An Old Letter from Jack Casazza

On 12/29/05, Jack Casazza wrote:

Dear Jose Antonio,

I have been reading the discussions between you, Prof. Banks and others and did not comment previously because I did not have anything to add. I thought perhaps I could be helpful at this time by providing a few comments, as follows:

1. The restructuring and deregulation of the electric power industry was a serious mistake in the USA and in many countries, harming the general public.

2. Competition has produced some benefits, particularly in the improvement in the operation of generation plants, but caused a severe decline in the coordination needed between the participants in the planning, design and operation of the generation and transmission systems of electric power grids. The reduction in the number of companies involved can produce some future savings.

3. Generation dispatch is based on quoted prices rather that incremental production costs, increasing total production costs.

4. Present and long range costs have been increased significantly since each company made decisions based on its own profits and not what was best for the overall grid in the long run, i.e., the overall public interest. (In the USA past studies have shown that the savings from coordination exceeded $20 billion a year before restructuring. Many of these prior benefits have been lost.)

5. In most cases the changes that have been made in the industry structure and procedures cannot be undone, so we have to proceed by trying to use what is good from restructuring and removing or correcting the many harmful things that have resulted.

6. I believe the greatest harm has been the loss of cooperation and coordination between those involved in the power industry. A way to correct this learned from the past is through "coordination contracts" signed by the participating companies that provide for the planning, design and operation to be performed as if they constituted a single company. In such contracts the long range lowest total cost solution and lowest cost operation procedures were selected even if it meant that one company had to spend extra funds or give up some profits, as long as it resulted in a lower overall cost or was necessary to preserve reliability, even if in another system. These contracts provided for the compensation of a company for its extra costs or profits foregone plus a share of the overall benefits resulting to the public. (I have negotiated such contracts as far back as 50 years ago.)

There is much more analysis needed, but perhaps the comments above will get you thinking about the power system, not the markets.

Best regards,

Jack Casazza

Note to others receiving this message. Please feel free to quote or use it as you wish.

Jack Casazza

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