A committee at the New York Mercantile Exchange (NYMEX) is mulling draft rules for a new set of financially settled electricity contracts that will be linked to PJM Interconnection’s locational marginal prices (LMP).

The draft rules, which are under consideration by NYMEX’s electricity committee, detail proposed monthly, weekly and day-ahead contracts. For the day-ahead swap, a daily floating price would be determined for the next peak day. Each daily floating price will be equal to the arithmetic average of the PJM West hub day-ahead LMP for peak hours provided by PJM on the peak day one day prior. For the weekly and monthly contracts, the daily floating price would be determined for each peak day of each contract week and contract month.

In the draft rules, peak days include Monday through Friday, excluding North American Electric Reliability Council holidays. Peak hours cover a 16-hour period. As for final settlement, delivery under all three contracts will be by cash settlement. The cash settlement price will be based on the daily floating price, which is determined for the following peak day. Prices will be quoted in U.S. dollars and cents per MWh. The minimum price fluctuation for the contracts will be $0.01 per MWh, while there will be no maximum price fluctuation.

According to the draft rules, the contract quantity for the monthly and weekly swaps will be 40 MWh. Transaction sizes for trading in any delivery month or week will be restricted to whole number multiples of the number of peak days remaining in that contract month or contract week.

Each futures contract based on the monthly, weekly or day-ahead swap contract will be valued as the contract quantity multiplied by the settlement price.

The contract quantity for the day-ahead swap will be 400 MWh.

NYMEX Chairman Vincent Viola in October first disclosed that the exchange plans to launch a revamped electricity futures contract for PJM as soon as January 2003. Viola also said that once the PJM contracts are up and running, the long-range plan is to revive electricity contracts nationwide.

Electricity futures on NYMEX were discontinued on its six power contracts earlier this year for California-Oregon Border, Palo Verde, Cinergy, Entergy, PJM and Mid-Columbia. NYMEX said then it was not discontinuing electricity trading, but would refigure its contracts. NYMEX also said then that the market had not developed the way it had hoped.

The original NYMEX power contracts for PJM were launched in January 1999 following approval by the Commodity Futures Trading Commission. They were used to trade electricity futures and options based on delivery at the PJM western hub. Those contracts complemented two other sets of eastern contracts, one that was based on delivery into the Cinergy transmission system, and the other based on delivery into the Entergy system. They were averaging a combined volume of nearly 1,000 contracts a day.

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