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Two Electricity Contracts in the Future

Two Electricity Contracts in the Future

The Commodity Futures Trading Commission (CFTC) last week approved a New York Mercantile Exchange (NYMEX) application to trade electricity futures and options based on delivery at the Pennsylvania-New Jersey-Maryland (PJM) western hub. And slated for approval today is the proposed and competing Chicago Board of Trade (CBOT) PJM western hub electricity futures contract.

The NYMEX and CBOT applied to offer the contracts in November. NYMEX said its contract is a complement to its other two sets of eastern electricity futures and options - one based on delivery into the Cinergy transmission system and the other based on delivery into the Entergy transmission system - which have been averaging a combined volume of close to 1,000 contracts a day.

NYMEX President R. Patrick Thompson said, "We are looking forward to introducing these contracts in the next few months and expect to announce a launch date shortly." Terms and conditions of the NYMEX contract will parallel those in the other eastern electricity contracts, including delivery rate, contract unit, and delivery period. Prices and fluctuations prices will be quoted in dollars and cents per MWh. The minimum price fluctuation will be $.01 per MWh. The maximum daily price fluctuation will be $6.00 per MWh above or below the preceding day's settlement price (the basic maximum fluctuation). Expanded limits will apply when the contract settles at the maximum limit.

The CBOT PJM contract is to be traded along with the CBOT's TVA and ComEd contracts, creating a power complex to provide risk management to the southeastern, midwestern and northeastern United States, CBOT said. Terms of the NYMEX and CBOT contracts are nearly identical except CBOT's trading unit is more than double NYMEX's at 1,680 MWh per contract.

Joe Fisher, Houston

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