A Better Decade Require the End of the Prevailing Style of Management

First update. Original comment by Utility Insider and its response

Comments

Mon, 01/04/2010 - 6:38am

It is not unusual to start a year (and, some argue, a decade) saying we need to do things differently, but there are a lot of things we need to do the same. Do we need to change the prevailing style of management or press for the further evolution of the electric industry and its regulation? Is the same entrepreneurial, risk taking approach that is pressing for innovation in renewable technologies going to be the best approach to keep the lights burning? Will the financial markets going to be confident enough to lend to and invest in the utilities who will be putting up billions for the new generation that is needed for a clean future if its management abandons some of the staid practices that have given the industry generally high credit ratings?

Are we better off leaving the innovation to the innovators and using regulation to "encourage" conservative utilities to implement those innovations? We might be better off playing to strengths where they are beneficial and not moving to hybrid styles that end up being mediocre all around.

Utility Insider

Mon, 01/04/2010 - 9:57am

Thank you for an interesting set of questions that enable me to add a lot of value to the article.

Utility Insider (UI): Do we need to change the prevailing style of management or press for the further evolution of the electric industry and its regulation?

José Antonio Vanderhorst-Silverio (JAVS): The reason we need to do things differently by changing the prevailing style of management is to raise productivity in the power industry to a higher plateau. For example, the 100 years old, Investor Owned Utilities Architecture Framework (IOUs-AF) and its incremental extensions have become obsolete, as value creation has shifted from supply to demand.

As you can see in the Electricity Without Price Controls Architecture Framework (EWPC-AF) introductory post "States that Implement a Heterogeneous Grid are Poised to be the Winners (bit.ly/6dZ780 )," the increasingly complex set of the incremental evolution of the IOUs-AF "... homogeneous grid is not longer able to meet the performance requirements of an increasingly share of demand. The apparently 'ridiculous' homogeneous grid disturbance costs, 'of [r]oughly the same as the entire wholesale sector? Half the retail value???,' are for real."

UI: Is the same entrepreneurial, risk taking approach that is pressing for innovation in renewable technologies going to be the best approach to keep the lights burning?

JAVS: As shown above, the homogeneous grid is no longer adding the expected value required in the digital era as they used to do in the old days to keep the lights burning. As shown in a comment under the Energy Pulse article "Tangled Network: Transmission or Meter Investments (http://bit.ly/65x8Lr )," to introduced a differentiated risk taking approach, starting the New Decade with the separation of the low risk utilities delivery investing, restricting utilities "to develop a regulated delivery only Smart Grid, [while] Second Generation Retailers develop the resources of the demand side, which coordinate customer investments while taking on the [high risk] metering infrastructure [investments]."

By the way, the expansion of the integrated transmission and distribution delivery infrastructure will be done at least costs in the EWPC-AF. The best approach then is to keep a low risk approach on delivery and an innovative risk taking approach on the development of the resources of the demand side. In the response to the remaining questions, further insights are revealed that satisfy this question.

IU: Will the financial markets going to be confident enough to lend to and invest in the utilities who will be putting up billions for the new generation that is needed for a clean future if its management abandons some of the staid practices that have given the industry generally high credit ratings?

JAVS: As utilities are restricted to regulated delivery, investment under the EWPC-AF will be in delivery technologies and not be in generation. The best response to the generation investment issue can be found in the September/October EnergyBiz issue Thought Leadership paper, which says:

The long-term future of generation resource development is almost unknowable today. It is possible to speculate that by 2050 coal genera¬tion may be in decline, and it is easy to forecast greater penetration of renewable resources both as central generation and distributed generation. However, by 2050 a va¬riety of new technologies will be available and forecasting what will suc¬ceed where is almost impossible. For this reason, investments in power system and IT technologies that can adapt to a new generation of any technology located anywhere, no matter what its operational characteris¬tics and limitations, is a critical action today. The longevity of the power system assets compared to the rapid pace of technology change in genera¬tion can be looked at as a hedge against an unknowable resource future. This may be the single most important message of this paper.

UI: Are we better off leaving the innovation to the innovators and using regulation to "encourage" conservative utilities to implement those innovations? We might be better off playing to strengths where they are beneficial and not moving to hybrid styles that end up being mediocre all around.

JAVS: We are much better off by letting Second Generation Retailers developing and implement business model innovations, while "using regulation to 'encourage' conservative utilities" to expand the integrate Smart Grid delivery only network at least costs. This way will "be better off playing to strengths where they are beneficial" to all stakeholders by aiming to the purpose of maximum social welfare, with a recurring virtuous circle of least cost regulated delivery and high value added given by the open market, fueled by the Silicon Valley Model. Please take a look at the EWPC-AF article in http://bit.ly/8XJlra that was introduced in my first response.

Jose Antonio Vanderhorst-Silverio

-----------------------------

As suggested by W. Edwards Deming, the main barrier to basic innovations, like the EWPC-AF, and an increased standard of living, is the prevailing style of management. A better decade is thus dependent on the adoption of Deming’s System of Profound Knowledge.

A Better Decade Require the End of the Prevailing Style of Management


By José Antonio Vanderhorst-Silverio, Ph.D.
Creator of the EWPC-AF
Systemic Consultant: Electricity

First posted in the GMH Blog, on January 2nd 2010.

Copyright © 2010 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. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to javs@ieee.org to contact the author for any kind of engagement.

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This is the time of informed predictions on the New Year. As can be seen below, I was led to concentrate myself not just on the New Year, but on the New Decade to predict the widespread adoption of the Electricity Without Price Control Architecture Framework (EWPC-AF), which I designed as a basic innovation.

In order to get introduced to the emergent holistic EWPC-AF, please take a look at the post States that Implement a Heterogeneous Grid are Poised to be the Winners. Similarly, the article EWPC as a Timely Basic Innovation “…involve not just a single new technology but a collection of new inventions, practices, distribution networks, businesses and business models, and shifts in personal and organizational thinking.”

In his post Systemic failure requires new holistic cure, Mark Montgomery clearly summarizes the barrier to the adoption of a the EWPC-AF: “The current system so protects the status quo that it all but assures that new systems will not be adopted, particularly any system that is effective, thus either killing innovations or neutralizing functionality in the adoption process.” So as W. Edwards Deming suggested we need to change the prevailing style of management to allow for the development of the EWPC-AF basic innovation in the New Decade.

This article expands on the EWPC post The Electric Power Industry is Missing a Vibrant Retail Market, which was posted under the blog post On the Evolution of Technology, by Jason Pontin, the Editor in Chief and Publisher of Technology Review. The text of this post has evidence that the missing retail market is in fact due to the prevailing style of management, which is based on obsolete mechanical thinking instead of on systemic thinking that leads to a superior solution path.

Further evidence is given in the EWPC article Think Deming to Enable Much More than Just Freedom, whose summary says “Deming’s economics replaces the prevailing system [I learned that is better to keep the word style, because the system might be already destroyed] of management with a system of profound knowledge to push economies onto a higher productivity plateau. With the new economics, EWPC will enable a superior solution path.”

In one paragraph of that EWPC article I wrote that “… to lead the transformation of the prevailing system [style] of management to get the world to begin ‘pulling the whole group of core economies onto that higher productivity plateau,’ as Carlota Pérez, describes in her book ‘Technological Revolutions and Financial Capital.’ That is the way to get capitalism back to its roots, as the American forefathers wished.”

That said, this article was triggered by the post Natural technology evolution vs. failed innovation?,bylilykim on 12/29/2009, that was also posted under Pontin’s blog post. The reader will see that lilykim said that “This piece reminded me of an article I read earlier this year by Michael Mandel of Business Week on "The Failed Promise of Innovation in the US"… Mandel claims that failed technological innovation has contributed to the slow economy... I'm curious what others think of Mandel's ideas, especially in the context of Arthur's theories on technology evolution.

Without loss of generality, the needed context on Arthur’s theories on the EWPC-AF can be restricted from what Pontin writes:

Arthur makes a distinction between bodies of technology, or "domains," such as electronics, photonics, and microfluidics, and their individual technologies. Domains emerge "piece by piece." Technologies within domains may be adopted quickly, but only after those domains have been encountered first by users who are bewildered. What are these technologies? How are they used? What do they allow people to do that could not be done before, or at least not as efficiently? Always, new domains betray "missing pieces" that technologists must develop before useful applications can be successfully commercialized. All this, says Arthur, "normally takes decades. It is a very, very slow process."

In the EWPC post about the retail markets, I also mentioned Demand Response, as “missing pieces” to successfully commercialize the modern power systems. However, the reason why the retail markets are missing has taken decades is not technological, but government intervention I mentioned that are also based on the prevailing style of management.

The New Decade was framed by what Mandel asks at the beginning of his article: “… What if outside of a few high-profile areas, the past decade has seen far too few commercial innovations that can transform lives and move the economy forward? What if, rather than being an era of rapid innovation, this has been an era of innovation interrupted? And if that's true, is there any reason to expect the next decade to be any better?” The New Decade will be better if Deming’s system of profound knowledge is adopted.

Just as I mentioned under Pontin’s post, the EWPC-AF as a basic innovation results “when all required technologies became available, and were tightly integrated.” In the same light, Mendel writes that “Of course, no industrial revolution in the past has been based on a single technology. A combination of radio, television, flight, antibiotics, synthetic materials, and automobiles drove the productivity surge of the early and mid-20th century. The Industrial Revolution of the second half of the 19th century combined railroads, electricity, and the telegraph and telephone.”

He adds, “Similarly, for sustainable economic growth, the U.S. needs breakthrough innovations outside of core IT. Some technologies weren't ready for prime time 10 years ago but have matured.” The author says that organogenesis and MEMS have matured, but adds that “The imponderables are biotech and alternative energy… the potential for innovation in alternative energy is enormous, but it's hard to know which approach will pay off.” Alternative energy especially that involved as distributed demand resources need to be approached under the EWPC-AF.

eMail Enviado: La Corrupción del Sector Eléctrico Global se Nutre del Control de Precios

“En otras palabras, no alcanza con que yo diga lo que digo, lo que yo diga, además tiene que ser cierto” -- Roby Senderowitsch, Representante del Banco Mundial en República Dominicana

Estimada o estimado líder,

Este mensaje es en seguimiento al email enviado, que aparece luego de mi despedida [de este mismo mensaje]. También es para que se edifiquen sobre el modelo de la Electricidad Sin Control de Precios (EWPC) y contribuyan a que la Comisión Nacional de Energía (CNE) tome la decisión de estudiar la opción de ese modelo en su Plan Energético Nacional.

Dicho email trata el asunto “Es asombroso lo que puedes lograr si no te importa quien se lleva el mérito,” en el que dije que “Por la respuesta que Don Celso me ofreció,” luego de que leí el texto de la nota La pregunta a Celso Marranzini y al Gabinete Eléctrico “… me parece que no entendió la pregunta.” Cabe aclarar, que en el modelo EWPC el control de precios se mantiene en el transporte de electricidad para poder asegurar que la comercialización libre al por mayor y al detalle a los clientes se haga con base a una electricidad con calidad comercial que sea el resultado de la oferta y la demanda.

La respuesta que Celso Marranzini ofreció a la pregunta que aparece al final de dicho texto ¿Está de acuerdo con que se estudie la EWPC como parte del Plan Energético Nacional? fue que no estaba de acuerdo con eliminar el control de precios por los problemas que se suscitaron con la liberación de los mercados eléctricos al principio de siglo XXI. A decir verdad, precisamente por eso es que solicito que la CNE estudie la EWPC, porque sostengo que esos problemas se superan con el modelo EWPC. Es decir, que lo que dijo Marranzini que anteriormente parecía cierto, podría dejar de ser cierto y abrir grandes oportunidades de desarrollo a los dominicanos.

Por eso, la cita del representante del Banco Mundial en la República Dominicana es una de las claves para resolver la crisis sistémica del sector eléctrico dominicano. Como prueba de que dichos problemas están superados, como experto nacional invitado por la administración anterior de la CNE, en la ponencia que ofrecí en el panel Políticas Energéticas de la 1ra. SEIDE – 2008, con el título “Cambio de Paradigma en la Industria Eléctrica: Servicio sin control de precios al mínimo costo al cliente individual,” expliqué con lujo de detalles como son resueltos con el modelo EWPC.

Como se puede ver también en la nota introductoria States that Implement a Heterogeneous Grid are Poised to be the Winners, publicada en el EWPC Blog, que ya cuenta con cerca de 200 entradas, más de 780 comentarios y más de 220,000 accesos, las condiciones están dadas para eliminar el control de precios en la industria eléctrica global y es ahí donde se cifran las grandes oportunidades que tenemos de acceder a una parte de un mercado de 4 trillones de dólares. Reiterando la cita del representante del Banco Mundial, lo que si es definitivamente cierto es que el control de precios ha sido eliminado en la gran mayoría de las industrias por la falta de transparencia que ofrece. Prueba de ello fue la eliminación del Instituto Nacional de Control de Precios y la creación del Instituto Nacional de Protección de los Derechos del Consumidor.

Además, como dice la siguiente nota, que publiqué el miércoles 12 de julio del 2006, Es Imposible Hablar de la Transparencia Dejando de Lado la Corrupción:

"Es imposible hablar de la transparencia dejando de lado la corrupción," dijo el doctor Frederick Woodbridge, al pronunciar este martes la conferencia "Comercio Internacional y Transparencia".

El control de precios de la electricidad no es transparente. Un pequeño grupo negocia precios para la mayoría sin conocer sus distintas necesidades individuales. Cada consumidor debe poder comprar al mejor postor en un ambiente sano. La competencia al detalle en electricidad sin control de precios propuesta por el Grupo Millennium Hispaniola es una alternativa que merece estar en primera plana desde hace más de un año. ¿Será que no ha estado por falta la transparencia?

Para ver más detalles de la conferencia del Dr. Woodbridge y su capacidad profesional, vea por favor la nota Transparencia y Corrupción: Dos Caras de la Misma Moneda.

Reiterándoles una feliz Navidad, les deseo también un próspero futuro que será el resultado de iniciar en el país el necesario proceso liderazgo para desmontar el control de precios a los clientes de electricidad de todos los sectores eléctricos del mundo.

Muy humildemente,

José Antonio Vanderhorst Silverio, Ph.D.
Servidor-Líder del GMH
Consultor Sistémico: Electricidad
Arquitecto del Modelo EWPC


From: José Antonio Vanderhorst Silverio, Ph.D.
Sent: Thursday, December 10, 2009 4:54 PM
To: 'grupo.millennium.hispaniola@gmail.com'
Subject: Es asombroso lo que puedes lograr si no te importa quien se lleva el mérito

“It is amazing what you can accomplish if you do not care who gets the credit.” -- Harry S Truman

Estimada o estimado líder,

Muy cortésmente, le sugiero leer el texto de la nota La pregunta a Celso Marranzini y al Gabinete Eléctrico. Por la respuesta que Don Celso me ofreció, me parece que no entendió la pregunta. Ninguno de los demás miembros del Gabinete refrendó su respuesta. Quiero su ayuda para que él se edifique mejor. Eso es esencial para que el sector privado que él representa triunfe, aunque como dijo el Presidente Truman sea otro quien se lleve el mérito.

Alguien me sugiere otra vez que hagamos un plan piloto. No obstante, hay toda una serie de cosas igualmente importantes que deben definirse y ejecutarse antes de poder hacer un plan piloto. Incluso, no debemos descartar que a lo mejor no sea necesario hacer un piloto para cambiar la ley y el reglamento, que es lo que más importa. Por eso, es que le he propuesto a la CNE que incluyan el estudio de la opción EWPC en el Plan Energético Nacional como una primera fase que defina si es factible o no considerar la opción. Eso es suficiente por el momento.

Asimismo, creo haber logrado un gran avance hoy para hacer factible la opción. Esta mañana distribuí el siguiente mensaje debajo de un artículo.

The Architecture Frameworks Debate is Over

This is a significant update to my first post. After discussions that stated in 2005 in the Energy Central Network, I am proud to suggest that readers take a look at the post As the Debate Ended, the U.S. Government Should Consider Enabling an EWPC-AF Based Energy Policy Act that is posted in the EWPC Blog.

Por ambas razones, le solicito encarecidamente que distribuyas este comentario a sus amigos y relacionados. Me encantaría poder repetirles la presentación que le hice a la CNE, para que ustedes y especialmente Don Celso se documenten bien sobre la propuesta.Muy cordialmente,

José Antonio Vanderhorst Silverio, Ph.D.
Servidor-Líder del GMH
Consultor Sistémico: Electricidad
Arquitecto del Sistema EWPC

States that Implement a Heterogeneous Grid are Poised to be the Winners

States legislatures need to empower state regulators to do the innovative job to satisfy the need for their constituencies that a homogeneous grid is no longer able to provide. To consider a heterogeneous grid, legislatures can take a look at the now closed debate between Mr. James Carson and I, under the EWPC article The Electricity Without Price Controls Architecture Framework (EWPC-AF). Please hit the red hyperlinks here and below to get to the corresponding page.

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

First Posted on the Grupo Millennium Hispaniola Blog on December 13, 2009.

The EWPC article summary is:

A new approach to power energy policy design, based on system’s architecting heuristics, has led to an emerging simplified synthesis of the power industry regulatory policy. Instead of undergoing business as usual regulatory proceedings, the approach to the Electricity Without Price Controls Architecture Framework is poised to replace the Investor Owned Utilities Architecture Framework and its incremental extensions that have evolved by analytic patchwork as a extremely complex system.

In addition to confirming the above summary, adapted to tell the differences of the two architecture frameworks that result in a homogeneous or a heterogeneous grid, other important conclusions of the debate are (text inside quotation marks are taken from Mr. Carson posts):

· To show how powerful a competent system architecting approach is, for example to better respond to the ideal that regulators “would never risk bringing the grid down.”

· The homogeneous grid is not longer able to meet the performance requirements of an increasingly share of demand. The apparently “ridiculous” homogeneous grid disturbance costs, “of oughly the same as the entire wholesale sector? Half the retail value???,” are for real.

· As state regulators are bound to act under the homogeneous grid, only state legislatures can introduce a restructuring plan to help them do their job under a heterogeneous grid.

In the commentary posted, at the beggining of November 2009, on SmartGridNews.com, How to Spot the Real Stimulus Winners, Jesse Berst, gives “six examples, including two that have gone largely unnoticed,” about “… how the money and the attention will impact various stakeholder groups over the long term.” The examples are utilities, regulators, suppliers, system integrators, the ZigBee Alliance and the taxpayers. I will concentrate on the second and last examples to highlight the key stakeholder group, that went missing, the states legislatures.

Mr. Berst wrote that “Regulators of ‘losing’ utilities may have a tough time approving Smart Grid upgrades. They’ve got to counter the perception that the utility’s project wasn’t good enough for the feds, but they are going to go forward anyway, requiring a rate increase.“ The problem is that regulators are not longer able to respond and need help from state legislatures to let them become innovative state regulators. That help may be enabled with an EWPC-AF based state energy policy.

Mr. Berst added that “… the hardest question to answer is whether or not taxpayers will win in the long term. Some experts say no. For instance, Kurt Yeager, executive director of The Galvin Electricity Initiative, decries the overemphasis on metering. His organization wanted the funds directed at local microgrid projects to offset ‘the unreliability of the current centralized architecture.’ Many others share the view that the money should have been spent to advance the state of the art.” To advance the state of the art, the proposed non centralized architecture is that of the EWPC-AF.

This is a comment I posted one month ago under Mr. Berst’s article:

The Homogenous VS. the Heterogeneous Grid

The Smart Grid architecting is a highly risky and costly one shot experiment which taxpayers will fund to extend the homogenous grid.

"The Galvin Electricity Initiative, decries the overemphasis on metering" is about the fundamentals of the power industry, which are best met by an intermediate architecture, where customers are able to elect metering or not, under a heterogeneous solution.

The winners, even without the stimulus funding, will be those who understand the differences between the two approaches. Innovative State regulators that promote the development of retail markets to enable complete and fully functional power environments will be in the winning team for their constituencies.

VIDEO - Integración de la Energía Renovable en COREA del SUR

Shown during the sustainable energies session at the LIFT Asia 09 conference in Jeju Island, South Korea, this video, made by Kepco, gives figures and information about the smart grid and shows how it's possible to use electricity in a smarter and more intelligent manner

La pregunta a Celso Marranzini y al Gabinete Eléctrico

El siguiente texto fue leído ayer, 9 de diciembre de 2009, por el Dr. José Antonio Vanderhorst Silverio (Ph.D.) en ocasión de la conferencia principal de la Tertulia de Herrera, titulada “¿Es posible despolitizar y eficienciar el sector eléctrico?

La misma fue dictada por el vicepresidente ejecutivo de la Corporación de Empresas Eléctricas Estatales (CDEEE), el empresario Lic. Celso Marranzini, quien estuvo acompañado del pleno del Gabinete Eléctrico.

La Tertulia fue auspiciada por la Asociación de Empresas Industriales de Herrera y provincia Santo Domingo (AEIH), por la Asociación Dominicana de la Industria Eléctrica y por varios de sus integrantes que son empresas generadoras de electricidad. A continuación el texto:

La solución definitiva (despolitizar y eficientizar) a la crisis sistémica de grandes proporciones en el sector eléctrico no depende de más administración para perfeccionar el sistema vigente. Depende principalmente de altas dosis de liderazgo basadas en el conocimiento profundo para reorganizar la industria cambiando a un sistema emergente, para entonces poder sacar el máximo provecho de la administración.

Parece correcto pensar en reducir prácticamente a cero la necesidad de autoabastecimiento concentrando nuestra atención en grandes economías de escala de generación. Lamento decir que es necesario cuestionar esa suposición por la creciente migración de la creación de valor económico desde la oferta hacia la demanda.

Cada cliente tiene un óptimo de servicio que incluye una proporción de autoabastecimiento. Los sectores productivos requieren cada vez más alta proporción en la medida que se intensifica el empleo de tecnología, la cual necesitan para poder competir y exportar. Por eso tienen que invertir en capacidad redundante de autoabastecimiento que sería mucho más rentable si pudiesen vender a un mercado de electricidad al detalle con un sistema de precios eficiente, para que trabajemos en la misma dirección como nos sugiere Don Manuel Cabrera y para generar grandes ahorros por coordinación.

La tendencia de la creación de valor es hacia mejores prestaciones en disponibilidad, seguridad, confiabilidad y calidad de la electricidad. Por la gran capacidad instalada en poder de los consumidores, nosotros somos uno de los países mejor dotados para adoptar el sistema emergente. Lo que hay que saber para ejecutarlo es muy diferente en el sistema emergente.

El afamado escritor Steven R. Covey dice que “se puede captar rápidamente la importante diferencia que existe entre” liderazgo y administración “pensando en un grupo de productores que se abren camino en la selva con sus machetes. Son los productores, los que resuelven los problemas, los que cortan la maleza y limpian el camino.”

“Los administradores van detrás de ellos, afilando los machetes, escribiendo los manuales de política y procedimientos, llevando adelante programas de desarrollo muscular, introduciendo tecnologías perfeccionadas y estableciendo hojas de trabajo y programas remunerativos para los macheteros.”

“El líder es el que se trepa en el árbol más alto, supervisa toda la situación, y grita: <<¡Selva equivocada!>>

La selva eléctrica la genera en gran parte el sistema que sigue el modelo organizativo de la industria eléctrica. Hay un modelo emergente de la industria eléctrica global que he documentado como la electricidad sin control de precios (EWPC, siglas en inglés), en la que podemos aspirar a ser los líderes de los países en desarrollo, al pasar de los últimos lugares a los primeros lugares del mundo.

En la sociedad del conocimiento, que estamos viviendo, habrá que desaprender muchas cosas en la industria eléctrica para aprender las nuevas. Esa es la razón principal por la que al ser invitado como experto por la Comisión Nacional de Energía hice la propuesta de que estudiemos la opción del Modelo EWPC. Ayer agregué que por esa vía pudiéramos tratar de conseguir algo de un mercado de 4 trillones de dólares.

¿Está el gabinete eléctrico de acuerdo con que se estudie la opción de la EWPC como parte del Plan Energético Nacional?

Smart Grid 2.0

Jesse Berst has written the interesting comentary Web 2.0? Try Smart Grid 2.0 in SmartGridNews.com, which I responded with two comments so far as follows (edited to add hyperlinks):


Second Generation Retail and Prosumer Markets

Thank you Jan for your question "Fascinating breakthrough. Is this the opportunity that could open the second generation retail and prosumer markets?" It gets us out of the wireless communications and into the emerging electric power markets.

For about 100 years the power industry has been working under the Investor Owned Utilities Architecture Framework.

Following a suggestion of Jesse Berst, who browsed my blog, which has close to 200 entries, I recently wrote the article "The Electricity Without Price Controls Architecture Framework." Its summary is:

A new approach to power energy policy design, based on system’s architecting heuristics, has led to an emerging simplified synthesis of the power industry regulatory policy. Instead of undergoing business as usual regulatory proceedings, the approach to the Electricity Without Price Controls Architecture Framework is poised to replace the Investor Owned Utilities Architecture Framework and its incremental extensions that have evolved by analytic patchwork as a extremely complex system.

To read it, please google the title or go directly to www dot energyblogs dot com / ewpc


Enabling the $4 trillion opportunity

Jesse writes that "... with its just-announced GridRouter developed in partnership with Duke Energy, SmartSynch is trying to do for the Smart Grid what the router did for the Internet – which means allowing any device to connect with any other device over any carrier."

Missing from the analogy is the fact that the Smart Grid high level power industry policy is under a flawed architecture. In other words, it is a dead end.

To enable such huge opportunity, the power industry needs a strong shift in the architecture framework. Next are two quotes from the article I mentioned above (which a this time has 9 comments) in response to Jan Herder's post:

"The EWPC-AF is a two tiered architecture that greatly simplifies regulations. The first level is an intermediate architecture aimed for an energy policy act, which separates the whole emergent complex system into two less complex systems. Those systems are highly cohesive with lightly coupled interfaces among them..."

"The second level architecture is reserved for proprietary architectures for open systems under the leadership of 2GRs. Most value creation will be the result of an architecture competition centered on the Silicon Valley Model, which will lead to the final architecture of the EWPC Smart Grid, which is just one of the disruptive components of the whole."

SmartSynch GridRouter is not a whole product for the power industry. It is a potential disruptive component of a competing architecture of a Second Generation Retailer (2GR) ongoing business models (In the article mentioned above, there is a link to the EWPC article The Sixth Disruptive Technology – 4220 views so far). Other competing architectures may for example be developed using CISCO's routers as a component.

eMail Enviado: Una Pregunta para Marranzini en la Tertulia de Herrera del 9 de Dic.

Estimado o estimada líder,

Muy cortésmente, me adelanto al momento de la Tertulia de Herrera (ver la invitación abajo que le envío a nombre de ellos como cortesía) para hacerte una pregunta sistémica y también a Don Celso, para que tengan tiempo para estudiarla y poder contestarla. Esto es en respuesta a una sugerencia que me hizo un alto dirigente de la Asociación de Empresas Industriales de Herrera de que llevara una pregunta breve a la tertulia.

Conforme al título de la disertación, debemos suponer que el sector eléctrico está muy politizado y es muy ineficiente. Es muy probable que el sector no pueda ser calificado como un sistema en el sentido que le da el difunto W. Edwards Deming: un sistema es una red de componentes interdependientes que trabajan juntos para lograr el propósito del sistema. Deming recalca que “sin un propósito, no hay un sistema. El propósito debe ser claro para todos los que participan en el sistema.”

La Ley General de Electricidad en su Artículo 14, literal c) sugiere que para optimizar el sistema se debe hacer una expansión de menor costo, minimizando los costos totales del conjunto que corresponden a los costos de inversión, operación, mantenimiento y desabastecimiento (apagones). El propósito que subyace con un plan de expansión de menor costo viene de la industria eléctrica verticalmente integrada y se refiere a tratar de alcanzar el máximo bienestar social.

Puede argumentase que, en Estados Unidos y otros lugares, hasta los años 70, la industria verticalmente integrada era un sistema y dejó serlo al politizarse porque el círculo virtuoso que hacía que los precios bajaran año tras año desapareció. Noten que al hacer las distribuidoras independientes y tratar de optimizarlas se comete un error de grandes proporciones. En efecto, como pueden ver en el artículo The Anti-System Utility, por politización la industria verticalmente integrada y su sucesora la distribuidora son antisistémicas.

Cabe indicar, que al suponer que la demanda es externa, el límite de lo que debería ser un sistema estaría en lo medidores. No obstante, al penetrar las tecnologías de autoabastecimiento que ha resultado en lo que llamo el mercado libre Sálvese Quien Pueda, que ha venido supliendo la seguridad de suministro que no ofrece el sistema, el límite ha sido ampliado con la participación activa de los consumidores. Por eso, si integramos el ineficiente SQP al sector podremos recuperar grandes ahorros al introducir un sistema de mercado que facilite la coordinación. Dejando fuera lo que Collin y Porras llaman la “Tiranía del O,” para que los clientes dejen el autoabastecimiento, sugerimos que los clientes adopten en dicho mercado lo que ellos llaman el “Y Además,” con la que los clientes podrán decidir libremente en todo momento y lugar si comprar electricidad de la red o autoabastecerse es o no eficiente.

La opción robusta del “Y Además,” está inmersa en el artículo The Electricity Without Price Controls Architecture Framework en la que describo un modelo EWPC para dotar al sector eléctrico de un sistema para despolitizar y eficientizar el sector. Ese modelo, que separa el sector en dos subsistemas, uno de comercialización y otro de transporte de electricidad, está diseñado para impulsar un círculo virtuoso en que los subsistemas se refuerzan mutuamente. El transporte regulado se expande al menor costo como sugiere el literal c) del Art. 14. Por ser más eficiente que la regulación de precios, la comercialización se deja al mercado abierto (bajo regulación prudencial) en que se transa electricidad con calidad comercial asegurada por el transporte regulado.

Con esos antecedentes, la pregunta a Don Celso y también a usted amigo o amiga líder es: ¿si hubiese fondos disponibles para estudiar la opción del modelo EWPC en el Plan Energético Nacional, que ha iniciado la Comisión Nacional de Energía, estaría de acuerdo con apoyarla?

Muchas gracias por su atención.

José Antonio Vanderhorst Silverio, Ph.D.
Consultor Sistémico: Electricidad
Arquitecto del Modelo EWPC
Servidor-Líder del GMH

The Electricity Without Price Controls Architecture Framework

First update: original comments on the EWPC Blog on the EWPC-AF

Comments

Wed, 12/02/2009 - 12:59pm

As I pointed out many months ago, no prudent regulator would implement markets any other way than incrementally. They would never risk bringing the grid down.

<1> "As the grid is not longer able to meet the performance requirements of an increasingly share of demand" Bull. The grid is doing just fine despite its limitations. There are no performance issues wrt reliability.

<2> "Capacity Markets, NERC Mandatory Requirements" are not 'incremental extensions'. They pre-date power markets by decades.

<3> As we discussed many months ago, no prudent regulator would implement sweeping power market changes any way but incrementally.

James Carson

Wed, 12/02/2009 - 7:18pm

If regulators "would never risk bringing the grid down," they should adopt the system architecting approach. The incremental extensions approach led to large power grid failures in several countries that were followed by the capacity markets and NERC mandatory requirements incremental extensions. The US is one of the countries that have several industries experienced on the development of one of a kind unprecedented systems, where system architecture heuristics (lessons learns) approach predates wholesale organized markets incremental extension of the IOUs-AF.

The EWPC-AF reduction of complexity follows the lesson that Dee Hock, CEO Emeritus VISA International, gave us: "Simple, clear purpose and principles give rise to complex and intelligent behavior. Complex rules and regulations give rise to simple and stupid behavior."

It follows from those two paragraphs that the huge increase in complexity resulting from the incremental approach being use by regulators is giving rise to stupid behavior. My suggestion is that they should change the approach to the one being use in the development of unprecedented systems, such as eCommerce systems, nuclear power plants, manned space flights. By architecting such unprecedented system, risk management can be well under control.

The statement "As the grid is not longer able to meet the performance requirements of an increasingly share of demand" is confirmed by a DOE report that says "According to the Galvin Electricity Initiative, 'the U.S. electric power system is designed and operated to meet a '3 nines' reliability standard. This means that electric grid power is 99.97% reliable. While this sounds good in theory, in practice it translates to interruptions in the electricity supply that cost American consumers an estimated $150 billion a year." See under the article Just as Pogo, IOUs Found the Enemy, in the link http://www.energyblogs.com/ewpc/index.cfm/2009/1/26/Just-as-Pogo-IOUs-Found-the-Enemy

Quoting the Galvin Electricity Initiative, under that same article, I added "... for every dollar spent on electricity, consumers are spending at least 50 cents on other goods and services to cover the costs of power failures..."

The idea of power capacity and NERC do predate markets. However, Capacity markets and NERC mandatory requirements do not.

Capacity Markets were initiated after markets were introduced in the power industry, as an incremental extension of the IOUs-AF. The conclusion in the last page of the California ISO document "Capacity Markets - General Background Information (published at least on or after December 28 2006)," says "Because many of the Eastern ISOs' capacity market designs have evolved over the past few years, California can learn from these experiences to more efficiently create an enduring resource adequacy framework." Thus, capacity markets do not predate markets. See the link http://www.caiso.com/1b99/1b99a18465360.pdf

To see how NERC mandatory requirements do not predate markets, browse the 1,076 page document Reliability Standards for the Bulk Electric Systems in North America http://www.nerc.com/files/Reliability_Standards_Complete_Set_2009Nov2.pdf

As a quick evidence readers may search "version history" of the standards and come to their own conclusions.

Jose Antonio Vanderhorst-Silverio

Thu, 12/03/2009 - 10:40am

<< The idea of power capacity and NERC do predate markets. However, Capacity markets and NERC mandatory requirements do not. >>

NERC has imposed capacity requirements since its inception in 1968. It was one of the reasons it was founded.

<< Capacity Markets were initiated after markets were introduced in the power industry, as an incremental extension of the IOUs-AF. >>

Bull. Capacity trading has been around as long as capacity requirements, which date back to at least the 1960s, maybe earlier.

<< To see how NERC mandatory requirements do not predate markets, browse the 1,076 page document Reliability Standards for the Bulk Electric Systems in North America ... >>

I know the document well since I review it every year along with their annual reliability assessment. If you are going to cite something from a 1000+ page document, please direct us to the page to which you refer.

<< "Because many of the Eastern ISOs' capacity market designs have evolved over the past few years, California can learn from these experiences to more efficiently create an enduring resource adequacy framework." Thus, capacity markets do not predate markets. >>

Because they have 'evolved', they did not exist? Nonsense. Before the ISO/RTO era, capacity trading was bilateral. It still is in the non-RTO regions, in Midwest ISO and SPP. ERCOT doesn't have capacity requirements nor markets anymore. Canada never had capacity requirements.

<< The EWPC-AF reduction of complexity follows the lesson that Dee Hock, CEO Emeritus VISA International, gave us: "Simple, clear purpose and principles give rise to complex and intelligent behavior. Complex rules and regulations give rise to simple and stupid behavior." >>

Exactly what does Dee Hock, CEO Emeritus of VISA International know about power systems? Nice sentiment, nevertheless irrelevant.

<< It follows from those two paragraphs that the huge increase in complexity resulting from the incremental approach being use by regulators is giving rise to stupid behavior. >>

Rubbish. I see no evidence of "stupid behavior". Taking a headlong dive into this rather than incrementally, THAT would be monumentally stupid.

<< By architecting such unprecedented system, risk management can be well under control. >>

Can I quote this at my next PRMIA chapter meeting??? Control risk management by imposing untested and unproven market schemes.

<< in practice it translates to interruptions in the electricity supply that cost American consumers an estimated $150 billion a year. >>

This is nonsense. Your $150b number is roughly 40% of the entire retail sector!!! Are you citing Galvin Electricity Initiative as authoritative? Why? Where does their number come from? It looks like sales hype to me.

James Carson

Thu, 12/03/2009 - 1:38pm

A new approach to power energy policy design, based on system's architecting heuristics, has led to an emerging simplified synthesis of the power industry regulatory policy. Instead of undergoing business as usual regulatory proceedings, the approach to the Electricity Without Price Controls Architecture Framework is poised to replace the Investor Owned Utilities Architecture Framework and its incremental extensions that have evolved by analytic patchwork as a extremely complex system.

From its history, I found that in 1997 "NERC formed the Electric Reliability Panel, an independent body, to recommend how NERC should redefine its vision, functions, governance, and membership to ensure that reliability could be maintained in an increasingly competitive marketplace. The panel's report called on NERC to restructure itself into a new organization called the North American Electric Reliability Organization (NAERO) that could function as a self-regulating organization with the authority to set, measure, and enforce reliability planning and operating standards." Before that it could not enforce anything and they were just proposing to start doing it.

"In the absence of legislative authority, nine of the ten Regional Reliability Councils signed an Agreement for Regional Compliance and Enforcement Programs with NERC. The agreements are intended to enforce compliance with NERC reliability rules through contractual means. Although the Agreements are not a substitute for federal legislation, they allow NERC to ensure some measure of compliance with some of the rules."


Capacity trading is NOT capacity markets. They are two different things.

For the quick review of the document Reliability Standards for the Bulk Electric Systems in North America, just do a search of "Version History Version Date Action Change Tracking," and you will get 168 hits. You will see under "Date" that none of those standards predate markets.

Again Capacity trading is not capacity markets. Why would California need to learn them if they were widespread?

The lesson learned given by Dee Hock is highly relevant as system architecting heuristics, like simplify, simplify, simplify; just because it work in the past there's no guarantee that it will work now or in the future; successful architectures are proprietary, but open; do the hard parts first.

Simple and stupid behavior in the power industry is what the DOE Electricity Advisory Committee [EAC], composed primarily of power industry executives, that released a series of reports on the future of the US electric grid" highlighted, when they quoted Galvin Electricity Initiative as authoritative. Fifty cents on every dollar is 33%, so more than 50 cents could be close to 40%.

There is no need to repeat about unprecedented system. The high tech examples are quite clear examples of system architetcting.

Jose Antonio Vanderhorst-Silverio

Fri, 12/04/2009 - 2:55pm

NERC did not require legislative authority. It had none until after the 2005 EPACT, in fact. FERC had been given the authority to designate an official reliability authority and granted that to NERC in 2007.

Nevertheless, they did have the authority to revoke control area authority in 1999. How do I know that? They threatened a large midwestern utility with just that penalty that year for 'leaning on the ties'. They had had that authority for decades. They also have levied substantial fines for failing to meet reliability standards for decades.

<< Capacity trading is NOT capacity markets. They are two different things. >>

That is absurd. On what planet is trading not markets???

<< Why would California need to learn them if they were widespread? >>

Simple. They want to learn from the eastern experience about what CHANGES they want to make in their capacity markets. Capacity markets in NYISO, ISONE and especially PJM have changed substantially over the past decade.

Please link to any DOE document that shows Galvin as authoritative. Their claims are outlandish.

<< There is no need to repeat about unprecedented system. The high tech examples are quite clear examples of system architetcting. >>

Oh, yes there is. The truth is that most high tech systems fail several times in their early stages, especially those that implement innovative architecture. If your scheme fails, the consequences would be immediately catastrophic. That is why I say that no regulator would prudently follow any path other than incremental.

James Carson

Sat, 12/05/2009 - 4:43am

This post has only one objective: to add additional information in order to show that "... 'NERC Mandatory Requirements' are not 'incremental extensions'. They pre-date power markets by decades" is misleading information aimed to confuse readers. Another post will follow later on.

To prove it, I have taken the following evidence from the first section of the NERC Operating Manual of 2008, "A history of NERC," to show that mandatory requirements (to ensure compliance) have their origin in organized wholesale markets. The manual can be downloaded from the link http://www.nerc.com/files/opman_12-13Mar08.pdf

NERC mandatory requirements are the result of an action plan that NERC submitted in 1995 in response to The Federal Energy Regulatory Commission, which issued "its Notice of Proposed Rulemaking (NOPR) on Open Access seeking comments on proposals to encourage a more fully competitive wholesale electric power market. NERC took the lead in addressing the planning and operating reliability aspects of the NOPR and filed a six-point action plan to provide the basis for action by the electric utility industry and FERC." Item 4 on the action plan was "Ensure compliance with NERC rules in a comparable and fair manner."

NERC's history shows that the preceding organization that became NERC "was formed to study and recommend an informal operations organization for the future... It served as an informal, voluntary organization of operating personnel..."

In 1967, the U.S. Federal Power Commission report on the 1965 blackout recommended "A council on power coordination made up of representatives from each of the nation's Regional coordinating organizations to exchange and disseminate information on Regional coordinating practices to all of the Regional organizations, and to review, discuss, and assist in resolving matters affecting interregional coordination."

In 1978, "The Board of Trustees agrees on several additional organizational objectives for NERC, including the need to: define and measure reliability, analyze and testify about legislation affecting reliability, study interregional interconnections, communicate with and educate others about reliability, and collect and publish data on future electricity supply and demand."

In 1979, "NERC assumes responsibility for collecting and analyzing generator availability data...NERC approves expanding its activities to address changes in the industry resulting from the passage of the U.S. National Energy Act of 1978. These activities include the development of planning guides for designing bulk electric systems, invitations to utility trade groups to send observers to NERC Board meetings, and adding staff to support expanded technical activities.

Jose Antonio Vanderhorst-Silverio

Sat, 12/05/2009 - 8:36am

This post has only one objective: to add additional information in order to show that "... 'Capacity markets' are not 'incremental extensions'. They pre-date power markets by decades" is misleading information aimed to confuse readers. Still another post will follow later on.

In vertical integration there was electricity trading within power systems interconnections. According to the 11th edition of the Standard Handbook for Electrical Engineers (1978), "Interconnections also allow companies to exchange power when the time of their peak load differs... This allows each party to install less generating capacity while maintaining adequate system reliability."

The methods to ensure that utilities maintain system adequacy were clearly spelled out in regulatory expansion plan procedures. I know that because I actually led the research and writing of one expansion plan myself when I was Planning Director of the Dominican Power Company and had studied several other plans closely. But, that is not about what we should be discussing in relation to IOUs-AF capacity markets and the EWPC-AF, unless (I repeat) there is an interest to mislead readers.

This is the proper context. In the abstract of the paper "A Market Approach to Long-Term Security of Supply," by Vazquez, C.; Rivier, M.; Perez-Arriaga, Ij., March 2002, a very good introductory example of the capacity markets incremental extensions added to the IOUs-AF is described.


"The problem of ensuring that there is enough generation capacity to meet future demand has been an issue in market design since the beginning of the deregulation process. Although ideally the market itself should be enough to provide adequate investment incentives, there are several factors that prevent this result from being achieved, and some actual markets have already experienced problems related with a lack of generation capacity. A regulatory framework to address this question is presented. The procedure is based on an organized market where reliability contracts (based on financial call options) are auctioned, so both their price and their allocation among the different plants are determined through competitive mechanisms. This results in a stabilization of the income of the generators and provides a clear incentive for new generation investment, with a minimum of regulatory intervention. Additionally, the method represents a market-compatible mechanism to hedge demand from the occurrence of high market prices.
Keywords: Capacity markets, capacity payments, long-term guarantee of supply, generation adequacy, wholesale market design, electricity markets.

Jose Antonio Vanderhorst-Silverio

Sat, 12/05/2009 - 10:26am

This post has only one objective: to show that the statement "As the grid is not longer able to meet the performance requirements of an increasingly share of demand" is confirmed by a DOE report that says "According to the Galvin Electricity Initiative, 'the U.S. electric power system is designed and operated to meet a '3 nines' reliability standard. This means that electric grid power is 99.97% reliable. While this sounds good in theory, in practice it translates to interruptions in the electricity supply that cost American consumers an estimated $150 billion a year." The last post will follow inmediately.

To confirm that "Simple and stupid behavior in the power industry is what the DOE Electricity Advisory Committee [EAC], composed primarily of power industry executives, that released a series of reports on the future of the US electric grid" highlighted, when they quoted Galvin Electricity Initiative as authoritative," It is possible to navigate to the info requested, from my first response, where I wrote "See under the article Just as Pogo, IOUs Found the Enemy, in the link http://www.energyblogs.com/ewpc/index.cfm/2009/1/2...

However, to reduce navigation, readers can go directly to page 7 of the DOE Electricity Advisory Committee report "Smart Grid: Enabler of the New Energy Economy, December 2008, at the link http://www.oe.energy.gov/DocumentsandMedia/final-smart-grid-report.pdf

Jose Antonio Vanderhorst-Silverio

Sat, 12/05/2009 - 10:53am

This final post has only one objective: to show how powerful competent system architecting is, especially at the application of the ultraquality imperative to the RPTSS to better respond to the ideal that regulators "would never risk bringing the grid down."

While the IOU-AF Smart Grid incremental extension is a one shot social system quality regulated (by committees!) architecting deal, the EWPC-AF is done in two stages, starting with an intermediate architecture, that has a very familiar "primary regulated power (integrated transmission and distribution) transportation service system (RPTSS) compact with a responsibility to transport electricity of commercial quality (EoCQ) of a given area" architected under the ultraquality imperative.

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."

In addition to the California deregulation debacle, once again regulators are taking huge risks as explained in the EWPC article "The Deadly Sin of State Regulators on the Smart Grid (please hit the link http://www.energyblogs.com/ewpc/index.cfm/2009/7/5/The-Deadly-Sin-of-State-Regulators-on-the-Smart-Grid )," where I wrote:

Quote begins. The huge Greek Tragedy in the making with the smart grid development is a typical case that has "an unprecedented number of interdependent risks," such as The Egg Basket deadly sin of the flaw of averages, as Sam Savage, Stefan Scholtes, and Daniel Zweidler explain in their article Probability Management, as reprinted by the IEEE Engineering Management Review, Vol. 37, No.2, Second Quarter 2009. The authors write:

Consider putting 10 eggs all in the same basket, versus one by one in separate baskets. If there is 10-percent change of dropping any particular basket, then either strategy results in an average of nine unbroken eggs. However, the first strategy has a 10-percent chance of losing all the eggs, while with the second there is one chance in 10 billion of losing all the eggs.

That is the huge kind of interdependent risks that state regulators are taking on the smart grid projects under the IOUs Architecture Framework (IOUs-AF) with all the eggs on the basket. As the reengineering revolution show that 75 percent of projects were not successful, the Greek Tragedy in the making has spoken. The situation gets even worst at jurisdictions where the artificial profit decoupling incremental extension of the IOUs-AF is also being considered.

Under the EWPC Architecture Framework (EWPC-AF), retail markets business model competition (not all the eggs in one basket), there is such a low expected probability of failure, which enables the development of business model innovations that better understand and satisfy customers' needs. Under the EWPC-AF, natural decoupling is set by natural selection of competitive market survival, as customers are able to choose. Quote ends.

Jose Antonio Vanderhorst-Silverio

Mon, 12/07/2009 - 9:16pm

Jose, I suggest that you read the pdf in the link below. In making the case for making NERC the ERO, it explains how NERC has long established and enforced reliability standards.

http://www.misostates.org/L4%20-%20David%20Cook%20A%20-%20NERC.pdf

I neither "mislead" readers nor posted information that was confusing. I am merely trying to correct your silly pronouncements that others might read and believe to be true.

NERC has been a highly effective industry self-regulatory organization for four decades. It has established and enforced standards much like the NASD sets and enforces standards in securities trading or the NFA sets and enforces standards in futures trading. Many industries have similar powerful and effective self-regulatory organizations.

Your citation of Vasquez et. al has nothing to do with capacity as traded. Capacity or "reliability contracts" are NOWHERE in North America auctioned as financial call options. The approach they mention/recommend in your quote has never been implemented.

I reiterate, the Galvin numbers are ridiculous regardless of who cites them. How can we reduce the cost of electricity disturbances by $49B per year? They cite a cost of $150B cost for disturbances? I reiterate, US energy consumption is roughly 4billion MWHs per year. They are making the absurd claim that the cost of disturbances is roughly the same as the entire wholesale sector? Half the retail value??? THINK about it....

James Carson

Tue, 12/08/2009 - 5:54am

Thank you Mr. Carson for you effort to be a great sounding board to get the truth out.

First Issue.

When did NERC's role change? http://www.nerc.com/page.php?cid=1%7C7%7C114

The transition from voluntary member organization into the independent authority charged with ensuring legal compliance with mandatory Reliability Standards is being phased in. From its creation in 1968 until approximately July 2006, NERC operated as a voluntary industry organization. In July 2006, FERC certified NERC as the "electric reliability organization" for the U.S., and preparations began in earnest for its new, expanded role. On June 18, 2007, compliance with NERC Reliability Standards will become a legal requirement for bulk power system owners, operators and users.

Second issue.

Thanks for the tip of removing "(based on financial call options)" to make Vasquez et al abstract responsive.

"The problem of ensuring that there is enough generation capacity to meet future demand has been an issue in market design since the beginning of the deregulation process. Although ideally the market itself should be enough to provide adequate investment incentives, there are several factors that prevent this result from being achieved, and some actual markets have already experienced problems related with a lack of generation capacity. A regulatory framework to address this question is presented. The procedure is based on an organized market where reliability contracts are auctioned, so both their price and their allocation among the different plants are determined through competitive mechanisms. This results in a stabilization of the income of the generators and provides a clear incentive for new generation investment, with a minimum of regulatory intervention."

Third issue.

Outage costs, which have been increasing dearly as the U.S. has entered into the digital era, are not included in the statistics you mentioned that stop at the meter.

To see that the claim is real, go to page 7 on the DOE report and look at Table 2-2. Cost of One-Hour Power Service Interruption in Various Industries to get a true feeling. Below the table is the following explanation:

The Galvin Electricity Initiative says that "in an increasingly digital world, even the slightest disturbances in power quality and reliability cause loss of information, processes and productivity. Interruptions and disturbances measuring less than one cycle (less than 1/60th of a second) are enough to crash servers, computers, intensive care and life support machines, automated equipment and other microprocessor-based devices.

Jose Antonio Vanderhorst-Silverio

Tue, 12/08/2009 - 11:41am

Jose, you are laboring under the foolish misconception that 'voluntary' meant 'not effective'. The NFA and NASD are similarly 'voluntary'. The only change in 2007 was legal certification by FERC as an ERO. NERC has long been responsible for reliability in North America.

Here is a quote from the end of a letter sent by ECAR, a subdivision of NERC, sent in 1999 that threatens to revoke the transgressor's (name obliterated) authority to operate as a control area. If they were merely a voluntary organization, how can NERC revoke anything?

<< To address this serious reliability situation, the ECAR Executive Board requests ***** to promptly develop and transmit to the ECAR Executive Board a detailed mitigation plan delineating the actions ***** will take to insure that ***** will not repeat such unreliable operation in the future.

<< If you fail to comply with this request and/or continue to disregard NERC and ECAR operating policies and procedures, ***** authorization to operate as a Control Area will be considered for revocation.

Jose, I have made this point before, before you go spouting nonsense about US power markets, you need to learn how they actually operate first.

James Carson

Tue, 12/08/2009 - 6:21pm

August 14, 2003 North America experienced its worst blackout ever, as 50 million people lost power in the northeastern and midwestern U.S. and Ontario, Canada.

April 5, 2004 Final report of the U.S.-Canada Power System Outage Task Force on the 2003 blackout concluded the single most important recommendation for preventing future blackouts, and reducing the scope of those that occur, is for the U.S. government to make reliability standards mandatory and enforceable.

See http://www.nerc.com/page.php?cid=1%7C7%7C11

Jose Antonio Vanderhorst-Silverio

Wed, 12/09/2009 - 9:10pm

They decided to make them LEGALLY mandatory and enforceable. That is not to say that they were not already mandatory and enforceable before, as my example more than amply illustrated. In 1999, NERC, through its ECAR operating subdivision, threatened the 'death penalty' against a substantial utility for 'leaning on the ties'. This is a distinction without a difference. In fact, they may have made enforcement harder, not easier, since due process rules now apply.

James Carson

Thu, 12/10/2009 - 5:14am

In response to the post "I think the Debate on the IOUs and EWPC Architecture Frameworks is Over (http://www.energyblogs.com/ewpc/index.cfm/2009/12/8/I-think-the-Debate-on-the-IOUs-and-EWPC-Architecture-Frameworks-is-Over ), James wrote at 12/9/09 8:12 PM:

The debate is indeed over. My point that no sane regulator would ever follow Jose Antonio's plan has not been refuted.

# Posted By James Carson |

Jose Antonio Vanderhorst-Silverio

Thu, 12/10/2009 - 5:17am

I recall that at the end of 2006, Mr. Carson wrote: "My intention is not to convince Professor Banks. My intention 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 Professor 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."

I guess thanks to Mr. Carson's cooperacion, this time things are much different than with Fred Banks. The debate still has one point to go.

# Posted By Jose Antonio Vanderhorst-Silverio | 12/10/09 4:09 AM

Jose Antonio Vanderhorst-Silverio

Thu, 12/10/2009 - 6:00am

Even though Mr. Carson already accepted that there is only remaining point left on the debate, for completeness I repeat that the new NERC's history states "'... concluded the single most important recommendation for preventing future blackouts, and reducing the scope of those that occur, is for the U.S. government to make reliability standards mandatory and enforceable.' Nothing else matters."

Although useless, James may be correct when he says that "My point that no sane regulator would ever follow Jose Antonio's plan has not been refuted." Even after the "April 5, 2004 Final report of the U.S.-Canada Power System Outage Task Force on the 2003 blackout concluded the single most important recommendation for preventing future blackouts, and reducing the scope of those that occur, is for the U.S. government to make reliability standards mandatory and enforceable," the FERC as a sane regulator did nothing. On April Fools 2005, "Voluntary compliance was expected as a matter of good utility practice."

This is what ends the debate for good. The U.S. Congress (and state Congresses as well) is able to act on a restructuring plan as they did on the Task Force's report to create the "electric reliability organization" as an incremental extension of the IOUs-AF empowering FERC to act on the new plan established by EPAct 2005. For evidence, I will copy a few additional rows of NERC's history timeline, that follow the April 5, 2004 row:

Summer 2004 Bilateral Electric Reliability Oversight Group (BEROG) established as a forum for identifying and resolving reliability issues in an international, government-to-government context. BEROG grew out of the U.S.-Canada Power System Outage Task Force.

November 12, 2004 NERC translated its operating policies, planning standards and compliance requirements into an integrated and comprehensive set of 90 measurable standards called "Version 0 Reliability Standards."

February 8, 2005 NERC Board of Trustees adopted the Version 0 standards. Stakeholders overwhelmingly supported the standards.

April 1, 2005 Version 0 Reliability Standards became effective. Voluntary compliance was expected as a matter of good utility practice.

August 8, 2005 U.S. Energy Policy Act of 2005 authorized the creation of a self-regulatory "electric reliability organization" that would span North America, with FERC oversight in the U.S. The legislation stated that compliance with reliability standards would be mandatory and enforceable.

April 4, 2006 NERC filed an application with FERC to become the "electric reliability organization" in the United States.

NERC filed with FERC 102 reliability standards – the 90 Version 0 standards plus 12 additional standards developed in the interim.

NERC filed the same information with the Canadian provincial authorities in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Quebec and Saskatchewan, and with the National Energy Board of Canada, for recognition as the "electric reliability organization" in Canada.

Jose Antonio Vanderhorst-Silverio

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A new approach to power energy policy design, based on system’s architecting heuristics, has led to an emerging simplified synthesis of the power industry regulatory policy. Instead of undergoing business as usual regulatory proceedings, the approach to the Electricity Without Price Controls Architecture Framework is poised to replace the Investor Owned Utilities Architecture Framework and its incremental extensions that have evolved by analytic patchwork as a extremely complex system.

The Electricity Without Price Controls Architecture Framework

By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity
EWPC Systems’ Architect

First posted in the GMH Blog, on November 30, 2009.

Copyright © 2009 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. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to javs@ieee.org to contact the author for any kind of engagement.

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The Electricity Without Price Controls (EWPC) Architecture Framework (EWPC-AF) is a basic innovation that greatly simplifies today’s exceeding complex power industry. The EWPC-AF emerged to replace the century old Investor Owned Utilities (IOUs) Architecture Framework (IOUs-AF) and its incremental extensions, such as Open Transmission Access, Capacity Markets, NERC Mandatory Requirements, and now the regulated architecture Smart Grid.

By having demand as an externality, IOUs-AF industry growth is traditionally measured up to the consumer meter. As the grid is not longer able to meet the performance requirements of an increasingly share of demand, industry growth needs to take it into account those contributions.

Growth measures should reflect the new reality of the EWPC-AF. By integrating demand to the power system, large investment in, for example, demand side energy efficiency or distributed generation, or both, the EWPC-AF will help reap important value added coordination savings within the larger industry envelop.

The EWPC-AF is a two tiered architecture that greatly simplifies regulations. The first level is an intermediate architecture aimed for an energy policy act, which separates the whole emergent complex system into two less complex systems. Those systems are highly cohesive with lightly coupled interfaces among them:

1) A primary regulated power (integrated transmission and distribution) transportation service system (RPTSS) compact with a responsibility to transport electricity of commercial quality (EoCQ) of a given area; and

2) A complementary open market business system (OMBS) on the value chain generation, retail, pro-sumer (consumer that may produce).

To enable the purpose of maximum social welfare of the whole, the expansion of the RPTSS is to be done at least costs to transport electricity within the OMBS. The expansion of the OMBS value chain also includes customers’ electricity investments, operating, and maintenance and outage costs.

An important part of the value creation of the EWPC-AF in the OMBS comes from changing the managing by averages in retail markets to managing by “discovering new sources of profitability in a network economy… when the events are interconnected and interdependent (Hax and Wilde, the delta project)” through the development of Business Model Innovations by Second Generation Retailers (2GRs).

The second level architecture is reserved for proprietary architectures for open systems under the leadership of 2GRs. Most value creation will be the result of an architecture competition centered on the Silicon Valley Model, which will lead to the final architecture of the EWPC Smart Grid, which is just one of the disruptive components of the whole.

References:

Strong Evidence of Why Utilities as We Know Them Will Fail

EWPC as a Timely Basic Innovation

Renewable Power and Smart Grid as Parts of a Whole

eMail Enviado: 4 Muy Buenos Escenarios y un Plan de Nación Exitoso

Aunque es muy difícil crear muy buenos [escenarios], ellos te ayudan a hacerte las preguntas correctas y a prepararte para lo inesperado. Eso es enormemente valioso.

Charles Roxburgh in “The use and abuse of scenarios.
McKinsey Quarterly, November 2009

Estimado o estimada líder,

Los dominicanos y las dominicanas necesitamos asegurar que el proceso de elaboración del Plan de Nación cumpla con creces sus objetivos y por tanto no vaya a ser simplemente colocado en un anaquel como muchos otros planes. En ese sentido, muy cortésmente, te sugiero encarecidamente que consideren lo siguiente:

De acuerdo al autor de la cita, los escenarios tienen tres poderosas características: expanden tu pensamiento, descubren futuros inevitables o casi inevitables y protegen contra el ‘pensamiento de grupo.’ A continuación hago una adaptación de esta última característica esencial para lograr el Plan de Nación exitoso, con la sugerencia de introducir la elaboración de 4 escenarios muy buenos que nos ayuden a hacer las preguntas correctas y a prepararnos para lo inesperado.

Los escenarios protegen del ‘pensamiento de grupo’

Frecuentemente, el poder del presidente en un país presidencialista inhibe el libre flujo del debate. La gente generalmente está de acuerdo con lo que dice el Presidente. La
gente espera a que el ejecutivo exprese su opinión antes de dar la suya, que mágicamente refleja la del ejecutivo. Los escenarios nos van a permitir salir de esa trampa creando un ambiente seguro para el pensamiento contrario.

Por ejemplo, se ha supuesto que el Plan de Nación debe basarse en la Constitución que será promulgada el próximo 26 de enero. Ese supuesto cabe perfectamente en uno de los escenarios que podríamos definir como el de la Jicotea. Es así como en otro escenario, que podríamos llamar la Guinea, podría caber el pensamiento contrario que aparece la nota Pregunta al Liderazgo ¿Se Opondrá la Nueva Constitución al Desarrollo del País?

No hay tiempo que perder, pues el proceso de diálogo y debate subiría de nivel si concentramos nuestra atención en desarrollar dichos escenarios antes de seguir con dicho proceso. Si eres capaz de liberarte del ‘pensamiento de grupo,’ ¿estás de acuerdo en apoyar esta sugerencia?

Saludos muy cordiales,

José Antonio Vanderhorst Silverio, Ph.D.
Servidor-Líder del GMH