Electricity for the New Millennium

Original 2008 essay by (c) José Antonio Vanderhorst-Silverio, Ph.D.

The now obsolete Vertically Integrated Utility business model, of winning rate cases to the regulator worked until the 70’s, because customers' electricity costs were going down year after year, as fuel was cheap and retail customers' transactions costs were prohibited. As customers could be classified in neat market segments, to avoid the high transaction costs, the regulator became a self-appointed intermediary to purchase electricity at wholesale. That paradigm of the Second Industrial Revolution just doesn't work anymore.

In the Third Industrial Revolution that we are living today, the above situation has reversed: energy costs are becoming prohibited and retail customers' transactions costs are going down year after year. The regulator as an intermediary is now an unnecessary overhead, as customers' perception on electricity's value vary widely. Both of those changes are enabling a new paradigm that allows the liberalization of electricity markets, so customers have freedom of choice, fair and efficient prices, while the power system is planned, operated and controlled effectively with the response of the customers enabled by technology.

The electricity without price controls (EWPC) paradigm involves two markets that mutually reinforce themselves: 1) a controlled transportation market, whose compact is based on the responsibility to transport, and 2) a robust, complete, open, and fully functional (retail and wholesale) market, where the responsibility to serve is subject to agreements that should enable the maximum social welfare, under prudential regulations similar to those of the financial industry.

In the Third Industrial Revolution, the old business model of winning rate case to the regulator depends entirely on very risky regulator "bets on utilities projects that will go into the rates structure." However, under the breakthrough EWPC market architecture and design paradigm, "... the layers of overhead of both utilities and the regulator are removed," and (a new breed of Second Generation) Retailers compete at their own risk (neither at the ratepayer, nor taxpayer) in several worldwide market segments trying to develop business model innovations, as business do in many other industries.

To enable the green tech revolution, as envisioned by “VC bigshot” John Doerr, it is very important to take a hard look winning breakthrough market architecture and design paradigm at www.energyblogs.com/ewpc

Note: I live in the Dominican Republic.