viernes, diciembre 29, 2006

A Generative Dialogue Without Illusions Part 6


I perceive that you don’t really want, or are not prepared, or your terms of reference bind you somehow, to engage in a generative dialogue. I sense you want to debate. If that is the case, we will get into a stalemate very fast. I don’t have the time that Fred has to debate. While you are a practical analyst and I just try to be without illusions. That is why I am saving my posts as:

A Generative Dialogue Without Illusions Part 5

A Generative Dialogue Without Illusions Part 4

A Generative Dialogue Without Illusions Part 3

A Generative Dialogue Without Illusions Part 2

A Generative Dialogue Without Illusions Part 1

Given the above, I won’t engage to your complete response. So, I will write just a few paragraphs.

You said earlier “I see the flaws, and the benefits, of the current architecture in the US more clearly than just about anyone. However, your phrase 'without selfish components' makes me squirm.” I know that there is no such thing as the current architecture, but for simplicity I called it Space B. Space B is centered on open transmission access architecture. Essentially the whole point is that to make it stable you need to have more supply side reserves as in Space A o move to Space C by investing in demand response. In both cases you are investing in physical risk management.

On 12.17.06 above, I said the following: “Ferdinand, please take the whole sentence and the context in consideration… You seem to be right under a mechanistic thinking mental model that doesn’t consider the environment. However, under a systemic thinking mental model, the interdependencies are very important…” Your opinions are very similar to that of Fred. They are great tools for debates that get stuck.

If you read the whole comments, and not part by part as independent elements you will see the answers to your questions, if you are on the positive generative dialogue. If you have done that, even with my difficulties with the language, you will know that there was no a need to elucidate, as the idea of “system destruction” is developed in that paragraph of “selfish components” and reinforced in the next 2 paragraphs.

Please advise if you “want to learn about the third way of deregulation,” as I suggested on 12.27.06. If so, please read about what I believe was Bill Hogan’s great mistake, that changed the industry and led to the decade old debate.

With a lot of respect,

José Antonio

A Generative Dialogue Without Illusions Part 5

Jim, Len, and other readers,

A few more lines added for Jim after lunch. I will wait on Len promised article.

There is a difference between "selfish components" and "selfish components that destroy the system." Another name for demand response is price demand elasticity. California deregulation was an incomplete market without enough demand elasticity that had a "native" selfish component that destroyed the system. Your example of Enron is perfect, but the insight seems to be that of a contradictory scenario.

Acording to Eamon Kelly in his book “Powerful Times: Rising to the Challenge of our Uncertain World,” page 35, Winston Churchill said: “A lie gets halfway around the world before the truth has a chance to get its coat on.” On page 36, Kelly says that “Conspiracy theories can, ironically, provide an ordered framework with which to understand chaotic events.” I will make an exception to my opinion that “debates are over.” So, under the principle that I am not my opinion, let’s try to find an alternative explanation scenario.

Picture yourself in the year 2000, and as a practical analyst that knew about the protection inherent in utility regulation and also knew what had happen in the US midwest in the summers of 1998 and 1999. You also knew what I said above on 12.21.06 that starts as “The debate in California has changed remarkably over the past year or two. Discussion now focuses not on whether retail competition or direct access is possible, but on how to make it happen. The three California investor-owned utilities affected by the commission's decision convened an industry working group, called the Western Power Exchange (Wepex) to address the issues related to implementing the new competitive retail market.” Please answer, to the best of your knowledge, if there might be some ground for a complot theory on which Enron was a just a casualty.

I agree that under Space B there are winners and losers. Read Donella Meadows article to see that big industry is supposed to receive the benefit of Space B. Systems like PJM, the role model of SMD, is stable by having excessive reserves. My son tells me that his residential rates in Pittsburgh were very high. Coal stations have low variable costs, but people health costs in their neighborhoods are much higher than without. No to mention, Andy's expected carbon tax that Congress seems to be working on.

Retail competition under Space B is pretty meager. Not so in Space D, where business design innovations, on the development of the resources of the demand side, will result in creative destruction of the power industry.

That’s it for now.

Happy New Year,

José Antonio

A Generative Dialogue Without Illusions Part 4

Reference: Playing with Fire - The 10 Tcf/year Supply Gap -- Part I

Thanks James for your comments.

Go back to part 2 of my comments. Spaces A, C and D are stable architecture. Space B is unstable: as price increase, system reliability decrease. That is a counterintuitive systemic behavior. Trying to make stable there is a movement from Space B to Space C, which is at the core of the afterthought in the 2005 Energy Bill, which resulted in Bruneto & Wimberly’s article.

Bruneto & Wimberly explain that to get to Space C, the process of evaluating and implementing DR is less complex, than the “current” - Space B - architecture in the US. However, under the EWPC environment, the process of evaluating and implementing DR is not only less complex than in Space C, but also more efficient in the long run as we get to the End-State - Space D - of the electricity industry. The benefits are shared among two major stakeholders, the consumer and the competitive retailer under EWPC, instead of three major stakeholders – customer, monopoly distributor, and regulator, under a fully regulated environment.

LMP theory and practice comes from Fred C. Schweppe as the leader of the spot pricing of electricity research at MIT. LMP without DR leads to an incomplete – Space B - market. When you say “[T]hen, the household could respond to that price signal,” you are, like it or not, using Fred Schweppe’s – Space C - theory. As you can see a practical analyst has mental models - theories in use – to suggest decisions. Some of those theories - beliefs -are flawed when policies interact with each other in dynamic systemic ways on complex systems, as the counterintuitive behavior of Space B referred above.

I agree that under the flawed “current” market design and architecture it is politically impossible to implement a market structure without maximum prices. That happened because Schweppe insights were not taken into consideration. Space C was “bypassed” (Schweppe recommended A to C to D) and innovation was foreclosed, as the three California utilities preserve their “native” loads and delay innovation one decade, keeping alive a totally unnecessary debate.

Search for Hogan in the following articles, read the complete comments (not only samples), and their links, and get back to me with your conclusions.

What a surprise: Prices move both ways

The Gap Between Demand Response Potential and Demand Response Reality

Post hoc ergo propter hoc: The fallacy of blaming deregulation for rising electricity prices


José Antonio