Solving the Tough Electric Power Market Problem

Reference and context: Finding Opportunity in the Global Warming Challenge

To all readers interested in engaging in a generative dialogue to solving the tough problem of electric power market:

To complement my post above on the three complexities, in his book “solving tough problems: An open way of Talking, Listening, and Creating New Realities (highly recommended)”, Adam Kahane states: “Problems are tough because they are complex in three ways. They are dynamically complex, which means that cause and effect are far apart in time and space, and so are hard to grasp from first hand experience. They are generative complex, which means that they are unfolding in unfamiliar and unpredictable ways. And they are socially complex, which means that the people involved see things differently, and so the problems become polarized and stuck.”

Since Len has decided not to supply a synthesis, or a third article, and instead has written changes to his IMEUC proposal and also written “I've long lost patience, Jose. My published descriptions of IMEUC (see links above) are far more detailed than anything I've found on EWPC,” being responsive to Len, Todd and Jim, I will lower my defenses and make three posts not to debate, but only to try to enable a generative dialogue.

PART I

The Process of Last Resort that Len is promoting with its IMEUC proposal, to finance base load power plants operates under a non competitive assumption. The assumption has its power under debate system that leads to getting stuck and to get it unstuck the result is to activate the process. The process is the same old “native load” business model of winning cases to the regulator, in which an intermediary negotiates under monopoly in the name of customers. That is exactly what we want to avoid under competition in the power industry.

So, to avoid getting stuck, all that is needed is a robust, complete and fully functional - market architecture and design – like EWPC - that provides for long and short run systemic risk management, with a combination of supply side and demand side resources.

The key question is as follows: Is the process of last resort for “native load” on base load generation being used as part of a hidden agenda? If so, I suggest a generative dialogue instead of a debate to make sure that the second phase of competition does not require activating anything at all.

PART II

To describe what is emerging as EWPC, with some references to IMEUC, I will transcribe the Generative dialogue synthesis as of 12.26.06 (see Playing With Fire and Collapse Part 20):

Competition is divided in two phases: One) market vs market and Two) company vs company.

In Phase One all interested parties cooperate in the generative dialogue to select the emergent winning market. Phase Two is not part of the generative dialogue.

EWPC – an integral reform paradigm - is an open and robust emergent market architecture and design [not a solution!] that divides the vertically integrated utility at modular interfaces. 1) Long run and short run system planning, operation and control natural monopoly functions are also kept integrated. 2) The T&D wires natural transport monopoly is kept integrated. 3) Supply - generation - natural competitive functions [will] compete with each other 4) Demand - retail - natural competitive functions [will]compete with each other. 5) Supply and demand – Megawatt/vars vs Negawatt/vars - [will] compete with each other in time and space. Module 1 commitments on planning, operation and control are to be executed by the other modules.

Based on mechanistic thinking, IMEUC is one close and fractured strategy, like any other experienced deregulation efforts, that suggests retaining one of the key elements of retail business model innovations – the metering function – as a monopoly. The intermediary Market Manager is designed to contract base load units based on long run forecasting under uncertainty, arising from improper market signals.

IMEUC as a switchboard intermediary is just one of the many potential business models. It is only through execution – high dynamic complexity – of the development of the resources on the demand side that the potential will be realized. Other potential business model innovations won’t be able to be developed if IMEUC is unfairly and prematurely selected, by giving it market power over other intermediaries. It is no correct to assume how customers will behave – and evolve - beforehand. Instead, there is a need for a customer orientation.

While incremental costs might become negligible, sunk costs might be comparatively prohibitive for all customers. As a “right” solution, IMEUC becomes a strong barrier to emergent – high generative complexity - creative destruction. The best way to find out what the real overhead costs will be is in Phase Two with the right strategy and flawless execution under competition.
Module 1 is to take decisions for the health of the whole system as they unfold. The forward looking statement suggested to Prof. Banks and Mr. Carson on the generative dialogue goes in that direction. The Market Manager does not have such integral perspective.

I want to keep my opinions on Phase One. I am open to review the general open market design and architecture, if there are unfair elements associated with it. I have “listen” carefully to Len’s opinions and perceive that his interests, by going farther than necessary, go well beyond Phase One. Other parties representative of the larger whole – high social complexity - with different interests – regulators, generation of differing kinds, wholesale, retail, transmission, distribution, fuel supply, manufacturers of systems and equipments, etc. - are invited to participate in the generative dialogue.

PART III

A minimal agreement proposal (see original of 7.7.07 Synthesis Proposal Agreement of EWPC ) under the generative dialogue that avoids monopoly markets on wholesale and retail, open to be enhanced, is as follows:

Slides 7 to 13 of the CMU presentation (to be found on the left column of the GMH Blog) present 8 possible End-State, only one of which is the generic market model paradigm: retail competition with active demand and ultraquality transportation. That is the essence.

To take the best development path, including necessary transitions, to the End-State means eliminating "native load," and energy only markets at the outset, to avoid costly intermediate transitions. Those two eliminations are a prerequisite to an effective system, with wholesale and retail competition, demand integration, and transportation reintegration.

There are key elements that will require standards to complete the detailed cooperation on market vs. market competition, hopefully under global institutions. However, most technological and business solutions belong to the company vs. company competition.

In summary, a general agreement is that we should do without regulated price controls on the retail and wholesale markets (that is how the EWPC paradigm came to being on EnergyPulse with the intention to replace the faulty deregulation paradigm). I suggest that regulators worldwide should shift from price regulation to prudential regulation, under a global institution.