El Nacimiento de la Competencia en Electricidad

Reference: The Dawn of Electricity Competition: Efficient Prices and Efficient Choices, by Nat Treadway, Managing Partner, Distributed Energy Financial Group, LLC

Mr. Treadway,

On March 13th, 2007, at the Third Annual Carnegie Mellon Conference on the Electricity Industry, I presented A Generative Dialogue to Reach the End-State of The Electricity Industry. In my comments to your article, the slides mentioned are those of that presentation, which I believe is a good companion to your paper and the report.

I find the ABACUS report you prepared for ARC very illustrating and a welcome contribution to the generative dialogue, which I suggest the End-State will be electricity without price controls (EWPC) - summarized on slide 34. In addition, the report is a hard proof that “the creative destruction to EWPC is already at work (slide 35).”

As you will see, I understand that your paper gives a strong support to EWPC as the wining market architecture and design, as discussed in Playing with Fire - Part I and – Part II.

I strongly agree with your statement that regulated pricing (also for Len) is a key barrier to retail electricity choice. This is phrased on slides 14, 16 and 43 as the “native load” barrier.

The use of 23 issues (elements) to develop the ranking of 28 US states and 2 Canadian provinces gives a good signal to understand the process towards electricity without price controls (EWPC). Only Texas (position 1) has made "excellence progress," while only New York (2) and Alberta (3) have made "good progress."

The dawn of electricity competition in Texas is about eliminating price controls on competitive activities. Difficulties experienced last year, because of lack of demand response, meant that there is not enough integration between retail and wholesale electricity markets. The Texas market is just immature.

The issue of integration of retail and wholesale markets was explained in the paper An Alternative Business Case for Demand Response, which was published as a rebuttal (I mentioned the End-State then) to your DEFG partners, Brunetto and Wimberly, article The Business Case for Demand Response (please see the comments interchange with Thomas under the article).

Texas is not a Pure-Disco state either – competitive retailers should be able to replace 100% of the old monolithic regulated incumbent’s retailers to reach 0% overhead -, so there is a space available to reach the End-State. No nonsense competitive retailers (also for Len) business model innovations are at the center of market development (slide 21).

In that regard, recommendation 7 of the report deals with the separation of regulated and competitive services. The generative dialogue should approach altogether the difficulties in the interaction between regulated and competitive affiliates to get to wires-only (pure-disco). There is another argument under EWPC to support a pure-disco arrangement: transportation (transmission and distribution) should be kept whole (integrated) to manage efficiently and effectively short and long run systemic risk (slide 17).

I invite the leading retailers to take a look at slides 38 to 43, to see the investment opportunities of the Dominican Republic under DR-CAFTA.