EWPC’s Tipping Point
By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity
First posted in the GMH Blog, on March 30th, 2008.
Copyright © 2008 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.
Aiming to be an irresistible article, this article should help start an epidemic of high proportions in the power industry. Malcolm Gladwell’s book, “The Tipping Point: How Little Things Can Make a Big Difference,” can help us see how exposing IMEUC False Facts respectfully, is one of those little things that can make a big difference.
Now the word-of-mouth epidemic can start, once people recognize the insidious power of the False Facts, which are being use by at least two exceptional, intelligent and important individuals, to obstruct progress. Now all stakeholders will be able to learn how Demand Integration brings the clarity and direction of the EWPC market architecture and design paradigm shift.
Steve Covey in his book “Seven Habits of Highly Effective People,” has described three modes of communications (trust and cooperation): 1st level (low trust, low cooperation), Defensive (Win/Lose or Lose/Win) mode; 2nd level, Respectful (Compromise) mode; and 3rd level (high trust, high cooperation), Synergistic (Win/Win) mode. When the other parties are in a defensive mode, or in very polite respectful mode, the solution to the systemic crisis of the electricity industry is delayed as the status quo remains in force.
The generative dialogue is the synergistic mode, when sometimes a new whole emerges, being greater than the sum of its parts. During the last two years and a half, many people have helped EWPC emerge. During the course of that time lapse, an alternative meter centered “market” (physical) proposition has been defended by Len Gould on the first, second and third level of communication. The article IMEUC False Facts, was a response to Len’s recent opinions under the article A Fresh Approach to Managing Peak Demand. Len accepted to participate in the generative dialogue in 2006, under the article Playing with Fire - The 10 Tcf/year Supply Gap -- Part I, which ended when I summirized previous post with the convincing post:
Generative dialogue synthesis:
Competition is divided in two phases: One) market vs market and Two) company vs company.
In Phase One all interested parties cooperate in the generative dialogue to select the emergent winning market. Phase Two is not part of the generative dialogue.
EWPC – an integral reform paradigm - is an open and robust emergent market architecture and design that divides the vertically integrated utility at modular interfaces. 1) Long run and short run system planning, operation and control natural monopoly functions are also kept integrated. 2) The T&D wires natural transport monopoly is kept integrated. 3) Supply - generation - natural competitive functions compete with each other 4) Demand - retail - natural competitive functions compete with each other. 5) Supply and demand – Megawatt/vars vs Negawatt/vars - compete with each other in time and space. Module 1 commitments on planning, operation and control are to be executed by the other modules.
Based on mechanistic thinking, IMEUC is one close and fractured strategy, like any other experienced deregulation efforts, that suggests retaining one of the key elements of retail business model innovations – the metering function – as a monopoly. The intermediary Market Manager is designed to contract base load units based on long run forecasting under uncertainty, arising from improper market signals.
IMEUC as a switchboard intermediary is just one of the many potential business models. It is only through execution – high dynamic complexity – of the development of the resources on the demand side that the potential will be realized. Other potential business model innovations won’t be able to be developed if IMEUC is unfairly and prematurely selected, by giving it market power over other intermediaries. It is no correct to assume how customers will behave – and evolve - beforehand. Instead, there is a need for a customer orientation.
While incremental costs might become negligible, sunk costs might be comparatively prohibitive for all customers. As a “right” solution, IMEUC becomes a strong barrier to emergent – high generative complexity - creative destruction. The best way to find out what the real overhead costs will be is in Phase Two with the right strategy and flawless execution under competition.
Module 1 is to take decisions for the health of the whole system as they unfold. The forward looking statement suggested to Prof. Banks and Mr. Carson on the generative dialogue goes in that direction. The Market Manager does not have such integral perspective.
I want to keep my opinions on Phase One. I am open to review the general open market design and architecture, if there are unfair elements associated with it. I have “listen” carefully to Len’s opinions and perceive that his interests, by going farther than necessary, go well beyond Phase One. Other parties representative of the larger whole – high social complexity - with different interests – regulators, generation of differing kinds, wholesale, retail, transmission, distribution, fuel supply, manufacturers of systems and equipments, etc. - are invited to participate in the generative dialogue.
© 2006. José Antonio Vanderhorst-Silverio, PhD.
Len ended that generative dialogue participation retracting (since then, he has retracted many, many other times) with:
Jose Antonio: Your cogent discussion raises some issues with IMEUC which I hope to clarify in a third article in the series here on EnergyPulse in perhaps a couple of weeks, provided I can submit it up to the high standards of the editorial staff. Thank you.”
The promised article, which he could have written in EnergyBlogs, never came. But that article was, since then, no longer needed, as EWPC emerged as early as the beginning of 2007, as the winner of the market vs. market competition.
As an exceptional discussant, apparently defending the California utilities, Don Giegler has been against the idea or the possibility of a generative dialogue (synergistic trust and cooperation). The most insidious of all of the False Facts is The BIG California LIE (an EWPC article written to Don), under which the whole world was convinced that Retail Competition (which at the time seemed a little thing) is not one of the three essential requirements of electricity markets for the third industrial revolution.
In response to that highly insidious False Fact, the summary of the EWPC article High Leverage Shake-Up in California suggests that “California has a great opportunity to repair the damages of the BIG California LIE to the world. The CPUC can do it by introducing a high leverage shake-up of the power industry that results in a win-win proposition for every stakeholder, becoming the example of indiscriminate access of electricity for the third industrial revolution.”
Don inquired into the article IMEUC False Facts. I have changed his four inquiries as True Facts and presented the corresponding response under each one.
True Fact 1.) "...system crashes are mitigated by a least cost mix of supply and demand risk management tools that may be applied in time and space..." and "...DR is the key to segmentation of customers supply security..."
In the vertically integrated utilities paradigm, "...system crashes are mitigated by a least cost mix of supply [side] risk management tools that [are] applied in time and space..." Such mix is the result of power system expansion planning and executed by system security operations planning. In order to forgo and/or delay investments in generation, transmission and distribution, demand side risk management tools are added to the mix. As customers reliability needs vary over a wide range, segmentation can be part of business model innovations by dividing the range into market segments, according to the value added, just as it is done by marketers everywhere. Customers will select which part of their demand is able to respond in a given market segment.
True Fact 2.)"...my assumption the default service will have essentially all the free-riders subsidized by peers..."
The support is in the EWPC article No Need for Regulated Price Caps - II , where I wrote the following:
In practice, however, there is need for a transition from today’s situation to EWPC. As there will be no incumbent retailers, 2GRs will need to carry the default service customers during the time limited transition period.
Nat Treadway, wrote in the article The Dawn of Electricity Competition: Efficient Prices and Efficient Choices that, “The design of default service (also called basic or standard service or provider of last resort) was identified as the most significant determinant of the success of retail electricity choice. A poorly designed default service undermines competition. If default service is designed to satisfy all residential consumers’ needs, or if it bundles and spreads risks among all consumers, or if it is priced below market, then it is unlikely that new retail electricity providers will enter the market. With few choices, consumers are left with only the poorly designed default service, and with limited benefit.”
During such a transition, 2GRs will have both types of customers (as there is no incumbent retailer), with increasing development of the resources of the demand side, as the default service will have essentially all the “free riders” being subsidized by peers. Hence, a systemic incentive to non-free riders will result, as they get the pressure for efficient prices and efficient choices. So, if only one or two [there should be many] retailers are truly competitive (2GRs), they will end up with the whole market.
(Emergent) True Fact 3.)"...essential business requirements as the breakthrough tipping point to promote leadership..."
Demand Integration is the key to the tipping point. I write that it is emergent, because in the future, people will say that they had though of it. See the article EWPC Leadership (w/o links), where I wrote:
The essence of EWPC is "the generic market model paradigm: Retail Competition, Active Demand, and Ultraquality Transportation," which includes wholesale competition, as 2GRs link both markets.
Such essence is the basis for a breakthrough, which is the tipping point that shifts paradigms permanently. The breakthrough is … the epitome of the 'AHHA!' moment bringing absolute clarity and direction… that now … comes to the power industry for both the open (retail and wholesale) market (with competitive incentives for the development of business model innovations) and the closed (transportation) market (the new utility, with a responsibility to transport).
The Old utilities paradigm (with a responsibility to serve) comes from demand as an externality (inactive demand and no competition) and has already served its purpose with its obsolete business model of winning rate case to the regulator. Each incremental extension of the Old paradigm results in unnecessary accumulated costs paid by customers and "earned" by utilities.
EWPC comes from - a different place altogether - Demand Integration (which comes from Active Demand and Retail Competition) to power system planning, operation and control by 2GRs, resulting in large coordination savings for society as a whole,
both in customers' multiyear investments and operation costs. Letting every customer for himself is a weakness in Gridwise (updated on March 27, 2008, as the Gridwise Architectural Council) that is filled by EWPC.
True Fact 4.)"...agents have to be able to negotiate around issues of scarcity and value..."
This true fact complements the value added by customer segmentation according to the demand response to scarcity. The true fact can be explained by the idea of EWPC “rational rationing,” as can be seen in a comment under the EWPC article The Good, the Bad and the Ugly, as a reponse to Don post that said: "So much for "generative dialogue"! It must be in the throes of "rational rationing".
On the need of rational rationing that competitive 2GRs will be able handle as they replace the regulated enterprise side of the utilities, Warren Causey wrote that "Here are some examples of customer concerns utilities and their CISs will have to deal with in the future (which they are not able to do, just as it is not possible to teach new tricks to an old dog) : . .. · As electricity becomes more scarce--something that is predicted by virtually everyone knowledgeable about the state of the industry--residential customers are going to have to deal with reduced supplies... As the shortages become more acute as carbon constraints continue to drive out the 50% of U.S. electricity currently generated by coal, demand response likely will have to become mandatory. When it is mandatory, it becomes rationing. . . · As demand response/rationing takes hold, utilities are going to have to know a lot more about the lifestyles of their customers. To see the complete article Customer care is about to become much more complex for utilities. Current systems can’t handle it.