Please Blame the Deregulation and Regulation Fiascos Parte 14

Prof. Banks and other Gentlemen,

Ferdinand is correct about riots in the Dominican Republic. The riots came by a big misunderstanding of consultants and multilateral organizations about the impact of irrational rationing. My work has been to suggest a rational way of rationing.

The expert Vivianne Blanlot of Chile was retained by the World Bank to suggest a solution to the financial crisis of our electric sector. She proposed to manage demand starting at a level 70 to 75% of load average. Such commitment was written into an agreement with the International Monetary Fund.

The approach was to divide circuits in 4 groups in accordance with the level of cash recuperation. The source of the riots was customers with lowest level of cash recuperation were having less than 12 hours of service a day.

Underneath the approach is a misunderstanding of the value of electricity to the customers. Most of the rioting customers were getting apparently free electricity that instead of adding value was actually destroying value.

In general, the electric sector of the Dominican Republic is a textbook example of a systemic crisis. Last year I posted Getting the Power Sector out of Systemic Collapse which explains what I understand is happening in my country. System thinking is a tool that helps confront the complexity of the collapse.

For a discussion of Dominican, Brazilian and California deregulation, I suggest to look at the articles (and my comments) of Rafael Herzberg 2006: New Challenges and Opportunities in the Brazilian Electric Energy Arena and Like It or Not, Deregulated Energy Contracting Is Here to Stay. In the first one I wrote that: “We have the best example of a failed “deregulation” effort in the Dominican Republic, which I have recently characterized as a black hole. Investors came to the Dominican Republic, and in their due diligences didn’t see that a disruptive technology (on-site generation) was making an inroad. A systemic process called “the boiling frog” was at play, resulting in an exponential growth of individual solutions. However, that big problem is giving us great opportunities, as demand response can be developed to transform a very unreliable, disintegrated, and unarticulated system, into the opposite.”

I agree that Electricity WPC is a difficult sale, based on the open wounds. It is still more difficult for me to convince other Dominicans. That is the main reason why I am using EnergyPulse as a vehicle to test my findings. The taste of deregulation in the Dominican Republic is awful. The law, however, is being partially applied. The government mental model is about average prices. However, the system operator is executing monthly transactions based on a marginal wholesale market reality.

Thank you,

José Antonio