PA Consulting Benchmark Questioned

Dear Matt,

I think I found by myself, on the website of the PA Consulting Group, the answer to my question: “Should Electricity Without Price Controls (EWPC) be considered as a new paradigm of the electricity industry?”

In a bilingual Spanish-English comment entitled Oferta Servicio Apoyo a Renegociación Parte 2, related to a publicly presented to support a benchmarking case by a Member of PA Management Group, in the Dominican Republic. The result of the study was that PPAs negotiated on back rooms could be placed in the first or second quartile, by normalizing them with the weighted average cost of capital, which includes country risk figures. If that is true, then all the PPAs in the sample and segment were also no competitive, as explained in the following comment.

I found in the website an interesting paragraph in the introduction of the report “Viewpoint on Energy: shortages, surplus, and the search for value” of PA Consulting,” prepared by Todd Filsinger, Member del PA Management Group, to the article prepared by Edward Kee (also a member) entitled “Reaping the benefits of electricity industry reform: defining and limiting the use of price controls,” that says:

Deregulated wholesale electricity markets have come under attack for their perceived deficiencies. Edward argues that the competitive benefits of wholesale competition have never been realized because of the deleterious impact of retail market regulation and political interventions, which decouple the ultimate consumer from real-time market pricing, thwarting economically rational decisions on power consumption. He concludes that only when the retail customer is allowed to decide when and how much to consume based on the actual cost of providing that service, will the many promised benefits of competitive energy markets be realized.

I believe that the paragraph can be taken as a useful contribution to the generative dialogue I proposed earlier in the post Let's Get Out of Back Rooms to a Generative Dialogue. A generative dialogue cannot be done by looking the issues in isolation topic by topic, but as a system, cutting across topics. Please follow the links on the post.

We can also answer the question “Is competition needed in the industry?,” once we have a system where “the deleterious impact of retail market regulation and political interventions, which…” do not “… decouple the ultimate consumer from real-time market pricing,” allowing, instead of “… thwarting economically rational decisions on power consumption,” benchmarking will make sense. I believe that such a standard will be EWPC.

The above also means that the questions: “Can benchmarking help identifiy which industries are in the NO PROFIT ZONE? Is the utility industry in the PROFIT ZONE because they are taking customers for a ride?” can be easily answered, once such an efficient system is available.

Please explain if the logic is mistaken!