Demand Integration is NOT the Province of Politics.
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. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to firstname.lastname@example.org to contact the author for any kind of engagement.
As described in the "2007 Assessment of Demand Response and Advanced Metering," the Federal Energy Regulatory Commission (FERC) has issued the incorporation of demand response to transmission planning; the revision of NERC mandatory requirements to incorporate demand response; and the proposal to add demand response enhancements to competition in wholesale markets. As can be seen below, those three correct instructions beg the need for properly restructured electricity markets.
Looking very carefully at the instructions, those signals highlight the increasing complexity of the open transmission access incremental extension of the vertically integrated utilities (VIUs) paradigm. It is now very clear that those begging signals justify the need for the paradigm shift to the electricity without price controls (EWPC) paradigm in order to follow the design mantra “simplify, simplify, simplify.”
EWPC is the only properly restructured electricity markets available, where complexity is reduced by the discovery of two simplified interdependent markets: one is the controlled transportation (T&D) utility market and the other is the open commercial market. See Free Market and Central Planning, Under R1E2 (please hit link here and further down to get more details).
Second Generation Retailers Required
While utilities and third parties have the responsibility to integrate retail demand to wholesale markets, under EWPC the institution of Second Generation Retailer - 2GR is the sole responsible, like it used to be under the original VIUs paradigm. So instead of customers facing two institutions they will be able to have the whole relationship with the customers. As competition between utilities and third parties depends on the political process, on a state by state basis, innovation and progress is being delayed.
In addition, to further justify EWPC, in FERC’s assessment demand response is being extended to include energy efficiency. A simple explanation is that the latter can be understood as a long run demand response. This insight is very important because it recognizes that customers’ investments in short run demand response are interdependent with investments in long run demand response.
Interdependency is one key element to justify the need for retail competition and thus retailers. See The Sixth Disruptive Technology for more details on the other interdependent investments to be made by customers and retailers. It is now clear that 2GRs will tightly integrate the other five disruptive technologies with their business model innovations.
System Reliability is Non-Trivial and Not the Province of Politics
The vertically integrated utilities (VIUs) true and non-trivial paradigm led to a highly reliable electric service for many jurisdictions that understood and applied the paradigm. At many other locations that didn’t understand the non-trivial paradigm, usually known as third world electric service, unreliable service was offered. The knowledge accumulated behind of the true and non-trivial VIUs controlled market paradigm (for example by PJM) was based on the development of the theory and practice of physical risk management for an industry without energy storage that considered reliability and demand as externalities.
The result is a highly developed long run and short run supply side physical system risk management body of knowledge to offer commercial reliable service even without electricity storage, which is known under the terms system adequacy, supply security constrained economic dispatch, contingency analysis, loss of load probability studies, etc.
As the electric industry has develop its own risk management methodologies, which are true and non-trivial, it seems much more complex for other intelligent and important people, just as “Paul Samuelson said that a doctrine is non-trivial when ‘it is attested by thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.’ The EWPC doctrine is logically true, coherent and non-trivial. Reform should be based on knowledge and facts, not only on the political processes. See EWPC is a True and Non-Trivial Doctrine.
Today the responsibility for system reliability is divided into federal and state regulators, NERC, and RTO/ISO under a political process. However, under EWPC it is just the transportation institution that is responsible, like it used to be under the original VIUs paradigm. That institution is the controlled transportation (transmission and distribution) utility market, being responsible for transportation ultraquality. By doing so, those institutions are way into the true and non-trivial aspects of electric power systems, which are not the province of politics, but of engineering systems.
Transportation Ultraquality is the Province of Engineers Not Politics
The ultraquality imperative, was explained as follows in EWPC: People Coordinating and Cooperating with Electrons Part 2:
Eberhart Rechtin and Mark Maier, in their book “The Art of System Architecting,” explain that “social system quality… is less a foundation than a case-by-case trade-off; that is, the quality desired depends on the system to be provided. In nuclear power generation, modern manufacturing, and manned space flight, ultraquality is an imperative. But in public health, pollution control, and safety, the level of acceptable quality is only one of many economic, social, political, and technical factors to be accommodated.”
In the first case, the experts are the engineers. For the center stage, controlled market, system engineer institution to assures that electrons and people have the same purpose, as I mentioned on 12.30.06, ultraquality is an imperative to manage short run and long run systemic risk, with both supply side and demand side resources.
In the second case, according to Rechtin and Maier, the accommodation is done by the architect with “a professional response to the public needs and perceptions.” It is such unjustified perceptions that fueled the decade long debate. Bill Hogan mistake was that he didn’t understand what Fred Schweppe meant by the fourth criterion: “consider the engineering requirements for controlling, operating and planning an electric power system,” which can only be met by ultraquality. As time has advanced and new digital technology market share becomes larger, electricity demand for quality is only increasing. A professional response is needed, however, for the remaining, non real-time, free market activities of retail and generation. EWPC for the customers is such a response.
Demand Integration is the Province of Competition Not Politics
FERC’s assessment states “In November of 2006, the Commission and the National Association of Regulatory Utility Commissioners began a demand response collaborative effort, co-chaired by Commissioner Jon Wellinghoff, to coordinate the efforts of the state and federal electric regulators to integrate demand response into retail and wholesale markets and planning." Demand response integration by 2GRs under competition and open transportation access make both retail and wholesale competition a lot simpler.
Such political collaborative to integrate demand is apparently needed because of the present system structure. The “Increased activity by third parties to aggregate retail demand response,” reported by FERC, identifies an activity that should be performed by the 2GR customer facing institution. Under EWPC the integration of demand response to wholesale market is to be performed by 2GRs.
Reference and context: FERC Assesses Advanced Metering Programs by Bill Opalka, Editor-in-Chief, Topic Centers, Energy Central