Entergy-Koch Trading plans to set up a tradable precipitation index to replace the index Enron Nordic Energy established in September. John Polasek, v.p. of Entergy-Koch Trading in Houston, agreed that the Scandinavian precipitation index, or SPI, is the most widely used index and said the firm is looking at creating its own version to replace it after Enron's failure. He said any Entergy-Koch version would also likely be an open model to allow others to trade on it, because "an open index leads to greater liquidity and that is better for all of us."
Bjarne Scheildrop, head of Nordic weather trading at Enron Nordic Energy in Oslo, said the company has now stopped supporting the index. But that should not affect non-Enron contracts based on the deal, as it is an open index. Still, because Enron is no longer updating it, trading based on the index is difficult. "There is now no standard basket on precipitation in Europe," added one broker.
The move away from temperature-based indices is particularly important for derivatives contracts in Scandinavia, where hydroelectric power is most prevalent, and thus, precipitation-based hedging is most needed. However, Scheildrop noted it is also a major source of electricity in Spain and Enron had been working on a Spanish precipitation index prior to its collapse.
Enron Nordic Energy is independent from Enron's European and U.S. businesses, which were put into administration late last month. The Oslo unit is technically still in business although Scheildrop acknowledged counterparties do not want to trade with it. Enron Nordic Energy has been put up for sale (DW, 12/3).
