Spike watch

The Federal Energy Regulatory Commission (FERC) plans to monitor wholesale power markets in the Midwest this summer, watching for signs of a repeat of last year`s price spikes.

FERC Chairman James Hoecker said the agency team assigned to the task hopes to keep track of bulk market conditions and spot any lingering problems from last summer, when prices hit $7,000/MW. Normal summer rates are about $20 to $50/MW.

A little early summer volatility has already prompted the New York Mercantile Exchange (NYMEX) to raise margin rates on three of its five electricity futures contracts up to 50 percent.

The change affects contracts for electricity delivered this summer to Cinergy, Entergy and PJM hubs. Contracts for June delivery at Cinergy and Entergy hubs surged about 50 percent before declining again in mid-May. The PJM contract rose as much as 18 percent before falling.

Because it becomes more expensive to trade, higher margin rates can reduce trading, and therefore, reduce the potential credit risk and signal expectations of high volatility.

NYMEX rates for clearing members went to $4,500 from $3,000; to $4,950 from $3,300 for members; and to $6,075 from $4,050 for non-members.

Spread credit margins for summer contracts went to $1,900 from $400 for clearing members; to $2,090 from $440 for members; and to $2,565 from $540 for non-members.

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