 What services does NECC currently
perform?
NECC matches power and natural gas physical transactions, while managing credit
exposure in standardized NAESB and EEI contracts. NECC transacts both next day and
term deals. NECC’s initial focus has been power and gas in the Texas and Western
markets. Recent counterparty and locational expansions include Eastern markets and
Mid-Continent markets. NECC also handles WMBE and Renewable tagged energy products.
|
How much liquidity is available through
NECC?
While NECC is still in a 'ramp-up' phase of operation, it continues to rapidly expand
its customer base and transaction volumes. 21 eligible entities have signed with
NECC and NECC has processed over $700 million in notional value over the past year.
|
How do I determine whether my company
would benefit from NECC’s services? If you answer “yes” to any of the following questions,
then NECC has services that will benefit your company:
- Would your company benefit from better bid / ask spreads?
- Would your company
benefit from more qualified counterparties?
- Do your traders miss profitable deals due to counterparties having maxed out credit
limits?
- Would your company benefit from lower trading collateral cost?
NECC’s services provide positive opportunities for the vast majority of physical
energy market participants whether as buyers, sellers or traders. Because NECC’s
fees are small and transaction based, the cost associated with NECC are not material
to the improved margins generated. Certain customers, particularly those with challenging
credit quality and those transacting in both power and gas, have the potential to
benefit from reduced collateral costs and cross commodity netting.
In short, NECC’s fundamental value proposition is: more plentiful and favorable transaction
opportunities with credit protection and consolidated trading positions across products
and regions to reduce collateral requirements.
NECC is happy to work with you to create a customized ‘value analysis’ for your
trading operations.
|
How does NECC secure its customers’
positions?
NECC is a “Riskless Principal” and takes title to the commodity – all buys are immediately
matched with equivalent sells through one or more counterparties, thus eliminating
position and price exposure. However, NECC does take the credit exposure on each
side of positions entered and fully secures all positions held. To transact with
NECC, each participant posts collateral based on its ‘net’ position including net
receivables or payables. NECC employs the time-tested services, processes and systems
of one of the oldest clearinghouse in the country, The Clearing Corporation, for
its margining function for all accepted trades. Thus NECC’s margining policies are
based on the well-established margining practices of futures type contracts that
have been adapted to accommodate the volatile physical energy markets. In addition,
as a physical counterparty, NECC secures delivery and payment obligations associated
with physical contracts.
|
What instruments / assets are held
as collateral?
NECC accepts cash or Letters of Credit from banks with a credit rating of A- or
better. Interest is paid on cash collateral which is held in a segregated account.
Additionally, NECC provides certain credit facilities for qualifying entities that
are backed by Credit Suisse to satisfy some or all of a qualifying customer’s margin
requirements.
|
How do I transact with NECC?
Trade Execution:
As your bilateral counterparty, NECC adopts industry standard trade execution
channels:
- ICE–NECC is a bilateral counterparty and you will see NECC bid/offer in white, like
any other counterparty.
- NECC Trade Support Desk–call directly to the support
desk for bids and offers.
- IM–Instant Message our support personnel directly
for bids and offers.
- Voice Brokers–Currently NECC has arrangements in place with Amerex, Choice, ICAP,
Landmark, Prebon, CoQuest, IVG and INFA.
|
How do I get set up with NECC?
Once you have
agreements in place with NECC, the next steps are:
- Provide certain information to NECC regarding your traders and administrators to
set up your accounts with NECC.
- Post credit with NECC. Your NECC customer representative
will help you establish the amount that should be posted based on your trading desires.
- NECC will then set up your account and assign limits. (These will be based on collateral
posted to support the way you would like to transact–e.g., net buyer, net seller,
etc.)
- Get set up on ICE as counterparty to NECC. NECC operations and the ICE help desk
will facilitate this.
- Notify your voice broker(s) that you are eligible to trade with NECC.
Once set up, you will be able to transact with NECC. Based on collateral posted,
NECC will establish limits for transactions which are continuously monitored against
all trading activity during each transaction day. You will see reports daily as
to your transactions with NECC, margin held and margin calls if additional security
is required to sustain the limits established with NECC.
|
What does it cost to use NECC?
NECC charges customary
and reasonable fees for its services. NECC’s current transaction and delivery fees
are based on a small percentage of notional value traded as specified in customer
agreements. Financing fees, if applicable, are also detailed in customer agreements.
|
How do I know that all positions
held by NECC are fully secured?
NECC applies margining based on standards developed by clearinghouses in world commodity
markets using a 99% confidence interval. NECC further adapts these standards to
physical energy markets to cover post delivery and final settlement risk. As an
added measure of assurance CCorp, which provides the margining services to NECC
periodically sends an electronic communication to each NECC customer to confirm:
- on a daily basis that liquid collateral has been posted in the appropriate collateral
accounts to cover gross margin requirements as reflected in the sum of NECC’s daily
customer margin and asset reports; and
- on the day before sellers are paid, that sufficient cash is available in the settlement
accounts to cover NECC’s net settlement obligations to sellers.
|
Is NECC regulated? NECC is a regulated power marketer
with the Federal Energy Regulatory Commission and the Public Utilities Commission
of Texas and a Qualified Scheduling Entity at ERCOT. NECC’s business model is being
implemented in two phases. Currently, in phase I, NECC operates as a “riskless principal”
and as such is exempt from CFTC regulation under 2(h)(iii) of the Commodity Exchange
Act. As a riskless principal, NECC enters forward bilateral contracts with buyers
and sellers on a ‘risk neutral’ basis whereby all buys are matched with equivalent
sells with one or more counterparties. In phase II an NECC subsidiary will become
a regulated Derivatives Clearing Organization (DCO) under the direct supervision
of the Commodity Futures Trading Commission (CFTC).
|
What is NECC’s relationship with
The Clearing Corporation?
NECC currently acts as a dealer in bi-lateral forward energy contracts, trading
on a riskless principal basis directly with counterparties who have executed NECC’s
customer documents. To manage its risks under forward energy contracts with customers,
NECC margining requirements reflect concepts similar to those incorporated into
CCorp’s clearing rules for futures contracts, such as accrued margining of mark-to-market
losses. In fact, NECC uses the services of CCorp for those margining functions.
NECC has worked closely with CCorp to develop the clearing procedures for clearing
of its energy contracts and through that process CCorp has had the opportunity to
carefully review and understand NECC’s internal processes.
|
What is NECC’s relationship with
Credit Suisse?
NECC has several relationships with different divisions at Credit Suisse. The Credit
Suisse Next II Fund is an investor in NECC and its representative sits on the NECC
board. The bank itself provides a credit facility to NECC and credit enhancement
tools for NECC’s customers. The Credit Suisse Prime Brokerage Unit provides services
in conjunction with NECC to offer physical energy products to its clients.
|
How is NECC financially backed and
how does that apply to NECC’s market positions? NECC completed a second round of financing in early
2007 resulting in a market capitalization of over $60 million. However, NECC does
not take open positions in the market and therefore its assets are dedicated solely
to ongoing operations. NECC relies on its rigorous and proven risk management policies
and procedures to maintain a fully secured portfolio of traded products. NECC financial
statements are available to prospective and existing clients upon signing of a confidentiality
agreement. NECC can also provide additional detailed information as to its risk
management policies and procedures.
|
How do I sign up with NECC?
There are numerous
ways to transact with NECC. Upon contacting an NECC representative, templates of
NECC’s standard agreements for Phase I can be made available for your review. These
templates include NAESB and EEI enabling agreements and a Master Netting, CFC and
Swap Agreement. Entities that sign NECC’s standard agreements have the maximum flexibility
to transact in both next day and forward markets for gas and power with full netting
for products across regional markets served. Other options are available for entities
that desire to transact in only one commodity and / or either next day or term agreements.
An NECC representative is available to answer your questions, perform a "value analysis"
and help you determine which agreements for transacting with NECC best meet your
needs.
|
How can I get additional information?
To contact an
NECC representative click Contact Us . Also, a document
regarding NECC Risk Management Policies and Procedures is available upon signing
a non-disclosure agreement.
|
