How TXU Can Take the Lead
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 firstname.lastname@example.org to contact the author for any kind of engagement.
This is an update of the article “Take EWPC Lead & Reap Large Benefits,” as it applies to the Texan’s market.
Mark Hall wrote a timely reality AMI based article on demand response that also touches energy efficiency issues.
Since, as the Mr. Hall writes, “The electricity delivery industry is likely to see several utilities use advanced metering infrastructure (AMI) for demand response programs on an unprecedented scale over the next five years,” AMI and demand response are getting out from the Bowling Alley and entering the Tornado of Geoffrey Moore’s Technology-Adoption Life Cycle model. To get to Main Street, however, it will be much easier and faster with a paradigm shit to EWPC. For earlier comments on Moore’s model, as it applies to demand response, see IMEUC: Unreliable Service and Price Spikes (please hit read links here and below for more details).
A key issue to make a paradigm shift to EWPC and reintegrate electric transportation in Texas is to change "The commission must review the change of ownership for Oncor, but it cannot block the buyout." Unless the authorities stop the buyout true retail and wholesale competition will not developed in Texas, as retail competition with demand integration is required to integrate the retail and wholesale markets. Since the buyout was made, it is in TXU best interest to read the following carefully.
The shift to demand response based on AMI is an incremental paradigm shift away from the existing vertically integrated utilities (VIUs) paradigm, which is itself the result of earlier unstable paradigm shifts. Mr. Hall identifies also energy efficiency based AMI incremental paradigm shift being mandated by governments, which need to be made by artificial means such as decoupling sales from profits, as the VIUs paradigm has perverse incentives on energy efficiency.
One example of sales decoupling were mandates in California that led to investments in demand side energy efficiency. As "Texans use two and one-half times the electricity of California on a per household basis," the economic case for the development of the resources of the demand side is a must.
To implement energy efficiency in Texas the remaining barriers to retail competition needs to be taken down. Second Generation Retailer - 2GR should be allowed to integrate demand to power system control, operation and planning to allow the integration of the retail and the wholesale market as explained in the EWPC blog.
The power industry traditional approach - the vertically integrated utilities (VIUs) paradigm and its incremental extensions - is centered in the development of the resources of the supply side. EWPC is a balanced approach paradigm which will concentrate initially on the development of the resources of the demand side, as the supply side is already well developed.
A transformation of the industry is required reduce the increase in demand to economic levels at the meter, while customers receive the same energy services. That means taking down the barriers against energy efficiency, which is the other side environmentalist are missing in Texas.
Warren Causey wrote that the supply side problem that "Demand for electricity is expected to rise 76 percent by 2030, almost twice as fast as U.S. demand, according to the Department of Energy." The demand side opportunity with EWPC is a strong reduction in demand well above the 2.3% mentioned for renewable sources can be implemented in a few years, once the proper market architecture and design is in place.
Every time an incremental paradigm shift occurs, constitutional rights are transferred to utilities thru a win – lose process, based on the utility business model of winning rate cases to the regulator. The result is higher than normal rates to customers and an extension of the life of the VIUs paradigm.In addition, decisions taken by regulators on demand response result in a large free riding effect that requires general rate increases discriminating to non-responding customers, without customers ever learning what's going on. Retail competition avoids that altogether.
As the decision to invest by a customer to become responsive for the short run (demand response) is contradictory to a decision to invest for the long run (energy efficiency), incremental shifts will result in a lack of coordination by customer and as a result more costly than necessary for them. How can that be avoided?
The solution is to change demand as an externality, and integrate it to power system control, operation and planning, with a real paradigm shift. Such shift away from the VIUs paradigm, can be done with EWPC, the winning market on the first phase of competition, as can be seen on the downloads, debates, reflexive dialogues and generative dialogues, under the article An Analysis of the Carbon Emissions Impact of the Senate Energy Bill.
In accordance to the issues that the Chartwell reports, about perceived shortage in future energy supplies, it is energy efficiency that will have the largest impact both in reliability increase and real demand energy reduction. This means that demand response projects incremental paradigm shifts may result from optimistic cost benefit analysis in rate cases presented by utilities. It is important to note that energy efficiency reduces demand at the meter, but does not reduce the useful effects of electricity to the end-customer. Implementing the EWPC paradigm shift can reduce demand and avoid a large percentage of the supply generation forecasted (which are not very reliable anyway) with a very clean solution of integrating demand, thereby lowering the need to build expensive generation facilities.
In the real paradigm shift under EWPC all benefits from the development of the resources of the demand side (demand response, energy efficiency, distributed generation, distributed storage, etc.) are considered at once by a 2GR under competition, and not under a monopoly by a regulator, which although intelligent and important, may no know enough to understand the non-trivial elements of the proposed solution packages. Instead of letting regulators make bets, it is the competition in the market that finds conclusive evidence of which of the technologies of the demand side is more cost effective.
As can be seen from 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-customers, 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.
”The LIE has led to an inefficient regulatory compact as can be seen in The Anti-System Utility, which also explains why penetration is still low. However, knowing that EWPC is the best market solution may not even touch at all the present regulatory compact. Mr. Jack Casazza uses the analogy of a scrambled egg to explain that the regulatory compact can’t be unscrambled.
If EWPC were not to have any chance at all, I would have not been invited to Carnegie Mellon University this past march, where I presented A Generative Dialogue to Reach the End-State of the Power Industry (please hit link to download the presentation). As shown in slide 5, the conference had a supply side approach to:
Getting adequate resources of the right technologies for generation, transmission and distribution over the next three decades,” missing “the need for the emergent market architecture and design paradigm, where the development of the resources of the demand side takes a key role to reach the End-State of the power industry… Venture capitalists know that good money should not be thrown after bad. Now is a great time to shift course… The new paradigm introduces elements that should be researched and taught, on MS and PhD levels education, as well as the training of skilled blue collar workers.
Since then, EWPC has emerged, and is ready for real government leaders to consider it!In the slide # 7 of the presentation two small chance events have lead to an inferior solution path, preceded the California LIE. I wrote then that “The events were naturally pulled by strong vested interest community [of which the BIG LIE is representative], by neo-liberalization, by the debating system approach, and by the regulatory design, which [mutually] reinforced each other.” EWPC has a lot of potential right now, because of very high fuel costs, the necessary integration of demand, and the highly likely integration of the environmental externality to power system planning, operation and control. See also Utility Trends and Real Paradigm Shift.
TXU and the goverment of Texas are candidates to start the paradigm shift to EWPC, ending demand forever as an externality. It has been shown that the days of the obsolete VIUs paradigm are counted. A paradigm shift to EWPC is the next source of business innovations, jobs with a lot of future and increasing exports. Those governments that take the lead, and avoid the risks of market implementation failure by retaining high caliber professional team advice, will reap most of the benefits.
Reference and context:
AMI-enabled Demand Response in the Crosshairs of Many Utilities, by Mark Hall, Research Analyst, Chartwell Inc.
TXU Under New Leadership - Whose Star is Rising?
10/11/2007 at 09:26 AM Marty Rosenberg - From the Editor's Desk Blog
The Sky Really is Falling!
10/11/2007 at 05:58 AM Warren Causey - Reinventing the U.S. Utility Blog
TXU Jeopardizing Texas Deregulation?
10/10/2007 at 12:42 PM Joey Gimenez - A Communicator's View of the Energy Industry Blog