In fact, the power business already has some battle scars from the shifting of trading hubs and trading instruments. Liquidity dried up in both halves of PJM and took several weeks to recover. A number of traders that were caught with out-month positions at the old 500KV hub delivery point incurred substantial financial losses to unwind their positions. Similar to PJM, liquidity dried up and several traders with out-month deals had to do a lot of work to protect their positions. In this paper, I will provide background on the current state of hub trading in the power market, focusing on the hubs which are responsible for the majority of the industry's trading activity.
Hubs create a common point for commercial energy trading.
Hubs create a common point for commercial trading contracts to settle with or without going to physical delivery. Hubs are intended to create price signals for geographical regions of the control area by aggregating a group of representative buses. The creation of hubs reduces the risk of delivering to one particular bus whose price is more volatile during a constrain than a collection of bus prices at a weighted average. Potentially the power business could have a very large number of hubs. FERC has jurisdiction of 166 utilities identified on NERC's map of regions and control areas each which theoretically could become a hub or even more than one hub depending upon the utility's transmission system.