To Congressional Requesters of Utility Oversight

Being unnecessarily flawed, and complex, today's EPAct causes its own crisis. Under those circumstances, FERC utility oversight will not be able to produce the expected results. What’s needed is the simpler EWPC system to protect customers from supply disruptions and unfair pricing. The political answer is a EWPC EPAct.

To Congressional Requesters of Utility Oversight

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

First posted in the GMH Blog, on May 2nd, 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 US Government Accountability Office (GAO) explains why it did the study “Utility Oversight: Recent Changes in Law Call for Improved Vigilance by FERC,” in response to Congressional Requesters, introducing it with “Under … PUHCA 1935 and other laws, federal agencies and state commissions have traditionally regulated utilities to protect consumers from supply disruptions and unfair pricing…” GAO has “… considerable interest in whether cross-subsidization – unfairly passing on to consumers the cost of transactions between utility companies and their “affiliates” – could occur.”

The investment in the rush signaled by “Utilities Full Speed Ahead on IUE/SG,” is the key to a kind cross-subsidization activity, which by the design of the system are just undetectable, as state commissions become heavily involved to sanctify the large bets of IUE/SG projects. Just as the reengineering experiments of the past, where 75% of projects became failures, in this case the value destruction will go into customers’ rates.

The large fines that the law provides just don’t apply in the cases where “the potential flow-through of any inappropriate costs to consumers of regulated utilities” bets. Instead of allowing such costly bets, “The EWPC EPAct should forbid state regulators from letting utilities win rate cases that involve Intelligent Utility Enterprise and Smart Grid investments, because of the high risks of failure involved.” (See EWPC article EWPC Can’t Be a Market Winner for details.)

The problem is that the federal agencies, the state commissions, and the utilities are all part of a flawed system. Peter Senge in the Fifth Discipline gave this lesson: “Different people in the same [system] structure tend to produce qualitatively similar results. When there are problems, or performance fails to live up to what is intended, it is easy to find someone to blame. But, more often than we realize, systems cause their own crisis, not external forces or individuals’ mistakes.

For example, FERC has been blamed for his part at the California crisis, as Ken Silverstein report on his energybiz insider article “FERC Oversight Attacked,” that says “FERC is still trying to shed its corporate lapdog image that it earned during the California energy crisis.” The attack should be to the system.

The system is so complex, that it makes it very difficult and involved to demonstrate oversight vigilance. Instead, by changing the system to EWPC such cross-subsidization disappears, since there is not an incumbent regulated retailer.

A new Energy Policy Act is needed to enable the EWPC market architecture and design paradigm shift. The political leadership of the Congressional Requesters is expected.