The New York Mercantile Exchange (Nymex) reported a fairlyactive first day of trading for the eastern electricity futurescontracts on Friday, with a total volume of 939 contracts traded.This, however, was 282 fewer contracts than the number tradedduring the first day of the western electricity contracts in 1996,a Nymex official said.

The volume of contracts traded for delivery into the CinergyCorp. system was 573, while the number of contracts for deliveryinto the Entergy Corp.-based system was slightly lower at 366,noted Nymex spokeswoman Maria Gonzalez. Both figures were estimatesand will be finalized today. The price for the Cinergy- andEntergy-based contracts settled at $58 and $62.50, respectively,she said. The contracts are for delivery in September.

The launch of the two eastern electricity futures contractscomes a little more than two years after the successful kick-off ofthe western power contracts at the California/Oregon border and atPalo Verde, AZ, which together now trade an average of 2,500contracts daily “There’s no real basis for an expectation” that oneof the new futures contracts will be more widely used than theother, said Neal Wolkoff, executive vice president at Nymex. “Ithink that both areas have become important pricing points on theirown, independent of each other.

“We’ve seen in the western markets that two pricing points insimilar regions, although not exactly the same, are able to sustainthemselves and be traded actively and looked [upon] equally as faras important pricing points. Right now we expect that that will bethe same” with the new eastern futures contracts, Wolkoff noted.The Cinergy system includes about 7,000 miles of transmission linesthat serve portions of Ohio, Indiana and Kentucky; it has majorinterconnections with companies in the East Central AreaReliability Coordination Agreement (ECAR) region. New Orleans,LA-based Entergy owns 15,500 miles of transmission lines servingcustomers in Louisiana, Arkansas, Mississippi and Texas; itinterfaces with utilities in the Southwest Power Pool, theMid-America Interconnected Network and the Tennessee ValleyAuthority (TVA).

Nymex selected Cinergy and Entergy for the pricing points overseveral other possible candidates, including the Pennsylvania-NewJersey-Maryland (PJM) power pool, the TVA and Commonwealth Edison.They won out in the end because they are nationally recognized asreference points for the pricing of electricity, have a high numberof transactions occurring on or near their systems, and are locatedadjacent to other important power transmission systems, accordingto Nymex officials.

The terms and conditions of the Entergy- and Cinergy-basedfutures contracts are standardized. Each contract unit is 736 MWhsof firm electric energy; delivery will occur during a 16-hourperiod between 7 a.m. and 11 p.m. eastern time on each business dayof the delivery month; delivery will occur at the rate of 2 MWhseach hour during the delivery period; and trading will end on thefourth business day prior to the first day of the delivery month.Prices will be based on delivery requirements. The minimum dailyprice fluctuation for the monthly futures contract will be onecent/MWh, while the maximum price fluctuation will be $6/MWh ineither direction – except for the first two months – and could beincreased to $12/MWh in the event the preceding day’s pricesettles at the $6 limit. For the first two contract months, themaximum daily price fluctuation will be $15/MWh above or below theprevious day’s settlement price.

“I don’t think the jury’s [ruled] out” the PJM interconnectcompletely as a reference point for a futures contract, said RobertLevin, senior vice president for product development at Nymex. “Weare looking at it very strongly. It’s very possible we will submita contract on PJM” in the future, he told reporters at a pressconference in Washington, D.C last week.

Nymex, however, wants to see some changes in the regulatorystructure of the PJM and in the locational marginal pricing (LMP)policy there before it seriously can reconsider the power pool as asite for a futures contract, Wolkoff noted. As a result of LMP, PJMis no longer the most actively traded cash market on the EastCoast, the number of transactions has dropped “dramatically,” andthe market has lost fungibility – or the ability to make atransaction with a known price in different areas of a region. “Wethink the pricing uncertainties are not really healthy for thedevelopment of competition in that market. So we’re hoping thatthere’ll be a review of the regulation” at FERC, he said.

In response to reporters’ questions, Helmig dismissed the”popular comment” that speculators are “running amok” in the cashmarket. He noted that participation by speculators was minimal,and, in fact, said a certain level of speculative activity shouldbe welcomed because it dampens the volatility of energy prices.

In fact, “I will argue, if you will, that some of the activitythat you saw a few weeks ago in the Midwest electricity [market]would have been substantially different in a transparent futuresmarket with speculators,” Helmig said.

Susan Parker

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