The Deadly Sin of State Regulators on the Smart Grid

President Obama and Secretary Chu need to learn urgently about the deadly sin of the smart grid that state regulators are making, that is leading to a huge Greek Tragedy. Politics as usual will keep “… generating a legacy bubble that will explode with a stimulation package that will not transform the power industry at all.”

The Deadly Sin of State Regulators on the Smart Grid

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity
EWPC Systems’ Architect

First posted in the GMH Blog, on July 5, 2009.

Copyright © 2009 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.

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The huge Greek Tragedy in the making with the smart grid development is a typical case that has “an unprecedented number of interdependent risks,” such as The Egg Basket deadly sin of the flaw of averages, as Sam Savage, Stefan Scholtes, and Daniel Zweidler explain in their article Probability Management, as reprinted by the IEEE Engineering Management Review, Vol. 37, No.2, Second Quarter 2009. The authors write:

Consider putting 10 eggs all in the same basket, versus one by one in separate baskets. If there is 10-percent change of dropping any particular basket, then either strategy results in an average of nine unbroken eggs. However, the first strategy has a 10-percent chance of losing all the eggs, while with the second there is one chance in 10 billion of losing all the eggs.

That is the huge kind of interdependent risks that state regulators are taking on the smart grid projects under the IOUs Architecture Framework (IOUs-AF) with all the eggs on the basket. As the reengineering revolution show that 75 percent of projects were not successful, the Greek Tragedy in the making has spoken. The situation gets even worst at jurisdictions where the artificial profit decoupling incremental extension of the IOUs-AF is also being considered.

Under the EWPC Architecture Framework (EWPC-AF), retail markets business model competition (not all the eggs in one basket), there is such a low expected probability of failure, which enables the development of business model innovations that better understand and satisfy customers’ needs. Under the EWPC-AF, natural decoupling is set by natural selection of competitive market survival, as customers are able to choose.

Now I have more on the IOUs-AF architecture flaw, courtesy of Mr. James Carson, as he returns to comment and as I keep paying close attention to what he writes. In response to the EWPC article COMPETE Coalition to Stop a Huge Greek Tragedy in the Making, where after it is clearly shown to him that IOUs are indeed entrenched, Mr. Carson responded not about the Greek Tragedy, nor the COMPETE Coalition, which is where he stopped, and try to rationalize by saying:

Frankly, I stopped because you weren't paying any attention to my posts. I should have stopped long ago when you posted the details of the EWPC transformation were unimportant.

As readers can confirm once again, I pay lots of attention to the comments I receive. But as it happens, Mr. Carson is a master at selecting what he wants out of the context. As can be seen under the EWPC article Just as Pogo, IOUs Found the Enemy, this was the context he selected:

EWPC centers its attention in the essential systemic elements of the transformation. This is what I wrote on another EWPC article, which also explains the flaw of wholesale deregulation: We should forget the details, and focus just on the essence.

He then he picked just the last sentence out his own chose context. But, to explain the flaw of deregulation, as a systems architect I only needed to look at the essence as follows:

The IOUs-AF architecture flaw, introduced as early as the enactment of the 1992 Energy Policy Act (a common and very costly architecting error introduced by the IOUs lobby to extend the obsolete IOUs-AF), was based on inactive external demand, which in turns allow the assumption of inactive distribution, for IOUs to keep what they considered to be their “native loads.” It is that flaw, which enabled the development of a great legacy of open transmission access and organized wholesale markets, which have produced a huge unnecessary and costly amount of details and unnecessary investments that are bound to be worth nothing in the future.

In fact, under the EWPC-AF, demand is active and so is distribution. It is with the development of the resources of the demand side, that demand becomes elastic and gets integrated to power system planning, operation, and control, enabling a least costs development of the integrated transmission and distribution grid. That is why under the EWPC-AF, retail and wholesale markets mutually reinforce each other to enable a virtuous circle of value creation that will let regulators get back to their original job of doing almost nothing.