Glossary of Energy Market Terms A-B

This glossary of utility terms is derived from various sources
and supplemented with original definitions based on common usage in the power marketing industry, including terms introduced by the Enron controversy.

5x16 Market - Typical wholesale pricing designation for power supplied at 100% load factor for the 5 weekdays, between 6 AM and 10 PM (16 hours).

7x24 Market - Typical wholesale pricing designation for power supplied at 100% load factor for the 7 day of the week, during all 24 hours of the day.

Above-market Cost - The cost of a good or service that is in excess of the price of comparable goods and services in the market. Typically refers to the cost of a public good or stranded benefit that exceeds or would increase the short-term marginal cost of delivered electricity alone or lacking such public good characteristics.

Access - The contracted right to use an electrical system to transfer electrical energy, e.g., "retail access" is another term for attaining the right for retail customers to receive power directly from non-utility sources

Access Charge - A charge levied on a power supplier, or its customer, for access to a utility's transmission or distribution system, ostensibly covering that system owner's costs (plus profits) to send someone else's electricity over his wires.

Accumulate - The addition of contracts to one's original market position.

Activate Carbon Injection (ACI) - Technology to remove mercury from emissions at coal-fired power plants.

Actuals - Physical commodities. Sometimes called a spot commodity or a cash commodity.

Adequacy - See Reliability.

Adjacent System or Adjacent Control Area - Any system or Control Area either directly interconnected with or electrically close to (so as to be significantly affected by the existence of) another system or Control Area.

ADP (Alternative Delivery Procedure) - A provision of a futures contract that allows buyers and sellers to make and take delivery under terms or conditions that differ from those prescribed in the standard futures contract. An ADP occurs following termination of futures trading in the spot month and after all long and short futures positions have been matched for the purpose of delivery.

Affinity Group - Any organization of similar energy customers that have a pre-existing relationship that is used to foster aggregated purchasing of energy (e.g., BOMA chapter, Dry Cleaners Association, industrial development group, etc.)

Affordability Programs - Any of a number of utility programs to render utility bills affordable, especially for low-income customers. Such programs include free DSM, charitable fuel funds, discount rates, percentage of income payment programs, arrearage forgiveness, as well as budget billing, required payment arrangements, and arguably extreme weather disconnection protections (especially where coupled with arrearage forgiveness). Such programs can be run in collaboration with government-sponsored social service efforts, or can be offered to qualified customers on a stand-alone basis.

AGA - American Gas Association.

Aggregator - An entity that assembles customers into a buying group for the purchase of a commodity service. The vertically integrated investor-owned utility, municipal utilities and rural electric cooperatives perform this function in today's power market, and others, such as buyer cooperatives, power marketers, affinity groups, or brokers are performing this function in restructured power markets. This is opposed to Marketer (see below) which will be defined as an entity that represents different suppliers. See also Value-driven Aggregator.

Allowances - The discounts (or premiums) allowed for grades or locations of a commodity lower (or higher) than the par or a basis grade or location specified in the futures contract; also called differentials.

Alternative Retail Electricity Supplier - Often abbreviated ARES, this is the Illinois name for an unregulated retail electricity supplier. Compare Competitive Retail Energy Supplier (CRES) in Ohio and Retail Electricity Supplier (REP) in Texas.

American Option - An options contract that may be exercised at any time prior to expiration. All New York Mercantile Exchange (NYMEX) energy options are "American." See also European Option.

Ampere - The unit of measurement of electrical current produced in a circuit by 1 volt acting through a resistance of 1 ohm.

AMR (Automated Meter Reading) - AMR is a form of advanced (or enhanced) metering that uses communications devices to communicate data from the meter to the utility or (in an unbundled metering services environment) the meter reading or meter data management provider. AMR may be used to transmit simple energy usage data from the meter, or to transmit more complex measures of energy recorded in the meter, or to implement advanced functionality such as outage detection, remote programming of meters by an authorized party, or other functionality. See also NMR (Network Meter Reading).

Ancillary Services - Interconnected Operations Services identified by the U.S. Federal Energy Regulatory Commission (Order No. 888 issued April 24, 1996) as necessary to ensure the reliable operation of the transmission system and facilitate power transfers. Some of these services include: scheduling, system control and dispatch; reactive power supply, voltage support and voltage control; regulation and frequency control; energy imbalance (short-term load following); standby generation; operating reserves, including spinning and supplemental reserves; compensation for real power or transmission losses; dynamic scheduling of generation in response to fluctuations in specific loads; and restoration of generation service or black start capabilities. Transmission Providers must include such additional services in an open access transmission tariff.

API - American Petroleum Institute.

APPA - The American Public Power Association is a trade association representing the interests of municipal utilities. See also Public Utility.

Arbitrage - The simultaneous purchase and sale of similar or identical commodities in two different markets in hope of gaining a profit from price differences.

Area Control Error - The instantaneous difference between actual and scheduled power interchange between two points, taking into account the effects of frequency bias.

Arrearage - Money owed on past bills.

Ask - The lowest price offered at which a security or commodity is available for sale. Also a motion to sell a financial product at a specified price sometimes called an offer.

Ask Size - The number of contracts offered at the ask price (e.g., 150 MW that is being offered in the form of standard 50 MW contracts translates to an ask size of 3 contracts) .

Asset - An economic resource, tangible or intangible, which is expected to provide benefits to a business.

Assignment - The process through which an option seller is notified of the buyer s intention to exercise the rights associated with the option.

ATC - Around The Clock. Typically used to describe wholesale electricity pricing that applies to power provided during the entire 24- hour period, 7 days a week (unlike power priced for an on-peak or off-peak period).

ATC - Available transmission capacity. ATC can also mean Available Transfer Capability (see below).

At the market - An order placed "at the market" is done immediately at the best price available when it reaches the trading floor.

At-the-money - An option whose exercise, or strike, price is closest to the futures price.

Auction - Any of several wholesale market mechanisms that settle pricing by bids from participating parties; different sets of rules apply to different types of auctions. Note that terminology describing auctions is not always consistent from one industry to another. For an excellent description of auctions and the theory they are based on, go to www.auctusdev.com.

• Ascending Block - An auction in which bidders name how many blocks of power (e.g., 25 MW) they want, may increase that number, but cannot decrease it during the auction. As prices increase, some bidders are expected to drop out, until the time expires.
   
• Declining Block - An auction in which suppliers present their highest bids, and a buyer reduces the price he will accept for additional blocks of power in successive rounds until some suppliers drop out, or reduce the amount of power they are willing to provide. When a buyer has sufficient supplies, it stops its auction, and the price at that lpoint becomes the clearing price for all power.
   
• English - A typical auction such as eBay or other arrangement wherein open outcry allows all to be aware of the present bidding price, and the highest bidder wins, taking an entire product or lot.
   
• Classic Dutch (or Reverse) - A high price is set and gradually lowered until a bidder accepts it and pays that amount, for either an entire lot or a portion thereof.
   
• Dutch (or Vickrey) - The highest bidders win, but all pay the lowest winning price; this is essentially the way that most power markets work, except that bidders in that case are the generators who post their power prices and the lowest price that provides sufficient capacity to meet demand sets the winning price, with all generators being paid the same price for their power.
   
• Japanese - Very similar to playing poker, in which no new bidders (players) are allowed to bid once bidding (playing) once the bidding has started, and each bidder must either up his bid to match that of the highest offer or else drop out (fold) of the auction.

Automatic Generation Control (AGC) - Equipment that automatically adjusts a Control Area's generation to maintain its interchange schedule plus its share of frequency regulation.

The following AGC modes are typically available:

1. Tie Line Bias Control - Automatic generation control with both frequency and interchange terms of Area Control Error considered.
2. Constant Frequency (Flat Frequency) Control - Automatic generation control with the interchange term of Area Control Error ignored. This Automatic Generation Control mode attempts to maintain the desired frequency without regard to interchange.

3. Constant Net Interchange (Flat Tie Line) Control - Automatic generation control with the frequency term of Area Control Error ignored. This Automatic Generation Control mode attempts to maintain interchange at the desired level without regard to frequency.

Automated Meter Reading - See AMR.

Automatic Meter Reading Association (AMRA) - Industry organization for utility metering firms.

Available but not Needed Capability - Net capability of main generating units that are operable but not considered necessary to carry load, and cannot be connected to load within 30 minutes.

Available Resource - The sum of existing generating capacity, plus new units scheduled for service, plus the net of equivalent firm capacity purchases and sales, less existing capacity unavailable due to planned outages.

Available Transfer Capability (ATC) - A measure of the transfer capability remaining in the physical transmission network for further commercial activity over and above already committed uses. ATC is defined as the Total Transfer Capability (TTC), less the Transmission Reliability Margin (TRM), less the sum of existing transmission commitments (which includes retail customer service) and the Capacity Benefit Margin (CBM).

Availability - A measure of time a generating unit, transmission line, or other facility is capable of providing service, whether or not it actually is in service. Typically, this measure is expressed as a percent available for the period under consideration, e.g., an availability of 80% typically means that a plant could have produced power for about 7,000 hours during a year (80% x 8,760 hr/yr = 7,008) had requests been made for such service.

Average Cost - The revenue requirement (which includes any guaranteed rate-of-return) of a utility divided by the utility's sales. Average cost typically includes the costs of existing power plants, transmission, and distribution lines, and other facilities used by a utility to serve its customers. It also includes operating and maintenance, tax, and fuel expenses.

Average Revenue per Kilowatt-hour - The average revenue per kilowatt-hour of electricity sold by sector (residential, commercial, industrial, or other) and geographic area (State, Census division, and National), is calculated by dividing the total monthly revenue by the corresponding total monthly sales for each sector and geographic area.

Avoided Cost - The cost the utility would incur but for the existence of an independent generator or other energy service option. Avoided cost rates have been used as the power purchase price utilities offer independent suppliers known as qualifying facilities. See Qualifying Facility.

AVR - Automatic voltage regulation.

Backout Credit - See Back Out Rate.

Back Out Rate - A credit on an electric bill that purports to represent the cost of electric supply (meaning production, but not transmission or distribution) from the utility. Sometimes also called Supply Credit or Shopping Credit, such numbers are used as a benchmark against which customers seek prices below the credit. That difference is then the amount saved (relative to continued purchasing from the utility) by buying power from a competitive supplier.

Back-to-Back Trading - See Round Trip.

Backup Power - Power provided by contract to a customer when that customer's normal source of power is not available.

Backup Supply Service - See Interconnected Operations Services.

Backwardation - A trend in which futures prices are progressively lower in the distant delivery months. Backwardation is the opposite of contango, and is also known as an Inverted Market.

Balance Point Temperature - Temperature at which a building does not need to be mechanically heated or cooled.

Balancing and Settlement - A process of reconciling the total kWh (including Losses during delivery) provided to the system on behalf of a customer (or group of customers) to the amount of power used by that customer during a given time period. Settlement will be completed when the cost of the imbalance between scheduled delivery and aggregated customer usage is assessed. The settlement process relies on readings from interval meters, readings from billing meters, and load profiles to calculate the customer's usage.

Banking - Energy delivered or received by a utility with the intent that it will be returned in kind in the future. See Storage, Energy Exchange.

Barrel - A volumetric unit of measure for crude oil and petroleum products equivalent to 42 U.S. gallons. See also paper barrel; wet barrel.

Base Bill - A charge calculated through multiplication of the rate from the appropriate electric rate schedule by the level of consumption.

Baseload - The minimum amount of electric power delivered or required over a given period of time at a constant rate. On an hourly or monthly load profile, this is the level of demand or usage that is seen as a minimum on most hours, including evenings, thereby forming the "base" that peaks rest on.

Baseload Capacity - The generating equipment normally operated to serve loads on an around-the-clock basis.

Baseload Plant - A plant normally operated to take all or part of the minimum load of a system, and which consequently produces electricity at an essentially round-the-clock constant rate. These units are operated to maximize system mechanical and thermal efficiency and minimize system operating costs. Nuclear plants are commonly baseloaded units, for example, due to their very low running (as versus installation) costs.

Basis - The difference that exists at any time between the futures price for a given commodity and the comparable cash or spot price for the commodity.

Basis grade - The grade of a commodity used as the standard of a contract.

Basis risk - The uncertainty regarding how the spread between cash and futures prices will widen or narrow between the time a hedge position is implemented and liquidated. This term may also be applied to variations in transmission pricing between two points, such as moving natural gas in an interstate pipeline. See also Hedge ratio.

Basis Spread - Differential between the price of a commodity at two different locations.

Batch - A measured amount of oil or refined product in a pipeline.

Bbl - The abbreviation for barrel.

Bcf - The abbreviation for 1 billion cubic feet, usually applied to natural gas.

B/D - Barrels per day. Usually used in connection with a refiner s production capacity, an oilfield's rate of flow, or pipeline capacity.

Bear - One who believes the market is headed lower; also, a downtrending market.

Bear spread - An options position comprised of long and short options of the same type, either calls or puts, designed to be profitable in a declining market. An option with a lower strike price is sold and one with a higher strike price is bought.

Beta - A coefficient that is a measurement of a security's price fluctuation due to factors that simultaneously affect the prices of all marketable securities. A Beta of 1.0 means that the security's price fluctuation is the same as the overall market as measured by the S&P 500 Index. A Beta greater than 1.0 means that a security's price fluctuation is greater than the S&P 500 Index.

Bid - A motion to buy a futures contract at a specified price, or the highest price a prospective buyer is prepared to pay for a security or commodity at a particular time.

Biddable Franchise - See Competitive Franchise.

Bid Size - The number of contracts offered at the bid price.

Bilateral Contract - A direct contract between the power producer and user or broker outside of a centralized power pool or PoolCo.

Black-Scholes model - An options pricing formula initially derived by Fisher Black and Myron Scholes for securities options and later refined for options on futures.

Black Start Capability - The ability of a generating unit or station to go from a shutdown condition to an operating condition and start delivering power independently from the rest of the electric system.

Block Forward - Cal PX term for spot energy destined for future delivery at a specified hour or month; they differ from futures in that they are available only up to 6 months in advance and are intended for physical delivery rather than as a purely financial instrument

Board of trade - Any exchange or association engaged in the business of buying or selling any commodity or receiving the same for sale on consignment.

Board order - An order that becomes a market order when a strike price is reached. A "sell" order is placed above the market while a "buy" order is placed below the market.

Boiler - A device for generating steam for power, processing, or heating purposes or for producing hot water for heating purposes or hot water supply. Heat from a contained combustion source (typically called the "burner") is transferred to a fluid circulating inside the boiler.

Book - When used as a noun, the compiled actives trades of a firm at a given time; when used as a verb, the act of closing a deal that will become part of a firm's "book."

Booking the basis - A forward pricing sales arrangement in which a cash price is determined within a specified time, at which a previously agreed basis price is added to the then-current futures quotation.

Book transfer - Transfer of title to buyer without physical movement of product.

Bottleneck Facility - A point on the system, such as a transmission line, through which all electricity must pass to get to its intended buyers. If there is limited capacity at this point, some priorities must be developed to decide whose power gets through.

Bottom-up - An approach taken when unbundling utility rates, and the opposite of a top-down approach. Bottom-up implies consideration of all components of a utility rate for possible competition, including transmission, distribution, customer service, metering, marketing, taxes, etc. as well as the energy component (which is generally considered the "top" of the rate). A top-down approach involves an examination in the reverse order and typically results in only the energy component becoming subject to competition, instead of all aspects of the utility rate. See also Load Forecast for unrelated use of Bottom-up and Top-Down.

Bourse - European form of a power exchange.

Box spread - An options market arbitrage in which both a bull spread and a bear spread are established for a riskless profit. One spread includes put options and the other includes calls.

BPA (Bonneville Power Administration) - One of five federal Power Marketing Administrations that sell low-cost electric power produced by federal hydroelectric dams to agricultural and municipal users. BPA serves Idaho, Oregon, and Washington as well as parts of Nevada and Wyoming.

BPL - Broadband Power Line communication, in which power lines are used to send and receive high-speed data.

Bragawatts - An Enron term for megawatt-hours traded back and forth between traders to plump up their apparent trading volume. Several power trading newsletters and information services quarterly and annually list power trading volumes and rank the various firms to see who's "ahead." A high position on such a list may be seen as basis for claiming a strong position to encourage purchasing of the firm's stock or providing other forms of investment support. While it was typical for a single unit of power to be traded up to 10 times before delivery as part of normal trading, additional exchanges of power solely to portray fictitious volumes end up masking data on real transactions. See also Round Trip.

Break - A rapid and sharp price decline in pricing.

Breakeven point - The underlying futures price at which a given options strategy is neither profitable nor unprofitable. For call options, it is the strike price plus the premium. For put options, it is the strike price minus the premium.

Broker - A third party who establishes a transaction between a seller and a purchaser without taking title to the commodity. A power broker may also aggregate customers and arrange for transmission, firming and other ancillary services as needed.

Brokerage - The fee charged by a broker for execution of a transaction. The fee may be a flat amount or a percentage.

Brownian Motion - When price movement is random and the chances of a trade going up or down in value are the same; also called Random Walk.

BT - Bilateral transaction.

BTU (British Thermal Unit) - A standard unit for measuring the quantity of heat energy equal to the quantity of heat required to raise the temperature of 1 pound of water by 1 degree Fahrenheit.

Bucket - A gathering of items of a similar type, such as trades of a similar value, or a timer period during which trades may take place.

Bulk Electric System - A term commonly applied to the portion of an electric utility system that encompasses the electrical generation resources and bulk transmission system.

Bulk Power Supply - Often this term is used interchangeably with wholesale power supply. In broader terms, it refers to the aggregate of electric generating plants, transmission lines, and related equipment. The term may refer to those facilities within one electric utility, or within a group of utilities in which the transmission lines are interconnected.

Bull - One who believes that prices are headed higher; also, an up-trending market.

Bull spread - An options position composed of both long and short options of the same type, either calls or puts, designed to be profitable in a rising market. An option with a lower strike price is bought and one with a higher strike price is sold.Buy in - Making purchase to cover a previous sale; often called "covering."

Buy Through - An agreement between utility and customer to import power when the customer's service would otherwise be interrupted and to price such power at prevailing spot market rates.

Bypass - A situation that allows a customer to get full or partial electricity or natural gas service from a non-utility supplier instead of a utility, typically by connecting to a main transmission line instead of using the local utility's distribution system.

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