A Paradigm Shift to EWPC

Thanks Len once again for asking to answer your questions. In my answer to Edward it is evident that any solution that does not pass the tough test of Todd is because it is not modeled with essential requirements, but a proposed implementation, like the SMD. I am responding not because of the good intentions of Jeff, but to get back to good terms with you and all the other brilliant commentators, as Fred called us.

Len Gould on 8.31.07. My problem with EWPC are myriad eg. it's precisely identical to every existing failed attempt at de-regulation in N. America. And it's promoter flatly refuses to answer any difficult questions about it. Questions which I have posed before, such as:

1) How can it manage to implement effective demand response and avoid the huge "free rider" problem?

This question is a key element of the EWPC paradigm shift, but belongs to the second phase of competition: company vs. company competition. It will be answered by 2GRs business model innovations. Any customer trying to be free rider will find how effective competition is. The huge free rider problem is under monopoly.

2) How can it GUARANTEE no shortages?

Although with a very small probability, in any power system there will be always shortages. EWPC is about rational rationing in those very costly moments when required. Vertically integrated systems were designed for a 24 hour loss of load probability in 10 years. The system planner and engineer is the responsible for short run and long run systemic physical risk management as explained in my article An Alternative Business Case for Demand Response and refined in the post Letter to Dr. Alfred E. Kahn which helped you say “José you are closed!” The integration of demand into power system planning, operation and control, will increase demand elasticity, reducing shortages relative to vertical integration on any given event.

3) How can a fragmented bunch of small-cap "Retailers" finance items such as new-build nuclear?

Ja, ja, ja…nuclear! All you need is a robust, complete and fully functional retail and wholesale markets. Second generation retailers are not small-cap retailers. Today’s utilities should be restructured by separating the commercial regulated retailers from the physical distribution which should be integrated with transmission to become transport. Under EWPC a lot of mergers and acquisitions activity and competitive, as well as business model innovations will lead to worldwide competition after a transition. See also item 5.

4) What specific benefits do the "Retailers" provide to customers?

This has been answered at length in earlier posts. Edward A Read Jr. understands it very well.

5) Why would generation choose to sell to middle-men if they can sell directly to the customers at no additional transaction costs?

Sorry. Generators will need to have a retail department to handle non-trivial retail management. Economies of scale should be the result of activities under my response on item 3.

6) What mechanism under EWPC would be used to deter gaming by artificially with-holding generation?

Anyone withholding committed generation under a day-ahead security constraint unit (generating and load under EWPC) commitment is liable to pay large sums under the balancing market.

7) Are wholesale market transitions private or public information? Retail contracts?

This will be the result of the detailed design of the prudential regulations, which I suggest should be negotiated at the WTO. The main reason is that small and poor customers in developing countries are being taken for a ride. The information that should be transparent should emerge.

8) How could any mechanism to defeat gaming be set up if market transactions are private?

Already answered on item 7.

9) How does EWPC deal with "spinning reserve" and "standby" costs?

Under EWPC a whole system approach, instead of an incremental approach will be performed. Research needs to be performed to distribute systems costs.

10) What specific provisions are made to enable / encourage small Distributed Generation / residential CHP, when that ideal future trend goes directly counter to the interests of the "Retailers" and large incumbent generation?

This is a good of a paradigm shift at work. Under EWPC, retailers’ incentives are aligned with those of the customer. If they weren’t the customer would elect to choose a retailer that would satisfy his need for higher value added. The last sentence on the top of the GMH blog reads “Let’s enable electricity with the maximum value added to the customer.” However, under vertical integration, native load incentives are perverse and go counter customer interest.

11) Why would "retailers" bother to encourage conservation when that simply reduces their gross sales?

That is a problem of perverse incentives under monopoly service, which cannot be solved by piece meal interventions, such as how is conservation added to current rates. Utilities solutions are answered with their obsolete business model winning rate cases to the regulator. This answer complements that in item 10.