Still holding on to the collateral of its 70-odd participants inthe form of letters of credit and bonds worth hundreds of millionsof dollars, California’s state-chartered nonprofit wholesale spotmarket for electricity, Cal-PX, chose a Chapter 11 bankruptcyfiling last week because of the preponderance of litigation andfederal regulatory actions pending, its CEO George Sladoje saidMonday.

In hindsight, the “beginning of the end” for the Cal-PX camelast July when the Federal Energy Regulatory Commission (FERC)lowered the price caps from $750/MWh, said Sladoje, at the powerexchange’s Pasadena headquarters where staff has dwindled to around40 from a peak of 200. Because of the pending court and FERC cases,Sladoje said he expected to be working at least through May.(FERC-authorized tariffs run out April 30.)

Among unfinished business facing Cal-PX is its continuingattempt to get back the two major California private-sectorutilities’ defaulted block forward contracts from the governor, whoseized them in actions Feb. 2 and 5 to preserve below-marketsuppliers for California consumers. Cal-PX estimates the value ofthe contracts in today’s market at nearly $1.5 billion.

“The fact of the matter is that the utilities last year didn’tdo very much with the forward market,” Sladoje said. “Now it isironic that the biggest asset they have for 2001 is the forwardcontracts they bought last year. Everyone is fighting over themnow. The governor has commandeered them, and the sellers are tryingto weasel out of them.

“We sent a bill to the governor’s office for a little over abillion dollars the day after they were commandeered. This week weare applying to the state board of control in a formal applicationand it now comes out to close to a billion-and-a-half dollars.”

Ironically, before “all hell broke loose” last summer inCalifornia’s wholesale power market, the Cal-PX was close togetting some local traders interested in its future market, saidSladoje, a former executive with the Chicago Board of Trade, whonoted that the lack of local individual traders was one of theshortcomings the Cal-PX couldn’t overcome, and it will be tough, hesaid, for the privately financed Automated Power Exchange (APX) inSanta Clara or another electricity exchange to overcome.

The model should be the Nymex natural gas and petroleumexchanges, both of which, Sladoje said, have managed to get localtraders involved. And “efficient, smooth-running” commodityexchange has between 50% and 70% of its volume down byindividuals-not commercial and trading professionals.

Before its demise — when FERC ordered on Dec. 15 the end ofmandatory trading in the Cal-PX and a ban against California’sinvestor-owned utilities even selling through the nonprofitexchange — Sladoje’s power exchange had agreed to open newexchanges in New England and Alberta, Canada, both of which havenow been set aside.

Aside from California’s well-documented supply, frozen retailrates, transmission congestion and natural gas price spikes,Sladoje said there are four more important, but less recognizedreasons for the state’s electricity restructuring failure:

“The jury is still out on FERC,” Sladoje said. “It ordered us toshut down, and it never wanted us running a day-ahead market, andthey put this ‘soft cap’ on us (and the Cal-IS0), the only place inthe country. And then, FERC turns around last Friday and ordersrefunds based on costs. I don’t think it is very market oriented.

“In all my years at the Chicago Board of Trade and the ChicagoStock Exchange, I never once saw a transaction on the floorwhen…..a buyer [would run] across the pit and say ‘before I buythis contract I have to know what you paid for it’.”

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