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| Midwest Independent Transmission System Operator Michigan Hub Financially Settled Electricity Futures |
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The Michigan Hub of the Midwest Independent Transmission System Operator, Inc., (MISO) offers buyers and sellers a trading point for electricity based on locational marginal pricing and a common price index that provides a standard price reference point.
Locational marginal pricing is the marginal cost of supplying the next increment of power demand at a specific location on the network, taking into account the marginal cost of generation and the physical aspects of the transmission system.
MISO, based in Carmel, Indiana, is responsible for monitoring the electric transmission system that delivers power from the generating stations to wholesale power transmitters. MISO ensures equal access to the transmission system and maintains electric system reliability in the Midwest. The MISO service territory extends into 13 states: Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Montana, Nebraska, North Dakota, Ohio, Pennsylvania, South Dakota, Wisconsin, and the Canadian province of Manitoba.
A competitive electricity market has evolved in recent years, resulting in business opportunities, price volatility, and market risk. Electricity lends itself to futures trading. It meets the three broad criteria needed for successful futures markets: prices are volatile; there is a large, diverse universe of buyers and sellers; and the physical product is fungible. The Exchange clearinghouse provides a system of guarantees that mitigates counterparty credit risk. The Exchange provides financially settled futures contracts for on-peak and off-peak electricity transactions based on the daily floating price for each peak or off-peak day of the month.
The daily floating prices are the arithmetic average of real-time locational marginal prices at the Michigan Hub.
The power markets trade MISO electricity using the market convention of eastern prevailing time that is used to define peak and off-peak time blocks for all other eastern markets, a convention that is also used for the futures contracts. For the futures contracts, peak hours are from the hour ending (HE) 0800 to HE 2300, eastern prevailing time. Peak days are Mondays through Fridays, excluding North American Electric Reliability Council (NERC) holidays.
Off-peak hours, for the purposes of the futures contract, are from HE 0100 to HE 0700 and 11:00 PM to midnight (HE 2400) Mondays through Fridays. Also, all day Saturdays and Sundays (HE 0100 to HE 2400) and North American Electric Reliability Council holidays. All times are eastern prevailing time.
MISO operates throughout the year on Eastern Standard Time, and does not make the transition into and out of Daylight Savings Time. Prevailing time, however, reflects the adjustment. See MISO Hours for a more detailed discussion of peak and off-peak hours.
Electricity futures contracts are available for trading via the NYMEX ClearPort® electronic trading platform. Off-exchange transactions can also be submitted for clearing only. |
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