EWPC is a True and Non-Trivial Doctrine

To Edward A Reid Jr. and all readers,

Edward’s comments are based on my post Nuclear and Renewables Competition under EWPC.

I strongly recommend that taxpayers worldwide look closely to the responses and send letters to their government representatives. Three special cases have already gathered a sense of urgency: US Congress Energy Bill, Ohio’s re-regulation of the electric utilities and the Very Short Electricity Law of the Dominican Republic.

Paul Samuelson said that a doctrine is non-trivial when “it is attested by thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them. The EWPC doctrine is logically true, coherent and non-trivial. Reform should be based on knowledge and facts, not only on the political processes. This statement does not mean that I claim to know everything, as I operate under the generative dialogue principle that I am not my opinion.

JAVS: "...the world needs a market structure and rules (same as architecture and design) that allows competition in generation, competition in retail, and competition between generation and retail."

EARJr: I suspect that a single market structure for electricity worldwide is, if not unworkable, at least highly unlikely, especially if it is imposed by some new world body, as you have suggested previously in comments here.

JAVS: Thank you very much Edward for the very challenging comments you posted on energy pulse about EWPC. It took me many hours to come up with this very short post, but I think the results will be very useful for future consulting engagements.

Respectfully, I have not suggested imposing a new world body. I am suggesting that the world needs a worldwide competitive power industry. I agree that the current markets are an act of government. In fact, I found out that the lack of stability and predictability of today’s’ electric markets has such an effect on global trade that it qualifies for mainstream WTO work.

In addition, electricity markets, with the very clear vision of the future that already emerged on the EWPC paradigm, have the necessary sense of urgency to be negotiated under the trade in services of the multilateral trading system (WTO) agreement, just as the basic telecommunication agreement was done. The object is “to sharpen competition, motivate innovation and breed success.”
EWPC is a true and non-trivial doctrine Part II

I suggest that the power industry should be subjected to a multilateral basic discipline system. Some of the issues that require discipline are the process to get to the End-State of the global industry, prudential regulations on generation and retail, merger and acquisitions investment rules; all to discourage the accumulation of unfair play.

EWPC is not like the failed attempt on the unworkable SMD, as the approach is not to be standardized. The SMD was an attempt to make a compromise of the existing solutions of PJM, New York and New England. Many failed re-engineering projects resulted from misunderstandings of the true requirements.

EWPC is not exactly related to a reengineering project, but its similarity to discovering the true requirements suffices, as it is also about starting over. EWPC is an End-State (model convergence) market architecture and design, whose essential principles are to be adopted. A generative dialogue is needed to define the necessary transition from today’s reality to reach such End-State. This means that close attention of local conditions should be considered.

Although it is highly worthy, my confidence on EWPC doesn’t depend on the carbon tax. It depends on a non-trivial truth about electric power systems, which is a very complex machine whose design and operation is not a subject of debate, but on the work of a systems architect. It also depends on large changes experienced on fuel and transactions costs. Lowering of transactions costs allows the integration of demand to the power system with the development of the resources of the demand side, which leads to the development of robust, complete and fully functional retail and wholesale markets.

JAVS: "To me the solution is to implement a carbon tax and leave it to the market to make the decision, and allow private investors to receive the benefits and to take the risks."

EARJr: This suggests that a tax does not, among other things, change or influence the market. Also, carbon tax at what rate; and, if the initial rate is insufficient to "move" the market to the extent desired, do you then propose to increase the tax rate until the market makes the "correct" decision?

JAVS: By implementing a carbon tax, the business case for EWPC is enhanced, as it certainly influences the markets. Details on how to implement the carbon tax is very speculative at the moment. Some earlier discussions suggested a gradual process to increase, for example, coal carbon tax by 2% yearly increments up, to 40%.
EWPC is a true and non-trivial doctrine Part III

JAVS: "By the way, the author didn't take into account the benefits of demand response on CO2 reduction."

EARJr: Demand response may not lead to reduced carbon emissions, depending on the fuel type and efficiency of the plants which would not be operated on the shaved peak vs. the fuel type and efficiency of the plants which would supply the shifted demand during off-peak periods.

JAVS: You have a very valid point for the short term. Demand response in some states like Ohio, which has about 90% coal generation, may lead to an increase in carbon emissions, since peaking generators, fueled with natural gas with be displaced. Later on, as coal generating units are replaced with combined cycle gas generation up to 2016, the benefits arrive. So, you suggestion is an asset for EWPC reform. As the demand response business case reduces investments in generation, transmission and distribution and end-use, delaying its implementation is not warranted. What might be done is accelerating the process of the carbon tax.

JAVS: "In addition, there is a need for an institution to integrate active demand."
EARJr: If the retailer and the customer have a contractual relationship which is monitored by an intelligent meter which receives price communications from the retailer and allows the customer to control response to price signals, why is there a need for "an institution to integrate active demand". It would seem that the contract and the communication do that.

JAVS: Thank you very much for emphasizing customers with contractual relationship with a retailer. The institution is the Second Generation Retailer mentioned in earlier posts, which is a very different animal than the retailers that are operating today.

EARJr: The current regulated "market" in electricity, which you contend does not work well, is a creature of government. The "generative dialogue to re-regulate the power industry" you suggest would also be a creature of government. I do not share your confidence that the new regulatory regime would be more effective than the current regime; and, neither of us can prove the case one way or the other.

JAVS: As the introductory remarks covered the whole last paragraph, I will add that it is not necessary to prove the case. All that is needed to move forward is to cross the chasm of the technology-enabled market development, as explained by Goeffrey Moore. Skeptics may never get raid off their vertical integration mental model. Conservatives will wait until the majority has developed the business model innovations of EWPC. So what’s remaining is for technology enthusiasts and visionaries to help EWPC cross the chasm. Demand response systems already in operation are the proof that EWPC has already entered the pragmatics’ bowling alley.

José Antonio Vanderhorst-Silverio, Ph.D.

Updated Background

Over 28 years of consulting experience and leadership in electric power technology and education

BS ´68, MS ´71 & PhD ´72, all from Cornell University
Valued IEEE member for 36 years.
Autodidact in management systems – loves to implement applications learned by reading, listening, and integrating complementary perspectives from information sources for high tech - high touch environments
Research and practice areas, and interests include: electricity without price controls, systems architecture, systems thinking, electricity retail marketing under a customer orientation, electric market rules, information systems requirements and design, contract assistance

The above was posted in a brief form under the article An Analysis of the Carbon Emissions Impact of the Senate Energy Bill, by Chris Neil, Energy Economist.