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| PJM Weekly Financially Settled Electricity Futures |
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The PJM Interconnection, LLC, administers the largest wholesale electric market in the world serving more than 25 million customers in Delaware, Maryland, New Jersey, Ohio, Pennsylvania, Virginia, West Virginia, and Washington, D.C. The power companies within PJM operate approximately 700 generating units, representing more than 70,000 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 a financially settled weekly futures contract for on-peak electricity transactions based on the daily floating price for each peak day of the week 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.
The 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 AM to 11 PM (the hour ending 0800 to the hour ending 2300) prevailing local time. Peak days are Monday through Friday, excluding North American Electric Reliability Council (NERC) holidays.
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. |
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