February 2006 Market Clearing in the Energy Industry 3-10 © Copyright 2006, CCRO. All rights reserved. NordPool Clearing ASA (NPC) is a 100% owned subsidiary to NordPool ASA. It clears a substantial proportion of the total trade in standardized contracts in the Nordic power market. NPC serves over 300 market participants primarily from the Nordic countries but also outside the Nordic market area. The cleared products at NordPool Clearing include: • Futures and forward contracts • Contracts for Difference • Options contracts • Non-exchange contracts traded in the bilateral market with the same contract features as listed contacts • Non-exchange forward contracts with spot reference price to the Oslo area price and Stockholm area price. Through NordPool's clearing service, members are offered clearing of contracts traded over the exchange, and financial contracts traded in the OTC market. Clearing of power contracts through NPC reduces financial counter party risk, as NordPool enters into the contracts as a contractual counter party. NPC acts as a clearing counter party for derivative contracts and offers complete solutions for clearing of current products traded on and outside the Nordic Power Exchange. For financial electricity contracts, this means that standard contracts are evaluated together and the clearing member is given one net position in each contract series. This net position is the foundation for calculating the daily margin call and settlement. NordPool Clearing illustrates the operation of one of several clearinghouse models: single tier, mutualized. In this model, the clearinghouse alone acts as central counterparty to clearing participants. The credit risk this places on the balance sheet of the clearinghouse is mutualized to all clearinghouse participants through margin and reserve accounts at the clearinghouse. NGX is a North American energy exchange, and wholly owned subsidiary of the TSX Group Inc., based in Calgary primarily serving the Western Canadian natural gas market although its presence is growing in Eastern Canada, as well as in the US. NGX presents a unique electronic market model, providing a liquid trading and clearing platform for physical natural gas in a number of its nearly 15 delivery locations in North America. As well as physical natural gas, NGX also acts as a central counterparty and clears both financial natural gas and power. Natural Gas Exchange Inc. is the clearinghouse for all transactions conducted through the NGX exchange. In this role, NGX must maintain a secure and efficient clearing operation managing various risks across diverse market participants and products. It operates a non-mutualized, private clearing operation. Both NordPool and NGX provide examples of clearinghouses outside the United States that have become relatively successful models providing clearing and intermediation services in the energy industry. Both clearing models illustrate differing approaches to providing their services to the market. While the approaches taken by these two models have differing