Nymex Still Waiting for Contracts to be Electrified
If the Nymex electricity futures contracts were a party, by now
the chips would be stale and the drinks flat, with only a handful
of guests having shown. Despite much fanfare over their respective
launchings, the New York Mercantile Exchange's five electricity
contracts have largely languished for lack of activity.
Robert Levin, Nymex senior vice president for planning and
development, conceded the exchange is examining various proposals
for bringing liquidity to the contracts, particularly with an eye
to bringing in more market makers. "The contracts themselves are
fine, and so it's a matter of, I think, supporting market-making
and then getting back out to the customer base, the commercials,
and reinforcing with them what we're doing and attract them back
in. I think that's pretty much it."
Levin wouldn't comment on traders who have left the electricity
pits or say what, if any, suggestions they have given the exchange
for improving liquidity. While he conceded the contracts are
anything but robust, Levin said that's not entirely the fault of
Nymex. "We're still talking about an industry where the
overwhelming lion's share is still tied up in longer-term deals as
it is. Some of it is freed up, but most of the part that's freed up
is focusing on the very, very near-term, which is traditionally not
the realm of futures contracts."
Augmenting this scenario against liquidity is an industry that
sees long-term electricity deals as largely high-risk plays. Energy
industry executives on the conference circuit often warn the
farther out you go with power deals, the farther you have to fall.
"I think originally we would have thought by now we would have
seen more meaningful movement [in the contracts]," Levin said. For
example, on Wednesday, Palo Verde was the most active Nymex
electricity futures contract of the five. It traded 329 contracts,
which is paltry compared to the Nymex gas futures contract traded
at the Henry Hub. An average day for gas futures sees 60,000 to
70,000 contracts traded. The gas futures record is 168,057
contracts, set Sept. 26, 1997.
Levin blames faulty and slow progress of electricity
deregulation for the dearth of activity in electricity futures.
"Natural gas feeds electricity, and yet the natural gas commercial
market is far larger [than electricity]. I think we're still in
that holding pattern of when do the regulators allow [electricity]
to be a real market. In the meanwhile, we're not just sitting and
waiting." Issues with regard to competition that Nymex once thought
of as short-term now have become medium-term, Levin conceded. "It's
going to take some serious work. The market hasn't taken off. It
hasn't completely ended either."
The Nymex Alberta gas futures contract "never really traded,"
Levin pointed out, noting the Nymex has a commitment to the
The California Power Exchange on Wednesday touted the matching
of 250 contracts for electricity delivery in August and September,
marking the first significant trading activity for the PX Block
Forwards Market. To Levin, though, comparing California PX
contracts to Nymex contracts is akin to comparing apples to
oranges. And Levin wouldn't put the California PX - with its
captive utility customers-in the same category with other cash
market exchanges, he said.
"We have continually been disappointed that California utilities
have been held captive to any market, and we think the sooner
they're allowed to participate in the free market, the better for
California deregulation and the better for everybody, and we even
think for the California Power Exchange. They're sort of
constrained in their own way."
Levin said the exchange has no plans to abandon any of its
electricity futures contracts. Nymex, in fact, is seeking Commodity
Futures Trading Commission approval to launch its sixth electricity
futures contract, Mid-Columbia. Levin said a launch probably won't
happen this year, partially because members of the commodities
trading industry have agreed to limit the number of new product
launches on the eve of Y2K.