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 business
of the N ew York M ercantile Exchange. In fact, the N ew Y ork M ercantile
Exchange is the largest energy trading forum in the w orld. Tw enty years
ago w e launched heating oil futures, w hich w ere the w o rld 's first su c
cessful energy futures contracts. Since then, we have added m ore than
20 other energy futures and options contracts on com m od ities ranging
from crude oil and natural gas to propane and electricity.
In the course of designing and launching all these futures co n
tracts, w e have also served as a kind of midw'ife to the various segm ents
of the energy industry as they have gone through the throes of d eregu
lation. O ur heating oil contract w as begun in 1978 after Presid ent Jim m y
C arter lifted controls on heating oil and the industry first beg an to face
price risk. O ur crude oil contract was launched after oil prices w ere
finally decontrolled, and our natural gas contract follow ed the d eregu la
tion of that industry.
In each of these cases, the availability of a liquid, w ell functioning
futures m arket w as instrum ental in helping m arket p articipants to d is
cover 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 etitive
pricing. W e really had a ringside seat for w atching the em ergence of
these industries from the protective cocoon of regulation.