Rethinking Electricity Restructuring as EWPC
By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity
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Professor Ferdinand Banks suggests that H. Sterling Burnett and D. Sean Shurtleff “should read the article by Jerry Taylor and Peter Van Doren (of the Cato Institute) that was published in the Wall Street Journal, August 30, 2007…” to learn that deregulation is a malicious farce.
In the Executive Summary of the full paper, Van Doren and Taylor write: “Electricity restructuring was initiated in the 1990s to remedy the problem of relatively high electricity costs in the Northeast and California... Economist wanted reform to eliminate regulatory incentives to overbuild generating capacity and spur the introduction of real time prices." EWPC restructuring with its R1E2 (Reliability First, Economy Second) priority will remedy such problem while satisfying economist wants and enabling maximum social welfare through an open market in the generation, retail, customer value chain under prudential regulation. For details please read Free Market and Central Planning, Under R1E2 and Engineers Needed for Lower Prices.
In the conclusions of the paper, it is stated: “While restructuring does not have quite as bad a record as the anti-market factions would maintain, it has created problems previously unknown in the electricity industry. Those problems generally arose because electricity restructuring:
o Focused on generation competition and ignored the pricing and incentives issues involved managing the transmission system and its public commons characteristics.
o Grafted a relatively free wholesale market onto a heavily regulated retail market; and
o Established artificial market institutions that invited manipulation and abuse. The end result has proven far from satisfactory."
Those "previously unknown " problems arose because of the non-trivial nature of the vertically integrated utilities (VIUs) paradigm which is preserved under EWPC with R1E2, which is one of the important discoveries which I claim to have made with EWPC. Please read also Only Two Stable Paradigms.
“The poor track record stems from systemic problems inherent in the reform itself,” was the argument that led to Van Doren and Taylor to “recommend total abandonment of restructuring.” I agree with their conclusions about restructuring with E1R2 priority. As the systemic problem is solved under EWPC by R1E2 ultraquality transportation, as it gets implemented by a system engineer in charge of short run and long run systemic risks, the argument doesn’t hold as systemic issues disappear.
The paradigm shift to EWPC is a breakthough that is not resolved by extending the VIUs paradigm adding that "Smart electrical meters hold the key to lower costs, and increased reliability," as Burnett and Shurtleff wrote. As can be seen in The Sixth Disruptive Technology, the automated metering infrastructure (AMI) is just one of the disruptive technologies that need to be tightly integrated into a superior systemic solution in the coming years under the electricity without price controls (EWPC) market architecture and design. The problems Mr. Rawlingson identifies can be solved with the smart grid disruptive technologies as explained in the article Solving Smart Grid Cost Recovery.
The conclusion is that there is now a sense of urgency to introduce competition policy under EWPC in the power industry is strongly supported in the article Slicing the Last of the Regulated Monopolies.
José Antonio Vanderhorst-Silverio, Ph.D.
Reference article and context: Meeting Our Need for Electric Power, by H. Sterling Burnett, Senior Fellow, and D. Sean Shurtleff, Graduate Fellow, National Center for Policy Analysis.