P

PAPER MARKET
A market for contracts where delivery is settled in cash, rather than by delivery of the physical product on which the contract is based.

PATH-DEPENDENT OPTION
A path-dependent option has a payout dependent on the price history of the underlying over all or part of the life of the option. The commonest form of option in over-the-counter energy risk management, the Asian option is a path-dependent option

PEAKING GENERATION
Electric generating equipment normally operated to serve loads only during annual peak loads or during system emergencies. Often combustion turbines.

PEAK LOAD
Periods during the day when energy consumption is highest. The introduction of additional gas or electricity to cover this demand is known as peak shaving.

PEAK SHAVING
During times of peak demand, supplies from sources other than normal suppliers are used to reduce demand on the system – eg, storage from a salt cavern.

PERFORMANCE LETTER OF CREDIT
Letter of credit used to guarantee performance under a contract.

PIPELINE IMBALANCE
Companies which transport and use storage facilities in a pipeline system are obliged by the pipeline operator to keep their input and offtake volumes in balance (within tolerance limits). If there is a positive or negative pipeline imbalance the transporting companies are financially heavily penalised by the pipeline.

POWER
Another word for electricity.

POWER POOL
A system of trading wholesale electricity that determines which generating sets or plants are called to meet demand for power at any particular time and sets the price of power for that time period. Pools are deemed necessary by their proponents because electricity generally cannot be stored easily and demand has to be met through simultaneous production.

PRE-SCHEDULE
To schedule for delivery of physical power on a day-ahead basis.

PRECIPITATION SWAPS
Instruments linked to the degree of rainfall or snowfall. The party taking out a precipitation swap would receive payment for precipitation above or below a certain level.

PREMIUM-REDUCTION DEVICE
A strategy which aims to reduce the cost of an option or other derivative. There are three major ways to achieve this: selling a second derivative to reduce the overall cost of a strategy; limiting the payout profile of the derivative; or accepting payments below market rates.

PRINT
The last traded price at any given time for a given futures contract.

PROMPT MONTH
The first month forward for which a futures contract is being traded. Also known as the front month.

PURCHASED CAPACITY
The amount of electric energy and capacity available for purchase from outside a utility system.

PUT–CALL PARITY
Put-call parity states that the payout profile of a portfolio containing an asset plus a put option is identical to that of a portfolio containing a call option of the same strike on that same asset (with the remainder of the money earning the risk-free rate of return). This can be used to arbitrage a position.

PUT OPTION
An option which gives the buyer or holder, the right, but not the obligation, to sell a futures contract at a specific price within a specific period of time in exchange for a one-time premium payment. It obligates the seller or writer, of the option to buy the underlying futures contract at the designated price, should the option be exercised at that price.

PUT SPREAD
An options position comprised of the purchase of a put option at one level and the sale of a put option at some lower level. The premium received by selling one option reduces the cost of buying the other, but participation is limited if the underlying goes down.