Even though a debate has already reaffirmed without doubt that “The answer should be a strong NO!,” there is additional evidence and requirements to support the “strong NO!” answer.
Is Google the New Enron?
By José Antonio Vanderhorst-Silverio, Ph.D.
Creator of the EWPC-AF
Systemic Consultant: Electricity
First posted in the GMH Blog, on January 17th 2010.
Copyright © 2010 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 email@example.com to contact the author for any kind of engagement.
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“Is Google the New Enron?” is a very good question that was raised by Ian Bell in earth2tech.com. Repeated under the EWPC post Can We Let Google and Wal*Mart be Global Energy Retailers?, my response was:
The answer should be a strong NO! Google Energy should be something very different than ENRON. ENRON was the result of an incomplete market, that lacked enough functionality, under a flawed architecture. That market was based on the obsolete Investor Owned Utilities Architecture Framework and its incremental extensions, that keep adding huge complexity.
An interesting debate under the article confirms the “strong NO!” The discussion started with Mr. Carson, who essentially took a tangent by writing that, to his “… knowledge there were no particular problems with…” EnronOnline. This was part of my first response: “I do not disagree that Mr. Carson may be right. His post, however, do not change at all my post.” As my first response might have left some doubt, however, in the ongoing discussion it was determined, without any doubt, that Enron and EnronOnline were “mutually dependent on each other.”
Even though Mr. Carson and all readers of the discussion now know that Enron’s problems were related with EnronOnline, this article will present additional evidence and requirements to further support the strong NO response. That response requires that Global Energy Retailers should emerge under a complete and fully functional architecture framework, as explained in the introductory post States that Implement a Heterogeneous Grid are Poised to be the Winners:
States legislatures need to empower state regulators to do the innovative job to satisfy the need for their constituencies that a homogeneous grid is no longer able to provide. To consider a heterogeneous grid, legislatures can take a look at the now closed debate between Mr. James Carson and I, under the EWPC article The Electricity Without Price Controls Architecture Framework (EWPC-AF).
As key evidence, it is important to know that Enron decided to pull the plug out of the domestic market as early as in 1998. The June issue of that year of the magazine Power Economics reads:
Enron has pointed the blame at the ‘competitive transition charge’ which the incumbent investor-owned utilities are collecting to offset their stranded costs. Because of this and the across-the-board rate cut of 10 per cent that was mandated by the state government, there is very little margin with which to make attractive offers – and a profit.
But we now know that the situation faced by what I call First Generation Retailers was the “result of an incomplete market, that lacked enough functionality, under a flawed architecture.” For that reason, Enron operated only in the dysfunctional wholesale market.
Google, Wal*Mart, Microsoft and/or any other potential global Second Energy Retailer will operate in the domestic market, which is where a revolution of value creation is in the making in the global power industry. As described in the EWPC article Forget Demand Side management (DSM); Think Demand Side Innovation (DSI), Second Generation Retailers will need to develop ongoing competitive business model innovations, that will include DSIs into their customers’ one stop service integrated offerings. That competition is not a price competition between First Generation Retailers, like the one that Enron described, but a system architecture competition between Second generation Retailers, like those of the Silicon Valley Model.
Nothing less than a complete and fully functional market is required to enable those innovations and the jobs and wealth that come with the development of the resources of the demand side. While the First Generation Retailers in today’s liberated markets depend on wholesale market price supply competition, the proposed Second Generation Retailers bridge the retail and wholesale markets. In that way, they compete in both markets, where the continuously changing wholesale market price is the result of both supply and demand.
As I said earlier, there eventually will emerge a set of global prudential regulations for Second Generation Retailers, so that merger and acquisition activity would be restricted. From the responses that I received at that time, I know that it is even difficult at the US federal level, unless the government takes the advice given in the EWPC article A Better Decade Require the End of the Prevailing Style of Management.
In that regard, the post Making Socio-Technical Architecture and “The Smart Grid Game” Mutually Reinforce Each Other, gives an example of how to have effective regulation by letting the system architect decide on the few critical systemic architecting issues, that do no belong to the prevailing political process, as explained in the September/October 2002 issue of the IEEE IT Professional magazine article “Less is More with Minimalist Architecture,” written by Ruth Malan and Dana Bredemeyer.