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Electricity Futures Go West
The New York Mercantile Exchange (NYMEX) has decided to seek approval of two electricity futures contracts in the West. One will be based on delivery at the California/
Oregon border; the other on delivery at the Palo Verde generating plant in Arizona. NYMEX hopes to have the contracts in place by the fourth quarter of this year.
R. Patrick Thompson, NYMEX president, says the decision to trade two contracts is necessary "given the rapid evolution currently occurring in western electricity markets in light of deregulation." Two contracts will provide better price reference and risk management, according to Thompson.
The NYMEX board is still working on the final details, but will soon submit its proposal to the Commodity Futures Trading Commission for final approval. NYMEX vice chairman Vincent Viola, chairman of NYMEX's electricity advisory committee, observes: "This is probably the most complicated contract the exchange has ever put together."
Principal terms for both contracts are identical:
s Contract Unit: 736 megawatt-hours (Mwh), delivered over a monthly period.
s Delivery Rate: 2 megawatts throughout every hour of the delivery period, amendable by mutual agreement.
s Delivery Period: 16 onpeak hours (hour ending 0700 prevailing time to hour ending 2200 prevailing time), amendable by parties.
s Termination Day: Trading in the delivery month will cease on the third business day prior to the first day of the delivery month.
s Prices: Prices will be quoted in dollars and cents per Mwh. The minimum price fluctuation will be 1›/Mwh. The maximum permissible price will be $2/Mwh above or below the preceding day's settlement price. Expanded limits apply when the contract settles at the maximum or minimum limit.
s Scheduling: Buyer and seller must follow Western Systems Coordinating Council scheduling practices. (em LG
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