The Wall Street and Trillion Dollar Electricity Market Financial Fiction or Future Fact?

Abstract

Energy is far and aw ay the fastest grow ing segm ent of the businessof the N ew York M ercantile Exchange. In fact, the N ew Y ork M ercantileExchange is the largest energy trading forum in the w orld. Tw enty yearsago w e launched heating oil futures, w hich w ere the w o rld 's first su ccessful energy futures contracts. Since then, we have added m ore than20 other energy futures and options contracts on com m od ities rangingfrom crude oil and natural gas to propane and electricity.In the course of designing and launching all these futures co ntracts, w e have also served as a kind of midw'ife to the various segm entsof the energy industry as they have gone through the throes of d eregulation. O ur heating oil contract w as begun in 1978 after Presid ent Jim m yC arter lifted controls on heating oil and the industry first beg an to faceprice risk. O ur crude oil contract was launched after oil prices w erefinally decontrolled, and our natural gas contract follow ed the d eregu lation of that industry.In each of these cases, the availability of a liquid, w ell functioningfutures m arket w as instrum ental in helping m arket p articipants to d iscover prices, and in providing risk m anagem ent for industries learning,m ostly for the first time, how to deal w ith the challenges of com p etitivepricing. W e really had a ringside seat for w atching the em ergence ofthese industries from the protective cocoon of regulation.