symbol in the energy market denoting one thousand – e.g., mbbl = 1,000 barrels.

   Moving average.

   in a gas buyer’s contract there are often terms that allow the buyer to take make-up gas in contract periods after it has been paid for but not taken. There may be a limit to the amount of make-up the buyer can recover in any given period. see also take-or-pay

   (Gas) maximum annual quantity. see annual cap

   cash deposits required for a futures contract that serve as a good-faith deposit guaranteeing that both parties to the agreement will perform the transaction at some point in the future.

   a call from a clearing house to a clearing member or from a broker or firm to a customer, to bring margin deposits up to a required minimum level.

   the risk that a company will fail to make a margin call.

   the change in cost resulting from production of a single additional unit of production.

   to mark-to-market is to calculate the value of a financial instrument (or portfolio of such instruments) at current market rates or prices of the underlying. Marking-to-market on a daily (or more frequent) basis is often recommended in risk management guidelines. see also accrual accounting, hedge accounting

   a means of calculating the value of a financial instrument by using standard models to value both the price of the underlying commodities and also the risk metrics of the financial instruments themselves. Mark-to-model is generally used when the underlying price is not easily observed in the market and/or where the financial instrument is a complex combination of standard products.

   crudes against which other crudes are priced. Widely used marker crudes include West Texas Intermediate (for US destinations), Brent blend (for European destinations) and Dubai (for Far Eastern destinations). see also benchmark crude

   market risk is the risk that value will be lost due to a change in some market variable, such as commodity or equity prices, interest rates or foreign exchange rates. The market risk of a derivatives position may arise from a change in the value of the underlying or from other sources such as implied volatility or time decay (theta).

    see replacement cost

   an energy trader or energy trading firm that is prepared to buy and sell in the derivatives market to provide a two-sided (bid/ask) market and greater liquidity.

   an order to buy or sell a specified amount of futures contracts at the price when the market closes.

   the model master power purchase and sale agreement is an attempt to standardise the core terms and conditions needed to establish trading relationships in the US power markets by providing standard documentation for all trading agreements. The master agreement was developed by Washington, DC-based Edison Electric Institute, an association of US electricity companies, and implemented in spring 2000. see also model master power

   any negative event affecting a company that is deemed to be material by a creditor. Such events can either be defined or undefined in the contract between the company and its creditors.

   a premier source of news, analysis and data on the international coal industry. www.mccloskeycoal.com

   thousand cubic feet.

   maximum daily quantity. The upper limit for the amount of gas a buyer may take in a single 24-hour period.

   Often considered as the simple arithmetic average of the sum of the observed values divided by the number of observations. It is customary to represent the mean by µ.

   A tendency for a stochastic process to revert over time to an equilibrium level, such as the average (the mean) of historical prices, or some other variable. Interest rates, stock returns, price-earning ratios, and implied volatilities tend to exhibit mean reversion. The concept of mean reversion has been much discussed in energy markets with reference to how to best model forward prices in markets such as deregulated power.

   1 million joules (sometimes MMJ).

   1 million watts (sometimes MMW).

   1 million watt hours. The multiple of the power in megawatts times the time in hours and is the measurement unit commonly used in electric power trading and supply markets.

   equipment used to measure the movement of gas or electricity flowing across various points in the system. Where meters giving daily volume consumption are used, the sites are known as daily metered (DM) sites. At smaller supply points, readings are taken at longer intervals and are called non-DM sites.

   a substance that can be added to gasoline to increase its oxygen content and thereby make it burn more cleanly. MTBE has been used in some areas of the US since 1990, from which time the Clean Air Act required the use of gasoline with a 2% oxygen content in areas of high pollution. More recently, MTBE has been linked to water pollution incidents and is being phased out in favour of ethanol in many areas.

   a metric ton is 2,204.62 pounds.

   an acronym for Mercado Iberico de Electricidad, the joint Spanish-Portuguese electricity market that came into effect in 2005 and allows participants to buy and sell power on either side of the Spain/Portugal border to create a pan-Iberian market with more than 28 million business and domestic customers.

   oil products in the boiling range of between 160° and 360° Celsius – i.e., between gasoline and heavy fuel oil. These include gasoil, diesel and jet fuel (kerosene).

   established in 1881 as the Minneapolis Chamber of Commerce. Became the Minneapolis Grain Exchange (MGE) in 1947. in addition to trading wheat and shrimp futures contracts, on September 14, 1998, MGE launched its twin-cities generation region electricity futures and options contracts. It is the first futures exchange to list electricity futures with an upper US Midwest delivery point. It is also the first to list off-peak electricity futures and options contracts.

   symbol in the energy market denoting one million – e.g., mmBtu = million British thermal units.

   millions of British thermal units.

   millions of cubic feet of gas per day.

   purchase and sale agreement. see also master agreement

   the shape of any distribution can be described by its various ’moments’. The first four moments are: l The mean [see Mean], which indicates the central tendency of a distribution. l The second moment is the variance, which indicates the width or deviation.l The third moment is the skewness, which indicates any asymmetric ‘leaning’ to either left or right.l The fourth moment is the Kurtosis, which indicates the degree of central ‘peakedness’ or, equivalently, the ‘fatness’ of the outer tails.

   a method of pricing derivatives by simulating the evolution of the underlying variable (or variables) many times over. The average outcome of the simulation is an approximation of the derivative’s value. Monte Carlo is useful in the valuation of complex derivatives for which exact analytical solutions have not been found, but it can be very computationally intensive. Monte Carlo simulation can also be applied to a portfolio of instruments, rather than a single instrument, to estimate the value-at-risk of that portfolio.

   originally a provision of international treaties providing that one or both of the parties to the treaty would be granted the same terms as that of the most favourable terms provided any other country, currently or in the future, for some stipulated aspect such as tariffs. Now also a feature used in commercial contracts guaranteeing the recipient the best price or terms offered to any other counterparty.

   the average of commodity prices constructed for a period as short as a few days or as long as several years, which shows trends for the latest interval. For example, a 30-day moving average includes yesterday’s figures; tomorrow, the same average will include today’s figures and will no longer show those for the earliest date included in yesterday’s average. Every day it records figures for the latest day and drops those for the earliest day.

   any option whose strike is reset over time.

    see methyl tertiary butyl ether

   an acronym for metric tonnes per annum, which is a typical measurement unit in liquefied natural gas markets for production and facility capacity.

   any model in which there are two or more uncertain parameters in the option price (one-factor models incorporate only one cause of uncertainty: the future price). Such models can be more realistic than one-factor models, particularly in modelling complex variables, such as interest rates. Other problems, such as modelling spread options, automatically require a multi-factor model.

   any option, such as a spread option, whose payout is linked to the performance of more than one asset. Its value is usually strongly dependent on the correlation between underlying assets.

   an arrangement between a number of parties, in which each pays into a clearing house for net obligations due to other parties. Multilateral netting is a way of reducing credit risk. see also bilateral netting, netting

   a margining system for derivatives exchanges, in which positions on different exchanges can be offset with each other. If a participant has a long position on one exchange but a short position on another in a fungible (compatible) contract, he can reduce (or eliminate) margin payments on one exchange because overall exposure has been reduced by netting over the two exchanges.

   megawatt (1,000 kilowatts).