To EEI: “Let's Ban Regulation,” Starting in Ohio

Should we ban regulation? YES! Go for a paradigm shift to “moving energy” with the EWPC winning market architecture and design breakthrough. The next opportunity then is in Ohio. Now we can agree with EEI to let the market decide for the bulb, but just after they agree to ban regulation.

To EEI: “Let’s Ban Regulation,” Starting in Ohio


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. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to javs@ieee.org to contact the author for any kind of engagement.

This is intended as the practice article that complements “Let the Market Decide” in Ohio. For all practical purposes deregulation is already banned. Now we will show that regulation (with or without independent generators) should also be banned, to let the market decide.

Should we ban the bulb? No conclusive evidence can be found, in the above posts, between banning the bulb and letting the market decide (see Should We Ban the Bulb?, If not in EnergyPulse). The evidence is found in regulation, where incumbent utilities and generators have perverse incentives against banning the bulb. This may be the same as saying that the Edison Electric Institute (EEI) has perverse incentives under regulation against banning the bulb, since utilities and generators have the political power in the EEI.

For example, banning the bulb of 60 watts to be replaced with 15 watts CFL’s reduces lighting demand to an incredible 25%. Corresponding retail sales are reduced and profits too. The real problem under regulation, however, is with the precedence it creates to politicians that will have the door wide open to ban other investments in energy efficiency devices once the bulb is banned.

See now how the precedence also affects today’s generators. Utilities enter long term contracts with generators, negotiated under the obsolete business model of winning rate cases to regulators. Those contracts once negotiated extend utilities monopoly power to generation investments for the long term. So generators incentives are also perverse under regulation to avoid competition.

The obsolete business model of winning rate cases to the regulator will finally end, giving way to new innovative business models, based on new technologies to shift the industry and make customers better off, while letting investors earned enough profits under a stable environment. “These new technologies provide the potential for modernizing the whole productive structure and for raising the general level of productivity and quality to a higher plateau,” as Carlota Perez discovered from the historic impact of 4 previous technological revolutions.

In his Speaker Notes at the World Economic Forum, in May 2007, Michael Power writes a clear message to characterize the old business and the new business we are entering in the fifth technological revolution: "Electricity consumers becoming part-time producers – “pro-sumers” – and utilities shifting from “energy-making business” to “energy-moving business”… analogous to banks or telecom firms."

Since utilities and generators are clearly in the old "energy-making business," the perverse incentives come from regulation. Since one of its essential elements is active demand, EWPC is about the "energy moving business," where competition, in wholesale and retail, among (without incumbent) retailers and generators, depends of satisfying end customers needs for low cost and/or added value of service plans, with economic transactions about “moving energy.”

The idea that regulation is the only paradigm that ensures generation investments is flawed. As can be seen in EWPC is NOT the UK Model, “Ultraquality transportation is the key requirement to develop A Futures Market under EWPC (hit link please), which the UK model lacks. That is why the UK model, as you (Adrian Lloyd) say “has failed to deliver adequate investment in new generation…” It has also failed to deliver “demand side participation,” because it only considered the 4 possible End-States at the outset.”

What that means in practical terms is that EWPC also ensures generation investments. However, as EWPC will also allow the replacement of financial capital with production capital as the industry becomes one again a predictable environment, which is now no longer possible with regulation, it is now advisable to ban deregulation. A simple explanation can be found in the practical message We Need Demand Elasticity that also reaffirms EWPC as the market winning paradigm, with high system reliability and without price spikes.

Hence, to help “raising the general level of productivity and quality to a higher plateau,” EEI leadership should tell their membership Jack's Welch’s “… story about a retreat he had with the managers of the nuclear engineering group. This was after the 1979 meltdown at the Three Mile Island nuclear-power station, yet their business plans still assumed that they would continue to sell more nuclear-plants in the United States. He said to them, ‘I can’t imagine we’re ever going to sell another nuclear-power plant, so go back and make this plan work without new reactors.’ They went back and developed a plan based on selling services to existing reactors.” See “Crafting a Message that Sticks,” in the Nov. 2007, McKinsey Quarterly.

The suggestion to EEI leadership is that EWPC strategy may transform the industry to satisfy even the worst case "environmental" scenario of zero net additions of generation, through heavy investments in energy efficiency to complement coal stations retirements. I also suggest to EEI leadership the need to reflect on what happen with the auto industry and better yet into that of the Divine Dispensation of Electric Markets is Gone, which in brief says: “As a result of David killing Goliath, US Congress has the great opportunity to introduce EWPC to the USA. In addition, the state of Ohio has the first opportunity to reap the benefits of retail competition, by developing 2GRs and integrating active demand to power system planning, operation and control. The Dominican Republic has one of the best positions to implement EWPC, but needs to place the Very Short Electricity Law in the waste basket.”

Should we ban regulation? YES! Go for a paradigm shift to “moving energy” with the EWPC winning market architecture and design breakthrough. The next opportunity then is in Ohio. Now we can agree with EEI to let the market decide for the bulb, but just after they agree to ban regulation.