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Power Exchange Politics: Weighing the Regulator's Role

Fortnightly Magazine - October 1 1999

the California Power Exchange to set up a "block forward market" for trading blocks of energy out into the future - perhaps six months or more - through a newly established division at the PX called CalPX Trading Services. (Docket No. ER99-2229, 87 FERC ¶61,203.) The issue is not without controversy, however.

The initial application by the California PX, filed March 23, drew protests from NYMEX, Electric Clearinghouse [Dynegy] and APX, as well as spirited interventions from the California PUC, the state's Electricity Oversight Board, US Generating Co. Williams Energy Marketing, and of course Pacific Gas & Electric Co. and Southern California Edison.

The CalPX later added changes to assuage some concerns. In one change, as directed by the FERC, it said it would remove the eligibility requirement that block-forward market participants must also participate the PX's day-ahead market. Also, as the FERC suggested, it said it would file a quarterly listing or index of block-forward participants. (See Compliance Filing on Commission Order Accepting Proposed Block-Forward Market, Docket No. ER99-2229, filed June 9, 1999.)

Despite those changes, APX renewed its protest on June 28, arguing that CalPX had still failed to comply with the FERC's May 26 approval order. Moreover, Cazalet argues that the introduction by the California Power Exchange of block forwards marks an admission that the PX's original day-ahead blind auction does not work.

For example, says Cazalet, you may buy 100 MW at $25 when you get to the delivery hour. "The person that buys the power ignores the PX price in favor of $25 that was negotiated earlier. It is a way of admitting failure in the market."

Southern California Edison, Pacific Gas & Electric and, recently, SDG&E joined the PX's block forward market. Gary Cotton, SDG&E senior vice president of fuel and power operations says block forwards are another tool with which to meet electric commodity needs. Yet Cazalet argues that by introducing block forwards, the CalPX recognizes it will have to transform itself into what essentially is a bilateral market.

The PX assumes that the only way to achieve price discovery is by having a state-mandated, state subsidized power exchange, he says.

"We can provide all of the services that the PX could provide and do without such a mandate at a far, far lower price," he says.

"To extend the life of the PX another two years would be $70 million a year, which competitors could do for less than half."

Richard Stavros is senior editor, and Bruce Radford is editor-in-chief of Public Utilities Fortnightly.

The Case for Private Markets At Automated Power Exchange, CEO

Ed Cazalet says the choice should come down to price.

Ed Cazalet, CEO of Automated Power Exchange, the emerging rival of the California PX, claims that the PX's three largest customers, Southern California Edison, Pacific Gas & Electric and San Diego Gas & Electric, which together make up 90 percent of the volume going through the PX, would not sell through the PX if they were not state-mandated to do so.

Cazalet says that if all customers could choose their