Playing With Fire and Collapse Part 12

Reference: Playing With Fire and Collapse Part 11

Prof. Banks,

Everybody needs to agree with that you know what happen in Sweden: it is a scam in which the government makes the most. You are a brilliant man with fixed opinion that got everything right, except some humble engineering things (about physical electric power risk management for example) as you mentioned last year – “I don't know as much of the engineering as I should and could know…” (see my post of yesterday).

Prof. Banks - 10.4.05 – on Electric and Gas Deregulation: Not-So-Cold Cases:

… in my journeys I never miss a chance to emphasize that deregulation increases uncertainty, and according to mainstream economic theory, uncertainty leads to a decline in physical investment.

In addition, where Europe is concerned, I happen to know that with both electricity and gas, the decision makers of the EU once entertained the thought that they could make deregulation work by strong-arm methods, by which I mean constructing additional pipelines (and power lines) for billions of dollars, and thereby obtaining what DeVany and Wall called “connected networks”. Personally, I prefer seeing this money going into high-quality health care and personal security, because as far as I can tell almost everyone who wants to buy gas and electricity has access to it, even though they may have to buy it from regulated monopolists.

The fact that the theory supporting natural gas and electricity deregulation is internally inconsistent, blatantly unrelated to reality, grossly incomplete, and to a certain extent amateurish, is not likely to keep this particular wolf away from the door.

Prof. Banks – 6.28.05 – On Econimic Theory and Some Disobliging Aspects of the Swedish Deregulation Experience:

The problem is not the theory, but the people using it.

The most valuable risk management tools in the electric market are still long term contracts in a regulated or deregulated environment.

Vanderhorst-Silverio – 11.3.05 - On An Alternative Business Case for Demand Response:

The business case of Demand Response (DR) is enhanced under free markets, innovation, and probabilistic (risk) mindsets. DR is poised to be the demand side risk management tool to complement the traditional "LOLP" supply side risk management tool. There are two sides on the DR coin. On one side, system crashes are mitigated by a least cost mix of supply and demand risk management tools that may be applied in time and space. On the other, DR is the key to the segmentation of customers supply security (a kind of insurance). Because of its fine grain nature, DR can help mitigate delays (intended or not) of lumpy investments in generation, transmission, and distribution.

Vanderhorst-Silverio: As can be seen, with the development of the resources on the demand side there is no need to develop “connected networks.” The decline of physical investments, the increase in uncertainty, etc. are certainly about the people using it, but also to a large extend a problem with the theory. The old vertical integrated utility does its risk management physically by investing in reserves. Schweppe disclosed how the new vertical integrated utility could develop a market with demand response to decrease uncertainty. Vanderhorst-Silverio envisions the development of the resources of the demand side by way of a suggesting a third way that promises lower costs and/or enabling higher value from electricity to the customers, instead of lower prices, but open to change his opinion to make electricity without price controls an emergent reality in a public generative dialogue.

There was one way for one person to know too much and get stuck in debates: learning from the past. There is another way to learn: several people learning from the emergent future in a generative dialogue. The electric power industry is being exposed to new realities that were thought out by late Prof. Fred Charles Schweppe in the decade 1978-1988. That research he led is only recently being flesh out in what is a creative destruction – not tinkering. Jamie Wimberly DEFG CEO, in synchronicity with my comments in support to the emerging power sector reform paradigm revolution, said the following in a sharp closure of his article The Future Utility Customer Service Model:

Thank you to Dr. Vanderhorst-Silverio for his interesting comments and citations. We also agree that a systemic approach is required to envisioning the future. In fact, many utilities also are moving in that direction and attempting to more tightly integrate their systems, platforms and practices. Technology such as AMI is allowing for this progress in a way that simply did not exist five years ago.

At my firm, the Distributed Energy Financial Group LLC, we believe the changing utility customer service model is simply one manifestation of a technological revolution akin to the industrial revolution that promises much more value creation over time. Building off of the advances in information technology and network management begun decades ago, those advances are now being incorporated into complex systems and the management of assets that form the bedrock of any economy, namely, energy, transportation, water, telecommunications, etc. Greater levels of efficiency and productivity are leading to new product and service generation.

And what do customers want? Most customers are not buying “alternative” or “green,” but are more interested in cheap, reliable energy sources. In fact, I would argue that they are not even buying energy per se, but rather comfort, convenience, light, entertainment, mobility, etc. Greater levels of efficiency allowing for greater levels of consumption of what people desire have the virtuous impact of being “cleaner and greener.” One must be careful to not confuse cause and effect.

Jamie

Jamie Wimberly DEFG CEO