Federal Register / Vol. 75, No. 139 / Wednesday, July 21, 2010 / Notices 42411 

56 7 U.S.C. 1a(29). 57 7 U.S.C. 1a(29). 

1 74 FR 51264 (October 6, 2009). 

2The acronym ‘‘SP’’ stands for ‘‘South Path.’’ 

3The acronym ‘‘NP’’ stands for ‘‘North Path.’’ 

4The Federal Register notice also requested 

comment on the SP–15 Financial Day-Ahead LMP 

Peak (‘‘SPM’’) contract and SP–15 Financial DayAhead LMP Off-Peak (‘‘OFP’’) contract; these 

contracts will be addressed in a separate Federal 

Register release. 

2(h)(3) and Commission Regulation 

36.3. 

b. Order Relating to the PJM WH Real 

Time Off-Peak Daily Contract 

After considering the complete record 

in this matter, including the comment 

letters received in response to its 

request for comments, the Commission 

has determined to issue the following 

Order: 

The Commission, pursuant to its 

authority under section 2(h)(7) of the 

Act, hereby determines that the PJM WH 

Real Time Off-Peak Daily contract, 

traded on the IntercontinentalExchange, 

Inc., does not at this time satisfy the 

material price preference or material 

liquidity criteria for significant price 

discovery contracts. Consistent with this 

determination, the 

IntercontinentalExchange, Inc., is not 

considered a registered entity 56 with 

respect to the PJM WH Real Time OffPeak Daily contract and is not subject to 

the provisions of the Commodity 

Exchange Act applicable to registered 

entities. Further, the obligations, 

requirements and timetables prescribed 

in Commission rule 36.3(c)(4) governing 

core principle compliance by the 

IntercontinentalExchange, Inc., are not 

applicable to the PJM WH Real Time 

Off-Peak Daily contract with the 

issuance of this Order. 

This Order is based on the 

representations made to the 

Commission by the 

IntercontinentalExchange, Inc., dated 

July 27, 2009, and March 24, 2010, and 

other supporting material. Any material 

change or omissions in the facts and 

circumstances pursuant to which this 

order is granted might require the 

Commission to reconsider its current 

determination that the PJM WH Real 

Time Off-Peak Daily contract is not a 

significant price discovery contract. 

Additionally, to the extent that it 

continues to rely upon the exemption in 

Section 2(h)(3) of the Act, the 

IntercontinentalExchange, Inc., must 

continue to comply with all of the 

applicable requirements of Section 

2(h)(3) and Commission Regulation 

36.3. 

c. Order Relating to the PJM WH Day 

Ahead LMP Peak Daily Contract 

After considering the complete record 

in this matter, including the comment 

letters received in response to its 

request for comments, the Commission 

has determined to issue the following 

Order: 

The Commission, pursuant to its 

authority under section 2(h)(7) of the 

Act, hereby determines that the PJM WH 

Day Ahead LMP Peak Daily contract, 

traded on the IntercontinentalExchange, 

Inc., does not at this time satisfy the 

material price preference or material 

liquidity criteria for significant price 

discovery contracts. Consistent with this 

determination, the 

IntercontinentalExchange, Inc., is not 

considered a registered entity 57 with 

respect to the PJM WH Day Ahead LMP 

Peak Daily contract and is not subject to 

the provisions of the Commodity 

Exchange Act applicable to registered 

entities. Further, the obligations, 

requirements and timetables prescribed 

in Commission rule 36.3(c)(4) governing 

core principle compliance by the 

IntercontinentalExchange, Inc., are not 

applicable to the PJM WH Day Ahead 

LMP Peak Daily contract with the 

issuance of this Order. 

This Order is based on the 

representations made to the 

Commission by the 

IntercontinentalExchange, Inc., dated 

July 27, 2009, and March 24, 2010, and 

other supporting material. Any material 

change or omissions in the facts and 

circumstances pursuant to which this 

order is granted might require the 

Commission to reconsider its current 

determination that the PJM WH Day 

Ahead LMP Peak Daily contract is not 

a significant price discovery contract. 

Additionally, to the extent that it 

continues to rely upon the exemption in 

Section 2(h)(3) of the Act, the 

IntercontinentalExchange, Inc., must 

continue to comply with all of the 

applicable requirements of Section 

2(h)(3) and Commission Regulation 

36.3. 

Issued in Washington, DC, on July 9, 2010, 

by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. 2010–17744 Filed 7–20–10; 8:45 am] 

BILLING CODE 6351–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

Orders Finding That the SP–15 

Financial Day-Ahead LMP Peak Daily 

Contract; SP–15 Financial Day-Ahead 

LMP Off-Peak Daily Contract; SP–15 

Financial Swap Real Time LMP–Peak 

Daily Contract; NP–15 Financial DayAhead LMP Peak Daily Contract and 

NP–15 Financial Day-Ahead LMP OffPeak Daily Contract; Offered for 

Trading on the 

IntercontinentalExchange, Inc., Do Not 

Perform a Significant Price Discovery 

Function 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final orders. 

SUMMARY: On October 6, 2009, the 

Commodity Futures Trading 

Commission (‘‘CFTC’’ or ‘‘Commission’’) 

published for comment in the Federal 

Register1 a notice of its intent to 

undertake a determination whether the 

SP–152 Financial Day-Ahead LMP Peak 

Daily (‘‘SDP’’) contract; SP–15 Financial 

Day-Ahead LMP Off-Peak Daily (‘‘SQP’’) 

contract; SP–15 Financial Swap Real 

Time LMP–Peak Daily (‘‘SRP’’) contract; 

NP–153 Financial Day-Ahead LMP Peak 

Daily (‘‘DPN’’) contract; and NP–15 

Financial Day-Ahead LMP Off-Peak 

Daily (‘‘UNP’’) contract,4 which are 

listed for trading on the 

IntercontinentalExchange, Inc. (‘‘ICE’’), 

an exempt commercial market (‘‘ECM’’) 

under sections 2(h)(3)–(5) of the 

Commodity Exchange Act (‘‘CEA’’ or the 

‘‘Act’’), perform a significant price 

discovery function pursuant to section 

2(h)(7) of the CEA. The Commission 

undertook this review based upon an 

initial evaluation of information and 

data provided by ICE as well as other 

available information. The Commission 

has reviewed the entire record in this 

matter, including all comments 

received, and has determined to issue 

orders finding that the SDP, SQP, SRP, 

DPN and UNP contracts do not perform 

a significant price discovery function. 

Authority for this action is found in 

section 2(h)(7) of the CEA and 

Commission rule 36.3(c) promulgated 

thereunder. 

DATES: Effective date: July 9, 2010. 


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5 Incorporated as Title XIII of the Food, 

Conservation and Energy Act of 2008, Public Law 

110–246, 122 Stat. 1624 (June 18, 2008). 

6 7 U.S.C. 1a(29). 

7 74 FR 12178 (Mar. 23, 2009); these rules became 

effective on April 22, 2009. 

8Public Law 110–246 at 13203; Joint Explanatory 

Statement of the Committee of Conference, H.R. 

Rep. No. 110–627, 110 Cong., 2d Sess. 978, 986 

(Conference Committee Report). See also 73 FR 

75888, 75894 (Dec. 12, 2008). 

9For an initial SPDC, ECMs have a grace period 

of 90 calendar days from the issuance of a SPDC 

determination order to submit a written 

demonstration of compliance with the applicable 

core principles. For subsequent SPDCs, ECMs have 

a grace period of 30 calendar days to demonstrate 

core principle compliance. 

10As noted above, the Federal Register notice 

also requested comment on the SP–15 Financial 

Day-Ahead LMP Peak (‘‘SPM’’) contract and SP–15 

Financial Day-Ahead LMP Off-Peak (‘‘OFP’’) 

contract. The SPM and OFP contracts will be 

addressed in a separate Federal Register release. 

11The Commission’s Part 36 rules establish, 

among other things, procedures by which the 

Commission makes and announces its 

determination whether a specific ECM contract 

serves a significant price discovery function. Under 

those procedures, the Commission publishes a 

notice in the Federal Register that it intends to 

undertake a determination whether a specified 

agreement, contract or transaction performs a 

significant price discovery function and to receive 

written data, views and arguments relevant to its 

determination from the ECM and other interested 

persons. 

12FERC is an independent Federal regulatory 

agency that, among other things, regulates the 

interstate transmission of natural gas, oil and 

electricity. EPSA describes itself as the ‘‘national 

trade association representing competitive power 

suppliers, including generators and marketers.’’ 

FIEG describes itself as an association of investment 

and commercial banks who are active participants 

in various sectors of the natural gas markets, 

‘‘including acting as marketers, lenders, 

underwriters of debt and equity securities, and 

proprietary investors.’’ WGCEF describes itself as ‘‘a 

diverse group of commercial firms in the domestic 

energy industry whose primary business activity is 

the physical delivery of one or more energy 

commodities to customers, including industrial, 

commercial and residential consumers’’ and whose 

membership consists of ‘‘energy producers, 

marketers and utilities.’’ ICE is an ECM, as noted 

above. CPUC is a ‘‘constitutionally established 

agency charged with the responsibility for 

regulating electric corporations within the State of 

California.’’ EEI is the ‘‘association of shareholderowned electric companies, international affiliates 

and industry associates worldwide.’’ WPTF 

describes itself as a ‘‘broad-based membership 

organization dedicated to encouraging competition 

in the Western power markets * * * WTPF strives 

to reduce the long-run cost of electricity to 

consumers throughout the region while maintaining 

the current high level of system reliability.’’ PUCT 

is the independent organization that oversees the 

Electric Reliability Council of Texas (‘‘ERCOT’’) to 

‘‘ensure nondiscriminatory access to the 

transmission and distribution systems, to ensure the 

reliability and adequacy of the regional electrical 

network, and to perform other essential market 

functions.’’ The comment letters are available on the 

Commission’s Web site: http://www.cftc.gov/ 

lawandregulation/federalregister/ 

federalregistercomments/2009/-012.html. 

13FERC expressed the opinion that a 

determination by the Commission that any of the 

subject contracts performs a significant price 

discovery function ‘‘would not appear to conflict 

with FERC’s exclusive jurisdiction under the 

Federal Power Act (FPA) over the transmission or 

sale for resale of electric energy in interstate 

commerce or with its other regulatory 

responsibilities under the FPA’’ and further that 

‘‘FERC staff will monitor proposed SPDC 

determinations and advise the CFTC of any 

potential conflicts with FERC’s exclusive 

jurisdiction over RTOs, [(regional transmission 

organizations)], ISOs [(independent system 

operators)] or other jurisdictional entities.’’ 

FOR FURTHER INFORMATION CONTACT: 

Gregory K. Price, Industry Economist, 

Division of Market Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. Telephone: (202) 418–5515. 

E-mail: gprice@cftc.gov; or Susan 

Nathan, Senior Special Counsel, 

Division of Market Oversight, same 

address. Telephone: (202) 418–5133. Email: snathan@cftc.gov. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

The CFTC Reauthorization Act of 

2008 (‘‘Reauthorization Act’’) 5

significantly broadened the CFTC’s 

regulatory authority with respect to 

ECMs by creating, in section 2(h)(7) of 

the CEA, a new regulatory category— 

ECMs on which significant price 

discovery contracts (‘‘SPDCs’’) are 

traded—and treating ECMs in that 

category as registered entities under the 

CEA.6 The legislation authorizes the 

CFTC to designate an agreement, 

contract or transaction as a SPDC if the 

Commission determines, under criteria 

established in section 2(h)(7), that it 

performs a significant price discovery 

function. When the Commission makes 

such a determination, the ECM on 

which the SPDC is traded must assume, 

with respect to that contract, all the 

responsibilities and obligations of a 

registered entity under the Act and 

Commission regulations, and must 

comply with nine core principles 

established by new section 2(h)(7)(C). 

On March 16, 2009, the CFTC 

promulgated final rules implementing 

the provisions of the Reauthorization 

Act.7 As relevant here, rule 36.3 

imposes increased information reporting 

requirements on ECMs to assist the 

Commission in making prompt 

assessments whether particular ECM 

contracts may be SPDCs. In addition to 

filing quarterly reports of its contracts, 

an ECM must notify the Commission 

promptly concerning any contract 

traded in reliance on the exemption in 

section 2(h)(3) of the CEA that averaged 

five trades per day or more over the 

most recent calendar quarter, and for 

which the exchange sells its price 

information regarding the contract to 

market participants or industry 

publications, or whose daily closing or 

settlement prices on 95 percent or more 

of the days in the most recent quarter 

were within 2.5 percent of the 

contemporaneously determined closing, 

settlement or other daily price of 

another contract. 

Commission rule 36.3(c)(3) 

established the procedures by which the 

Commission makes and announces its 

determination whether a particular ECM 

contract serves a significant price 

discovery function. Under those 

procedures, the Commission will 

publish notice in the Federal Register 

that it intends to undertake an 

evaluation whether the specified 

agreement, contract or transaction 

performs a significant price discovery 

function and to receive written views, 

data and arguments relevant to its 

determination from the ECM and other 

interested persons. Upon the close of 

the comment period, the Commission 

will consider, among other things, all 

relevant information regarding the 

subject contract and issue an order 

announcing and explaining its 

determination whether or not the 

contract is a SPDC. The issuance of an 

affirmative order signals the 

effectiveness of the Commission’s 

regulatory authorities over an ECM with 

respect to a SPDC; at that time such an 

ECM becomes subject to all provisions 

of the CEA applicable to registered 

entities.8 The issuance of such an order 

also triggers the obligations, 

requirements and timetables prescribed 

in Commission rule 36.3(c)(4).9

II. Notice of Intent To Undertake SPDC 

Determination 

On October 6, 2009, the Commission 

published in the Federal Register notice 

of its intent to undertake a 

determination whether the SDP, SQP, 

SRP, DPN and UNP contracts10 perform 

a significant price discovery function 

and requested comment from interested 

parties.11 Comments were received from 

the Federal Energy Regulatory 

Commission (‘‘FERC’’), Electric Power 

Supply Association (‘‘EPSA’’), Financial 

Institutions Energy Group (‘‘FIEG’’), 

Working Group of Commercial Energy 

Firms (‘‘WGCEF’’), ICE, California Public 

Utilities Commission (‘‘CPUC’’), Edison 

Electric Institute (‘‘EEI’’), Western Power 

Trading Forum (‘‘WPTF’’) and Public 

Utility Commission of Texas 

(‘‘PUCT’’).12 The comment letters from 

FERC13 and PUCT did not directly 

address the issue of whether or not the 

subject contracts are SPDCs. CPUC 

stated that the subject contracts are 

SPDCs but did not provide reasons for 

how the contracts meet the criteria for 


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14 In its October 6, 2009, Federal Register release, 

the Commission identified material price reference 

and material liquidity as the possible criteria for 

SPDC determination of the SDP, SQP, SRP, DPN 

and UNP contracts. Arbitrage and price linkage 

were not identified as possible criteria. As a result, 

arbitrage and price linkage will not be discussed 

further in this document and the associated Orders. 

15 17 CFR Part 36, Appendix A. 

16An LMP represents the additional cost 

associated with producing an incremental amount 

of electricity. LMPs account for generation costs, 

congestion along the transmission lines, and 

electricity loss. 

17The acronym ‘‘ISO’’ signifies ‘‘Independent 

System Operator,’’ which is an entity that 

coordinates electricity generation and transmission, 

as well as grid reliability, throughout its service 

area. 

18The Pacific Intertie comprises three alternating 

current (‘‘AC’’) lines and one direct current (‘‘DC’’) 

line. Together, these lines comprise the largest 

single electricity transmission program in the 

United States. The northern end of the DC line is 

at the Bonneville Power Administration’s Celilo 

Converter Station, which is just south of The Dalles 

Dam about 90 miles east of Portland. The southern 

end is 846 miles away at the Sylmar Converter 

Station on the northern outskirts of Los Angeles. 

That station is operated by utilities including the 

Los Angeles Department of Water and Power 

(‘‘LADWP’’) and Southern California Edison. The 

AC lines follow generally the same path but 

terminate in Northern California. Only a few parties 

actually own the Intertie, but numerous entities 

Continued 

SPDC determination. The remaining 

comment letters raised substantive 

issues with respect to the applicability 

of section 2(h)(7) to the subject contracts 

and generally expressed the opinion 

that the contracts are not SPDCs because 

they do not meet the material price 

reference or material liquidity criteria 

for SPDC determination. These 

comments are more extensively 

discussed below, as applicable. 

III. Section 2(h)(7) of the CEA 

The Commission is directed by 

section 2(h)(7) of the CEA to consider 

the following criteria in determining a 

contract’s significant price discovery 

function: 

• Price Linkage—The extent to which 

the agreement, contract or transaction 

uses or otherwise relies on a daily or 

final settlement price, or other major 

price parameter, of a contract or 

contracts listed for trading on or subject 

to the rules of a designated contract 

market (‘‘DCM’’) or derivatives 

transaction execution facility (‘‘DTEF’’), 

or a SPDC traded on an electronic 

trading facility, to value a position, 

transfer or convert a position, cash or 

financially settle a position, or close out 

a position. 

• Arbitrage—The extent to which the 

price for the agreement, contract or 

transaction is sufficiently related to the 

price of a contract or contracts listed for 

trading on or subject to the rules of a 

DCM or DTEF, or a SPDC traded on or 

subject to the rules of an electronic 

trading facility, so as to permit market 

participants to effectively arbitrage 

between the markets by simultaneously 

maintaining positions or executing 

trades in the contracts on a frequent and 

recurring basis. 

• Material price reference—The 

extent to which, on a frequent and 

recurring basis, bids, offers or 

transactions in a commodity are directly 

based on, or are determined by 

referencing or consulting, the prices 

generated by agreements, contracts or 

transactions being traded or executed on 

the electronic trading facility. 

• Material liquidity—The extent to 

which the volume of agreements, 

contracts or transactions in a 

commodity being traded on the 

electronic trading facility is sufficient to 

have a material effect on other 

agreements, contracts or transactions 

listed for trading on or subject to the 

rules of a DCM, DTEF or electronic 

trading facility operating in reliance on 

the exemption in section 2(h)(3). 

Not all criteria must be present to 

support a determination that a 

particular contract performs a 

significant price discovery function, and 

one or more criteria may be inapplicable 

to a particular contract.14 Moreover, the 

statutory language neither prioritizes the 

criteria nor specifies the degree to 

which a SPDC must conform to the 

various criteria. In Guidance issued in 

connection with the Part 36 rules 

governing ECMs with SPDCs, the 

Commission observed that these criteria 

do not lend themselves to a mechanical 

checklist or formulaic analysis. 

Accordingly, the Commission has 

indicated that in making its 

determinations it will consider the 

circumstances under which the 

presence of a particular criterion, or 

combination of criteria, would be 

sufficient to support a SPDC 

determination.15 For example, for 

contracts that are linked to other 

contracts or that may be arbitraged with 

other contracts, the Commission will 

consider whether the price of the 

potential SPDC moves in such harmony 

with the other contract that the two 

markets essentially become 

interchangeable. This co-movement of 

prices would be an indication that 

activity in the contract had reached a 

level sufficient for the contract to 

perform a significant price discovery 

function. In evaluating a contract’s price 

discovery role as a price reference, the 

Commission the extent to which, on a 

frequent and recurring basis, bids, offers 

or transactions are directly based on, or 

are determined by referencing, the 

prices established for the contract. 

IV. Findings and Conclusions 

The Commission’s findings and 

conclusions with respect to the SDP, 

SQP, SRP, DPN and UNP contracts are 

discussed separately below. 

a. The SP–15 Financial Day-Ahead LMP 

Peak Daily (SDP) Contract and the 

SPDC Indicia 

The SDP contract is cash settled based 

on the arithmetic average of peak-hour, 

day-ahead locational marginal prices 

(‘‘LMPs’’) 16 posted by the California 

ISO17 (‘‘CAISO’’) for the SP–15 Existing 

Zone Generation (‘‘EZ Gen’’) Hun for all 

peak hours on the day prior to 

generation. The LMPs are derived from 

power trades that result in physical 

delivery. The size of the SDP contract is 

400 megawatt hours (‘‘MWh’’), and the 

SDP contract is listed for 75 consecutive 

calendar days. 

In general, electricity is bought and 

sold in an auction setting on an hourly 

basis at various points along the 

electrical grid. An LMP associated with 

a specific hour is derived as a volumeweighted average price of all of the 

transactions where electricity is to be 

supplied and consumed during that 

hour. 

Electricity is traded in a day-ahead 

market as well as a real-time market. 

Typically, the bulk of energy 

transactions occur in the day-ahead 

market. The day-ahead market 

establishes prices for electricity that is 

to be delivered during the specified 

hour on the following day. Day-ahead 

prices are determined based on 

generation and energy transaction 

quotes offered in advance. Because 

power quotes are dependent on 

estimates of supply and demand, 

electricity needs usually are not 

perfectly satisfied in the day-ahead 

market. Consequently, on the day the 

electricity is transmitted and used, 

auction participants typically realize 

that they bought or sold either too much 

power or too little power. A real-time 

auction is operated to alleviate this 

problem by serving as a balancing 

mechanism. Specifically, electricity 

traders use the real-time market to sell 

excess electricity and buy additional 

power to meet demand. Only a 

relatively small amount of electricity is 

traded in the real-time market as 

compared to the day-ahead market. 

Path 15 is an 84-mile portion of the 

north-south power transmission 

corridor in California, forming part of 

the Pacific AC Intertie and the 

California-Oregon Transmission 

Project.18 Path 15, along with the Pacific 


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have contracts to share its transmission capacity. 

The California-Oregon border is a dividing line for 

Intertie ownership and capacity sharing. Depending 

on seasonal conditions, the Intertie is capable of 

transmitting up to 7,900 MW— 4,800 MW of AC 

power (1,600 MW of this amount is in the 

California-Oregon Transmission Project, also known 

as the ‘‘Third AC Line’’) and 3,100 MW of DC power. 

Over the past five years, the limit has ranged 

between about 6,300 MW and 7,900 MW. Most of 

the power transmitted on the Intertie is surplus to 

regional needs, but some firm power also is 

transmitted. See http://www.nwcouncil.org/ 

LIBRARY/2001/2001-11.pdf. 

19The third 500 kV line was installed between 

2003 and 2004 in order to relieve constraints on the 

existing north-south transmission lines. This 

capacity constraint contributed to the California 

energy crisis in 2000 and 2001. See http:// 

www.wapa.gov/sn/ops/transmission/path15/ 

factSheet.pdf. 20 17 CFR 36, Appendix A. 

DC Intertie running far to the east, 

completes an important transmission 

interconnection between the 

hydroelectric plants to the north and the 

fossil fuel plants to the south. Path 15 

currently consists of three lines at 500 

kilovolts (‘‘kV’’) and four lines at 230 

kV.19 The 500 kV lines connect Los 

Banos to Gates (two lines) and Los 

Banos to Midway (one line); all four 230 

kV lines have Gates at one end with the 

other ends terminating at Panoche #1, 

Panoche #2, Gregg, or McCall 

substations. ‘‘NP–15’’ refers to the 

northern half of Path 15; conversely, 

‘‘SP–15’’ refers to the lower half of Path 

15. 

When the weather is hot in California 

and the Desert Southwest, it is 

comparatively cool in the Pacific 

Northwest. Conversely, when the 

weather is cold in the Pacific Northwest 

it is comparatively warm in California 

and the Desert Southwest. Consumers 

on the West Coast take advantage of 

seasonal weather differences to share 

large amounts of power between the 

Desert Southwest and the Pacific 

Northwest. In the spring and summer, 

when generators (mostly hydroelectric 

plants) generally have surplus power in 

the Northwest and temperatures climb 

in the Southwest, power is shipped 

south to help meet increasing power 

demand, particularly for air 

conditioning. Conversely in the winter, 

when generators in the Southwest 

generally have surplus power and 

temperatures drop in the Northwest, 

power is shipped north to meet 

increasing electricity demand, 

particularly for heating. 

CAISO is charged with operating the 

high-voltage grid in California. Because 

CAISO’s service area is basically the 

entire State of California, it is 

responsible for serving millions of 

businesses and households, particularly 

in the Los Angeles and San Francisco 

areas. CAISO’s current mission is to 

ensure the efficient and reliable 

operation of the power grid, provide fair 

and open transmission access, promote 

environmental stewardship, facilitate 

effective markets, promote 

infrastructure development and support 

the timely and accurate dissemination 

of information. CAISO is responsible for 

operating the hourly auctions in which 

the power is traded, and CAISO 

publishes the LMP data on its Web site. 

1. Material Price Reference Criterion 

The Commission’s October 6, 2009, 

Federal Register notice identified 

material price reference and material 

liquidity as the potential basis for a 

SPDC determination with respect to the 

SDP contract. The Commission 

considered the fact that ICE sells its 

price data to market participants in a 

number of different packages which 

vary in terms of the hubs covered, time 

periods, and whether the data are daily 

only or historical. For example, ICE 

offers the ‘‘West Power of Day’’ package 

with access to all price data or just 

current prices plus a selected number of 

months (i.e., 12, 24, 36 or 48 months) of 

historical data. This package includes 

price data for the SDP contract. 

The Commission also noted that its 

October 2007 Report on the Oversight of 

Trading on Regulated Futures 

Exchanges and Exempt Commercial 

Markets (‘‘ECM Study’’) found that in 

general, market participants view ICE as 

a price discovery market for certain 

electricity contracts. The study did not 

specify which markets performed this 

function; nevertheless, the Commission 

determined that the SDP contract, while 

not mentioned by name in the ECM 

Study, warranted further review. 

The Commission explains in its 

Guidance to the Part 36 rules that in 

evaluating a contract under the material 

price reference criterion, it will rely on 

one of two sources of evidence—direct 

and indirect—to determine that the 

price of a contract was being used as a 

material price reference and therefore, 

serving a significant price discovery 

function.20 With respect to direct 

evidence, the Commission will consider 

the extent to which, on a frequent and 

recurring basis, cash market bids, offers 

or transactions are directly based on, or 

quoted at a differential to, the prices 

generated on the ECM in question. 

Direct evidence may be established 

when cash market participants are 

quoting bid or offer prices or entering 

into transactions at prices that are set 

either explicitly or implicitly at a 

differential to prices established for the 

contract in question. Cash market prices 

are set explicitly at a differential to the 

section 2(h)(3) contract when, for 

instance, they are quoted in dollars and 

cents above or below the reference 

contract’s price. Cash market prices are 

set implicitly at a differential to a 

section 2(h)(3) contract when, for 

instance, they are arrived at after adding 

to, or subtracting from the section 

2(h)(3) contract, but then quoted or 

reported at a flat price. With respect to 

indirect evidence, the Commission will 

consider the extent to which the price 

of the contract in question is being 

routinely disseminated in widely 

distributed industry publications—or 

offered by the ECM itself for some form 

of remuneration—and consulted on a 

frequent and recurring basis by industry 

participants in pricing cash market 

transactions. 

SP–15 is a major pricing center for 

electricity on the West Coast. Traders, 

including producers, keep abreast of 

electricity prices in the SP–15 power 

market when conducting cash deals. 

However, ICE’s SP–15 Financial DayAhead LMP Peak (‘‘SPM’’) contract, 

which is a monthly contract, is used 

more widely as a source of pricing 

information for electricity than the 

daily, peak-hour contract (i.e., the SDP 

contract). Specifically, the SPM contract 

prices power at the SP–15 trading point 

based on the simple average of the peakhour prices over the contract month, as 

reported by CAISO. Market participants 

use the SPM contract to lock-in 

electricity prices far into the future. 

(The SPM contract is listed for 110 

months into the future.) In contrast, the 

SDP contract is listed for a much shorter 

length of time (about 10 weeks); with 

such a limited timeframe, the forward 

pricing capability of the SDP contract is 

much more constrained than that of the 

SPM contract. Traders use monthly 

power contracts like the SPM contract to 

price electricity commitments in the 

future, where such commitments are 

based on long range forecasts of power 

supply and demand. As generation and 

usage nears, market participants have a 

better understanding of actual power 

supply and needs. As a result, traders 

can modify previously-established 

hedges with the daily power contracts, 

like the SDP contract. 

Accordingly, although the SP–15 is a 

major trading center for electricity and, 

as noted, ICE sells price information for 

the SDP contract, the Commission has 

explained in its Guidance that a contract 

meeting the material price reference 

criterion would routinely be consulted 

by industry participants in pricing cash 

market transactions. The SDP contract is 

not consulted in this manner and does 

not satisfy the material price reference 

criterion. Thus, the SDP contract does 


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Federal Register / Vol. 75, No. 139 / Wednesday, July 21, 2010 / Notices 42415 

21 74 FR 51264 (October 6, 2009). 

22Staff has advised the Commission that in its 

experience, a thinly-traded contract is, generally, 

one that has a quarterly trading volume of 100,000 

contracts or less. In this regard, in the third quarter 

of 2009, physical commodity futures contracts with 

trading volume of 100,000 contracts or fewer 

constituted less than one percent of total trading 

volume of all physical commodity futures contracts. 

23 In establishing guidance to illustrate how it 

will evaluate the various criteria, or combinations 

of criteria, when determining whether a contract is 

a SPDC, the Commission made clear that ‘‘material 

liquidity itself would not be sufficient to make a 

determination that a contract is a [SPDC], * * * but 

combined with other factors it can serve as a 

guidepost indicating which contracts are 

functioning as [SPDCs].’’ 17 CFR 36, Appendix A. 

For the reasons discussed above, the Commission 

has found that the SDP contract does not meet the 

material price reference criterion. In light of this 

finding and the Commission’s Guidance cited 

above, there is no need to evaluate further the 

material liquidity criteria since the Commission 

believes it is not useful as the sole basis for a SPDC 

determination. 

not satisfy the direct price reference test 

for existence of material price reference. 

Furthermore, the Commission notes that 

publication of the SDP contract’s prices 

is not indirect evidence of material price 

reference. The SDP contract’s prices are 

published with those of numerous other 

contracts, including ICE’s monthly 

electricity contracts, which are of more 

interest to market participants. In these 

circumstances, the Commission has 

concluded that traders likely do not 

specifically purchase ICE data packages 

for the SDP contract’s prices and do not 

consult such prices on a frequent and 

recurring basis in pricing cash market 

transactions. 

i. Federal Register Comments 

WGCEF, EPSA, WPTF, FIEG, EEI and 

ICE stated that no other contract directly 

references or settles to the SDP 

contract’s price. Moreover, the 

commenters argued that the underlying 

cash price series against which the SDP 

contract is settled (in this case, the 

average day-ahead peak-hour SP–15 

electricity prices on a particular day, 

which is derived from cash market 

transactions) is the authentic reference 

price and not the ICE contract itself. The 

Commission believes that this 

interpretation of price reference is too 

narrow and believes that a cash-settled 

derivatives contract could meet the 

price reference criterion if market 

participants ‘‘consult on a frequent and 

recurring basis’’ the derivatives contract 

when pricing forward, fixed-price 

commitments or other cash-settled 

derivatives that seek to ‘‘lock-in’’ a fixed 

price for some future point in time to 

hedge against adverse price movements. 

As noted above, while SP–15 is a major 

power market, traders do not consider 

the daily average peak-hour SP–15 price 

to be as important as the peak electricity 

price associated with the monthly 

contract. 

In addition, WGCEF and EPSA stated 

that the publication of price data for the 

SDP contract price is weak justification 

for material price reference. Market 

participants generally do not purchase 

ICE data sets for one contract’s prices, 

such as those for the SDP contract. 

Instead, traders are interested in the 

settlement prices, so the fact that ICE 

sells the SDP prices as part of a broad 

package is not conclusive evidence that 

market participants are buying the ICE 

data sets because they find the SDP 

prices have substantial value to them. 

As noted above, the Commission 

indicated that publication of the SDP 

contract’s prices is not indirect evidence 

of routine dissemination. The SDP 

contract’s prices are published with 

those of numerous other contracts, 

which are of more interest to market 

participants. The Commission has 

concluded that traders likely do not 

specifically purchase the ICE data 

packages for the SDP contract’s prices 

and do not consult such prices on a 

frequent and recurring basis in pricing 

cash market transactions. 

Lastly, EEI criticized that the ECM 

Study did not specifically identify the 

SDP contract as a contract that is 

referred to by market participants on a 

frequent and recurring basis. In 

response, the Commission notes that it 

cited the ECM Study’s general finding 

that some ICE electricity contracts 

appear to be regarded as price discovery 

markets merely as indication that an 

investigation of certain ICE contracts 

may be warranted. The ECM Study was 

not intended to serve as the sole basis 

for determining whether or not a 

particular contract meets the material 

price reference criterion. 

ii. Conclusion Regarding Material Price 

Reference 

Based on the above, the Commission 

finds that the ICE SDP contract does not 

meet the material price reference 

criterion because cash market 

transactions are not priced either 

explicitly or implicitly on a frequent 

and recurring basis at a differential to 

the SDP contract’s price (direct 

evidence). Moreover, while the SDP 

contract’s price data is sold to market 

participants, those individuals likely do 

not purchase the ICE data packages 

specifically for the SDP contract’s prices 

and do not consult such prices on a 

frequent and recurring basis in pricing 

cash market transactions (indirect 

evidence). 

2. Material Liquidity Criterion 

To assess whether a contract meets 

the material liquidity criterion, the 

Commission first examines trading 

activity as a general measurement of the 

contract’s size and potential importance. 

If the Commission finds that the 

contract in question meets a threshold 

of trading activity that would render it 

of potential importance, the 

Commission will then perform a 

statistical analysis to measure the effect 

that changes to the subject contract’s 

prices potentially may have on prices 

for other contracts listed on an ECM or 

a DCM. 

The total number of transactions 

executed on ICE’s electronic platform in 

the SDP contract was 6,159 in the 

second quarter of 2009, resulting in a 

daily average of 96.2 trades. During the 

same period, the SDP contract had a 

total trading volume of 23,365 contracts 

and an average daily trading volume of 

365.1 contracts. Moreover, open interest 

as of June 30, 2009, was 3,387 contracts, 

which included trades executed on 

ICE’s electronic trading platform, as 

well as trades executed off of ICE’s 

electronic trading platform and then 

brought to ICE for clearing. In this 

regard, ICE does not differentiate 

between open interest created by a 

transaction executed on its trading 

platform and that created by a 

transaction executed off its trading 

platform.21

In a subsequent filing dated March 24, 

2010, ICE reported that total trading 

volume in the fourth quarter of 2009 

was 40,840 contracts (or 628.3 contracts 

on a daily basis). In terms of number of 

transactions, 6,664 trades occurred in 

the fourth quarter of 2009 (102.5 trades 

per day). As of December 31, 2009, open 

interest in the SDP contract was 16,786 

contracts, which included trades 

executed on ICE’s electronic trading 

platform, as well as trades executed off 

of ICE’s electronic trading platform and 

then brought to ICE for clearing. 

The number of trades per day was 

substantial between the second and 

fourth quarters of 2009. However, 

trading activity in the SDP contract, as 

characterized by total quarterly volume, 

indicates that the SDP contract 

experiences trading activity that is 

similar to that of thinly-traded futures 

markets.22 Thus, the SDP contract does 

not meet a threshold of trading activity 

that would render it of potential 

importance and no additional statistical 

analysis is warranted.23

i. Federal Register Comments 

ICE and WGCEF stated that the SDP 

contract lacks a sufficient number of 

trades to meet the material liquidity 

criterion. These two commenters, along 

with WPTF, EPSA, FIEG and EEI argued 


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24 Guidance, supra. 

25 73 FR 75892 (December 12, 2008). 

26 In addition, ICE stated that the trades-per-day 

statistics that it provided to the Commission in its 

quarterly filing and which were cited in the 

Commission’s October 6, 2009, Federal Register 

notice includes 2(h)(1) transactions, which were not 

completed on the electronic trading platform and 

should not be considered in the SPDC 

determination process. The Commission staff asked 

ICE to review the data it sent in its quarterly filings; 

ICE confirmed that the volume data it provided and 

which the Commission cited includes only 

transaction data executed on ICE’s electronic 

trading platform. As noted above, supplemental 

data supplied by ICE confirmed that block trades 

are in addition to the trades that were conducted 

on the electronic platform; block trades comprise 

about 29 percent of all transactions in the SDP 

contract (as of the fourth quarter of 2009). 

Commission acknowledges that the open interest 

information it provided in its October 6, 2009, 

Federal Register notice includes transactions made 

off the ICE platform. However, once open interest 

is created, there is no way for ICE to differentiate 

between ‘‘on-exchange’’ versus ‘‘off-exchange’’ 

created positions, and all such positions are 

fungible with one another and may be offset in any 

way agreeable to the position holder regardless of 

how the position was initially created. 

27See 73 FR 75888, 75893 (Dec. 12, 2008). 

28The Pacific Intertie comprises three AC lines 

and one DC line. Together, these lines comprise the 

largest single electricity transmission program in 

the United States. The northern end of the DC line 

is at the Bonneville Power Administration’s Celilo 

Converter Station, which is just south of The Dalles 

Dam about 90 miles east of Portland. The southern 

end is 846 miles away at the Sylmar Converter 

Station on the northern outskirts of Los Angeles. 

That station is operated by utilities including 

LADWP and Southern California Edison. The AC 

lines follow generally the same path but terminate 

in Northern California. Only a few parties actually 

that the SDP contract cannot have a 

material effect on other contracts, such 

as those listed for trading by the New 

York Mercantile Exchange (‘‘NYMEX’’), 

a DCM, because price linkage and the 

potential for arbitrage do not exist. 

Moreover, the DCM contracts do not 

cash settle to the SDP contract’s price. 

Instead, the DCM contracts and the SDP 

contract are both cash settled based on 

physical transactions, which neither the 

ECM nor the DCM contracts can 

influence. 

WGCEF and ICE noted that the 

Commission’s Guidance had posited 

concepts of liquidity that generally 

assumed a fairly constant stream of 

prices throughout the trading day and 

noted that the relatively low number of 

trades per day in the SDP contract did 

not meet this standard of liquidity. The 

Commission observes that a continuous 

stream of prices would indeed be an 

indication of liquidity for certain 

markets but the Guidance also notes that 

‘‘quantifying the levels of immediacy 

and price concession that would define 

material liquidity may differ from one 

market or commodity to another.’’24

ICE opined that the Commission 

‘‘seems to have adopted a five trade per 

day test for material liquidity.’’ To the 

contrary, the Commission adopted a five 

trades-per-day threshold as a reporting 

requirement to enable it to 

‘‘independently be aware of ECM 

contracts that may develop into 

SPDCs’’ 25 rather than solely relying 

upon an ECM to identify potential 

SPDCs to the Commission. Thus, any 

contract that meets this threshold may 

be subject to scrutiny as a potential 

SPDC; however, a contract will not be 

found to be a SPDC merely because it 

met the reporting threshold. 

ICE proposed that the statistics 

provided by ICE were misinterpreted 

and misapplied by the Commission. In 

particular, ICE stated that the volume 

figures used in the Commission’s 

analysis (cited above) ‘‘include trades 

made in all months’’ as well as in strips 

of contract months. ICE suggested that a 

more appropriate method of 

determining liquidity is to examine the 

activity in a single traded month of a 

given contract.’’ 26 It is the Commission’s 

opinion that liquidity, as it pertains to 

the SDP contract, is typically a function 

of trading activity in particular lead 

days and, given sufficient liquidity in 

such days, the ICE SDP contract itself 

would be considered liquid. In any 

event, in light of the fact that the 

Commission has found that the SDP 

contract does not meet the material 

price reference criterion, according to 

the Commission’s Guidance, it would be 

unnecessary to evaluate whether the 

SDP contract meets the material 

liquidity criterion since it cannot be 

used alone for SPDC determination. 

ii. Conclusion Regarding Material 

Liquidity 

For the reasons discussed above, the 

Commission finds that the SDP contract 

does not meet the material liquidity 

criterion. 

3. Overall Conclusion Regarding the 

SDP Contract 

After considering the entire record in 

this matter, including the comments 

received, the Commission has 

determined that the ICE SDP contract 

does not perform a significant price 

discovery function under the criteria 

established in section 2(h)(7) of the 

CEA. Specifically, the Commission has 

determined that the SDP contract does 

not meet the material price reference or 

material liquidity criteria at this time. 

Accordingly, the Commission is issuing 

the attached Order declaring that the 

SDP contract is not a SPDC. 

Issuance of this Order indicates that 

the Commission does not at this time 

regard ICE as a registered entity in 

connection with its SDP contract.27

Accordingly, with respect to its SDP 

contract, ICE is not required to comply 

with the obligations, requirements and 

timetables prescribed in Commission 

rule 36.3(c)(4) for ECMs with SPDCs. 

However, ICE must continue to comply 

with the applicable reporting 

requirements for ECMs. 

b. The SP–15 Financial Day-Ahead LMP 

Off-Peak Daily (SQP) Contract and the 

SPDC Indicia 

The SQP contract is cash settled based 

on the arithmetic average of off-peak 

hour, day-ahead LMPs posted by CAISO 

for the SP–15 EZ Gen Hun for all offpeak hours on the day prior to 

generation. The LMPs are derived from 

power trades that result in physical 

delivery. The size of the SQP contract is 

25 MWh, and the SQP contract is listed 

for 75 consecutive calendar days. 

As noted above, electricity generally 

is bought and sold in an auction setting 

on an hourly basis at various point 

along the electrical grid. An LMP 

associated with a specific hour is 

calculated as the volume-weighted 

average price of all of the transactions 

where electricity is to be supplied and 

consumed during that hour. 

Electricity is traded in a day-ahead 

market as well as a real-time market. 

Typically, the bulk of energy 

transactions occur in the day-ahead 

market. The day-ahead market 

establishes prices for electricity that is 

to be delivered during the specified 

hour on the following day. Day-ahead 

prices are determined based on 

generation and energy transaction 

quotes offered in advance. Because 

power quotes are dependent on 

estimates of supply and demand, 

electricity needs usually are not 

perfectly satisfied in the day-ahead 

market. Consequently, on the day the 

electricity is transmitted and used, 

auction participants typically realize 

that they bought or sold either too much 

power or too little power. A real-time 

auction is operated to alleviate this 

problem by serving as a balancing 

mechanism. Specifically, electricity 

traders use the real-time market to sell 

excess electricity and buy additional 

power to meet demand. Only a 

relatively small amount of electricity is 

traded in the real-time market as 

compared to the day-ahead market. 

Path 15 is an 84-mile portion of the 

north-south power transmission 

corridor in California, forming part of 

the Pacific AC Intertie and the 

California-Oregon Transmission 

Project.28 Path 15, along with the Pacific 


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own the Intertie, but numerous entities have 

contracts to share its transmission capacity. The 

California-Oregon border is a dividing line for 

Intertie ownership and capacity sharing. Depending 

on seasonal conditions, the Intertie is capable of 

transmitting up to 7,900 MW—4,800 MW of AC 

power (1,600 MW of this amount is in the 

California-Oregon Transmission Project, also known 

as the Third AC Line) and 3,100 MW of DC power. 

Over the past five years, the limit has ranged 

between about 6,300 MW and 7,900 MW. Most of 

the power transmitted on the Intertie is surplus to 

regional needs, but some firm power also is 

transmitted. See http://www.nwcouncil.org/ 

LIBRARY/2001/2001-11.pdf. 

29The third 500 kV line was installed between 

2003 and 2004 in order to relieve constraints on the 

existing north-south transmission lines. This 

capacity constraint contributed to the California 

energy crisis in 2000 and 2001. See http:// 

www.wapa.gov/sn/ops/transmission/path15/ 

factSheet.pdf. 30 17 CFR Part 36, Appendix A. 

DC Intertie running far to the east, 

completes an important transmission 

interconnection between the 

hydroelectric plants to the north and the 

fossil fuel plants to the south. Path 15 

currently consists of three 500 kV lines 

and four 230 kV lines.29 The 500 kV 

lines connect Los Banos to Gates (two 

lines) and Los Banos to Midway (one 

line); all four 230 kV lines have Gates 

at one end with the other ends 

terminating at Panoche #1, Panoche #2, 

Gregg, or McCall substations. As noted 

above, ‘‘NP–15’’ refers to the northern 

half of Path 15; conversely, ‘‘SP–15’’ 

refers to the lower half of Path 15. 

When the weather is hot in California 

and the Desert Southwest, it is 

comparatively cool in the Pacific 

Northwest. Conversely, when the 

weather is cold in the Pacific Northwest 

it is comparatively warm in California 

and the Desert Southwest. Consumers 

on the West Coast take advantage of 

seasonal weather differences to share 

large amounts of power between the 

Desert Southwest and the Pacific 

Northwest. In the spring and summer, 

when generators (mostly hydroelectric 

plants) generally have surplus power in 

the Northwest and temperatures climb 

in the Southwest, power is shipped 

south to help meet increasing power 

demand, particularly for air 

conditioning. Conversely in the winter, 

when generators in the Southwest 

generally have surplus power and 

temperatures drop in the Northwest, 

power is shipped north to meet 

increasing electricity demand, 

particularly for heating. 

CAISO is charged with operating the 

high-voltage grid in California. Because 

CAISO’s service area is basically the 

entire state, the ISO is responsible for 

serving millions of businesses and 

households, particularly in the Los 

Angeles and San Francisco areas. 

CAISO’s current mission is to ensure the 

efficient and reliable operation of the 

power grid, provide fair and open 

transmission access, promote 

environmental stewardship, facilitate 

effective markets, promote 

infrastructure development and support 

the timely and accurate dissemination 

of information. This ISO also is 

responsible for operating the hourly 

auctions in which power is traded, and 

CAISO publishes LMP data on its Web 

site. 

1. Material Price Reference Criterion 

The Commission’s October 6, 2009, 

Federal Register notice identified 

material price reference and material 

liquidity as the potential basis for a 

SPDC determination with respect to the 

SQP contract. The Commission 

considered the fact that ICE sells its 

price data to market participants in a 

number of different packages which 

vary in terms of the hubs covered, time 

periods, and whether the data are daily 

only or historical. For example, ICE 

offers the ‘‘West Power of Day’’ package 

with access to all price data or just 

current prices plus a selected number of 

months (i.e., 12, 24, 36 or 48 months) of 

historical data. This package includes 

price data for the SQP contract. 

The Commission also noted that its 

October 2007 ECM Study found that in 

general, market participants view ICE as 

a price discovery market for certain 

electricity contracts. The study did not 

specify which markets performed this 

function; nevertheless, the Commission 

determined that the SQP contract, while 

not mentioned by name in the ECM 

Study, warranted further review. 

The Commission explains in its 

Guidance to the statutory criteria for 

SPDCs that in evaluating a contract 

under the material price reference 

criterion, it will rely on one of two 

sources of evidence—direct or 

indirect—to determine that the price of 

a contract was being used as a material 

price reference and therefore, serving a 

significant price discovery function.30

With respect to direct evidence, the 

Commission will consider the extent to 

which, on a frequent and recurring 

basis, cash market bids, offers or 

transactions are directly based on or 

quoted at a differential to, the prices 

generated on the ECM in question. 

Direct evidence may be established 

when cash market participants are 

quoting bid or offer prices or entering 

into transactions at prices that are set 

either explicitly or implicitly at a 

differential to prices established for the 

contract in question. Cash market prices 

are set explicitly at a differential to the 

section 2(h)(3) contract when, for 

instance, they are quoted in dollars and 

cents above or below the reference 

contract’s price. Cash market prices are 

set implicitly at a differential to a 

section 2(h)(3) contract when, for 

instance, they are arrived at after adding 

to, or subtracting from the section 

2(h)(3) contract, but then quoted or 

reported at a flat price. With respect to 

indirect evidence, the Commission will 

consider the extent to which the price 

of the contract in question is being 

routinely disseminated in widely 

distributed industry publications—or 

offered by the ECM itself for some form 

of remuneration—and consulted on a 

frequent and recurring basis by industry 

participants in pricing cash market 

transactions. 

SP–15 is a major pricing center for 

electricity on the West Coast. Traders, 

including producers, keep abreast of the 

electricity prices in the SP–15 power 

market when conducting cash deals. 

However, ICE’s SP–15 Financial DayAhead LMP Off-Peak (‘‘OFP’’) contract, 

which is a monthly contract, is used 

more widely as a source of pricing 

information for electricity than the 

daily, off-peak contract (i.e., the SQP 

contract). Specifically, the OFP contract 

prices power at the SP–15 trading point 

based on the simple average of the offpeak hour prices over the contract 

month, as reported by CAISO. Market 

participants can use the OFP contract to 

lock-in electricity prices far into the 

future (about 10 weeks). In contrast, the 

SQP contract is listed for a much shorter 

length of time; with such a limited 

timeframe, the forward pricing 

capability of the SQP contract is much 

more constrained than that of the OFP 

contract. Traders use monthly power 

contracts like the OFP contract to price 

electricity commitments in the future, 

where such commitments are based on 

long range forecasts of power supply 

and demand. As generation and usage 

nears, market participants have a better 

understanding of actual power supply 

and needs. As a result, traders can 

modify previously-established hedges 

with the daily power contracts, like the 

SQP contract. 

Accordingly, although the SP–15 is a 

major trading center for electricity and, 

as noted, ICE sells price information for 

the SQP contract, the Commission has 

explained in its Guidance that a contract 

meeting the material price reference 

criterion would routinely be consulted 

by industry participants in pricing cash 

market transactions. The SQP contract is 

not consulted in this manner and does 

not satisfy the material price reference 

criterion. Thus, the SQP contract does 

not satisfy the direct price reference test 

for existence of material price reference. 


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31 74 FR 51264 (October 6, 2009). 

32Staff has advised the Commission that in its 

experience, a thinly-traded contract is, generally, 

one that has a quarterly trading volume of 100,000 

contracts or less. In this regard, in the third quarter 

of 2009, physical commodity futures contracts with 

trading volume of 100,000 contracts or fewer 

constituted less than one percent of total trading 

volume of all physical commodity futures contracts. 

33 In establishing guidance to illustrate how it 

will evaluate the various criteria, or combinations 

of criteria, when determining whether a contract is 

a SPDC, the Commission made clear that ‘‘material 

liquidity itself would not be sufficient to make a 

determination that a contract is a [SPDC], * * * but 

combined with other factors it can serve as a 

guidepost indicating which contracts are 

functioning as [SPDCs].’’ 17 CFR Part 36, Appendix 

A. For the reasons discussed above, the 

Commission has found that the SQP contract does 

not meet the material price reference criterion. In 

light of this finding and the Commission’s Guidance 

cited above, there is no need to evaluate further the 

material liquidity criteria since the Commission 

believes it is not useful as the sole basis for a SPDC 

determination. 

Furthermore, the Commission notes that 

publication of the SQP contract’s prices 

is not indirect evidence of material price 

reference. The SQP contract’s prices are 

published with those of numerous other 

contracts, including ICE’s monthly 

electricity contracts, which are of more 

interest to market participants. In these 

circumstances, the Commission has 

concluded that traders likely do not 

specifically purchase ICE data packages 

for the SQP contract’s prices and do not 

consult such prices on a frequent and 

recurring basis in pricing cash market 

transactions. 

i. Federal Register Comments 

WGCEF, EPSA, WPTF, FIEG, EEI and 

ICE stated that no other contract directly 

references or settles to the SQP 

contract’s price. Moreover, the 

commenters argued that the underlying 

cash price series against which the SQP 

contract is settled (in this case, the 

average day-ahead off-peak SP–15 

electricity prices on a particular day, 

which is derived from cash market 

transactions) is the authentic reference 

price and not the ICE contract itself. The 

Commission believes that this 

interpretation of price reference is too 

narrow and believes that a cash-settled 

derivatives contract could meet the 

price reference criterion if market 

participants ‘‘consult on a frequent and 

recurring basis’’ the derivatives contract 

when pricing forward, fixed-price 

commitments or other cash-settled 

derivatives that seek to ‘‘lock-in’’ a fixed 

price for some future point in time to 

hedge against adverse price movements. 

As noted above, while SP–15 is a major 

power market, traders do not consider 

the daily average off-peak SP–15 price 

to be as important as the off-peak 

electricity price associated with the 

monthly contract. 

In addition, WGCEF and EPSA stated 

that the publication of price data for the 

SQP contract price is weak justification 

for material price reference. Market 

participants generally do not purchase 

ICE data sets for one contract’s prices, 

such as those for the SQP contract. 

Instead, traders are interested in the 

settlement prices, so the fact that ICE 

sells the SQP prices as part of a broad 

package is not conclusive evidence that 

market participants are buying the ICE 

data sets because they find the SQP 

prices have substantial value to them. 

As noted above, the Commission 

indicated that publication of the SQP 

contract’s prices is not indirect evidence 

of routine dissemination. The SQP 

contract’s prices are published with 

those of numerous other contracts, 

which are of more interest to market 

participants. The Commission has 

concluded that traders likely do not 

specifically purchase the ICE data 

packages for the SQP contract’s prices 

and do not consult such prices on a 

frequent and recurring basis in pricing 

cash market transactions. 

Lastly, EEI criticized that the ECM 

Study did not specifically identify the 

SQP contract as a contract that is 

referred to by market participants on a 

frequent and recurring basis. In 

response, the Commission notes that it 

cited the ECM Study’s general finding 

that some ICE electricity contracts 

appear to be regarded as price discovery 

markets merely as indication that an 

investigation of certain ICE contracts 

may be warranted. The ECM Study was 

not intended to serve as the sole basis 

for determining whether or not a 

particular contract meets the material 

price reference criterion. 

ii. Conclusion Regarding Material Price 

Reference 

The Commission finds that the ICE 

SQP contract does not meet the material 

price reference criterion because cash 

market transactions are not priced either 

explicitly or implicitly on a frequent 

and recurring basis at a differential to 

the SQP contract’s price (direct 

evidence). Moreover, while the SQP 

contract’s price data is sold to market 

participants, those individuals likely do 

not purchase the ICE data packages 

specifically for the SQP contract’s prices 

and do not consult such prices on a 

frequent and recurring basis in pricing 

cash market transactions (indirect 

evidence). 

2. Material Liquidity Criterion 

As noted above, in its October 6, 

2009, Federal Register notice, the 

Commission identified the SQP contract 

as a potential SPDC based on the 

material price reference and material 

liquidity as potential criteria. To assess 

whether a contract meets the material 

liquidity criterion, the Commission first 

examines trading activity as a general 

measurement of the contract’s size and 

potential importance. If the Commission 

finds that the contract in question meets 

a threshold of trading activity that 

would render it of potential importance, 

the Commission will then perform a 

statistical analysis to measure the effect 

that changes to the subject contract’s 

prices potentially may have on prices 

for other contracts listed on an ECM or 

a DCM. 

The total number of transactions 

executed on ICE’s electronic platform in 

the SQP contract was 2,086 in the 

second quarter of 2009, resulting in a 

daily average of 32.6 trades. During the 

same period, the SQP contract had a 

total trading volume of 57,544 contracts 

and an average daily trading volume of 

899.1 contracts. Moreover, open interest 

as of June 30, 2009, was 9,904 contracts, 

which included trades executed on 

ICE’s electronic trading platform, as 

well as trades executed off of ICE’s 

electronic trading platform and then 

brought to ICE for clearing. In this 

regard, ICE does not differentiate 

between open interest created by a 

transaction executed on its trading 

platform and that created by a 

transaction executed off its trading 

platform.31

In a subsequent filing dated March 24, 

2010, ICE reported that total trading 

volume in the fourth quarter of 2009 

was 43,002 contracts (or 661.6 contracts 

on a daily basis). In terms of number of 

transactions, 1,939 trades occurred in 

the fourth quarter of 2009 (29.8 trades 

per day). As of December 31, 2009, open 

interest in the SQP contract was 6,424 

contracts, which included trades 

executed on ICE’s electronic trading 

platform, as well as trades executed off 

of ICE’s electronic trading platform and 

then brought to ICE for clearing. 

The number of trades per day between 

the second and fourth quarters of 2009 

was not substantial. In addition, trading 

activity in the SQP contract, as 

characterized by total quarterly volume, 

indicates that the SQP contract 

experiences trading activity that is 

similar to that of thinly-traded futures 

markets.32 Thus, the SQP contract does 

not meet a threshold of trading activity 

that would render it of potential 

importance and no additional statistical 

analysis is warranted.33

i. Federal Register Comments 

ICE and WGCEF stated that the SQP 

contract lacks a sufficient number of 

trades to meet the material liquidity 


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34 Guidance, supra. 

35 73 FR 75892 (December 12, 2008). 

36 In addition, ICE stated that the trades-per-day 

statistics that it provided to the Commission in its 

quarterly filing and which were cited in the 

Commission’s October 6, 2009, Federal Register 

notice includes 2(h)(1) transactions, which were not 

completed on the electronic trading platform and 

should not be considered in the SPDC 

determination process. The Commission staff asked 

ICE to review the data it sent in its quarterly filings; 

ICE confirmed that the volume data it provided and 

which the Commission cited includes only 

transaction data executed on ICE’s electronic 

trading platform. As noted above, supplemental 

data supplied by ICE confirmed that block trades 

are in addition to the trades that were conducted 

on the electronic platform; block trades comprise 

about 60 percent of all transactions in the SQP 

contract (as of the fourth quarter of 2009). 

Commission acknowledges that the open interest 

information it provided in its October 6, 2009, 

Federal Register notice includes transactions made 

off the ICE platform. However, once open interest 

is created, there is no way for ICE to differentiate 

between ‘‘on-exchange’’ versus ‘‘off-exchange’’ 

created positions, and all such positions are 

fungible with one another and may be offset in any 

way agreeable to the position holder regardless of 

how the position was initially created. 

37See 73 FR 75888, 75893 (Dec. 12, 2008). 

38The Pacific Intertie comprises three AC lines 

and one DC line. Together, these lines comprise the 

largest single electricity transmission program in 

the United States. The northern end of the DC line 

is at the Bonneville Power Administration’s Celilo 

Converter Station, which is just south of The Dalles 

Dam about 90 miles east of Portland. The southern 

end is 846 miles away at the Sylmar Converter 

Continued 

criterion. These two commenters, along 

with WPTF, EPSA, FIEG and EEI argued 

that the SQP contract cannot have a 

material effect on other contracts, such 

as those listed for trading by NYMEX. 

The commenters pointed out that it is 

not possible for the SQP contract to 

affect a DCM contract because price 

linkage and the potential for arbitrage 

do not exist. Moreover, the DCM 

contracts do not cash settle to the SQP 

contract’s price. Instead, the DCM 

contracts and the SQP contract are both 

cash settled based on physical 

transactions, which neither the ECM or 

the DCM contracts can influence. 

WGCEF and ICE noted that the 

Commission’s Guidance had posited 

concepts of liquidity that generally 

assumed a fairly constant stream of 

prices throughout the trading day and 

noted that the relatively low number of 

trades per day in the SQP contract did 

not meet this standard of liquidity. The 

Commission observes that a continuous 

stream of prices would indeed be an 

indication of liquidity for certain 

markets but the Guidance also notes that 

‘‘quantifying the levels of immediacy 

and price concession that would define 

material liquidity may differ from one 

market or commodity to another.’’ 34

ICE opined that the Commission 

‘‘seems to have adopted a five trade per 

day test for material liquidity.’’ To the 

contrary, the Commission adopted a five 

trades-per-day threshold as a reporting 

requirement to enable it to 

‘‘independently be aware of ECM 

contracts that may develop into 

SPDCs’’ 35 rather than solely relying 

upon an ECM on its own to identify any 

such potential SPDCs to the 

Commission. Thus, any contract that 

meets this threshold may be subject to 

scrutiny as a potential SPDC; however, 

the contract will not be found to be a 

SPDC merely because it met the 

reporting threshold. 

ICE asserted that the statistics 

provided by ICE were misinterpreted 

and misapplied by the Commission. In 

particular, ICE stated that the volume 

figures used in the Commission’s 

analysis (cited above) ‘‘include trades 

made in all months’’ as well as in strips 

of contract months. ICE suggested that a 

more appropriate method of 

determining liquidity is to examine the 

activity in a single traded month of a 

given contract.’’ 36 It is the Commission’s 

opinion that liquidity, as it pertains to 

the SQP contract, is typically a function 

of trading activity in particular lead 

days and, given sufficient liquidity in 

such days, the ICE SQP contract itself 

would be considered liquid. In any 

event, in light of the fact that the 

Commission has found that the SQP 

contract does not meet the material 

price reference criterion, according to 

the Commission’s Guidance, it would be 

unnecessary to evaluate whether the 

SQP contract meets the material 

liquidity criterion since it cannot be 

used alone for SPDC determination. 

ii. Conclusion Regarding Material 

Liquidity 

For the reasons discussed above, the 

Commission finds that the SQP contract 

does not meet the material liquidity 

criterion. 

3. Overall Conclusion Regarding the 

SQP Contract 

After considering the entire record in 

this matter, including the comments 

received, the Commission has 

determined that the ICE SQP contract 

does not perform a significant price 

discovery function under the criteria 

established in section 2(h)(7) of the 

CEA. Specifically, the Commission has 

determined that the SQP contract does 

not meet the material price reference or 

material liquidity criteria at this time. 

Accordingly, the Commission is issuing 

the attached Order declaring that the 

SQP contract is not a SPDC. 

Issuance of this Order indicates that 

the Commission does not at this time 

regard ICE as a registered entity in 

connection with its SQP contract.37

Accordingly, with respect to its SQP 

contract, ICE is not required to comply 

with the obligations, requirements and 

timetables prescribed in Commission 

rule 36.3(c)(4) for ECMs with SPDCs. 

However, ICE must continue to comply 

with the applicable reporting 

requirements for ECMs. 

c. The SP–15 Financial Swap Real Time 

LMP-Peak Daily (SRP) Contract and the 

SPDC Indicia 

The SRP contract is cash settled based 

on the arithmetic average of peak-hour, 

real-time LMPs posted by CAISO for the 

SP–15 EZ Gen Hun for all peak hours 

on the generation day. The LMPs are 

derived from power trades that result in 

physical delivery. The size of the SRP 

contract is 400 MWh, and the SRP 

contract is listed for 75 consecutive 

calendar days. 

As noted above, electricity is bought 

and sold in an auction setting on an 

hourly basis at various point along the 

electrical grid. An LMP associated with 

a specific hour is derived as a volumeweighted average price of all of the 

transactions where electricity is to be 

supplied and consumed during that 

hour. 

Electricity is traded in a day-ahead 

market as well as a real-time market. 

Typically, the bulk of energy 

transactions occur in the day-ahead 

market. The day-ahead market 

establishes prices for electricity that is 

to be delivered during the specified 

hour on the following day. Day-ahead 

prices are determined based on 

generation and energy transaction 

quotes offered in advance. Because 

power quotes are dependent on 

estimates of supply and demand, 

electricity needs usually are not 

perfectly satisfied in the day-ahead 

market. Consequently, on the day the 

electricity is transmitted and used, 

auction participants typically realize 

that they bought or sold either too much 

power or too little power. A real-time 

auction is operated to alleviate this 

problem by serving as a balancing 

mechanism. Specifically, electricity 

traders use the real-time market to sell 

excess electricity and buy additional 

power to meet demand. Only a 

relatively small amount of electricity is 

traded in the real-time market as 

compared to the day-ahead market. 

Path 15 is an 84-mile portion of the 

north-south power transmission 

corridor in California, forming part of 

the Pacific AC Intertie and the 

California-Oregon Transmission 

Project.38 Path 15, along with the Pacific 


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Station on the northern outskirts of Los Angeles. 

That station is operated by utilities including 

LADWP and Southern California Edison. The AC 

lines follow generally the same path but terminate 

in Northern California. Only a few parties actually 

own the Intertie, but numerous entities have 

contracts to share its transmission capacity. The 

California-Oregon border is a dividing line for 

Intertie ownership and capacity sharing. Depending 

on seasonal conditions, the Intertie is capable of 

transmitting up to 7,900 MW—4,800 MW of AC 

power (1,600 MW of this amount is in the 

California-Oregon Transmission Project, also known 

as the Third AC Line) and 3,100 MW of DC power. 

Over the past five years, the limit has ranged 

between about 6,300 MW and 7,900 MW. Most of 

the power transmitted on the Intertie is surplus to 

regional needs, but some firm power also is 

transmitted. See http://www.nwcouncil.org/ 

LIBRARY/2001/2001-11.pdf. 

39The third 500 kV line was installed between 

2003 and 2004 in order to relieve constraints on the 

existing north-south transmission lines. This 

capacity constraint contributed to the California 

energy crisis in 2000 and 2001. See http:// 

www.wapa.gov/sn/ops/transmission/path15/ 

factSheet.pdf. 40 17 CFR 36, Appendix A. 

DC Intertie running far to the east, 

completes an important transmission 

interconnection between the 

hydroelectric plants to the north and the 

fossil fuel plants to the south. Path 15 

currently consists of three 500 kV lines 

and four 230 kV lines.39 The 500 kV 

lines connect Los Banos to Gates (two 

lines) and Los Banos to Midway (one 

line); all four 230 kV lines have Gates 

at one end with the other ends 

terminating at Panoche #1, Panoche #2, 

Gregg, or McCall substations. ‘‘NP–15’’ 

refers to the northern half of Path 15; 

conversely, ‘‘SP–15’’ refers to the lower 

half of Path 15. 

When the weather is hot in California 

and the Desert Southwest, it is 

comparatively cool in the Pacific 

Northwest. Conversely, when the 

weather is cold in the Pacific Northwest 

it is comparatively warm in California 

and the Desert Southwest. Consumers 

on the West Coast take advantage of 

seasonal weather differences to share 

large amounts of power between the 

Desert Southwest and the Pacific 

Northwest. In the spring and summer, 

when generators (mostly hydroelectric 

plants) generally have surplus power in 

the Northwest and temperatures climb 

in the Southwest, power is shipped 

south to help meet increasing power 

demand, particularly for air 

conditioning. Conversely in the winter, 

when generators in the Southwest 

generally have surplus power and 

temperatures drop in the Northwest, 

power is shipped north to meet 

increasing electricity demand, 

particularly for heating. 

CAISO is charged with operating of 

the high-voltage grid in California. 

Because CAISO’s service area is 

basically the entire State of California, it 

is responsible for serving millions of 

businesses and households, particularly 

in the Los Angeles and San Francisco 

areas. CAISO’s current mission is to 

ensure the efficient and reliable 

operation of the power grid, provide fair 

and open transmission access, promote 

environmental stewardship, facilitate 

effective markets, promote 

infrastructure development and support 

the timely and accurate dissemination 

of information. CAISO also is 

responsible for operating the hourly 

auctions in which the power is traded, 

and CAISO publishes the LMP data on 

its Web site. 

1. Material Price Reference Criterion 

The Commission’s October 6, 2009, 

Federal Register notice identified the 

SRP contract as a potential SPDC based 

on the material price reference and 

material liquidity statutory cirteria. The 

Commission considered the fact that ICE 

sells its price data to market participants 

in a number of different packages which 

vary in terms of the hubs covered, time 

periods, and whether the data are daily 

only or historical. For example, ICE 

offers the ‘‘West Power of Day’’ package 

with access to all price data or just 

current prices plus a selected number of 

months (i.e., 12, 24, 36 or 48 months) of 

historical data. This package includes 

price data for the SRP contract. 

The Commission also noted that its 

October 2007 ECM Study found that in 

general, market participants view ICE as 

a price discovery market for certain 

electricity contracts. The study did not 

specify which markets performed this 

function; nevertheless, the Commission 

determined that the SRP contract, while 

not mentioned by name in the ECM 

Study, warranted further review. 

The Commission explains in its 

Guidance to statutory criteria that in 

evaluating a contract under the material 

price reference criterion, it will rely on 

one of two sources of evidence—direct 

or indirect—to determine that the price 

of a contract was being used as a 

material price reference and therefore, 

serving a significant price discovery 

function.40 With respect to direct 

evidence, the Commission will consider 

the extent to which, on a frequent and 

recurring basis, cash market bids, offers 

or transactions are directly based on or 

quoted at a differential to, the prices 

generated on the ECM in question. 

Direct evidence may be established 

when cash market participants are 

quoting bid or offer prices or entering 

into transactions at prices that are set 

either explicitly or implicitly at a 

differential to prices established for the 

contract in question. Cash market prices 

are set explicitly at a differential to the 

section 2(h)(3) contract when, for 

instance, they are quoted in dollars and 

cents above or below the reference 

contract’s price. Cash market prices are 

set implicitly at a differential to a 

section 2(h)(3) contract when, for 

instance, they are arrived at after adding 

to, or subtracting from the section 

2(h)(3) contract, but then quoted or 

reported at a flat price. With respect to 

indirect evidence, the Commission will 

consider the extent to which the price 

of the contract in question is being 

routinely disseminated in widely 

distributed industry publications—or 

offered by the ECM itself for some form 

of remuneration—and consulted on a 

frequent and recurring basis by industry 

participants in pricing cash market 

transactions. 

SP–15 is a major pricing center for 

electricity on the West Coast. Traders, 

including producers, keep abreast of the 

electricity prices in the SP–15 power 

market when conducting cash deals. 

However, ICE’s SP–15 Financial DayAhead LMP Peak (‘‘SPM’’) contract, 

which is a monthly contract, is used 

more widely as a source of pricing 

information for electricity than the realtime daily peal-hour contract (i.e., the 

SRP contract). Specifically, the SPM 

contract prices power at the SP–15 

trading point based on the simple 

average of the peak-hour day-ahead 

prices over the contract month, as 

reported by CAISO. Market participants 

use the SPM contract to lock-in 

electricity prices far into the future. 

(The SPM contract is listed for 110 

calendar months.) In contrast, the SRP 

contract is listed for a much shorter 

length of time (about 10 weeks); with 

such a limited timeframe, the forward 

pricing capability of the SRP contract is 

much more constrained than that of the 

SPM contract. Traders use monthly 

power contracts like the SPM contract to 

price electricity commitments in the 

future, where such commitments are 

based on long range forecasts of power 

supply and demand. As generation and 

usage nears, market participants have a 

better understanding of actual power 

supply and needs. As a result, traders 

can modify previously-established 

hedges with the daily power contracts, 

like the SRP contract. 

Accordingly, although the SP–15 is a 

major trading center for electricity and, 

as noted, ICE sells price information for 

the SRP contract, the Commission has 

explained in its Guidance that a contract 

meeting the material price reference 

criterion would routinely be consulted 

by industry participants in pricing cash 

market transactions. The SRP contract is 

not consulted in this manner and does 


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41 74 FR 51264 (October 6, 2009). 

42Staff has advised the Commission that in its 

experience, a thinly-traded contract is, generally, 

one that has a quarterly trading volume of 100,000 

contracts or less. In this regard, in the third quarter 

of 2009, physical commodity futures contracts with 

trading volume of 100,000 contracts or fewer 

constituted less than one percent of total trading 

volume of all physical commodity futures contracts. 

43 In establishing guidance to illustrate how it 

will evaluate the various criteria, or combinations 

of criteria, when determining whether a contract is 

a SPDC, the Commission made clear that ‘‘material 

liquidity itself would not be sufficient to make a 

determination that a contract is a [SPDC], * * * but 

combined with other factors it can serve as a 

guidepost indicating which contracts are 

functioning as [SPDCs].’’ 17 CFR 36, Appendix A. 

For the reasons discussed above, the Commission 

has found that the SRP contract does not meet the 

material price reference criterion. In light of this 

finding and the Commission’s Guidance cited 

above, there is no need to evaluate further the 

material liquidity criteria since the Commission 

Continued 

not satisfy the material price reference 

criterion. Thus, the SRP contract does 

not satisfy the direct price reference test 

for existence of material price reference. 

Furthermore, the Commission notes that 

publication of the SRP contract’s prices 

is not indirect evidence of material price 

reference. The SRP contract’s prices are 

published with those of numerous other 

contracts, including ICE’s monthly 

electricity contracts, which are of more 

interest to market participants. In these 

circumstances, the Commission has 

concluded that traders likely do not 

specifically purchase ICE data packages 

for the SRP contract’s prices and do not 

consult such prices on a frequent and 

recurring basis in pricing cash market 

transactions. 

i. Federal Register Comments 

WGCEF, EPSA, WPTF, FIEG, EEI and 

ICE stated that no other contract directly 

references or settles to the SRP 

contract’s price. Moreover, the 

commenters argued that the underlying 

cash price series against which the SRP 

contract is settled (in this case, the 

average real-time peak SP–15 electricity 

prices on a particular day, which is 

derived from cash market transactions) 

is the authentic reference price and not 

the ICE contract itself. The Commission 

believes that this interpretation of price 

reference is too narrow and believes that 

a cash-settled derivatives contract could 

meet the price reference criterion if 

market participants ‘‘consult on a 

frequent and recurring basis’’ the 

derivatives contract when pricing 

forward, fixed-price commitments or 

other cash-settled derivatives that seek 

to ‘‘lock-in’’ a fixed price for some future 

point in time to hedge against adverse 

price movements. As noted above, while 

SP–15 is a major power market, traders 

do not consider the average daily realtime peak-hour SP–15 price to be as 

important as the peak electricity price 

associated with the monthly day-ahead 

contract. 

In addition, WGCEF and EPSA stated 

that the publication of price data for the 

SRP contract price is weak justification 

for material price reference. Market 

participants generally do not purchase 

ICE data sets for one contract’s prices, 

such as those for the SRP contract. 

Instead, traders are interested in the 

settlement prices, so the fact that ICE 

sells the SRP prices as part of a broad 

package is not conclusive evidence that 

market participants are buying the ICE 

data sets because they find the SRP 

prices have substantial value to them. 

As noted above, the Commission 

indicated that publication of the SRP 

contract’s prices is not indirect evidence 

of routine dissemination. The SRP 

contract’s prices are published with 

those of numerous other contracts, 

which are of more interest to market 

participants. The Commission has 

concluded that traders likely do not 

specifically purchase the ICE data 

packages for the SRP contract’s prices 

and do not consult such prices on a 

frequent and recurring basis in pricing 

cash market transactions. 

Lastly, EEI argued that the ECM Study 

did not specifically identify the SRP 

contract as a contract that is referred to 

by market participants on a frequent and 

recurring basis. In response, the 

Commission notes that it cited the ECM 

Study’s general finding that some ICE 

electricity contracts appear to be 

regarded as price discovery markets 

merely as indication that an 

investigation of certain ICE contracts 

may be warranted. The ECM Study was 

not intended to serve as the sole basis 

for determining whether or not a 

particular contract meets the material 

price reference criterion. 

ii. Conclusion Regarding Material Price 

Reference 

Based on the above, the Commission 

finds that the ICE SRP contract does not 

meet the material price reference 

criterion because cash market 

transactions are not priced either 

explicitly or implicitly on a frequent 

and recurring basis at a differential to 

the SRP contract’s price (direct 

evidence). Moreover, while the SRP 

contract’s price data is sold to market 

participants, those individuals likely do 

not purchase the ICE data packages 

specifically for the SRP contract’s prices 

and do not consult such prices on a 

frequent and recurring basis in pricing 

cash market transactions (indirect 

evidence). 

2. Material Liquidity Criterion 

As noted above, in its October 6, 

2009, Federal Register notice, the 

Commission identified material price 

reference and material liquidity as 

potentially applicablle criteria for SPDC 

determination of the SRP contract. To 

assess whether a contract meets the 

material liquidity criterion, the 

Commission first examines trading 

activity as a general measurement of the 

contract’s size and potential importance. 

If the Commission finds that the 

contract in question meets a threshold 

of trading activity that would render it 

of potential importance, the 

Commission will then perform a 

statistical analysis to measure the effect 

that changes to the subject contract’s 

prices potentially may have on prices 

for other contracts listed on an ECM or 

a DCM. 

The total number of transactions 

executed on ICE’s electronic platform in 

the SRP contract was 826 in the second 

quarter of 2009, resulting in a daily 

average of 12.9 trades. During the same 

period, the SRP contract had a total 

trading volume of 1,014 contracts and 

an average daily trading volume of 15.8 

contracts. Moreover, open interest as of 

June 30, 2009, was 143 contracts, which 

included trades executed on ICE’s 

electronic trading platform, as well as 

trades executed off of ICE’s electronic 

trading platform and then brought to 

ICE for clearing. In this regard, ICE does 

not differentiate between open interest 

created by a transaction executed on its 

trading platform and that created by a 

transaction executed off its trading 

platform.41

In a subsequent filing dated March 24, 

2010, ICE reported that total trading 

volume in the fourth quarter of 2009 

was 691 contracts (or 10.6 contracts on 

a daily basis). In terms of number of 

transactions, 772 trades occurred in the 

fourth quarter of 2009 (11.9 trades per 

day). As of December 31, 2009, open 

interest in the SDP contract was 41 

contracts, which included trades 

executed on ICE’s electronic trading 

platform, as well as trades executed off 

of ICE’s electronic trading platform and 

then brought to ICE for clearing. 

The number of trades per day between 

the second and fourth quarters of 2009 

was not substantial. In addition, trading 

activity in the SDP contract, as 

characterized by total quarterly volume, 

indicates that the SDP contract 

experiences trading activity that is 

similar to that of thinly-traded futures 

markets.42 Thus, the SRP contract does 

not meet a threshold of trading activity 

that would render it of potential 

importance and no additional statistical 

analysis is warranted.43


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believes it is not useful as the sole basis for a SPDC 

determination. 

44 Guidance, supra. 

45 73 FR 75892 (December 12, 2008). 

46 In addition, ICE stated that the trades-per-day 

statistics that it provided to the Commission in its 

quarterly filing and which were cited in the 

Commission’s October 6, 2009, Federal Register 

notice includes 2(h)(1) transactions, which were not 

completed on the electronic trading platform and 

should not be considered in the SPDC 

determination process. The Commission staff asked 

ICE to review the data it sent in its quarterly filings; 

ICE confirmed that the volume data it provided and 

which the Commission cited includes only 

transaction data executed on ICE’s electronic 

trading platform. As noted above, supplemental 

data supplied by ICE confirmed that block trades 

are in addition to the trades that were conducted 

on the electronic platform; block trades comprise 

about 51 percent of all transactions in the SRP 

contract (as of the fourth quarter of 2009). 

Commission acknowledges that the open interest 

information it provided in its October 6, 2009, 

Federal Register notice includes transactions made 

off the ICE platform. However, once open interest 

is created, there is no way for ICE to differentiate 

between ‘‘on-exchange’’ versus ‘‘off-exchange’’ 

created positions, and all such positions are 

fungible with one another and may be offset in any 

way agreeable to the position holder regardless of 

how the position was initially created. 

47See 73 FR 75888, 75893 (Dec. 12, 2008). 

48The Pacific Intertie comprises three AC lines 

and one DC line. Together, these lines comprise the 

largest single electricity transmission program in 

i. Federal Register Comments 

ICE and WGCEF stated that the SRP 

contract lacks a sufficient number of 

trades to meet the material liquidity 

criterion. These two commenters, along 

with WPTF, EPSA, FIEG and EEI argued 

that the SRP contract cannot have a 

material effect on other contracts, such 

as those listed for trading by NYMEX, a 

DCM, because price linkage and the 

potential for arbitrage do not exist. 

Moreover, the DCM contracts do not 

cash settle to the SDP contract’s price. 

Instead, the DCM contracts and the SRP 

contract are both cash settled based on 

physical transactions, which neither the 

ECM or the DCM contracts can 

influence. 

WGCEF and ICE noted that the 

Commission’s Guidance had posited 

concepts of liquidity that generally 

assumed a fairly constant stream of 

prices throughout the trading day and 

noted that the relatively low number of 

trades per day in the SRP contract did 

not meet this standard of liquidity. The 

Commission observes that a continuous 

stream of prices would indeed be an 

indication of liquidity for certain 

markets but the Guidance also notes that 

‘‘quantifying the levels of immediacy 

and price concession that would define 

material liquidity may differ from one 

market or commodity to another.’’ 44

ICE opined that the Commission 

‘‘seems to have adopted a five trade per 

day test for material liquidity.’’ To the 

contrary, the Commission adopted a five 

trades-per-day threshold as a reporting 

requirement to enable it to 

‘‘independently be aware of ECM 

contracts that may develop into 

SPDCs’’ 45 rather than solely relying 

upon an ECM on its own to identify any 

such potential SPDCs to the 

Commission. Thus, any contract that 

meets this threshold may be subject to 

scrutiny as a potential SPDC; however, 

the contract will not be found to be a 

SPDC merely because it met the 

reporting threshold. 

ICE argued that the statistics provided 

by ICE were misinterpreted and 

misapplied by the Commission. In 

particular, ICE stated that the volume 

figures used in the Commission’s 

analysis (cited above) ‘‘include trades 

made in all months’’ as well as in strips 

of contract months. ICE suggested that a 

more appropriate method of 

determining liquidity is to examine the 

activity in a single traded month of a 

given contract.’’ 46 It is the Commission’s 

opinion that liquidity, as it pertains to 

the SRP contract, is typically a function 

of trading activity in particular lead 

days and, given sufficient liquidity in 

such days, the ICE SRP contract itself 

would be considered liquid. In any 

event, because the Commission has 

found that the SRP contract does not 

meet the material price reference 

criterion, it is unnecessary to evaluate 

whether the SRP contract meets the 

material liquidity criterion since under 

the Commission’s Guidance it cannot be 

used alone for SPDC determination. 

ii. Conclusion Regarding Material 

Liquidity 

For the reasons discussed above, the 

Commission finds that the SRP contract 

does not meet the material liquidity 

criterion. 

3. Overall Conclusion Regarding the 

SDP Contract 

After considering the entire record in 

this matter, including the comments 

received, the Commission has 

determined that the ICE SRP contract 

does not perform a significant price 

discovery function under the criteria 

established in section 2(h)(7) of the 

CEA. Specifically, the Commission has 

determined that the SRP contract does 

not meet the material price reference or 

material liquidity criteria at this time. 

Accordingly, the Commission is issuing 

the attached Order declaring that the 

SRP contract is not a SPDC. 

Issuance of this Order indicates that 

the Commission does not at this time 

regard ICE as a registered entity in 

connection with its SRP contract.47

Accordingly, with respect to its SRP 

contract, ICE is not required to comply 

with the obligations, requirements and 

timetables prescribed in Commission 

rule 36.3(c)(4) for ECMs with SPDCs. 

However, ICE must continue to comply 

with the applicable reporting 

requirements for ECMs. 

D. The NP–15 Financial Day-Ahead 

LMP Peak Daily (DPN) Contract and the 

SPDC Indicia 

The DPN contract is cash settled 

based on the arithmetic average of peakhour, day-ahead LMPs posted by CAISO 

for the NP–15 EZ Gen Hun for all peak 

hours on the day prior to generation. 

The LMPs are derived from power 

trades that result in physical delivery. 

The size of the DPN contract is 400 

MWh, and the DPN contract is listed for 

70 consecutive calendar days. 

As noted above, electricity is bought 

and sold in an auction setting on an 

hourly basis at various points along the 

electrical grid. An LMP associated with 

a specific hour is derived as a volumeweighted average price of all of the 

transactions where electricity is to be 

supplied and consumed during that 

hour. 

Electricity is traded in a day-ahead 

market as well as a real-time market. 

Typically, the bulk of energy 

transactions occur in the day-ahead 

market. The day-ahead market 

establishes prices for electricity that is 

to be delivered during the specified 

hour on the following day. Day-ahead 

prices are determined based on 

generation and energy transaction 

quotes offered in advance. Because 

power quotes are dependent on 

estimates of supply and demand, 

electricity needs usually are not 

perfectly satisfied in the day-ahead 

market. Consequently, on the day the 

electricity is transmitted and used, 

auction participants typically realize 

that they bought or sold either too much 

power or too little power. A real-time 

auction is operated to alleviate this 

problem by serving as a balancing 

mechanism. Specifically, electricity 

traders use the real-time market to sell 

excess electricity and buy additional 

power to meet demand. Only a 

relatively small amount of electricity is 

traded in the real-time market as 

compared to the day-ahead market. 

Path 15 is an 84-mile portion of the 

north-south power transmission 

corridor in California, forming part of 

the Pacific AC Intertie and the 

California-Oregon Transmission 

Project.48 Path 15, along with the Pacific 


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the United States. The northern end of the DC line 

is at the Bonneville Power Administration’s Celilo 

Converter Station, which is just south of The Dalles 

Dam about 90 miles east of Portland. The southern 

end is 846 miles away at the Sylmar Converter 

Station on the northern outskirts of Los Angeles. 

That station is operated by utilities including 

LADWP and Southern California Edison. The AC 

lines follow generally the same path but terminate 

in Northern California. Only a few parties actually 

own the Intertie, but numerous entities have 

contracts to share its transmission capacity. The 

California-Oregon border is a dividing line for 

Intertie ownership and capacity sharing. Depending 

on seasonal conditions, the Intertie is capable of 

transmitting up to 7,900 MW—4,800 MW of AC 

power (1,600 MW of this amount is in the 

California-Oregon Transmission Project, also known 

as the Third AC Line) and 3,100 MW of DC power. 

Over the past five years, the limit has ranged 

between about 6,300 MW and 7,900 MW. Most of 

the power transmitted on the Intertie is surplus to 

regional needs, but some firm power also is 

transmitted. See http://www.nwcouncil.org/ 

LIBRARY/2001/2001-11.pdf. 

49The third 500 kV line was installed between 

2003 and 2004 in order to relieve constraints on the 

existing north-south transmission lines. This 

capacity constraint contributed to the California 

energy crisis in 2000 and 2001. See http:// 

www.wapa.gov/sn/ops/transmission/path15/ 

factSheet.pdf. 50 17 CFR Part 36, Appendix A. 

DC Intertie running far to the east, 

completes an important transmission 

interconnection between the 

hydroelectric plants to the north and the 

fossil fuel plants to the south. Path 15 

currently consists of three 500 kV lines 

and four 230 kV lines.49 The 500 kV 

lines connect Los Banos to Gates (two 

lines) and Los Banos to Midway (one 

line); all four 230 kV lines have Gates 

at one end with the other ends 

terminating at Panoche #1, Panoche #2, 

Gregg, or McCall substations. ‘‘NP–15’’ 

refers to the northern half of Path 15; 

conversely, ‘‘SP–15’’ refers to the lower 

half of Path 15. 

When the weather is hot in California 

and the Desert Southwest, it is 

comparatively cool in the Pacific 

Northwest. Conversely, when the 

weather is cold in the Pacific Northwest 

it is comparatively warm in California 

and the Desert Southwest. Consumers 

on the West Coast take advantage of 

seasonal weather differences to share 

large amounts of power between the 

Desert Southwest and the Pacific 

Northwest. In the spring and summer, 

when generators (mostly hydroelectric 

plants) generally have surplus power in 

the Northwest and temperatures climb 

in the Southwest, power is shipped 

south to help meet increasing power 

demand, particularly for air 

conditioning. Conversely in the winter, 

when generators in the Southwest 

generally have surplus power and 

temperatures drop in the Northwest, 

power is shipped north to meet 

increasing electricity demand, 

particularly for heating. 

CAISO is charged with operating the 

high-voltage grid in California. Because 

CAISO’s service area is basically the 

entire State of California, it is 

responsible for serving millions of 

businesses and households, particularly 

in the Los Angeles and San Francisco 

areas. CAISO’s current mission is to 

ensure the efficient and reliable 

operation of the power grid, provide fair 

and open transmission access, promote 

environmental stewardship, facilitate 

effective markets, promote 

infrastructure development and support 

the timely and accurate dissemination 

of information. CAISO also is 

responsible for operating the hourly 

auctions in which the power is traded, 

and CAISO publishes the LMP data on 

its Web site. 

1. Material Price Reference Criterion 

The Commission’s October 6, 2009, 

Federal Register notice identified the 

DPN contract as a potential SPDC based 

on the material price reference and 

material liquidity criteria. The 

Commission considered the fact that ICE 

sells its price data to market participants 

in a number of different packages which 

vary in terms of the hubs covered, time 

periods, and whether the data are daily 

only or historical. For example, ICE 

offers the ‘‘West Power of Day’’ package 

with access to all price data or just 

current prices plus a selected number of 

months (i.e., 12, 24, 36 or 48 months) of 

historical data. This package includes 

price data for the DPN contract. 

The Commission also noted that its 

October 2007 ECM Study found that in 

general, market participants view ICE as 

a price discovery market for certain 

electricity contracts. The study did not 

specify which markets performed this 

function; nevertheless, the Commission 

determined that the DPN contract, while 

not mentioned by name in the ECM 

Study, warranted further review. 

The Commission explains in its 

Guidance to the statutory criteria that in 

evaluating a contract under the material 

price reference criterion, it will rely on 

one of two sources of evidence—direct 

or indirect—to determine that the price 

of a contract was being used as a 

material price reference and therefore, 

serving a significant price discovery 

function.50 With respect to direct 

evidence, the Commission will consider 

the extent to which, on a frequent and 

recurring basis, cash market bids, offers 

or transactions are directly based on or 

quoted at a differential to, the prices 

generated on the ECM in question. 

Direct evidence may be established 

when cash market participants are 

quoting bid or offer prices or entering 

into transactions at prices that are set 

either explicitly or implicitly at a 

differential to prices established for the 

contract in question. Cash market prices 

are set explicitly at a differential to the 

section 2(h)(3) contract when, for 

instance, they are quoted in dollars and 

cents above or below the reference 

contract’s price. Cash market prices are 

set implicitly at a differential to a 

section 2(h)(3) contract when, for 

instance, they are arrived at after adding 

to, or subtracting from the section 

2(h)(3) contract, but then quoted or 

reported at a flat price. With respect to 

indirect evidence, the Commission will 

consider the extent to which the price 

of the contract in question is being 

routinely disseminated in widely 

distributed industry publications—or 

offered by the ECM itself for some form 

of remuneration—and consulted on a 

frequent and recurring basis by industry 

participants in pricing cash market 

transactions. 

NP–15 is a major pricing center for 

electricity on the West Coast. Traders, 

including producers, keep abreast of the 

electricity prices in the NP–15 power 

market when conducting cash deals. 

However, ICE’s NP–15 Financial DayAhead LMP Peak (‘‘NPM’’) contract, 

which is a monthly contract, is used 

more widely as a source of pricing 

information for electricity than the daily 

peak-hour contract (i.e., the DPN 

contract). Specifically, the NPM contract 

prices power at the NP–15 trading point 

based on the simple average of the peakhour prices over the contract month, as 

reported by CAISO. Market participants 

use the NPM contract to lock-in 

electricity prices far into the future. 

(The NPM contract is listed for up to 86 

calendar months.) In contrast, the DPN 

contract is listed for a much shorter 

length of time (about 10 weeks); with 

such a limited timeframe, the forward 

pricing capability of the DPN contract is 

much more constrained than that of the 

NPM contract. Traders use monthly 

power contracts like the NPM contract 

to price electricity commitments in the 

future, where such commitments are 

based on long range forecasts of power 

supply and demand. As generation and 

usage nears, market participants have a 

better understanding of actual power 

supply and needs. As a result, traders 

can modify previously-established 

hedges with the daily power contracts, 

like the DPN contract. 

Accordingly, although the NP–15 is a 

major trading center for electricity and, 

as noted, ICE sells price information for 

the DPN contract, the Commission has 

explained in its Guidance that a contract 

meeting the material price reference 


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51 74 FR 51264 (October 6, 2009). 

52Staff has advised the Commission that in its 

experience, a thinly-traded contract is, generally, 

one that has a quarterly trading volume of 100,000 

contracts or less. In this regard, in the third quarter 

of 2009, physical commodity futures contracts with 

trading volume of 100,000 contracts or fewer 

constituted less than one percent of total trading 

volume of all physical commodity futures contracts. 

53 In establishing guidance to illustrate how it 

will evaluate the various criteria, or combinations 

of criteria, when determining whether a contract is 

a SPDC, the Commission made clear that ‘‘material 

liquidity itself would not be sufficient to make a 

determination that a contract is a [SPDC], * * * but 

combined with other factors it can serve as a 

guidepost indicating which contracts are 

functioning as [SPDCs].’’ 17 CFR Part 36, Appendix 

criterion would routinely be consulted 

by industry participants in pricing cash 

market transactions. The DPN contract 

is not consulted in this manner and 

does not satisfy the material price 

reference criterion. Thus, the DPN 

contract does not satisfy the direct price 

reference test for existence of material 

price reference. Furthermore, the 

Commission notes that publication of 

the DPN contract’s prices is not indirect 

evidence of material price reference. 

The DPN contract’s prices are published 

with those of numerous other contracts, 

including ICE’s monthly electricity 

contracts, which are of more interest to 

market participants. In these 

circumstances, the Commission has 

concluded that traders likely do not 

specifically purchase ICE data packages 

for the DPN contract’s prices and do not 

consult such prices on a frequent and 

recurring basis in pricing cash market 

transactions. 

i. Federal Register Comments 

WGCEF, EPSA, WPTF, FIEG, EEI and 

ICE stated that no other contract directly 

references or settles to the DPN 

contract’s price. Moreover, the 

commenters argued that the underlying 

cash price series against which the DPN 

contract is settled (in this case, the 

average day-ahead peak SP–15 

electricity prices on a particular day, 

which is derived from cash market 

transactions) is the authentic reference 

price and not the ICE contract itself. The 

Commission believes that this 

interpretation of price reference is too 

narrow and believes that a cash-settled 

derivatives contract could meet the 

price reference criterion if market 

participants ‘‘consult on a frequent and 

recurring basis’’ the derivatives contract 

when pricing forward, fixed-price 

commitments or other cash-settled 

derivatives that seek to ‘‘lock-in’’ a fixed 

price for some future point in time to 

hedge against adverse price movements. 

As noted above, while NP–15 is a major 

power market, traders do not consider 

the daily average peak-hour NP–15 price 

to be as important as the peak electricity 

price associated with the monthly 

contract. 

In addition, WGCEF and EPSA stated 

that the publication of price data for the 

DPN contract price is weak justification 

for material price reference. Market 

participants generally do not purchase 

ICE data sets for one contract’s prices, 

such as those for the DPN contract. 

Instead, traders are interested in the 

settlement prices, so the fact that ICE 

sells the DPN prices as part of a broad 

package is not conclusive evidence that 

market participants are buying the ICE 

data sets because they find the DPN 

prices have substantial value to them. 

As noted above, the Commission 

indicated that publication of the DPN 

contract’s prices is not indirect evidence 

of routine dissemination. The DPN 

contract’s prices are published with 

those of numerous other contracts, 

which are of more interest to market 

participants. The Commission has 

concluded that traders likely do not 

specifically purchase the ICE data 

packages for the DPN contract’s prices 

and do not consult such prices on a 

frequent and recurring basis in pricing 

cash market transactions. 

Lastly, EEI argued that the ECM Study 

did not specifically identify the DPN 

contract as a contract that is referred to 

by market participants on a frequent and 

recurring basis. In response, the 

Commission notes that it cited the ECM 

Study’s general finding that some ICE 

electricity contracts appear to be 

regarded as price discovery markets 

merely as indication that an 

investigation of certain ICE contracts 

may be warranted. The ECM Study was 

not intended to serve as the sole basis 

for determining whether or not a 

particular contract meets the material 

price reference criterion. 

ii. Conclusion Regarding Material Price 

Reference 

Based on the above, the Commission 

finds that the ICE DPN contract does not 

meet the material price reference 

criterion because cash market 

transactions are not priced either 

explicitly or implicitly on a frequent 

and recurring basis at a differential to 

the DPN contract’s price (direct 

evidence). Moreover, while the DPN 

contract’s price data is sold to market 

participants, those individuals likely do 

not purchase the ICE data packages 

specifically for the DPN contract’s 

prices and do not consult such prices on 

a frequent and recurring basis in pricing 

cash market transactions (indirect 

evidence). 

2. Material Liquidity Criterion 

As noted above, in its October 6, 

2009, Federal Register notice, the 

Commission identified material price 

reference and material liquidity as 

potentially applicable criteria for SPDC 

determination of the DPN contract. To 

assess whether a contract meets the 

material liquidity criterion, the 

Commission first examines trading 

activity as a general measurement of the 

contract’s size and potential importance. 

If the Commission finds that the 

contract in question meets a threshold 

of trading activity that would render it 

of potential importance, the 

Commission will then perform a 

statistical analysis to measure the effect 

that changes to the subject contract’s 

prices potentially may have on prices 

for other contracts listed on an ECM or 

a DCM. 

The total number of transactions 

executed on ICE’s electronic platform in 

the DPN contract was 2,782 in the 

second quarter of 2009, resulting in a 

daily average of 43.5 trades. During the 

same period, the DPN contract had a 

total trading volume of 5,766 contracts 

and an average daily trading volume of 

90.1 contracts. Moreover, open interest 

as of June 30, 2009, was 947 contracts, 

which included trades executed on 

ICE’s electronic trading platform, as 

well as trades executed off of ICE’s 

electronic trading platform and then 

brought to ICE for clearing. In this 

regard, ICE does not differentiate 

between open interest created by a 

transaction executed on its trading 

platform and that created by a 

transaction executed off its trading 

platform.51

In a subsequent filing dated March 24, 

2010, ICE reported that total trading 

volume in the fourth quarter of 2009 

was 5,801 contracts (or 89.2 contracts on 

a daily basis). In terms of number of 

transactions, 2,160 trades occurred in 

the fourth quarter of 2009 (33.2 trades 

per day). As of December 31, 2009, open 

interest in the SDP contract was 573 

contracts, which included trades 

executed on ICE’s electronic trading 

platform, as well as trades executed off 

of ICE’s electronic trading platform and 

then brought to ICE for clearing. 

The number of trades per day between 

the second and fourth quarters of 2009 

was not substantial. However, trading 

activity in the DPN contract, as 

characterized by total quarterly volume, 

indicates that the DPN contract 

experiences trading activity that is 

similar to that of thinly-traded futures 

markets.52 Thus, the DPN contract does 

not meet a threshold of trading activity 

that would render it of potential 

importance and no additional statistical 

analysis is warranted.53


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A. For the reasons discussed above, the 

Commission has found that the DPN contract does 

not meet the material price reference criterion. In 

light of this finding and the Commission’s Guidance 

cited above, there is no need to evaluate further the 

material liquidity criteria since the Commission 

believes it is not useful as the sole basis for a SPDC 

determination. 

54 Guidance, supra. 

55 73 FR 75892 (December 12, 2008). 

56 In addition, ICE stated that the trades-per-day 

statistics that it provided to the Commission in its 

quarterly filing and which were cited in the 

Commission’s October 6, 2009, Federal Register 

notice includes 2(h)(1) transactions, which were not 

completed on the electronic trading platform and 

should not be considered in the SPDC 

determination process. The Commission staff asked 

ICE to review the data it sent in its quarterly filings; 

ICE confirmed that the volume data it provided and 

which the Commission cited includes only 

transaction data executed on ICE’s electronic 

trading platform. As noted above, supplemental 

data supplied by ICE confirmed that block trades 

are in addition to the trades that were conducted 

on the electronic platform; block trades comprise 

about 34 percent of all transactions in the DPN 

contract (as of the fourth quarter of 2009). 

Commission acknowledges that the open interest 

information it provided in its October 6, 2009, 

Federal Register notice includes transactions made 

off the ICE platform. However, once open interest 

is created, there is no way for ICE to differentiate 

between ‘‘on-exchange’’ versus ‘‘off-exchange’’ 

created positions, and all such positions are 

fungible with one another and may be offset in any 

way agreeable to the position holder regardless of 

how the position was initially created. 57See 73 FR 75888, 75893 (Dec. 12, 2008). 

i. Federal Register Comments 

ICE and WGCEF stated that the DPN 

contract lacks a sufficient number of 

trades to meet the material liquidity 

criterion. These two commenters, along 

with WPTF, EPSA, FIEG and EEI argued 

that the DPN contract cannot have a 

material effect on other contracts, such 

as those listed for trading by NYMEX 

because price linkage and the potential 

for arbitrage do not exist. Moreover, the 

DCM contracts do not cash settle to the 

DPN contract’s price. Instead, the DCM 

contracts and the DPN contract are both 

cash settled based on physical 

transactions, which neither the ECM or 

the DCM contracts can influence. 

WGCEF and ICE noted that the 

Commission’s Guidance had posited 

concepts of liquidity that generally 

assumed a fairly constant stream of 

prices throughout the trading day and 

noted that the relatively low number of 

trades per day in the DPN contract did 

not meet this standard of liquidity. The 

Commission observes that a continuous 

stream of prices would indeed be an 

indication of liquidity for certain 

markets but the Guidance also notes that 

‘‘quantifying the levels of immediacy 

and price concession that would define 

material liquidity may differ from one 

market or commodity to another.’’54

ICE opined that the Commission 

‘‘seems to have adopted a five trade per 

day test for material liquidity.’’ To the 

contrary, the Commission adopted a five 

trades-per-day threshold as a reporting 

requirement to enable it to 

‘‘independently be aware of ECM 

contracts that may develop into 

SPDCs’’55 rather than solely relying 

upon an ECM on its own to identify any 

such potential SPDCs to the 

Commission. Thus, any contract that 

meets this threshold may be subject to 

scrutiny as a potential SPDC; however, 

the contract will not be found to be a 

SPDC merely because it met the 

reporting threshold. 

ICE argued that the statistics provided 

by ICE were misinterpreted and 

misapplied by the Commission. In 

particular, ICE stated that the volume 

figures used in the Commission’s 

analysis (cited above) ‘‘include trades 

made in all months’’ as well as in strips 

of contract months. ICE suggested that a 

more appropriate method of 

determining liquidity is to examine the 

activity in a single traded month of a 

given contract.’’ 56 It is the Commission’s 

opinion that liquidity, as it pertains to 

the SDP contract, is typically a function 

of trading activity in particular lead 

days and, given sufficient liquidity in 

such days, the ICE DPN contract itself 

would be considered liquid. In any 

event, in light of the fact that the 

Commission has found that the DPN 

contract does not meet the material 

price reference criterion, according to 

the Commission’s Guidance, it would be 

unnecessary to evaluate whether the 

DPN contract meets the material 

liquidity criterion since it cannot be 

used alone for SPDC determination. 

ii. Conclusion Regarding Material 

Liquidity 

For the reasons discussed above, the 

Commission finds that the DPN contract 

does not meet the material liquidity 

criterion. 

3. Overall Conclusion Regarding the 

DPN Contract 

After considering the entire record in 

this matter, including the comments 

received, the Commission has 

determined that the ICE DPN contract 

does not perform a significant price 

discovery function under the criteria 

established in section 2(h)(7) of the 

CEA. Specifically, the Commission has 

determined that the DPN contract does 

not meet the material price reference or 

material liquidity criteria at this time. 

Accordingly, the Commission is issuing 

the attached Order declaring that the 

DPN contract is not a SPDC. 

Issuance of this Order indicates that 

the Commission does not at this time 

regard ICE as a registered entity in 

connection with its DPN contract.57

Accordingly, with respect to its DPN 

contract, ICE is not required to comply 

with the obligations, requirements and 

timetables prescribed in Commission 

rule 36.3(c)(4) for ECMs with SPDCs. 

However, ICE must continue to comply 

with the applicable reporting 

requirements for ECMs. 

e. The NP–15 Financial Day-Ahead LMP 

Off-Peak Daily (UNP) Contract and the 

SPDC Indicia 

The UNP contract is cash settled 

based on the arithmetic average of offpeak hour, day-ahead LMPs posted by 

CAISO for the NP–15 EZ Gen Hun for 

all off-peak hours on the day prior to 

generation. The LMPs are derived from 

power trades that result in physical 

delivery. The size of the UNP contract 

is 25 MWh, and the UNP contract is 

listed for 75 consecutive calendar days. 

As noted above, electricity generally 

is bought and sold in an auction setting 

on an hourly basis at various point 

along the electrical grid. An LMP 

associated with a specific hour is 

derived as a volume-weighted average 

price of all of the transactions where 

electricity is to be supplied and 

consumed during that hour. 

Electricity is traded in a day-ahead 

market as well as a real-time market. 

Typically, the bulk of energy 

transactions occur in the day-ahead 

market. The day-ahead market 

establishes prices for electricity that is 

to be delivered during the specified 

hour on the following day. Day-ahead 

prices are determined based on 

generation and energy transaction 

quotes offered in advance. Because 

power quotes are dependent on the 

estimates of supply and demand, 

electricity needs usually are not 

perfectly satisfied in the day-ahead 

market. Consequently, on the day the 

electricity is transmitted and used, 

auction participants typically realize 

that they bought or sold either too much 

power or too little power. A real-time 

auction is operated to alleviate this 

problem by serving as a balancing 

mechanism. Specifically, electricity 

traders use the real-time market to sell 

excess electricity and buy additional 

power to meet demand. Only a 

relatively small amount of electricity is 

traded in the real-time market as 

compared to the day-ahead market. 

Path 15 is an 84-mile portion of the 

north-south power transmission 

corridor in California, forming part of 

the Pacific AC Intertie and the 

California-Oregon Transmission 


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42426 Federal Register / Vol. 75, No. 139 / Wednesday, July 21, 2010 / Notices 

58The Pacific Intertie comprises three AC lines 

and one DC line. Together, these lines comprise the 

largest single electricity transmission program in 

the United States. The northern end of the DC line 

is at the Bonneville Power Administration’s Celilo 

Converter Station, which is just south of The Dalles 

Dam about 90 miles east of Portland. The southern 

end is 846 miles away at the Sylmar Converter 

Station on the northern outskirts of Los Angeles. 

That station is operated by utilities including 

LADWP and Southern California Edison. The AC 

lines follow generally the same path but terminate 

in Northern California. Only a few parties actually 

own the Intertie, but numerous entities have 

contracts to share its transmission capacity. The 

California-Oregon border is a dividing line for 

Intertie ownership and capacity sharing. Depending 

on seasonal conditions, the Intertie is capable of 

transmitting up to 7,900 MW—4,800 MW of AC 

power (1,600 MW of this amount is in the 

California-Oregon Transmission Project, also known 

as the Third AC Line) and 3,100 MW of DC power. 

Over the past five years, the limit has ranged 

between about 6,300 MW and 7,900 MW. Most of 

the power transmitted on the Intertie is surplus to 

regional needs, but some firm power also is 

transmitted. See http://www.nwcouncil.org/ 

LIBRARY/2001/2001-11.pdf. 

59The third 500 kV line was installed between 

2003 and 2004 in order to relieve constraints on the 

existing north-south transmission lines. This 

capacity constraint contributed to the California 

energy crisis in 2000 and 2001. See http:// 

www.wapa.gov/sn/ops/transmission/path15/ 

factSheet.pdf. 60 17 CFR Part 36, Appendix A. 

Project.58 Path 15, along with the Pacific 

DC Intertie running far to the east, 

completes an important transmission 

interconnection between the 

hydroelectric plants to the north and the 

fossil fuel plants to the south. Path 15 

currently consists of three 500 kV lines 

and four 230 kV lines.59 The 500 kV 

lines connect Los Banos to Gates (two 

lines) and Los Banos to Midway (one 

line); all four 230 kV lines have Gates 

at one end with the other ends 

terminating at Panoche #1, Panoche #2, 

Gregg, or McCall substations. As noted 

above, ‘‘NP–15’’ refers to the northern 

half of Path 15; conversely, ‘‘SP–15’’ 

refers to the lower half of Path 15. 

When the weather is hot in California 

and the Desert Southwest, it is 

comparatively cool in the Pacific 

Northwest. Conversely, when the 

weather is cold in the Pacific Northwest 

it is comparatively warm in California 

and the Desert Southwest. Consumers 

on the West Coast take advantage of 

seasonal weather differences to share 

large amounts of power between the 

Desert Southwest and the Pacific 

Northwest. In the spring and summer, 

when generators (mostly hydroelectric 

plants) generally have surplus power in 

the Northwest and temperatures climb 

in the Southwest, power is shipped 

south to help meet increasing power 

demand, particularly for air 

conditioning. Conversely in the winter, 

when generators in the Southwest 

generally have surplus power and 

temperatures drop in the Northwest, 

power is shipped north to meet 

increasing electricity demand, 

particularly for heating. 

CAISO is charged with operating the 

high-voltage grid in California. Because 

CAISO’s service area is basically the 

entire State of California, it is 

responsible for serving millions of 

businesses and households, particularly 

in the Los Angeles and San Francisco 

areas. CAISO’s current mission is to 

ensure the efficient and reliable 

operation of the power grid, provide fair 

and open transmission access, promote 

environmental stewardship, facilitate 

effective markets, promote 

infrastructure development and support 

the timely and accurate dissemination 

of information. CAISO also is 

responsible for operating the hourly 

auctions in which the power is traded, 

and CAISO publishes the LMP data on 

its Web site. 

1. Material Price Reference Criterion 

The Commission’s October 6, 2009, 

Federal Register notice identified the 

UNP contract as a potential SPDC based 

on the material price reference and 

material liquidity criteria. The 

Commission considered the fact that ICE 

sells its price data to market participants 

in a number of different packages which 

vary in terms of the hubs covered, time 

periods, and whether the data are daily 

only or historical. For example, ICE 

offers the ‘‘West Power of Day’’ package 

with access to all price data or just 

current prices plus a selected number of 

months (i.e., 12, 24, 36 or 48 months) of 

historical data. This package includes 

price data for the UNP contract. 

The Commission also noted that its 

October 2007 ECM Study found that in 

general, market participants view ICE as 

a price discovery market for certain 

electricity contracts. The study did not 

specify which markets performed this 

function; nevertheless, the Commission 

determined that the UNP contract, while 

not mentioned by name in the ECM 

Study, might warrant further review. 

The Commission explains in its 

Guidance to the statutory criteria that in 

evaluating a contract under the material 

price reference criterion, it will rely on 

one of two sources of evidence—direct 

or indirect—to determine that the price 

of a contract was being used as a 

material price reference and therefore, 

serving a significant price discovery 

function.60 With respect to direct 

evidence, the Commission will consider 

the extent to which, on a frequent and 

recurring basis, cash market bids, offers 

or transactions are directly based on or 

quoted at a differential to, the prices 

generated on the ECM in question. 

Direct evidence may be established 

when cash market participants are 

quoting bid or offer prices or entering 

into transactions at prices that are set 

either explicitly or implicitly at a 

differential to prices established for the 

contract in question. Cash market prices 

are set explicitly at a differential to the 

section 2(h)(3) contract when, for 

instance, they are quoted in dollars and 

cents above or below the reference 

contract’s price. Cash market prices are 

set implicitly at a differential to a 

section 2(h)(3) contract when, for 

instance, they are arrived at after adding 

to, or subtracting from the section 

2(h)(3) contract, but then quoted or 

reported at a flat price. With respect to 

indirect evidence, the Commission will 

consider the extent to which the price 

of the contract in question is being 

routinely disseminated in widely 

distributed industry publications—or 

offered by the ECM itself for some form 

of remuneration—and consulted on a 

frequent and recurring basis by industry 

participants in pricing cash market 

transactions. 

NP–15 is a major pricing center for 

electricity on the West Coast. Traders, 

including producers, keep abreast of the 

electricity prices in the NP–15 power 

market when conducting cash deals. 

However, ICE’s NP–15 Financial DayAhead LMP Off-Peak (‘‘ONP’’) contract, 

which is a monthly contract, is used 

more widely as a source of pricing 

information for electricity than the daily 

off-peak hour contract (i.e., the UNP 

contract). Specifically, the ONP contract 

prices power at the NP–15 trading point 

based on the simple average of the offpeak hour prices over the contract 

month, as reported by CAISO. Market 

participants can use the ONP contract to 

lock-in electricity prices far into the 

future. In contrast, the UNP contract is 

listed for a much shorter length of time; 

with such a limited timeframe, the 

forward pricing capability of the UNP 

contract is much more constrained than 

the ONP contract. Traders use monthly 

power contracts like the ONP contract to 

price electricity commitments in the 

future. The ONP contract is listed for up 

to 86 calendar months.) In contrast, the 

UNP contract is listed for a much 

shorter length of time (about 10 weeks). 

As generation and usage nears, market 

participants have a better understanding 

of actual power supply and needs. As a 

result, traders can modify previouslyestablished hedges with the daily power 

contracts, like the UNP contract. 

Accordingly, although the NP–15 is a 

major trading center for electricity and, 

as noted, ICE sells price information for 

the UNP contract, the Commission has 


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Federal Register / Vol. 75, No. 139 / Wednesday, July 21, 2010 / Notices 42427 

61 74 FR 51264 (October 6, 2009). 

62Staff has advised the Commission that in its 

experience, a thinly-traded contract is, generally, 

one that has a quarterly trading volume of 100,000 

contracts or less. In this regard, in the third quarter 

of 2009, physical commodity futures contracts with 

trading volume of 100,000 contracts or fewer 

constituted less than one percent of total trading 

volume of all physical commodity futures contracts. 

63 In establishing guidance to illustrate how it 

will evaluate the various criteria, or combinations 

of criteria, when determining whether a contract is 

a SPDC, the Commission made clear that ‘‘material 

liquidity itself would not be sufficient to make a 

determination that a contract is a [SPDC], * * * but 

combined with other factors it can serve as a 

Continued 

explained in its Guidance that a contract 

meeting the material price reference 

criterion would routinely be consulted 

by industry participants in pricing cash 

market transactions. The UNP contract 

is not consulted in this manner and 

does not satisfy the material price 

reference criterion. Thus, the UNP 

contract does not satisfy the direct price 

reference test for existence of material 

price reference. Furthermore, the 

Commission notes that publication of 

the UNP contract’s prices is not indirect 

evidence of material price reference. 

The UNP contract’s prices are published 

with those of numerous other contracts, 

including ICE’s monthly electricity 

contracts, which are of more interest to 

market participants. In these 

circumstances, the Commission has 

concluded that traders likely do not 

specifically purchase ICE data packages 

for the UNP contract’s prices and do not 

consult such prices on a frequent and 

recurring basis in pricing cash market 

transactions. 

i. Federal Register Comments 

WGCEF, EPSA, WPTF, FIEG, EEI and 

ICE stated that no other contract directly 

references or settles to the UNP 

contract’s price. Moreover, the 

commenters argued that the underlying 

cash price series against which the UNP 

contract is settled (in this case, the 

average day-ahead off-peak NP–15 

electricity prices on a particular day, 

which is derived from cash market 

transactions) is the authentic reference 

price and not the ICE contract itself. The 

Commission believes that this 

interpretation of price reference is too 

narrow and believes that a cash-settled 

derivatives contract could meet the 

price reference criterion if market 

participants ‘‘consult on a frequent and 

recurring basis’’ the derivatives contract 

when pricing forward, fixed-price 

commitments or other cash-settled 

derivatives that seek to ‘‘lock-in’’ a fixed 

price for some future point in time to 

hedge against adverse price movements. 

As noted above, while NP–15 is a major 

power market, traders do not consider 

the daily average off-peak NP–15 price 

to be as important as the off-peak 

electricity price associated with the 

monthly contract. 

In addition, WGCEF and EPSA stated 

that the publication of price data for the 

UNP contract price is weak justification 

for material price reference. Market 

participants generally do not purchase 

ICE data sets for one contract’s prices, 

such as those for the UNP contract. 

Instead, traders are interested in the 

settlement prices, so the fact that ICE 

sells the UNP prices as part of a broad 

package is not conclusive evidence that 

market participants are buying the ICE 

data sets because they find the UNP 

prices have substantial value to them. 

As noted above, the Commission 

indicated that publication of the UNP 

contract’s prices is not indirect evidence 

of routine dissemination. The UNP 

contract’s prices are published with 

those of numerous other contracts, 

which are of more interest to market 

participants. The Commission has 

concluded that traders likely do not 

specifically purchase the ICE data 

packages for the UNP contract’s prices 

and do not consult such prices on a 

frequent and recurring basis in pricing 

cash market transactions. 

Lastly, EEI argued that the ECM Study 

did not specifically identify the UNP 

contract as a contract that is referred to 

by market participants on a frequent and 

recurring basis. In response, the 

Commission notes that it cited the ECM 

Study’s general finding that some ICE 

electricity contracts appear to be 

regarded as price discovery markets 

merely as indication that an 

investigation of certain ICE contracts 

may be warranted. The ECM Study was 

not intended to serve as the sole basis 

for determining whether or not a 

particular contract meets the material 

price reference criterion. 

ii. Conclusion Regarding Material Price 

Reference 

The Commission finds that the ICE 

UNP contract does not meet the material 

price reference criterion because cash 

market transactions are not priced either 

explicitly or implicitly on a frequent 

and recurring basis at a differential to 

the UNP contract’s price (direct 

evidence). Moreover, while the UNP 

contract’s price data is sold to market 

participants, those individuals likely do 

not purchase the ICE data packages 

specifically for the UNP contract’s 

prices and do not consult such prices on 

a frequent and recurring basis in pricing 

cash market transactions (indirect 

evidence). 

2. Material Liquidity Criterion 

As noted above, in its October 6, 

2009, Federal Register notice, the 

Commission identified material price 

reference and material liquidity as 

potentially applicable criteria for SPDC 

determination of the UNP contract. To 

assess whether a contract meets the 

material liquidity criterion, the 

Commission first examines trading 

activity as a general measurement of the 

contract’s size and potential importance. 

If the Commission finds that the 

contract in question meets a threshold 

of trading activity that would render it 

of potential importance, the 

Commission will then perform a 

statistical analysis to measure the effect 

that changes to the subject contract’s 

prices potentially may have on prices 

for other contracts listed on an ECM or 

a DCM. 

The total number of transactions 

executed on ICE’s electronic platform in 

the UNP contract was 1,925 in the 

second quarter of 2009, resulting in a 

daily average of 30.1 trades. During the 

same period, the UNP contract had a 

total trading volume of 36,936 contracts 

and an average daily trading volume of 

577.1 contracts. Moreover, open interest 

as of June 30, 2009, was 4,152 contracts, 

which included trades executed on 

ICE’s electronic trading platform, as 

well as trades executed off of ICE’s 

electronic trading platform and then 

brought to ICE for clearing. In this 

regard, ICE does not differentiate 

between open interest created by a 

transaction executed on its trading 

platform and that created by a 

transaction executed off its trading 

platform.61

In a subsequent filing dated March 24, 

2010, ICE reported that total trading 

volume in the fourth quarter of 2009 

was 19,859 contracts (or 305.5 contracts 

on a daily basis). In terms of number of 

transactions, 1,022 trades occurred in 

the fourth quarter of 2009 (15.7 trades 

per day). As of December 31, 2009, open 

interest in the UNP contract was 3,416 

contracts, which included trades 

executed on ICE’s electronic trading 

platform, as well as trades executed off 

of ICE’s electronic trading platform and 

then brought to ICE for clearing. 

The number of trades per day between 

the second and fourth quarters of 2009 

was not substantial. In addition, trading 

activity in the UNP contract, as 

characterized by total quarterly volume, 

indicates that the UNP contract 

experiences trading activity that is 

similar to that of thinly-traded futures 

markets.62 Thus, the UNP contract does 

not meet a threshold of trading activity 

that would render it of potential 

importance and no additional statistical 

analysis is warranted.63


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42428 Federal Register / Vol. 75, No. 139 / Wednesday, July 21, 2010 / Notices 

guidepost indicating which contracts are 

functioning as [SPDCs].’’ 17 CFR 36, Appendix A. 

For the reasons discussed above, the Commission 

has found that the UNP contract does not meet the 

material price reference criterion. In light of this 

finding and the Commission’s Guidance cited 

above, there is no need to evaluate further the 

material liquidity criteria since the Commission 

believes it is not useful as the sole basis for a SPDC 

determination. 

64 Guidance, supra. 

65 73 FR 75892 (December 12, 2008). 

66 In addition, ICE stated that the trades-per-day 

statistics that it provided to the Commission in its 

quarterly filing and which were cited in the 

Commission’s October 6, 2009, Federal Register 

notice includes 2(h)(1) transactions, which were not 

completed on the electronic trading platform and 

should not be considered in the SPDC 

determination process. The Commission staff asked 

ICE to review the data it sent in its quarterly filings; 

ICE confirmed that the volume data it provided and 

which the Commission cited includes only 

transaction data executed on ICE’s electronic 

trading platform. As noted above, supplemental 

data supplied by ICE confirmed that block trades 

are in addition to the trades that were conducted 

on the electronic platform; block trades comprise 

about 45 percent of all transactions in the UNP 

contract (as of the fourth quarter of 2009). 

Commission acknowledges that the open interest 

information it provided in its October 6, 2009, 

Federal Register notice includes transactions made 

off the ICE platform. However, once open interest 

is created, there is no way for ICE to differentiate 

between ‘‘on-exchange’’ versus ‘‘off-exchange’’ 

created positions, and all such positions are 

fungible with one another and may be offset in any 

way agreeable to the position holder regardless of 

how the position was initially created. 

67See 73 FR 75888, 75893 (Dec. 12, 2008). 

68 44 U.S.C. 3507(d). 

69 7 U.S.C. 19(a). 

i. Federal Register Comments 

ICE and WGCEF stated that the UNP 

contract lacks a sufficient number of 

trades to meet the material liquidity 

criterion. These two commenters, along 

with WPTF, EPSA, FIEG and EEI argued 

that the UNP contract cannot have a 

material effect on other contracts, such 

as those listed for trading by NYMEX, 

because price linkage and the potential 

for arbitrage do not exist. Moreover, the 

DCM contracts do not cash settle to the 

UNP contract’s price. Instead, the DCM 

contracts and the UNP contract are both 

cash settled based on physical 

transactions, which neither the ECM or 

the DCM contracts can influence. 

WGCEF and ICE noted that the 

Commission’s Guidance had posited 

concepts of liquidity that generally 

assumed a fairly constant stream of 

prices throughout the trading day and 

noted that the relatively low number of 

trades per day in the UNP contract did 

not meet this standard of liquidity. The 

Commission observes that a continuous 

stream of prices would indeed be an 

indication of liquidity for certain 

markets but the Guidance also notes that 

‘‘quantifying the levels of immediacy 

and price concession that would define 

material liquidity may differ from one 

market or commodity to another.’’ 64

ICE opined that the Commission 

‘‘seems to have adopted a five trade per 

day test for material liquidity.’’ To the 

contrary, the Commission adopted a five 

trades-per-day threshold as a reporting 

requirement to enable it to 

‘‘independently be aware of ECM 

contracts that may develop into 

SPDCs’’ 65 rather than solely relying 

upon an ECM on its own to identify any 

such potential SPDCs to the 

Commission. Thus, any contract that 

meets this threshold may be subject to 

scrutiny as a potential SPDC; however, 

the contract will not be found to be a 

SPDC merely because it met the 

reporting threshold. 

ICE argued that the statistics provided 

by ICE were misinterpreted and 

misapplied by the Commission. In 

particular, ICE stated that the volume 

figures used in the Commission’s 

analysis (cited above) ‘‘include trades 

made in all months’’ as well as in strips 

of contract months. ICE suggested that a 

more appropriate method of 

determining liquidity is to examine the 

activity in a single traded month of a 

given contract.’’ 66 It is the Commission’s 

opinion that liquidity, as it pertains to 

the UNP contract, is typically a function 

of trading activity in particular lead 

days and, given sufficient liquidity in 

such days, the ICE UNP contract itself 

would be considered liquid. In any 

event, in light of the fact that the 

Commission has found that the UNP 

contract does not meet the material 

price reference criterion, according to 

the Commission’s Guidance, it would be 

unnecessary to evaluate whether the 

UNP contract meets the material 

liquidity criterion since it cannot be 

used alone for SPDC determination. 

ii. Conclusion Regarding Material 

Liquidity 

For the reasons discussed above, the 

Commission finds that the UNP contract 

does not meet the material liquidity 

criterion. 

3. Overall Conclusion Regarding the 

UNP Contract 

After considering the entire record in 

this matter, including the comments 

received, the Commission has 

determined that the ICE UNP contract 

does not perform a significant price 

discovery function under the criteria 

established in section 2(h)(7) of the 

CEA. Specifically, the Commission has 

determined that the UNP contract does 

not meet the material price reference or 

material liquidity criteria at this time. 

Accordingly, the Commission is issuing 

the attached Order declaring that the 

UNP contract is not a SPDC. 

Issuance of this Order indicates that 

the Commission does not at this time 

regard ICE as a registered entity in 

connection with its UNP contract.67

Accordingly, with respect to its UNP 

contract, ICE is not required to comply 

with the obligations, requirements and 

timetables prescribed in Commission 

rule 36.3(c)(4) for ECMs with SPDCs. 

However, ICE must continue to comply 

with the applicable reporting 

requirements for ECMs. 

V. Related Matters 

a. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 68 imposes certain requirements 

on Federal agencies, including the 

Commission, in connection with their 

conducting or sponsoring any collection 

of information as defined by the PRA. 

Certain provisions of Commission rule 

36.3 impose new regulatory and 

reporting requirements on ECMs, 

resulting in information collection 

requirements within the meaning of the 

PRA. OMB previously has approved and 

assigned OMB control number 3038– 

0060 to this collection of information. 

b. Cost-Benefit Analysis 

Section 15(a) of the CEA 69 requires 

the Commission to consider the costs 

and benefits of its actions before issuing 

an order under the Act. By its terms, 

section 15(a) does not require the 

Commission to quantify the costs and 

benefits of an order or to determine 

whether the benefits of the order 

outweigh its costs; rather, it requires 

that the Commission ‘‘consider’’ the 

costs and benefits of its actions. Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission may in its discretion give 

greater weight to any one of the five 

enumerated areas and could in its 

discretion determine that, 

notwithstanding its costs, a particular 

order is necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or 

accomplish any of the purposes of the 

Act. 

When a futures contract begins to 

serve a significant price discovery 

function, that contract, and the ECM on 

which it is traded, warrants increased 

oversight to deter and prevent price 


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Federal Register / Vol. 75, No. 139 / Wednesday, July 21, 2010 / Notices 42429 

70 5 U.S.C. 601 et seq. 71 66 FR 42256, 42268 (Aug. 10, 2001). 72 7 U.S.C. 1a(29). 

73 7 U.S.C. 1a(29). 

74 7 U.S.C. 1a(29). 

manipulation or other disruptions to 

market integrity, both on the ECM itself 

and in any related futures contracts 

trading on DCMs. An Order finding that 

a particular contract is a SPDC triggers 

this increased oversight and imposes 

obligations on the ECM calculated to 

accomplish this goal. The increased 

oversight engendered by the issue of a 

SPDC Order increases transparency and 

helps to ensure fair competition among 

ECMs and DCMs trading similar 

products and competing for the same 

business. Moreover, the ECM on which 

the SPDC is traded must assume, with 

respect to that contract, all the 

responsibilities and obligations of a 

registered entity under the CEA and 

Commission regulations. Additionally, 

the ECM must comply with nine core 

principles established by section 2(h)(7) 

of the Act—including the obligation to 

establish position limits and/or 

accountability standards for the SPDC. 

Section 4(i) of the CEA authorize the 

Commission to require reports for 

SPDCs listed on ECMs. These increased 

responsibilities, along with the CFTC’s 

increased regulatory authority, subject 

the ECM’s risk management practices to 

the Commission’s supervision and 

oversight and generally enhance the 

financial integrity of the markets. 

The Commission has concluded that 

the SDP, SQP, SRP, DNP and UNP 

contracts, which are the subject of the 

attached Orders, are not SPDCs; 

accordingly, the Commission’s Orders 

impose no additional costs and no 

additional statutorily or regulatory 

mandated responsibilities on the ECM. 

c. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 70 requires that agencies 

consider the impact of their rules on 

small businesses. The requirements of 

CEA section 2(h)(7) and the Part 36 

rules affect ECMs. The Commission 

previously has determined that ECMs 

are not small entities for purposes of the 

RFA.71 Accordingly, the Chairman, on 

behalf of the Commission, hereby 

certifies pursuant to 5 U.S.C. 605(b) that 

these Orders, taken in connection with 

section 2(h)(7) of the Act and the Part 

36 rules, will not have a significant 

impact on a substantial number of small 

entities. 

VI. Orders 

a. Order Relating to the SP–15 Financial 

Day-Ahead LMP Peak Daily Contract 

After considering the complete record 

in this matter, including the comment 

letters received in response to its 

request for comments, the Commission 

has determined to issue the following 

Order: 

The Commission, pursuant to its 

authority under section 2(h)(7) of the 

Act, hereby determines that the SP–15 

Financial Day-Ahead LMP Peak Daily 

contract, traded on the 

IntercontinentalExchange, Inc., does not 

at this time satisfy the material price 

preference or material liquidity criteria 

for significant price discovery contracts. 

Consistent with this determination, the 

IntercontinentalExchange, Inc., is not 

considered a registered entity 72 with 

respect to the SP–15 Financial DayAhead LMP Peak Daily contract and is 

not subject to the provisions of the 

Commodity Exchange Act applicable to 

registered entities. Further, the 

obligations, requirements and timetables 

prescribed in Commission rule 

36.3(c)(4) governing core principle 

compliance by the 

IntercontinentalExchange, Inc., are not 

applicable to the SP–15 Financial DayAhead LMP Peak Daily contract with 

the issuance of this Order. 

This Order is based on the 

representations made to the 

Commission by the 

IntercontinentalExchange, Inc., dated 

July 27, 2009, and March 24, 2010, and 

other supporting material. Any material 

change or omissions in the facts and 

circumstances pursuant to which this 

order is granted might require the 

Commission to reconsider its current 

determination that the SP–15 Financial 

Day-Ahead LMP Peak Daily contract is 

not a significant price discovery 

contract. Additionally, to the extent that 

it continues to rely upon the exemption 

in Section 2(h)(3) of the Act, the 

IntercontinentalExchange, Inc., must 

continue to comply with all of the 

applicable requirements of Section 

2(h)(3) and Commission Regulation 

36.3. 

b. Order Relating to the SP–15 Financial 

Day-Ahead LMP Off-Peak Daily 

Contract 

After considering the complete record 

in this matter, including the comment 

letters received in response to its 

request for comments, the Commission 

has determined to issue the following 

Order: 

The Commission, pursuant to its 

authority under section 2(h)(7) of the 

Act, hereby determines that the SP–15 

Financial Day-Ahead LMP Off-Peak 

Daily contract, traded on the 

IntercontinentalExchange, Inc., does not 

at this time satisfy the material price 

preference or material liquidity criteria 

for significant price discovery contracts. 

Consistent with this determination, the 

IntercontinentalExchange, Inc., is not 

considered a registered entity 73 with 

respect to the SP–15 Financial DayAhead LMP Off-Peak Daily contract and 

is not subject to the provisions of the 

Commodity Exchange Act applicable to 

registered entities. Further, the 

obligations, requirements and timetables 

prescribed in Commission rule 

36.3(c)(4) governing core principle 

compliance by the 

IntercontinentalExchange, Inc., are not 

applicable to the SP–15 Financial DayAhead LMP Off-Peak Daily contract 

with the issuance of this Order. 

This Order is based on the 

representations made to the 

Commission by the 

IntercontinentalExchange, Inc., dated 

July 27, 2009, and March 24, 2010, and 

other supporting material. Any material 

change or omissions in the facts and 

circumstances pursuant to which this 

order is granted might require the 

Commission to reconsider its current 

determination that the SP–15 Financial 

Day-Ahead LMP Off-Peak Daily contract 

is not a significant price discovery 

contract. Additionally, to the extent that 

it continues to rely upon the exemption 

in Section 2(h)(3) of the Act, the 

IntercontinentalExchange, Inc., must 

continue to comply with all of the 

applicable requirements of Section 

2(h)(3) and Commission Regulation 

36.3. 

c. Order Relating to the SP–15 Financial 

Swap Real Time LMP–Peak Daily 

Contract 

After considering the complete record 

in this matter, including the comment 

letters received in response to its 

request for comments, the Commission 

has determined to issue the following 

Order: 

The Commission, pursuant to its 

authority under section 2(h)(7) of the 

Act, hereby determines that the SP–15 

Financial Swap Real Time LMP–Peak 

Daily contract, traded on the 

IntercontinentalExchange, Inc., does not 

at this time satisfy the material price 

preference or material liquidity criteria 

for significant price discovery contracts. 

Consistent with this determination, the 

IntercontinentalExchange, Inc., is not 

considered a registered entity 74 with 

respect to the SP–15 Financial Swap 

Real Time LMP–Peak Daily contract and 

is not subject to the provisions of the 

Commodity Exchange Act applicable to 

registered entities. Further, the 

obligations, requirements and timetables 


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42430 Federal Register / Vol. 75, No. 139 / Wednesday, July 21, 2010 / Notices 

75 7 U.S.C. 1a(29). 76 7 U.S.C. 1a(29). 

prescribed in Commission rule 

36.3(c)(4) governing core principle 

compliance by the 

IntercontinentalExchange, Inc., are not 

applicable to the SP–15 Financial Swap 

Real Time LMP–Peak Daily contract 

with the issuance of this Order. 

This Order is based on the 

representations made to the 

Commission by the 

IntercontinentalExchange, Inc., dated 

July 27, 2009, and March 24, 2010, and 

other supporting material. Any material 

change or omissions in the facts and 

circumstances pursuant to which this 

order is granted might require the 

Commission to reconsider its current 

determination that the SP–15 Financial 

Swap Real Time LMP–Peak Daily 

contract is not a significant price 

discovery contract. Additionally, to the 

extent that it continues to rely upon the 

exemption in Section 2(h)(3) of the Act, 

the IntercontinentalExchange, Inc., must 

continue to comply with all of the 

applicable requirements of Section 

2(h)(3) and Commission Regulation 

36.3. 

d. Order Relating to the NP–15 

Financial Day-Ahead LMP Peak Daily 

Contract 

After considering the complete record 

in this matter, including the comment 

letters received in response to its 

request for comments, the Commission 

has determined to issue the following 

Order: 

The Commission, pursuant to its 

authority under section 2(h)(7) of the 

Act, hereby determines that the NP–15 

Financial Day-Ahead LMP Peak Daily 

contract, traded on the 

IntercontinentalExchange, Inc., does not 

at this time satisfy the material price 

preference or material liquidity criteria 

for significant price discovery contracts. 

Consistent with this determination, the 

IntercontinentalExchange, Inc., is not 

considered a registered entity 75 with 

respect to the NP–15 Financial DayAhead LMP Peak Daily contract and is 

not subject to the provisions of the 

Commodity Exchange Act applicable to 

registered entities. Further, the 

obligations, requirements and timetables 

prescribed in Commission rule 

36.3(c)(4) governing core principle 

compliance by the 

IntercontinentalExchange, Inc., are not 

applicable to the NP–15 Financial DayAhead LMP Peak Daily contract with 

the issuance of this Order. 

This Order is based on the 

representations made to the 

Commission by the 

IntercontinentalExchange, Inc., dated 

July 27, 2009, and March 24, 2010, and 

other supporting material. Any material 

change or omissions in the facts and 

circumstances pursuant to which this 

order is granted might require the 

Commission to reconsider its current 

determination that the NP–15 Financial 

Day-Ahead LMP Peak Daily contract is 

not a significant price discovery 

contract. Additionally, to the extent that 

it continues to rely upon the exemption 

in Section 2(h)(3) of the Act, the 

IntercontinentalExchange, Inc., must 

continue to comply with all of the 

applicable requirements of Section 

2(h)(3) and Commission Regulation 

36.3. 

e. Order Relating to the NP–15 Financial 

Day-Ahead LMP Off-Peak Daily 

Contract 

After considering the complete record 

in this matter, including the comment 

letters received in response to its 

request for comments, the Commission 

has determined to issue the following 

Order: 

The Commission, pursuant to its 

authority under section 2(h)(7) of the 

Act, hereby determines that the NP–15 

Financial Day-Ahead LMP Off-Peak 

Daily contract, traded on the 

IntercontinentalExchange, Inc., does not 

at this time satisfy the material price 

preference or material liquidity criteria 

for significant price discovery contracts. 

Consistent with this determination, the 

IntercontinentalExchange, Inc., is not 

considered a registered entity 76 with 

respect to the NP–15 Financial DayAhead LMP Off-Peak Daily contract and 

is not subject to the provisions of the 

Commodity Exchange Act applicable to 

registered entities. Further, the 

obligations, requirements and timetables 

prescribed in Commission rule 

36.3(c)(4) governing core principle 

compliance by the 

IntercontinentalExchange, Inc., are not 

applicable to the NP–15 Financial DayAhead LMP Off-Peak Daily contract 

with the issuance of this Order. 

This Order is based on the 

representations made to the 

Commission by the 

IntercontinentalExchange, Inc., dated 

July 27, 2009, and March 24, 2010, and 

other supporting material. Any material 

change or omissions in the facts and 

circumstances pursuant to which this 

order is granted might require the 

Commission to reconsider its current 

determination that the NP–15 Financial 

Day-Ahead LMP Off-Peak Daily contract 

is not a significant price discovery 

contract. Additionally, to the extent that 

it continues to rely upon the exemption 

in Section 2(h)(3) of the Act, the 

IntercontinentalExchange, Inc., must 

continue to comply with all of the 

applicable requirements of Section 

2(h)(3) and Commission Regulation 

36.3. 

Issued in Washington, DC on July 9, 2010 

by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. 2010–17736 Filed 7–20–10; 8:45 am] 

BILLING CODE 6351–01–P 

CORPORATION FOR NATIONAL AND 

COMMUNITY SERVICE 

Information Collection; Submission for 

OMB Review, Comment Request 

AGENCY: Corporation for National and 

Community Service. 

ACTION: Notice. 

SUMMARY: The Corporation for National 

and Community Service (hereinafter the 

‘‘Corporation’’), has submitted a public 

information collection request (ICR) 

entitled Corporation Enrollment and 

Exit Forms to the Office of Management 

and Budget (OMB) for review and 

approval in accordance with the 

Paperwork Reduction Act of 1995, 

Public Law 104–13, (44 U.S.C. chapter 

35). Copies of this ICR, with applicable 

supporting documentation, may be 

obtained by calling the Corporation for 

National and Community Service, Amy 

Borgstrom at (202) 606–6930. 

Individuals who use a 

telecommunications device for the deaf 

(TTY–TDD) may call (202) 606–3472 

between 8:30 a.m. and 5 p.m. e.t., 

Monday through Friday. 

ADDRESSES: Comments may be 

submitted, identified by the title of the 

information collection activity, to the 

Office of Information and Regulatory 

Affairs, Attn: Ms. Sharon Mar, OMB 

Desk Officer for the Corporation for 

National and Community Service, by 

any of the following two methods 

within 30 days from the date of 

publication in this Federal Register: 

(1) By fax to: (202) 395–6974, 

Attention: Ms. Sharon Mar, OMB Desk 

Officer for the Corporation for National 

and Community Service; and 

(2) Electronically by e-mail to: 

smar@omb.eop.gov. 

SUPPLEMENTARY INFORMATION: The OMB 

is particularly interested in comments 

which: 

• Evaluate whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the Corporation, including 


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