The New York Mercantile Exchange Inc. (Nymex) said it will delay by about a month the launch of its financially settled PJM weekly and daily electricity futures contracts to the afternoon of June 26, which starts the trade date of June 27. The delay will allow more time for electronic vendors, brokers and customers to complete the technical preparations needed to handle the new contracts, Nymex said.

The initial contracts listed will be the daily contract for June 30 and the weekly contracts for the weeks of June 30 and July 6. The weekly contract was originally scheduled to be listed on May 22 and the daily on May 29. The contracts will be traded electronically on Nymex ClearPort from 7 p.m. Sundays, and 3:15 p.m. Mondays through Thursdays, until 2:30 p.m. the next day.

“These are non-traditional futures contracts and we want to ensure that all technical issues regarding weekly and daily contracts are addressed by outside entities well in advance of launch,” said Exchange President J. Robert Collins Jr. “These products have been heavily demanded by the electricity industry as a means of combining existing flexibility with the liquidity and security these markets are currently lacking. We believe it is essential to offer the maximum number of participants access to the market from the very start and are optimistic that this additional lead time for technical preparation will expand the universe of day one traders.”

Nymex’s monthly PJM contract was launched on April 11 and currently has open interest of about 2,200 and an average daily volume of about 100 contracts, which Nymex spokesman Nachamah Jacobovits said is about what the exchange expected. “It is similar to what we saw when we started natural gas,” she said.

It’s also about what the exchange saw initially from its California-Oregon Border and Palo Verde power futures contracts, which later went on to prosper but then rapidly declined in use once California restructured its power market in 1998. Jacobovits said the exchange doubts PJM could suffer the same fate because the underlying market is the largest and most well established power market in the world.

The market also apparently wants PJM futures to succeed because there is a desperate need for risk management tools and clearing services now that many of the top marketing companies have exited the business.

“I hope the contract is able to develop and become useful in the future. I would like to have a transparent market somewhere in this business,” a Texas power trader said recently. “I have them up on my screen all day and keep track of them. They are accurate and they are right where trading is going on in the physical market.”

Nymex has offered locals and non-members a number of incentives to encourage the use of the new contracts. It has offered low cost electricity trading permits and has given broker firms financial incentives to trade the product. Jacobovits said a dozen brokers are actively trading PJM futures.

“The PJM futures contract has been very well thought out,” one broker said last week. “The exchange has really tried to make a commitment; it has its own brokers in the pits and they are trying to do things to get locals to trade the market. I think it has as good a shot as any contract. We are very optimistic.”

The monthly contract is for on-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 busses, 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 a.m to 11 p.m. prevailing local time. Peak days are Monday through Friday.

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 size for each monthly contract is 40 MWh times the number of peak days in the contract month. The daily unit size for each daily contract also will be 40 MWh. In the case of the weekly futures contracts, transaction sizes will be limited to whole number multiples of the number of peak days remaining in the contract period.

The PJM Interconnection LLC administers the largest electric market in the world serving more than 25 million customers in all or parts of Delaware, Maryland, New Jersey, Ohio, Pennsylvania, Virginia, West Virginia, and Washington, DC. The power companies within PJM operate 700 generating units, representing more than 70,000 MW 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.

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