CBT PROPOSED TVA HUB ELECTRICITY CONTRACT TERMS

5402.01 Application of Regulation - Transactions in TVA Hub electricity futures shall be subject to the general Rules of the Association as far as applicable and shall also be subject to the Regulations contained in this chapter, which are exclusively applicable to trading firm electric energy into and out of the Tennessee Valley Authority Control Area.

(A) "Tennessee Valley Authority Control Area" or "TVA Control Area" means the electric power system(s) consisting of all of Tennessee Valley Authority's transmission and generating facilities in which a common automatic generation scheme is applied in: 1) matching the power output of the generators within the system(s) and capacity and energy purchased from outside entities; and 2) maintaining scheduled interchange and frequency with other Control Areas while providing sufficient generating capacity to maintain operating reserves. The TVA Control Area is recognized by the North American Electric Reliability Council (NERC).

(B) "Firm electric energy" means electric energy meeting the specifications of the TVA electricity futures contract delivered in accordance with the rules of the contract.

(C) "On-peak" or "On-peak day" means 6:00:01 a.m to 10:00:00 p.m. on any day between and including Monday through Friday , excluding any day which has been designated as an "off-peak" day or a holiday by the North American Electric Reliability Council (NERC).

(D) "Force Majeure" means any circumstance (including but not limited to a strike, lockout, national emergency, government action, or act of God) which is beyond the control of the buyer or seller, and which prevents the buyer or seller from making or taking delivery of electric energy or effecting payment and which, by exercise of due diligence, the affected party could not have been reasonably expected to avoid and which, by exercise of due diligence, said party is unable to overcome.

(E) "Delivering party" means the seller providing capacity and energy to be transmitted at point(s) of receipt.

(G) "Transmission Service Agreement" means the initial agreement and any amendments or supplements thereto entered into by the transmission customer and transmission provider for service under the Tennessee Valley Authority’s Transmission Service Guidelines or any replacement thereof.

(I) All times referred to in these rules shall be Central Time unless otherwise specified

5404.01 Unit of Trading - The unit of trading for TVA Hub electricity futures shall be 1,680 Megawatt hours (MWh) of firm electric energy. Bids and offers may be accepted in dollars and cents per MWh ($/MWh) or multiples thereof.

5405.01 Months Traded In - Trading in TVA Hub electricity futures may be conducted in the current month and any subsequent months as determined by the Exchange.

5406.01 Price Basis - Minimum price fluctuations shall be $.01 per MWh. Contracts shall not be made on any other price basis.

5407.01 Hours of Trading - The hours of trading for future delivery in TVA electricity shall be 9:20 a.m to 2:40 p.m Central time unless otherwise determined by the Board. The market shall be opened and closed for all months simultaneously, or in such other manner as the Regulatory Compliance Committee shall direct.

(A) The maximum permissible price fluctuation in any one day shall be $3.00 per MWh above or below the preceding day’s settlement price.

(B) If one or more listed contracts close on limit bid for one business day or on the limit sellers for one business day, then the limit will be raised to 150 percent of the current level for all contracts and remain there for two successive business days. If on the last day of a two day business period, one or more contracts do not close on the limit bid or limit sellers then the limits would revert to their original level at the end of the two day period.

(A) No trades in TVA electricity futures deliverable in the current month shall be made during the last three business days prior to the first calendar day of the delivery month.

(B) No participant may make or take delivery or enter into an exchange for physical transaction after 9:20 a.m. on the last trading day unless, prior to 9:20 a.m on the last trading day, its clearing member has obtained from it:

(1) A copy of a signed written transmission service agreement or enabling agreement into (from) the TVA Control Area, and where such agreement is not for firm transmission for such participant, verification of appropriate alternative arrangements for transmission to (from) the TVA Control Area, such that a delivery under the terms of this Chapter may be made. The quantity of electric energy identified in such agreement(s) or arrangement(s) must be equal to or greater than the quantity required by the number of contracts that the seller will deliver; and

(2) Written certification from each participant holding a non-proprietary long(short) position in that contract that:

(a) if short, the participant has generation capacity or a purchase agreement for a quantity and quality of electric energy sufficient to meet such participant(s) obligations to make delivery as prescribed by these Rules, and is not restricted by law to which parties it may sell electric energy;

(b) if long, the participant has load or resale commitments equal to the quantity it intends to receive in delivery; and

(c) whether short or long, such participant has a reasonable basis to believe that transmission service will be available to satisfy the needs of the customer.

(C) If a clearing member fails to obtain the documents required to be furnished by a participant by paragraph (B) hereof, the clearing member shall liquidate all open long or short positions for which such documents have not been obtained by entering a market order at least one hour prior to the beginning of the close of trading on the last day of trading without liability to the owner or controller of such position.

(D) An open position may be liquidated by a bona fide exchange for physical for the actual commodity, no later than 11 a.m. on the first business day following the last day of trading. Participants holding a short (long) position in the expiring month after the close of trading on the day before last trading day and planning to execute an EFP are subject to the requirements of paragraph (B).

(E) Any party that is restricted by law to which parties it may sell electric energy, may not give notice for delivery, or participate in an exchange for physical transaction involving the sale of electric energy to parties to whom it is restricted to sell to, and must liquidate all short positions prior to the expiration of trading. Notwithstanding any provision of these Rules, the clearing member of a party subject to such a restriction shall liquidate all open short positions of that party prior to the close of trading on the last day of trading.

5411.01 Position Limits and Reportable Positions - (See CBOT Regulation 425.01)

5436.01 Standards - The contract grade for delivery on futures contracts made under these Regulations shall be firm electric energy in the form of three phase current alternating at a nominal frequency of 60 hertz, and be in conformance within the specifications of Southeastern Electric Reliability Council (SERC) as well as all applicable Federal, State, and Local laws and regulations. The seller shall provide firm electric energy which is free from all liens, encumbrances, unpaid taxes, fees and other charges. Delivery shall be into the TVA Control Area, seller’s choice of interconnection point. That is, the seller is responsible for delivery of electricity to the designated interconnection point(s) with the buyer responsible for receipt at the interconnection point(s) selected by the seller. The seller is not responsible for transmission service inside the TVA Control Area.

5443.02 Time and Issuance of Delivery Notices - (See CBOT Regulation 1049.01)

5443.03 Buyer's Report of Eligibility to Receive Delivery - (See CBOT Regulation 1049.02)

5443.04 Clearing Member Firms' Obligations - Upon receipt of the name of the respective long clearing member (buyer) obligated to accept delivery from him, the short clearing member shall contact the long clearing member to which it has been assigned to decide upon the equitable allocation of the customer and house positions. Following the equitable allocation of the assigned customer and house positions, the short clearing member firm shall prepare invoices addressed to its assigned long clearing member firms. Both the long and short clearing member firm must immediately communicate to their customers the name of the party to whom it has been matched. The respective clearing member firm shall provide all of the relevant information for the Long and the Short to communicate so that the Short can make the required transmission arrangements to deliver electric energy, and the Long can make the required arrangements to receive electric energy.

(1) "Payment Date" shall mean the twenty-fifth (25) calendar day of the month following the delivery month. If such date is a Saturday or an Exchange or federal banking holiday other than Monday, payment shall be made on the preceding business day which is not an Exchange or federal banking holiday. If such a day is a Sunday or an Exchange or federal banking holiday which occurs on a Monday, payment shall be made on the next business day which is not an Exchange or federal banking holiday.

(2) "Long" shall mean the customer of a long clearing member or the long clearing member if such clearing member is acting for its own account.

(3) "Short" shall mean the customer of a short clearing member or the short clearing member if such member is acting for its own account.

(4) "Failure to Perform" shall mean the failure of the Short to make or the Long to receive delivery of firm electric energy in accordance with the requirements set forth in these Rules.

(B) On every on-peak day of the delivery month, delivery terms shall be 5 megawatts/hour starting with the hour beginning at 6:00:01 a.m. and ending at 10:00:00 p.m. Central time.

(1) The Short shall notify the Long on a daily basis of the TVA Hub interface point in which the delivery for that day shall occur. The Long's confirmed transmission request recorded on TVA’s Open Access Same Time Information System (OASIS) shall be the determination of transmission service reliability. The Long shall notify the Short of a confirmed transmission request on a timely basis. If the interface point designated by the Short is not available for the Long, then the Short shall notify the Long of (1) an alternate interface point for which transmission service is available to the Long, or (2) generation inside of the TVA Control Area.

(2) All or part of a standard delivery obligation can also be made by book transfer, provided that the Long and Short mutually agree to such transfer. For purposes of this regulation, a book transfer is defined as a book adjustment effecting a title transfer between the Long and Short which involves the offset of a standard delivery obligation by a cash market obligation.

(C) Delivery shall commence no earlier than the first on-peak day of the delivery month. Delivery shall be completed no later than the last on-peak day of the delivery month.

(D) The Short shall provide its clearing member(s), the Long's clearing member(s), and the Long all appropriate documents necessary for completion of the delivery terms by 9 a.m. the third business day after the final day of trading.

(E) On the second business day following the last day of trading, the long clearing member shall obtain from the Long, margin equal to the full value of the electric energy to be delivered. The full value of the electric energy shall be the final contract settlement price multiplied by 5 megawatts rate multiplied by 16 hours per delivery day multiplied by the number of delivery days in the delivery month multiplied by the number of contracts delivered. The short clearing member shall obtain from the Short margin in the amount fixed, from time to time, by the Exchange. Such margins, shall be returned on the first business day following notification to the Exchange that delivery and payment have been completed. Any margin so deposited must be in the form required by the clearing member firm that calls for it.

(F) No later than 12:00 o’ clock noon Central time on the third business day prior to the Payment Date, the Short shall advise the short clearing member of the name and address of the bank, and the name of the account to which payment shall be made. The short clearing member shall advise the long clearing member who shall advise the Long. On the Payment Date, the Long shall pay the Short by federal funds wire transfer to the account of the short at the bank nominated by the Short. No later than 12:00 noon Central time the Long shall advise the long clearing member, the short clearing member and the Short of the federal funds wire transfer number and the name of the sending bank.

(G) No later than the first business day following the Payment Date, the Short, shall advise the short clearing member of receipt of payment and provide proof of execution of the schedule by the relevant control area operator. The short clearing member shall deliver a notice of payment to the long clearing member with a copy to the Clearing Corporation no later than the first business day following the Payment Date. Receipt of such notice by the long clearing member, along with proof of execution of the schedule by the relevant control area operators, shall constitute proof of delivery and title transfer.

(H) Any payment made on the Payment Date shall be based on electric energy actually delivered.

(I) In the event that the short clearing member receives notification that payment has not been received by the close of business on the Payment Date, it shall advise the Exchange and the long clearing member in writing. Unless the Long or long clearing member has advised the Exchange in writing that the Short failed to perform, the Long's failure to perform its respective delivery obligations in accordance with the requirements set forth in these Rules, shall be referred to the Exchange for resolution. If the Long or the long clearing member has advised the Exchange in writing that the Short failed to perform, the matter shall be referred to the Exchange for resolution. Force Majeure is the only exception for late performance of above described delivery terms. An Exchange regulatory committee shall be authorized to resolve disputes relating to a failure to perform or Force Majeure.

(J) The Long's clearing member firm shall be responsible for any failure to perform by the Long. The Short's clearing member firm shall be responsible for any failure to perform by the Short. Neither the Exchange nor the Clearing House shall be liable for any loss, cost or expense arising from the failure of a Long or its clearing member or a Short or its clearing member to perform any of their respective obligations under the provisions of this chapter.

(K) Participants making or taking delivery of electric energy pursuant to these Rules shall adhere to the applicable scheduling and transmission procedures and practices of SERC, TVA Control Area, and FERC.

Upon mutual agreement, in writing, the Long and the Short may amend provisions of Regulation 5443.06(B) related to Delivery Rate and Regulation 5443.06(C) related to Timing of Delivery, except that no amendment shall be permitted that would allow the delivery to take place outside the delivery month.

These amendments must be filed with the Long and Short’s respective clearing members.

The Short(Long) may agree with the Long(Short) with which it has been matched by the Clearing House to make and take delivery under terms or conditions which differ from the terms and conditions prescribed in this Chapter. If agreed upon, the respective Clearing Members must execute an Alternative Delivery Notice on the official form prescribed by the Exchange and shall deliver a completed executed copy of such Notice to the Exchange. The delivery of an executed Alternative Delivery Notice to the Exchange shall release the clearing members from their respective obligations under this Chapter. The filing of such a notice allows the Long and the Short to negotiate mutually acceptable terms for the settlement of the obligation.

By executing such Notice, the Long and the Short shall indemnify their respective clearing members, the Exchange and the Clearing House from any claim, loss, liability, cost or expense arising from the execution, delivery or performance of such contracts or such agreement, or any breach thereof or default thereunder. Upon receipt of an executed Alternative Delivery Notice, the clearing members will return all margin monies held for the account of each with respect to the contracts involved.

XX01.01 Application of Regulations - Transactions in put and call options on TVA Hub Electricity futures contracts shall be subject to the general rules of the Association as far as applicable and shall also be subject to regulations contained in this chapter which are exclusively applicable to trading in put and call options on TVA Hub Electricity futures contracts (see Rule 490.00).

XX02.01 Nature of TVA Hub Electricity Futures Put Options - The buyer of one (1)TVA Hub Electricity futures put option may exercise his option at any time prior to expiration (subject to Regulation XX07.01), to assume a short position in one (1)TVA Hub Electricity futures contract of a specified contract month at a striking price set at the time the option was purchased. The seller of one (1) TVA Hub Electricity futures put option incurs the obligation of assuming a long position in one (1)TVA Hub Electricity futures contract of a specified contract month at a striking price set at the time the option was sold, upon exercise by a put option buyer.

XX02.02 Nature of TVA Hub Electricity Futures Call Options - The buyer of one (1) TVA Hub Electricity futures call option may exercise his option at any time prior to expiration (subject to Regulation XX07.01), to assume a long position in one (1) TVA Hub Electricity futures contract of a specified contract month at a striking price set at the time the option was purchased. The seller of one (1) TVA Hub Electricity futures call option incurs the obligation of assuming a short position in one (1) TVA Hub Electricity futures contract of a specified contract month at a striking price set at the time the option was sold, upon exercise by a call option buyer.

XX03.01 Trading Unit - One (1) TVA Hub Electricity futures contract of a specified contract month on the Chicago Board of Trade.

XX04.01 Striking Prices -Trading shall be conducted for put and call options with striking prices (the "strikes") in integral multiples of fifty ($.50) cents per megawatt hour per TVA Hub Electricity futures contract (i.e., 18.50, 19.00, 19.50, etc.), the "first tier"; and in integral multiples of two dollars and fifty cents ($2.50) per megawatt hour per TVA Hub Electricity futures contract (i.e., 20.00, 22.50, 25.00, etc.), the "second tier" as follows:

1. a. Per the first tier, at the commencement of trading for an option contract, the following strikes shall be listed: one with a strike closest to the previous day's settlement price of the underlying TVA Hub Electricity futures contract, the next twenty consecutive higher strikes and the next twenty consecutive lower strikes (the "initial band"). If the previous day's settlement price is midway between two strikes, the closest price shall be the larger of the two.

b. Per the second tier, at the commencement of trading for an option contract, the following strikes shall be listed: the next ten consecutive strikes above and the next ten consecutive strikes below the initial band.

c. Per the first tier, over time, strikes shall be added as necessary to insure that at least twenty strikes above and below the previous day's trading range of the underlying futures are listed (the "minimum band").

d. Per the second tier, over time, strikes shall be added as necessary to insure that the next ten consecutive strikes above the minimum band the next ten consecutive strikes below the minimum band are listed.

e. No new strikes may be added by these procedures in the month in which an option expires.

2. a. Per the second tier, all strikes in which the previous day's delta factors (as determined by the Board of Trade) for both the put and call options are 0.10 or greater for two consecutive business days will be listed for trading. However, no new strikes may be added by this procedure to an option month unless open positions exist in that contract month.

b. Per the first tier, during the month in which an option expires, all strikes in which the previous day's delta factors (as determined by the Board of Trade) for both the put and call options are 0.10 or greater for two consecutive business days will be listed for trading.

3. All strikes will be listed prior to the opening of trading on the following business day. The Exchange may modify the procedures for the introduction of strikes as it deems appropriate in order to respond to market conditions.

XX05.01 Payment of Option Premium - The option premium must be paid in full by each clearing member to the Clearing House and by each option customer to his commission merchant at the time the option is purchased, or within a reasonable time after the option is purchased.

XX06.01 Option Premium Basis - The premium for TVA Hub Electricity futures options shall be in multiples of one-half of one cent per megawatt hour ($8.40 per contract). Contracts shall not be made on any other basis.

However, when both sides of the trade are closing transactions, the option premium may range from $1.00 to $8.00 in $1.00 increments per option contract.

XX07.01 Exercise of Option -The buyer of a TVA Hub Electricity futures option may exercise the option on any business day prior to expiration by giving notice of exercise to the Clearing Corporation by 6:00 p.m. (Central time) on such day.

XX07.02 Automatic Exercise - Notwithstanding the provisions of Regulation XX07.01, after the close on the last day of trading, all in-the-money options shall be automatically exercised, unless notice to cancel automatic exercise is given to the Clearing Corporation.

Notice to cancel automatic exercise shall be given to the Clearing Corporation by 6:00 p.m. (Central time) on the last day of trading.

XX08.01 Expiration of Option - Unexercised TVA Hub Electricity futures options shall expire at 6:00 p.m. (Central time) on the last day of trading.

XX09.01 Months Traded In - Trading may be conducted in TVA Hub Electricity futures options in the same months that are listed for trading in the TVA Hub Electricity futures contracts, provided however that the Exchange may determine not to list a contract month. There shall be no trading in TVA Hub Electricity futures options for months in which the TVA Hub Electricity futures are not traded on the Chicago Board of Trade.

XX10.01 Trading Hours - The hours of trading options on TVA Hub Electricity futures shall be determined by the Board. On the last day of trading in an expiring option, the closing time for such options shall be 12:00 noon, subject to the provisions of the second paragraph of Rule 1007.00. On the last day of trading in an expiring option, the expiring TVA Hub Electricity futures options shall be closed with a public call made striking price by striking price, conducted by such persons as the Regulatory Compliance Committee shall direct. On all other days, TVA Hub Electricity futures options shall be opened and closed for all months and striking prices simultaneously or in such a manner as the Regulatory Compliance Committee shall direct.

XX13.01 Last Day of Trading - No trades in TVA Hub Electricity futures options expiring in the current month shall be made after 12:00 noon on the business day immediately preceding the expiration of the underlying futures contract.

XX14.01 Option Premium Fluctuation Limits - Trading is prohibited during any day except for the last day of trading in TVA Hub Electricity futures options at a premium of more than the trading limit for the TVA Hub Electricity futures contract above and below the previous day's settlement premium for that option as determined by the Clearing Corporation. On the first day of trading, limits shall be set from the lowest premium of the opening range.