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FERC to Shine Spotlight on Simultaneous Exchanges

Mustafa Ostrander

10 April 2012
On 15 March 2012, FERC issued a notice of proposed rulemaking (NOPR) proposing to revise the Electric Quarterly Report (EQR) Data Dictionary to add “Simultaneous Exchange” to the list of available Product Names.  In its NOPR, FERC explained that it is “generally concerned that the complexity of simultaneous exchanges may obscure the true nature of these transactions, and may enable market participants to circumvent market rules.”  The proposed change to FERC’s existing quarterly transaction reporting regime will present compliance challenges to wholesale electricity sellers’ front, mid and back office departments, as sellers must update their trade capture and reporting procedures and software to identify and report simultaneous exchange transactions.  Comments on this NOPR will be due 60 days from the date of publication in the Federal Register (sometime in mid-May 2012).
FERC to Shine Spotlight on Simultaneous Exchanges

FERC proposes the following definition for simultaneous exchange transactions:

Simultaneous exchanges occur when a pair of simultaneously arranged (i.e., part of the same negotiations) wholesale power transactions between the same counterparties in which party A sells an electricity product to party B at one location and party B sells a similar electricity product to party A at a different location have an overlapping delivery period.  The simultaneous exchange is the overlapping portion (both in volume and delivery period) of these wholesale power transactions.

 Under the NOPR, only the overlapping portion of a transaction would be reported as a simultaneous exchange, while the non-overlapping portions of the arrangement would be reported in a separate entry as a power sale.  For example, if party A sells power to party B at delivery point X from 1:00 p.m. to 4:00 PM, while party B sells the same volume of electricity to party A at delivery point Y from 2:00 p.m. to 6:00 p.m., only the transactions occurring between 2:00 p.m. and 4:00 p.m. would be deemed to meet the definition of simultaneous exchange transaction.  In addition, the price assigned to the simultaneous exchange should be the price spread for these transactions, rather than the individual price at each delivery point.  To illustrate this point, FERC provides the following example: if party A sells 100 MWh at $55/MWh to party B from 1:00 p.m. to 2:00 p.m. on April 1, 2012 at point X, and party B sells 50 MWh at $65/MWh to party A from 1:00 p.m. to 2:00 p.m. on April 1, 2012 at point Y, there are two separate transactions in this scenario that must be reported in the EQR:

  1. Party A will report a power sale of 50 MWh at $55/MWh to party B from 1:00 p.m. to 2:00 p.m. at point X; and
  2. Parties A and B will each report a simultaneous exchange of 50 MWh from 1:00 p.m. to 2:00 p.m. at points X and Y, with party A reporting the price at -$10/MWh (because it makes a net payment of $10 per MWh) and party B reporting the price at $10/MWh (because it receives a net payment of $10 per MWh).

FERC believes that most EQR filers are currently reporting these transactions under the “Exchange” Product Name.

If this proposal is implemented, it will require all EQR filers that engage in simultaneous exchanges to adjust their internal systems and controls to add this new Product Name.  Initial and ongoing compliance with this change to the quarterly transactional reporting requirement will require coordination with front, mid, and back office personnel to ensure that internal systems are correctly identifying and reporting these trades.  FERC is soliciting comments on the need for this information, whether the information will have practical utility, the accuracy of the burden estimates, ways to enhance the quality, utility, and clarity of the information to be collected or retained, and any suggested methods for minimizing respondents’ burden, including the use of automated information techniques.

Mustafa Ostrander

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