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Australia: Open Arms, Open Access, and the Outback

Fortnightly Magazine - June 15 1996

can respond to expected prices without placing bids with the VPX.

The pool price is determined "after the event" and is set at the price of the highest bid used in the half-hour. All wholesale electricity is traded through the pool at the pool price. All generators are paid the pool price for their energy. Energy losses in the transmission system are paid for by pool customers.

According to Jim Gallaugher, technical director of national markets for VPX: "One feature of the VicPool market which U.S. participants may not have experienced is the price volatility. Volatility can expose generators, retailers, and potentially, customers to financial risks when prices are high, necessitating a particular approach to risk management."

Larry Folks, Entergy Power Group's v.p. and g.m. responsible for Australian activities, says CitiPower, Ltd. takes advantage of bilateral trades, hedging its energy costs over several years: "It's a question of each distribution business having a different strategy on how much hedging they would want in terms of matching what they've quoted the customers on the retail side. And CitiPower's plan is to be conservation and have a substantial amount of hedging matching the sell side."

Billateral trades can be settled through the VPX, but aren't conducted through VicPool. Such trades are subject only to the provisions of Australian competition legislation.

With all its promise. Gallaugher acknowledges certain problems with VicPool, including:

. Lack of demand-side participation and demand-side response to price signals

. Scheduling of, and payment for, reserve

. Complexity of the price-setting process

. Lack of commercially focused risk-management arrangements to deal with high pool prices

. Small market size and lack of competition.

However, the problems are being addressed, Gallaugher says, and most will be further addressed by the proposed National Market.

Dan Spalding, PacifiCorp senior v.p. and Powercor chairman, appears to concur: "There is still not as much price discovery on the demand side as people would want," Spalding says. "The big players in the pool, the distribution businesses have it, I think. ... As the market evolves further, more price discovery will emanate."

From Idaho to Indonesia

Overseas investment isn't just for the "big guys."

The unregulated subsidiaries of two utilities (em one in Idaho, the other in Montana (em have set their modest sights on overseas opportunities in Jamaica, Great Britain, and Indonesia. The utilities, each with revenues of less than $550 million, seek higher returns than the United States offers.

"We're going to see increased international activity by companies who you would have never have thought about as being interested in going abroad," says John Easton of the Edison Electric Institute of Washington, DC.

Case in point: Next month, Idaho Power Co. subsidiary Idaho Power International, a joint venture with Community Power Corp. of Virginia, will submit a business plan to provide photovoltaic power to remote Indonesian island villages. At stake: A chance to win part of a $100-million contract.

"There's a lot of opportunity there," says Dennis Lopez, Idaho Power spokesman. "And for a company like ours, which has been bound by the high desert of