lunes, septiembre 17, 2007

The BIG California LIE

The BIG LIE is that retail competition is impossible in electric markets. The implementation of a competitive retail market was the center of the debate in California. Instead of cooperating to implement it, the three big California utilities, that didn't care about the end-custumers, acted very irresponsibly. EWPC is the paradigm shift to show that retail competition is not only possible, but absolutely necessary to turn the electricity industry into a vibrant value added business for all stakeholders.

Dear Mr. Giegler,

Thanks for the update on the data. It seems to makes more sense now. Presley suggestions on stranded costs are commented below to show how they evolve in the California case.

Leonard Hyman, a noted research analyst, wrote that the utilities scoffed at the idea of deregulation when he spoke to them: “… I got the impression that they viewed restructuring as a nutty scheme that would never got support beyond a few regulatory staffers.” But deregulation plans continued and Hyman wrote: “I think that this movement perturbed the utilities. I’m not sure that the big utilities agreed on what they wanted… but in the end, they got together and went for what looked like a last minute deal.”

“The deal”, said Hyman, “look like this: the utilities would collect their stranded costs, however defined, what looked like the real prize, and they bought into the rest of the proposal.”

The above fits with Adam Kahane impression: "The primary focus of PG&E's management attention was therefore not on customers, but on formal public hearings before the CPUC. Fittingly, eight of the nine members of the company's executive Management Committee were lawyers."

Kahane added about a PG&E retreat in his second year that "was a profound letdown. I watched the business sections in stupefied disbelief. The executives ignored the analytical material, played power games, ganged up on each other, pretended to misunderstand (as Don is doing), settled old scores. I was deeply disillusioned and felt my commitment to the company slipping away. This was not the brilliant, informed, rational decision making that I had been trained to expect..."

Now, if we stop, and recall that electric power systems are non-trivial paradigms under the control of the VIUs, we can come to the conclusion that the California utilities did not have the required leadership to be in business. The whole world knows that the California debacle was very costly. What many people don’t know is the costlier damage done by a big lie to perpetuate an obsolete scam to the whole world. It is because of such irresponsibility that I repeat the need to consider A Vertical Integration Conspiracy Theory for the US Judiciary, from which I select the following:

“According to Eamonn Kelly in his book “Powerful Times: Rising to the Challenge of our Uncertain World,” page 35, Winston Churchill said: “A lie gets halfway around the world before the truth has a chance to get its coat on.” On page 36, Kelly says that “Conspiracy theories can, ironically, provide an ordered framework with which to understand chaotic events.”…

Picture yourself in the year 2000, and as a practical analyst that knew about the protection inherent in utility regulation and also knew what had happen in the US Midwest in the summers of 1998 and 1999. … “The debate in California has changed remarkably over the past year or two. Discussion now focuses not on whether retail competition or direct access is possible, but on how to make it happen. The three California investor-owned utilities affected by the commission's decision convened an industry working group, called the Western Power Exchange (Wepex) to address the issues related to implementing the new competitive retail market.” Please answer, to the best of your knowledge, if there might be some ground for a complot theory on which Enron was a just a casualty.

So, to go back to the starting point, please inform the amount of DWR charges that correspond to high price long term contracts of good old days regulation that fostered inefficiency (old scams), which led to the restructuring experiments, in the first place. That is where the comparison of vertical integration and EWPC should begin.

Best regards,

José Antonio

Great Opportunities Under New Energy Bills

In the copyright protected link Extra, Extra… Goliath is Defeated Once Again!, you may find out how vertically integrated utilities will very soon start to be erased from the face of the earth. The US Congress, the European Commission, and legislative bodies all over the world, have the information they need to make the right decisions to transform the electric utilities to a very familiar business environment of wholesale, retail, customer value chain competition, under a very clear vision of the End-State of the electricity industry as provided by EWPC.

The state of Ohio and the Dominican Republic have the opportunity to be the first places in the world to implement the paradigm shift and introduce enough predictability to avoid throwing good money after bad, as EWPC signals the end of financial capital and the reintroduction of production capital to the power industry. A partnership between the state of Ohio and the Dominican Republic, which have a great export and job development potential under DR-CAFTA, can be negotiated.

Comments are also invited on the Electricity Without Price Controls blog of the Energy Central Network.

Extra, Extra… Goliath is Defeated Once Again!

David has won! The Electricity Without Price Controls (EWPC) Breakthrough paradigm has finally beaten the Vertically Integrated Utilities (VIU) Paradigm. Global economies of scale under Tofflers’ Third Wave EWPC are much larger than those local economies of scale under Second Wave VIU.

Extra, Extra… Goliath is Defeated Once Again!

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

Copyright © 2007 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. Please write to to contact the author for any kind of engagement.

From Wikipedia: David and Goliath are figures of a well-known tale in the Bible (1 Samuel 17, in most English language versions), wherein David, an Israelite shepherd-boy and future King of Israel, using his sling, defeats and kills Goliath, a giant Philistine warrior, in single combat.

My reticular activating system (the gateway to awareness) has given me a very important insight to use these words which become my sling in the combat to defeat and kill Goliath. I must thank Goliath’s - interpreted by Don Giegler - for the attack to EWPC during a combat we had and in which his economy of scale trigger allow me to apply aikido to the VIUs. I can say without any doubt that I have finally slew Goliath. This is how the 21st century story goes:

Philistine Don Giegler (in one attack of the combat) wrote

… Sorting through your attempt to slay Golaith, I ran into, "Sorry. Generators will need to have a retail department to handle non-trivial retail management. Economies of scale should be the result of activities under my response on item 3." Sam Insull, at the end of the 19th century and during the first part of the 20th century discovered vertically-integrated electric systems provided such economies.

To make a complete story, I must go back to item 3 (see link A Paradigm Shift to EWPC) to pick up my response to Mr. Len Gould (another Philistine) about his question: “How can a fragmented bunch of small-cap ‘Retailers’ finance items such as new-build nuclear?”, which went as follows:

Ja, ja, ja…nuclear! All you need is a robust, complete and fully functional retail and wholesale markets. Second generation retailers are not small-cap retailers. Today’s utilities should be restructured by separating the commercial regulated retailers from the physical distribution which should be integrated with transmission to become transport. Under EWPC a lot of mergers and acquisitions activity and competitive, as well as business model innovations will lead to worldwide competition after a transition…”

Now, I like to add that the point of generators to need retail departments was not to suggest that they should do it. On the contrary, now I have strong arguments to prohibit worldwide generating agents to invade the retail domain. What I meant was to make Len Gould understand that retailers are an essential requirement of robust, complete and fully functional electric power markets.

Coming back to Mr. Giegler attack:

Yes, vertically integrated utilities economies of scale on Alvin Toffler’s Second Wave were generally limited to the state level in the US and on the country level in Europe. Now, the world has changed and we are on the Third Wave, with large jurisdictional problems between states in the US and countries in Europe, which have become large barriers to the needed reforms of the power industry. With EWPC the barrier is eliminated, as only the controlled market transportation monopoly (the utility infrastructure) will remain in every jurisdiction of the US and Europe.

In the posted link Lowest Cost Electricity Generation is Just Intuitive, the message is that generation economies of scale were not the key to reliable electricity service. I believe that the economy of scale of interconnected power systems development, discovered in 1921, not by insull, but by what’s today PJM, is the essential requirement that I call ultraquality transportation.

It is now crystal clear that Second Generation Retailers (go to the link Second Generation Retailer - 2GR) should be completely separate from generation and transportation activities. Global electricity restructuring, based on the EWPC paradigm, should not allow transporters to become retailers nor generators. So negotiations at the World Trade Organization should impose trade and investments disciplines to make sure that global merging and acquisition activities don’t result on generators exercising retail activities, nor transportation activities, and vice versa.

That is what kills Goliath economies of scale. Generation and retail become global EWPC open market activities with a much larger economies of scale than under the obsolete VIU paradigm. As the art of generation is highly advanced, I expect that most innovations will be made by 2GRs business model innovations.

So, global prudential regulations of the EWPC open market must become a requirement to protect the customers and the agents from abuses. At least, in the US that could be developed by federal regulations and in Europe by EU regulations. As distribution activities are merged with transmission activities, they have a large probability of becoming federal and UE regulations of the transportation monopoly central market.