Ferc to examine derivatives accounting

The Federal Energy Regulatory Commission (Ferc) is considering adopting new accounting rules governing the use of derivatives by energy companies.

The agenda for Ferc’s board meeting on Wednesday states there will be a discussion of a proposed regulation relating to "accounting and reporting of financial instruments, comprehensive income, derivatives and hedging activities".

The decision to focus on the accounting procedures of the private over-the-counter market coincides with an emergency motion filing by Enron to allow it to terminate its OTC contracts outside the stricken company’s bankruptcy proceedings. Enron, which dominated the energy OTC derivative market, is hoping to win the right to negotiate settlement of these derivatives contracts through a series of bilateral agreements with counterparties, rather than under the centralised supervision of the bankruptcy court.

Several of Enron’s OTC derivative counterparties have complained about Enron’s proposal. One such counterparty, The Wiser Oil Company, objected to early termination on the grounds that it would prefer to keep its hedges in place.