Demand Integration Under EWPC

Fred C. Schweppe said that “The demand forecast is always wrong!” To mitigate forecasts errors and introduce stability in the power industry, EWPC integrates demand to power system planning. To integrate demand, each 2GR will concentrate their effort to develop a business model innovation, which is the Sixth Disruptive Technology of EWPC, to offer customers through the retail market a competitive portfolio of service plans, from which they can choose the one that best fits their needs for low costs, added value, or both. Each service plan integrates a mix of applications from several disruptive technologies services, such as, demand response, distributed generation & storage, AMI, energy efficiency, and the smart grid.

Demand Integration Under EWPC

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.


The first and fourth FACTS of Mr. Blalock seem undeniable. The second and third should be the result of a paradigm shift away from the obsolete vertically integrated utilities (VIUs) paradigm, to the EWPC paradigm which increases the capacity factor of generation and transportation facilities, as well as the integration of the resources of the demand side as explained below. The fourth will give the opportunity to develop the corresponding smart grid.

I have seen many forecasts, like those, from prestigious official sources with enormous and unsustainable increases in demand for the long run. To satisfy such increases in demand, the same, other sources, or both project large increases in generation and transmission capacity. Still other are puzzled that quality of life conditions are for the worst, as they see no possibility to develop all those facilities under present and future perceived circumstances. All of this says is that intelligent and important people have theories in use, or mental models, which are based on assumptions that no longer hold and need to be questioned.

In reality, high electricity prices are already being curved by customers when a good proposition is given to them to reduce demand, such as energy efficiency investments supported by other governmental institutions. A view of the whole is in order, as an introductory application of the disciplines of system thinking and mental models.

In the long run, key electric power systems variables follow a systemic reinforcing circle, which closes a feedback loop. The loop is closed by integrating demand to long run power system planning. Before the OPEC embargo, the circle was virtuous, but after the embargo it became only virtuous at times.

The SAME simple causal loop model travels price, demand, generation capacity, sequentially, as follows, first for the virtuous, and then for the vicious circle. With other things being equal: 1) as price decreases, demand increases, generation increases, price decreases … resulting in a virtuous circle; and 2) as price increases, demand decreases, generation decreases, price increases … resulting in a vicious circle.

Under the virtuous circle before OPEC, as price was always decreasing in a stable environment, there was not a need to consider integrating demand at all. However, as an uncertain environment kicks in, where prices are sometimes decreasing, other times increasing, the need to learn how demand is behaving is crucial, especially because of the systemic time delays involved, i.e. to avoid costly boom-bust behavior, in building generating capacity.

Adding to complexity, demand growth has two main sources not necessarily correlated: one external, from economic forces, and the internal mentioned above, as a response to power price signals. Hence, power system planning needs to integrate demand in its decision making process as soon as possible, to help generators, transporters and customers invest under a more stable environment.

This means that business as usual open loop demand forecasts mental models, that project large increases in demand, like the author mentions, are no longer reliable and must be watched carefully. MIT professor and lead author of the book “Spot Pricing of Electricity,” is quoted in the dedication as “Shortly before completion of this book Fred C. Schweppe, our friend, colleague, and senior author died suddenly. Fred created spot pricing and proved, again, that “The forecast is always wrong!”

In order to extend Spot Pricing of Electricity and to mitigate the demand forecast problem, I have discovered the need to integrate demand into power system planning. That approach is the key mission of Second Generation Retailer - 2GR (please hit red link here and below) – an institution - under the EWPC paradigm, which will help increase total social welfare. 2GRs have evolved from my finding about two years ago of The Birth of the Global Electric Retailer, as the utilities enterprise solutions were bound to be replaced by competitive enterprise retailers solutions, as it will now happen with the paradigm shift to EWPC.

To increase social welfare, each 2GR will compete successfully by developing a business model innovation for a market segment, which is The Sixth Disruptive Technology of the industry. As a result, 2GRs will be in the retail market to offer customers a competitive portfolio of service plans, from which they can choose the one that best fits their needs for low costs, added value, or both. 2GRs service plans will integrate several disruptive technologies services, such as, demand response, distributed generation & storage, AMI, energy efficiency, and the smart grid. Many applications will result from the implementation of the business models. The investments commitments to be made by customers are not necessarily part of the service plans of 2GRs.

The obsolete utilities business model is unable to offer such complex integration, which should be offered directly to customers under competition and not a by incremental investments bets of regulators under a monopoly compact with utilities. As a result, customers will be able to choose, when they want, both the 2GR and the integrated service plans available in the market, instead of being imposed through several costly incremental propositions, which extend the VIUs paradigm far away from its possibilities, and that are decided when the utility wins a case to the regulator and not when the customer needs it.

Generators and Second Generator Retailers interchange with the System Engineer their proposed investments and other key information to allow the System Engineer develop the transportation utility expansion plans for the long run, in order to optimize the future grid by minimizing total system costs (not just the transportation costs) in order for 2GRs to enable a potential maximum social welfare in the national economic context, and not just the financial viewpoint of the utility as the VIUs paradigm calls for.

In sum, while generators and the transportation utility must always be prepared to design, operate and maintain their facilities, there is not conclusive evidence that a building boom in generation should be expected from the first FACT and the above analysis. However, even though transportation facilities will be operated less congested with EWPC, from the fourth FACT a most likely building boom may happened for the smart grid implementation and the replacement of old transportation structures.

I would appreciate the author's considerations and those of other readers to this rebuttal-article post.

Reference: Coming Building Boom Means Utilities Must Prepare to Design, Operate, Maintain, by Michael Blalock , Director of Business Development, Utilities, IFS North America

The Sixth Disruptive Technology

A set of 6 disruptive technologies can be identified “To do a better job of managing our dwindling energy resources…” AMI and the Smart Grid are the fourth and fifth disruptive technologies to allow a breakthrough paradigm of the power industry for the 21st Century, as the required technologies become available, and will be tightly integrated by business model innovations - the sixth disruptive technology - developed by 2GRs into a systemic superior solution. The first three disruptive technologies are demand response, distributed generation and storage, and energy efficiency.

The Sixth Disruptive Technology

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.

Mr. Miller contribution, on the critical reality of AMI, helps further the case for Electricity Without Price Controls (EWPC), in unsuspected ways, “to do a better job of managing our dwindling energy resources,” as a set of 6 disruptive technologies emerge. AMI and the Smart Grid are the fourth and fifth disruptive technologies to allow a breakthrough paradigm of the power industry for the 21st Century, as the required technologies become available, and are tightly integrated into a systemic superior solution in the coming years.

The first three disruptive technologies are demand response, distributed generation and storage, and energy efficiency. Just like System Thinking in the Fifth Discipline contemplates the whole, the Sixth Disruptive Technology to be developed under competition by a new institution, the true competitive retailers, which I call Second Generation Retailer - 2GR (hit link here and further down to get more details) will contemplate the whole relationship with customers, by tightly integrating the other five disruptive technologies with their business model innovations. As Albert Einstein said: "Technological progress is like an axe in the hands of a pathological criminal."

My hero, the Swedish Uno Lamm and the father of HVDC, who won the Pacific Intertie Project for ASEA after facing a strong opposition by [the same] California IOUs [referred below], and later estimated to save customers more than a billion dollars a day, after negotiating a license agreement with General Electric is quoted saying something like this in an interview in 1988: “among Americans, when the heat of the combat ends and a decision has been arrived at, all the trouble disappears and the people work hard to implement the decision in the best way.” I strongly hope this will be the case of EWPC.

Mr. Len Gould has insisted against the idea of competitive retailers, ever since the beginning of downloads, debates, reflexive dialogues, and generative dialogues, that have occurred in the Energy Central Network environment. I am glad to submit to the general audience that the business model innovations that 2GR competitors should develop will be the sixth, and most important, disruptive technologies to integrate demand in power system planning, operation and control. Thanks to Mr. Gould once again for being such a great sounding board. I hope that all the trouble should disappear as the paradigm shift to EWPC gets underway.

I agree with just one exception the assessment Mr. Miller makes that reads “. . . the magnitude of the problem and the opportunity in addressing energy management requires a more expansive and advanced definition of AMI as the use of smart meters, with advanced two-way communication technologies, that enables utilities to:

0 Meet their business & operational needs for meter data collection

0 Empower all their customers to actively and frequently participate in demand response and energy conservation

0 Help move toward a smart grid

The exception is that the utility concept is obsolete. Under EWPC the commercial role utilities play is replaced 2GRs. The utility itself becomes just the wires only integrated transportation (T & D) system, which will have the center stage of the industry (I extended Dr. Richard Tabors, of MIT, idea of a center stage transmission utility). Private utilities will help avoid the inefficiencies of public officials in many jurisdictions.

The industry is poised once again to the competition virus, only this time we will know what we are doing. Instead of deregulating the industry under the principle Economy First, Reliability Second (E1R2), which led to large scams, competition will be introduced by re-regulation, under the principle of Reliability First, Economy Second (R1E2), which is the most economic for society as a whole.

My suggestion is that the open market should be under prudential regulations, with generation and retail becoming worldwide independent activities under WTO discipline, so global merger and acquisition activity won’t undermine a truly competitive industry (this is a good inside from deregulation scams).

The Economy First concept referred to above did not take into account all of the customers costs, but up to the meter, so a perverse incentive of price spikes led to low reliability, as power systems were operated close to capacity frequently. So the Economy First was good for scams. Incremental remedial action with NERC mandatory standards is insufficient and inefficient, as can be seen in NERC Compliance and Power Sector Structure.

The above difficulties are also explained in a different way by Jack A. Casazza, as the scrambled egg, that can’t be unscrambled. That would mean that The BIG California LIE was supposed to get away with a much larger scam than the Enron’s scam, as vested interests extended the obsolete VIUs paradigm well beyond its useful life, by tilting the competitive balance in an equilibria away from the best economic outcome for society. That is what is fueling a backward movement away from real retail liberation in Europe now. It is to the best equilibria that EWPC is concerned. As Einstein said; "We can't solve problems by using the same kind of thinking we used when we created them."

The Reliability First concept of EWPC, which I claimed to have discovered, preserves the aim of the regulatory compact of the VIUs, which is to plan, in this case the integrated transportation system itself, for maximum welfare of the whole. That said, the VIU that has demand as an externality, can be separated in two parts without any loss of generality, in order to improve the efficiency of the power sector as a whole by integrating demand: 1) an electric transportation system that interfaces with 2) the money system operating under an open market, with a value chain generation, retail, and customer.

The above idea, and what is to follow, has emerged, in the discussion with intelligent and important people without which it would have not result as fast and as cheaply, from the 2005 EnergyPulse [seminal] article An Alternative Business Case for Demand Response, where I wrote: “A new value chain is required in the power business for commercial activities, from generators and wholesale brokers, to competitive retailers, to end-users; while transmission and distribution monopolies are forbidden to interfere with those activities, charging a toll for their services. This is an essential element of the market design.”

To dig further into my discoveries (as you will see as leader-designer), in the same article, I also wrote:

Professor [Fred C.] Schweppe [of MIT] "envisioned a world of customer-based electrical generation and storage, "which has been happening in the Dominican Republic, for quite some time, missing only the Demand Response [DR] System and a truly competitive retail deregulation to fulfilled the dream of a country without blackouts. There is an example of the airline industry that will help explain the importance of DR. The DC-10 initiated commercial air travel at the time of the Great Depression, it happened when all required technologies became available, and were tightly integrated.

In that same sense, electric power systems will also “fly” reliably (a very low frequency and duration of crashes) and experience commercial quality electricity under complete deregulation, when Demand Response gets tightly integrated with AMI and other existing technologies under a proper market design. DR will enable the system to operate within the Normal Operating State, returning back as soon as possible from the Alert and Emergency States with Demand Response actions. This is poised to be the End-State of the electricity industry for the long run.

By the way, as I read the analogy of Peter Senge’s Fifth Discipline, once again, I see that I have been following unconsciously the section “Leader as Designer,” which I recommend to potential leaders in relation to what they think their role is, as Senge’s states that “it eclipses them all in importance. Yet, rarely does anyone think of it.” Well, I forgot about it, but kept thinking of it, without being fully aware! As Einstein said: "The secret to creativity is knowing how to hide your sources."

As I envisioned in my article, AMI technology is one of the key technologies to change demand as an externality forever. Demand integration will occur under a different paradigm breakthrough shift. The shift I discovered is retail competition and ultraquality transportation (see Synthesis Proposal Agreement of EWPC), which (I now articulate) should be tightly integrated by 2GRs business model innovations. Albert Einstein said: "Everything should be made as simple as possible, but not simpler" and "Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius -- and a lot of courage -- to move in the opposite direction."

So, a new generation of energy measurements is just one of the technologies to be integrated. The new utility will be a wires only utility in charge of transportation (T& D integrated) at every location under a federal regulatory compact, which by the way solves the federal state jurisdictional problems (see A Warning to the US Congress and the European Commission). The new Energy Policy Act of the US should definitely consider another New Deal restructuring, this time under EWPC. Europeans can do so easier, as their mandate calls for retail liberation to be implemented already.

Four days ago I wrote the article 2nd Disruptive Technology Crossed Chasm, and it should have been recognized energy efficiency as the 3rd Disruptive Technology to Cross the Chasm of Geoffrey Moore’s Technology-Adoption Life Cycle model, by decoupling sales and profits. So, we can certainly recognize from the article that AMI is a the 4th disruptive technology that have crossed the Chasm, as AMI seems to be in the process of leaving the Bowling Alley and entering the Tornado, while energy efficiency is the bowling alley at a few locations, although they are costly incremental shifts away from the VIUs paradigm.

The interface standards mentioned in the article should enable the separation of transportation and retail, which no longer will be regulated with price controls, as retail will be the subject of competition. As firmware downloads may differentiate 2GRs business plans, I am happy to recall the business case of a very low cost worldwide meter that I envisioned in my article a Dominican strategy, which was published in the May-June 2006 issue of the IEEE Power&Energy Magazine, just like they are doing for the US$100.00 laptop computer and the US$40.00 or so cellphone. Such low cost meter could be very promising for power service in the Bottom of the Pyramid.

By the way, it would be nice to know where the Smart Grid is in the Technology-Adoption Life Cycle model. I suspect it is already in the Early Market, and trying to cross the chasm. In the article Solving Smart Grid Cost Recovery are elements to help the smart grid cross it.

To get further details, readers could go the Electricity Without Price Controls Blog of the Energy Central Network, where another 22 articles already support the paradigm shift to EWPC. Even more complete is the Grupo Millennium Hispaniola blog, which already has more than 1,800 entries, and several articles, and presentations, in Spanish and English, most of which are about EWPC. All that information has been posted in the name of the progress of humanity.

To close my comments, I would like to suggest a very important activity. Next Year will be 10 years of the death of Professor Schweppe. I suggest a movement should be organized to go to MIT (readers should write letters to MIT management to make it possible) to give thanks for his great achievements in the name of humanity. As Einstein said: "Peace cannot be kept by force. It can only be achieved by understanding."

In addition, as I claim to have extended Schweppe’s regulated energy marketplace to become a competitive environment, I took the risk to write what seems to be an egotistic Conspiracy Theory Against Mr. X. I can’t deny it is egotistic, however, as those who were supposed to say that EWPC won the first phase of competition, I wrote it as a theory because I think is the fastest way to mitigate the negative influence that politicians have in the power industry. As Einstein said: "Weakness of attitude becomes weakness of character."

To further rationalize my attitude, if I didn’t make the above claim, it may happen that Lao-tzu (quoted from the Fifth Discipline) would be right once again, as “The bad leader is he who the people despise. The good leader is he who people praise. The great leader is he who the people say, “We did it ourselves.” My claim is not based on “either/or thinking.” but on the end of the “tyranny of the OR” and the embracing the “genius of the AND,” as Collins and Porras suggested in 1994. Einstein also said: "Common sense is the collection of prejudices acquired by age eighteen."

If after reading the above, you agree getting EWPC underway bypassing Casazza’s scrambled egg, and agree with the conclusion of suggesting me as a candidate for a Nobel Prize (I am told that only alive persons can be candidates) or agree with both, please by all means do so. The effect of the suggestions will send a strong message to governments across the world and especially to my loved Dominican Republic that has wasted for 11 years the opportunities to have electricity become our most precious country brand. Think of my contributions about EWPC as equations written with the input from other brilliant people, like all the thinkers quoted in my work so far and add the Einstein quote that says: "Equations are more important to me, because politics is for the present, but an equation is something for eternity."

Reference: The Critical Role of Advanced Metering Infrastructure in a World Demanding More Energy , by Eric Miller , Vice President, Itron Software Solutions.