If the Nymex electricity futures contracts were a party, by nowthe chips would be stale and the drinks flat, with only a handfulof guests having shown. Despite much fanfare over their respectivelaunchings, the New York Mercantile Exchange’s five electricitycontracts have largely languished for lack of activity.
Robert Levin, Nymex senior vice president for planning anddevelopment, conceded the exchange is examining various proposalsfor bringing liquidity to the contracts, particularly with an eyeto bringing in more market makers. “The contracts themselves arefine, and so it’s a matter of, I think, supporting market-makingand then getting back out to the customer base, the commercials,and reinforcing with them what we’re doing and attract them backin. I think that’s pretty much it.”
Levin wouldn’t comment on traders who have left the electricitypits or say what, if any, suggestions they have given the exchangefor improving liquidity. While he conceded the contracts areanything but robust, Levin said that’s not entirely the fault ofNymex. “We’re still talking about an industry where theoverwhelming lion’s share is still tied up in longer-term deals asit is. Some of it is freed up, but most of the part that’s freed upis focusing on the very, very near-term, which is traditionally notthe realm of futures contracts.”
Augmenting this scenario against liquidity is an industry thatsees long-term electricity deals as largely high-risk plays. Energyindustry executives on the conference circuit often warn thefarther out you go with power deals, the farther you have to fall.
“I think originally we would have thought by now we would haveseen more meaningful movement [in the contracts],” Levin said. Forexample, on Wednesday, Palo Verde was the most active Nymexelectricity futures contract of the five. It traded 329 contracts,which is paltry compared to the Nymex gas futures contract tradedat the Henry Hub. An average day for gas futures sees 60,000 to70,000 contracts traded. The gas futures record is 168,057contracts, set Sept. 26, 1997.
Levin blames faulty and slow progress of electricityderegulation for the dearth of activity in electricity futures.”Natural gas feeds electricity, and yet the natural gas commercialmarket is far larger [than electricity]. I think we’re still inthat holding pattern of when do the regulators allow [electricity]to be a real market. In the meanwhile, we’re not just sitting andwaiting.” Issues with regard to competition that Nymex once thoughtof as short-term now have become medium-term, Levin conceded. “It’sgoing to take some serious work. The market hasn’t taken off. Ithasn’t completely ended either.”
The Nymex Alberta gas futures contract “never really traded,”Levin pointed out, noting the Nymex has a commitment to theindustry.
The California Power Exchange on Wednesday touted the matchingof 250 contracts for electricity delivery in August and September,marking the first significant trading activity for the PX BlockForwards Market. To Levin, though, comparing California PXcontracts to Nymex contracts is akin to comparing apples tooranges. And Levin wouldn’t put the California PX – with itscaptive utility customers-in the same category with other cashmarket exchanges, he said.
“We have continually been disappointed that California utilitieshave been held captive to any market, and we think the soonerthey’re allowed to participate in the free market, the better forCalifornia deregulation and the better for everybody, and we eventhink for the California Power Exchange. They’re sort ofconstrained in their own way.”
Levin said the exchange has no plans to abandon any of itselectricity futures contracts. Nymex, in fact, is seeking CommodityFutures Trading Commission approval to launch its sixth electricityfutures contract, Mid-Columbia. Levin said a launch probably won’thappen this year, partially because members of the commoditiestrading industry have agreed to limit the number of new productlaunches on the eve of Y2K.
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