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

APX founder/CEO Ed Cazalet noted that the new power exchange isa private sector “business venture” by his firm that will notrequire any upfront charges to electricity customers in Illinois ashappened with California’s state-chartered PX, which he contendshas cost electricity users $125 million. He also noted that theIllinois PX (formally the “APX Illinois Hub”) is cash-based andshould help the longer term development of a more activeelectricity futures market.

Recent anemic results in the Nymex electric future contractshave caused officials to criticize PXs like California’sstate-mandated operation as opposed to a free market for tradingsuch as exists for natural gas.

“Nymex tells me that in order to build a good futures market youneed a really good underlying cash market, and that is what we’reattempting to provide in this type of PX,” Cazalet said. “If youlook at the exchanges embedded in the PJM pool and California PXthey don’t provide clear, forward price discovery. Nymex has toldus that they very much support the development of our kind of powerexchange in contrast to others.

“I think in Illinois we will be able to create the kind of pricediscovery and physical delivery that help the development of othercontracts and other means of trading.

Remember, in California, there is competition from thestate-mandated PX which uses a different system than we do, and thetraders and futures markets find that more or less incompatiblewith the development of futures exchanges. “There will be clearprice discovery in the Illinois market,” Cazalet told a telephonepress conference from ComEd’s wholesale marketing center inChicago. Participants in the exchanges are expected to come frominside Illinois and surrounding states, including utilities,independent power generators and marketers. “Our approach is toenhance the existing bilateral [wholesale] market, not replace it.APX should be much like a stock exchange for electricity; simplefor buyers and sellers to use.”

While not overpromising regarding summer price spikes that havebeen experienced the past two years, Cazalet said the availabilityof future price discovery on the PX should help keep down peaks.”While the exchange cannot eliminate shortages, and therefore highprices, it does create transparency in prices which should help themarket work more effectively. In time, you should see large buyersof 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 exclusivelyat first, and other services such as schedule coordination andancillary services later when, and if, a regional independentsystem operator (ISO) is created.

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

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