Received CFTC 

Records Section 

C.F.T.C. 

October 21, 2009 

1 o}dJ/'D\ OFFICE OF THE SECRETARIAT 

Via Electronic Mail: Secretary@cftc.gov Z009 OCT 21 Pfl lf lf2 

Mr. David Stawick, Secretary 

U.S. Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

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

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

COMMENT 

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; 

Mr. Stawick, 

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; 

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

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

The Financial Institutions Energy Group ("FIEG") is comprised of investment and commercial 

banks that provide a broad range of financial services to all segments of the U.S. and global 

economy. Its Members and their affiliates play a number of roles in the wholesale power and 

natural gas markets, including acting as marketers, lenders, underwriters of debt and equity 

securities, and proprietary investors. The Federal Energy Regulatory Commission ("PERC") has 

authorized FIEG's power-marketer Members to sell energy, capacity and ancillary services at 

market-based rates. FIEG Members are active participants in the various organized electricity 

markets administered by independent system operators ("ISOs") and regional transmission 

organizations ("RTOs") in North America. 

* * * 

Electricity prices are among the most volatile of any commodity. This makes it critically 

important for market participants, including public power companies, investor-owned utilities 

and power marketers, to be able to adequately hedge their price risks. Such market participants 

often use the above-referenced ICE SP-15, NP-15 and Mid-C contracts (the "ICE Contracts") to 

hedge their long and short physical positions in the California and Pacific Northwest electric 

power markets. These underlying physical positions can be substantial and require delivery not 

only in the spot month, but often extend forward for months or even years as a result of the 

manner in which market participants procure and sell physical power. 1 

1 Under the Federal Power Act ("FPA"), all sales of electric energy at wholesale must be made at prices that are 

"just and reasonable." In addition, all persons who sell physical power in the wholesale markets are subject to 

regulation by the FERC. 
Mr. David Stawick, Secretary 

October 21, 2009 

Page2 

In addition to its general comments below, FIEG respectfully submits that the Commission's 

allowed time for public comment may be insufficient to allow some affected market participants 

to respond to the Commission's proposal, especially given the large number of power and natural 

gas contracts concurrently being proposed for significant price discovery contract ("SPDC") 

designation. The Commission's rules allow comments to be filed within 30 calendar days or 

such other time specified by the Commission. 2 FIEG proposes that the Commission allow at 

least 30 days for public comment. 

FIEG respectfully submits that the ICE Contracts do not appear to meet the SPDC determination 

criteria set forth in the Commission's SPDC Order. 3 Although the Commission does not specify 

the exchange-traded contracts to which it is comparing the ICE Contracts, FIEG's comments 

below assume that the Commission's analysis will focus on NYMEX power contracts for SP-15, 

NP-15 and Mid-C. 4 

• No price linkage to NYMEX contracts. With respect to the ICE's Mid-C contracts, which 

settle based on the average of day-ahead prices as published in the 'ICE Day Ahead Power 

2 17 CFR § 36.3( c )(3) (2009). 

3 Significant Price Discovery Contracts on Exempt Commercial Markets, 74 Fed. Reg. 12178 (March 23 2009) (to 

be codified at 17 CFRparts 15, 16, 17, 18, 19, 21, 36, 40). 

4 Three of the SPDC designation criteria compare agreements, contracts or transactions trading on an electronic 

trading facility ("ETF") under the exemption in section 2(h)(3) of the CEA to contracts listed for trading on or 

subject to the rules of a designated contract market or derivatives transaction execution facility, or to other 

significant price discovery contracts traded on an ETF. See 17 CFR § 36.3(c)(1)(i, ii, & iv). Specifically, the 

NYMEX contracts for the SP-15, NP-15, and Mid-C delivery points are the: 

• CAISO SP15 EZ Gen Hub 5 MW Peak Calendar-Month Real-Time LMP Swap Futures; 

• CAISO SP15 EZ Gen Hub 5 MW Off-Peak Calendar-Month Real-Time LMP Swap Futures; 

• CAISO SP15 EZ Gen Hub 5 MW Peak Calendar-Day Real-Time LMP Swap Futures; 

• CAISO SP15 EZ Gen Hub 5 MW Off-Peak Calendar-Day Real-Time LMP Swap Futures; 

• CAISO SP15 EZ Gen Hub 5 MW Peak Calendar-Month Day-Ahead LMP Swap Futures; 

• CAISO SP15 EZ Gen Hub 5 MW Off-Peak Calendar-Month Day-Ahead LMP Swap Futures; 

• CAISO SP15 EZ Gen Hub 5 MW Peak Calendar-Day Day-Ahead LMP Swap Futures; 

• CAISO SP15 EZ Gen Hub 5 MW Off-Peak Calendar-Day Day-Ahead LMP Swap Futures; 

• Dow Jones SP15 Electricity Price Index Swap Contract; 

• CAISO NP15 EZ Gen Hub 5 MW Peak Calendar-Month Real-Time LMP Swap Futures; 

• CAISO NP15 EZ Gen Hub 5 MW Off-Peak Calendar-Month Real-Time LMP Swap Futures; 

• CAISO NP15 EZ Gen Hub 5 MW Peak Calendar-Day Real-Time LMP Swap Futures; 

• CAISO NP15 EZ Gen Hub 5 MW Off-Peak Calendar-Day Real-Time LMP Swap Futures; 

• CAISO NP15 EZ Gen Hub 5 MW Peak Calendar-Month Day-Ahead LMP Swap Futures; 

• CAISO NP15 EZ Gen Hub 5 MW Off-Peak Calendar-Month Day-Ahead LMP Swap Futures; 

• CAISO NP15 EZ Gen Hub 5 MW Peak Calendar-Day Day-Ahead LMP Swap Futures; 

• CAISO NP15 EZ Gen Hub 5 MW Off-Peak Calendar-Day Day-Ahead LMP Swap Futures; 

• Dow Jones NP15 Electricity Price Index Swap Contract; and 

• Dow Jones Mid-Columbia Electricity Price Index Swap Contract. 
Mr. David Stawick, Secretary 

October 21, 2009 

Page 3 

Price Report' for all peak or off-peak hours in the contract month, the equivalent NYMEX 

contract settles based on the average of all firm, day-ahead Mid-Columbia prices published 

by Dow Jones & Co. for all peak hours in the contract month. To the extent that both the 

ICE and the NYMEX SP-15 and NP-15 contracts settle at similar prices, it is solely because 

both sets of contracts reference the day-ahead or real-time hourly Locational Marginal Prices 

("LMPs") set by physical demand and supply in the California Independent System Operator 

("CAISO"). In the CAISO, LMPs can depend on physical factors such as weather, snowpack, and generation and transmission outages. Prices in physical power markets are 

regulated by the PERC, which is charged with ensuring that prices are just and reasonable. 5 

Thus, none of the ICE Contracts "uses or otherwise relies on a daily or final settlement price, 

or other major price parameter" of a NYMEX contract "to value a position, transfer or 

convert a position, cash or financially settle a position, or close out a position." See 17 CFR 

§ 36.3(c)(1)(i) (2009). 

• No arbitrage between ICE and NYMEX contracts. The NYMEX contracts listed above 

appear to be considerably less liquid than the ICE Contracts.6 Therefore, notwithstanding 

any similarities in the referenced prices used to settle the contracts, it would be unrealistic to 

conclude that market participants can "effectively arbitrage between the markets by 

simultaneously maintaining positions or executing trades in the contracts on a frequent and 

recurring basis." See 17 CFR § 36.3(c)(l)(ii) (2009). 

• No material price reference. As noted above, both the ICE SP-15 and NP-15 contracts settle 

at LMPs set by physical demand and supply in the CAISO. Thus, the bids, offers, or 

transactions in physical power at SP-15 and NP-15 are not "based on," or "determined by 

referencing, the prices generated by" any of the ICE Contracts. See 17 CFR § 36.3(c)(l)(iii) 

(2009). In fact, the opposite is true; the ICE SP-15 and NP-15 contracts are priced based on 

the results of physical demand and supply in the CAISO's markets. 

5 "All rates and charges made, demanded, or received by any public utility for or in connection with the transmission 

or sale of electric energy subject to the jurisdiction of the Commission, and all rules and regulations affecting or 

pertaining to such rates or charges shall be just and reasonable, and any such rate or charge that is not just and 

reasonable is hereby declared to be unlawful." 16 U.S.C. § 824d(a). 

6 Compare the second quarter of 2009 open interest and trade volume information for the ICE Contracts cited by the 

Commission in its Federal Register announcements, 74 Fed. Reg. 51261 (Oct. 6, 2009); and 74 Fed. Reg. 51264 

(Oct. 6, 2009), to open interest and trade volume information from the CME Group web site, NYMEX/COMEX 

Exchange Open Interest Report- Monthly, September 2009, http://www.cmegroup.com/market-data/volume-openinterest/index.html, p.2 (showing open interest of 120 lots only for the Dow Jones Mid-Columbia Electricity Price 

Index Swap Contract); and NYMEX/COMEX Monthly RTH I CME Globex & NYMEX Clear Port Volume, June 2009 

Volumes, http://www.cmegroup.com/wrappedpages/web _monthly_ report/Web_ 01_ Report_ NYMEX _ COMEX.pdf, 

p.10 (showing zero open interest on the Dow Jones SP-15, NP-15 and Mid-C contracts from January 2009 to June 

2009). None of the NYMEX CAISO LMP-based contracts are listed in these NYMEX reports. 
Mr. David Stawick, Secretary 

October 21, 2009 

Page 4 

• No materia/liquidity. To establish the criterion of "material liquidity" it is insufficient for 

the Commission to note that the trading volume of the ICE Contracts meets or exceeds 

numerical thresholds for the reporting requirements in 17 CFR § 36.3(c)(2) (2009). Instead, 

the material liquidity criterion in section 36.3(c)(l)(iv) ofthe Commission's regulations 

requires the Commission to consider whether the trading volume of the ICE Contracts is 

"sufficient to have a material effect" on exchange-traded contracts such as the NYMEX 

contracts listed above. 7 As noted, there is no direct price linkage between the ICE Contracts 

and most of the corresponding NYMEX contracts. Moreover, potential arbitrage between 

ICE and NYMEX contracts is hindered by the lack of liquidity in the NYMEX contracts. 

Because trading in the ICE Contracts cannot have a "material effect" on the corresponding 

NYMEX contracts, the material liquidity criterion is not satisfied. 

The Commission may also want to consider fundamental differences between power markets and 

other energy markets such as oil and natural gas as it debates the question of any potential 

position limits. Prices in the underlying physical power markets at SP-15 and NP-15 are 

generally not influenced by financial trading that occurs on platforms such as ICE and are 

calculated using physical supply and demand subject to market power mitigation rules under 

FERC's "just and reasonable" standard. Access to liquid financial contracts offers physical 

generators and loads additional flexibility to hedge their physical positions. 8 The absence of 

adequate hedging is one of factors that in the past contributed to problems in physical power 

markets (e.g., in California in 2000-2001 ). Imposing position limits on financial trading in 

markets that do not currently face any known problems can run the risk of inadvertently harming 

the risk management and hedging opportunities available to physical market participants and 

should not be done without careful deliberation. 

Considering the balance of known factors weighing against the designation of the ICE Contracts 

as SPDCs, the Commission should exercise extreme care; particularly in light of the yet 

unknown potential for unintended consequences that may result from the application of the 

Commission's comprehensive regulatory program to these contracts. To date, the Commission 

has no experience with respect to what effect SPDC designation may have on the contracts or the 

related physical transactions. The first contract to be designated a SPDC, the ICE Henry 

Financial LD1 Fixed Price Contract, was designated in July of2009 and the ICE has not yet 

completed its implementation of the Commission's regulatory requirements. Therefore, FIEG 

respectfully recommends that the Commission not designate the ICE Contracts as SPDCs or in 

the alternative, that it consider delaying its determination as to whether the ICE Contracts are 

SPDCs until it has fully reviewed the effects of its regulation on the ICE Henry Financial LD1 

Fixed Price Contract. 

7 See n.4, supra. 

8 The financial hedging in power includes spot, monthly, quarterly and calendar year terms and have grown as 

physical power markets have developed, e.g., see Figure 29 in PERC's 2008 State of the Markets Report 

http://www. ferc.gov /market -oversight/ st-m kt -ovr/200 8-som-ti nal. pdf. 
Mr. David Stawick, Secretary 

October 21, 2009 

Page 5 

FIEG appreciates the opportunity to provide these comments. 

Sincerely, 

Is/ Catherine M. Krupka 

Catherine M. Krupka 

Sutherland Asbill & Brennan LLP 

1275 Pennsylvania Ave., NW 

Washington, DC 20004 

(202) 383-0248 

catherine.krupka@sutherland.com 

Attorneys for The Financial Institutions Energy Group