domingo, agosto 05, 2007

Worldwide Generative Dialogue Funding Sought

Hi Dave, Len, Todd and interested readers,

These are my humbled conclusions, open to be enhanced, about the article, which complement my initial post Solution to AMI's Intelligrid Dilemma:

1) Smart meters are necessary, but not sufficient. To reduce customer transaction costs under complex trade arrangements to reasonable values, small consumers need to select a retailer of choice, which should be bound to operate under very clear [global] prudential regulations that also apply to generators to protect all customers, generators and retailers with fair competition regulations.

2) For the intelligrid to be the ultimate goal, it needs to follow a superior path to the End-State of the power industry to ensure the physical and human resources needed for the next 30 years. Such path is available with the market design and architecture based on Electricity Without Price Controls (EWPC), a work in progress.

To support in part such conclusions and to answer your statement: “… how separate organizations will do their part to facilitate the process is still under debate throughout the industry,” a synthetic one page explanation can be found on the post EWPC is Pragmatics' Winning Market Architecture and Design. Skeptics, like Fred Banks in the post Let's Get Out of Back Rooms to a Generative Dialogue, may not agree with those conclusions. For those technologies enthusiast, visionaries, and pragmatics, who believe, this should end the debate and be followed by a generative dialogue to reach the End-State of the electricity industry.

I thank all skeptics and especially Len Gould for his great interest in EWPC since the end of 2005, when my first and only article An Alternative Business Case for Demand Response was published.

States, provinces and countries where many industrial and commercial users are facing intense global competition and that have not deregulated are the main candidates for EWPC to replace financial capital with production capital (refer to slide 31). Future contracts of reliable deliveries are the key work performed by 2GRs, which may serve as marketers, brokers and aggregators.

I suggest that it is time to find funding for a worldwide generative dialogue with teeth. Help from readers’ suggestions on how to materialize is sought. Please comment, forward it to friends that might be interested to get involved in the project initiative and/or write in private to me at

P.D.: For those interested in a response to the latest observations by Len, please read the post We Need 2GRs as the Forecast is Always Wrong.

EWPC is Pragmatics' Winning Market Architecture and Design

Under the article Just How Smart IS Your Smart Meter? Why Achieving the Intelligrid Should be Your Ultimate Goal, the explanation of the conclusions given on 8.5.07 is based on my presentation given at Carnegie Mellon University in March 2007. Readers can download only one copy of the CMU presentation “A Generative Dialogue to Reach the End-State of the Electricity Industry,” for personal use, from the left column of this blog.

The idea of retail competition in electricity (referred in slide 8 of the presentation) can be found in the July 1996 issue of the IEEE Spectrum, which has on the cover “Power Brokers: utilities brace for new competition.” In the article “Unlocking the GRID, starting on page 20,” Sally Hunt and Graham Shuttleworth of NERA, explained in “a guide to the perplexed,” that retail competition answers yes to the following 3 questions: 1) Are there competing generators, 2) Do retailers have a choice, and 3) Do final consumers have a choice.

Explaining the model of “… retail competition or direct access,” the authors write: “In this case, all customers choose their suppliers. There is open access to transmission and distribution wires. The distribution is separate from the retail activity, and the latter is competitive. This, in broad outline, is the proposed California model…” Please refer to slides 29 and 30 to learn that the California model was changed from what it was supposed to be based on welfare economics and complete markets, to one to slow the progress as can be seen on slide 32. The shift from incomplete market deregulation with price controls to re-regulation without price controls under prudential regulation (EWPC) was born on slide 33.

The authors added, “Retail competition makes the most of competitive forces by, in principle, bringing all final consumers into the market. But it also greatly increases transaction costs by requiring more complex trade arrangements and metering. For small users, the costs may easily outweigh the benefits. Not only are metering costs comparatively higher for small customers, but the benefits of one stop shopping are lost – a problem that has also arisen in the telephone industry. Precise responsibility for poor service may be difficult to pinpoint when the local distribution company is not also the retailer.”

Missing from the explanation are the warnings (refer to slide 15) that Fred C. Schweppe et al had written in the book “Spot Pricing of Electricity,” which explain the failure of the California model:

1) “We believe the deregulation which considers only the supply side of the supply-side equation is dangerous and could have very negative results.”

2) “A second mayor difference between this chapter (the only chapter on deregulation in the whole book) and most of the deregulation literature lies in our concern that the economics and physical security of power systems not be destroyed or compromised.”

The first warning is solved by active development of the resources of the demand side (refer to slide 12). The second - one stop shopping and poor service – is solved by following Schweppe’s advice to meet the criteria: “Consider the engineering requirements for controlling, operating and planning an electric power system.” I discovered that there is a need for an imperative ultraquality transportation (integrated T&D), to solve the poor service problem for retailers (see slides 9 and 10).

Second Generation Retailers (2GRs) go further than regulated retailers with one stop shopping service as they also facilitate generators funding by becoming marketers, brokers and aggregators participating in the future markets by “making electricity purchase a contract rather than a regulated service,” as explained by John Flory in 1996 (refer to slide 32).

© 2007. All rights reserved by José Antonio Vanderhorst-Silverio, PhD.

We Need 2GRs as the Forecast is Always Wrong

I am glad that Len is agreeing to the learning involved in a generative dialogue, based on the principle that “I am not my opinion.” Great!

The posthumous dedication to Fred C. Schweppe in the book “Spot Pricing of Electricity,” says: “Fred created spot pricing and proved, again, that ‘The forecast is always wrong!’” It is the response to wrong long run forecasts that leads to “power plant build up” and “involves often costly systemic delays.” It is too late when discovered. The action suggested is to develop the resources of the demand side with 2GRs starting from the long run.

In accordance with the post Synthesis Proposal Agreement of EWPC, the essential generic market model paradigm, Schweppe’s work is extended. The synthesis is open to enhancements in learning from the emergent future.

Technologies enthusiast, visionaries, and pragmatics readers are advised to decide for themselves on the need for 2GRs. In that sense, in addition to what is said in the post in which Todd Defends Len Once Again, please consider at least:

From the post EWPC a Customer Orientation:

Integrating energy efficiency, demand response and other services with advanced metering to the homes makes a strong business case for 2GRs as the developer of integrated resources of the demand side. This is a change from a supply orientation with flip the switch service (exogenous demand) to a customer orientation.Demand can thus become endogenous in power system planning, operation and control, completing a (demand vs. supply) fully functional market, with both wholesale and retail competition performed with 2GRs in the value chain from generation to customers. That is another angle of what I been calling EWPC.

And from the post The Purpose Retailers Serve Customers:

Retail-marketers then take control of the strategic Enterprise Solutions [customer facing systems], developing innovative business models [investments by customers and/or retailers in AMI, DR, distributed generation, distributed storage, EE, etc. are not independent decisions in the long run]. As each customer selects what he perceives is the maximum value addition, the economy as a whole maximizes welfare.The last phrase states another purpose of retailers and is the essence of the long run contractual relationship of a customer and what is now known as 2GRs. For more details on my response to Len the reader is advised to go over near 19 energypulse articles in which I patiently responded that his short run electricity market model does not work, as electricity markets are unique.

To integrate demand into power system planning, operation and control, retail customers that invest to respond to real time prices need to advance their plans, to a 2GR when in the future the system is about to operate close to capacity. After investments are done system adequacy studies require what customer capacity is in place to perform when required under a contractual relationship with the 2GR. That information and more is required in advance to plan system expansion and operation. Many retail customers will not find it attractive all the red tape and cost that goes along to become themselves 2GRs, as it is just totally inefficient and ineffective. That is another purpose of retailers.

© 2007. All rights reserved by José Antonio Vanderhorst-Silverio, PhD.