Cherry trees are not the only thing springing to life this season in metropolitan Washington. The electricity industry is set to witness a technological blossoming of its own with the launch of the Nodal Exchange.
Based in suburban Vienna, Virginia, the Nodal Exchange describes itself as the first independent electronic exchange for forward locational power trading.
The concept of Nodal has been in the works for the past few years, and the exchange is expected to go live in early April. But its seeds may have been planted nearly a decade ago, when electricity restructuring was just beginning to grow.
One of the company's board members is Dean Wilde, founder and CEO of DC Energy, a proprietary energy trading firm, and chairman of Dean & Co., a business consulting and investment firm. Since Wilde started DC Energy in 2002, the company has positioned itself as one of the top financial participants in the energy markets run by independent system operators across the country by using what it describes as a "rigorous analytical approach."
Before immersing himself in the energy industry, Wilde was a business consultant with Dean, which he helped found in 1992, and before that he worked for Mercer Management Consulting. He also taught at Massachusetts Institute of Technology Sloan School of Management.
DC Energy and Dean appear to have been instrumental in getting Nodal Exchange started. The three companies are housed in the same building, on separate floors; Nodal's president is a former Dean manager; and another Nodal board member works for Dean. Still, Nodal says it is an independent company, although DC Energy did lend initial support to get it off the ground.
In 2001, before jumping into the energy trading business, Wilde co-authored with Arnoldo Hax of the Sloan School a book called the "The Delta Project: Discovering New Sources of Profitability in a Networked Economy." The book describes a business model that stresses the use of "bonding," "complementors," and "customer lock-in" to gain competitive advantages in the marketplace.
In chapter 11, Wilde and Hax examine electricity restructuring in its infancy. The authors note in the acknowledgements of the book that a 1998 MIT thesis paper from Robert Browning and Winfried Holz titled "The Virtual Utility: Strategic Choices for Utilities in the Restructured Electric Industry" served as the basis for the chapter. Hax was the thesis supervisor for the paper. An excerpt from the book:
"One of the features described in Hax and Wilde's System Lock-In strategic positioning is 'complementor lock-in.' An example of this kind of complementor relationship seems to be emerging between Microsoft and Intel in the computer industry. "Should a power marketer, by forming a relationship with an information technology company, successfully develop such a bi-lateral trading system, the potential for system lock-in could be established. "Such a development would mirror the development of American Airlines' SABRE system, which became the standard for airline reservation systems many years ago and thus was actually a very profitable segment of their business in addition to flying airplanes! "The successful development of this trading system would allow the power broker and information technology complementor to move to the strategic position of System Lock-In."
The Nodal Exchange is taking on what one market participant described as a "daunting task" in launching an exchange, especially given the current economy. Electricity hedging products are already available on platforms like IntercontinentalExchange and NYMEX ClearPort, but Nodal's aim is to get to the granularity of the ISO/RTO markets.
Only time will tell whether the power industry embraces this endeavor so that over time it can grow and mature as the example of SABRE in the airline industry, or ICE and NYMEX did with the broader energy industry.
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