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
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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