Please Blame the Deregulation and Regulation Fiascos Parte 28

Dick,

I will add that States that deregulated on Hogan's model might have created large unnecesary inefficiencies that States that have no deregulated can avoid. Also, central to the Electricity WPC restructuring is that selecting one central advanced metering infrastructure is very risky in regard to demand response evolution. Competition of complete retail marketing business models is central Electricity WPC. Schweppe's unextended mental model had those infrastructure risks.

Please Blame the Deregulation and Regulation Fiascos Parte 27

Dick,
I agree that Banks' mental model is cost of service regulation.

Schweppe's mental model is best explained by the post Some Friendly Comments on True Electric Deregulation Part 4 on the GMH blog (the original comment is under the EnergyPulse article A Few More Unfriendly Comments on Electric Deregulation by Prof. Banks ).

In the post, both Enron's and Hogan's mental models are represented in Space B, where price spikes larger than necessary are expected when the system operates close to capacity. The "system" in Space A was in fact several area systems (not necessarily control areas) interconnected by tie-lines, which in Space B become congested very easily. The shift from Space A to Space C can be centered in the many area systems avoiding the congestion of tie lines.

I am copying part of the above post that says: " ‘…A spot price based energy marketplace is a win-win situation for both the regulated utility and its customers. The customer's lifestyles improve because the customers are receiving more service from the use of electric energy per dollar spent. The utility has a more controllable, less uncertain world in which to operate.’ That is exactly the opposite of what has been happening, by leaving the customer out in the re-regulation efforts. Demand response will change that."

So, what I am saying is that Schweppe's extended mental model it is NOT what most of those commenting in this thread were agreeing is desirable from the beggining. It is much different than just simple retail. It is a win-win mental model with lower price volatility, where the end-customer is not an afterthought.

I accept that the details about the difference between Hogan's model and Enron's model might not be substantial. My point is that Hogan himself was against the final Enron’s mental model. In addition, I agree that Hogan's mental model was being pushed closer to vertical integration before accepting to include demand responsiveness.

Regards,

José Antonio

Please Blame the Deregulation and Regulation Fiascos Parte 26

Dick,
The most important elements of Schweppe's unextended mental model are the demand response element and the tight nature of T&D. That is a prerequisite that was bypass by Hogan's missunderstanding of the energy marketplace and the development of stages 1, 2 3 and 4. It is not just to allow a retail, but a truly responsive regulated energy marketplace. What I have been doing is working on the architecture of electricity without price controls to the customer and recognizing the need of retail market development should be an integral part of transforming the electric power sector into a regular business environment.

Today I am tied up. Tomorrow I will expand and give you some links to earlier discussions on EnergyPulse.

Regards,

José Antonio

Please Blame the Deregulation and Regulation Fiascos Parte 25

Dick Maclay asked for clarifications on the mental models:

Jose Antonio, I would just like to confirm the differences among your mental models, if you would be so kind. This is my understanding of the essence of the models:
The Banks model is traditional cost of service regulation.

The Extended Schweppe model is the open competition with choice for all retail customers. It is whatt most of those commenting in this thread are agreeing is desirable.

The Hogan model confines markets to the wholesale sector, while maintaining regulation for the retail sector of the market.

The Enron model is a variant on the Hogan model in which the ISO and the power exchange are separated. I am a little confused about this one because the industrial customers in California pushed hard for separation of the ISO and power exchange. They wanted to be able to bypass the power exchange in their direct access power purchases, and have the ISO clearly limited to only those activities associated with system reliability. They were concerned that if the ISO ran the power exchange they would get dragged into it, or be adversely influenced by it. So the intent was to achieve something like the Schweppe results. Unfortunately, wires and commodity prices were not properly separated. The wires prices included subsidies of power purchases by the utilities on the assumption there would be stranded costs, plus some confusion by regulators on the proper long-term separation of the two. As a result, power exchange bypass only worked for some very large customers. So is your Enron mental model a variant of the Hogan model, regardless of the unfulfilled hopes of many of its supporters? In that case does it exclude retail customer choice?

If I understand the Hogan model correctly, it does not allow generators to bid high enough to recover all of their capital amortization without periods of tight balance between supply and demand. But without the discipline of retail price elasticity, prices can soar in such periods, so some sort of oversight is soon demanded. But then a capacity market is required to collect the amortization of capital costs not fully collected in the managed spot market. Since capacity is charged to retailers on an average cost basis, I wonder why the money to be recovered in the capacity charge is not given the name ‘rate base’. In the end the Hogan model does not seem much different from the Banks model unless generators avoid the need for a capacity market by merging until they can collect money for plant amortization through monopoly power instead of administered payments. And in that event Ferdinand's concerns have some validity.

Please Blame the Deregulation and Regulation Fiascos Parte 24

Thanks Len.

The road to Electricity WPC requires many hurdles to be passed. Metering is just one of the components. A demand response system is another. Still Customer Information System an additional one. On the wires side, a clean slate reengineering is a recommended approach to integrate data coming from retailers.

My suggestion is that retail marketers compete with other retail marketers based on theirs business model innovations. There are many posible approaches to retail marketing and by selecting a given advanced metering component design will be taking the associated risk. When I participated at the last AMRA meeting there were many possibilities available, many of which were not end to end solutions.

Competitive retailers regulation should be changed to prudential regulation,similar to that of the banking industry. Regulation for T&D should stay as is .

Please Blame the Deregulation and Regulation Fiascos Parte 23

Len Gould says:

I agree with Mr. Vanderhorst-Silverio that advanced metering can provide a true market in electricity if combined with open access for all to an electronic central market of offers from generators, and provided all generation, including the smallest residential CHP or etc. generating equipment can participate fairly in that market without exhorbitant connection fees or standby fees etc.
Distribution should be compensated a flat rate based on amortization of capital invested + O&M (or perhaps max. service load capacity), regardless of customer consumption.

One interesting possibility at

http://www.energypulse.net/centers/article/article_display.cfm?a_id=1176

http://www.energypulse.net/centers/article/article_display.cfm?a_id=1181

With this in place, then feel free to completely remove all regulation.

Please Blame the Deregulation and Regulation Fiascos Parte 22

Yes Steve,

Retail competition under Electricity WPC is a viable business. The metering infrastructure leading to demand response will pay for itself just on the other operational benefits. Bringing together sellers and buyers is the job of the retail marketers business models.

Electricity WPC is not a scam. I knew Prof. Banks' mental model would be kept on the losing side, together with the other losers: Enron's and Hogan.'s mental models.

Please Blame the Deregulation and Regulation Fiascos Parte 21

Steve Rozenman questions whether retail is viable:

Jose Antonio

This has been a long discussion with excellent feedback from everyone. But no one questioned the fundamental premise, upon which the entire deregulation rests namely,

Retail Competition! . The question is:

Is retail of electricity a viable business? Can it bring together Sellers and Buyers? Is the common consumer of electricity interested in spending his time in engaging in such activity?. If the answer is hardly!, than all this deregulation in electricity is a big waste for the short duration of humans on this planet

Please Blame the Deregulation and Regulation Fiascos Parte 20

I said I didn't want to fight with Prof. Banks. This is what he wrote when he flew out the dialogue:

Dick Maclay tells us that the deregulation fiasco in California was caused by the weather. Some people ascribe General Custer's troubles on the Little Big Horn to the same source.

As for myself, I don't intend to believe Mr Maclay on this or any other matter, nor do I intend to take any of the half-baked advice that he so generously offers, most of which is based on a distortion of the facts. I suggest though that he and Jose and others of the same persuasion offer their services to the California state legislator who got the deregulation swindle on the road, but who later went over to the other side. US senators Byron Dorgan and Ernest Hollings might also need some help, since they have been running around telling people that electric deregulation is a scam. Honorable senators and others, it's worse than a scam.

Thank you for your time, gentlemen, but as for myself I'm going back to considering the great world of oil. However if we find ourselves in the same conference or seminar venue discussing this electric deregulation rip-off, I'll be only too glad to show you a thing or two.