The party is over, but after three years the chip and punch bowls are still full. The electricity futures contracts on the New York Mercantile Exchange never really attracted a crowd, and Nymex President J. Robert Collins Jr. finally called it quits last Thursday on six electricity contracts: California-Oregon Border, Palo Verde, Cinergy, Entergy, PJM and Mid-Columbia.

This doesn’t mean Nymex won’t throw some other kind of power party down the road, however. “We’re actually not discontinuing electricity trading; we’re reconfiguring our contracts,” said Nymex spokeswoman Nachamah Jacobovits. “We have to decide [what’s going to be done to them], but we’re going to make some changes and reintroduce them. In light of that, we didn’t want people to open up positions and be stuck with them.”

Of course there never really was any danger of that happening. The power contracts, much like the failed Permian and Alberta gas futures products, showed a dearth of liquidity since inception. Volume was zero last year for Cinergy futures. Palo Verde attracted only 109 transactions. COB had a volume of 2. PJM was zero. Mid Columbia had 75 transactions, and Entergy had zero volume. In sharp contrast, there were 16.4 million Henry Hub futures contracts traded last year.

For years, the exchange blamed the lack of liquidity and interest in the power contracts on the slow progress of electric deregulation and regulatory restrictions on many utilities. Nymex officials also say the market hasn’t developed quite the way they had hoped or planned.

“These contracts didn’t work for a lot of reasons,” said Jacobovits. “The market evolved differently than the contracts were originally designed for. There’s no fungibility from transmission grid to transmission grid. There was no correlation in prices between regions. That was actually disruptive to developing a liquidity base. Deregulation has been an issue because it’s created disparity from area to area. It also creates lack of ability for utilities to participate.”

She said Nymex intends to develop more “flexible” power instruments, some that will work as futures and others as over-the-counter products.

“It has been very hard to get [locals] interested in the existing contracts,” she said. “Certainly developing liquidity in the new contracts will be an issue we will have to look at. The new contracts are not going to exactly reflect what we have right now. Some of the points will be the same, but we’ll definitely have some differences in the way the contracts even for those points are structured.”

Jacobovits said Nymex plans to spend the next few months trying to determine how to move forward in the power market. Once the new power products are designed they likely will be launched on Nymex Access with multiple other gas and oil OTC products.

She said the exchange also has shelved its plans for eNymex and instead will use Access as the conduit for all proposed over-the-counter products. Currently, Nymex is offering Henry Hub swaps on Access, but to date, it hasn’t followed through on its plans to make the numerous other swaps and related energy products available.

It previously announced a program to provide basis swap contracts based on NGI’s bidweek indexes at Chicago and the Southern California border. Other proposed products include a West Texas Intermediate crude oil calendar swap contract; basis swap contracts based on the differential between the final settlement price for the Henry Hub natural gas futures contract and Inside FERC’s Gas Market Report quoted indexes for Henry Hub, El Paso San Juan Basin, Houston Ship Channel and Transco Zone 6; basis swap contracts based on the differential between the exchange Henry Hub natural gas futures contract and the Canadian Gas Price Reporter Alberta spot month price (based on AECO C/NIT); and several other crude and heating oil products. Those products should be rolled out on Access in phases over the next several months, said Jacobovits.

eNymex never got off the ground partly because of Sept. 11 but also because of vendor problems and consulting delays. Nymex filed a lawsuit against one of its vendors, Global View, for not providing the services for which it was hired.

“I don’t know what the problem was with Global View, but we are in litigation with them because they were supposed to be developing the front-end stuff but they didn’t deliver; they took our money and didn’t deliver,” said Jacobovits. “They subcontracted it out and never paid the company that they subcontracted to. They are the only vendor that we really have a dispute with. There were other delays and things that happened with consultants. We basically just sat in frustration. We did Access in house, and it was done, but [then we couldn’t finish eNymex].”

Jacobovits wouldn’t comment on rumors about Nymex’s discussions with IntercontinentalExchange (ICE) on a possible joint venture or alliance. “I really wouldn’t be able to say anything other than we are always open to discussions on potential strategic alliances.” However, Nymex did announce an agreement last week to offer new “e-mini” futures contracts on the Chicago Mercantile Exchange’s (CME) GLOBEX electronic trading platform. The “E-mini” contracts would be smaller versions of key Nymex energy futures. It’s possible that Nymex also will put some of its proposed OTC products on GLOBEX as well.

The first E-mini energy contracts will begin trading in the summer. The agreement calls for the two exchanges to launch smaller, electronically traded versions of Nymex’s crude oil, natural gas, heating oil and gasoline futures contracts. Precious metals contracts may be introduced in subsequent phases. Modeled after CME’s popular line of E-mini stock index contracts, which are one-fifth the size of the standard-sized contracts, the new E-mini energy and precious metals futures would be a to-be-determined fraction of the size of the standard-sized Nymex contracts. Under the cross-access program, CME members will be granted access to GLOBEX to trade the E-mini versions of the energy futures products and to Nymex Access to trade Nymex division products listed on that system. CME members who are not members of Nymex will receive discounts for these trades. Similarly, Nymex members will receive access to GLOBEX and discounts on fees for CME products traded on GLOBEX. The exchange officials said that a cross-margining program will provide capital efficiencies.

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