Dec. 19 (Bloomberg) -- Nord Pool ASA, Europe's biggest power exchange, plans to start the region's first index based on electricity futures, allowing investors to bet on the direction of prices.

A ``raw version'' of the index is ready and is yet to be tested, company spokesman Lars Galtung said by phone from Oslo today. He declined to say when the index will be published. Nordic Commodity Funds AB, an electricity hedge fund manager, is ready to start two funds tracking the index.

``People are calling from Hong Kong, South Africa and England and want to place money,'' said Fredrik Bodecker, managing director of Nordic Commodity Funds. ``The interest is huge,'' he said yesterday in a telephone interview from Stockholm.

The Nordic power market has lured traders and investors because of its transparency, providing equal access to information about supply and demand for generators and hedge funds. The region's futures prices, which rose to a record in October, are determined by hydropower reserves, fuel prices and carbon emission costs, meaning that there is little correlation with other asset classes such as stocks or bonds.

Nord Pool's power index, yet to be given an official name, will be based on futures for up to 365 days ahead, taking into account price variations in existing contracts such as separate months and quarters, Galtung said.

`Easier Way'

Trading through an index may prove beneficial for anyone who wants to deal in Nordic electricity, said Fredrik Flykt-Rosen, a trader at Sempra Energy Trading Ltd. in London. ``It could be an easier way to go longer or shorter without trading individual products.''

Nordic Commodity's Nordic Power Index will track the exchange's index and offer exposure to the Nordic electricity price for the coming year. The second fund, Nordic Power Index Short, will track the inverse of Nord Pool's index.

The funds are useful for banks and investors that don't want to become members of the exchange and yet still bet on the direction of prices. Large consumers can use them for hedging power exposure, Bodecker, 39, said.

The company has received approval for the funds from the Swedish Financial Supervisory Authority.

Nordic Commodity started the Nordic Power Fund in April and has so far had a negative return of 3.13 percent, according to documents posted on the company's Web site. Bodecker declined to provide details on assets under management.

Record Prices

Power and utility funds make up about 7 percent of the $55 billion managed by commodity hedge funds, according to Chicago- based Cole Partners Asset Management LLC, which invests in such funds.

Nord Pool's first-quarter 2008 contract, the most actively traded, rose to a record 59.65 euros a megawatt hour ($85.81) on Oct. 19, driven by rising coal prices and dry and colder-than- average weather. It reached a low of 42.43 euros on Feb. 1 last year and closed at 51.30 euros today on the Oslo-based exchange.

Financial trading and clearing on the exchange this year through November was worth 73.8 million euros ($106 million).

Hedge funds are mostly private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested. Globally they fell about 1.4 percent in November, paring their annual returns to 10.2 percent, according to Chicago-based Hedge Fund Research Inc.

Bodecker began his power trading career in 1995 at Swedish utility Sydkraft AB. He was responsible for Nordic Power Trading at RWE Trading GmbH from 2000 to 2004. Prior to starting Nordic Commodity Funds, he was head of trading at hedge fund manager Alfa Kraft AB in Stockholm.

To contact the reporter on this story: Lars Paulsson in London at lpaulsson@bloomberg.net

Last Updated: December 19, 2007 12:32 EST