IMEUC: Unreliable Service and Price Spikes

In response to the suggestion by Mr. Jeff Presley about simulations, it is shown that there is not a need to look further, as a simulator already exists, and its information’s confirm the EWPC is the winner of the first phase of competition with the VIUs, as IMEUC doesn’t even qualify.

IMEUC: Unreliable Service and Price Spikes

By José Antonio Vanderhorst-Silverio, Ph.D.

Systemic Consultant: Electricity

Copyright © 2007 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. Please write to javs@ieee.org to contact the author for any kind of engagement.

In an attempt to compare IMEUC with EWPC as the wining market architecture and design, Mr. Len Gould started yesterday (September 22nd, 2007), the Energy Market Simulator Design – Software Design Blog. Its second post is entitled Opening discussion.

Mr. Gould states that “The reason for this initiative is that it is my response to a prod by Jeff Presley.” In what follows it is shown that there is not a need to look further, as a simulator already exists, and its information’s confirm the EWPC is the winner of the first phase of competition with the VIUs, as IMEUC doesn’t even qualify.

Using systems dynamics, Dr. Jason Black’s, Ph.D. theses at MIT, already simulated a shift from the Vertically Integrated Utilities paradigm to an incremental paradigm that apparently integrates Demand Response. Dr. Black’s simulations did not consider the most important criterion of electric power utility service, which was suggested by the late Professor Fred C. Schweppe, also of MIT. That criterion, "considers the engineering requirements for controlling, operating and planning an electric power system," being the key distinctive element of the Electricity Without Price Controls (EWPC) paradigm; In layman's terms, the criterion can be expressed as "reliability first, economy second (R1E2)."

By the way, the R1 part is the key to develop the optimal transportation system, which results from the minimization of the sum of all the costs of investments (included those of supply and demand), costs of operation, costs of maintenance and costs of outages, so in a sense “reliability first” is about developing the best economic transmission system for the expected supply and demand of society.

Because of the lack of the R1E2 criterion, the thesis leads the untrained observer to the false general conclusion of “pernicious effect from… increase price volatility due to reductions in generation capacity reserve margins.” The R1E2 criterion prevent the possibility of price spikes occurring under EWPC, but which will occur under IMEUC, making it just another faulty deregulation experiment candidate.

The model system includes three alternatives: IMEUC distributed end-user level (so now we have IMEUCs paradigm available), a Disco incumbent retailer and an alternative First Generation Retailers (1GRs), whereas, EWPC is centered on Second Generation Retailers (2GRs). 1GRs have low competitive capacity as they operate under the VIUs paradigm in which the incumbent Disco retailer can foreclose competition. Incumbents are afraid of 1GRs cherry picking their customers.

Under EWPC, there is no Disco retailer, nor cherry picking, as 2GRs compete with each other. 2GRs have incentives to innovate – by developing business model innovations - to maximize value, minimize costs, or both, for individual customers, and, as a group, have the potential to maximize social welfare, something IMEUC cannot do. They optimize by obtaining as close as possible the required information of the (changing perceptions) preferences and conditions of all customers. While getting that information, they satisfy as close as possible the R1E2 criterion, something that is prohibitive and excessively complex to do by the system operator.

Systems operators all over the country are already operating with especial demand response retailers. In Geoffrey Moore’s Technology-Adoption Life Cycle model, Demand Response has already crossed the Chasm to the Bowling Alley in a few jurisdictions, as Pragmatics “Stick with the herd!” Many others are in the Early Market as “visionary companies get ahead of the herd!”

In the mean time, many Conservative VIUs, under the lack of leadership of IOUs and regulators want to “Stick with what’s proven!” By starting the new blog, Mr. Gould is trying to get into the Techies “Just try it!” stage, but it not possible, as they are trying to avoid the retailers, one of whose essential role is to fulfill the R1E2 criterion.

At the same time, there are other secondary economic requirements, the E2 part of R1E2 that should be mentioned. 2GRs compete and use the increasingly detailed information to reduce free riding. A IMEUCs benefit, such as being better at curving free riding, is insufficient to be the wining market, as the system operator or market manager will need to perform the required and unavoidable essential retail function to maximize social benefits. In addition, IMEUC would need to receive a large subsidy under a mandate to get implement it.

So Far Just ONE Objection to EWPC as Winner

As tomorrow's deadline approaches, only Mr. Len Gould has provided a dissent to EWPC as the winning market for the first phase of competition. The second phase is the company vs. company competition after the market is set up and running.

So Far Just ONE Objection to EWPC as Winner

Mr. Chris Neil, Prof. Ferdinand Banks, Mr.

Len Gould, Mr. Edward A Read Jr., Mr. Todd McKissik, Mr. Don Giegler, Mr. Joseph Rosenthal, Mr. Jim Bayer, Mr. Jeff Presley, Mr. Kenneth Kok, Mr. Henry Nelson, Mr. Mark Krebs, and any other ladies and gentlemen helping to find the truth about the EWPC paradigm.

Dear intelligent and important friends,

This is not a process to develop a consensus. On the contrary, so far no one has written her o his approval about EWPC being the winning paradigm. At the moment, only one real objection has been made, the one by Mr. Gould which I acknowledged earlier.

In addition, as advanced in the post Final: IMEUC not a Market Architecture and Design, IMEUC – a physical solution – clearly cannot compete. If you read the post, please consider any allusion that may seem to be a personal attack, as being an attack on the opinion, not to the specific intelligent and important person or persons.

EWPC is not about the best system solution. If we want to promote innovation and economic growth, there should not be such thing, in real life, as a single best solution for the whole market to start with. Instead, we should develop a market environment for the second phase of competition where – the real market - will be enabled, so that each market segment is populated with the best (several competitor that shift market share as time goes by) business model innovations interact in the USA, Europe, etc. and eventually worldwide.

With all due respect for Mr. Presley and Mr. Gould, I will show tomorrow that there is definitely no need at all for simulation, nor implementations to this process. Goliath is dead forever. Nothing will buy time to get him out of the grave.

Some heavy duty friends seem to have opted so far for the silence approach, which I mentioned. Thank you very much, that's fine.

As a lesson learned, however, in this and future debates and dialogues, I suggest that we should take the silence message as being like the “no objections” documents that the multilateral institutions provide. That way, this media will be much more effective.

Any comment or suggestion is invited.

Have a nice rest of the day.

José Antonio

Article An Analysis of the Carbon Emissions Impact of the Senate Energy Bill Viewed 2100 Times 81 Comments so far.

EWPC - Winner 1st Competition Phase

Dear writers and readers,

Please take a look a the last post Solving Smart Grid Cost Recovery, written under the article New Trends Emerging For AMI Cost Recovery, by Will McNamara, Principal Consultant, KEMA, Inc. I dedicate it to Len Gould as a reminder of my appreciation for his stubborn behavior. I think he should try to get a piece of the pie in the new industry organized under EWPC.

After many downloads, debates, reflexive dialogues and generative dialogues, I have two humble question to ask: Is EWPC the winning market of the first and cooperative stage of competition? Are we ready to introduce competition in the power industry with a negotiated transition, of course?

If you think no, to either question, explain very clearly your case to the audience, with facts, and without links. If you think yes, please, by all means say so.

I know that the next thing that should happen is to find out that there is a lot of value destruction made in the industry during the past decade. However, there are much more opportunities to add value, for those who have invested dearly in innovative solutions, but that the "native load" barrier don’t allow it to be implemented.

Silence is the best message.

Thanks to all that helped me get to this point.

Best regards,

José Antonio Vanderhorst-Silverio, PhD
Systemic Consultant: Electricity

Solving Smart Grid Cost Recovery

To solve the Smart Grid cost recovery dilemma requires a restructuring of the electric industry in such a way that the regulator gets the right signals. A shift from The Anti-System Utility to EWPC solves the problem, as cost recovery of AMI technologies are sent to the market with an international standard interface, that will restrict business model innovations by Second Generation Retailer - 2GR.


Solving Smart Grid Cost Recovery

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

Copyright © 2007 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. Please write to javs@ieee.org to contact the author for any kind of engagement.


Dear Mr. McNamara and Mr. Gould,

Mr. McNamara’s paper is a welcome contribution to understand the reality of the demand side of the power business. Mr. McNamara writes: “The unfortunate result is that state regulators may be reluctant to approve cost recovery or even the implementation of AMI / Smart Grid technologies without specific guarantees that benefits of the technologies will exceed the costs in the long-term.”

The problem is with the business model of vertically integrated utilities (VIUs), because of what Mr. McNamara adds: “Determining the amount of cost that will be received in rates is a challenge for all utilities planning technology upgrades.”

The problem with the business model (winning rate cases to the regulator), to which Mr. Gould adds as being of so little imagination, is the result of the regulated retailers (called by Warren Causey as “the enterprise”) in The Anti-System Utility (hit the link please). To get thing moving fast, efficient and effectively, local (states in the US and countries in the EU) politics distortions must end. To do that A Warning to the US Congress and the European Commission (hit the link also please) is advised.

The regulated retailers operate the value chain in the industry by purchasing power under contract to the generators to serve the end customers. By replacing state and countries regulated retailers with federal competing retailers under EWPC, the problem with the investment in AMI technologies, which would be acquired under competition among retailers, is taken out the scope of the regulators and into the market, while the smart grid technologies rate recovery business cases to the regulator are easier to solve. All that is required to divide the responsibility under EWPC structure is to have a worldwide standard interface between AMI and the grid technologies.

To solve the Smart Grid cost recovery dilemma requires a restructuring of the electric industry in such a way that the regulator gets the right signals. A shift from The Anti-System Utility to EWPC solves the problem as cost recovery of AMI technologies are sent to the market with an international standard interface, that will restrict business model innovations by Second Generation Retailer - 2GR.

Best regards,

José Antonio Vanderhorst-Silverio, PhD

A Warning to the US Congress and the European Commission

US Congress and the European Commission need to digest EWPC very fast. The political distortions in the power industry at the state level in the USA and at the country level in Europe can be strongly mitigated by performing a paradigm shift to EWPC.


A Warning to the European Union and the US Congress

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

Copyright © 2007 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. Please write to javs@ieee.org to contact the author for any kind of engagement.

Dear Mr. Giegler and Mr. Gould

In the post European Confusion and Tail Chasing, Marty Rosenberg reports that “This week comes work that the European Union wants to break open the energy markets. Again. I thought it was supposed to have happened July 1… The initiative is perplexing, particularly considering the fact that the major governments of Europe cannot keep their hands off the energy business.”

Just like in the US, the European Union wants to break open the electricity market with a faulty market architecture and design that keeps “native load” intact.

We ought to Mr. Giegler hero, Sam Insull, the ingenuity of the creation of the deadlock that the US is facing with the federal and state jurisdictional separation that lead to The Anti-System Utility. This is an excellent example of system thinking in action, as the 1st and 7th Law of the Fifth Discipline apply: “Today’s problems come from yesterday’s “solutions” and “Cause and effect are not closely related in time and space.” FERC and its pair in the EU will play its role with a transformation to EWPC, allowing the development of federal wide competition in the US and Europe by 2GRs initially, with worldwide competition later on.

EWPC applies the 8th Law of the Fifth Discipline: “Small changes can produce big results – but the areas of highest leverage are often the less obvious. Two example of high leverage are the change in structure from VIU to EWPC, and the introduction of competitive retailers.

EWPC takes into account the possibility of a transition, in accordance with the 6th Law of the Fifth Discipline: “Faster is slower.”

As state regulated retailers, aka “the enterprise” by Warren Causey, are transformed into federal competitive retailers, the negative political influence will be strongly mitigated. The open market activities in the value chain will change the need of financial capital to production capital, as predictability is reinserted into the industry.

The most important element to enable the open market and the key to predictability is a transportation grid with ultraquality. The motto “reliability first, economy second” is what should drive the industry from now on. As the deadlock is eliminated, new investments, innovations, and jobs with a lot of future, will be created. Financing base load power plants will be easy, under a predictable environment.

US Congress and the European Commission need to digest EWPC very fast. The political distortions in the power industry at the state level in the USA and at the country level in Europe can be strongly mitigated by performing a paradigm shift to EWPC.

The Anti-System Utility

Vertically integrated utilities don't operate as a system because of a monopoly mindset of incumbents investor owned utilities and political interference. To operate as a system a paradigm shift to EWPC is required to offer customers competitive services and to neutralize political interference.

The Anti-System Utility

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

Copyright © 2007 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. Please write to javs@ieee.org to contact the author for any kind of engagement.

This introduction, and the next to last paragraph, are taken from the article link Divine Dispensation of Electric Markets is Gone:

Looking what is happening from the EWPC paradigm shift, IOUs tried to stop progress by keeping the grid and the enterprise together (Congress should delete it from the new Energy Bill), as Warren Causey calls the two elements of the VIU in the article of the link All the issues in the same room.

Most, if not all, of the issues identified by Mr. Causey, a very objective observer of recent industry activity, are the results of maintaining the native load requirement that IOUs have imposed on the electric industry, which keep the utility grid and the enterprise under the control of VIUs. Mr. Causey calls for integrating the grid and the enterprise, which means that IOUs have not been able to integrate both dissimilar functions, so it is easier to go forward with EWPC.

When an organization operates as a system, the value of the whole is greater than sum of the value of its parts.

Reading carefully the article by Warren Causey, I come to the following conclusion:

The sum of the potential value of the grid plus the sum of the potential value of the enterprise is greater than the potential value of the utility, meaning that the utility instead of being organized as a system, it can be though as an anti-system.

What is the problem? Incumbent’s monopoly mindsets and political interference.

The monopoly utility operates a cash cow and so the priority is the enterprise, not the grid, nor customer service. In addition, the utility is also a political target. So grid’s investments are postponed, over and over.

What’s the solution? To restructure by a paradigm shift from VIUs to EWPC.

In order to make the industry robust, competitive and fully functional, EWPC separates the utility grid from the enterprise, with the former integrated to transmission and the latter open to competition. When that is done, the new utility becomes the transportation grid and several 2GRs (see link Second Generation Retailer - 2GR) take over a segment of the market by adding to their part of the enterprise the non-trivial functions of competition and integration of demand to the industry. Incumbents IOUs should decide whether they select one and only one of three activities (no Chinese walls allowed) of the restructured industry: generation, transportation, and retail.

As the grid is integrated with transmission, the resulting transportation utility budget is applied entirely to the modernization of the greater grid in a given area. As the regulated enterprise is transformed into several competing enterprises (aka Second Generation Retailers), the political target disappears, and investments, innovations, and jobs with a lot future are created.

Divine Dispensation of Electric Markets is Gone

As a result of David killing Goliath, US Congress has the great opportunity to introduce EWPC to the USA. In addition, the state of Ohio has the first opportunity to reap the benefits of retail competition, by developing 2GRs and integrating active demand to power system planning, operation and control. The Dominican Republic has one of the best positions to implement EWPC, but needs to place the Very Short Electricity Law in the waste basket.

Divine Dispensation of Electric Markets is Gone

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

Copyright © 2007 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. Please write to javs@ieee.org to contact the author for any kind of engagement.

Dear Mr. Giegler,

Thank you very much for your recollection of the process, which I respect, and for giving (I think) EWPC and my humbled opinions the benefit of the doubt for the first time.

I have placed my last recollection in the link The BIG California LIE, to which I added as the leader paragraph: “The BIG LIE is that retail competition is impossible in electric markets. The implementation of a competitive retail market was the center of the debate in California. Instead of cooperating to implement it, the three big California utilities, that didn't care about the end-customers, acted very irresponsibly. EWPC is the paradigm shift to show that retail competition is not only possible, but absolutely necessary to turn the electricity industry into a vibrant value added business for all stakeholders.”

Although you are not interested on going to the starting point, as I explained above, state government and the CPUC were restructuring precisely because by entering long term contracts with generators, customers rates were very high in California in the first place. I am sure that customers are still paying those long term scams in the rates. To make a fair comparison, that is the point to start to do downloads, debates, and reflexive, and generative dialogues, which I considered have already been done.

Maybe state government and CUPC didn't know that they were going in the correct direction, but it seems that the guardian of the non-trivial VIUs didn't know either. What a shame! Instead of a win-win balanced approach that weighted well the truth and the service, IOUs went just for (what’s in it for me) the power and the money.

That is precisely why I responded to Joseph with the “Law of the Situation: the railroads did not understand,” (see my post of 9.11.07 above) that applies to VIUs, from which I extract, “Some people [IOUs for example] still believe there’s a divine dispensation that their markets are theirs - and no one else’s - now and forevermore. It is an old dream that dies hard, yet no businessman in a free society can control a market when the customers decide to go somewhere else [under EWPC for example]. All the king’s horses and all the king’s man are helpless in the face of a better product. Our commercial history is filled with examples of companies that failed to change in a changing world, and became tombstones in the corporate graveyard.”

When energy costs were low, the business model of winning rate cases to the regulator didn’t bother the customers. But since the oil embargo in the 70s, customers are ever more interested in competitive prices, as free society recognized that IOUs cannot control anymore the electricity markets. I have followed Donella Meadows advise (see link Let's Get Out of Back Rooms to a Generative Dialogue) to end the divine dispensation to the IOUs. But after many things have occurred during more than 30 years, with the obsolete VIUs controlled market, customers like those of the state of Ohio want and effective and efficient re-regulation process.

Whether the judicial investigations, which I suggested, are executed or not, taking of course your recollections into account, I am very sure that Goliath is already dead. I am also sure that after reading this complete message, taking into account the whole EWPC context, you, Len, Joseph, Jeff, Fred, and anybody else, will agree that David killed Goliath, once again, even though, anyone is free to remain skeptic, which I definitely respect too.

So let me comeback to today’s reality. Looking what is happening from the EWPC paradigm shift, IOUs tried to stop progress by keeping the grid and the enterprise together (Congress should delete it from the new Energy Bill), as Warren Causey calls the two elements of the VIU in the article of the link All the issues in the same room.

Most, if not all, of the issues identified by Mr. Causey, a very objective observer of recent industry activity, are the results of maintaining the native load requirement that IOUs have imposed on the electric industry, which keep the utility grid and the enterprise under the control of VIUs. Mr. Causey calls for integrating the grid and the enterprise, which means that IOUs have not been able to integrate both dissimilar functions, so it is easier to go forward with EWPC.

In order to make the industry robust, competitive and fully functional, EWPC separates the utility grid from the enterprise, with the former integrated to transmission and the latter open to competition. When that is done, the new utility becomes the transportation grid and several 2GRs (see link Second Generation Retailer - 2GR) take over a segment of the market by adding to their part of the enterprise the non-trivial functions of competition and integration of demand to the industry. Incumbents should decide whether they select one and only one of three activities (no Chinese walls allowed) of the restructured industry: generation, transportation, and retail.

I hope you agree now that the divine dispensation that IOUs markets are theirs - and no one else’s - now and forevermore is gone.

Best regards,

José Antonio

The BIG California LIE

The BIG LIE is that retail competition is impossible in electric markets. The implementation of a competitive retail market was the center of the debate in California. Instead of cooperating to implement it, the three big California utilities, that didn't care about the end-custumers, acted very irresponsibly. EWPC is the paradigm shift to show that retail competition is not only possible, but absolutely necessary to turn the electricity industry into a vibrant value added business for all stakeholders.

Dear Mr. Giegler,

Thanks for the update on the data. It seems to makes more sense now. Presley suggestions on stranded costs are commented below to show how they evolve in the California case.

Leonard Hyman, a noted research analyst, wrote that the utilities scoffed at the idea of deregulation when he spoke to them: “… I got the impression that they viewed restructuring as a nutty scheme that would never got support beyond a few regulatory staffers.” But deregulation plans continued and Hyman wrote: “I think that this movement perturbed the utilities. I’m not sure that the big utilities agreed on what they wanted… but in the end, they got together and went for what looked like a last minute deal.”

“The deal”, said Hyman, “look like this: the utilities would collect their stranded costs, however defined, what looked like the real prize, and they bought into the rest of the proposal.”

The above fits with Adam Kahane impression: "The primary focus of PG&E's management attention was therefore not on customers, but on formal public hearings before the CPUC. Fittingly, eight of the nine members of the company's executive Management Committee were lawyers."

Kahane added about a PG&E retreat in his second year that "was a profound letdown. I watched the business sections in stupefied disbelief. The executives ignored the analytical material, played power games, ganged up on each other, pretended to misunderstand (as Don is doing), settled old scores. I was deeply disillusioned and felt my commitment to the company slipping away. This was not the brilliant, informed, rational decision making that I had been trained to expect..."

Now, if we stop, and recall that electric power systems are non-trivial paradigms under the control of the VIUs, we can come to the conclusion that the California utilities did not have the required leadership to be in business. The whole world knows that the California debacle was very costly. What many people don’t know is the costlier damage done by a big lie to perpetuate an obsolete scam to the whole world. It is because of such irresponsibility that I repeat the need to consider A Vertical Integration Conspiracy Theory for the US Judiciary, from which I select the following:

“According to Eamonn 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.”…

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. … “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.

So, to go back to the starting point, please inform the amount of DWR charges that correspond to high price long term contracts of good old days regulation that fostered inefficiency (old scams), which led to the restructuring experiments, in the first place. That is where the comparison of vertical integration and EWPC should begin.

Best regards,

José Antonio

Great Opportunities Under New Energy Bills

In the copyright protected link Extra, Extra… Goliath is Defeated Once Again!, you may find out how vertically integrated utilities will very soon start to be erased from the face of the earth. The US Congress, the European Commission, and legislative bodies all over the world, have the information they need to make the right decisions to transform the electric utilities to a very familiar business environment of wholesale, retail, customer value chain competition, under a very clear vision of the End-State of the electricity industry as provided by EWPC.

The state of Ohio and the Dominican Republic have the opportunity to be the first places in the world to implement the paradigm shift and introduce enough predictability to avoid throwing good money after bad, as EWPC signals the end of financial capital and the reintroduction of production capital to the power industry. A partnership between the state of Ohio and the Dominican Republic, which have a great export and job development potential under DR-CAFTA, can be negotiated.

Comments are also invited on the Electricity Without Price Controls blog of the Energy Central Network.

Extra, Extra… Goliath is Defeated Once Again!

David has won! The Electricity Without Price Controls (EWPC) Breakthrough paradigm has finally beaten the Vertically Integrated Utilities (VIU) Paradigm. Global economies of scale under Tofflers’ Third Wave EWPC are much larger than those local economies of scale under Second Wave VIU.

Extra, Extra… Goliath is Defeated Once Again!

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity

Copyright © 2007 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. Please write to javs@ieee.org to contact the author for any kind of engagement.

From Wikipedia: David and Goliath are figures of a well-known tale in the Bible (1 Samuel 17, in most English language versions), wherein David, an Israelite shepherd-boy and future King of Israel, using his sling, defeats and kills Goliath, a giant Philistine warrior, in single combat.

My reticular activating system (the gateway to awareness) has given me a very important insight to use these words which become my sling in the combat to defeat and kill Goliath. I must thank Goliath’s - interpreted by Don Giegler - for the attack to EWPC during a combat we had and in which his economy of scale trigger allow me to apply aikido to the VIUs. I can say without any doubt that I have finally slew Goliath. This is how the 21st century story goes:

Philistine Don Giegler (in one attack of the combat) wrote

… Sorting through your attempt to slay Golaith, I ran into, "Sorry. Generators will need to have a retail department to handle non-trivial retail management. Economies of scale should be the result of activities under my response on item 3." Sam Insull, at the end of the 19th century and during the first part of the 20th century discovered vertically-integrated electric systems provided such economies.

To make a complete story, I must go back to item 3 (see link A Paradigm Shift to EWPC) to pick up my response to Mr. Len Gould (another Philistine) about his question: “How can a fragmented bunch of small-cap ‘Retailers’ finance items such as new-build nuclear?”, which went as follows:

Ja, ja, ja…nuclear! All you need is a robust, complete and fully functional retail and wholesale markets. Second generation retailers are not small-cap retailers. Today’s utilities should be restructured by separating the commercial regulated retailers from the physical distribution which should be integrated with transmission to become transport. Under EWPC a lot of mergers and acquisitions activity and competitive, as well as business model innovations will lead to worldwide competition after a transition…”

Now, I like to add that the point of generators to need retail departments was not to suggest that they should do it. On the contrary, now I have strong arguments to prohibit worldwide generating agents to invade the retail domain. What I meant was to make Len Gould understand that retailers are an essential requirement of robust, complete and fully functional electric power markets.

Coming back to Mr. Giegler attack:

Yes, vertically integrated utilities economies of scale on Alvin Toffler’s Second Wave were generally limited to the state level in the US and on the country level in Europe. Now, the world has changed and we are on the Third Wave, with large jurisdictional problems between states in the US and countries in Europe, which have become large barriers to the needed reforms of the power industry. With EWPC the barrier is eliminated, as only the controlled market transportation monopoly (the utility infrastructure) will remain in every jurisdiction of the US and Europe.

In the posted link Lowest Cost Electricity Generation is Just Intuitive, the message is that generation economies of scale were not the key to reliable electricity service. I believe that the economy of scale of interconnected power systems development, discovered in 1921, not by insull, but by what’s today PJM, is the essential requirement that I call ultraquality transportation.

It is now crystal clear that Second Generation Retailers (go to the link Second Generation Retailer - 2GR) should be completely separate from generation and transportation activities. Global electricity restructuring, based on the EWPC paradigm, should not allow transporters to become retailers nor generators. So negotiations at the World Trade Organization should impose trade and investments disciplines to make sure that global merging and acquisition activities don’t result on generators exercising retail activities, nor transportation activities, and vice versa.

That is what kills Goliath economies of scale. Generation and retail become global EWPC open market activities with a much larger economies of scale than under the obsolete VIU paradigm. As the art of generation is highly advanced, I expect that most innovations will be made by 2GRs business model innovations.

So, global prudential regulations of the EWPC open market must become a requirement to protect the customers and the agents from abuses. At least, in the US that could be developed by federal regulations and in Europe by EU regulations. As distribution activities are merged with transmission activities, they have a large probability of becoming federal and UE regulations of the transportation monopoly central market.

Breakthrough

EWPC is a breakthrough that is poised to transform the electricity industry. As the state of Ohio is in the process to re-regulate the industry, they should make the transition to the EWPC market architecture and design, instead of a costly retrocession to vertically integrated utilities.

Thank you once again Don,

Edison "invented" the vertical integration electric monopoly; Insull added the “invention” of regulation to get political insulation from the Sherman Act. Hence, you too can be absolutely sure that Insull was the mastermind that “invented” the scams. In the process, he completed the non-trivial vertically integrated utilities (VIUs) paradigm, which regulators have never learned. The results: scams then, scams now.

IOUs “… continued transfixed by the lore of…” VIUs “… that have served the country so well - until the world changed.” Many of the essential assumptions of the VIUs industry are fictitious and no longer hold. Long run generation contracts bets, Inactive demand, average rates, yearly demand charge, supply orientation, lack of competition, demand can be forecasted, planning under certainty, incremental rate cases to incorporate “innovations,” perverse incentives, many customers (most of the best) have alternatives to avoid the system, etc, etc,

While not a VIU, the industry is already in the process of being torn apart, as you can see from the case of the state of Ohio. As there is only one stable end-state (EWPC) for the future, if the state of Ohio goes back to VIUs, it will have lost the best opportunity to get a competitive power sector.

Going from the old paradigm to the new paradigm cannot be done incrementally, as it brings a lot of waste, by paying rates (the higher the rates, the better the scam) for each incremental feature (demand response, energy efficiency decoupling, NERC standards, etc., and getting many costly unneeded things in the process. There is a need for a breakthrough process, and the knowledge to get there is already available. All tinkering have already been done with deregulation. There is a great difference between tinkering and non-trivial system design, done by professionals.

IOUs should look closely to Detroit. Ma Bell did not bring cell phones. IBM lost to MS. The financial industry is already transformed.

While EWPC is a true paradigm, deregulation is a false one. As simple as that.

This is a follow up to the post David vs. Goliath.

Reference and context: An Analysis of the Carbon Emissions Impact of the Senate Energy Bill, by Chris Neil, Energy Economist.

David vs. Goliath

To all writers and readers

Dear Mr. Giegler,

Thank you very much for a decent comment at your stature and for reading with interest something I wrote.

While I have not read about Nassim Nicholas Taleb's books, I have read about Samuel Insull, Edison’s Secretary, which you quote on many earlier posts. I suggest you also read Gordon L. Weil’s, “Blackout: How the Electric Industry Exploits America.” Insull's world’s, - the business model of wining rate cases to regulators that do not understand the non-trivial vertical integration - is not today's world, when the information technology revolution is claiming the transformation of most industries, market architecture and design.

My strong opinion is that vertically integrated utilities are just plainly obsolete and abusive. EWPC is emerging to allow the introduction of competition in the open market value chain - generation, retail, customer-, under prudential regulations. System engineering and ultraquality transportation of electricity controlled market do without the need of inefficient NERC mandatory rules, in line with my response to Edward A Read Jr. first question about a (worldwide) single market structure [and rules].

As a reminder, I copy a paragraph of my response to Edward about my opinion: “Although it is highly worthy, my confidence on EWPC doesn’t depend on the carbon tax. It depends on a non-trivial truth about electric power systems, which is a very complex machine whose design and operation is not a subject of debate, but on the work of a systems architect. It also depends on large changes experienced on fuel [costs] and transactions costs. Lowering of transactions costs allows the integration of demand to the power system with the development of the resources of the demand side, which leads to the development of robust, complete and fully functional retail and wholesale markets.” Forget Sam Insull, his scams are not longer needed!

The whole debate with deregulation was designed to be easily won by incumbents that don't want to compete. Thanks to the non-trivial EWPC such a debate can now be shown to be a hell of a great waste of time and resources for the whole world, and incumbents which don’t deserve the helm of IOUs, for lack of leadership. Engineers need to take back the leadership of the industry, by claiming the controlled (not the open) market of EWPC. The IEEE would do its job by recognizing the challenge.

I believe there were intelligent people in the US, Japan and Europe, working for the utilities that could have developed EWPC much earlier, but maybe there were not.

Maybe not; because there was not anyone left that really understood the non-trivial vertically integrated utilities as a whole with the system’s architecting background. Defending the vertically integrated utilities paradigm, Jack Casazza has written at length of the loss of institutional memory in the power industry. Professor Fred C. Schweppe, a system control genius at MIT, understood the great complexity of the non-trivial vertical integration paradigm, and led the development of Spot Pricing of Electricity, but died in 1988 when he was most needed. Besides Casazza and Schweppe, how many people do you know that truly understood or understand the non-trivial vertically integrated utilities paradigm?

The origin of EWPC is 1996, when I was retained to "solve" the electricity problem in the Dominican Republic. I am glad that my clear 1996 vision, based on Schweppe´s and Casazza’s work is becoming a reality, as my intuitive understanding can now be ascertain as another true and non-trivial paradigm (EWPC). It seems that unintentionally and subconsciously, I was working hard until 2003, to prove that my vision is needed. Since then, I became aware of my capacity to fight Goliath. While, I am not my opinion, let's just leave it to the test of time whether David will win once again.

Best regards,

José Antonio Vanderhorst Silverio, Ph.D.

Reference and context: An Analysis of the Carbon Emissions Impact of the Senate Energy Bill, Chris Neil, Energy Economist

EWPC Superiority in Carbon Emission Reductions

First update. Original EWPC Blog comments.

Comments

Tue, 09/18/2007 - 9:39am

The problem with all existing attempts to implement de-regulation of electrical pricing (and with existing ?novel? proposals such as EWPC) is that they do not first establish a market for all customers. Typically a market is established at the wholesale level, but retail (eg. smaller industries, commercial enterprises, and residential), for lack of imagination or concern, are simply "tossed to the retailers", whose only possible option is to add cost without adding value. What is needed is a market system where every utility customer interacts equally to competitively purchase the product of the primary suppliers (generation and transmission), and distribution and overheads (metering, billing etc.) are done under regulated geographical monopolies.

Len Gould

Tue, 09/18/2007 - 1:35pm

EWPC is robust, complete and fully functional wholesale and retail market architecture and design. One of its essential elements is retail competition with demand integration. Such a market can be developed during a transition period. So it is a true and non-trivial market for all customers. Under EWPC Second Generation Retailers have the complete interface with retail customers, including AMI/AMR, CIS, distributed generation and storage, etc. Mr. Gould is writing about First Generation Retailers, like those in Ontario.

Regards,

José Antonio

Jose Antonio Vanderhorst-Silverio

Tue, 09/18/2007 - 11:06pm

"Such a market can be developed during a transition period" amounts to a hope and a prayer, not a system design.

Len Gould

Wed, 09/19/2007 - 7:10pm

Even God needed a transition to create the earth.

Jose Antonio Vanderhorst-Silverio

.................

Mr. Chris Neil

Dear Sir,

Most my comments under your article seem to be outside of your article scope (as Jim wrote), but as you will see they are not, because there are two important externalities, demand and environmental costs, that need to be considered in the market architecture and design.

I am suggesting that you should develop at least two scenarios, of the type that Shell Oil Co. developed for planning under uncertainty, as there is a lot of uncertainty about the future. Such uncertainty, affects in a large measure long term forecasts of the carbon emission impacts that you are developing. An important conclusion will be for the US Congress to consider EWPC as the paradigm market architecture and design of the Energy Bill.

Many intelligent people write statements which are intuitive about vertical integration (VI), which is the dominant and non-trivial paradigm, as I explained in post Lowest Cost Electricity Generation is Just Intuitive. One of the limitations of VI is that demand is an externality. Under VI the power industry is operating all over the world, in some cases with incremental extensions. Most lobby activity at the US Congress, as Mark explained, is spent defending the VI paradigm, which I assume is the basis for your models of the electricity industry.

Given that VI has outlived by about two decades its useful life, it is very important that in your simulations of the carbon emission impact you take into consideration how the fuel feedback mechanism operates in the pure VI. As fuel costs increases, customers pay the increment, with no reduction of fuel consumption at all. Some of the extensions are at most incremental, probably not reducing sufficient carbon emissions.

The best bet was a regulated energy marketplace, which Fred Schweppe suggested in the 80's. However, most of the costly deregulation experiments have very useful lessons that make unnecessary to develop today the regulated energy marketplace, as the business model of utilities – winning rate case to the regulator – get in the way as an old habit. In addition, Schweppe didn’t visualize the extension of his model to the EWPC market architecture and design.

In my presentation at Carnegie Mellon University, last March I said that “The death of Fred Schweppe in 1988 and a misunderstanding by William Hogan (a very smart economist but now we now that VI is a non-trivial doctrine) of Schweppe’s work on the energy marketplace were “small chance events early in the history of deregulation that ‘tilt[ed] the competitive balance’, to an inferior solution path, as W. Brain Arthur explained in general in his Scientific American, February 1990, article “Positive Feedbacks in the Economy.”

In the deregulation paradigm, fuel costs increases lead to an amplification of fuel use, which means that there is a perverse incentive to use more fuel. That is one way to see the scam, because as costs increases, reliability decreases too, making customer expected costs to raise a lot. So you should no waste any effort to simulate a deregulation scenario in your comparisons. That explains why I have only concentrated my attention on the comparison of VI paradigm with the EWPC paradigm in my posts under your article.

Finally, in the EWPC non-trivial paradigm as fuel costs increases lead to a mitigation of fuel use, as demand is no longer an exogenous variable. This results as demand elasticity is increased with the development of the resources of the demand side. Carbon emission reduction is much larger than under the VI paradigm.

The two scenarios suggested could be:

Business as Usual: “no carbon tax.”

The New Future: “carbon tax.”

As you will see, under EWPC the emissions reduction impact will be much better in both scenarios, to confirm that is a superior solution path. It is because of such results, US Congress should bypass lobbyists and make a New Deal.

Best regards,

José Antonio Vanderhorst-Silverio, PhD


Reference and context: An Analysis of the Carbon Emissions Impact of the Senate Energy Bill, by Chris Neil, Energy Economist.

Solución al Aumento del 10% a Clientes NR

Suponiendo lo que expresa la nota Bernardo Vega: Reglamento LGE se Discute, ofrecemos sugerencias para obtener mejores resultados para todos los sectores y la nación, con base a las últimas declaraciones de progreso del sector.

El aumento aparentemente arbitrario del 10% a los precios de los clientes no regulados bien pudo tener su origen en la opinión emitida por los consultores del Adam Smith Institute, como se comprueba de una lámina (ver la nota Alianza Electricidad SCP) de una de sus presentaciones que decía:

• All incentives are to escape the system– Avoid availability problems– Avoid distribution costs– Avoid historical capacity/high energy commitments– Avoid cross subsidy costs• Each "escape" adds to costs of remaining customers, increasing prices and incentive to escape – or steal• Historic commitments to capacity (and high energy) may need to be recovered across full market, including non-regulated

Es por dicho aumento que el sector privado está librando una lucha a favor de los clientes no regulados. Esa lucha, para cumplir con la LGE recién modificada, está concentrada en el principio constitucional de la irretroactividad de las leyes.

Aparentemente, al margen de la justificación del aumento del 10%, pero teniendo una íntima relación, el sector eléctrico está celebrando el bien ganado éxito cooperativo de parte de todos los agentes del mercado y del Organismo Coordinador, de dos años consecutivos sin apagones generales. Ese es un logro “WIN-WIN-WIN” donde todos los que no reciben apagones, como lo son la Empresa de Transmisión, los clientes no regulados, y los propios agentes del sector ganan.

Aunque no se sabe a ciencia cierta si el aumento debe ser de 10%, el sustento de un aumento general promedio a cada cliente no regulado es totalmente injustificado, porque unos clientes se benefician más que otros por ese gran logro. Para comprobarlo, bastaría implantar los mecanismos que saquen a relucir esa situación.

Dado que los precios a los clientes regulados son libres, la solución es implantar un mecanismo de compensación en caso de que el sector eléctrico deje de cumplir con el gran logro hasta ahora exhibido. Es así como resultará evidente la disposición entre algunos de los clientes no regulados a pagar más del aumento promedio a fin de no sufrir ningún apagón o de lo contrario a recibir una justa y negociada compensación con quien tiene un contrato. Otros que están dispuestos a recibir una menor compensación podrían negociar un aumento inferior al promedio.

Dicho lo anterior, es necesario un cambio legislativo que cambie la disposición de la Ley Muy Corta, en que el porcentaje de aumento sea calculado como parte de la tarifa técnica, ya que como expresamos el 10% no parece tener ningún sustento. La distribución del aumento entre los clientes no regulados sería una materia reglamentaria con el objeto de cubrir las necesidades de seguridad de suministro de los agentes del mercado que tengan contratos con los clientes no regulados.

La solución definitiva a la crisis, no obstante, puede beneficiarse de los últimos hallazgos sobre la ESCP que hacen que se comprenda que es una doctrina no trivial y que aparecen las notas colocadas en energypulse.net siguientes:

Nuclear and Renewables Competition under EWPC

EWPC is a True and Non-Trivial Doctrine

Lowest Cost Electricity Generation is Just Intuitive

The World Needs to Implement EWPC ASAP

A Paradigm Shift to EWPC

A Paradigm Shift to EWPC

Thanks Len once again for asking to answer your questions. In my answer to Edward it is evident that any solution that does not pass the tough test of Todd is because it is not modeled with essential requirements, but a proposed implementation, like the SMD. I am responding not because of the good intentions of Jeff, but to get back to good terms with you and all the other brilliant commentators, as Fred called us.

Len Gould on 8.31.07. My problem with EWPC are myriad eg. it's precisely identical to every existing failed attempt at de-regulation in N. America. And it's promoter flatly refuses to answer any difficult questions about it. Questions which I have posed before, such as:

1) How can it manage to implement effective demand response and avoid the huge "free rider" problem?

This question is a key element of the EWPC paradigm shift, but belongs to the second phase of competition: company vs. company competition. It will be answered by 2GRs business model innovations. Any customer trying to be free rider will find how effective competition is. The huge free rider problem is under monopoly.

2) How can it GUARANTEE no shortages?

Although with a very small probability, in any power system there will be always shortages. EWPC is about rational rationing in those very costly moments when required. Vertically integrated systems were designed for a 24 hour loss of load probability in 10 years. The system planner and engineer is the responsible for short run and long run systemic physical risk management as explained in my article An Alternative Business Case for Demand Response and refined in the post Letter to Dr. Alfred E. Kahn which helped you say “José you are closed!” The integration of demand into power system planning, operation and control, will increase demand elasticity, reducing shortages relative to vertical integration on any given event.

3) How can a fragmented bunch of small-cap "Retailers" finance items such as new-build nuclear?

Ja, ja, ja…nuclear! All you need is a robust, complete and fully functional retail and wholesale markets. Second generation retailers are not small-cap retailers. Today’s utilities should be restructured by separating the commercial regulated retailers from the physical distribution which should be integrated with transmission to become transport. Under EWPC a lot of mergers and acquisitions activity and competitive, as well as business model innovations will lead to worldwide competition after a transition. See also item 5.

4) What specific benefits do the "Retailers" provide to customers?

This has been answered at length in earlier posts. Edward A Read Jr. understands it very well.

5) Why would generation choose to sell to middle-men if they can sell directly to the customers at no additional transaction costs?

Sorry. Generators will need to have a retail department to handle non-trivial retail management. Economies of scale should be the result of activities under my response on item 3.

6) What mechanism under EWPC would be used to deter gaming by artificially with-holding generation?

Anyone withholding committed generation under a day-ahead security constraint unit (generating and load under EWPC) commitment is liable to pay large sums under the balancing market.

7) Are wholesale market transitions private or public information? Retail contracts?

This will be the result of the detailed design of the prudential regulations, which I suggest should be negotiated at the WTO. The main reason is that small and poor customers in developing countries are being taken for a ride. The information that should be transparent should emerge.

8) How could any mechanism to defeat gaming be set up if market transactions are private?

Already answered on item 7.

9) How does EWPC deal with "spinning reserve" and "standby" costs?

Under EWPC a whole system approach, instead of an incremental approach will be performed. Research needs to be performed to distribute systems costs.

10) What specific provisions are made to enable / encourage small Distributed Generation / residential CHP, when that ideal future trend goes directly counter to the interests of the "Retailers" and large incumbent generation?

This is a good of a paradigm shift at work. Under EWPC, retailers’ incentives are aligned with those of the customer. If they weren’t the customer would elect to choose a retailer that would satisfy his need for higher value added. The last sentence on the top of the GMH blog reads “Let’s enable electricity with the maximum value added to the customer.” However, under vertical integration, native load incentives are perverse and go counter customer interest.

11) Why would "retailers" bother to encourage conservation when that simply reduces their gross sales?

That is a problem of perverse incentives under monopoly service, which cannot be solved by piece meal interventions, such as how is conservation added to current rates. Utilities solutions are answered with their obsolete business model winning rate cases to the regulator. This answer complements that in item 10.

The World Needs to Implement EWPC ASAP

Dear Edward, Len, Jim, Jeff, Ken and other writers, such as Fred, Don, Joseph, Malcolm, and Todd, which have from time to time made recent comments under these fine articles about EWPC. Thank you all for the help to make EWPC better understood, even if you don´t understand it yet.

In his elementary textbook on energy economics, Professor Ferdinand Banks calls all of us (ken is added by myself) as brilliant commentators. I recognize also that all of you are intelligent people, which are probably experts in more than one field of knowledge.

What has emerged as EWPC is the work of many years, which I would say started in 1980, when I learned how to plan an interconnected power systems, under experienced and generous (free of charge) power planning professionals from Puerto Rico. They had gone to Schenectady after a huge mistake of purchasing two oversized generators for their mostly thermal power system. The result of the mistake is that they have been operating those two generators at half load since then to satisfy the reliability criteria.

Officials and regulators of the Puerto Rico Power Electric Authority (PREPA) authorized the investment by thinking intuitively that by purchasing two large base load generators, electricity cost would come down. However, reliability results were that when one of those generators tripped, the whole system collapsed and everybody lost because of the large interruption costs. That occurred several times in the 70s. Leaning at GE ffor the was truly a paradigm shift. The essence of the message is the need for expert professionals to plan the electric system under the architecting imperative of ultraquality, just as nuclear power stations are architected and designed. That is part of a logically true and non-trivial doctrine key for EWPC.

Over the weekend, while researching to satisfy Edward A. Read Jr. request (see EWPC is a True and Non-Trivial Doctrine), I came to the conclusion that I may have been trying to explain a non-trial doctrine to intelligent people. For example, central to the non-trivial subject of power system planning is the intuitive concept of "Lowest cost electricity generation" - that Puertorican had bought - which I though to be a good statement to get many readers on the same page, but apparently didn’t make it. So, in the post Lowest Cost Electricity Generation is Just Intuitive, I have included a small lecture to explain the concept, the reaction by Don Giegler who said “Seems like a pretty close-minded lecture, Jose....” and my logical response to his reaction.

The conclusion applies to Len too. Although he is very intelligent, there is not guarantee that he will understand the paradigm shift of the EWPC doctrine, not matter how well it is explained to him (see what Paul Samuelson said on EWPC is a True and Non-Trivial Doctrine). So I have answered, not 7, but 11, of his 8.31.07 questions about EWPC as you will see below in the next two posts.

By the way, “a good tax,” is the one that elected government should decide, in line with a finite environmental capacity world. If we act with a business as usual (irresponsible) response, we may get to what Jim wrote about Jared Diamond’s “Collapse.” However, his suggestion at the end about finding it difficult not to keep burning coal it will only increase the probability of collapsing. One way to go about such difficult scenario is to implement a reduction of the consumption of energy per capita – while keeping as much as possible the energy service – by developing EWPC ASAP.

Industries in Ohio want to go back to vertical integration, which is a zero sum game. For industry to get lower rates, other customers will get higher rates. No so under EWPC, where price and service differentiation will let every customer find the best service plan, which better fits its requirements, as long as prudential regulations are well design and implemented.

Lowest Cost Electricity Generation is Just Intuitive

Jose Antonio Vanderhorst-Silverio wrote on 9.3.07

To all readers Part III

"Lowest cost electricity generation" is a good statement to get many readers on the same page. It is also good for Joseph, because his "reality check" that I quoted above is mistaken and it also stresses even more that he might not be representing ordinary folks well. I repeat, Joseph Rosenthal said before: "It is better to just do one big thing, in my view, like build a nuclear plant, and then do your best to regulate the cost using traditional rate principles. If you try to do 10 good small things, you'll wind up doing 90 bad small things for campaign contributors. That's the reality check."

The idea of a system with just one big thing is very, very costly, because the parts are unreliable and the load is variable. That is why peaking units are required and they are the marginal units.

Lowest cost electricity generation does not make any sense to a system engineer, nor to the end customers that pay for it. As an old system planner, I will tell facts and the origin of the idea.

Under vertical integration, systems engineers made long run least cost expansion plans and as a result came up with a generation mix adapted to the forecasted long term demand. Such optimization was to minimize the costs of investments, operation, maintenance and outages to produce reliable electricity.

To produce reliable electricity is a property of the whole system not of the parts. To have 24 hours of loss of load probability - as many systems were designed - generation reserves of 20 or 25 percent resulted for many systems.

I read that PJM had recently more than 30 percent reserves. That is one of the main reasons that demand response is not attractive, because it makes obsolete a lot of generating units.

That is also why retail customers get rates which are way above the cost of base load generation. They have a lot of coal units, but ask what is the retail rate residential customers are paying for.

Hydro and nuclear seems a good mix. However, with a very uncertain future demand and with a lot of climate changes working out, I would not bet on it and have some gas installed. Or better yet, I would develop the resources of the demand side to integrate it as active demand, or said in other words develop an effective rationing system or still in another way change demand from inelastic to elastic.

Sorry for the class. But I fell it was needed for some of the people posting their ideas without sufficient understanding of electric power system planning.

Don Giegler reply to the above post on 9.3.07

Seems like a pretty close-minded lecture, Jose....

Jose Antonio Vanderhorst-Silverio responded to Don Giegler on 9.4.07

Don and anybody else that might perceive my Part III post as closed-minded.

It seems, but the post is not closed/minded. It is just that a power system is a very complex system that cannot be planned and designed by debate, among stakeholders groups. The system should be design by a system planner leading to ultraquality transportation.

Some highly respected professionals in the IEEE said that an electric power system is the most complex machine ever built. One of the greatest mistakes done in deregulation was the lack of leadership that the engineering community had at the outset of deregulation. Any one that needs more details please read EWPC: People Coordinating and Cooperating with Electrons Part
2.

The conclusion is that since market architecture and design, like EWPC, was not considered in the decade old debate, a lot of value destruction has resulted. With EWPC the deregulation debate should be over. Ohio's re-regulation process is great opportunity for the whole world, because the utilities already recovered deregulation costs. European Union authorities might also be very interested in looking deeply into the issue, as the July 1st deadline is over.

EWPC is a True and Non-Trivial Doctrine

To Edward A Reid Jr. and all readers,

Edward’s comments are based on my post Nuclear and Renewables Competition under EWPC.

I strongly recommend that taxpayers worldwide look closely to the responses and send letters to their government representatives. Three special cases have already gathered a sense of urgency: US Congress Energy Bill, Ohio’s re-regulation of the electric utilities and the Very Short Electricity Law of the Dominican Republic.

Paul Samuelson said that a doctrine is non-trivial when “it is attested by thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them. The EWPC doctrine is logically true, coherent and non-trivial. Reform should be based on knowledge and facts, not only on the political processes. This statement does not mean that I claim to know everything, as I operate under the generative dialogue principle that I am not my opinion.

JAVS: "...the world needs a market structure and rules (same as architecture and design) that allows competition in generation, competition in retail, and competition between generation and retail."

EARJr: I suspect that a single market structure for electricity worldwide is, if not unworkable, at least highly unlikely, especially if it is imposed by some new world body, as you have suggested previously in comments here.

JAVS: Thank you very much Edward for the very challenging comments you posted on energy pulse about EWPC. It took me many hours to come up with this very short post, but I think the results will be very useful for future consulting engagements.

Respectfully, I have not suggested imposing a new world body. I am suggesting that the world needs a worldwide competitive power industry. I agree that the current markets are an act of government. In fact, I found out that the lack of stability and predictability of today’s’ electric markets has such an effect on global trade that it qualifies for mainstream WTO work.

In addition, electricity markets, with the very clear vision of the future that already emerged on the EWPC paradigm, have the necessary sense of urgency to be negotiated under the trade in services of the multilateral trading system (WTO) agreement, just as the basic telecommunication agreement was done. The object is “to sharpen competition, motivate innovation and breed success.”
EWPC is a true and non-trivial doctrine Part II

I suggest that the power industry should be subjected to a multilateral basic discipline system. Some of the issues that require discipline are the process to get to the End-State of the global industry, prudential regulations on generation and retail, merger and acquisitions investment rules; all to discourage the accumulation of unfair play.

EWPC is not like the failed attempt on the unworkable SMD, as the approach is not to be standardized. The SMD was an attempt to make a compromise of the existing solutions of PJM, New York and New England. Many failed re-engineering projects resulted from misunderstandings of the true requirements.

EWPC is not exactly related to a reengineering project, but its similarity to discovering the true requirements suffices, as it is also about starting over. EWPC is an End-State (model convergence) market architecture and design, whose essential principles are to be adopted. A generative dialogue is needed to define the necessary transition from today’s reality to reach such End-State. This means that close attention of local conditions should be considered.

Although it is highly worthy, my confidence on EWPC doesn’t depend on the carbon tax. It depends on a non-trivial truth about electric power systems, which is a very complex machine whose design and operation is not a subject of debate, but on the work of a systems architect. It also depends on large changes experienced on fuel and transactions costs. Lowering of transactions costs allows the integration of demand to the power system with the development of the resources of the demand side, which leads to the development of robust, complete and fully functional retail and wholesale markets.

JAVS: "To me the solution is to implement a carbon tax and leave it to the market to make the decision, and allow private investors to receive the benefits and to take the risks."

EARJr: This suggests that a tax does not, among other things, change or influence the market. Also, carbon tax at what rate; and, if the initial rate is insufficient to "move" the market to the extent desired, do you then propose to increase the tax rate until the market makes the "correct" decision?

JAVS: By implementing a carbon tax, the business case for EWPC is enhanced, as it certainly influences the markets. Details on how to implement the carbon tax is very speculative at the moment. Some earlier discussions suggested a gradual process to increase, for example, coal carbon tax by 2% yearly increments up, to 40%.
EWPC is a true and non-trivial doctrine Part III

JAVS: "By the way, the author didn't take into account the benefits of demand response on CO2 reduction."

EARJr: Demand response may not lead to reduced carbon emissions, depending on the fuel type and efficiency of the plants which would not be operated on the shaved peak vs. the fuel type and efficiency of the plants which would supply the shifted demand during off-peak periods.

JAVS: You have a very valid point for the short term. Demand response in some states like Ohio, which has about 90% coal generation, may lead to an increase in carbon emissions, since peaking generators, fueled with natural gas with be displaced. Later on, as coal generating units are replaced with combined cycle gas generation up to 2016, the benefits arrive. So, you suggestion is an asset for EWPC reform. As the demand response business case reduces investments in generation, transmission and distribution and end-use, delaying its implementation is not warranted. What might be done is accelerating the process of the carbon tax.

JAVS: "In addition, there is a need for an institution to integrate active demand."
EARJr: If the retailer and the customer have a contractual relationship which is monitored by an intelligent meter which receives price communications from the retailer and allows the customer to control response to price signals, why is there a need for "an institution to integrate active demand". It would seem that the contract and the communication do that.

JAVS: Thank you very much for emphasizing customers with contractual relationship with a retailer. The institution is the Second Generation Retailer mentioned in earlier posts, which is a very different animal than the retailers that are operating today.

EARJr: The current regulated "market" in electricity, which you contend does not work well, is a creature of government. The "generative dialogue to re-regulate the power industry" you suggest would also be a creature of government. I do not share your confidence that the new regulatory regime would be more effective than the current regime; and, neither of us can prove the case one way or the other.

JAVS: As the introductory remarks covered the whole last paragraph, I will add that it is not necessary to prove the case. All that is needed to move forward is to cross the chasm of the technology-enabled market development, as explained by Goeffrey Moore. Skeptics may never get raid off their vertical integration mental model. Conservatives will wait until the majority has developed the business model innovations of EWPC. So what’s remaining is for technology enthusiasts and visionaries to help EWPC cross the chasm. Demand response systems already in operation are the proof that EWPC has already entered the pragmatics’ bowling alley.

José Antonio Vanderhorst-Silverio, Ph.D.

Updated Background

Over 28 years of consulting experience and leadership in electric power technology and education

BS ´68, MS ´71 & PhD ´72, all from Cornell University
Valued IEEE member for 36 years.
Autodidact in management systems – loves to implement applications learned by reading, listening, and integrating complementary perspectives from information sources for high tech - high touch environments
Research and practice areas, and interests include: electricity without price controls, systems architecture, systems thinking, electricity retail marketing under a customer orientation, electric market rules, information systems requirements and design, contract assistance

The above was posted in a brief form under the article An Analysis of the Carbon Emissions Impact of the Senate Energy Bill, by Chris Neil, Energy Economist.

Bernardo Vega: Reglamento LGE se Discute

Bernardo Vega, en su columna En la Cosa, informa bajo el título Futurología que "El equipo económico del gobierno tiene el don de poder pronosticar el futuro. En el "Suplemento de la Carta de Intención" al FMI, que tiene fecha 31 de agosto, dicen que "la reglamentación de la ley de lectricidad... se ha implemanado a principios de septiembre". La realidad es que todavía se discute." Yo le agrego que se discute en secreto, porque no he sido convocado.

El punto más importante es que el Reglamento tiene aspectos de caracter retroactivo. Esos elementos abren una caja de pandoras, al generarse privilegios selectivos por decisiones anteriores de la SIE.

Cada vez me queda más claro que la LGE es una ley muy corta, tal como anticipamos en la nota Congreso Obligado a Una LGE Muy Corta, Lo que necesitamos es hacer un verdadero diálogo donde todas las partes interesadas puedan participar. Ahora, solamente son invitados por excepción los que tienen conexiones.

Nuclear and Renewables Competition under EWPC

I am proposing that the world needs a market structure and rules (same as architecture and design) that allows competition in generation, competition in retail, and competition between generation and retail. Since both deregulation and vertical integration should be ruled out, so far the only available option is Electricity Without Price Controls (EWPC), as explained in the post Solving the Tough Electric Power Market Problem.

While the Senate Bill ... does not otherwise provide incentives for nuclear power, the author and EPRI are forecasting 5 and 4 units per year, respectively, from 2015 to 2030.

As I have said earlier, I am not against, nor favor, nuclear power. Public policy should not pick winners, as they don't do it in other industries. Now here is a report against it: New nuclear power said too costly and risky. I have seen many comments in energypulse.net that show the contrary. To me the solution is to implement a carbon tax and leave it to the market to make the decision, and allow private investors to receive the benefits and to take the risks. That would end that debate.

The same applies to renewables. Most renewables want the repeat of PURPA to avoid competition. Both nuclear and renewables should just compete with gas on the supply side and with energy efficiency, demand response, distributed storage, etc, on the demand side (see first link). By the way, the author didn't take into account the benefits of demand response on CO2 reduction. In addition, there is a need for an institution to integrate active demand.

The next opportunity to start implementing EWPC is the state of Ohio. To develop the transition from the actual situation, a generative dialogue to re-regulate the power industry is suggested. Please refer to Restructuring of Ohio’s Power Industry Business.