jueves, marzo 15, 2007

Utility Deregulation and Vertical Integration Revisited... Still Bad Ideas Part 3

Thanks Len, once again, for your contribution to help keep alive the message about EWPC.

The essence of EWPC market design and architecture is all that is needed to arrive at a winning market. Its seems vague to the untrained eye. The whole essence has been layout in more than one year of comments. As you should have seen in slides 8 to 13 of my presentation, the states considered at the outset of deregulation were only 4. I explained that they were supposed to be 8 states, as inactive demand was a key flaw in deregulation that Bill Hogan made when "extending" the research led by Schweppe .

As the conference was set for the next 30 years it helps learn what is emerging from a very powerful perspective. Only one of the 8 states is the End-State, leads to complete and fully functional wholesale and retail electricity market where active customers are essential. That is what EWPC is all about. If there was any doubt, the presentation at Carnegie Mellon University eliminated any other contender. The remaining job is to stop debating and cooperate in a generative dialogue to reach the End-State of the power industry.

It seems that you do not perceive correctly the paradigm shift that will take place from vertical integration to EWPC. I said that under EWPC, integrated T&D - a bare bones utility - is essentially what is left from the old paradigm. However, al least three significant characteristics, described in earlier comments, are at work: 1) center stage shifts from generation to the bare bones utility which will be design to meet the ultra-quality imperative; 2) its processes should be reengineered to get a lot value creation from IT (there is a lot of fat as a result of a piecemeal approach to enhance vertical integration and more so with deregulation); and 3) the transformation with new technology to implement ultra-quality comes at the right moment, because of the aging physical infrastructure.

Generation will not be owned by or be negotiated with a monopoly utility. The example you give does not need a powerful prudential regulator. In the deregulated system in the Dominican Republic, when a generator fails to be available, it faces the spot price in the transactions. As the system planner and operator exercise its risk management activities to avoid systemic risk, generators will make commitments to be on line, which will make them face risks when their units get into outage situations. Non gamed outages can be managed by generators with insurance as they do in the vertical integrated industry. Some of the jurisdictions claim they have solve the gaming problem already.