The Magic Deregulation Formula

An EWPC post

Dear Professor Banks,

Thank you very much for your challenge (which I found by browsing your article): "I am thinking in particular of the consultant Jose Antonio Vanderhorst-Silverio. He admits that deregulation has been a disaster, but he also believes that somewhere out there is a magic formula for making everything right. My comment here reduces to the following: no playing games on the consumer side of the market can possibly offset the upward pressure on prices resulting from conventional profit maximizing behaviour on the supply side. Put another way, given the technological configuration of the electric sector (e.g. increasing returns to scale), deregulation invariably leads to much higher and more volatile electricity prices."

I will respond in full a few days, but the key finding that will be at the center is that deregulation was and is based on the faulty concept "economy first, reliability second." If reliability first, economy second, is a magic formula that allows to restructure power sectors worldwide into an electric network (integrated transportation) and a money network (on the customer, retail, generation value chain), let so be it.

It is clear that generation and customer are also part of the electric power system and transportation is part of the money system, but the "electric network" institution still keeps the leadership of the whole real time control, operation planning and long run planning of the power system.

Casazza identified two other important networks that are helping the transformation and that are missing above. The fuel network and the communication network. Both impact restructuring to help integrate demand into power system control, operation and planning in the 21st Century.

Best regards,

José Antonio

Reference and context: A New Lecture on Electric Deregulation Failure, by Ferdinand E. Banks, Professor.