Making Joskow’s “Missing Money” Capacity Markets Obsolete

Under The Baltimore Sun, Jay Hancock's blog, What electricity re-regulation would look like, I posted the following comment:

Dear Mr. Hancock,

I agree with the idea of the messed-up wholesale electricity market that you posted yesterday. The problem with those incomplete markets begs complete markets that enable a virtuous circle, instead of [going] backwards to the obsolete properties of vertical integration that lack said virtuous circle. The need is to go forward with retail and wholesale markets that mutually reinforce each other.

At the center of such complete markets is the emergent smart grid that does not require capacity markets. Please take a look at an article that starts with "The Electricity Without Price Controls (EWPC) Architecture Framework (EWPC-AF) is a basic innovation that greatly simplifies today’s exceeding complex power industry. The EWPC-AF emerged to replace the century old Investor Owned Utilities (IOUs) Architecture Framework (IOUs-AF) and its incremental extensions, such as Open Transmission Access, Capacity Markets, NERC Mandatory Requirements, and now the regulated architecture Smart Grid," in the link http://bit.ly/8XJlra

Best regards,

José Antonio Vanderhorst-Silverio, PhD
Creator of the EWPC-AF

Later on, under the above mentioned blog, The messed-up wholesale electricity market, MarketWatcher added:

Jay: It appears that you have a significant issue with the PJM Reliability Pricing Model (commonly known as the Capacity Market). Perhaps this paper from Paul Joskow (former MIT prof) will help you understand the need for this market http://econ-www.mit.edu/files/2095.”

The excellent paper by Dr. Joskow “… argues on a variety of imperfections in wholesale ‘energy-only’ electricity markets lead to generators earning net revenues that are inadequate to support investment in a least cost portfolio of generating capacity and to satisfy consumer preferences for reliability. Theoretical and numerical examples are used to illustrate the sources of this “missing money” problem.”

The EWPC-AF is not an incomplete “energy-only” wholesale market, based mainly on the development of the resources of the supply side. Since it is also based on the development of the resources of the demand side, the “missing money” problem disappears altogether, as generation portfolios are developed in the Open Market Business System (OMBS) of the EWPC-AF (no regulatory price caps as in Joskow’s benchmark model) for maximum value creation that satisfy consumer preferences for reliability, while the regulated power (integrated transmission and distribution) transportation service system (RPTSS) of the EWPC-AF is expanded as a least costs portfolio for power system (not customer) reliability.