Free Market and Central Planning, Under R1E2

This is my synthesis of the EWPC paradigm shift that maximizes social welfare. Although it is a non-trivial subject, it seems that many intelligent and important readers of earlier posts may just understand it. Maybe, I could get a prize for it, as it goes against the politically correct and the popular consensus of our time.

Free Market and Central Planning, Under R1E2

By José Antonio Vanderhorst-Silverio, Ph.D.

Systemic Consultant: Electricity

Copyright © 2007 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. Please write to javs@ieee.org to contact the author for any kind of engagement.

Dr. Stephen Lee has written the timely article Free Market or Central Planning?

My answer to his question is both: free markets and central planning, but with the added condition of electric system reliability first, money system economy second (R1E2).

The Vertically Integrated Utilities paradigm became obsolete in the 70s. The obvious elements had to do with the excesive capacity required and corresponding high rates and the change in the range of customers supply security needs. After that, many incremental paradigm shifts have occurr.

It is necessary that the industry should undergo a real paradigm shift. The electric system and the money system should be functionally separated. As the money system has supply and demand, and generation and retail are fully competitive activities, the functional separation has good cohesion.

The natural monopoly transportation system is what remains as the electrical system. To optimize the transportation system, it is required to consider total social (demand, transport, supply) welfare needs, and not just the optimization of transmission, distribution, or both, by themself.

By applying the reliability first, economy second, criterion, the development of the smart grid can proceed and as each competitive retailer develops, with business model innovations, the resources of the demand side, to integrate demand into power system planning, operation and control, a robust, vibrant, and fully functional, electrical and market, power sector can evolve.

Transmission open access and the native load requirement by IOUs are an incremental step and a strong barrier to competition, respectively. The case for reintegration of T&D is clear. The case for optimization of distribution and regulated retail under a business model of IUOs winning rate case to the regulators is dead wrong, as it is a win-lose proposition.

Those are some of the concept that have emerged on what is now electricity without price controls (EWPC) that I have developed since 1996.

Thanks once again to all that have serve as a sounding board, without whose help I would no gotten this far.

José Antonio