```

[Federal Register: July 21, 2010 (Volume 75, Number 139)]
[Notices]               
[Page 42411-42430]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jy10-41]                         

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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 Day-
Ahead LMP Peak Daily Contract and NP-15 Financial Day-Ahead LMP Off-
Peak 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.

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SUMMARY: On October 6, 2009, the Commodity Futures Trading Commission 
(``CFTC'' or ``Commission'') published for comment in the Federal 
Register\1\ a notice of its intent to undertake a determination whether 
the SP-15\2\ 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-15\3\ 
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.
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    \1\ 74 FR 51264 (October 6, 2009).
    \2\ The acronym ``SP'' stands for ``South Path.''
    \3\ The acronym ``NP'' stands for ``North Path.''
    \4\ 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; these contracts 
will be addressed in a separate Federal Register release.

DATES: Effective date: July 9, 2010.

[[Page 42412]]

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. E-mail: 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).
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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).
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    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.
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    \7\ 74 FR 12178 (Mar. 23, 2009); these rules became effective on 
April 22, 2009.
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    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\
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    \8\ Public 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).
    \9\ For 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.
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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 contracts\10\ 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 FERC\13\ 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

[[Page 42413]]

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.
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    \10\ As 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.
    \11\ The 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.
    \12\ FERC 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 shareholder-owned 
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.
    \13\ FERC 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.''
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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.
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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.
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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 ISO\17\ (``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.
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    \16\ An 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.
    \17\ The 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.
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    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 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.\18\ Path 15, along with the 
Pacific

[[Page 42414]]

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.
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    \18\ The 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 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.
    \19\ The 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.
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    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.
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    \20\ 17 CFR 36, Appendix A.
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    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 Day-Ahead 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 peak-hour 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

[[Page 42415]]

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\
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    \21\ 74 FR 51264 (October 6, 2009).
---------------------------------------------------------------------------

    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\
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    \22\ Staff 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.
---------------------------------------------------------------------------

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

[[Page 42416]]

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\
---------------------------------------------------------------------------

    \24\ Guidance, supra.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \25\ 73 FR 75892 (December 12, 2008).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

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

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 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 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

[[Page 42417]]

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.
---------------------------------------------------------------------------

    \28\ The 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.
    \29\ The 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \30\ 17 CFR Part 36, Appendix A.
---------------------------------------------------------------------------

    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 Day-Ahead 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 off-peak 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.

[[Page 42418]]

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\
---------------------------------------------------------------------------

    \31\ 74 FR 51264 (October 6, 2009).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \32\ Staff 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.
---------------------------------------------------------------------------

i. Federal Register Comments
    ICE and WGCEF stated that the SQP contract lacks a sufficient 
number of trades to meet the material liquidity

[[Page 42419]]

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\
---------------------------------------------------------------------------

    \34\ Guidance, supra.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \35\ 73 FR 75892 (December 12, 2008).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

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

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 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.\38\ Path 15, along with the 
Pacific

[[Page 42420]]

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.
---------------------------------------------------------------------------

    \38\ The 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.
    \39\ The 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \40\ 17 CFR 36, Appendix A.
---------------------------------------------------------------------------

    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 Day-Ahead LMP Peak (``SPM'') contract, which is a monthly 
contract, is used more widely as a source of pricing information for 
electricity than the real-time 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

[[Page 42421]]

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 real-time 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\
---------------------------------------------------------------------------

    \41\ 74 FR 51264 (October 6, 2009).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \42\ Staff 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 believes it is not useful as the sole basis for a SPDC 
determination.

---------------------------------------------------------------------------

[[Page 42422]]

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\
---------------------------------------------------------------------------

    \44\ Guidance, supra.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \45\ 73 FR 75892 (December 12, 2008).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

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

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 
peak-hour, 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 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.\48\ Path 15, along with the 
Pacific

[[Page 42423]]

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.
---------------------------------------------------------------------------

    \48\ The 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.
    \49\ The 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \50\ 17 CFR Part 36, Appendix A.
---------------------------------------------------------------------------

    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 Day-Ahead 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 peak-hour 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

[[Page 42424]]

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\
---------------------------------------------------------------------------

    \51\ 74 FR 51264 (October 6, 2009).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \52\ Staff 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 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.

---------------------------------------------------------------------------

[[Page 42425]]

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\
---------------------------------------------------------------------------

    \54\ Guidance, supra.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \55\ 73 FR 75892 (December 12, 2008).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \57\ See 73 FR 75888, 75893 (Dec. 12, 2008).
---------------------------------------------------------------------------

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 
off-peak 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

[[Page 42426]]

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.
---------------------------------------------------------------------------

    \58\ The 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.
    \59\ The 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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \60\ 17 CFR Part 36, Appendix A.
---------------------------------------------------------------------------

    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 Day-Ahead 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 off-peak 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 previously-
established 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

[[Page 42427]]

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\
---------------------------------------------------------------------------

    \61\ 74 FR 51264 (October 6, 2009).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \62\ Staff 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 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.

---------------------------------------------------------------------------

[[Page 42428]]

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\
---------------------------------------------------------------------------

    \64\ Guidance, supra.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \65\ 73 FR 75892 (December 12, 2008).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

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

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.
---------------------------------------------------------------------------

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

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.
---------------------------------------------------------------------------

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

[[Page 42429]]

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.
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    \70\ 5 U.S.C. 601 et seq.
    \71\ 66 FR 42256, 42268 (Aug. 10, 2001).
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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 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 SP-15 Financial Day-Ahead LMP Peak Daily contract with the issuance 
of this Order.
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    \72\ 7 U.S.C. 1a(29).
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    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 Day-Ahead 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 Day-Ahead LMP Off-Peak Daily contract with the 
issuance of this Order.
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    \73\ 7 U.S.C. 1a(29).
---------------------------------------------------------------------------

    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

[[Page 42430]]

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

    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 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 NP-15 Financial Day-Ahead LMP Peak Daily contract with the issuance 
of this Order.
---------------------------------------------------------------------------

    \75\ 7 U.S.C. 1a(29).
---------------------------------------------------------------------------

    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 Day-Ahead 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 Day-Ahead LMP Off-Peak Daily contract with the 
issuance of this Order.
---------------------------------------------------------------------------

    \76\ 7 U.S.C. 1a(29).
---------------------------------------------------------------------------

    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
```