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| PJM Interconnection Monthly Peak and Off-Peak Electricity Futures |
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The PJM Interconnection, LLC, administers the largest electricity market in the world serving more than 44 million customers in Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and Washington, D.C. The power companies within PJM operate more than 1,000 generating units, representing more than 137,000 megawatts of capacity, fueled with natural gas, oil, coal, nuclear, and hydro power. This generating and distribution network is also tied to the power grids of the Midwest, New York State, and other areas in the mid-Atlantic states.
The competitive market has developed through structural changes in the power industry that have evolved in recent years, resulting in 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 monthly futures contracts for on-peak and off-peak electricity transactions based on the daily floating price for each peak day of the month at the PJM western hub. The PJM western hub consists of 111 delivery points, primarily on the Pennsylvania Electric Co. and the Potomac Electric Co. utility transmission systems. Additional risk management and trading opportunities are offered through options on the PJM monthly futures contract.
The peak daily floating prices are the arithmetic average of PJM western hub real-time locational marginal pricing for the 16 peak hours of each peak day, provided by the PJM Interconnection, LLC. Peak hours are from 7:00 AM to 11:00 PM (the hour ending 0800 to the hour ending 2300) prevailing local time. Peak days are Mondays through Fridays, excluding North American Electric Reliability Council (NERC) holidays.
Off-peak hours are from midnight to 7:00 AM (the hour ending 0100 to the hour ending 0700) and 11:00 PM to midnight (the hour ending 2400) Mondays through Fridays; also, all day Saturdays and Sundays (the hour ending 0100 to the hour ending 2400) and North American Electric Reliability Council holidays. All times are prevailing local time
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.
The futures contract is available for trading via the NYMEX ClearPort® electronic trading platform. Off-Exchange contracts can be submitted solely for clearing. Once the contract month begins, the balance-of-month will trade with 40 Mwh subtracted from the quantity of the contract each peak day. The monthly options contract trades during open outcry hours. Transactions can be submitted solely for clearing on NYMEX ClearPort®. |
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