jueves, enero 04, 2007

A Generative Dialogue Without Illusions Part 9

Gentlemen, [posted on 4.2.06 under What a surprise: Prices move both ways]

With all my respect for Prof. Banks, I will kindly respond to his comments:

As it might be inferred from my comments, late Prof. Fred Charles Schweppe did not need to take “the early chapters of his favorite economics book literally.” Prof. Schweppe “was regarded as an individualist, almost a renegade, with new and highly creative ideas, someone who was determined to bring these ideas to fruition.” He understood very clearly the feedback requirements of a power system and new that the customer was key to his market proposal. However, as far as I know, his suggestions have not been implemented anywhere.

If there is someone to be questioned (among many others which were part of "the system" of course), it has to be the JFK School of Goverment economist W.W. Hogan, which according to Fernando Alvarado, "in 1992 (Fred was dead) introduced the concept of contract networks as a practical extension to these early notions (of using prices to control the system) because it permitted the establishment of property rights within networks and allowed (approximately) efficient prices to be determined from a dispatch that was influenced by the judment of human operators [1]."

In Fred Schweppe proposal, the end customer was an integral and active part of the market which were supposed to respond to prices. If I understand it correctly, it is Prof. Hogan who did not understand very well how important the end customer was as an active “empowered customer” as EPRI is suggesting. Professor Hogan did not find mistakes in "Schweppe et al., when he said that they "argue for the robustness of spot pricing even when the perfect optimal solution is not available:”

Hogan quotes them saying "The fact that the true (prices) may not be calculated does not destroys the value of implementing a spot price based energy marketplace. The actual value calculated will be much closer to the true values than the present-day flat or time-of-use tares, etc. The goal of implementing the spot price based energy marketplace is to improve the coupling between the utility and its customers, no to achieve theoretical optimality [2]."

By looking at Hogan’s paper, I understand that the big mistake was replacing the price responsive end customer with the non-responsive transmission customer. " As I explained in my comments to Prof. Banks article, where I said: “Recently, I have sent an email to Mr. Casazza, and have gone to Jesus M. Martin-Giraldo, Power Encounters blog, where I posted comments in Spanish about a misunderstanding of Fred C Schweppe's Homeostatic Utility Control in the literature review he posted…”

It turns out, that Schweppe’s said: "conventional metering is replaced by a Marketing Interface to Customer (MIC) which, in addition to measuring power usage, multiplies the usage by posted price and records the total cost [3]," which means that Homeostatic Utility Control was what we are now calling demand response.

The regulated “energy marketplace involves the utility and its customers operating as partners… Utility implementation concerns include real-time calculation/prediction of hourly spot prices, metering-communication-billing, and system control center operation using the new control signal called price… customers who choose to exploit the energy marketplace potentials must implement the appropriate response systems (today demand response), which could range from simple manual response to sophisticated digital controls [4].”

Ádditionally, when I talk about risk management of system failure, please be advised that I am talking about physical risk management of reserves in the power system, by system elements, mostly generators, and costumer responsiveness.

Best regards,

José Antonio Vanderhorst-Silverio, PhD

Interdependent Consultant on Electricity

[1] Fernando Alvarado, "Is Systems Control Entirely by Price Feasible?" Proceedings of the 36th Hawaii International Conference on Power Siences - 2003,

[2] F. C. Schweppe et al, Spot Pricing of Electricity, Kluwer Academic Press Publishers, 1998, p. 97.

[3] Homeostatic Utility Control Vol. IEEE PAS-99, No.3 May/Jun 1980, page 1151.

[4] F. C. Schweppe et al, Spot Pricing of Electricity, ... p. 11.

A Generative Dialogue Without Illusions Part 8

Fundamentals of Deregulation [posted on 4.21.06 under Post hoc ergo propter hoc: The fallacy of blaming deregulation for rising electricity prices].

Slide #1 of 72

Retail Access is Easy, It’s Getting Wholesale Access that is Hard

William W. Hogan, Harvard University

Virginia Electricity Forum

Virginia State Corporation Commission

Charlottesville, Virginia

November 15, 1996

Slide #2 of 72

ELECTRICITY MARKET --------- Structures

Two elements stand at the core of a new market structure that can be fashioned consistent with this set of objectives.

• Pool-Based Market: Operation of the short-term market through a closely coordinated or pool-based dispatch. System security and network congestion problems handled as part of the dispatch. Transmission capacity rights allocated along with grid costs but implemented through short-term pool pricing and rental payments for use of allocated capacity. Long-run investment and contracts for energy handled in bilateral markets.

• Customer Choice: Under Efficient Direct Access customers remain with the local utility which buys from the wholesale market and resells at a time-of-use rate based on the spot price. There are no necessary changes in cost-of-service principles. All customers remain under the utility tariff but have effective access to the market. Decisions on cost recovery can proceed as before. Whatever can be done under traditional cost-of-service regulation can be continued. Universal service support, investments in energy efficiency, and subsidies for renewable and other environmentally preferred alternatives could be made when justified, and included in the cost of service applied to all customers separate from the time-of-use energy charges.

The pool-based, short-term electricity market addresses the few necessary constraints and technical issues by coordinating system operations and power plant dispatch. Customers, brokers and aggregators enjoy free choice to make long-term arrangements with any supplier or rely solely on access to the short-term market.

No need to read any further...

A Generative Dialogue Without Illusions Part 7

Hi James,

On your first and last answers, the fourth I understand is just one of many opinions, I still think debates will not get us where we want to be, which is acting on the emergent worldwide (not just the US) gas crisis pinpointed by Andy, which requires very efficient use of natgas. But since you insist to find out why “… de-regulation wrangling is pertinent to…” the “Playing with Fire” discussion, I will tell you about one very big – key - issue that I posted and that you simply ignored. So I challenge you again without any discourtesy:

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

This time, however, I will post samples of what you will find. As Jack Casazza wrote to me on 12.29.05, under Professor Banks’ article A Few More Unfriendly Comments on Electric Deregulation, “The restructuring and deregulation of the electric power industry was a serious mistake in the USA and in many countries, harming the general public.” The mistake’s origin can be assigned to the most influential person of deregulation and restructuring, Bill Hogan, whose opinions were instrumental in changing the history of electricity. I know he is a very intelligent man, which I have not met. I know that the powerful lobbies were the true means behind the effort to extend the useful life of the investments of the IOUs.

This is part of what I wrote on 4.2.06, under What a surprise: Prices move both ways: ”If there is someone to be questioned (among many others which were part of "the system" of course), it has to be the JFK School of Government economist W.W. Hogan,… see complete post below to find out how the development of price elasticity of demand - demand response – by a market architecture and design flaw of 1992.

In addition, on Please Blame The Deregulation and Regulation Fiascos Parte 2, Hogan claimed on 11.15.96 – see details below - that retail access is easy, while creating the foundation of the protection of “native loads,” keeping a barrier to innovations on the demand side.

The demand response movement got force only after the 14th August 2003 blackout was begun to be understood. However, the 2005 Energy Bill still includes the “native” load possibility for vested interests, which should be repealed, like you would say “the sooner, the better.”

Responding you second and third items, the PJM Timeline shows the long institutional history of PJM, which begin in 1927 with PA and NJ, and became PJM Interconnection in 1956. The NYISO is an outgrowth of the New York Power Pool, formed by New York’s eight largest utilities following the Northeast Blackout of 1965. The Power Pool combined the power generation and technical resources of its members to create an organization committed to the reliable, safe and efficient operation of the electric system.

Thanks for getting back to the generative dialogue.

© 2007. José Antonio Vanderhorst-Silverio, Ph.D.