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Scheduling Coordinators: Market Fears and Profit Margins

Fortnightly Magazine - January 15 1998

Inc., looks at SC issues that will arise via the scheduling middlemen from another perspective.

APX employs about 20 people to build and operate power exchanges. On the operating side, APX will make its money by charging transaction fees.

"They're still thinking like a utility in the market," says Cazalet of his competition. "We charge both buyers and sellers. Our fees depend on whether you're an SC or not. If you're an SC, our fee is six and a quarter cents on each side of the deal. If you're not, they're twelve and a half cents."

Some of Cazalet's complaints about the California PX are worth hearing out. "They built something that's very expensive as far as hardware and software," he says of the exchange. "Their software-hardware design is cumbersome and behind schedule. As of Jan. 1, 1998, it is not scheduled to meet the original design requirements. They have deferred a lot of the functionality¼ I claim even when they have that functionality, it will be too complicated for most buyers and sellers to use."

Cazalet admits it's wonderful for his business, but at the same time, he doesn't want the PX to simply write off its start-up costs.

The APX CEO also decries how the PX is pricing its product. It charges about 31 cents per megawatt-hour to full-requirements customers, 37 cents to partial requirements customers and as little as 15 cents to large customers.

Even so, Cazalet thinks he will get a significant portion of the state's power exchange business. "Most of the major players have signed letters of intent with us," he says.

APX, Cazalet claims, has a few advantages over PX. For instance, traders can buy and sell up to a week in advance, similar to a standard commodity market. "You can press a button and buy, or press a button and sell¼ all the way up until just before delivery, you can be modifying your position," Cazalet says.

Cazalet's last beef is that the PX turned to OM Systems International/Hand-El for software development. OM is a Swedish company; Hand-El is based in Norway.

"Not that Norway's not a fine country," Cazalet says. "But if you're going to go for software development, where would you go? Silicon Valley or Norway?"

James G. Kritikson, scheduling director for the California PX, has an answer there: "Judgement was made that the pool they're running in Norway is very, very close to the type of pool auction and scheduling process that we are running here. And it was felt that there was enough similarities that it would be beneficial to go to the people who had already designed software to implement a pool that was quite close to the market we have in mind."

California's three utilities will form the bulk of the PX's market. The fact that the software and hardware won't work full-scale from the start has been long understood by the IOUs, Kritikson says. They know there won't be an hour-ahead market until March.

Other deferred functions include the day-ahead market, which will be run through an auction.