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Electronic Trading: Toward a Mature Power Market

Fortnightly Magazine - November 15 1997

as a basis for pricing and other exchanges but, given the company's size, "we're not as active on it as people might think," representative Stephen Cave says. The power marketer also sells a lot on spot and daily markets, and most transactions are over-the-counter (em that is, bilateral transactions that take place directly between the buyer and seller.

When asked how much trading is speculative, versus geared to ultimate delivery to end users, an LG&E trader said initially most of the company's business was to meet end users' needs. Now, the volume is more from the investment side. And the old-fashioned method of telephone or face-to-face meetings still takes precedence over electronic commerce, he added.

Just because a company has a trading floor (em a room filled with the latest technology, computers, people following the next-day or next-month price of electricity (em doesn't mean it's trading electronically, warns Stan Stasiak, executive director of marketing for the Continental Power Exchange in Atlanta. According to Stasiak, too many companies still rely on the traditional method of phone calls and fax machines. (An unofficial industry estimate is that only 1 to 2 percent of all transactions are electronic.)

The NASDAQ updated its electronic trading system last year, Stasiak says, and as a result, buyers and sellers can execute trades online. The electric industry is moving in that direction, Stasiak acknowledges, but not as fast as his company would like.

Continental Power Exchange is one of a new breed of players in the electricity industry. Neither a power marketer nor a broker, CPEX serves as a market gateway (em as an "information system" with two distinct functions. Since July 1995, CPEX has allowed utilities, federal power agencies and power marketers to arrange 24-hour spot market purchases via a real-time energy exchange. CPEX also enables participants to arrange transmission, or wheeling, via access to all OASIS nodes (see sidebar).

Automated Power Exchange, a start-up company in Los Altos Hills, Calif., aims to be another matchmaker. Like CPEX, it won't be using NYMEX futures, Vice President Jack Ellis says. Although futures contracts help give the market a certainty of price paid, Ellis said, APX staff will be putting together buyers and sellers of electricity with the intent to deliver power.

"None of our staff will be traders," Ellis says. "We will not initiate trades. If a customer wants power, they will send us an order to buy or sell, based on the prices we show for 168 hours [one week] in advance, and we will put buyers and sellers together."

That still may mean, however, that blocks of electricity could be traded 15 times before any of the power is actually delivered. "The quantities that go to delivery are a small percentage of actual trades," Ellis notes.

APX will open for business on Christmas morning, as it helps put together deals for delivery the week of Jan.1. The company already has a service agreement with the Bonneville Power Administration. At press time, APX reportedly was completing agreements with other interested parties, including the Northern California Power Agency, Salt