EWPC’s Tipping Point

Aiming to be an irresistible article, it should help start a word-of-mouth epidemic of high proportions in the power industry. By respectfully exposing, and responding inquiries, the insidious power of IMEUC False Facts to obstruct progress, it is one of those little things that can make a big difference. Now all stakeholders will be able to learn how Demand Integration to power system planning, operation and control, brings the clarity and direction of the breakthough EWPC market architecture and design paradigm shift to produce large coordination savings for society as a whole. I repeat that “California has a great opportunity to repair the damages of the BIG California LIE to the world.”


EWPC’s Tipping Point

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

First posted in the GMH Blog, on March 30th, 2008.

Copyright © 2008 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.

Aiming to be an irresistible article, this article should help start an epidemic of high proportions in the power industry. Malcolm Gladwell’s book, “The Tipping Point: How Little Things Can Make a Big Difference,” can help us see how exposing IMEUC False Facts respectfully, is one of those little things that can make a big difference.

Now the word-of-mouth epidemic can start, once people recognize the insidious power of the False Facts, which are being use by at least two exceptional, intelligent and important individuals, to obstruct progress. Now all stakeholders will be able to learn how Demand Integration brings the clarity and direction of the EWPC market architecture and design paradigm shift.

Steve Covey in his book “Seven Habits of Highly Effective People,” has described three modes of communications (trust and cooperation): 1st level (low trust, low cooperation), Defensive (Win/Lose or Lose/Win) mode; 2nd level, Respectful (Compromise) mode; and 3rd level (high trust, high cooperation), Synergistic (Win/Win) mode. When the other parties are in a defensive mode, or in very polite respectful mode, the solution to the systemic crisis of the electricity industry is delayed as the status quo remains in force.

The generative dialogue is the synergistic mode, when sometimes a new whole emerges, being greater than the sum of its parts. During the last two years and a half, many people have helped EWPC emerge. During the course of that time lapse, an alternative meter centered “market” (physical) proposition has been defended by Len Gould on the first, second and third level of communication. The article IMEUC False Facts, was a response to Len’s recent opinions under the article A Fresh Approach to Managing Peak Demand. Len accepted to participate in the generative dialogue in 2006, under the article Playing with Fire - The 10 Tcf/year Supply Gap -- Part I, which ended when I summirized previous post with the convincing post:

Generative dialogue synthesis:

Competition is divided in two phases: One) market vs market and Two) company vs company.

In Phase One all interested parties cooperate in the generative dialogue to select the emergent winning market. Phase Two is not part of the generative dialogue.

EWPC – an integral reform paradigm - is an open and robust emergent market architecture and design that divides the vertically integrated utility at modular interfaces. 1) Long run and short run system planning, operation and control natural monopoly functions are also kept integrated. 2) The T&D wires natural transport monopoly is kept integrated. 3) Supply - generation - natural competitive functions compete with each other 4) Demand - retail - natural competitive functions compete with each other. 5) Supply and demand – Megawatt/vars vs Negawatt/vars - compete with each other in time and space. Module 1 commitments on planning, operation and control are to be executed by the other modules.

Based on mechanistic thinking, IMEUC is one close and fractured strategy, like any other experienced deregulation efforts, that suggests retaining one of the key elements of retail business model innovations – the metering function – as a monopoly. The intermediary Market Manager is designed to contract base load units based on long run forecasting under uncertainty, arising from improper market signals.

IMEUC as a switchboard intermediary is just one of the many potential business models. It is only through execution – high dynamic complexity – of the development of the resources on the demand side that the potential will be realized. Other potential business model innovations won’t be able to be developed if IMEUC is unfairly and prematurely selected, by giving it market power over other intermediaries. It is no correct to assume how customers will behave – and evolve - beforehand. Instead, there is a need for a customer orientation.

While incremental costs might become negligible, sunk costs might be comparatively prohibitive for all customers. As a “right” solution, IMEUC becomes a strong barrier to emergent – high generative complexity - creative destruction. The best way to find out what the real overhead costs will be is in Phase Two with the right strategy and flawless execution under competition.

Module 1 is to take decisions for the health of the whole system as they unfold. The forward looking statement suggested to Prof. Banks and Mr. Carson on the generative dialogue goes in that direction. The Market Manager does not have such integral perspective.

I want to keep my opinions on Phase One. I am open to review the general open market design and architecture, if there are unfair elements associated with it. I have “listen” carefully to Len’s opinions and perceive that his interests, by going farther than necessary, go well beyond Phase One. Other parties representative of the larger whole – high social complexity - with different interests – regulators, generation of differing kinds, wholesale, retail, transmission, distribution, fuel supply, manufacturers of systems and equipments, etc. - are invited to participate in the generative dialogue.

© 2006. José Antonio Vanderhorst-Silverio, PhD.

Len ended that generative dialogue participation retracting (since then, he has retracted many, many other times) with:

Jose Antonio: Your cogent discussion raises some issues with IMEUC which I hope to clarify in a third article in the series here on EnergyPulse in perhaps a couple of weeks, provided I can submit it up to the high standards of the editorial staff. Thank you.”

The promised article, which he could have written in EnergyBlogs, never came. But that article was, since then, no longer needed, as EWPC emerged as early as the beginning of 2007, as the winner of the market vs. market competition.

As an exceptional discussant, apparently defending the California utilities, Don Giegler has been against the idea or the possibility of a generative dialogue (synergistic trust and cooperation). The most insidious of all of the False Facts is The BIG California LIE (an EWPC article written to Don), under which the whole world was convinced that Retail Competition (which at the time seemed a little thing) is not one of the three essential requirements of electricity markets for the third industrial revolution.

In response to that highly insidious False Fact, the summary of the EWPC article High Leverage Shake-Up in California suggests that “California has a great opportunity to repair the damages of the BIG California LIE to the world. The CPUC can do it by introducing a high leverage shake-up of the power industry that results in a win-win proposition for every stakeholder, becoming the example of indiscriminate access of electricity for the third industrial revolution.”

Don inquired into the article IMEUC False Facts. I have changed his four inquiries as True Facts and presented the corresponding response under each one.

True Fact 1.) "...system crashes are mitigated by a least cost mix of supply and demand risk management tools that may be applied in time and space..." and "...DR is the key to segmentation of customers supply security..."

In the vertically integrated utilities paradigm, "...system crashes are mitigated by a least cost mix of supply [side] risk management tools that [are] applied in time and space..." Such mix is the result of power system expansion planning and executed by system security operations planning. In order to forgo and/or delay investments in generation, transmission and distribution, demand side risk management tools are added to the mix. As customers reliability needs vary over a wide range, segmentation can be part of business model innovations by dividing the range into market segments, according to the value added, just as it is done by marketers everywhere. Customers will select which part of their demand is able to respond in a given market segment.

True Fact 2.)"...my assumption the default service will have essentially all the free-riders subsidized by peers..."

The support is in the EWPC article No Need for Regulated Price Caps - II , where I wrote the following:

In practice, however, there is need for a transition from today’s situation to EWPC. As there will be no incumbent retailers, 2GRs will need to carry the default service customers during the time limited transition period.

Nat Treadway, wrote in the article The Dawn of Electricity Competition: Efficient Prices and Efficient Choices that, “The design of default service (also called basic or standard service or provider of last resort) was identified as the most significant determinant of the success of retail electricity choice. A poorly designed default service undermines competition. If default service is designed to satisfy all residential consumers’ needs, or if it bundles and spreads risks among all consumers, or if it is priced below market, then it is unlikely that new retail electricity providers will enter the market. With few choices, consumers are left with only the poorly designed default service, and with limited benefit.”

During such a transition, 2GRs will have both types of customers (as there is no incumbent retailer), with increasing development of the resources of the demand side, as the default service will have essentially all the “free riders” being subsidized by peers. Hence, a systemic incentive to non-free riders will result, as they get the pressure for efficient prices and efficient choices. So, if only one or two [there should be many] retailers are truly competitive (2GRs), they will end up with the whole market.

(Emergent) True Fact 3.)"...essential business requirements as the breakthrough tipping point to promote leadership..."

Demand Integration is the key to the tipping point. I write that it is emergent, because in the future, people will say that they had though of it. See the article EWPC Leadership (w/o links), where I wrote:

The essence of EWPC is "the generic market model paradigm: Retail Competition, Active Demand, and Ultraquality Transportation," which includes wholesale competition, as 2GRs link both markets.

Such essence is the basis for a breakthrough, which is the tipping point that shifts paradigms permanently. The breakthrough is … the epitome of the 'AHHA!' moment bringing absolute clarity and direction… that now … comes to the power industry for both the open (retail and wholesale) market (with competitive incentives for the development of business model innovations) and the closed (transportation) market (the new utility, with a responsibility to transport).

The Old utilities paradigm (with a responsibility to serve) comes from demand as an externality (inactive demand and no competition) and has already served its purpose with its obsolete business model of winning rate case to the regulator. Each incremental extension of the Old paradigm results in unnecessary accumulated costs paid by customers and "earned" by utilities.

EWPC comes from - a different place altogether - Demand Integration (which comes from Active Demand and Retail Competition) to power system planning, operation and control by 2GRs, resulting in large coordination savings for society as a whole,
both in customers' multiyear investments and operation costs. Letting every customer for himself is a weakness in Gridwise (updated on March 27, 2008, as the Gridwise Architectural Council) that is filled by EWPC.

True Fact 4.)"...agents have to be able to negotiate around issues of scarcity and value..."

This true fact complements the value added by customer segmentation according to the demand response to scarcity. The true fact can be explained by the idea of EWPC “rational rationing,” as can be seen in a comment under the EWPC article The Good, the Bad and the Ugly, as a reponse to Don post that said: "So much for "generative dialogue"! It must be in the throes of "rational rationing".

On the need of rational rationing that competitive 2GRs will be able handle as they replace the regulated enterprise side of the utilities, Warren Causey wrote that "Here are some examples of customer concerns utilities and their CISs will have to deal with in the future (which they are not able to do, just as it is not possible to teach new tricks to an old dog) : . .. · As electricity becomes more scarce--something that is predicted by virtually everyone knowledgeable about the state of the industry--residential customers are going to have to deal with reduced supplies... As the shortages become more acute as carbon constraints continue to drive out the 50% of U.S. electricity currently generated by coal, demand response likely will have to become mandatory. When it is mandatory, it becomes rationing. . . · As demand response/rationing takes hold, utilities are going to have to know a lot more about the lifestyles of their customers. To see the complete article Customer care is about to become much more complex for utilities. Current systems can’t handle it.

IMEUC False Facts

Based on the article “The Power of False Facts,” readers need to be very aware of that power while reading those False Facts to be able to rate them as false. The following False Facts need to be well understood: 1) IMEUC doesn’t need to satisfy the Ultraquality Transportation requirement. 2) EWPC has a Free Rider Problem; no answers are given in mentioned article. 3) EWPC has no answers to 11 questions. 4) IMEUC operates on the Economic Level.

IMEUC False Facts

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

First posted in the GMH Blog, on March 28th, 2008.

Copyright © 2008 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 article is not written to attack Len Gould, nor his friends, which are very intelligent and important persons. It aims to their opinions, about some False Facts they apparently believe in and are entitled to keep them. Every time Len retracts, as a result of a False Fact becoming evident, he goes on usually with the help from friends.

I have taken a brief article “The Power of False Facts,” from the book Powerful Times (see page 41) by Eamonn Kelly. The source of the article is: Sharon Begley, “People Believe a ‘Fact’ That Fits Their Views Even if it’s Clearly False.” The Wall Street Journal, February 4, 2005. Permissions to reprint this and other quotes in earlier EWPC articles will be considered later on for the publication of the EWPC Book.

“What we remember depends on what we believe…. ‘People build mental models,’ explains Stephan Lewandowsky, a psychology professor at the University of Western Australia, Crowley. ‘By the time they receive a retraction, the original misinformation has already become an integral part of that mental model, or worldview, and disregarding it would leave the worldview a shambles.’ Therefore, he and his colleagues conclude in their paper, ‘People continue to rely on misinformation even if they demonstrably remember and understand a subsequent retraction’…. Even many of those who remember a retraction still rated the original claim as true.”

Readers need to be very careful to the insidious power while reading those False Facts to be able to rate them as false. Since the end of 2005, Len has retracted many times from False Facts that were found out. Now I will restrict myself only to four False Facts under this specific article.

A successful transformation of the power industry needs to be based on three essential requirements that I have uncovered: 1st) Active Demand, 2nd) Retail Competition and 3) Ultraquality Transportation. EWPC has emerged to satisfy all three requirements.

I used to say that the first and second requirements lead to Demand Integration to power system planning, operation and control on the open (retail and wholesale) market value chain. The third requirement leads to the transportation utility under a regulatory compact with a responsibility to transport is also a needed for Demand Integration, as can be seen next.

False Fact #1. IMEUC doesn’t need to satisfy the Ultraquality Transportation requirement. Len writes “Level of Reliability should be simply a market factor purchased as needed just like Level of Power etc.,” to justify the lack of Ultraquality transportation of IMEUC. My response was that ““Demand Integration is based on the fact [the third requirement emerges] that reliability has two sides: ‘On one side, system crashes are mitigated by a least cost mix of supply and demand risk management tools that may be applied in time and space [that is the Ultraquality Transportation requiremen]t. On the other, DR is the key to the segmentation of customers [based on the Retail Competition] supply security (a kind of insurance).’” After that, Bob came to the rescue by changing the subject. Readers should not forget that fact.

False Fact #2: EWPC has a Free Rider Problem; no answers are given in mentioned article. Len wrote “As an example of above. I invite readers to read the blog entry Jose Antonio refers to above, and evaluate in what way it constitutes an answer to my "Free Rider Problem in EWPC" question (NOT), at No Need for Regulated Price Caps - II .” As the next sequence of posts after that showed, it is very clear that the my “assumption ‘the default service will have essentially all the free riders being subsidized by peers.’" was available, right where I said, in the link of just mentioned EWPC article. Once gain, Bob changes the subject. But the lie goes on. He later tries to continue discussing the issue of free riding, but the real issue the False Fact.

False Fact #3: EWPC has no answers to 11 questions. Len writes for the third (not the second) time “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:…” I showed a copy of each of the answers, to identify the False Fact that I had answered those questions earlier. Len takes those answers and ads new questions, but that was not the issue at hand, but a False Fact. Todd comes to help Len with an “abridge version” of the old responses – the evidence of the False Fact - as my explanation of EWPC, which in fact were on the link that I referred in my response to Ken as “Your good intentions are no longer necessary. The EWPC article EWPC Leadership (w/o links) has a better approach: that of essential business requirements, as the breakthrough tipping point to promote leadership.”

False Fact #4: IMEUC operates on the Economic Level. As “Many on the GridWise side start out with a control orientation, a continuation of the load limiting approaches most recently in the news in California’s short-lived thermostat proposals. As they work the problem, and become more aware of the complexity and diversity of the problem, they inevitably migrate more toward an agent-based approach. (Someone, I think it was Apperson Johnson, once said, “an agent is an object that can say no!”). … Eventually these agents have to be able to negotiate around the issues of scarcity and value; and of the desires of their owners. Such complex negotiations cannot be handled at the control level, but only at the economic level. This will push things toward the EWPC model.” Todd came to help Len and deviate the False Fact of IMEUC. BTW Todd is now silent and Bob followed him. In 2005 Len explained that his approach was a “prices to devices,” when he wrote “Jose: You're close…”

It is very important to understand that “Prices to Devices” has potential for being a market segment, but NO for the whole market.

eMail Enviado: La Hora de la Tierra es Mañana Sábado 29

Este eMail es dedicado al apreciado, distinguido y notable Dr. Rafael Molina Morillo, en compensación por lo negativo que pudiese haber sido mi artículo No hay Apagón de 5 Minutos Hoy sin que obrara en mi ninguna mala intención.

Estimados líderes, lectores y público en general,

El 29 de marzo del 2008, de 8 a 9 de la noche, millones de personas alrededor del mundo se unirán para “apagar las luces” por el lapso de una hora para demostrar su preocupación sobre el cambio climático.

Podemos promover mucho esta iniciativa y tomar parte de ella apagando las luces y computadoras, cada quien en su hora local y así combatir de manera directa el cambio climático.

Los que se quieran sumar a la campaña pueden reenviar este mensaje.

En un momento histórico en que se insiste en que el petróleo va a llegar a 200 dólares el barril y cuando ya existe un amplio consenso del potencial impacto de los combustibles fósiles en el cambio climático se estará celebrando mañana La Hora de la Tierra para que los ciudadanos de la aldea global tomen conciencia de esa posible catástrofe.

Pero, hay algo práctico, importante y urgente que se puede hacer también. Reformar los sectores eléctricos para desacoplar eficazmente el incentivo perverso de que las rentas de las empresas eléctricas suben con las ventas de electricidad.

Es precisamente en ese desacoplamiento, por medio del desarrollo de los recursos del lado de la demanda que descansa la electricidad sin control de precios (EWPC, por sus siglas en inglés). Uno de los más importantes desarrollos es la inversión coordinada en la eficiencia energética que puede facilitar en los próximos cuatro años una reducción del 25% del consumo de petróleo (ver email enviado abajo).

En el último artículo EWPC Leadership (w/o links) que publiqué en EnergyBlogs.com se resume y traduce de la forma siguiente: “Esta es una síntesis (sin ningún enlace) de la apertura de la brecha EWPC, la cual trae claridad absoluta y dirección para habilitar un cambio cultural a la industria eléctrica de la tercera revolución industrial. La Integración de la demanda por los 2GRs (detallistas de segunda generación) resultará en grandes ahorros de coordinación para la sociedad, tanto en las inversiones multianuales y en los costos de operación de los clientes. Dejar a los clientes a sálvese quien pueda es una debilidad … que es suplida por la EWPC.

Esperando la buena acogida de esta propuesta.

Muy atentamente,

José Antonio Vanderhorst-Silverio, Ph.D.
Consultor Sistémico: Electricidad
Promotor de la EWPC y del GMH

P.D.: Se sugiere dar hoy y mañana la más amplia divulgación de este mensaje. Gracias!

From: José Antonio Vanderhorst-Silverio, PhD

Sent: Saturday, November 17, 2007 4:56 PM

To: 'Rsegura’; 'Francisco Mendez'; 'Rolando Gonzalez Bunster'; 'Manuel F. Perez Dubuc'; 'Lucio Monari'; 'Gilberto Chona '; 'Temístocles Montás'; 'Moisés Pineda'; 'Roberto Saladín '; 'Aliona Cebotari Ouanes'; 'J Portocarreiro '; 'Andres van der Horst Alvarez'; 'Jaime Moreno (CNC)'; 'René Villarreal '

Subject: Reducir 25% a la Factura Petrolera en 4 años

Estimados líderes, lectores y público en general,

Reducir a las tres cuartas partes la factura petrolera en los próximos 4 años es un mensaje de muy alta significación para el futuro del país.

Para lograr esa gran meta, similar a la de Kennedy de poner un hombre en la luna en una década, es absolutamente necesario un cambio estructural, el cual puede satisfacer la aparente disyuntiva en “El Discurso del Ahorro,” que aparece en la columna Espejo de Papel, de Diario Libre, y que expresa: “Los dominicanos necesitamos gastar petróleo para impulsar el crecimiento y ahorrar petróleo para sostenerlo. La disyuntiva hace que el problema de los combustibles sea de difícil solución…”

El sector más importante para alcanzar una meta como esa es el sector eléctrico. Una propuesta para alcanzarla aparece en la nota Una Crítica Eléctrica al Discurso Presidencial que se complementa en el artículo To EEI: “Let's Ban Regulation,” Starting in Ohio, aunque la idea subyacente sería que empezáramos lo antes posible en el país.

Evidentemente y por ejemplo, esta es una nota de esperanza, como la planteada por el presidente de la Asociación de Comerciantes e Industriales de Santiago (ver Empresarios apoyan con reservas el plan de ahorro), que no obstante se “quejó de que la disposición orientada a impulsar el desarrollo del gas natural en el transporte en general, no tomó en cuenta la actividad industrial y comercial nacional, y es precisamente ese sector que hace uso continuo de dicho combustible en las plantas de generación y de emergencia.”

Esperando la buena acogida de esta propuesta.

Muy atentamente,

José Antonio Vanderhorst-Silverio, Ph.D.
Consultor Sistémico: Electricidad
Promotor de la EWPC y del GMH

P.D.: Se sugiere dar la más amplia divulgación de este mensaje. Gracias!

EWPC Leadership (w/o links)

This is a synthesis (without any links) of the EWPC breakthrough, which brings absolute clarity and direction to enable a cultural shift to the power industry of the third industrial revolution. Demand Integration by 2GRs result in large coordination savings for society as a whole, both in customers' multiyear investments and operation costs. Letting every customer for himself is a weakness in Gridwise that is filled by EWPC.

EWPC Leadership (w/o links)

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

First posted in the GMH Blog, on March 26st, 2008.

Copyright © 2008 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.

Electricity is a very complex subject, until we uncover its essence. The essence enables the personal side of leadership, which in turns enables a culture for the third industrial revolution to support the strategic side of leadership. Peter Koestenbaum wrote that “Paradoxical as it may seem, the personal [side of leadership] precedes the strategic; good strategy is created by a brilliant mind and implemented by a strong character, not the other way around.”

The articles in the Electricity Without Price Controls (EWPC) Blog can be though of as a holographic image from a different perspective of the whole EWPC market architecture and design paradigm shift. As Koestenbaum suggests in his Leadership Diamond Toolbox, “you do not sell a product or service; you help customers buy leadership in their affairs.”

EWPC emerged for the world of the third industrial revolution, where demand is no longer an externality and there is a need for a power system that should operate at ultraquality, with the help of demand response, in a wholesale, retail, customer value chain.

The essence of EWPC is "the generic market model paradigm: Retail Competition, Active Demand, and Ultraquality Transportation," which includes wholesale competition, as 2GRs link both markets.

Such essence is the basis for a breakthrough, which is the tipping point that shifts paradigms permanently. The breakthrough is … the epitome of the 'AHHA!' moment bringing absolute clarity and direction… that now … comes to the power industry for both the open (retail and wholesale) market (with competitive incentives for the development of business model innovations) and the closed (transportation) market (the new utility, with a responsibility to transport).

The Old utilities paradigm (with a responsibility to serve) comes from demand as an externality (inactive demand and no competition) and has already served its purpose with its obsolete business model of winning rate case to the regulator. Each incremental extension of the Old paradigm results in unnecessary accumulated costs paid by customers and "earned" by utilities.

EWPC comes from - a different place altogether - Demand Integration (which comes from Active Demand and Retail Competition) to power system planning, operation and control by 2GRs, resulting in large coordination savings for society as a whole, both in customers' multiyear investments and operation costs. Letting every customer for himself is a weakness in Gridwise that is filled by EWPC.

EWPC is not just about the need for new data or new systems (the strategic side of leadership), but first and foremost for new health and fresh determination (the personal side of leadership).

Reference: Peter Koestenbaum, “Leadership – The Inner Side of Greatness”

Missing From Gridwise

Missing from the GridWise approach is the need to restructure as soon as possible the power industry to eliminate the barriers imposed by "the lumbering old style utilities companies" and to manage the physical systemic risks of power system failure. The EWPC market architecture and design should be the End-State of the power industry for quite some time to enable the mentioned approach.

Missing From Gridwise

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

First posted in the GMH Blog, on March 21st, 2008.

Copyright © 2008 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.

The NewDaedalus article “Do you choose Incrementalism or Markets?” starts with “The Grid doesn’t get better because we keep on relying on central planning to make it better. Any efforts developed exclusively by the current stakeholders and run through the utilities commissions will predictable and incrementalist. There is one (at least) that is not. The GridWise Architectural Council is trying to create open interoperable protocols to enable vibrant markets to develop, ones that are not driven by or yoked to the lumbering old style utilities companies.”

The creation of open interoperable protocols is great progress to the future of the power industry. However, the first sentence of the above paragraph jumps into an unnecessary conclusion, because the power industry Grid need to be better understood. Once understood, the elements to replace as soon as possible the old style utilities companies will be enabled to eliminate most barriers to progress that will enable breakthroughs instead of incrementalism.

As explained in the EWPC article Free Market and Central Planning, Under R1E2, the utility Grid needs to be separated into the utility Grid and the utility Enterprise. The utility Grid should keep relying on central planning to make it better as depicted in the EWPC article The Smart Grid Transportation Utility.

At the same time, the utility Enterprise needs to be replaced by an open market technology neutral Second Generation Retailers - 2GRs under the breakthrough EWPC market architecture and design. The new EWPC stakeholders will enable innovations as suggested in the EWPC article Shrinking the Regulator’s Jobs, whose summary says:

“There is a need for a shared vision to restructure the power industry, shrinking regulators jobs to price controls of the remaining transportation electric utilities and letting end-customers make their own investments and purchasing decisions of electricity. The shared vision needs to go to the public opinion so that high level political decisions are enabled to restructure the electricity industry and shrinking regulators jobs.”

From the perspective of power system planning, operation and control it is going to a long transition to arrive to a truly competitive and commercial service that the NewDaedalus article states: “Live power pricing will drive storage development better than any number of central government programs; better storage will make responsiveness to price signals easier. From there, every means of alternate energy, no matter how unreliable, become another way to charge the storage. Sites will have multiple generation strategies depending upon their location, winds, sun coverage, thermal posture…”.

To bridge the long transition, that will shift the direction of power on the transportation system, what needs to be added to the GridWise approach is found in the EWPC article Customer Reliability and System Reliability. Similar to bank runs that fuel systemic risks, live power pricing will lead, when less expected, to power system systemic risks in the long run (system adequacy) and the short run (system security). The economics of electricity service will still depend on central station generation for a long while. That is why I claim that EWPC is the market architecture and design is the End-State of the power industry for quite some time.

Reference and context: A Power Grid Smartens Up, by Peter Fairley, MIT Technology Review.

Abramos Brecha Progreso con DR-CAFTA

El Listín Diario lanzó una Alerta Económica el 18 de marzo del 2008, sugiriendo que el “gobierno y la oposición, deberían enfrascarse conjuntamente en la organización de un plan que prevalezca más allá del proceso electoral o de la vigencia de un gobierno.” El GMH ha llegado a la conclusión de que el sector privado del país y el de Centroamérica están en mucha mejor capacidad que los políticos para llenar ese cometido. Lo que hace falta es abrir una brecha (“breakthrough”).

Paulette L. Stenzel, Profesora de Leyes de Negocio Internacional de la Universidad del Estado de Michigan, en su artículo “Porqué el DR-CAFTA Enfrenta Oposición de los ciudadanos de Centroamérica y la República Dominicana,” concluye que “las provisiones del DR-CAFTA simplemente no proveen salarios llevaderos, prácticas de trabajo justas, ni la protección ambiental necesaria. En este momento de la historia, solo la acción voluntaria de las compañías que operan en los países del DR-CAFTA llevará a prácticas justas de trabajo, salarios llevaderos y prácticas ambientales sanas.”

Para que las compañías actúen de manera voluntaria, es necesario que las mismas abran una brecha, porque se convencen que el mundo está en una transición a la tercera revolución industrial. Una brecha, de acuerdo a Donna Karlin, “es muy diferente que hacer cambios pequeños… que pueden ser o no sostenibles; es el punto clave que cambia paradigmas permanentemente. Cambia la forma en que uno procesa los pensamientos, la forma en que enfrenta algo e interactúa, trata los asuntos, dirige a los otros, … es todo eso. Nunca volverá a ser el mismo o regresará porque la forma en que piensa vendrá de un lugar totalmente diferente.

El mejor ejemplo está en las compañías del sector eléctrico de DR-CAFTA, que tienen en la Electricidad Sin Control de Precios (EWPC, por sus siglas en inglés) una magnifica oportunidad para actuar de manera voluntaria. El paradigma de las empresas eléctricas descansa en empresas distribuidoras en que la demanda es una exterioridad (demanda inactiva y sin competencia). Estamos siguiendo un proceso lento y muy costoso para rescatar las distribuidoras que muy pronto desaparecerán.

La EWPC viene de un lugar totalmente diferente, la Integración de la Demanda (que a su vez viene de la Demanda Activa y la Competencia al Detalle) a la planificación, operación y control del sistema interconectado. Es en esa brecha del progreso en que están garantizados los grandes beneficios en este momento de la historia para todos para aprovechar al máximo el DR-CAFTA. Dado que la electricidad es una pieza clave de la competitividad sistémica, estaremos cada vez más en capacidad de incrementar nuestras exportaciones de bienes y servicios a los Estados Unidos.

Ed. Listín Diario - Alerta Económica

Nuestro país, y en especial nuestras autoridades, harían bien en desembarazarse de las francachelas de la campaña política y comenzar a adoptar previsiones ante la situación económica mundial.

Las principales autoridades del Fondo Monetario Internacional (FMI) y de la Organización para la Cooperación y el Desarrollo Económico (OCDE) ayer lanzaron un alerta desde París al resto del planeta sobre la profundización de la crisis económica de Estados Unidos que se está extendiendo a todas las naciones. El mensaje fue simple: La crisis se incrementará, se extenderá y afectará a todos.

Ante la denuncia de agravamiento de la situación en todo el mundo, nuestros principales dirigentes, en el gobierno y la oposición, deberían enfrascarse conjuntamente en la organización de un plan que prevalezca más allá del proceso electoral o de la vigencia de un gobierno.

Mientras parece que tomamos los asuntos con bastante desparpajo en estos meses electorales, las grandes economías del mundo han comenzado a adoptar medidas de previsión para recibir el impacto.

Desde que se inició la crisis de las hipotecas en Estados Unidos se han producido altibajos en los mercados mundiales, pero la crisis financiera de importantes bancos y la quiebra de uno de los más grandes en la pasada semana, produjeron un agravamiento y gran impacto en todo el mundo.

Hay que descartar que la economía dominicana estará inmune a esas sacudidas. Es necesario comenzar a adoptar medidas preventivas de ahorro real de recursos, reducción en el consumo y resguardar nuestros sistemas productivos, principalmente de alimentos.

De continuar las presiones en los mercados, las consecuencias más graves sobre nuestro país podrían estar presentándose en los momentos más duros de la presente campaña política.

Editorial original Alerta económica

Customer Reliability and System Reliability

Demand Integration is based on the fact that reliability has two sides: “On one side, system crashes are mitigated by a least cost mix of supply and demand risk management tools that may be applied in time and space. On the other, DR is the key to the segmentation of customers supply security (a kind of insurance).”

Customer Reliability and System Reliability

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

First posted in the GMH Blog, on March 17th, 2008.

Copyright © 2008 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.

Demand Response came to public awareness when several large and very costly system blackouts disrupted the U.S., Italy, and other industrialized countries. Those countries have a need for a synchronized power system market architecture and design that minimizes the likelihood of domino like cascading failures. The essential requirements of Ultraquality Transportation and Demand Integration to power system planning, operations and control are key ingredients for significantly reducing blackout disruptive powers, which are not addressed by present utility centered paradigms and IMEUC as shown in Power Markets Essential Requirements and Power Markets Essential Requirements - II, which is summarized by the paragraph:

Mission accomplished!!! [These] are comments received and responded under the article Power Markets Essential Requirements. Readers will find that the two assertions questioned, are certainly true: IMEUC has NO Ultraquality, and NO Demand Integration to power system planning, operation and control. Ultraquality is a system characteristic. The incentive system is spelled out clearly. While IMEUC is technology dependent, EWPC is technology neutral. A standard meter is needed for 2GR to develop their business model innovations. Nothing else is needed to reconfirm the winner in the market vs. market competition, this time based on the essential requirements: Retail Competition with Active Demand and Ultraquality Transportation.

Under EWPC the “Level of [customer] Reliability [is, not just should be,] simply a market factor purchased as needed just like Level of Power etc.” In my [seminal], and only article on EnergyPulse, An Alternative Business Case for Demand Response, I stated: “The business case of Demand Response (DR) is enhanced under free markets, innovation, and probabilistic (risk) mindsets. DR is poised to be the demand side risk management tool to complement the traditional "LOLP" supply side risk management tool. There are two sides on the DR coin. On one side, system crashes are mitigated by a least cost mix of supply and demand risk management tools that may be applied in time and space. On the other, DR is the key to the segmentation of customers supply security (a kind of insurance). Because of its fine grain nature, DR can help mitigate delays (intended or not) of lumpy investments in generation, transmission, and distribution.”

Transportation Ultraquality, a MUST that IMEUC lack, includes a process to perform system adequacy (developing long run systemic risk management) and system security (executing short run systemic risk management) by developing/executing “a least cost mix of supply and demand risk management tools that may be applied in time and space” to implement Demand Integration to power system planning, operation and control.

Reference and context: A Fresh Approach to Managing Peak Demand, by Gary Paul, VP, Outsourcing Business Development, Capgemini

Well Beyond Low Reserves Managing

NONE of today’s utilities should be allowed to take as inevitable a bare bones approach to increase efficiency, introducing a high leverage shake-up to the industry. Unlike traditional utilities, competitive Second Generation Retailers will have “end-to-end responsibility and be willing to have a stake in delivering results… ” to end-customers.

Well Beyond Low Reserves Managing

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

First posted in the GMH Blog, on March 17th, 2008.

Copyright © 2008 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.

Under EWPC, NONE of the “… utilities will … take a bare bones approach…” that Capgemini sees as inevitable. Those utilities, which like dogs are unable to learn new tricks, insist in keeping a “bares bone” obsolete non competitive business model of winning rate cases to the regulator. That is an unnecessary risk taken by governments and the power industry that is solved under competition by the EWPC market architecture and design paradigm shift, under a NO jurisdiction left behind.

EWPC Retail Competition, to be done by Second Generation Retailers - 2GRs, involve business model innovations, which go well beyond managing peak demand or low generation, that reduces reserves, anytime, anywhere, by introducing everywhere a high leverage shake-up. For example, a High Leverage Shake-Up in California (please hit the link here and elsewhere to get to the corresponding article) is needed to repair the immense damage done to the worldwide power industry with the The BIG California LIE. The shake-up, however, can be initiated in wherever jurisdiction that wants to take the leadership that California has been unable to show so far.

In the article “COMPETITION RULES! TALK AMONGST YOURSELVES... ,” Martin Rosenberg quotes” four articulate CEOs”:

WE FACE HUGE, COMPLEX GLOBAL ENERGY CHALLENGES. COMPETITION UNLEASHES ALL THE POSSIBILITIES TO HELP SOLVE THESE CHALLENGES FOR OUR CUSTOMERS.

Jim Burke, CEO, TXU Energy

CUSTOMER FIRES ENERGY COMPANY.

Lois Hedge-Peth, COO, Direct Energy

COMPETITION DRIVES INNOVATION AND LOWER PRICES IN BOTH WHOLESALE AND RETAIL ENERGY MARKETS. PERVASIVE COMPETITION WILL ALLOW OUR INDUSTRY TO EFFECTIVELY ADDRESS THE MAJOR ISSUES INCLUDING CLIMATE CHANGE, NEED FOR NEW GENERATION INVESTMENTS AND GRID INVESTMENTS.

Michael Kagan, President, Constellation NewEnergy

THE POWER INDUSTRY HAS BY THE THE LOWEST CAPACITY UTILITIZATION RATE AMONG CAPITAL-INTENSIVE BUSINESSES, AND ONLY COMPETITIVE RETAIL MARKETS CAN END MORE THAN A CENTURY OF INEFFICIENCY.

Mark Jacobs, CEO, Reliant Energy

Capgemini defines “the electrical energy market” as that market that includes “… generators, system operators, transmission and distribution service providers, retailers, energy service companies, consumers, regulators and legislators…”

In response to another Capgemini article (see The Smart Grid Transportation Utility), I concluded that “Dramatic and radical change is coming to the electric utility industry as the utility itself evolves to the smart transportation grid, under a complete rethinking of the electric industry. Front and back office generation and customer facing activities become free market activities under prudential regulations.”

The system operators and the transmission and distribution service providers become the integrated (T&D) transportation utility under a compact with a responsibility of transport, instead of a responsibility to serve, in exchange for a regulated price control tolls payment. The “ability to earn a return on their investments in” the transportation infrastructure under traditional regulation is without any doubt. As “[T]he current state of the electrical infrastructure in North America is not sustainable…,” the paradigm shift to EWPC will enable a sustainable smart grid transportation utility electrical infrastructure in America and the rest of the world.

Under EWPC, the investments necessary for Demand Integration (no just smart metering) will be coordinated by Second Generation Retailers. The broader set of benefits of aggregating retail demand to produce wholesale demand, refining grid planning, and improving grid monitoring and control, are part of the Demand Integration processes to power system planning, operation and control.

Instead of an artificial decoupling of the utility grid and the utility enterprise, like that under structural separation of the grid and the enterprise that lead to a Complex and Ugly System (see The Good, the Bad and the Ugly), real decoupling is produced by having distribution integrated with transmission in the transportation utility compact leading to the Good and Simple System.

As they take on today’s utilities enterprise activities on a competitive basis, 2GRs integrate the functions of retailers, load serving entities, and aggregators, increasing the efficiency and effectiveness of the whole system. Unlike utilities, competitive 2GRs will have “end-to-end responsibility and be willing to have a stake in delivering results… ” to end-customers. So, paraphrasing the author, “… [2GRs will] look beyond the technology into the opportunities and incentives the technology unlocks. Indeed, [2Grs will] take a more comprehensive view of smart metering. More important than the technology itself is the role it plays in enabling system operators, 2GRs and customers to … improve market efficiency.” 2GRs “should seek out partners who will work collaboratively with them to ensure the success…” of their business models.

Reference and context: A Fresh Approach to Managing Peak Demand, by Gary Paul, VP, Outsourcing Business Development, Capgemini

The Good, the Bad and the Ugly II

This follows up the comments on the EWPC article The Good, the Bad and the Ugly. I certainly agree with Warren Causey that the idea of demand response as a condition of service seems to be emerging. EWPC is about ending the rampant value destruction to generate large value creation.

Don,

Be a good sport. As you will see below, this is "a fascinating time-period in which to live."

EWPC is no about the left or the right. It’s about ending the rampant value destruction originated in the Old System, the Bad System, and even more the Ugly System. The Good EWPC System is about developing the resources of the demand side for innovation to flourish and generate a lot of value creation in the benefit of ALL stakeholders.

I certainly agree with Warren Causey that the idea on mandatory demand response seems to be emerging. As part of the Sierra Energy Group, his idea is to be taken seriously as he is in close contact with the private sector of the industry. It used to be called earlier in California as “demand response as a condition of service.” I don’t see how that has anything to do with left win. I think it has ALL to do with Law of the Situation: the utilities don’t understand.

This is what Warren Causey also wrote in the post All the issues crux of the matter :

With regard to good ideas dying at the utility/commission staff interfaces, I don’t disagree at all. In fact, I consider that as proof of the argument in my original post, and as both the crux of the issue and the fly in the ointment of Dr. Silverio’s, and other bloggers’, restructuring proposals. My educational training actually is in history and that’s why I consider this a fascinating time-period in which to live.

Over the last couple of generations, the U.S. has become increasingly socialist (regardless of the party in power) and people increasingly expect the government regulate everything and solve every problem. The issue with that is that government bureaucracy (and state-controlled enterprises are extensions of that bureaucracy) is inherently the worst possible way to solve any problem. You can ask the Russians what a long, slow dive into an empty swimming pool feels like. Of course don’t pay to much attention to what they say because now they seem intent on climbing, dazed, back up onto the board and trying it again.

When you introduce government planning into any operation at any level of government (local planning commissions and their interventions into private property are a nightmare) and remove or distort economic incentives, you produce a horse designed by a committee—it looks a lot like a camel. Add politics (most state regulators are elected and national politicians’ raison d’etre is to get elected regardless of the consequences) and the possibility of allowing free markets to work out problems via trial-and-error disappears.

During so-called “deregulation,” not one regulator or one “staff,” which by Mr. Pullin’s description constitutes the bureaucracy, disappeared. Don’t blame the staffs, they’re just doing what bureaucrats do!


The following is taken from the WTO Website:

Virtually all decisions in the WTO are taken by consensus among all member countries and they are ratified by members' parliaments. . . At the heart of the system — known as the multilateral trading system — are the WTO’s agreements, negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybody’s benefit.

Fondos de Pensión, Subsidios y Ahorro de Energía

En su editorial "Preocupante" de este 15 de marzo del 2008, el Listín Diario afirma que "Ya muchos están comenzando a presentir que . . . el plan de pensiones como los servicios de salud, serán solamente un nuevo impuesto y al final todo ciudadano tendrá que pagar un servicio marginal que será el que realmente supla sus necesidades."

La Bitácora Digital del GMH cumple hoy 34 meses en su labor de divulgación y los temas de los fondos de pensión, el ahorro de energía y el de los subsidios, siguen siendo de mucha actualidad e importancia, especialmente cuando el petróleo está por las nubes y los Estados Unidos están en medio de lo que parece cada vez más una gran depresión y una crisis sistémica de su sistema financiero.

Los fondos de pensión dominicanos pueden colaborar grandemente con la solución de la crisis sistémica del sector eléctrico, para reforzarse mutuamente de forma positiva. Dado que la capitalización no genera los incentivos para que los consumidores inviertan en ahorro de energía, la profundización de la reforma debería facilitarla y en ese sentido los fondos de pensión podrían asegurar medios para incrementar grandemente su rentabilidad, al tiempo que le reducen los costos de electricidad a los propios trabajadores y permiten focalizar y reducir los subsidios a la población. Esa es la idea innovadora que evitaría que los planes de pensión se conviertan en un nuevo impuesto invirtiendo en el ahorro de energía y generando grandes beneficios en el sistema interconectado con la profundización de la reforma que no son obvios todavía.

Anteriormente, Gustavo Alba Sánchez en respuesta a la nota Una Crítica Eléctrica al Discurso Presidencial, propuso "en linea con tu aserto de que falta financiamiento para promover medidas tendentes al ahorro de energia, creo que si gran parte del financiamiento que ahora se destina a compras de automoviles se dedicara a equipos domesticos de mayores eficiencia energetica, y aun mas, a paneles solares y molinos de vientos que asociados a los ya existentes bancos de baterias e inversores en muchos hogares dominicanos, podrian constituirse en un conjunto generador de gran impacto en el ahorro de combustible fosil." Mi respuesta a su propuesta que aparece a seguidas debajo de esa nota, se sintetiza en la necesidad de la profundización de la reforma para alinear los incentivos y reducir grandemente el impacto negativo de la costosa política que ha generado el gran mercado sálvese quien pueda de soluciones individuales.

Como dije en HOY ECONOMÍA - Detengamos el hurto, "El problema nodal es estructural. Uno de los elementos estructurales defectuosos es precisamente la distribuidora y su ineficiente modelo de negocios que no está diseñado para servir al público y que invita a los subsidios del gobierno." También explique en "HOY ECONOMÍA - El hurto no es el problema que "Aunque los detallistas ofrecerán un servicio individual, en zonas de hurto elevado se hará al transformador más cercano, facilitando el proceso." Por eso, como la profundización de la reforma desarrolla un servicio individual al cliente y permite a su vez focalizar los subsidios de forma clara y transparente, y sin que sea a través de los precios de electricidad.

En ese sentido, el GMH invita al diálogo y al debate, recordando varias notas colocada en esta Bitácora Digital y resumiendo abajo algunas ideas tomadas de las estadísticas de la Asociación Internacional de Organismos de Supervisión de Fondos de Pensiones (AIOS) que aparecen en su Boletín 17.

Síntesis: Solución Energética Sistémica

Cooperativas Eléctricas, Normas Prudenciales y Fondos de Pensión

8 Notas Sobre Fondos de Pensiones

La AIOS es una entidad civil sin fines de lucro, compuesta por los organismos de supervisión de los sistemas de pensiones de capitalización individual de los siguientes países: Argentina, Bolivia, Chile, Colombia, Costa Rica, El Salvador, México, Panamá, Perú, República Dominicana y Uruguay.

Mientras el promedio de los miembros de la AIOS tienen 21.6% de sus fondos invertidos en moneda extranjera, el país al igual que El Salvador no tienen un centavo fuera. La inversión en empresas extranjeras que producen equipos de eficiencia energética que sean seleccionados por su alto potencial generaría una relación mutua de rentabilidad.

De julio 2006 a julio 2007, las utilidades en términos del patrimonio neto resultaron 7.1%, estando por debajo del promedio de los 10 países que fue de 17.1%. La rentabilidad bruta real del mismo período fue de tan solo 3.3%, lejos de Perú con 51.4%, Chile 20.8%, Argentina 18.5%, Mexico 11%, Uruguay 8.5%.

The Good, the Bad and the Ugly

The California commissioners need to shift their mindsets “to show that retail competition is not only possible, but absolutely necessary to turn the electricity industry into a vibrant value added business for all stakeholders.” That is the EWPC story that emerged from a generative dialogue, enriching the debate between the story of incumbent utilities and the story of the coalition.

The Good, the Bad and the Ugly

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

First posted in the GMH Blog, on March 13th, 2008.

Copyright © 2008 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.

The summary of the EWPC article The BIG California LIE says “The BIG LIE is that retail competition is impossible in electric markets. The implementation of a competitive retail market was the center of the debate in California. Instead of cooperating to implement it, the three big California utilities, that didn't care about the end-costumers, acted very irresponsibly. EWPC is the paradigm shift to show that retail competition is not only possible, but absolutely necessary to turn the electricity industry into a vibrant value added business for all stakeholders.”

As I said in the EWPC article High Leverage Shake-Up in California, to which this article is a follow up, I am changing the opinion of “Instead of cooperating to implement it, the three big California utilities, that didn't care about the end-costumers, acted very irresponsibly,” since the utilities were not alone, but were also prisoners of the system like FERC and the PUC.

The good news is that the PUC is trying to amend the BIG LIE, by working hard to show the whole world that retail competition is possible. But to show it, the powerful commissioners will need to change their mindsets with a paradigm shift to EWPC.

So, I agree everyone should get both sides of the story. But there are not only an advocate and an opponent, as it was to be. To make things simple, I will say that there are only three sides to the story, the Good, the Bad and the Ugly.

The EWPC’s System: the Good System emerged as a Simple System.

This is an emergent story. The aim is a high leverage systemic transformation to insert the power industry in the third industrial revolution. The leverage is to come from the development of business model innovations, including the smart grid, that mutually reinforce themselves.

The Simple System leaves the transportation grid – a natural monopoly – as the integrated transportation only utility, that takes the central stage from generation by fulfilling an ultraquality imperative. Ultraquality transportation is a characteristic of the system for high power quality and system reliability, and not a characteristic of the unreliable parts like the generating units.

The smart grid transportation utility will provide for the long-term stability needed for investments in the power system, eliminate cross-subsidies and avoid unintended consequences, by providing a fundamental systemic solution to the worldwide electric industry systemic crisis. Generation and retail become fully competitive activities in the open market. No customer gets discriminated.

My story: “EWPC is the paradigm shift to show that retail competition is not only possible, but absolutely necessary to turn the electricity industry into a vibrant value added business for all stakeholders.”

The incumbent’s System: the Bad System is an evolution of the Old System.

This story is lead by the three California utilities, which have a lot of power and have the California legislators - the status quo - in their side. The Bad System has large power customers who had already signed direct access contracts, but discriminates everybody else to remain as utility customers.

The incumbent utilities’ story: “… expanded direct access could undermine the long-term stability needed for investments in the power system, shift costs from one group of customers to another and produce unintended consequences such as the failed deregulation." I agree that it is to be expected with a symptomatic solution of the systemic crisis, resulting by remaining imprison by the generation centered stage utility system.

The Coalition System: the Ugly System is a very Complex System.

This story is led by a coalition of power companies and government agencies that now wants to revive the “direct access” part of the failed deregulation experiment. The CPUC is looking for a symptomatic solution within the boundaries of the present imprisoning system.

Competition was closed in California until 2017 when the long term contracts between the California Department of Water Resources expire. But the PUC decided to look at whether the contracts could be assigned to someone else, such as the utilities. Such symptomatic solution is bound to be a low leverage system intervention, that increases even more the complexity of the existing system.

The coalition story: “…direct access allows customers to choose rates and services that help them compete and manage risks while developing a broad power market that can provide more options and lower prices for customers.” This is not possible with structural separation as the Carnegie Mellon Electricity Industry Center working paper showed. To make it possible a paradigm shift to EWPC is needed.

Competitividad y Aranceles a Gases Invernadero

En muchas partes del mundo los sectores productivos se quejan de cómo los altos precios de electricidad afectan la competitividad. Resulta que en otros lugares en que se emplean fuentes para producir electricidad que exportan altas cantidades de gases invernadero, dándole ventajas comparativas a los sectores productivos de esos países.

Esas ventajas comparativas se pueden convertir ahora en ventajas desleales de comercio internacional si se negocian e implantan disciplinas en la OMC para imponer aranceles a la exportación de gases invernadero por parte de las empresas al medioambiente global. Las condiciones para esas disciplinas están más que dadas en la actualidad.

La unión de los países que dependen fuertemente de importaciones de petróleo, en vez de invertir en desarrollo de centrales a carbón, lo que deben hacer es constituir un grupo de presión en la OMC para facilitar el desarrollo de energías limpias sin tener que subsidiarlas. El mecanismo sería la negociación de esos aranceles, los cuales generarían grandes ingresos de exportación a las empresas que menos contaminen.

Esta idea en bruto necesariamente debe estar ligada a exportaciones cada vez menores a la atmósfera de los gases invernadero.

Al respecto, acabo de colocar una nota debajo del artículo Still Another Look at Global Warming, por Ferdinand E. Banks, que dice:

The WTO could be entrusted as the "single agency” with "the power to enact globally binding environmental legislation." Clearly the WTO disciplines should be developed with a corresponding "miracle" attitude in place.

That is in line with what I suggested earlier, that instead of a tax or emissions trading, tariff schedules on exports of GHG should be in place. Since this is no a tax, the tariffs schedules would have a range that would be negative, meaning that company export below the threshold level would generate a credit for the company. This is just an idea for discussion to suppress GHG, by changing the tariffs schedules and reducing the corresponding thresholds as time goes on.

The case for WTO disciplines has already been studied earlier, I recall around the year 2000 in the energy and environment task forces of the WTO. In fact, there is an important unfair competition issue involved, making GHG suppression a trade issue amenable to binding agreements.

Just like Demand Integration, GHG Suppression, is just another externality that can be handled by 2GRs for the electricity industry. California is once again in the process of shaking-up the power industry, as can be seen in the EWPC article High Leverage Shake-Up in California. Since California has probably invested more than any other place in the world in the suppression of GHG gases, their companies could well become competitive by the process. The coalition of California businesses promoting “direct access” should look closely into this idea.

It is very clear that in the process, transportation should undergo GHG Suppression and thus shift to electricity. That is already happening with cities mass transportation initiatives.

High Leverage Shake-Up in California

California has a great opportunity to repair the damages of the BIG California LIE to the world. The CPUC can do it by introducing a high leverage shake-up of the power industry that results in a win-win proposition for every stakeholder, becoming the example of indiscriminate access of electricity for the third industrial revolution.

High Leverage Shake-Up in California

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

First posted in the GMH Blog, on March 11th, 2008.

Copyright © 2008 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.

The California Public Utilities Commission (CPUC) has begun a process that could allow businesses and homeowners to bypass utilities and buy power on the open market. See Shake-up could be coming in electricity. The CPUC is considering a limited form of deregulation called “direct access.” This time there is hope that the intervention of the systemic electricity crisis does not result once again in a BIG California LIE.

On the EWPC article Shrinking the Regulator’s Jobs, I updated my views on the BIG California LIE and wrote that “I am now convinced that FERC, the CPUC and the three largest California utilities actions were integral part of the natural systemic response that led to the vicious circle of the mistaken efforts that has had a large impact on the delay of restructuring worldwide.” In that light, for details (please hit corresponding link of the EWPC article here and below) see Slicing the Last of the Regulated Monopolies.

However, direct access could be just another form of low leverage structural separation, which maintains in place incumbent utilities and produces well known unintended consequences. See Utilities vs. Neelie Kroes.

To become a high leverage shake-up, the process should allow all customers, without any discrimination, to buy and sell power (Watt-Vars and NegaWatts-NegaVars) in the open market. The term “bypass” is a trap; utilities should be restructured by having the CPUC consider the following:

Adopt a shared vision of the end-state of the electricity industry for quite some time, as provided by the Electricity Without Price Controls (EWPC) paradigm. See Creative Destruction of the Old Electric Paradigm.

Adopt the essential requirements of the electricity industry which are: Active Demand, Retail Competition and Ultraquality Transportation. See Power Markets Essential Requirements and Power Markets Essential Requirements - II.

Perform restructuring to provide a high leverage shake-up that minimizes unintended consequences by considering the management of systemic risks in the long run and the short run. See Another EWPC Discovery and Another EWPC Discovery II.

Redefine utilities as transportation only utilities that provide Ultraquality Transportation. See The Smart Grid Transportation Utility.

Retain price controls on the transportation utilities closed market. Shift from price controls to prudential regulations in the open market. For details see Shrinking the Regulator’s Jobs.

Introduce “direct access” under Second Generation Retailers - 2GRs with statewide Retail Competition. Later on those 2GRs should be able to operate in federal and worldwide markets as EWPC becomes the new paradigm, where the large value creation will result in a win-win proposition for every stakeholder. See The Sixth Disruptive Technology.

Another EWPC Discovery

This is the summary of the important discovery: instead of “retail competition for electric generation” as the Working Paper reads in page 3, what is needed in the third industrial revolution to reduce the risks in the power industry is Retail Competition and Active Demand (to get Demand Integration), under Ultraquality Transportation, which in turns are the three essential requirements of EWPC.

Another EWPC Discovery

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

First posted in the GMH Blog, on March 8th, 2008. Updated on March 9th, 2008.

Copyright © 2008 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.

Thanks to Don Giegler for helping me inquire further into the essential elements that are generating uncertainty in the power industry, and that are fueling higher than necessary risks as a consequence of the restructuring experiments implemented. A new and important EWPC finding is the result.

The vertical integration paradigm mindset had a large negative impact on restructuring, which we can now be reversed by making a shift to the EWPC paradigm mindset. The abstract of the Working Paper CEIC-08-03, starts with “Restructuring of the electricity industry was expected to improve the operating efficiency of electric power generators, leading to lower production costs and retail prices.” That is a great statement for the gone days of the second industrial revolution, but not for the third industrial revolution that we are experimenting.

I have written earlier that power generation should no longer be at center stage in the industry anymore. The finding help stress, very clearly indeed, that under EWPC center stage shifts to the regulated transportation utility, which will concentrate on both system adequacy and system security to enable maximum social welfare in the open retail and wholesale markets.

Under EWPC, the transportation (transmission and distribution) utility will operate in a very stable regulatory environment, with a guaranteed rate of return in the traditional sense, letting the transportation expansion plans to be developed at least costs for the whole power system (not just for transportation). Wall Street should be very happy with those companies’ investments on the smart grid. Uncertainty gone for transportation investments!

Demand Integration should be in the long run the most important source of lower costs, and/or higher value, to customers, as transaction costs of retail operations decrease, helping increase the efficiency of the whole system. It is Demand Integration coupled with higher levels of coordination in operation that will help available base load central station generation operate at higher load factors, while leading to more stable market prices. That way, Wall Street will be pleased on those investments as they operate in a relatively more certain environment.

This is the summary of the important discovery: instead of “retail competition for electric generation” as the Working Paper reads in page 3, what is needed in the third industrial revolution to reduce the risks in the power industry is Retail Competition and Active Demand (to get Demand Integration), under Ultraquality Transportation, which in turns are the three essential requirements of EWPC.

Reference and context:

EWPC article Power Markets Essential Requirements,

EWPC “article” Power Markets Essential Requirements - II

Comments under the EnergyPulse article New Market Signals Are Urgently Needed to Change the Global Warming Threat, by Rafael Herzberg, Partner, Interact Ltd., Energy Consulting

Power Markets Essential Requirements

Should we keep wasting time and money fixing unfeasible markets propositions? To perform the actual implementation of the EWPC paradigm shift, it is wise to start on the essential requirement of the markets system.

Power Markets Essential Requirements

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

First posted in the GMH Blog, on March 5th, 2008.
Copyright © 2008 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.

Thanks Todd for your post.

We should forget the details, and focus just on the essence.

In addition to the ultraquality requirement (not considered at the outset of deregulation), there are 8 possible discreet combinations of the following three variables. Every feasible paradigm (of the 16 possibilities many are just not feasible) needs to select a YES or a NO as an answer to make a paradigm shift.

1) Wholesale Competition: YES or NO
2) Retail Competition: YES or NO
3) Active Demand: YES or NO. (Also not considered at the outset of deregulation.)

In the essence of EWPC all four variable are YES. The combination of Active Demand and Ultraquality Transportation (retained by the closed transportation market) leads to the requirement of Demand Integration to power system planning, operation and control, which is accomplished by 2GRs while performing Retail Competition and Wholesale Competition (in the open market).

Under vertical integration (fully regulated plans – Don’s paradigm) all three answers are NO. Ultraquality is a YES, but property of generation and transmission, as Inactive Demand is considered as an externality. The world changed making vertical integration unfeasible, and as a result we need to change policies, from Inactive Demand to Active Demand, as you explained on 1.15.08 in the excellent contribution that I named as An Undiscussed Elefant. Here again, to keep the ultraquality requirement leads to the need of Demand Integration by 2GRs.

At the outset, restructuring had inactive demand and separate transmission and distribution, with distribution most of the time under the incumbent utility. Lack of an ultraquality requirement and active demand in the original restructuring market architecture and design made it unfeasible. Trying to fix the BIG flaws of the original restructuring has resulted in an inordinate increase in complexity (as many unneeded rules tied to earlier contractual and regulatory arrangements remain buried while giving unnecessary commercial rights) by adding costly incremental extensions of Capacity Markets (a feature of vertical integration), NERC mandatory requirements, recently Demand Integration, etc. That is an extremely destructive and uncertain method to get there.

Since IMEUC has NO Retail Competition nor Ultraquality, and thus NO Demand Integration to power system planning, operation and control, it is just an incomplete and unfeasible proposition.

The above is just another confirmation that EWPC is the winning market architecture and design paradigm. Should we keep wasting time and money fixing unfeasible propositions?

An Undiscussed Elefant

Posted by Todd McKissick on 1.15.08, under the article Climate Change & Energy Security - What's Really at Stake in the 2008 Election. It is posted as part of an inquiry made by Todd to myself.

There seems to be an elephant in the room that no one is discussing. We all know that governmental policy is at best only influenced by corporate interests and at worst entirely driven by them. Why then, is the solution always to look to them to fix our problems? I firmly believe that the only way to solve this problem is to put all our available investment into new and alternative technologies. These are the only thing that fully offsets fossil problems. Sure, conservation (in it's many forms) is needed but that will happen in proportion to price and awareness. Unfortunately, it only delays the big crunch (regardless of whether you're worried about GW or economy or security). Sure, investment is needed in extending our current supplies whether that's crude, NG or even nuclear but again it's only a delay. From a long term point of view, the only genuine solution is fully renewable technologies. Why not speed up that development?

There are those that say these technologies have too many problems. Examples include scale, dependability, cost and even aesthetics. The reality is that these are all more easily solvable than the much touted 'delays' being offered as our best first goal.

My research has found literally hundreds of backyard inventors that have created very viable systems to solve each of our needs. One guy is modifying hummer vehicles as a publicity stunt to show they can have less emissions, get over 85 mpg and have more performance than stock. His cost is around $30,000, but estimates it to be under $3,000 when built-in at the factory. What kind of mileage could he get in a conservative car? Why isn't the wonderful government all over this guy throwing money at him? Detroit is just now beginning talks though, so who knows.

Another guy in Africa modifies motorcycle engines for $100 to double their mileage and halve their emissions. He's been fighting the patent process for a couple years that I know of.

Another small company is making home microCHP boilers and putting the waste heat to domestic use for a 40% overall savings. They got involved with a large corporation and are playing some strange game with their marketing now. With their product hitting the market 3 years ago, one has to wonder why it's no longer available.

There are hundreds of independant stories like this. There are also dozens of publicized stories of research based 'breakthroughs' in the PV or bio markets as well. Most have primary goals of being a cheaper solution to the consumer overall. When these become mainstream choices available to the consumer, they will make conservation a moot point (for that home). They will make the economic issue moot as well because the money will be spent at the lowest consumer level and be directly offset by fuel savings. They will also completely eliminate a portion of fossil fuel use to the extent that they generate. Lastly, their adoption will be more distributed, faster and easier than any other option, save only a distracting CFL switchover. That adoption will also become worldwide which doubles the reduction in trade deficit felt by less crude imports.

The problem is that these solutions are not getting their fair shake in the market. Investment by vulture capitalists is not appealing to them. Government grants have too many strings and too long of a timeline. Publicly funded research (universitys, etc.) has mostly continued research dollars as their primary goal. That leaves only two options, non-profit research grants and personal loans. Since non-profits have so many loopholes to jump through and have to maintain their non-profit status, they basically follow government guidelines on which technologies to assist.

We need to change policy to allow anyone to invest, loan or gift money fairly to our nations' creative individuals to get some of these to market. The outcome will be tremendous benefits to our energy woes, our economic woes and possibly even bolster the housing market. In the end, we need these new solutions anyway, why not focus on them and their current roadblocks now?