Analysts and Traders Juiced Up for Electricity Futures

Electricity futures--contracts for sale of electricity at a specified future date for a fixed price--will begin trading on the New York Mercantile Exchange, or Nymex, this Friday.

Analysts and traders looking to get in on it say trade in the contracts could be as large as in crude oil futures, which every day trade more than a million barrels, worth about $20 million, on the Nymex.

“There’s going to be a radical change in the electricity market,” said Peter Fusaro, president of Global Change Associates, a consulting firm in White Plains, N.Y. “There’s a tremendous amount of interest on the power side.”

Electricity contracts are already bought and sold on a per-deal basis in an over-the-counter market. Making trades in a central place on the futures exchange means the open market will determine the price.

“If all transactions are out in the open, it should tend to drive the costs down,” said Chris Morris, a financial analyst with the Washington, D.C.-based Edison Electric Institute, which represents the interests of utilities.

Utility companies, which are used to assured income, are going to have to learn how to compete in an increasingly deregulated environment and are investigating how to hedge their bets in the new system. For now, most consumer rates are controlled by state regulation.

For most utilities, “it’s too early to make a decision” whether to buy or sell electricity on a regular basis through Nymex. But all are watching with “definite interest,” said Edison Electric spokeswoman Mary Kinkel.

Already there is excitement among commodity traders who buy contracts for oil, corn, pork bellies and wheat with the intention of selling before having to take delivery.