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exchange, including the three largest investor-owned utilities, PX would lose out against competitors because of the high prices the PX charges to support its $70 million-a-year operation.
For example, Cazalet says, he competed against and underbid the PX for the development of an exchange in Illinois.
"[In choosing the APX], the ratepayers in Illinois are creating a power exchange at no cost to them. PX came in there with a high-budget, high-cost proposal that would essentially help them write off their high costs in California, and were rejected by the market in Illinois," he says.
The APX Illinois market is to open Nov.1 and the Ohio APX market opened July 1. In all of these states in which it will operate, there are no mandates for the APX, according to Cazalet. In Illinois, APX eventually will have to coordinate with an ISO, however, and will work with Commonwealth Edison and FirstEnergy's transmission until the Midwest ISO and the Alliance RTO are created.
"The question is that they were funded by a $125 million write-off paid for by the ratepayers of California. They currently enjoy a $70 million-a-year budget paid for by the ratepayers of California. Why should they be allowed to provide other services at the incremental cost which is essentially subsidized by the ratepayers of California?" he asks.
Cazalet says that PX's actions are evidence of a gold-plated bureaucracy trying to survive in the face of the impending end of its mandate, "in which case they will be in a 'death spiral,' to quote Becky Kilbourne," he says.
He argues that the PX is trying to mimic the private market using ratepayer subsidization and is not providing the final market. "Is the PX necessary after two years of poor design, poorly implemented at $5 million a month?" Cazalet asks.
Central Pool vs. Phone-and-Fax
Market observer Robert McCullough on the future of power trading.
Robert McCullough, managing partner of McCullough Research, a firm specializing in bulk power and restructuring policy issues in the United States and Canada, says that bureaucratic institutions such as the PX do not do business without force of law, and questions whether state-sponsored markets can survive in the long run.
"Doing business with the PX is vastly more expensive than doing business on the phone. The PX is an artifact of an administered market," he says.
McCullough claims that it takes at least 97 steps to do business with the PX, while it takes two or three steps to do business with everyone else. He also believes that it would be inconceivable for the PX to compete with the APX on price.
Even so, McCullough sees nothing wrong with the CalPX trying to open franchises in other states, though he does not believe the PX will be around after its mandate expires.
"It is perfectly possible for California to provide drivers' license bureaus to Nevada and Illinois. The question is, can you introduce a slow bureaucracy in another state where you have to wait in line."
But though McCullough finds the APX the more competitive of