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ComEd, APX Team Up to Form Power Exchange

ComEd, APX Team Up to Form Power Exchange

Separating itself from government-created organizations like the California Power Exchange, the privately funded California-based Automated Power Exchange (APX) yesterday (July 27) announced plans to set up shop with a cash-based exchange in Illinois this fall when customer choice begins (Oct. 1) in the electricity industry. The announcement was made in Chicago in conjunction with local investor-owned utility Commonwealth Edison, whose transmission system will be used to create a competitive power market in Illinois.

APX founder/CEO Ed Cazalet noted that the new power exchange is a private sector "business venture" by his firm that will not require any upfront charges to electricity customers in Illinois as happened with California's state-chartered PX, which he contends has cost electricity users $125 million. He also noted that the Illinois PX (formally the "APX Illinois Hub") is cash-based and should help the longer term development of a more active electricity futures market.

Recent anemic results in the Nymex electric future contracts have caused officials to criticize PXs like California's state-mandated operation as opposed to a free market for trading such as exists for natural gas.

"Nymex tells me that in order to build a good futures market you need a really good underlying cash market, and that is what we're attempting to provide in this type of PX," Cazalet said. "If you look at the exchanges embedded in the PJM pool and California PX they don't provide clear, forward price discovery. Nymex has told us that they very much support the development of our kind of power exchange in contrast to others.

"I think in Illinois we will be able to create the kind of price discovery and physical delivery that help the development of other contracts and other means of trading.

Remember, in California, there is competition from the state-mandated PX which uses a different system than we do, and the traders and futures markets find that more or less incompatible with the development of futures exchanges. "There will be clear price discovery in the Illinois market," Cazalet told a telephone press conference from ComEd's wholesale marketing center in Chicago. Participants in the exchanges are expected to come from inside Illinois and surrounding states, including utilities, independent power generators and marketers. "Our approach is to enhance the existing bilateral [wholesale] market, not replace it. APX should be much like a stock exchange for electricity; simple for buyers and sellers to use."

While not overpromising regarding summer price spikes that have been experienced the past two years, Cazalet said the availability of future price discovery on the PX should help keep down peaks. "While the exchange cannot eliminate shortages, and therefore high prices, it does create transparency in prices which should help the market work more effectively. In time, you should see large buyers of power more directly using these prices to manage their loads, contributing to more of a balance between supply and demand."

The Illinois PX will offer power commodity trading exclusively at first, and other services such as schedule coordination and ancillary services later when, and if, a regional independent system operator (ISO) is created.

The APX now accounts for 15% of the electricity trading volume in California, allowing the for-profit operation to be at the "break-even point on an incremental basis."

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