Demand Response Under EWPC Part 5

On January 11th, 2006, I posted the following message under the article The Potential for Residential Demand Response on Transmission and Distribution Assets to respond to Len Gould:

AMR or whatever subsystem it evolves to also comes in different flavors. Retail business design innovations depend on the whole customer interface.

Len had Gould said:

Given that every customer will still need a meter anyway, AMR is going to happen regardless of market design, and bills still need to be transmitted and collected in any system; THEN I fail to see how IMEUC might pose any impediment to your retailers business design innovations. I proposed the market manager making longterm contracts for eg. baseload etc. only because I don't think many private "retailers" will, but see no reason to bar them from doing so and using the metering system to verify their transactions.

Demand Response Under EWPC Part 4

On January 11th, 2006, I posted the following message under the article The Potential for Residential Demand Response on Transmission and Distribution Assets:

Len, if every customer is not allowed to participate, then is not a switchboard. That is a centralized market. I see the problem in the central market.

The retailer might purchase part of his long run needs by contract with a plurality of suppliers - generators - and the remainder from the central spot market. The innovations come from competition not by imposition.

The customer contracts with the retailer not the provider. Should a retailer enter into a contract regardless of the provider’s price, its days are counted under competition. The IMEUC is a metering monopoly that is a barrier for retailer’s business design innovations.

A Generative Dialogue Without Illusions Part 20

On January 11th, 2006, I posted the following message under the article Playing with Fire – Part II:

Thanks Mr. Rosenstock for your useful response that allows me to explain, as you will see, why my suggestion makes a lot of sense.

As a promoter of a generative dialogue, I also enjoy the free exchanges of ideas, especially to learn about what has been emerging for electricity customers since the 80's, when Fred C. Schweppe led the development of Spot Pricing of Electricity at MIT.

Faulty deregulation - Model 2 – overextended the useful life of the utility business model – how to win cases to the regulator - and fragmented the transportation system, by placing a tough barrier to Schweppes’s homeostatic utility control, as is explained in the post A Generative Dialogue Without Illusions Part 7. The so called “native” load is a barrier to the development of the resources on the demand side. That is the main reason of the decade old debate, as those resources remain mostly undeveloped.

Hence, there will be no such sacrifice for those vested interests, as they have more that a decade of advantage. The sacrificed have been the little guys, not just in the U.S., but all over the world. “Deregulation, as explained in 2001 was designed as a scam. Donella Meadows got it very close to its essence in the article Restructuring and Faith in the Market. She said:

…electricity restructuring is not being driven by the goal of reducing residential rates. The drivers are technology and industry. New ways of making electricity, such as combined-cycle natural gas generators, and soon fuel cells, allow industrial users to produce their own power at lower cost and with less pollution. One by one they are slipping off the grid, leaving the utilities, with their huge, outmoded, unpaid-for power plants, in a panic.

To save themselves, the power companies meet in back rooms with politicians. They must accomplish three things. First, they must allow big customers to lock in low rates, so they will stay on the grid. Second, they must pay off the debt for their dinosaur plants. Third, they must sell the deal to the public by promising lower rates.

The only way to pull off this miracle is with a public bail-out, called "stranded costs" in the back rooms. Stranded cost payments mean that your electric bill will actually be higher, but a chunk of it will be hidden in your tax bill. This maneuver has nothing to do with a free market. It is perverse socialism. Prop up a dying industry by forcing the people to pay for bad investments. Order utilities to cut rates for awhile to lull taxpayers. Then let the people shop for power in competition with the big guys. That's where the market will come in, but markets aren't kind to little players competing against big ones.

To further justify immediate action, I repeat what I said on 10.3.06, under the article Divorcing Electricity Sales from Profits Creates Win-Win for Utilities and Customers:

I suggest reading what Walter Wriston, chairman of Citicorp said in 1981 about the rights of inherited markets (see Megatrends: ten new directions transforming our lives, by John Naisbitt). That was the lesson of the railroads - a very capital intensive business that didn’t know it was on the business of transportation.

Under EWPC, retail business design innovators will be on the business of electric energy service - light, heat, conditioned air, etc. - which is right after the customer end-use devices. Vested interest should start learning that they will be like the railroads very soon, as EWPC – the wining market model - gets developed and implemented.

© 2007, José Antonio Vanderhorst Silverio, Ph.D.

A Generative Dialogue Without Illusions Part 19

On January 11th, 2006, I posted the following message under the article Playing with Fire – Part II:

Steven has given some of the elements to be considered in a scenario - named playing with fire - centered on Model 2 to protect vested interest in electric power. I think it will be a plausible scenario to be avoided. Environmental pressures are denied; holocaust is an issue, etc.

Another scenario based on EWPC should be written, whose elements are in Part I and II of Playing with Fire. The EWPC for the customer scenario - named putting out the fire - should be promoted. The resources of the demand side, including energy efficiency, demand response, CHP-waste heat heating , hybrid cars and other distributed resources, should have the same opportunities as central stations by taking down the "native" load barrier. Environmental pressures are acepted; holocaust is not an issue, etc.

A Generative Dialogue Without Illusions Part 18

On January 9th, 2006, I posted the following message under the article Playing with Fire – Part II:

Part 2 of 2.

Locational “marginal” prices come in many flavors. This is what the paper mentioned by Len says “LMP is still a new model and only time will definitively demonstrate its successes or failures. LMP will probably never be a perfect solution for all wholesale market concerns. It has its limitations. At this time, LMP is largely a supply-side focused approach to organized markets. Integration of demand-side factors to such issues as transmission congestion or generation shortages remains to be considered.

There is another flavor in the article Demand Response and the FERC Standard Market Design NOPR:

Demand Response, Locational Marginal Pricing, and Centralized Markets

In the proposed Standard Market Design (SMD), the key elements that would encourage demand response are locational marginal pricing (LMP) and the establishment of centralized day-ahead and real-time markets for energy, ancillary services, and transmission services. LMP and centralized markets provide efficient wholesale price signals to which LSEs and customers might respond if retail market designs allow such response. Over the longer term, LMP and centralized markets will lead to more efficient investment in generation, transmission and demand response technology, resulting in lower costs and ultimately lower prices to
consumers.

LMP will allow demand response to play a role in relieving transmission constraints, both in the short and the long term, by communicating the cost of electricity service to customers. Locational marginal prices are the only prices that are consistent with efficient system dispatch, and they are the only prices that induce self-interested loads to consume efficient quantities of power and profit-maximizing generators to produce efficient quantities of power.

There is still another flavor under EWPC, which will be much better than what was though for the SMD, as the system engineering institution satisfies the ultraquality requirements. Retailers will concentrate no on lower prices to customers, but on lower costs and/or higher value, as business designs innovations will aim to that. Most of the customers will – eventually - have lower prices. However, customers that are receiving energy cross-subsidies and/or hidden supply security cross-subsidies might have higher prices later on.

A Generative Dialogue Without Illusions Part 18

On January 9th, 2006, I posted the following message under the article Playing with Fire – Part II:

Part 2 of 2.

Locational “marginal” prices come in many flavors. This is what the paper mentioned by Len says “LMP is still a new model and only time will definitively demonstrate its successes or failures. LMP will probably never be a perfect solution for all wholesale market concerns. It has its limitations. At this time, LMP is largely a supply-side focused approach to organized markets. Integration of demand-side factors to such issues as transmission congestion or generation shortages remains to be considered.

There is another flavor in the article Demand Response and the FERC Standard Market Design NOPR:

Demand Response, Locational Marginal Pricing, and Centralized Markets

In the proposed Standard Market Design (SMD), the key elements that would encourage demand response are locational marginal pricing (LMP) and the establishment of centralized day-ahead and real-time markets for energy, ancillary services, and transmission services. LMP and centralized markets provide efficient wholesale price signals to which LSEs and customers might respond if retail market designs allow such response. Over the longer term, LMP and centralized markets will lead to more efficient investment in generation, transmission and demand response technology, resulting in lower costs and ultimately lower prices to
consumers.

LMP will allow demand response to play a role in relieving transmission constraints, both in the short and the long term, by communicating the cost of electricity service to customers. Locational marginal prices are the only prices that are consistent with efficient system dispatch, and they are the only prices that induce self-interested loads to consume efficient quantities of power and profit-maximizing generators to produce efficient quantities of power.

There is still another flavor under EWPC, which will be much better than what was though for the SMD, as the system engineering institution satisfies the ultraquality requirements. Retailers will concentrate no on lower prices to customers, but on lower costs and/or higher value, as business designs innovations will aim to that. Most of the customers will – eventually - have lower prices. However, customers that are receiving energy cross-subsidies and/or hidden supply security cross-subsidies might have higher prices later on.

A Generative Dialogue Without Illusions Part 17

On January 9th, 2006, I posted the following message under the article Playing with Fire – Part II:

Hi Fred and Len,

Good points Fred about what is known. As far I know, this is what is emerging with EWPC.

Part 1 of 2.

In what I posted today, when I said “To mitigate congestion and price spikes - both of which signal whole system risk of failure - ultraquality is needed based on both resources of the supply side and on the demand side,” should be sufficient to take care, together with no/nonsense prudential regulation, in disallowed that “the seller … achieve a high price by deliberately under-investing and driving up marginal cost…”

Electricity reform is a very complex problem and as such it can only be useful in a generative dialogue, where insights are placed on the right spot to solve the puzzle. On important insight about EWPC is emerging as central generation is being displaced from center stage.
In a post to both of you, on 11.23.06, under the article AMI Services Solutions for Alberta's Deregulated Market, by Nick Clark, I said:

Most electric power reforms are unstable. For example, European market liberalization will run into a wall if distribution is kept separate from transmission and let generators exercise and abuse market power. Market power is neutralized by keeping a T&D only wires monopoly that assures long run and short physical risk management. In the new paradigm center stage changes from generation to the T&D infrastructure.

The result will be a robust, complete and fully functional non-real time market that does not interferes with real time power system operation, as the T&D (engineering) system operator takes charge of committed resources on the supply and demand side… I like to see competing paradigms that are also emerging.

A Generative Dialogue Without Illusions Part 16

On January 9th, 2006, I posted the following message under the article Playing with Fire – Part II:

LRMC works when your have an adapted system. Things like congestion and price spikes make a lot of noise and the expected value of short run deviates a lot from long run values. To mitigate congestion and price spikes - both of which signal whole system risk of failure - ultraquality is needed based on both resources of the supply side and on the demand side.

The dimension of the demand side, however, is well undeveloped. So, EWPC innovation opportunities abound in the demand side, which definetly should include differentiated customers interruption costs, and not only the power bill in the rationing optimization. That is how the whole system - not its parts - is adapted to resolve both the stability of output prices and recovering of capital costs, by making the expected value of short run marginal costs get closer to the long run marginal costs.

A Generative Dialogue Without Illusions Part 15

On January 8th, 2006, I posted the following message under the article Playing with Fire – Part II:

Sorry Len,

The document talks about marginal cost which are variable costs by definition. New hydro units can apparently make "a lot of money" at zero marginal costs, but they have to pay for the large fixed costs.

Just take a look at “Accounting Systems Interaction Glossary of Terms Assets The ...,” to see the definition: “marginal costs are variable costs which vary in direct proportion to the level of activity.”

A Generative Dialogue Without Illusions Part 14

On January 8th, 2006, I posted the following message under the article Playing with Fire – Part II:

Len,

Generating facilities are dispatched on their variable costs, not on average costs. Hydro facilities variable costs are nearly zero and those units are usually energy limited, but their new development costs are usually very high. In the US, old hydro developments expected benefits are already committed. The LMP price is relative to variable costs. Bidding systems of Model 2 are suspect, as they are in your proposal.

In order to make sense of the data it is not possible to do simply arithmetic calculations as you propose. It is necessary to simulate what the expected random LMP values are for a long over a long period of time. That depends on the probabilities of rainfall or the snow that is expected to fall and melt into the hydro plant. In addition, the power flows at a given node depend on the system as a whole at every moment.

If a region does not allow central or distributed generation, energy efficiency, and transmission development, they should know they will be playing with fire, not matter what the model is.

Demand Response Under EWPC Part 3

On January 8th, 2006, I posted the following message under the article The Potential for Residential Demand Response on Transmission and Distribution Assets:

Len,

Thanks for explaining that there is no competition in the retails markets of gasoline and natural gas. If I understand correctly, oligopolies control the retail markets. If the gasoline stations and the gas retailers are owned or controlled by oligopolies, the market structured and design is flawed or the competition authorities are not doing their jobs or it could be that technology has not advanced sufficiently as is emerging in retail markets of electricity.

Gasoline stations are still retailers that develop their business directly with customers. There is no doubt that there retail function is absolutely necessary and cannot be done without it. Today’s distributors do them, and I am suggesting that the concentrate on their wires.

There is an urgent need for no-nonsense prudential regulations and ultraquality, as well as the development of the resources of the demand side in the power business. If gasoline stations have to compete with electric retailers, there is an opportunity to increase retail competition traveling by cars and trucks.

If you don't resolve the issues of retail competition, the oligopolies will own your swithboard too. In addition, by not dispatching economically under a whole system perspective, with an engineering institution, the cost to society will be excessive.

A Generative Dialogue Without Illusions Part 13

On January 8th, 2006, I posted the following message under the article Playing with Fire – Part II:

Thanks Len for your insistence against LMPs.

What you intuitively think is "the ideal price" seems to me what a monopolist wants. It is completely wrong in a market where demand has elasticity.

There are a lot of risks involve for the generator under competition. Just one example suffices: if the generating unit is not available they need to pay somebody else the LMPs to cover for him, under Model 3.

In addition, LMPs are much lower when demand has enough price elasticity. In a robust supply and demand market there should no be very often significant overpayment, nor very often significant underpayment.

A Generative Dialogue Without Illusions Part 12

Reference: Playing with Fire – Part II

Thanks Fred for your timely response. I guess you are right that "no tinkering with the demand side can compensate for gaming and lack of investment on the supply side" is highly likely under Model 2 and its piecemeal extensions.

To face gaming and lack of investment under EWPC there is an ultraquality requirement to be performed by a system engineering institution. The commercial activities of generation, and wholesale and retail of electricity to end-customers need to operate under a no-nonsense prudential regulation.

If the expert to the authorities in China is pushing Model 2 and its extensions, I also agree that your "anti-electric deregulation performance" statement is very likely to occur. If vertical integration – Model 1 – becomes the default solution, the little guy is bound to pay more for the investments than he should. The development of the resources of the demand side equity criterion - Market 3 - should lead to the effective development of the Chinese market at the bottom of the pyramid, which is the largest in the world.

Unless Northamerican, Chinesse and European leaders listen very closely to the first and second part of these comments, discussions, debates, and dialogues, they will certainly be playing with fire. My humble recommendation is that they retain a system architect expert on EWPC to help them coordinate a generative dialogue to come up with a new vision and develop a transition to EWPC. An expert on gas without price controls (GWPC) should no be difficult to develop in a parallel generative dialogue.

© 2007, José Antonio Vanderhorst-Silverio, Ph.D.

A Generative Dialogue Without Illusions Part 11

Reference: Playing with Fire – Part II

Fred,

There is a difference between classroom perfect competition and real life workable competition.

To operate in real life there is a need for a robust power system, where the resources of the demand side and the resources of the supply side are available to manage systemic short run and long run physical risk in time and space.

The T&D grid should be integrated in every geographic - control - area and its operation and control planned and executed by a system engineering institution, with both supply side and demand side resources pre-committed.

There is an urgent need to develop the resources of the demand side. That development requires business model innovations which in turns require competition, as customers need will evolve in significant ways. A regulator is not prepared to do that job, since neat customer classes and rates will be insufficient to get the most value for society out of rationing electricity. The demand side is today highly undeveloped and to develop it true leadership – commercial retailers - will be required, to allow the workable competition that should be emerging in a complete, integral and fully functional Market 3.

Piece meal extensions to the incomplete, fractured and not fully functional Market 2 will maintain valid to your statement that “deregulation has failed, is failing or will fail just about everywhere.”

With T&D grid electric regulated under ultraquality and generation and commercial wholesale and retail deregulated, EWPC should not failed just about anywhere, if the commercial market architecture and design is properly implemented, under competent leadership and management.

A Generative Dialogue Without Illusions Part 10

Reference: Playing with Fire – Part II

Please be advised that today, before Len posted his last comment, I responded to Len's observations, under the article Demand Response Under EWPC Part 2, about his IMEUC proposal with a revised IMEUC retail to customer switchboard approach. The main reason is that his analogy of the gasoline market does not support his IMEUC wholesale to customer proposal, as gasoline stations are simply retailers that operate under competition just as suggested for EWPC.

If you read closely to the above message, Len is making up a distorted view of EWPC. The reason I perceive is that he now sees the LMP concept in the way of his wholesale to customer switchboard. LMP is the signal where supply meets demand at every location. Under Model 2, LMPs could be very high as transmission lines get congested without sufficient demand response close to the location.

Under Model 3, however, ultraquality long run system planning and design will aim to mitigate congestion with a mix of supply side and demand side resources. In general, LMP calculations before considering the demand side will signal the demand response needed. LMPs are part of the better designs possible. It is with the credibility that is inherent in long run ultraquality, not short run LMPs, that base load generators investments get built as they will get many dispatch hours during the lifetime. Technology obsolescence risk, however, should stay with the investors.

Demand Response Under EWPC Part 2

Reference: The Potential for Residential Demand Response on Transmission and Distribution Assets

I was conducting a generative dialogue with Len that resulted in the posts shown below. To follow very well this post, I suggest reading them:

Playing With Fire and Collapse Part 22 -- Playing With Fire and Collapse Part 21 -- Playing With Fire and Collapse Part 20 -- Playing With Fire and Collapse Part 19 -- Playing With Fire and Collapse Part 17 -- Playing With Fire and Collapse Part 16 -- Playing With Fire and Collapse Part 15

In response to posts sequence, Len wrote on 12.26.06: “Jose Antonio: Your cogent discussion raises some issues with IMEUC which I hope to clarify in a third article in the series here on EnergyPulse in perhaps a couple of weeks, provided I can submit it up to the high standards of the editorial staff. Thank you.”

I am adding some new insights for Len as a result of an effort to comprehend his posts related to the gasoline analogy and to make it easy to update his IMEUC with a third article:

1) It is impractical to have a switchboard between refineries and customers. So, it is also impractical to have a switchboard from generators and customers. The wholesale market’s engineering criteria, including maintenance programming, contingency runs, energy commitment and dispatch procedures, locational marginal prices, real time operation, etc., do not allow for a switchboard between generators and customers.

2) The wholesale market of gasoline, where gasoline is produced at refineries, is similar to wholesale electricity market; that is where retailers purchase their gasoline and electricity. Natural gas retailers could have similar situations.

3) At the gasoline market, customers go to the best retailers to get the best short run deals. So, instead of designing a switchboard on the wholesale market, which is impossible, there is a need to first develop EWPC retailers and second to implement the switchboard between retailers and customers. I am no expert on gas retailing, but assume it will be similar process.

4) Short run retail competition will result in several market segments.

a. One of those segments, for example, could be under the switchboard. For example, in that segment will have to auto finance resources like demand response, energy efficiency and energy storage or find alternative financing means or just do not investment whatsoever. In this case, customers will get a “continuous choice of several suppliers at time intervals comparable to my gasoline or other purchases.”

b. In an extreme segment, customers could not be under the switchboard. For example, customers getting full financing deals in resources like demand response, energy efficiency and energy storage may not be able to switch so easily.

5) T&D is a natural monopoly that competes with gas pipelines monopolies, not in the short run, but in the long run.

The above suggestions are not to be taken without considering the posts mentioned above. EWPC is then one generic and open market architecture and design that doesn’t does not impose any restriction whatsoever to the revised IMEUC retailing switchboard.

Demand Response Under EWPC

Reference: The Potential for Residential Demand Response on Transmission and Distribution Assets

Roger’s “Hmmm, this discussion sounds vaguely familiar...” is related to the long discussion about deregulation, under the article Playing with Fire - The 10 Tcf/year Supply Gap -- Part I, in which I suggested that the decade old deregulation debate, centered on the past, is no longer necessary, because an important third way of true deregulation market architecture and design went missing from implementation. I suggested to shift to a generative dialogue centered on an emerging future that was envisioned by Fred C. Schweppe and colleagues at MIT from 1978-1988.

As can be seen from the series “EWPC: People Coordinating and Cooperating with Electrons,” referred to in my post above, and in the most recent posts A Generative Dialogue Without Illusions Part 9 , A Generative Dialogue Without Illusions Part 8, A Generative Dialogue Without Illusions Part 7, EWPC: People Coordinating and Cooperating with Electrons Part 8, and EWPC: People Coordinating and Cooperating with Electrons Part 7, the parallel discussion with Fred Banks, Len Gould, Arvid Hallén, and James Carson, seems to have ended in favor of my suggestion of the emergent conceptual architecture and design of Market 3, electricity without price controls for the customers (EWPC) approach.

In the post My iPod is on the Demand Side, I said, among other things, that: “A breakthrough in electric power needs to start with a proper reform leading to a new paradigm - the End-State of the power industry [for quite some time]. Such End-State I believe will come from a structure where there is a T&D transportation monopoly (controlled market) that is separate from retail marketing and generation (free market) activities.”

In addition, Roger’s “Hmmm…” is suggesting that in Playing with Fire – Part II, the deregulation discussion was to be only about natgas. As I explained in EWPC: People Coordinating and Cooperating with Electrons Part 6, “Electric power market architecture and design is right at the center of the topic.” The intended topic of the author, not the EnergyPulse assigned topic, is what counts.

As can be seen in My iPod is on the Demand Side Part 2, “Demand Response is the best candidate iPod of the utility industry, located at the customer interface of the monopoly transportation system with a real and true potential free market.”

Roger’s opinion is directed at extending the obsolete monopoly retail market architecture and design model. The utility business model is not centered on a customer orientation, but on the supply oriented, good old days, of exploiting asymmetric knowledge with legal know-how to win rate cases to the regulator. As I said at the end of EWPC: People Coordinating and Cooperating with Electrons Part 2: “There is a need to allow for the emergence of the good new days, and EWPC is a strong candidate to increase the revised criteria: 1) Freedom of choice; 2) Economic efficiency; 3) Equity; and 4) Ultraquality. Only through new knowledge and innovations will societies satisfy emergent needs.”

© 2007, José Antonio Vanderhorst-Silverio, Ph.D.

A Generative Dialogue Without Illusions Part 9

Gentlemen, [posted on 4.2.06 under What a surprise: Prices move both ways]

With all my respect for Prof. Banks, I will kindly respond to his comments:

As it might be inferred from my comments, late Prof. Fred Charles Schweppe did not need to take “the early chapters of his favorite economics book literally.” Prof. Schweppe “was regarded as an individualist, almost a renegade, with new and highly creative ideas, someone who was determined to bring these ideas to fruition.” He understood very clearly the feedback requirements of a power system and new that the customer was key to his market proposal. However, as far as I know, his suggestions have not been implemented anywhere.

If there is someone to be questioned (among many others which were part of "the system" of course), it has to be the JFK School of Goverment economist W.W. Hogan, which according to Fernando Alvarado, "in 1992 (Fred was dead) introduced the concept of contract networks as a practical extension to these early notions (of using prices to control the system) because it permitted the establishment of property rights within networks and allowed (approximately) efficient prices to be determined from a dispatch that was influenced by the judment of human operators [1]."

In Fred Schweppe proposal, the end customer was an integral and active part of the market which were supposed to respond to prices. If I understand it correctly, it is Prof. Hogan who did not understand very well how important the end customer was as an active “empowered customer” as EPRI is suggesting. Professor Hogan did not find mistakes in "Schweppe et al., when he said that they "argue for the robustness of spot pricing even when the perfect optimal solution is not available:”

Hogan quotes them saying "The fact that the true (prices) may not be calculated does not destroys the value of implementing a spot price based energy marketplace. The actual value calculated will be much closer to the true values than the present-day flat or time-of-use tares, etc. The goal of implementing the spot price based energy marketplace is to improve the coupling between the utility and its customers, no to achieve theoretical optimality [2]."

By looking at Hogan’s paper, I understand that the big mistake was replacing the price responsive end customer with the non-responsive transmission customer. " As I explained in my comments to Prof. Banks article, where I said: “Recently, I have sent an email to Mr. Casazza, and have gone to Jesus M. Martin-Giraldo, Power Encounters blog, where I posted comments in Spanish about a misunderstanding of Fred C Schweppe's Homeostatic Utility Control in the literature review he posted…”

It turns out, that Schweppe’s said: "conventional metering is replaced by a Marketing Interface to Customer (MIC) which, in addition to measuring power usage, multiplies the usage by posted price and records the total cost [3]," which means that Homeostatic Utility Control was what we are now calling demand response.

The regulated “energy marketplace involves the utility and its customers operating as partners… Utility implementation concerns include real-time calculation/prediction of hourly spot prices, metering-communication-billing, and system control center operation using the new control signal called price… customers who choose to exploit the energy marketplace potentials must implement the appropriate response systems (today demand response), which could range from simple manual response to sophisticated digital controls [4].”

Ádditionally, when I talk about risk management of system failure, please be advised that I am talking about physical risk management of reserves in the power system, by system elements, mostly generators, and costumer responsiveness.

Best regards,

José Antonio Vanderhorst-Silverio, PhD

Interdependent Consultant on Electricity

[1] Fernando Alvarado, "Is Systems Control Entirely by Price Feasible?" Proceedings of the 36th Hawaii International Conference on Power Siences - 2003,

[2] F. C. Schweppe et al, Spot Pricing of Electricity, Kluwer Academic Press Publishers, 1998, p. 97.

[3] Homeostatic Utility Control Vol. IEEE PAS-99, No.3 May/Jun 1980, page 1151.

[4] F. C. Schweppe et al, Spot Pricing of Electricity, ... p. 11.

A Generative Dialogue Without Illusions Part 8

Fundamentals of Deregulation [posted on 4.21.06 under Post hoc ergo propter hoc: The fallacy of blaming deregulation for rising electricity prices].

Slide #1 of 72

Retail Access is Easy, It’s Getting Wholesale Access that is Hard

William W. Hogan, Harvard University

Virginia Electricity Forum

Virginia State Corporation Commission

Charlottesville, Virginia

November 15, 1996

Slide #2 of 72

ELECTRICITY MARKET --------- Structures

Two elements stand at the core of a new market structure that can be fashioned consistent with this set of objectives.

• Pool-Based Market: Operation of the short-term market through a closely coordinated or pool-based dispatch. System security and network congestion problems handled as part of the dispatch. Transmission capacity rights allocated along with grid costs but implemented through short-term pool pricing and rental payments for use of allocated capacity. Long-run investment and contracts for energy handled in bilateral markets.

• Customer Choice: Under Efficient Direct Access customers remain with the local utility which buys from the wholesale market and resells at a time-of-use rate based on the spot price. There are no necessary changes in cost-of-service principles. All customers remain under the utility tariff but have effective access to the market. Decisions on cost recovery can proceed as before. Whatever can be done under traditional cost-of-service regulation can be continued. Universal service support, investments in energy efficiency, and subsidies for renewable and other environmentally preferred alternatives could be made when justified, and included in the cost of service applied to all customers separate from the time-of-use energy charges.

The pool-based, short-term electricity market addresses the few necessary constraints and technical issues by coordinating system operations and power plant dispatch. Customers, brokers and aggregators enjoy free choice to make long-term arrangements with any supplier or rely solely on access to the short-term market.

No need to read any further...

A Generative Dialogue Without Illusions Part 7

Hi James,

On your first and last answers, the fourth I understand is just one of many opinions, I still think debates will not get us where we want to be, which is acting on the emergent worldwide (not just the US) gas crisis pinpointed by Andy, which requires very efficient use of natgas. But since you insist to find out why “… de-regulation wrangling is pertinent to…” the “Playing with Fire” discussion, I will tell you about one very big – key - issue that I posted and that you simply ignored. So I challenge you again without any discourtesy:

Search for Hogan in the following articles, read the complete comments (not only samples), and their links, and get back to me with your conclusions.

What a surprise: Prices move both ways

The Gap Between Demand Response Potential and Demand Response Reality

Post hoc ergo propter hoc: The fallacy of blaming deregulation for rising electricity prices

This time, however, I will post samples of what you will find. As Jack Casazza wrote to me on 12.29.05, under Professor Banks’ article A Few More Unfriendly Comments on Electric Deregulation, “The restructuring and deregulation of the electric power industry was a serious mistake in the USA and in many countries, harming the general public.” The mistake’s origin can be assigned to the most influential person of deregulation and restructuring, Bill Hogan, whose opinions were instrumental in changing the history of electricity. I know he is a very intelligent man, which I have not met. I know that the powerful lobbies were the true means behind the effort to extend the useful life of the investments of the IOUs.

This is part of what I wrote on 4.2.06, under What a surprise: Prices move both ways: ”If there is someone to be questioned (among many others which were part of "the system" of course), it has to be the JFK School of Government economist W.W. Hogan,… see complete post below to find out how the development of price elasticity of demand - demand response – by a market architecture and design flaw of 1992.

In addition, on Please Blame The Deregulation and Regulation Fiascos Parte 2, Hogan claimed on 11.15.96 – see details below - that retail access is easy, while creating the foundation of the protection of “native loads,” keeping a barrier to innovations on the demand side.

The demand response movement got force only after the 14th August 2003 blackout was begun to be understood. However, the 2005 Energy Bill still includes the “native” load possibility for vested interests, which should be repealed, like you would say “the sooner, the better.”

Responding you second and third items, the PJM Timeline shows the long institutional history of PJM, which begin in 1927 with PA and NJ, and became PJM Interconnection in 1956. The NYISO is an outgrowth of the New York Power Pool, formed by New York’s eight largest utilities following the Northeast Blackout of 1965. The Power Pool combined the power generation and technical resources of its members to create an organization committed to the reliable, safe and efficient operation of the electric system.

Thanks for getting back to the generative dialogue.

© 2007. José Antonio Vanderhorst-Silverio, Ph.D.