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EPSA Files Comments with the CFTC on SPDC Designation NOI

WASHINGTON, D.C. - The Electric Power Supply Association (EPSA) today filed a letter with the Commodity Futures Trading Commission (CFTC) in response to a Notice of Inquiry (NOI) regarding the proposed designation of seven electricity contracts as significant price discovery contracts (SPDCs). All seven contracts are traded on the Intercontinental Exchange (ICE) and based on the California Independent System Operators (CAISO) locational marginal pricing (LMP). SPDC designation would unnecessarily subject contracts to various requirements. This represents the first time that the CFTC has proposed electricity contracts as SPDCs.

EPSA's letter requests that the Commission not designate the contracts as SPDCs and notes that the "External financial transactions such as the ICE swaps market do not impact the LMP in CAISO. Under the CAISOs tariff, the algorithm for setting LMP prices... is driven by the available supply and demand for physical electricity, subject to operating conditions on the CAISO grid." Addressing the CFTCs criteria identified in the NOI for setting the contracts for SPDC status, EPSAs letter states that there is no reference outside of ICE to the contracts in question, that the seven contracts have no material impact on other contracts listed for trading, and they do not have adequate liquidity for SPDC designation.

EPSA President & CEO John E. Shelk said, "As a member of its Energy and Environmental Markets Advisory Committee, EPSA recognizes the important role the CFTC plays in regulating commodities markets. We also have been a strong supporter in Congress of increased CFTC authority over the derivatives markets and look forward to the Commission's future role under pending financial reform legislation. The unique physical nature of electricity and how organized power markets operate merits careful consideration. EPSA does not believe that the seven contracts identified in the NOI serve a significant price discovery function in the physical electricity market and so urge the CFTC to not designate them as such." Shelk went on to say, "Competitive suppliers are committed to working with the CFTC, FERC, Congress and the Administration to ensure appropriate transparency and oversight of the various markets impacting electricity."

The letter concludes that "EPSA believes that the FERC-regulated, tariff-based CAISO power market is intrinsically reflective of competitive prices. Subjecting market participants to position limits or other regulatory elements relating to SPDC status can only negatively limit risk management opportunities for market participants for a volatile commodity without serving the purpose that SPDC status was intended by Congress."

EPSA Files Comments with the CFTC

CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660

EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.