Strong Evidence of Why Utilities as We Know Them Will Fail
By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity
EWPC Systems’ Architect
First posted in the GMH Blog, on July 26, 2009.
Copyright © 2009 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.
EWPC on Most Viewed on EnergyBlog.com July 26, 2009
· Nanosolar Breakthrough and the Old Paradigm (3260)
· The Sixth Disruptive Technology (3258)
· Response to Professor Banks (3233)
· Can the Power Industry Eliminate its Price Controls to the End Customer? (2768)
· Demand Integration is NOT the Province of Politics. (2614)
EWPC on Most Commented on EnergyBlog.com July 26, 2009
· Can the Power Industry Eliminate its Price Controls to the End Customer? (66)
· The Next Energy Secretary (53)
· Response to Professor Banks (46)
· EWPC’s Tipping Point (44)
· IMEUC False Facts (41)
· Campaign for Fair Electricity Rates (33)
· The Obsolete Generation Economies of Scale Argument (29)
The EWPC Blog Statistics paint a complete picture of the evidence of the end of the useful life of the IOUs-AF: Total Number of Entries: 193; First Entry: 09/13/07; Total Comments: 761; and Total Views: 154,790. Such strong evidence will lead to the Smart Grid strategy failure. Representative evidence can be found in the most recent EWPC posts:
1. COMPETE Coalition to Stop a Huge Greek Tragedy in the Making,
2. The Deadly Sin of State Regulators on the Smart Grid,
3. How Secretary Chu can Deliver a Win-Win, Big Deal Outcome at the Global Sustainability Game, and
4. Strong & Smart Grid.
In this post even more evidence is given about the huge mistake on such strategy:
First Evidence: a comment posted under the piece Smart Grid: We Still Need to Change Utility Regulations, written by Katie Fehrenbacher
The regulatory flaw is actually a system architecture flaw that originated in the Energy Policy Act of 1992.
To get more information on that issue, please read the discussion under the post “Smart Grid a Scam, Cries Energy Consultant,” on Smart Grid News website at http://www.smartgridnews.com/artman/publish/news/Smart_Grid_a_Scam_Cries_Energy_Consultant-637.html
My last post says:
Jack Ellis Stated Goal is the Way to Go
Jack Ellis has been around for quite some time in the discussions of the emerging transformation of the power industry. I agree that “… the stated goals depend more on grid smart consumers than on any intelligence in the grid itself.”
A strong service and smart business is what is needed. To enable that, there is a need for the EWPC-AF to set up an architecture competition of the smart business based on the Silicon Valley Model and not set up by DOE mandate on NIST and EPRI.
José Antonio Vanderhorst-Silverio, Ph.D.
Second Evidence: Next I will add a comment written under the post FLY ON THE WALL AS STATE REGULATORS GATHER NEAR SPACE NEEDLE by Martin Rosenberg:
I posted the following message, after having read [your] comments, about the State regulators' gathering. I hope they will be able to read and act on it as soon as possible. My message responded the piece "Why A French Regulator Is Bullying A Smart Grid Startup (please hit the link http://earth2tech.com/2009/07/24/the-voltalis-case... )," written by Katie Fehrenbacher:
In addition to my earlier post under yours "Smart Grid: We Still Need to Change Utility Regulations," which I introduced with "the regulatory flaw is actually a system architecture flaw that originated in the Energy Policy Act of 1992,", I add the following:
"... until the problem get's fixed" is just an illusion, which you wisely anticipate by adding "we'll be seeing more cases like the one between Voltalis and EDF." The reality is that we have disruptive technologies taking footholds of the power industry Investor Owned Utilities Architecture Framework (IOUs-AF) that are here to stay.
The obsolete business model of IOUs winning cases to the regulator has its days counted, as the problem will not be fixed with artificial decoupling or any other business model incremental extensions, because it is not a mechanical problem that requires fixing. It is a systemic socio-technical problem and its holistic solution has already emerged in a transformation as a paradigm shift away from the IOUs-AF.
Ongoing business models development should follow the Electricity Without Price Controls [first level] Architecture Framework (EWPC-AF) that will enable a second level architecture competition, between Second Generation Retailers (please hit the hyperlink http://grupomillenium.blogspot.com/2007/07/second-... ) under the Silicon Valley Model. That way natural decoupling becomes available as customers will be able to freely choose in the competitive marketplace the best one stop service and investment deals.
A parallel between the IOUs-AF and the railroad highlights the reality versus illusion as a result of the big change being experienced in the business environment. John Naisbitt's 1982 Megatrends, explains under the section "Law of the Situation: the railroads did not understand," the illusion IOUs and regulators are, with the quote of Walter B. Wriston, chairman of Citicorp, who in 1981 said:
"The philosophy of the divine right of kings died hundreds of years ago, but not, it seems, the divine right of inherited markets. Some people [IOUs and regulators for example] still believe there's a divine dispensation that their markets are theirs - and no one else's - now and forevermore. It is an old dream that dies hard, yet no businessman in a free society can control a market when the customers decide to go somewhere else [under EWPC-AF for example]. All the king's horses and all the king's man are helpless in the face of a better product. Our commercial history is filled with examples of companies that failed to change in a changing world, and became tombstones in the corporate graveyard."
Under the new situation, regulators will go back to the good old days of doing almost nothing, when a virtuous circle existed that led to rate reductions year after year. That is I believe something that President Obama, Secretary Chu, DOE staff and State regulators must understand as soon as possible.
José Antonio Vanderhorst-Silverio, Ph.D
EWPC System Architect
Posted By Jose Antonio Vanderhorst-Silverio 7/25/09 2:06 PM
Third evidence: following a lead on the Real Energy Writers - Elisa Wood and Lisa Cohn Blog’s post Smart grid: How big is big?, by Elisa Wood, I arrived at the article “Defining an End-to-End Smart Grid,” by David J. Leeds. After describing three levels of architecture of the Smart Grid, Mr. Leeds concludes on the third level that:
The GTM Research vendor taxonomy by market segment is a useful tool in helping to visually position various smart grid players in order to gain more clarity as to where these specific companies compete and how they fit into the larger picture. While, at the time of this writing, it is still en vogue for companies to market themselves as "end-to-end" smart grid companies, increasingly these solutions and markets will be viewed as modular, and as such, companies will start to brand themselves accordingly. As heavier competition continues to move into each of these sectors being perceived as a smart grid "jack of all trades" (and "master of none") might not exactly be a winning formula.
The real issue is that the system architecture under which those companies are competing is flawed and if deployed as End-to-End Smart Grid results in billions of dollars waste that will go into ratepayers and/or taxpayers’ bills as utilities legally get their money back. What is needed is to divide and conquer the emergent whole power industry by restructuring it into a simplified strong regulated service system and a smart open market business system that mutually reinforce each other.