regulatory exposure.

 
 
Authored By:
  Thomas J. Lord is an executive with over 35 years of experience in the commodity industry in US and international markets, including senior positions with investor owned and public power utilities, oil, gas, natural gas liquids and power production and trading firms as well as strategic consulting
 

Other Posts by: Thomas Lord

Related Posts

Selling TVA By Ernest Norsworthy
 
 

Comments

December, 23 2012

Len Gould says

None of this seems particularly onerous to comply with, after all any decently managed company of any size at all, must already be inspecting these data already, right? Or is that the point?

December, 23 2012

Thomas Lord says

The point is that many of these firms have significant portions of the data sets but, frequently, they occur in multiple systems or only a portion of the data set exists (the regulstors often require new specific data attributes). In the instance of multiple systems, a firm may be facing a challenge for data normailization - this is a case our firm has worked with multiple firms on and it is not always an easy challenge. Where new data is required or new communication protocols are needed, it has been the case that older risk systems may not be supported by the vendor - requiring a system change (and subsequent installation project) or the older system may need a significant upgrade (and subsequent installation project).

In all of these instances, the IT department is the one with the greatest impact.

Add your comments:

Please log in to leave a comment!
back to top

Receive Energy Central eNews & Updates












 

Is Your Utility Part of Your Customer's "Digital Life?"

Thursday Oct 2, 2014 - 12:00 PM Eastern - Virtual Event

Utilities play an important role in a customer's life and yet they have not made the leap to be part of their customer's "digital life" - with an average of only 15% receiving their utility bills electronically. more...

Navigating the crossroads of compliance and security

Tuesday Oct 7, 2014 - 12:00 PM Eastern - Virtual Event

We've all heard the industry lament that being compliant isn't being secure and being secure isn't being compliant when it comes to our T&D assets. Volumes have been penned on how to weather and respond to NERC CIP regulations, and more...

THREATS, VULNERABILITIES, AND RISKS: Identifying the Highest Priorities

Thursday Oct 9, 2014 - 12:00 PM Eastern - Virtual Event

Points for Discussion on October 9th: • What are the components of a threat, vulnerability, and risk assessment? • How do threats, vulnerabilities, and risks drive my security plan? • What are common threats to the energy sector? • What more...

Getting a U.S. Energy Policy Right

Thursday Oct 16, 2014 - 12:00 PM Eastern - Virtual Event

Join us for a live presentation and webinar by Mike Morris, former chairman, president and CEO of American Electric Power (AEP). Moderated by Marty Rosenberg, editor-in-chief of EnergyBiz. more...

NERC Reliability Assurance Initiative (RAI): Bolstering your internal controls for compliance in the new paradigm

Tuesday Oct 28, 2014 - 12:00 PM Eastern - Virtual Event

Since 2007, the utility industry has been working to improve its compliance programs based on guidance from NERC and the Regional Entities, as well as lessons learned through audits. "Internal Controls" are central to the RAI, so it is critical more...

Utilities Executive Forum and Roundtable: October 7 - 9, 2014

Tuesday Oct 7, 2014 - Thursday Oct 9, 2014 - Ponte Vedra Beach , Florida - USA

Allow us to be your host for a gathering of senior utility executives featuring industry experts from Ferranti Computer Systems, Microsoft and Avanade discussing current challenges and trends in the Utility and Energy industry. We will be providing attendees an more...

2014 Utility Analytics Week

Wednesday Oct 22, 2014 - Friday Oct 24, 2014 - Newport Beach, CA

Join us for our Third Annual Utility Analytics Week event where you will hear and learn about the hottest topics in analytics today. The analytics revolution is pushing utilities to respond to real time needs arising in the industry as more...

Smart Cities 2014

Monday Nov 3, 2014 - Wednesday Nov 5, 2014 - San Diego, CA - United States

SmartCities is an Energy Central event established to educate utilities on the steps and paths to collaboratively develop smart cites in their region. At this event attendees will establish early relationships with key stakeholders; discover collaboration strategies that have been more...

2014 Knowledge Executive Summit

Monday Nov 10, 2014 - Wednesday Nov 12, 2014 - NewPort Beach, CA

Connect with an exclusive gathering of over 100 elite CIOs, VP's of Customer Service and VP's of Operations to network and share knowledge around the most critical issues and opportunities facing utility executives. Enjoy a breathtaking resort setting along the more...

FREE POSTINGS!

Get your event listing in front of more than 100,000 industry professionals by posting on EnergyCentral's Event Center.



Sponsored Content