Len, think of the banking sector in the 1930’s. How in the world did they transition from chaos to an open market where the little old lady was not at the mercy of large banks? Think of Roosevelt facing a systemic crisis in which he heard and applied sound advice, when he introduced prudential regulation to the banking industry to make it stable.
We have two competing market with their respective value chains as can be seen in the articles The Business Case for Demand Response by Thomas Brunetto, Managing Director, Distributed Energy Financial Group and An Alternative Business Case for Demand Response by Jose Antonio Vanderhorst-Silverio, Interdependent Consultant on Electricity. The value chain for Electricity WPC for the old little lady is wholesale, retail, customer. The key to Electricity WPC is to make sure true wholesale and retail competition develops as in other industries. In industry after industry where true competition is workable, the experience so far is that eliminating price controls is more effective and efficient than keeping price controls.
Competing retail marketers need to develop business models that add value to end customers. To do that, they will develop their Customers Information Systems and their Automated Metering Infrastructures.
From the above discussion about David and Goliath, what is at stake is which electricity market will lead us to the end state of the electricity business of the future. As you can learn about the fundamentals of Grupo Millennium Hispaniola, our approach is based on a customer orientation. As you can see from the top of the GMH web page it says: “Pensemos en una electricidad a minímo costo al cliente,” which means “Let’s think in electricity at minimum cost to the customer.”
On the one hand, we believe that the poor lady is much better off with Electricity WPC, as she will be able to select the service plan that adds the most value to her of a set of differentiated offerings. For example, with several supply security options she can select the one that results in minimum total cost when she adds the expected supply and shortage costs. Another example could be phrased in the options that add better value.
On the other hand, market power is not an issue under Electricity WPC. If it were, retailers’ activities in the wholesale market have the opportunity to design the right amount of energy efficiency and demand response to negotiate reduced market power from generators. In addition, and even more important, the T&D design and operation will be oriented to avoid operating the system close to capacity to guarantee high reliability. The main source of financing for generators is to have high plan factors. It is a very different ball game!
The reason I say that Electricity WPC is poised to be the winning market approach is because when anybody wins, everybody wins. That is why Electricity WPC can guarantee an infrastructure that will offer to add maximum expected value for any economy. However, under Hogan’s market approach for somebody to win, somebody else has to lose.
© 2006. José Antonio Vanderhorst-Silverio, PhD.
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