WPTF 

~ 

November 27,2009 

Mr. David Stawick 

Secretary 

U.S. Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

Received CFTC 

Records Section 

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RE: Signiftcant Price Discovery Contract Comments 

ICE SP-15 Financial Day-Ahead LMP Peak (SPM) Contract; 

ICE SP-15 Financial Day-Ahead LMP Peak Daily (SDP) Contract; 

ICE SP-15 Financial Day-Ahead LMP Off-Peak Daily (SQP) Contract; 

ICE SP-15 Financial Swap Real Time LMP-Peak Daily (SRP) Contract; 

ICE SP-15 Financial Day-Ahead LMP Off-Peak (OFP) Contract; 

ICE NP-15 Financial Day-Ahead LMP Peak Daily (DPN) Contract; 

ICE NP-15 Financial Day-Ahead LMP Off-Peak Daily (UNP) Contract; 

ICE Mid-C Financial Peak (MDC) Contract; 

ICE Mid-C Financial Peak Daily (MPD) Contract; 

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ICE Mid-C Financial Off-Peak (OMC) Contract; and 

ICE Mid-C Financial Off-Peak Daily (MXO) Contract COMMENT 

Mr. Stawick, 

The Western Power Trading Forum ("WPTF") respectfully submits the following comments in 

response to the Commodity Futures Trading Commission's (the "Commission" or "CFTC") 

October 6, 2009 Notice of Intent to consider whether the above-referenced contracts offered for 

trading on the IntercontinentalExchange, Inc. ("ICE") perform a significant price discovery 

function. 1 

1 See Notice of Intent, Pursuant to the Authority in Section 2(h)(7) of the Commodity Exchange Act and Commission 

Rule 36.3(c)(3), to Undertake a Determination Whether the Mid-C Financial Peak Contract; Mid-C Financial Peak 

Daily Contract; Mid-C Financial off-Peak Contract; and Mid-C Financial Off-Peak Daily Contract, Offered for 

Trading on the IntercontinentalExchange, Inc., Perform Significant Price Discovery Functions, 74 Fed. Reg. 51,261 

(Oct. 6, 2009); Notice of Intent, Pursuant to the Authority in Section 2(h)(7) of the Commodity Exchange Act and 

Commission Rule 36.3(c)(3), to Undertake a Determination Whether the SP-I5 Financial Day-Ahead LMP Peak 

Contract; SP-I 5 Financial Day-Ahead LMP Peak Daily Contract; SP-I 5 Financial Day-Ahead LMP Off-Peak 

Daily Contract; SP-I5 Financial Swap Real Time LMP-Peak Daily Contract; SP-I5 Financial Day-Ahead LMP 

Off-Peak Contract; NP-I5 Financial Day-Ahead LMP Peak Daily Contract; and NP-I5 Financial Day-Ahead LMP 

Off-Peak Daily Contract, Offored for Trading on the Intercontinenta/Exchange, Inc., Perform Significant Price 

Discovery Functions, 74 Fed. Reg. 51,264 (Oct. 6, 2009). On November 5, 2009, the Commission reopened the 

relevant comment periods, establishing a new deadline of November 27, 2009. 74 Fed. Reg. 58,259 (Nov. 12, 

2009). 
Mr. David Stawick 

November 27,2009 

Page 2 of4 

WPTF is a broad-based membership organization dedicated to encouraging competition in 

Western power markets. By focusing on developing competitive electricity markets throughout 

the Western states, WPTF strives to reduce the long-run cost of electricity to consumers 

throughout the region while maintaining the current high level of system reliability. WPTF 

members include energy service providers, scheduling coordinators, power generators, power 

marketers, energy consultants and public utilities, all of whom are active in the Western power 

markets, including the California Independent System Operator ("CAISO") markets. Many of its 

members use the above-referenced ICE SP-15, NP-15 and Mid-C contracts (the "ICE 

Contracts") to hedge their physical positions in the Western electric power markets. 

Comments 

WPTF agrees with the other commenters who have concluded that the Commission has not met 

its burden of demonstrating that the ICE Contracts qualify as significant price discovery 

contracts ("SPDCs"). The record clearly establishes that the ICE Contracts reference the dayahead and real-time Locational Marginal Prices ("LMPs"), which are set by physical supply and 

demand in the CAISO cash markets and regulated by the Federal Energy Regulatory 

Commission ("FERC"). Ultimately, LMPs are the price discovery mechanisms for electric 

power in the California and Pacific Northwest electric power markets, not the ICE Contracts. 

As a general matter, the ICE Contracts neither contribute to nor rely upon the prices of contracts 

traded on, or subject to, the rules of a designated contract market ("DCM''). Nor is there any 

evidence that market participants reference the ICE Contracts in their electric power contracts; in 

fact, to do so would be as pointless as referencing the fmal settlement price of an index-based 

swap that settles at an index when the underlying index is readily available for reference. 

Moreover, fundamental differences between the electric power markets and other markets such 

as natural gas and crude oil, cause the ICE Contracts to be less likely to function as SPDCs. For 

example, the highly regulated, liquid and transparent nature of the underlying electric power 

markets, the general inability to store electricity in the way that other commodities can be stored 

and limits on transmission all contribute to the importance of the physical cash markets and 

reduce the potential for derivative markets to influence, or act as effective price discovery tools, 

for the underlying markets or other derivative markets. 

With regard to the specific criteria required to be considered by the Commission, WPTF 

respectfully submits that the Federal Register notices2 laying out the Commission's arguments in 

support of its proposed SPDC finding for the ICE Contracts actually do not provide the requisite 

2 WPTF notes that the Commission appears to be using the same format for each SPDC notice, with little 

customization for each listed contract. The Commission cannot meet its burden without a more tailored evidentiary 

record to support its proposed SPDC finding. The comments submitted to date related to the ICE Contracts 

highlight why such a tailored approach is needed- a review of the facts against the statutory test would show that 

the contracts are not SPDCs. 
Mr. David Stawick 

November 27,2009 

Page 3 of4 

evidence under the criteria for an SPDC determination prescribed by statute and implemented 

through Commission regulations: (1) price linkage; (2) arbitrage; (3) material price reference; 

and ( 4) material liquidity. 3 

Price Linkage. The ICE Contracts do not use or otherwise rely on any "contracts listed for 

trading on or subject to the rules of a designated contract market or a derivatives transaction 

execution facility.'.4 In fact, neither the Commission nor any commenter has suggested any price 

linkage between the ICE Contracts and any contracts subject to the rules of a DCM. 

Arbitrage. As explained in the comments of the Edison Electric Institute, the ICE Contracts do 

not "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. ,,s In 

fact, there is absolutely no evidence in the record to date of any actual or theoretical arbitrage 

opportunities between the ICE Contracts and DCM-regulated contracts. 

Material Price Reference. As more fully discussed in the comments of the Working Group of 

Commercial Energy Firms, there is no evidence, direct or indirect, that the ICE Contracts are 

material price references.6 Because the ICE Contracts settle at LMPs set by the CAISO cash 

markets, the bids, offers, and transactions in the underlying markets are not "based on [or] 

determined by referencing, the prices generated by" any of the ICE Contracts? In fact, the 

opposite is true: the settlement price of the ICE Contracts are based on and determined by 

referencing the LMPs. Moreover, although the ICE Contracts are useful for hedging price risk, 

they are not useful price references for the underlying physical markets. To the extent that any 

parties ever chose to reference the ICE Contracts in their underlying physical contracts, the 

practical effect would be identical to referencing the arithmetic average LMPs during the 

specified periods. 

Material Liquidity. Trading in the ICE Contracts has no effect on any other contracts. As 

discussed in the comments of the Financial Institutions Energy Group, the lack of price linkage 

3 See Title XIII of the Food, Conservation and Energy Act of2008, Pub. L. No. 110-246, 122 Stat. 1623 (June 18, 

2008); Significant Price Discovery Contracts on Exempt Commercial Markets, 74 Fed. Reg. 12,178 (Mar. 23, 2009) 

("SPDC Final Rule"); 17 CFR § 36.3 (2009). 

4 See 17 CFR § 36.3(c)(l)(i) (2009). 

5 See Comments ofEdison Electric Institute, Comments File No. 09-11, at p. 6-7 (filed Oct. 21, 2009) (discussing 

Mid-C contracts) quoting "Order Finding That the ICE Henry Financial LD1 Fixed Price Contract Traded on the 

IntercontinentalExchange, Inc., Performs a Significant Price Discovery Function, Final Order," 74 Fed. Reg. 37,989 

(July 30, 2009) (designating ICE Henry Financial an SPDC); see also, Comments of Edison Electric Institute, 

Comments File No. 09-12, at p. 7 (filed Oct. 21, 2009) (same for ICE SP-15 and NP-15 contracts). 

6 See Comments of Working Group of Commercial Energy Firms, Comments File No. 09-11, at pp. 5-6 (filed Oct. 

21, 2009) (discussing Mid-C contracts); Comments of Working Group of Commercial Energy Firms, Comments 

File no. 09-12, at pp. 5-6 (filed Oct. 21, 2009) (same for ICE SP-15 and NP-15 contracts). 

7 See 17 CFR § 36.3(c)(1)(iii) (2009). 
Mr. David Stawick 

November 27, 2009 

Page 4 of4 

and arbitrage between the ICE Contracts and NYMEX contracts prevents trading in the ICE 

Contracts from having any material effect on corresponding NYMEX contracts. 8 As such, the 

material liquidity criterion is not satisfied. 

Other Material Factors. Finally, WPTF agrees with other commenters who have noted the 

importance of these markets for hedging and expressed concern about the unnecessary 

imposition of the rules that would accompany designations as SPDCs. In particular, the FERC's 

extensive presence in the underlying physical markets has filled the regulatory space, and any 

theoretical benefit from additional regulation of the ICE Contracts would be outweighed by the 

unnecessary regulatory burdens that would accompany designations as SPDCs. 

Reply Comments to the California PUC 

WPTF would like to take this opportunity to comment on the filing made in regard to the CFTC 

Notice oflntent by the California Public Utilities Commission (CPUC) on October 26, 2009. 

First, the CPUC was not responsive to whether or not the earlier-referenced ICE contracts 

perform a significant price discovery function. Rather, the CPUC advocated for greater price 

transparency, apparently misunderstanding that the ICE postings are fully transparent, and that 

ICE is regulated by the CFTC as an Exempt Commercial Market (ECM). Second, as their 

comments state, they were filed by staff and, therefore, neither endorsed formally by the CPUC 

as an agency, nor any individual commissioner9

• As such, WPTF notes that the CPUC comments 

should be viewed exclusively as those of its staff, and not ofthe CPUC. 

WPTF appreciates the opportunity to provide these comments, including the Commission's 

decision to extend the comment period as requested by FIEG, and respectfully requests that the 

Commission conclude that the ICE Contracts are not SPDCs. 

~'o~ Gary B. Ackerman 

Executive Director 

8 See Comments of Financial Institutions Energy Group, Comments File No. 09-11, at p. 4 (filed Oct. 21, 2009). 

9 Normal CPUC procedure is for staff to seek formal Commission endorsement of comments prior to submitting 

such to a federal agency. In the instant case, staff did not seek CPUC approval prior to submitting their October 26 

comments to the CFTC.