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.
jueves, enero 04, 2007
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...
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:
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.
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.
miércoles, enero 03, 2007
EWPC: People Coordinating and Cooperating with Electrons Part 8
To complete the response to James, please read the following post: EWPC: People Coordinating and Cooperating with Electrons Part 6.
Having reserves available is insufficient. Active and reactive reserves need to be dispatched and deployed in the correct places to keep the system synchronized. Lack of enough reactive reserves leads to voltage collapse, which fuels the dominoe effect.
Because the US grid was not designed for Model 2, a comprehensive design based on ultraquality is a must. Investments required under Model 3 are much smaller than with Model 2, as "connected networks" are very expensive.
A flawed market design and architecture that increases boom-bust behavior is probably the culprit on excess capacity in some regions of the USA.
Please take any follow up discussions to Part II.
Having reserves available is insufficient. Active and reactive reserves need to be dispatched and deployed in the correct places to keep the system synchronized. Lack of enough reactive reserves leads to voltage collapse, which fuels the dominoe effect.
Because the US grid was not designed for Model 2, a comprehensive design based on ultraquality is a must. Investments required under Model 3 are much smaller than with Model 2, as "connected networks" are very expensive.
A flawed market design and architecture that increases boom-bust behavior is probably the culprit on excess capacity in some regions of the USA.
Please take any follow up discussions to Part II.
Residential Demand Response
Reference: The Potential for Residential Demand Response on Transmission and Distribution Assets
The true potential of demand response is for the system as a whole, not by considering one part at a time. Most of the value is in the relationships, which depend a lot on market architecture and design.
As can be seen in the article An Alternative Business Case for Demand Response, “[T]here are two sides on the DR coin. On one side, system crashes are mitigated by a least cost mix of supply and demand risk management tools that may be applied in time and space. On the other, DR is the key to the segmentation of customers supply security (a kind of insurance). Because of its fine grain nature, DR can help mitigate delays (intended or not) of lumpy investments in generation, transmission, and distribution.”
To engage customers to make inform decisions, please take a look at the comments under The Future Utility Customer Service Model. Please take a look also under the article EWPC: People Coordinating and Cooperating with Electrons Part 6 for a suggestion of a comprehensive national energy strategy, where I say that:
The development of the residential DR mass market will depend on the development of business model innovations that include other resources on the demand side as well.
© 2007. José Antonio Vanderhorst-Silverio, Ph.D.
The true potential of demand response is for the system as a whole, not by considering one part at a time. Most of the value is in the relationships, which depend a lot on market architecture and design.
As can be seen in the article An Alternative Business Case for Demand Response, “[T]here are two sides on the DR coin. On one side, system crashes are mitigated by a least cost mix of supply and demand risk management tools that may be applied in time and space. On the other, DR is the key to the segmentation of customers supply security (a kind of insurance). Because of its fine grain nature, DR can help mitigate delays (intended or not) of lumpy investments in generation, transmission, and distribution.”
To engage customers to make inform decisions, please take a look at the comments under The Future Utility Customer Service Model. Please take a look also under the article EWPC: People Coordinating and Cooperating with Electrons Part 6 for a suggestion of a comprehensive national energy strategy, where I say that:
Two generic electricity systems models have been implemented: Model 1: old vertical integration controlled market and Model 2: faulty deregulation, based on open transmission access and “native” loadsThe deferring energy use value proposition is an integral part of Model 3. The barriers on the development of the demand side are integral to Models 1 and 2. Under Model 3, retail competition, under prudential regulation, instead of traditional regulation, is what let’s “the greater the value, the greater the anticipated response” operate. Customer classes disappear as customer segment themselves on the best value proposition in the market, as retail competition will also ‘ensure that programs… are implemented in a manner that achieves net benefits for consumers.”
As an emergent system is Model 3: electricity without price controls [EWPC]. Since Model 1 and Model 2 have barriers on the development of the resources of the demand side that are being addressed on a piecemeal basis [an alternative solution is needed]. Model 3 is based on an integral development of the resources of the demand side.”
The development of the residential DR mass market will depend on the development of business model innovations that include other resources on the demand side as well.
© 2007. José Antonio Vanderhorst-Silverio, Ph.D.
EWPC: People Coordinating and Cooperating with Electrons Part 7
Reference: Playing with Fire – Part II
In response to a comment (see below) by Jim Beyer,
Mr. Beyer,
As far as I understand, under Model 2, prices reflect the marginal plants costs, not the base load units costs; under Model 1, the usual mechanism is to transfer energy costs increases to the customer or the tax payer with a time delay. The timing is for a comprehensive national energy strategy.
As for your suggestions of the development of CHP, Model 1 and 2 are biased againt the development of the resources of the demand side.
Jim Beyer's comment:
In response to a comment (see below) by Jim Beyer,
Mr. Beyer,
As far as I understand, under Model 2, prices reflect the marginal plants costs, not the base load units costs; under Model 1, the usual mechanism is to transfer energy costs increases to the customer or the tax payer with a time delay. The timing is for a comprehensive national energy strategy.
As for your suggestions of the development of CHP, Model 1 and 2 are biased againt the development of the resources of the demand side.
Jim Beyer's comment:
I really don't think electricity prices are strongly tied to NG prices. I think there is something rather Californian about that way of thinking, because in the rest of the country, about 70% percent of electricity is generated from coal and much of the remainder from nuclear.
I won't dispute the problems with using coal w.r.t. GHG emissions, but in the short term, a shortage of NG shouldn't raise electricity prices too much -- at least not in California.
EWPC: People Coordinating and Cooperating with Electrons Part 6
Reference: Playing with Fire – Part II
Andy had said: “This is the first of a four part series of articles on the natural gas and electricity price and supply risks facing the U.S. economy.”
The topic is: natural gas and electricity price and supply risks.
Electric power market architecture and design is right at the center of the topic. Two generic electricity systems models have been implemented: Model 1: old vertical integration controlled market and Model 2: faulty deregulation, based on open transmission access and “native” loads.
As an emergent system is Model 3: electricity without price controls. Since Model 1 and Model 2 have barriers on the development of the resources of the demand side that are being addressed on a piecemeal basis. Model 3 is based on an integral development of the resources of the demand side.
As gas prices rise, in Model 1 gas price volatility are transferred to the electricity price volatility; in Model 2 gas prices volatility are amplified into higher volatility to the electricity prices; and in Model 3 gas price volatility is mitigated into less volatile electricity prices.
Physical supply side risk management of Model 1 was not fully transfer to Model 2, making it unstable under shocks conditions. Model 3 has both supply side and demand side physical risk management. Demand price elasticity development barriers under Model 1 and 2 are fully eliminated under Model 3.
Model 2 incredible volatility is a flaw that goes against electricity as a commodity. The flaw is the lack of ultraquality. McKinsey has an article on electricity as a special commodity.
The key suggestion to develop a generative dialogue is thus right on the topic. The decade old debate around Model 1 and Model 2 is no longer necessary.
By developing two or three plausible scenarios, one of which is the “continuity” scenario, my opinion is that Model 3 will result as a predetermine element – fits on any of the scenarios. Model 1 will only be on the “continuity scenario”. On the “playing with fire” scenario Model 2 won’t cut it, while Model 3 is the best to face the severity of the crisis. Piecemeal changes to Model 2 towards Model 3 will make it very inefficient.
The adoption of a comprehensive national energy strategy should be based on a generative dialogue, including strategic conversations around the scenarios and system dynamic runs that include all the mental models of the interested parties. Major changes to the existing U.S. energy infrastructure, with the wrong market architecture and design is nothing more than playing with fire. Andy’s contribution is a welcome input to such strategy.
For some more details read the following recent posts:
EWPC: People Coordinating and Cooperating with Electrons Part 4
EWPC: People Coordinating and Cooperating with Electrons Part 3
EWPC: People Coordinating and Cooperating with Electrons Part 2
EWPC: People Coordinating and Cooperating with Electrons
© 2007. José Antonio Vanderhorst-Silverio, Ph.D.
Andy had said: “This is the first of a four part series of articles on the natural gas and electricity price and supply risks facing the U.S. economy.”
The topic is: natural gas and electricity price and supply risks.
Electric power market architecture and design is right at the center of the topic. Two generic electricity systems models have been implemented: Model 1: old vertical integration controlled market and Model 2: faulty deregulation, based on open transmission access and “native” loads.
As an emergent system is Model 3: electricity without price controls. Since Model 1 and Model 2 have barriers on the development of the resources of the demand side that are being addressed on a piecemeal basis. Model 3 is based on an integral development of the resources of the demand side.
As gas prices rise, in Model 1 gas price volatility are transferred to the electricity price volatility; in Model 2 gas prices volatility are amplified into higher volatility to the electricity prices; and in Model 3 gas price volatility is mitigated into less volatile electricity prices.
Physical supply side risk management of Model 1 was not fully transfer to Model 2, making it unstable under shocks conditions. Model 3 has both supply side and demand side physical risk management. Demand price elasticity development barriers under Model 1 and 2 are fully eliminated under Model 3.
Model 2 incredible volatility is a flaw that goes against electricity as a commodity. The flaw is the lack of ultraquality. McKinsey has an article on electricity as a special commodity.
The key suggestion to develop a generative dialogue is thus right on the topic. The decade old debate around Model 1 and Model 2 is no longer necessary.
By developing two or three plausible scenarios, one of which is the “continuity” scenario, my opinion is that Model 3 will result as a predetermine element – fits on any of the scenarios. Model 1 will only be on the “continuity scenario”. On the “playing with fire” scenario Model 2 won’t cut it, while Model 3 is the best to face the severity of the crisis. Piecemeal changes to Model 2 towards Model 3 will make it very inefficient.
The adoption of a comprehensive national energy strategy should be based on a generative dialogue, including strategic conversations around the scenarios and system dynamic runs that include all the mental models of the interested parties. Major changes to the existing U.S. energy infrastructure, with the wrong market architecture and design is nothing more than playing with fire. Andy’s contribution is a welcome input to such strategy.
For some more details read the following recent posts:
EWPC: People Coordinating and Cooperating with Electrons Part 4
EWPC: People Coordinating and Cooperating with Electrons Part 3
EWPC: People Coordinating and Cooperating with Electrons Part 2
EWPC: People Coordinating and Cooperating with Electrons
© 2007. José Antonio Vanderhorst-Silverio, Ph.D.
martes, enero 02, 2007
EWPC: People Coordinating and Cooperating with Electrons Part 5
Reference: Playing with Fire - The 10 Tcf/year Supply Gap -- Part I
James said, "My intention is not to convince Professor Banks… is to challenge his assertions with which I disagree. Thousands of people read these forums, and I think it is a bad idea for them to get the impression that… Banks reflects the prevailing consensus. Frankly, I expected a more spirited clash. He merely makes pronouncements with little support and fails to respond to my rejoinders."
As I will show, readers can reverse Banks and Carson’s names without any loss of generality. That shows that Jim opinion does not reflect the prevailing consensus either.” Bad ideas “must be killed, the sooner the better.”
After working for 30 years at FPC and at FERC, Jack Duckworth – a professional engineer, not a politician - predicted the 14th August Blackout in the very illuminating article The Fatal Flaw in Electric Power Deregulation. Mr. Duckworth said that “[D]eregulation can work, but it will not work unless those overseeing the deregulation initiative recognize the inherent flaw and install a mechanism that will fill the gap by guaranteeing the availability of electric power without guaranteeing the price.”
As a mechanism, he said: “When I saw in 2001 that the market was failing to ensure adequate generating reserve margins, I proposed in my book, Power to the People, that the government put national rules in place that would require any power generating company to maintain a set reserve generating capacity margin as a condition of doing business. Such a mandatory reserve margin would ensure that there could never be a disastrous shortage of supply that could blackout an entire electric power supply region. It would also ensure a level field for all competing generating companies.”
This is what Jim, the practical analyst, advised to all readers of EnergyPulse on Feb 18, 2003:
Sorry, I did not find this article at all illuminating.
James said, "My intention is not to convince Professor Banks… is to challenge his assertions with which I disagree. Thousands of people read these forums, and I think it is a bad idea for them to get the impression that… Banks reflects the prevailing consensus. Frankly, I expected a more spirited clash. He merely makes pronouncements with little support and fails to respond to my rejoinders."
As I will show, readers can reverse Banks and Carson’s names without any loss of generality. That shows that Jim opinion does not reflect the prevailing consensus either.” Bad ideas “must be killed, the sooner the better.”
After working for 30 years at FPC and at FERC, Jack Duckworth – a professional engineer, not a politician - predicted the 14th August Blackout in the very illuminating article The Fatal Flaw in Electric Power Deregulation. Mr. Duckworth said that “[D]eregulation can work, but it will not work unless those overseeing the deregulation initiative recognize the inherent flaw and install a mechanism that will fill the gap by guaranteeing the availability of electric power without guaranteeing the price.”
As a mechanism, he said: “When I saw in 2001 that the market was failing to ensure adequate generating reserve margins, I proposed in my book, Power to the People, that the government put national rules in place that would require any power generating company to maintain a set reserve generating capacity margin as a condition of doing business. Such a mandatory reserve margin would ensure that there could never be a disastrous shortage of supply that could blackout an entire electric power supply region. It would also ensure a level field for all competing generating companies.”
This is what Jim, the practical analyst, advised to all readers of EnergyPulse on Feb 18, 2003:
Sorry, I did not find this article at all illuminating.
The principal objection appears to be that reliability is not considered in the market price of power, and cannot be. This is true, as far as it goes. However, there are several market mechanisms that have been developed that specifically address this.
First, capacity. It is not perfect, but it does work after a fashion. More work must be done to improve this mechanism.
Seond, spinning reserve markets are already functioning in PJM and, I believe, ERCOT. So far, so good on these efforts. The notion that electricity is somehow 'different' from other commodities must be killed, the sooner the better. One could make the similar points about wheat and natural gas. Indeed, the histories of both of those commodities are replete with similar concerns.
Power as a commodity is distinguished by two 'interesting' features, both of which contribute to its incredible volatility. First, with a few exceptions, power cannot be stored. However, now that we have functioning markets, we can measure the value of storage. I have already worked on one project that required an estimate of the value of storage.
Second, the elasticity of the demand curve at any particular moment for power is essentially zero. That is, a marginal change in price produces no change whatsoever in demand. Even a large change in price produces no change in demand. That is why the marketplace is working so hard on 'demand side' management programs. Again, the market is responding, albeit slowly.
James Carson JBCarson@RisQuant.com
EWPC: People Coordinating and Cooperating with Electrons Part 4
The IEEE Spectrum Online, Tech Talk, a weekly Blog, discussing topics chosen by Susan Hassler, IEEE Spectrum's Editor-in-Chief, issued on October 13th the post FINAL REPORT: BLACKOUT ACTION NEEDED, where I added the only three comments posted so far. I suggest reading those comments too, if you are interested in the generative dialogue.
Jim Carson seems to enter into a very radical opinion when he says that “We do NOT need yet ANOTHER investigation. The blackout has been investigated ad nauseum. We already know what happened.”
As can be seen in the Final Report, however, a totally different story exists: “… the ultimate impact of the source failure was compounded by "long-standing institutional failures and weaknesses that need to be understood and corrected in order to maintain reliability.”
Secretary Bodman is more conservative than Jim when he says “I appreciate the hard work and diligence that went into this important report. It demonstrates that while improvements are being made to enhance grid reliability, we still have a very complex system that is subject to possible mechanical and human failures. We must remain vigilant." Phrases like “need to be understood,” “very complex system,” “must remain vigilant,” denote that they still don’t know what happened.
In addition, admission that there are "long-standing institutional failures and weaknesses that need to be understood and corrected in order to maintain reliability,” can be the ground for an independent investigation, or better yet a generative dialogue by itself, which I repeat “… should consider fully both the institutional memory and the sound research done by Fred C. Schweppe and colleagues, from 1978-1988, not in a debate, but in a generative dialogue, to resolve most of the flaws identified by Casazza, Delea and Loehr, and also to break the barriers to the emergent innovations flowing into the industry.”
Since the Final Report stresses that “… we have a very complex system…,” I also reiterate that “[S]ystemic thinking, scenarios, system dynamics, mental models are tools to help us approach system complexity. An explanation based on simple cause and effect, mechanistic thinking, is generally insufficient to explain system complexity…”
I am willing to change my opinion to change the need for an independent investigation to that of generative dialogue, and the remaining sentence would read “[T]hose tools should be used fully, since “[a generative dialogue] is needed of all the issues raised by the blackout and other reliability problems to ascertain that all necessary remedial actions have been taken, as PEST suggest and the GMH extends.”
© 2007. José Antonio Vanderhorst Silverio, Ph.D.
Jim Carson seems to enter into a very radical opinion when he says that “We do NOT need yet ANOTHER investigation. The blackout has been investigated ad nauseum. We already know what happened.”
As can be seen in the Final Report, however, a totally different story exists: “… the ultimate impact of the source failure was compounded by "long-standing institutional failures and weaknesses that need to be understood and corrected in order to maintain reliability.”
Secretary Bodman is more conservative than Jim when he says “I appreciate the hard work and diligence that went into this important report. It demonstrates that while improvements are being made to enhance grid reliability, we still have a very complex system that is subject to possible mechanical and human failures. We must remain vigilant." Phrases like “need to be understood,” “very complex system,” “must remain vigilant,” denote that they still don’t know what happened.
In addition, admission that there are "long-standing institutional failures and weaknesses that need to be understood and corrected in order to maintain reliability,” can be the ground for an independent investigation, or better yet a generative dialogue by itself, which I repeat “… should consider fully both the institutional memory and the sound research done by Fred C. Schweppe and colleagues, from 1978-1988, not in a debate, but in a generative dialogue, to resolve most of the flaws identified by Casazza, Delea and Loehr, and also to break the barriers to the emergent innovations flowing into the industry.”
Since the Final Report stresses that “… we have a very complex system…,” I also reiterate that “[S]ystemic thinking, scenarios, system dynamics, mental models are tools to help us approach system complexity. An explanation based on simple cause and effect, mechanistic thinking, is generally insufficient to explain system complexity…”
I am willing to change my opinion to change the need for an independent investigation to that of generative dialogue, and the remaining sentence would read “[T]hose tools should be used fully, since “[a generative dialogue] is needed of all the issues raised by the blackout and other reliability problems to ascertain that all necessary remedial actions have been taken, as PEST suggest and the GMH extends.”
© 2007. José Antonio Vanderhorst Silverio, Ph.D.
Opinión sobre la Opinión
Por César Féliz,
Apreciados todos:
Vivir en una sociedad plural impone asumir que lo absolutamente respetable son las personas, no sus opiniones, y que el derecho a la propia opinión consiste en que ésta sea escuchada y discutida, no en que se la vea pasar sin tocarla como si de una vaca sagrada se tratase.
Lo que debemos fomentar no es la disposición a establecer irrevocablemente lo que se ha elegido pensar, sino la capacidad de participar fructíferamente en una controversia razonada, aunque ello "hiera" algunos de nuestros dogmas personales o familiares. Aprender a discutir, a refutar y a justificar lo que se piensa debe ser parte irrenunciable de cualquier ser humano. Para ello no basta saber expresarse con claridad y precisión (aunque sea primordial, tanto por escrito como oralmente) y someterse a las mismas exigencias de inteligibilidad que se piden a los otros, sino que también hay que desarrollar la facultad de escuchar lo que se propone en el palenque discursivo.
No se trata de patentar una comunidad de autistas celosamente clausurados en sus "respetables" opiniones propias, sino de propiciar la disposición a participar lealmente en coloquios razonables y a buscar en común una verdad que no tenga dueño y que procure no hacer esclavos. Desde luego amigos, tal disposición debe encontrar su primer ejemplo en la propia actitud de quienes han tenido y tienen el privilegio de dirigir o haber dirigido, en el caso que nos ocupa la cosa pública, firmeza en lo que se sabe pero dispuesto a debatirlo e incluso modificarlo en el transcurso con la ayuda de los demás si fuese necesario; para eso definitivamente se necesita tener entereza y temple. Y no hay que temer que ese espíritu crítico lleve al puro nihilismo indisciplinado, porque si es auténtico más bien previene contra él.
Escuchemos una vez más la sensatez de Jhon Passmore, cuando dice:
Con afectos para todos
Apreciados todos:
Vivir en una sociedad plural impone asumir que lo absolutamente respetable son las personas, no sus opiniones, y que el derecho a la propia opinión consiste en que ésta sea escuchada y discutida, no en que se la vea pasar sin tocarla como si de una vaca sagrada se tratase.
Lo que debemos fomentar no es la disposición a establecer irrevocablemente lo que se ha elegido pensar, sino la capacidad de participar fructíferamente en una controversia razonada, aunque ello "hiera" algunos de nuestros dogmas personales o familiares. Aprender a discutir, a refutar y a justificar lo que se piensa debe ser parte irrenunciable de cualquier ser humano. Para ello no basta saber expresarse con claridad y precisión (aunque sea primordial, tanto por escrito como oralmente) y someterse a las mismas exigencias de inteligibilidad que se piden a los otros, sino que también hay que desarrollar la facultad de escuchar lo que se propone en el palenque discursivo.
No se trata de patentar una comunidad de autistas celosamente clausurados en sus "respetables" opiniones propias, sino de propiciar la disposición a participar lealmente en coloquios razonables y a buscar en común una verdad que no tenga dueño y que procure no hacer esclavos. Desde luego amigos, tal disposición debe encontrar su primer ejemplo en la propia actitud de quienes han tenido y tienen el privilegio de dirigir o haber dirigido, en el caso que nos ocupa la cosa pública, firmeza en lo que se sabe pero dispuesto a debatirlo e incluso modificarlo en el transcurso con la ayuda de los demás si fuese necesario; para eso definitivamente se necesita tener entereza y temple. Y no hay que temer que ese espíritu crítico lleve al puro nihilismo indisciplinado, porque si es auténtico más bien previene contra él.
Escuchemos una vez más la sensatez de Jhon Passmore, cuando dice:
Aceptemos que la persona que es un crítico especialmente dotado suele ser destructora. Pero, al menos esperémoslo así, destructora de la verborrea, de lo pretencioso, de la hipocresía, del conservadurismo complaciente y del radicalismo fantasioso. Si como resultado de ser crítico puede ayudar a destruir estos pecados capitales antes de que destruyan a la sociedad humana, tanto mejor.Para finalizar apreciados amigos, quiero decirles, que los humanos no somos problemas o ecuaciones, sino historias; nos parecemos menos a las cuentas que a los cuentos, de manera que lo que hagamos debe estar vinculado al pasado, y a los cambios que han acompañado su desarrollo, quizá sólo así podríamos tener un presente exitoso y liberarnos de la incertidumbre futura.
Con afectos para todos
lunes, enero 01, 2007
EWPC: People Coordinating and Cooperating with Electrons Part 3
Reference: Playing with Fire - The 10 Tcf/year Supply Gap -- Part I
To all readers that want to learn about the third way of deregulation
To complement the posts EWPC: People Coordinating and Cooperating with Electrons and EWPC: People Coordinating and Cooperating with Electrons Part 2, in chapter one of their book, Rechtin and Maeir define ultraquality “as a level of quality so demanding that it is impractical to measure defects, much less certify a system prior to use.” On a note to the definition they say ultraquality “was discussed extensively by Juran…”
They add that “Demonstrating this limit state in high quality is not a simple extension of existing quality measures… because system complexity has outpaced instrument accuracy.”
Systemic thinking, scenarios, system dynamics, mental models are tools to help us approach system complexity. An explanation based on simple cause and effect, mechanistic thinking, is generally insufficient to explain system complexity. Those tools should be used fully, since “[a]n independent investigation is needed of all the issues raised by the blackout and other reliability problems to ascertain that all necessary remedial actions have been taken, as PEST suggest and the GMH extends.”
To all readers that want to learn about the third way of deregulation
To complement the posts EWPC: People Coordinating and Cooperating with Electrons and EWPC: People Coordinating and Cooperating with Electrons Part 2, in chapter one of their book, Rechtin and Maeir define ultraquality “as a level of quality so demanding that it is impractical to measure defects, much less certify a system prior to use.” On a note to the definition they say ultraquality “was discussed extensively by Juran…”
They add that “Demonstrating this limit state in high quality is not a simple extension of existing quality measures… because system complexity has outpaced instrument accuracy.”
Systemic thinking, scenarios, system dynamics, mental models are tools to help us approach system complexity. An explanation based on simple cause and effect, mechanistic thinking, is generally insufficient to explain system complexity. Those tools should be used fully, since “[a]n independent investigation is needed of all the issues raised by the blackout and other reliability problems to ascertain that all necessary remedial actions have been taken, as PEST suggest and the GMH extends.”
domingo, diciembre 31, 2006
EWPC: People Coordinating and Cooperating with Electrons Part 2
Reference: Playing with Fire - The 10 Tcf/year Supply Gap -- Part I
To all readers that want to learn about the third way of deregulation
Eberhart Rechtin and Mark Maier, in their book “The Art of System Architecting,” explain that “social system quality… is less a foundation than a case-by-case trade-off; that is, the quality desired depends on the system to be provided. In nuclear power generation, modern manufacturing, and manned space flight, ultraquality is an imperative. But in public health, pollution control, and safety, the level of acceptable quality is only one of many economic, social, political, and technical factors to be accommodated.” [I published this insight on march this year at the Academy of Science of the Dominican Republic.]
In the first case, the experts are the engineers. For the center stage, controlled market, system engineer institution to assures that electrons and people have the same purpose, as I mentioned on 12.30.06, ultraquality is an imperative to manage short run and long run systemic risk, with both supply side and demand side resources.
In the second case, according to Rechtin and Maier, the accommodation is done by the architect with “a professional response to the public needs and perceptions.” It is such unjustified perceptions that fueled the decade long debate. Bill Hogan mistake was that he didn’t understand what Fred Schweppe meant by the fourth criterion: “consider the engineering requirements for controlling, operating and planning an electric power system,” which can only be met by ultraquality. As time has advanced and new digital technology market share becomes larger, electricity demand for quality is only increasing. A professional response is needed, however, for the remaining, non real-time, free market activities of retail and generation. EWPC for the customers is such a response.
PEST engineers are correct when they say that “'Deregulation and the concomitant restructuring of the electric power industry in the United States have resulted in a decline in the reliability of North American bulk power systems and constitute the ultimate root cause of the California meltdown, Enron's depredations, and the 14 August 2003 blackout.”
In al three cases mentioned by PEST, the root cause is the lack of ultraquality. First the lack of ultraquality “stressed the system.” Had the past decade been used to developed elasticity in the resources of the demand side true, none of the three cases had resulted. The decline in reliability when the system is stressed led to price spikes. Instead of changing from stage 1, to stage 2, to stage 3, California just needed to rotate blackouts and compensate the customers’ interruptions.
While PEST can be tagged as pinning for the good old days, by no means are they silly. Engineering manpower and institutional memory has suffered a lot in the power industry worldwide under deregulation. 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.
© 2006. José Antonio Vanderhorst-Silverio, PhD.
To all readers that want to learn about the third way of deregulation
Eberhart Rechtin and Mark Maier, in their book “The Art of System Architecting,” explain that “social system quality… is less a foundation than a case-by-case trade-off; that is, the quality desired depends on the system to be provided. In nuclear power generation, modern manufacturing, and manned space flight, ultraquality is an imperative. But in public health, pollution control, and safety, the level of acceptable quality is only one of many economic, social, political, and technical factors to be accommodated.” [I published this insight on march this year at the Academy of Science of the Dominican Republic.]
In the first case, the experts are the engineers. For the center stage, controlled market, system engineer institution to assures that electrons and people have the same purpose, as I mentioned on 12.30.06, ultraquality is an imperative to manage short run and long run systemic risk, with both supply side and demand side resources.
In the second case, according to Rechtin and Maier, the accommodation is done by the architect with “a professional response to the public needs and perceptions.” It is such unjustified perceptions that fueled the decade long debate. Bill Hogan mistake was that he didn’t understand what Fred Schweppe meant by the fourth criterion: “consider the engineering requirements for controlling, operating and planning an electric power system,” which can only be met by ultraquality. As time has advanced and new digital technology market share becomes larger, electricity demand for quality is only increasing. A professional response is needed, however, for the remaining, non real-time, free market activities of retail and generation. EWPC for the customers is such a response.
PEST engineers are correct when they say that “'Deregulation and the concomitant restructuring of the electric power industry in the United States have resulted in a decline in the reliability of North American bulk power systems and constitute the ultimate root cause of the California meltdown, Enron's depredations, and the 14 August 2003 blackout.”
In al three cases mentioned by PEST, the root cause is the lack of ultraquality. First the lack of ultraquality “stressed the system.” Had the past decade been used to developed elasticity in the resources of the demand side true, none of the three cases had resulted. The decline in reliability when the system is stressed led to price spikes. Instead of changing from stage 1, to stage 2, to stage 3, California just needed to rotate blackouts and compensate the customers’ interruptions.
While PEST can be tagged as pinning for the good old days, by no means are they silly. Engineering manpower and institutional memory has suffered a lot in the power industry worldwide under deregulation. 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.
© 2006. José Antonio Vanderhorst-Silverio, PhD.
EWPC: People Coordinating and Cooperating with Electrons
Reference: Playing with Fire - The 10 Tcf/year Supply Gap -- Part I
To all readers that want to learn about the third way of deregulation
Jack Casazza, Frank Delea and George Loehr, of “Power Engineers Supporting Truth (PEST),” have written the article “Electrons Versus People: Which group is smarter?”, for the January-February 2007 issue, of the IEEE Power & Energy Magazine, “In my View” column.
While I strongly recommend reading and “listening openly” to what the authors say, I only quote incompletely the beginning and last paragraphs. The authors start by saying that: “Deregulation and the concomitant restructuring of the electric power industry in the United States have resulted in a decline in the reliability of North American bulk power systems and constitute the ultimate root cause of the California meltdown, Enron's depredations, and the 14 August 2003 blackout.”
As part of the decade old debate, done with faulty deregulation and restructuring, the authors conclude that “An independent investigation is needed of all the issues raised by the blackout and other reliability problems to ascertain that all necessary remedial actions have been taken.”
As can be seen in the book “Powerful Times: Rising to the Challenge of our Uncertain World,” written by Eamonn Kelly, CEO of Global Business Network, a renown futures network and scenario strategy consultant, there is a need to consider an emergent paradigm and creative destruction of the power industry.
The independent investigation should consider fully both the institutional memory and the sound research done by Fred C. Schweppe and colleagues, from 1978-1988, not in a debate, but in a generative dialogue, to resolve most of the flaws identified by Casazza, Delea and Loehr, and also to break the barriers to the emergent innovations flowing into the industry.
In one promising third way of deregulation mixed market architecture and design, centered on Electricity Without Price Controls (EWPC), NERC reliability activities are merged into the system engineer institution, which is in charge of managing short run and long run systemic risk, with both supply side and demand side resources. That center stage controlled market institution assures that electrons and people have the same purpose. Transportation (T&D) of electricity is an integrated monopoly responding to the system engineer institution and under a traditional regulator.
The free market, non real-time activities, restricted to the supply side resources (central watts and vars generation and storage, FACTS, etc.) and demand side resources (AMI, CIS, energy efficiency, demand response, distributed watts and vars generation and storage, etc.), also respond to the system engineer institution on matters of control, operations and planning, and to a prudential regulator on conduct of business, such as competition, market power, consumer protection, asset quality, etc.
As the readers of the comments under this article may recall, at the center of the suggested generative dialogue we have pending the following statement:
© 2006. José Antonio Vanderhorst-Silverio, PhD.
To all readers that want to learn about the third way of deregulation
Jack Casazza, Frank Delea and George Loehr, of “Power Engineers Supporting Truth (PEST),” have written the article “Electrons Versus People: Which group is smarter?”, for the January-February 2007 issue, of the IEEE Power & Energy Magazine, “In my View” column.
While I strongly recommend reading and “listening openly” to what the authors say, I only quote incompletely the beginning and last paragraphs. The authors start by saying that: “Deregulation and the concomitant restructuring of the electric power industry in the United States have resulted in a decline in the reliability of North American bulk power systems and constitute the ultimate root cause of the California meltdown, Enron's depredations, and the 14 August 2003 blackout.”
As part of the decade old debate, done with faulty deregulation and restructuring, the authors conclude that “An independent investigation is needed of all the issues raised by the blackout and other reliability problems to ascertain that all necessary remedial actions have been taken.”
As can be seen in the book “Powerful Times: Rising to the Challenge of our Uncertain World,” written by Eamonn Kelly, CEO of Global Business Network, a renown futures network and scenario strategy consultant, there is a need to consider an emergent paradigm and creative destruction of the power industry.
The independent investigation should consider fully both the institutional memory and the sound research done by Fred C. Schweppe and colleagues, from 1978-1988, not in a debate, but in a generative dialogue, to resolve most of the flaws identified by Casazza, Delea and Loehr, and also to break the barriers to the emergent innovations flowing into the industry.
In one promising third way of deregulation mixed market architecture and design, centered on Electricity Without Price Controls (EWPC), NERC reliability activities are merged into the system engineer institution, which is in charge of managing short run and long run systemic risk, with both supply side and demand side resources. That center stage controlled market institution assures that electrons and people have the same purpose. Transportation (T&D) of electricity is an integrated monopoly responding to the system engineer institution and under a traditional regulator.
The free market, non real-time activities, restricted to the supply side resources (central watts and vars generation and storage, FACTS, etc.) and demand side resources (AMI, CIS, energy efficiency, demand response, distributed watts and vars generation and storage, etc.), also respond to the system engineer institution on matters of control, operations and planning, and to a prudential regulator on conduct of business, such as competition, market power, consumer protection, asset quality, etc.
As the readers of the comments under this article may recall, at the center of the suggested generative dialogue we have pending the following statement:
IRRESPECTIVE OF LOCATION, THE BEST INVESTMENT STRATEGY FOR AN ELECTRIC POWER SYSTEM WITH THE APPROPIATE MARKET RCHITECTURE AND DESIGN IS A MIX OF INVESTMENTS ON THE DEVELOPMENT OF THE RESOURCES OF THE DEMAND SIDE AND INVESTMENTS ON THE DEVELOPMENT OF THE RESOURCES OF THE SUPPLY SIDE THAT REDUCES SHORT RUN AND LONG RUN SYSTEMIC RISK WHILE SOCIETY RECEIVES THE MAXIMUM VALUE FROM ELECTRICITY.
© 2006. José Antonio Vanderhorst-Silverio, PhD.
viernes, diciembre 29, 2006
A Generative Dialogue Without Illusions Part 6
Jim,
I perceive that you don’t really want, or are not prepared, or your terms of reference bind you somehow, to engage in a generative dialogue. I sense you want to debate. If that is the case, we will get into a stalemate very fast. I don’t have the time that Fred has to debate. While you are a practical analyst and I just try to be without illusions. That is why I am saving my posts as:
A Generative Dialogue Without Illusions Part 5
A Generative Dialogue Without Illusions Part 4
A Generative Dialogue Without Illusions Part 3
A Generative Dialogue Without Illusions Part 2
A Generative Dialogue Without Illusions Part 1
Given the above, I won’t engage to your complete response. So, I will write just a few paragraphs.
You said earlier “I see the flaws, and the benefits, of the current architecture in the US more clearly than just about anyone. However, your phrase 'without selfish components' makes me squirm.” I know that there is no such thing as the current architecture, but for simplicity I called it Space B. Space B is centered on open transmission access architecture. Essentially the whole point is that to make it stable you need to have more supply side reserves as in Space A o move to Space C by investing in demand response. In both cases you are investing in physical risk management.
On 12.17.06 above, I said the following: “Ferdinand, please take the whole sentence and the context in consideration… You seem to be right under a mechanistic thinking mental model that doesn’t consider the environment. However, under a systemic thinking mental model, the interdependencies are very important…” Your opinions are very similar to that of Fred. They are great tools for debates that get stuck.
If you read the whole comments, and not part by part as independent elements you will see the answers to your questions, if you are on the positive generative dialogue. If you have done that, even with my difficulties with the language, you will know that there was no a need to elucidate, as the idea of “system destruction” is developed in that paragraph of “selfish components” and reinforced in the next 2 paragraphs.
Please advise if you “want to learn about the third way of deregulation,” as I suggested on 12.27.06. If so, please read about what I believe was Bill Hogan’s great mistake, that changed the industry and led to the decade old debate.
With a lot of respect,
José Antonio
I perceive that you don’t really want, or are not prepared, or your terms of reference bind you somehow, to engage in a generative dialogue. I sense you want to debate. If that is the case, we will get into a stalemate very fast. I don’t have the time that Fred has to debate. While you are a practical analyst and I just try to be without illusions. That is why I am saving my posts as:
A Generative Dialogue Without Illusions Part 5
A Generative Dialogue Without Illusions Part 4
A Generative Dialogue Without Illusions Part 3
A Generative Dialogue Without Illusions Part 2
A Generative Dialogue Without Illusions Part 1
Given the above, I won’t engage to your complete response. So, I will write just a few paragraphs.
You said earlier “I see the flaws, and the benefits, of the current architecture in the US more clearly than just about anyone. However, your phrase 'without selfish components' makes me squirm.” I know that there is no such thing as the current architecture, but for simplicity I called it Space B. Space B is centered on open transmission access architecture. Essentially the whole point is that to make it stable you need to have more supply side reserves as in Space A o move to Space C by investing in demand response. In both cases you are investing in physical risk management.
On 12.17.06 above, I said the following: “Ferdinand, please take the whole sentence and the context in consideration… You seem to be right under a mechanistic thinking mental model that doesn’t consider the environment. However, under a systemic thinking mental model, the interdependencies are very important…” Your opinions are very similar to that of Fred. They are great tools for debates that get stuck.
If you read the whole comments, and not part by part as independent elements you will see the answers to your questions, if you are on the positive generative dialogue. If you have done that, even with my difficulties with the language, you will know that there was no a need to elucidate, as the idea of “system destruction” is developed in that paragraph of “selfish components” and reinforced in the next 2 paragraphs.
Please advise if you “want to learn about the third way of deregulation,” as I suggested on 12.27.06. If so, please read about what I believe was Bill Hogan’s great mistake, that changed the industry and led to the decade old debate.
With a lot of respect,
José Antonio
A Generative Dialogue Without Illusions Part 5
Jim, Len, and other readers,
A few more lines added for Jim after lunch. I will wait on Len promised article.
There is a difference between "selfish components" and "selfish components that destroy the system." Another name for demand response is price demand elasticity. California deregulation was an incomplete market without enough demand elasticity that had a "native" selfish component that destroyed the system. Your example of Enron is perfect, but the insight seems to be that of a contradictory scenario.
Acording to Eamon Kelly in his book “Powerful Times: Rising to the Challenge of our Uncertain World,” page 35, Winston Churchill said: “A lie gets halfway around the world before the truth has a chance to get its coat on.” On page 36, Kelly says that “Conspiracy theories can, ironically, provide an ordered framework with which to understand chaotic events.” I will make an exception to my opinion that “debates are over.” So, under the principle that I am not my opinion, let’s try to find an alternative explanation scenario.
Picture yourself in the year 2000, and as a practical analyst that knew about the protection inherent in utility regulation and also knew what had happen in the US midwest in the summers of 1998 and 1999. You also knew what I said above on 12.21.06 that starts as “The debate in California has changed remarkably over the past year or two. Discussion now focuses not on whether retail competition or direct access is possible, but on how to make it happen. The three California investor-owned utilities affected by the commission's decision convened an industry working group, called the Western Power Exchange (Wepex) to address the issues related to implementing the new competitive retail market.” Please answer, to the best of your knowledge, if there might be some ground for a complot theory on which Enron was a just a casualty.
I agree that under Space B there are winners and losers. Read Donella Meadows article to see that big industry is supposed to receive the benefit of Space B. Systems like PJM, the role model of SMD, is stable by having excessive reserves. My son tells me that his residential rates in Pittsburgh were very high. Coal stations have low variable costs, but people health costs in their neighborhoods are much higher than without. No to mention, Andy's expected carbon tax that Congress seems to be working on.
Retail competition under Space B is pretty meager. Not so in Space D, where business design innovations, on the development of the resources of the demand side, will result in creative destruction of the power industry.
That’s it for now.
Happy New Year,
José Antonio
A few more lines added for Jim after lunch. I will wait on Len promised article.
There is a difference between "selfish components" and "selfish components that destroy the system." Another name for demand response is price demand elasticity. California deregulation was an incomplete market without enough demand elasticity that had a "native" selfish component that destroyed the system. Your example of Enron is perfect, but the insight seems to be that of a contradictory scenario.
Acording to Eamon Kelly in his book “Powerful Times: Rising to the Challenge of our Uncertain World,” page 35, Winston Churchill said: “A lie gets halfway around the world before the truth has a chance to get its coat on.” On page 36, Kelly says that “Conspiracy theories can, ironically, provide an ordered framework with which to understand chaotic events.” I will make an exception to my opinion that “debates are over.” So, under the principle that I am not my opinion, let’s try to find an alternative explanation scenario.
Picture yourself in the year 2000, and as a practical analyst that knew about the protection inherent in utility regulation and also knew what had happen in the US midwest in the summers of 1998 and 1999. You also knew what I said above on 12.21.06 that starts as “The debate in California has changed remarkably over the past year or two. Discussion now focuses not on whether retail competition or direct access is possible, but on how to make it happen. The three California investor-owned utilities affected by the commission's decision convened an industry working group, called the Western Power Exchange (Wepex) to address the issues related to implementing the new competitive retail market.” Please answer, to the best of your knowledge, if there might be some ground for a complot theory on which Enron was a just a casualty.
I agree that under Space B there are winners and losers. Read Donella Meadows article to see that big industry is supposed to receive the benefit of Space B. Systems like PJM, the role model of SMD, is stable by having excessive reserves. My son tells me that his residential rates in Pittsburgh were very high. Coal stations have low variable costs, but people health costs in their neighborhoods are much higher than without. No to mention, Andy's expected carbon tax that Congress seems to be working on.
Retail competition under Space B is pretty meager. Not so in Space D, where business design innovations, on the development of the resources of the demand side, will result in creative destruction of the power industry.
That’s it for now.
Happy New Year,
José Antonio
A Generative Dialogue Without Illusions Part 4
Reference: Playing with Fire - The 10 Tcf/year Supply Gap -- Part I
Thanks James for your comments.
Go back to part 2 of my comments. Spaces A, C and D are stable architecture. Space B is unstable: as price increase, system reliability decrease. That is a counterintuitive systemic behavior. Trying to make stable there is a movement from Space B to Space C, which is at the core of the afterthought in the 2005 Energy Bill, which resulted in Bruneto & Wimberly’s article.
Bruneto & Wimberly explain that to get to Space C, the process of evaluating and implementing DR is less complex, than the “current” - Space B - architecture in the US. However, under the EWPC environment, the process of evaluating and implementing DR is not only less complex than in Space C, but also more efficient in the long run as we get to the End-State - Space D - of the electricity industry. The benefits are shared among two major stakeholders, the consumer and the competitive retailer under EWPC, instead of three major stakeholders – customer, monopoly distributor, and regulator, under a fully regulated environment.
LMP theory and practice comes from Fred C. Schweppe as the leader of the spot pricing of electricity research at MIT. LMP without DR leads to an incomplete – Space B - market. When you say “[T]hen, the household could respond to that price signal,” you are, like it or not, using Fred Schweppe’s – Space C - theory. As you can see a practical analyst has mental models - theories in use – to suggest decisions. Some of those theories - beliefs -are flawed when policies interact with each other in dynamic systemic ways on complex systems, as the counterintuitive behavior of Space B referred above.
I agree that under the flawed “current” market design and architecture it is politically impossible to implement a market structure without maximum prices. That happened because Schweppe insights were not taken into consideration. Space C was “bypassed” (Schweppe recommended A to C to D) and innovation was foreclosed, as the three California utilities preserve their “native” loads and delay innovation one decade, keeping alive a totally unnecessary debate.
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
Regards,
José Antonio
Thanks James for your comments.
Go back to part 2 of my comments. Spaces A, C and D are stable architecture. Space B is unstable: as price increase, system reliability decrease. That is a counterintuitive systemic behavior. Trying to make stable there is a movement from Space B to Space C, which is at the core of the afterthought in the 2005 Energy Bill, which resulted in Bruneto & Wimberly’s article.
Bruneto & Wimberly explain that to get to Space C, the process of evaluating and implementing DR is less complex, than the “current” - Space B - architecture in the US. However, under the EWPC environment, the process of evaluating and implementing DR is not only less complex than in Space C, but also more efficient in the long run as we get to the End-State - Space D - of the electricity industry. The benefits are shared among two major stakeholders, the consumer and the competitive retailer under EWPC, instead of three major stakeholders – customer, monopoly distributor, and regulator, under a fully regulated environment.
LMP theory and practice comes from Fred C. Schweppe as the leader of the spot pricing of electricity research at MIT. LMP without DR leads to an incomplete – Space B - market. When you say “[T]hen, the household could respond to that price signal,” you are, like it or not, using Fred Schweppe’s – Space C - theory. As you can see a practical analyst has mental models - theories in use – to suggest decisions. Some of those theories - beliefs -are flawed when policies interact with each other in dynamic systemic ways on complex systems, as the counterintuitive behavior of Space B referred above.
I agree that under the flawed “current” market design and architecture it is politically impossible to implement a market structure without maximum prices. That happened because Schweppe insights were not taken into consideration. Space C was “bypassed” (Schweppe recommended A to C to D) and innovation was foreclosed, as the three California utilities preserve their “native” loads and delay innovation one decade, keeping alive a totally unnecessary debate.
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
Regards,
José Antonio
jueves, diciembre 28, 2006
A Generative Dialogue Without Illusions Part 3
Part 3 of 3.
Among the thing that I have done is recognize that Space C is no longer advisable and that all of the retail activities, including CIS, AMI, etc. should belong to a competitive entity. This is what I said then:
What should have emerged in the 90s is still waiting to emerge, except that now the 2005 Energy Bill favors Demand Response. Most of the damage done seems that it cannot be undone. Experts, like Jack Casazza, claim that the agreements of the “weird sort” (Fred’s term) are like scramble eggs, which can be unscrambled. However, new developments as those reported by David Cay Johnston that says “A federal appeals court yesterday called into question the government’s efforts to change the power industry into a more competitive business, ruling that national energy officials abdicated their responsibility to ensure fair electricity markets,” may help unscrambled them.
You are really a late comer. In the past year I have written comments at length in support of EWPC in EnergyPulse. I suggest that you take your time and read as much as you can to get up to speed.
Don’t forget the most important rule of the generative dialogue: you are not your opinion. This of course applies to me and everybody else too.
Regards,
José Antonio
© 2006. José Antonio Vanderhorst-Silverio, PhD
As you will see, moving from the regulated Space A to the regulated Space C involves a very large undertaking, while moving from Space C to Space to D no such a large one. The regulated (Space C: see page 11 of Spot Pricing of Electricity) “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.”
Among the thing that I have done is recognize that Space C is no longer advisable and that all of the retail activities, including CIS, AMI, etc. should belong to a competitive entity. This is what I said then:
My hypothesis is that time and reality are given us the opportunity to bypass Space C and go directly to Space D. It does not make any sense today to develop a Regulated Spot Price Based Energy Marketplace. It does not make any sense either to stay at Space A. Maybe my contribution, if there is one, is recognizing that a very simple restructuring, which keeps the wires utility out of the competitive business, creates an opportunity for retail marketers to develop the Deregulated Spot Price Based Energy Marketplace. That I suggest is the required change in firm organization that goes satisfies the control scheme, on the need to develop the corresponding innovative business models.By the way, on 1.7.06, Fred said: “Sorry José, but you'll have to take this discussion up with somebody else.” I am glad that you would like to take it from the faulty end of the deregulation spectrum.
What should have emerged in the 90s is still waiting to emerge, except that now the 2005 Energy Bill favors Demand Response. Most of the damage done seems that it cannot be undone. Experts, like Jack Casazza, claim that the agreements of the “weird sort” (Fred’s term) are like scramble eggs, which can be unscrambled. However, new developments as those reported by David Cay Johnston that says “A federal appeals court yesterday called into question the government’s efforts to change the power industry into a more competitive business, ruling that national energy officials abdicated their responsibility to ensure fair electricity markets,” may help unscrambled them.
You are really a late comer. In the past year I have written comments at length in support of EWPC in EnergyPulse. I suggest that you take your time and read as much as you can to get up to speed.
Don’t forget the most important rule of the generative dialogue: you are not your opinion. This of course applies to me and everybody else too.
Regards,
José Antonio
© 2006. José Antonio Vanderhorst-Silverio, PhD
A Generative Dialogue Without Illusions Part 2
Part 2 of 3.
On systemic risk see my answer to Fred about his expertise on risk management and his lack of knowledge hidden under engineering knowledge. I think that what I have done so far is: “cracking through the egg shell (title of a chapter of solving tough problems)” of the power industry. That is the missing side of your “world … the bone and gristle world of decisions.”
Andy started his article with the following sentence: “This is the first of a four part series of articles on the natural gas and electricity price and supply risks facing the U.S. economy. The first article provides an overview and summary.” If we apply the expected long run natural gas price and supply risks to the electricity industry, there is a big difference between the decade old debate and a generative dialogue to “reassess the likely long-term prospects for price and supply in the U.S. market,” as Andy puts it.
At the center of the decade old deregulation debate, the research and practice suggested by Fred C. Schweppe and his colleagues in the 1988 book Spot Pricing of Electricity was in general bypassed. That is exactly what PA Consulting Viepoint on Energy is saying now.
My article An Alternative Business Case for Demand Response, a rebuttal to The Business Case for Demand Response, by Thomas Brunetto, Managing Director and Jamie Wimberly, CEO, both of Distributed Energy Financial Group, was the first stake on the “ground” that led to the emerging EWPC model. As you can see from what I said to be the “Key issue” in my post you refer to, it is Mr. Wimberly who acknowledges an emergent revolution away from the continuity scenario, which the Deloitte Research Energy Study identified in the 2005-2010.
Schweppe’s insights were to be applied first to a transformation of the vertically integrated utility by developing a spot price energy marketplace. As can be seen from my comments of 12.27.05 to Mr. Martin-Giraldo under A Few More Unfriendly Comments on Electric Deregulation, written by Fred, all deregulation experiments were based on jumping to the wrong conclusions. This is part of what I posted at that time:
Quote completed on next paragraph…
On systemic risk see my answer to Fred about his expertise on risk management and his lack of knowledge hidden under engineering knowledge. I think that what I have done so far is: “cracking through the egg shell (title of a chapter of solving tough problems)” of the power industry. That is the missing side of your “world … the bone and gristle world of decisions.”
Andy started his article with the following sentence: “This is the first of a four part series of articles on the natural gas and electricity price and supply risks facing the U.S. economy. The first article provides an overview and summary.” If we apply the expected long run natural gas price and supply risks to the electricity industry, there is a big difference between the decade old debate and a generative dialogue to “reassess the likely long-term prospects for price and supply in the U.S. market,” as Andy puts it.
At the center of the decade old deregulation debate, the research and practice suggested by Fred C. Schweppe and his colleagues in the 1988 book Spot Pricing of Electricity was in general bypassed. That is exactly what PA Consulting Viepoint on Energy is saying now.
My article An Alternative Business Case for Demand Response, a rebuttal to The Business Case for Demand Response, by Thomas Brunetto, Managing Director and Jamie Wimberly, CEO, both of Distributed Energy Financial Group, was the first stake on the “ground” that led to the emerging EWPC model. As you can see from what I said to be the “Key issue” in my post you refer to, it is Mr. Wimberly who acknowledges an emergent revolution away from the continuity scenario, which the Deloitte Research Energy Study identified in the 2005-2010.
Schweppe’s insights were to be applied first to a transformation of the vertically integrated utility by developing a spot price energy marketplace. As can be seen from my comments of 12.27.05 to Mr. Martin-Giraldo under A Few More Unfriendly Comments on Electric Deregulation, written by Fred, all deregulation experiments were based on jumping to the wrong conclusions. This is part of what I posted at that time:
I believe there has been a big misunderstanding of Fred C. Schweppe proposal. Trying to clarify his proposal, lets consider four general structures for the electric business: A) a traditional vertical integrated utility; B) a faulty deregulation or re-regulation that keeps a largely irresponsive and obsolete utility business model; C) Fred C. Schweppe “Regulated Spot Price Based Energy Marketplace” with homeostatic utility controls, where the utility is the only middleman; and D) a true deregulated electricity market, with retailers innovative business models, without price controls, a new value chain (generator, retailer & customer), while re-regulating the wires monopoly.
Quote completed on next paragraph…
A Generative Dialogue Without Illusions Part 1
Thanks James for accepting the challenge of the generative dialogue. My world is that of an interdependent (systemic) consultant on electricity centered now on market design and architecture. I have “listen” closely to what you wrote and will also "listen" to any new perspective you may bring.
Part 1 of 3.
As I suggested under the article The Power Will Be There But Will It Get to Market?, please accept that the word debate has the meaning found in the suggested reading: generative dialogue paper by Adam Kahane, entitled "Changing the World by Changing How We Talk and Listen." Diagram "Four Ways of Talking and Listening," presented by Kahane in a 2003 conference.
I hope you understand now that under the generative dialogue debates based on the deregulation performance so far are completely misleading. A large part of the overcapacity is due to lack of knowledge of the utility industry by vested interests. In my opinion, debates on the decade old deregulation are over. Let’s do a generative dialogue on deregulation to create a new market architecture and design for the electricity system, without selfish components that destroy the system as W. Edward Deming would have said.
Under the article Condemned to the Fourth Quartile?, I wrote the following:
Part 1 of 3.
As I suggested under the article The Power Will Be There But Will It Get to Market?, please accept that the word debate has the meaning found in the suggested reading: generative dialogue paper by Adam Kahane, entitled "Changing the World by Changing How We Talk and Listen." Diagram "Four Ways of Talking and Listening," presented by Kahane in a 2003 conference.
I hope you understand now that under the generative dialogue debates based on the deregulation performance so far are completely misleading. A large part of the overcapacity is due to lack of knowledge of the utility industry by vested interests. In my opinion, debates on the decade old deregulation are over. Let’s do a generative dialogue on deregulation to create a new market architecture and design for the electricity system, without selfish components that destroy the system as W. Edward Deming would have said.
Under the article Condemned to the Fourth Quartile?, I wrote the following:
I found in the website an interesting paragraph in the introduction of the report "Viewpoint on Energy: shortages, surplus, and the search for value” of PA Consulting,” prepared by Todd Filsinger, Member del PA Management Group, to the article prepared by Edward Kee (also a member) entitled “Reaping the benefits of electricity industry reform: defining and limiting the use of price controls,” that says:
Deregulated wholesale electricity markets have come under attack for their perceived deficiencies. Edward argues that the competitive benefits of wholesale competition have never been realized because of the deleterious impact of retail market regulation and political interventions, which decouple the ultimate consumer from real-time market pricing, thwarting economically rational decisions on power consumption. He concludes that only when the retail customer is allowed to decide when and how much to consume based on the actual cost of providing that service, will the many promised benefits of competitive energy markets be realized.I believe that the paragraph can be taken as a useful contribution to the generative dialogue I proposed earlier in the post Let's Get Out of Back Rooms to a Generative Dialogue. A generative dialogue cannot be done by looking the issues in isolation topic by topic, but as a system, cutting across topics. Please follow the links on the post.
I work under the Koestenbaum strategy that says “reality means having no illusions.” I have “convinced” Fred many times. So, only once I see results, I will change my opinion when I see the consensus. In general, to fill in the content you will need to read a lot of my comments dispersed on EnergyPulse to make sense of EWPC and the rephrased argument. I know that I should start to write my book to make it easy for readers to make sense to EWPC.
miércoles, diciembre 27, 2006
Playing With Fire and Collapse Part 22
Reference: Playing with Fire - The 10 Tcf/year Supply Gap -- Part I
Part 2 of 2.
On 12.20.06, Fred wanted to restart the debate, but was unsuccessful. Len suddenly decided to take command and defend his baby project IMEUC as an emerging deregulation project, saying to Fred “I would like to submit that on de-regulation I believe you are wrong (and therefore naturally and to my regret, myself for a failing grade).”
On 12.21.06 I defused Prof. Banks argument about “NO TINKERING ON THE DEMAND SIDE CAN OFFSET THE GAMING AND LACK OF INVESTMENT ON THE SUPPLY SIDE!” He said nothing, which to the untrained eye means he accepted the arguments. However, being a great downloader he repeated it later on in response to James.
On 12.24.06 Mr. Carson came to respond Banks on the “NO TINKERING…” argument that he didn’t defend.
Trying to reframe the debate, on 12.25.06, I rephrased Fred’s “NO TINKERING…”argument in a generative dialogue sense. But, on 12.26.06, Mr. Carson’s did not “listen” as his aim was to keep debating.
Before completing my 12.26.06 response to Len, which starts with “Generative dialogue synthesis,” I said “I have ‘listened’ carefully to Len’s opinions and perceive that his interests, by going farther than necessary, go well beyond Phase One. Other parties representative of the larger whole – high social complexity - with different interests – regulators, generation of differing kinds, wholesale, retail, transmission, distribution, fuel supply, manufacturers of systems and equipments, etc. - are invited to participate in the generative dialogue.”
On 12.26.06 Len asked for a time out of “perhaps a couple of weeks…”
I hope to have taken away some of the interference that seems to exist on the generative dialogue.
Regards,
José Antonio Vanderhorst-Silverio, PhD
Part 2 of 2.
On 12.20.06, Fred wanted to restart the debate, but was unsuccessful. Len suddenly decided to take command and defend his baby project IMEUC as an emerging deregulation project, saying to Fred “I would like to submit that on de-regulation I believe you are wrong (and therefore naturally and to my regret, myself for a failing grade).”
On 12.21.06 I defused Prof. Banks argument about “NO TINKERING ON THE DEMAND SIDE CAN OFFSET THE GAMING AND LACK OF INVESTMENT ON THE SUPPLY SIDE!” He said nothing, which to the untrained eye means he accepted the arguments. However, being a great downloader he repeated it later on in response to James.
On 12.24.06 Mr. Carson came to respond Banks on the “NO TINKERING…” argument that he didn’t defend.
Trying to reframe the debate, on 12.25.06, I rephrased Fred’s “NO TINKERING…”argument in a generative dialogue sense. But, on 12.26.06, Mr. Carson’s did not “listen” as his aim was to keep debating.
Before completing my 12.26.06 response to Len, which starts with “Generative dialogue synthesis,” I said “I have ‘listened’ carefully to Len’s opinions and perceive that his interests, by going farther than necessary, go well beyond Phase One. Other parties representative of the larger whole – high social complexity - with different interests – regulators, generation of differing kinds, wholesale, retail, transmission, distribution, fuel supply, manufacturers of systems and equipments, etc. - are invited to participate in the generative dialogue.”
On 12.26.06 Len asked for a time out of “perhaps a couple of weeks…”
I hope to have taken away some of the interference that seems to exist on the generative dialogue.
Regards,
José Antonio Vanderhorst-Silverio, PhD
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