Aiming to be an irresistible article, it should help start a word-of-mouth epidemic of high proportions in the power industry. By respectfully exposing, and responding inquiries, the insidious power of IMEUC False Facts to obstruct progress, it is one of those little things that can make a big difference. Now all stakeholders will be able to learn how Demand Integration to power system planning, operation and control, brings the clarity and direction of the breakthough EWPC market architecture and design paradigm shift to produce large coordination savings for society as a whole. I repeat that “California has a great opportunity to repair the damages of the BIG California LIE to the world.”
EWPC’s Tipping Point
By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity
First posted in the GMH Blog, on March 30th, 2008.
Copyright © 2008 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.
Aiming to be an irresistible article, this article should help start an epidemic of high proportions in the power industry. Malcolm Gladwell’s book, “The Tipping Point: How Little Things Can Make a Big Difference,” can help us see how exposing IMEUC False Facts respectfully, is one of those little things that can make a big difference.
Now the word-of-mouth epidemic can start, once people recognize the insidious power of the False Facts, which are being use by at least two exceptional, intelligent and important individuals, to obstruct progress. Now all stakeholders will be able to learn how Demand Integration brings the clarity and direction of the EWPC market architecture and design paradigm shift.
Steve Covey in his book “Seven Habits of Highly Effective People,” has described three modes of communications (trust and cooperation): 1st level (low trust, low cooperation), Defensive (Win/Lose or Lose/Win) mode; 2nd level, Respectful (Compromise) mode; and 3rd level (high trust, high cooperation), Synergistic (Win/Win) mode. When the other parties are in a defensive mode, or in very polite respectful mode, the solution to the systemic crisis of the electricity industry is delayed as the status quo remains in force.
The generative dialogue is the synergistic mode, when sometimes a new whole emerges, being greater than the sum of its parts. During the last two years and a half, many people have helped EWPC emerge. During the course of that time lapse, an alternative meter centered “market” (physical) proposition has been defended by Len Gould on the first, second and third level of communication. The article IMEUC False Facts, was a response to Len’s recent opinions under the article A Fresh Approach to Managing Peak Demand. Len accepted to participate in the generative dialogue in 2006, under the article Playing with Fire - The 10 Tcf/year Supply Gap -- Part I, which ended when I summirized previous post with the convincing post:
Generative dialogue synthesis:
Competition is divided in two phases: One) market vs market and Two) company vs company.
In Phase One all interested parties cooperate in the generative dialogue to select the emergent winning market. Phase Two is not part of the generative dialogue.
EWPC – an integral reform paradigm - is an open and robust emergent market architecture and design that divides the vertically integrated utility at modular interfaces. 1) Long run and short run system planning, operation and control natural monopoly functions are also kept integrated. 2) The T&D wires natural transport monopoly is kept integrated. 3) Supply - generation - natural competitive functions compete with each other 4) Demand - retail - natural competitive functions compete with each other. 5) Supply and demand – Megawatt/vars vs Negawatt/vars - compete with each other in time and space. Module 1 commitments on planning, operation and control are to be executed by the other modules.
Based on mechanistic thinking, IMEUC is one close and fractured strategy, like any other experienced deregulation efforts, that suggests retaining one of the key elements of retail business model innovations – the metering function – as a monopoly. The intermediary Market Manager is designed to contract base load units based on long run forecasting under uncertainty, arising from improper market signals.
IMEUC as a switchboard intermediary is just one of the many potential business models. It is only through execution – high dynamic complexity – of the development of the resources on the demand side that the potential will be realized. Other potential business model innovations won’t be able to be developed if IMEUC is unfairly and prematurely selected, by giving it market power over other intermediaries. It is no correct to assume how customers will behave – and evolve - beforehand. Instead, there is a need for a customer orientation.
While incremental costs might become negligible, sunk costs might be comparatively prohibitive for all customers. As a “right” solution, IMEUC becomes a strong barrier to emergent – high generative complexity - creative destruction. The best way to find out what the real overhead costs will be is in Phase Two with the right strategy and flawless execution under competition.
Module 1 is to take decisions for the health of the whole system as they unfold. The forward looking statement suggested to Prof. Banks and Mr. Carson on the generative dialogue goes in that direction. The Market Manager does not have such integral perspective.
I want to keep my opinions on Phase One. I am open to review the general open market design and architecture, if there are unfair elements associated with it. I have “listen” carefully to Len’s opinions and perceive that his interests, by going farther than necessary, go well beyond Phase One. Other parties representative of the larger whole – high social complexity - with different interests – regulators, generation of differing kinds, wholesale, retail, transmission, distribution, fuel supply, manufacturers of systems and equipments, etc. - are invited to participate in the generative dialogue.
© 2006. José Antonio Vanderhorst-Silverio, PhD.
Len ended that generative dialogue participation retracting (since then, he has retracted many, many other times) with:
Jose Antonio: Your cogent discussion raises some issues with IMEUC which I hope to clarify in a third article in the series here on EnergyPulse in perhaps a couple of weeks, provided I can submit it up to the high standards of the editorial staff. Thank you.”
The promised article, which he could have written in EnergyBlogs, never came. But that article was, since then, no longer needed, as EWPC emerged as early as the beginning of 2007, as the winner of the market vs. market competition.
As an exceptional discussant, apparently defending the California utilities, Don Giegler has been against the idea or the possibility of a generative dialogue (synergistic trust and cooperation). The most insidious of all of the False Facts is The BIG California LIE (an EWPC article written to Don), under which the whole world was convinced that Retail Competition (which at the time seemed a little thing) is not one of the three essential requirements of electricity markets for the third industrial revolution.
In response to that highly insidious False Fact, the summary of the EWPC article High Leverage Shake-Up in California suggests that “California has a great opportunity to repair the damages of the BIG California LIE to the world. The CPUC can do it by introducing a high leverage shake-up of the power industry that results in a win-win proposition for every stakeholder, becoming the example of indiscriminate access of electricity for the third industrial revolution.”
Don inquired into the article IMEUC False Facts. I have changed his four inquiries as True Facts and presented the corresponding response under each one.
True Fact 1.) "...system crashes are mitigated by a least cost mix of supply and demand risk management tools that may be applied in time and space..." and "...DR is the key to segmentation of customers supply security..."
In the vertically integrated utilities paradigm, "...system crashes are mitigated by a least cost mix of supply [side] risk management tools that [are] applied in time and space..." Such mix is the result of power system expansion planning and executed by system security operations planning. In order to forgo and/or delay investments in generation, transmission and distribution, demand side risk management tools are added to the mix. As customers reliability needs vary over a wide range, segmentation can be part of business model innovations by dividing the range into market segments, according to the value added, just as it is done by marketers everywhere. Customers will select which part of their demand is able to respond in a given market segment.
True Fact 2.)"...my assumption the default service will have essentially all the free-riders subsidized by peers..."
The support is in the EWPC article No Need for Regulated Price Caps - II , where I wrote the following:
In practice, however, there is need for a transition from today’s situation to EWPC. As there will be no incumbent retailers, 2GRs will need to carry the default service customers during the time limited transition period.
Nat Treadway, wrote in the article The Dawn of Electricity Competition: Efficient Prices and Efficient Choices that, “The design of default service (also called basic or standard service or provider of last resort) was identified as the most significant determinant of the success of retail electricity choice. A poorly designed default service undermines competition. If default service is designed to satisfy all residential consumers’ needs, or if it bundles and spreads risks among all consumers, or if it is priced below market, then it is unlikely that new retail electricity providers will enter the market. With few choices, consumers are left with only the poorly designed default service, and with limited benefit.”
During such a transition, 2GRs will have both types of customers (as there is no incumbent retailer), with increasing development of the resources of the demand side, as the default service will have essentially all the “free riders” being subsidized by peers. Hence, a systemic incentive to non-free riders will result, as they get the pressure for efficient prices and efficient choices. So, if only one or two [there should be many] retailers are truly competitive (2GRs), they will end up with the whole market.
(Emergent) True Fact 3.)"...essential business requirements as the breakthrough tipping point to promote leadership..."
Demand Integration is the key to the tipping point. I write that it is emergent, because in the future, people will say that they had though of it. See the article EWPC Leadership (w/o links), where I wrote:
The essence of EWPC is "the generic market model paradigm: Retail Competition, Active Demand, and Ultraquality Transportation," which includes wholesale competition, as 2GRs link both markets.
Such essence is the basis for a breakthrough, which is the tipping point that shifts paradigms permanently. The breakthrough is … the epitome of the 'AHHA!' moment bringing absolute clarity and direction… that now … comes to the power industry for both the open (retail and wholesale) market (with competitive incentives for the development of business model innovations) and the closed (transportation) market (the new utility, with a responsibility to transport).
The Old utilities paradigm (with a responsibility to serve) comes from demand as an externality (inactive demand and no competition) and has already served its purpose with its obsolete business model of winning rate case to the regulator. Each incremental extension of the Old paradigm results in unnecessary accumulated costs paid by customers and "earned" by utilities.
EWPC comes from - a different place altogether - Demand Integration (which comes from Active Demand and Retail Competition) to power system planning, operation and control by 2GRs, resulting in large coordination savings for society as a whole,
both in customers' multiyear investments and operation costs. Letting every customer for himself is a weakness in Gridwise (updated on March 27, 2008, as the Gridwise Architectural Council) that is filled by EWPC.
True Fact 4.)"...agents have to be able to negotiate around issues of scarcity and value..."
This true fact complements the value added by customer segmentation according to the demand response to scarcity. The true fact can be explained by the idea of EWPC “rational rationing,” as can be seen in a comment under the EWPC article The Good, the Bad and the Ugly, as a reponse to Don post that said: "So much for "generative dialogue"! It must be in the throes of "rational rationing".
On the need of rational rationing that competitive 2GRs will be able handle as they replace the regulated enterprise side of the utilities, Warren Causey wrote that "Here are some examples of customer concerns utilities and their CISs will have to deal with in the future (which they are not able to do, just as it is not possible to teach new tricks to an old dog) : . .. · As electricity becomes more scarce--something that is predicted by virtually everyone knowledgeable about the state of the industry--residential customers are going to have to deal with reduced supplies... As the shortages become more acute as carbon constraints continue to drive out the 50% of U.S. electricity currently generated by coal, demand response likely will have to become mandatory. When it is mandatory, it becomes rationing. . . · As demand response/rationing takes hold, utilities are going to have to know a lot more about the lifestyles of their customers. To see the complete article Customer care is about to become much more complex for utilities. Current systems can’t handle it.
It also appears to me that it's EWPC not IMEUC which suffers the problem of having large groups of customers accepting a default service, clearly observable by comparing the two designs, or at least as much as we've been shown of EWPC, which isn't much, and certainly not enough to evaluate it as any sort of potentially useful system. It appears to be designed solely to make large incumbent businesses happy, by removing all regulation on generation and retailers and replacing it with some undefined theoretical (and not presently existing) system of competition. Hopefully not even that group could imagine it might ever get implemented politically.
When Len Gould (as a discussant) writes of a "radically new type of retailer," he is making progress, as he now sees the difference between First Generation Retailers (1GRs) like those of Ontario, that according to him don't add much value, and the emerging Second Generation Retailers (2GRs) that will add a lot of value under the breakthrough EWPC market architecture and design.
False Fact #5. 2GRs are not needed. See below.
False Fact #6. Default service is forever. See below.
False Fact #7. EWPC removes all regulation. EWPC shift price regulation in the open market to prudential regulations, similar to those in the financial industry.
False Fact #8. The utility enterprise and the utility grid separation will never "get ever implemented politically." This is the key issue of EWPC's Tipping Point, that will be enabled because of all of those False Facts.
Since I quoted Nat Treadway in item 2, I will edit within brackets Nat's post in relation to EWPC market architecture and design and the IMEUC "market" proposal. This is a comment Nat wrote on June last year under his article (which is highly recommended to readers).
The comments are valuable. I focus here on just four issues raised by the two writers [Len and José Antonio], and I invite others to offer their perspectives. Industry structure is a broad topic, so I will limit my comments to the ABACUS report and the theme of this article: regulated pricing inhibits efficiency.
First, it is easy to agree with these writers that advanced meters will improve the interaction of demand and supply, and will enhance economic efficiency. Experts disagree over the timing of AMI, who will bear the risks and make the investments, and whether all customers need an advanced meter. Like any technology, AMI is a tool, not a solution, and entrepreneurs are [certainly needed] needed to develop the products and services [i.e. business model innovations, from time to time] that deliver solutions.
With advanced meters, it may not be necessary or desirable to force all residential customers onto a TOU or RTP rate. Many residential customers [in one of many market segments] want the simplicity and certainty of a flat rate, along with a standard package of services. They should get what they want. Other residential customers [in their corresponding market segments] are willing to accept price uncertainty, different levels of reliability for each device (load control) or fewer value-added services, and they should have those choices. A menu of services [as several 2GRs develop their competitive business models] will develop in a retail choice environment, and pricing and contract terms will vary depending on the selection.
For those who want it [i.e. unlike IMEUC], advanced sensors and controls could provide a level of intelligence and control far beyond the simple thermostats and on-off switches in today's homes. A typical customer should not be bothered with monitoring and managing energy usage. Many business models [i.e. 2GRs trying to develop an innovation] will be attempted and a few smart entrepreneurs will get [the innovations developed in the technology neutral EWPC market architecture and design paradigm] the new package of services right.
Second, there is no confusion between "flat rate pricing" and "regulated rates." Regulators can create any discreet number of rates. You may label these rate "innovative" if you wish. Bonbright's rate principles will guide these rate designs. However, each regulated rate will bear very little relationship to innovative pricing in a competitive retail market. We do not expect regulators to require the utility to take risks and respond to market pressures to deliver innovative products and services at competitive prices [that is why under EWPC, the utility is separated and no incumbent utility remains as a regulated retailer]. We expect regulators to price services in a manner that is fair and consistent with applicable laws. After a transition period, we expect regulators in restructured markets to only set prices for monopoly services [like transportation services].
With regard to the matter at hand – regulated pricing of default service – the issues are the specific choices made by each jurisdiction in the design of the default rate. Is the rate truly a transitional service, or does it undermine competition [by having cross subsidies to regulated prices that enable free riding]? Are all costs reflected in the rate, or have the regulators made decisions that shift costs from one period to another? Who bears what risks and who pays what risk premiums? ABACUS elements C.1 to C.6 address six pieces of the puzzle.
Third, I see huge distinctions among energy retailers, transporters (T&D) and producers. I am concerned that someone [read as Len Gould's opinion] sees no value added by a retailer. If your retailer does not add value, then select a different retailer! I am not concerned with "new layers of overhead" because these layers are thin [under EWPC the layers of overhead of both utilities and the regulator are removed]. Retailers who specialize in obtaining value from advanced meters [one market segment], for example, will distinguish themselves from those who provide green power [a second market segment] or those who provide traditional packages [a third market segment]. The new retailers will aggregate customers who are willing to provide demand-responsiveness [to bridge the retail market with the wholesale market], and these customers will be rewarded for the value [this is related to the True Fact #4] they provide.
Finally, I invite each reader to apply the 23 elements set forth in the ABACUS report (see Appendix A) to his/her jurisdiction and to whatever model of an ideal industry structure he/she envisions. Let me hear the results.
"If your retailer does not add value, then select a different retailer!" -- Jose Antonio: I invite you to come to Ontario (presently operating a market system indistinguisable from your proposed EWPC with independent private generation, regulated monopoly T&D, unregulated private retailers) and point out to me that unique retailer to whom you refer. Your "2GR" retailer hasn't happened here and won't happen anywhere else because coming future advances in electricity marketing (conservation, microCHP, gridwise PHEV's, and even demand management itself) all run counter to ANY retailer's natural financial incentives (increased sales). UNLESS you're hiding some unstated regulation or legistation requirement necessary to alter that FACT.
You will see the True Fact that "Electricity retailers believe that they can make more money selling less electricity, a number of the companies told an industry gathering here Tuesday."
Jim Burke, chief executive of TXU Energy; James Ajello, senior vice president of Reliant Energy in Houston; and Lois Hedg-peth, chief operating officer of Direct Energy, are quoted.
In my second post I wrote that "TXU Energy is the TXU retailer that operates under structural separation in Texas. Structural separation is a term where the utility grid and the utility enterprise are kept in the property of the incumbent utility separated only with by a Chinese wall. Given that the utility grid becomes part of the transportation utility a real separation occurs. . . The news added to the article shows that in Texas 1GR are now looking to rudimentary elements of 2GRs business model development. However, structural separation remains as a big barrier for the integrated smart grid transportation utility, as well as for fair competition."
Jose Antonio,
Massive government intervention would be needed to separate the "utility enterprise" from the "utility grid" because our current utility companies OWN their grid infrastructure and also OWN large bank loans that are funding their AMI and smart grid investments. The banking industry alone would have a huge say in what happens to their investment loans because they would never allow them to be assigned to whoever you choose simply because you think EWPC is the electricity industry's savior.
You might consider setting up and moving to a full-time camp in Washington D.C. to lobby federal politicians to get your EWPC implemented, and be prepared to go begging on hands and knees to lobby them hard.
Bob,
Tell all of your utility friends to read very carefully EWPC's Tipping Point, with regard to the new Law of the Situation: the utilities did not understand. First tell them to read a quote from Megatrends on the "Law of the Situation: the railroads did not understand," so that they learn where they are at this historic moment of the third industrial revolution.
Suppose that somewhere along the way a railroad company, sensing the changes in its business environment, had engaged in the process of reconceptualing what business it was in. Suppose they had said, "Let´s get out of the railroad business and into the transportation business." They could have created systems that moved goods by rail, truck, airplane, or in combination, as appopriate. "Moves goods" is the customer-oriented point. Instead, they continued transfixed by the lore of railroading that have served the country so well - until the world change.
Of this phenomenon Walter B. Wriston, chairman of Citycorp, in 1981 said: "The philosophy of the divine right of kings died hundreds of years ago, but not, it seems, the divine right of inherited markets. Some people 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. 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.
Jose Antonio: "They could have created systems that moved goods by rail, truck, airplane, or in combination, as appopriate. " -- Interesting to note that in fact Canadian Pacific Railway did just as you propose, developing a large airline business, a trucking fleet, and a worldwide steamship fleet, both passenger and freight. They went broke in all those, and are now back to being strictly a railway.
Based on the converse of the "False Fact #8. The utility enterprise and the utility grid separation will never 'get ever implemented politically,'" as Ontario and Texas are already implemented, there must be a very large discernable political difference with the breakthrough market architecture and design paradigm.
Among many other important things, EWPC repairs the 1992 Open Transportation Access mistake (that extended to the rest of the world) that left utilities vertically integrated in the local market, by introducing two mutually reinforcing robust markets (1) a (fully integrated transmission and distribution) Transportation Ultraquality in a controlled market (that takes center stage away from generation) with a responsibility to transport, and (2) a complete and fully functional open (retail and wholesale) market to level the playing field (supply side-demand side) and enable industry innovations by developing the resources of the demand side to allow Demand Integration to power system planning, operation and design, under prudential regulations.
Instead of 1GRs, like in Ontario and Texas, 2GRs compete without incumbent retailers by developing business model innovations in the company vs. company competition. Texas retailers are already trying to avoid the "Law of the Situation" that the "Canadian Pacific Railway" missed, as "Electricity retailers believe that they can make more money selling less electricity..."
Len, I think EWPC says it adds "integrating demand with system planning and operation" instead of it being an "externality" as it is now to the system.
By definition, as an "externality" to the system, demand is currently an independent parameter from the system. While I agree with this definition, to "integrate" it into the system to enhance system planning and operation economically requires that demand information must be fed back into the system to optimize its economic efficiency, including both real-time present data and past data. There is no other way to define or interpret in the context of the electricity system the English meaning of "integration".
EWPC does not in any way specify the mechanisms nor does it specify in any way how real-time and past demand information should be fed back into the system. It also does it specify how the information would be handled by the system. Your IMEUC does.
Bob Amorosi added on 4.1.08
EWPC "also does NOT specify how the information would handled by the system."
IMEUC does precisely.
You have written that idea before, but I have just grasped its valuable significance for the generative dialogue, as it helps arrive the emergent market architecture and design paradigm in the market vs. market competition.
You synthesis have clearly showed that IMEUC is a physical (originally aiming to be a monopoly) implementation, which "specify how the information would [be] handled by the system" that will preempt the competition of new innovations waiting to happen.
EWPC, on the other hand, is a technology neutral market architecture and design paradigm breakthrough. That way, competition among physical implementations will have a leveled playing field in the company vs. company competition.
Bob: Agreed. My problem is, EWPC doesn't specify how it might force "2GR" retailers, apparently suddenly emerging from "1GR" retailers, to act counter their own financial interests.
2GRs don't need to emerge from 1GRs which may have very bad habits.
As Bob just showed, by clearly helping separate the market vs. market competition from the company vs. company competition, the development of business models are the key where entrepreneurs vision and courage will bridge the concepts with the implementation.
Remember what Nat wrote: "I am concerned that someone [read as Len Gould's opinion] sees no value added by a retailer. If your retailer does not add value, then select a different retailer! I am not concerned with "new layers of overhead" because these layers are thin [under EWPC the layers of overhead of both utilities and the regulator are removed]. "
Thank you once again for your contribution to the generative dialogue.
I am very glad to tell you that Alfred E. Kahn changed his mind once again in favor of competition and against utilities "heavy-handed regulation." Tell that to Californians.
In fact, on June 26, 2006, Open Letter to Policymakers, signed by the prominent economists Paul L. Joskow, Alfred E. Kahn, William W. Hogan, Peter Cramtom, Howard J. Axelrod and Vernon L. Smith.
The conclusion of the letter states: "... despite the recent increases in electricity prices, policymakers should stay the course and continue to support restructuring and the evolution of competitive wholesale and retail markets for power. Competition is the very foundation of our nation's economy. Competitive electricity markets are relatively new and will continue to evolve. We urge policymakers to focus on making the necessary improvements in market design and resist the temptation to reject competition for a return to heavy-handed regulation. We are persuaded that competition in electricity markets will stand the test of time and continue to provide visible customer benefits."
It is important to highlight the suggestion to "... focus on making the necessary improvement in market design and resist the temptation to reject competition for a return to heavy-handed regulation," since [then,] EWPC market architecture and design emerged as the key to such improvements.
For the complete EWPC article "Ohio Should Focus on EWPC," where I had written that, please hit the link http://www.energyblogs.com/ewpc/index.cfm/2007/11/...
Being the winner in the market vs. market competition, with a controlled transportation market that enables an open market with large coordination savings for society as a whole, both in customers' multiyear investments and operation costs.
The key to that is the environment created for the development of business model innovations by competitive 2GRs, while the smart grid gets to be developed without the restrains of the Old utilities. In a sense opening the industry as a whole to innovations.
I have news for you about your statement...
"EWPC, on the other hand, is a technology neutral market architecture and design paradigm breakthrough. That way, competition among physical implementations will have a leveled playing field in the company vs. company competition".
Being "technology neutral" with physical implemtations having a "level playing field" for company-to-company competition IS ONLY POSSIBLE WHEN INDUSTRY-WIDE STANDARDS are developed and adopted for new technology. The personal computer industry and the internet are marvellous examples of this, since any company can develop products and connect to any PC and the internet, and not have to depend on any personal computer manufacturer's proprietary technology.
This is not the case in the electricity industry. Utility companies control who and whether anyone can access power demand information in the system, and smart meter manufacturer's AMI systems are all proprietary - there are no true open standards to communicate data back into the system from consumers of power.
Len's IMEUC proposes in part to implement standardized smart meters to accomplish this with a minimum functionality. EWPC does not, nor do the meter manufacturers have any desire to standardize AMI systems because they know it will foster more competition for themselves.
Any company attempting to develop and market physical implementations of anything for utility grids or consumers' residences that require communication with the electricity system do not have a level playing field today. I have direct personal experience with this unpleasant truth in 2008.
To achieve a level playing field demands industry-wide open standards be defined and adopted by AMI manufacturers for smart meter miminum functionality, and open industry-wide standards for communicating economic and parametric data both ways between the electricity system and the consumers of power.
Jose, the IEEE and the electronics industry have recognized this basic fact about open standards for years. Open standards is key to making technology products affordable at the mass-market consumer level. Until this happens in the electricity industry, substantial changes are wishful thinking.
Len's IMEUC is in essence an open-standards definition proposal for the electricity system's technology, and if I understand it correctly it's also one for energy markets. End of story.
Jose Antonio,
Here's a simple real-life example that could come true very soon of what I am talking about.
At the consumer end of the electricity system there is a pressing need for open industry-wide standards for communicating economic and parametric data both ways between the electricity system and the consumers of power. An example of this need is in the imminent introduction of Plug-in Hybrid Electric Vehicles to the consumer market.
Consider if someone visits my residence with a PHEV and doesn't have enough charge left in the vehicle's batteries to return home, and therefore must "plug-in" to one of my residence's electrical outlets for a top-up charge. Many consumers would not want to pay for the electrical energy used in the visitor's top-up charge, just like most would not want to provide a gasoline refilling station at their residences to top-up conventional vehicles.
There would have to be technology in place such that the visitor's PHEV could be billed by the consumer's utility company directly for his top-up, and not the consumer's residence. This technology, whatever form it takes, would have to be a communications technology that is affordable enough to be commercialized and deployed widespread throughout consumer markets. These energy transactions would also have to interoperate with smart grid technology within the grid system to manage power flows properly, given PHEVs could become a huge source of power demand.
The IEEE and the electronics industry have recognized the benefits of open standards for years as key to making technology products affordable at the mass-market consumer level. Until this happens in the electricity industry at the consumer end of the system, substantial industry changes are wishful thinking.
In conclusion smart grid technology standards adoption must be done in parallel iwth the need to standardize the consumer technologies at the consumer end of the system, and especially how they interface to the electricity system which includes smart meters and their interfaces. Len' IMEUC proposal deals directly with these interfaces and the energy market reforms to handle them.
By keeping yourself so deeply involved within the barriers of the Old utility paradigm, you will keep coming with conclusions such as those. You need to shift your paradigm to EWPC, which "comes from - a different place altogether - Demand Integration (which comes from Active Demand and Retail Competition) to power system planning, operation and control by 2GRs, resulting in large coordination savings for society as a whole, both in customers' multiyear investments and operation costs."
Once you shift your paradigm, like a true entrepreneur would, all you need to start with is a physical meter standard that satisfies all the needs of the New transportation utilities. Such standard meter (one key physical interface between the controlled market and the open market) will "change" with 2GRs software and firmware downloads. Instead of utilities, as the author suggest, every 2GR "should seek out partners who will work collaboratively with them to ensure the success of the initiative. Partners should have a proven track record, be prepared to sign up for end-to-end responsibility [in the Retailers' Enterprise Solution] and be willing to have a stake in delivering results."
Please recall that on 3.24.08, above, I told you that "With their Retailers' Enterprise Solutions, 2GRs will also execute those non-fat activities performed by the traditional utility enterprise that are required and the many more needed for the competitive environment included in the business model innovations that integrate in-home technology, AMI, etc. Competitive 2GRs will develop (with help from their partners) their business models to integrate demand (think that it is at the wholesale market) to power system planning, operation and control. EWPC is technology neutral, and as such can house all hardware/software/firmware propositions in a competitive environment."
Jose Antonio: At what point do you simply admit that you are operating your generative dialogue by a completely twisted set of rules which designate that "only Jose Antonio can be correct"? You posit railroading as an example of something, I present CPR as an example of when your position is in error, and you simply state "I don't need to know what happen to the Canadian Pacific Railway."
You need look no further to see why few others will even respond. The only reason I still do is to counteract your constant eroneous comments about IMEUC.
Nat Treadway: "I am concerned that someone [read as Len Gould's opinion] sees no value added by a retailer. If your retailer does not add value, then select a different retailer! I am not concerned with "new layers of overhead" because these layers are thin [under EWPC the layers of overhead of both utilities and the regulator are removed]. "
I'll need to see some theoretical proof, or real-world examples. From what I'm seeing in Ontario, retailers have added a huge marketing cost overhead to the industry, witness the hordes of know-nothing salespeople knocking on my door offering to "analyse my electrical bill for me for free", or the huge promotional signs on the "Direct Energy Baseball Stadium" in downtown Toronto, or the constant television promotional campaigns. None of these activities add anything useful to the industry, IF I were allowed to shop for myself for electricity from among all the source generating entities. Retailers are definitely NOT a "thin" layer in my experience.
Jose Antonio,
Where can I find the one physical meter standard for smart meters you are talking about. Until I see this, I refuse to believe it exists.
In England, the Energy Retail Association's "aim was firstly to identify a technology standard for smart meters that would ensure interoperability – in other words, once you have a smart meter installed you don't have to change it if you change suppliers [2GRs, under EWPC]."
In my IEEE Power&Energy article May/June 2006 - a Dominican strategy (please hit the link http://www.ieee.org/organizations/pes/public/2006/... ), I suggested "a task among developing countries to develop low-cost power devices (like cell phones in the telecommunication industry) with metering and demand-response capability to create a mass market de facto standard. With such a standard for preserving the rights of poor customers to a valued service that balances electricity costs, poor customers can choose to become active, legalized, and, thus, profitable customers. Hence, the poor can offer and benefit from DRR [Demand Response Resources] and thus lower their electricity bills without subsidies in the long run. Financing energy-efficient appliances to the poor and legalized customers could lead to social sustainability."
Dear Professor Banks,
Below you may find a letter that I just sent to Dr. Alfred Kahn. If you have a comment regarding the letter, please don't hesitate to make it.
Best regards,
José Antonio Vanderhorst-Silverio, PhD
Dear Dr. Kahn
I am a Cornell graduate, who believes to have understood what is needed to design a true deregulation [now re-regulation] model for the electric sector. I am told you have said sometime ago: "I am worried about the uniqueness of the electricity markets. I've always been uncertain about eliminating vertical integration. It may be one industry in which it works reasonably well."
The uniqueness is associated with the non-lineal nature of the risk of system failure. Physical risk of system failure, linked to high prices in deregulated systems, used to be managed as a supply security risk under vertical integration. The apparently large costs of generation and transmission reserves required, under vertical integrated utilities from resulting risk management planning, became the target of inefficiency identified by economist and policy makers at the outset of deregulation.
By reducing reserves and creating congestion, here and there, long run risk of failure was thus increased by deregulation of wholesale markets and incomplete deregulation of retail markets. Associated with the physical risks was increased value destruction, and unstable markets. I believe that to be the structural reasons of the uniqueness of the electrical industry.
In the mean time, as technology has progressed, end-customers perceived sensitivity to shortages has spread sufficiently as to make invalid the assumption that customers can be classified in neat classes to pay average rates. In a sense, that sensitivity is the basis for differentiating customers, and the essence for a retail market to be developed. In addition, progress has also brought us the new technology of Demand Response together with an Automated Metering Infrastructure (AMI).
DR technology can complement the mitigation of physical risk of system failure and spot price sharp increases, as a non-linear feedback mechanism to repositioned systems reserves, in time and space, much better than lumpy investments in generation, transmission, and distribution. By developing a market on customers differentiated supply security (sensitivity to shortage) requirements, an efficient rationing [rational rationing] system can be developed. Investment on an AMI is apparently feasible just on the operational benefits to the distributor [now the transporter].
The architecture of a "true" deregulated [now re/regulated] model is centered on independent retail-marketers [now 2GRs], and a new value chain, whose mission is to segment customers according to electricity value added services, which customers can select. The value chain is wholesale, retail, end customer, leaving the distributor as a pure transporter [integrated with transmission] charging a toll. Retail-marketers [2GRs] then take control of the strategic Enterprise Solutions [now Retailers Enterprise Solutions], developing innovative business models. As each customer selects what he perceives is the maximum value addition, the economy as a whole maximizes welfare.
This is just a glimpse of my insights, design, research and, humbled observations. I will be very glad if I receive a comment from yourself on this matter. [I received the comment from him at that time, but I am not authorized to tell it. [However, Dr. Kahn's "June 26, 2006, Open Letter to Policymakers, signed" also "by the prominent economists Paul L. Joskow, William W. Hogan, Peter Cramtom, Howard J. Axelrod and Vernon L. Smith," says it ALL.]
Best Regards,
José Antonio Vanderhorst-Silverio, PhD
Interdependent Consultant on Electricity [now Systemic Consultant: Electricity]
BS ´68, MS ´71 & PhD ´72, all from Cornell University
Valued IEEE Member for 35 [now 37] Years
javs@ieee.org
Research and practice areas, and interests: [electricity without price controls,] systems architecture, systems thinking, retail marketing, customer orientation, information systems requirements and design, market rules, contract assistance.
Jose Antonio,
You have clearly recognized that a smart meter standard would be necessary, as I have recognized this too.
BUT WHERE IS THIS SMART METER STANDARD THAT WOULD PERMIT UNIVERSAL INTEROPERABILITY ? I do not believe one has been created until you tell me where to find it. The current smart meter manufacturers surely have not adopted one because none of them have open standards for third parties to interface to them. I know this fact because I have personally dealt with them over the last several months.
Thank for all your help in unvailing the key issues on smart meter standards.
The EWPC breakthrough market architecture and design paradigm is not being practiced anywhere yet. It will certainly take time to create such a standard as EWPC is a baby that only emerged last year.
Smart meter manufacturers surely will adopt them when global EWPC standards become available. It seems that U.K. standards will be first, making what will become Old fashion ("because none of them have open standards for third parties to interface to them") Canadian and U.S smart meter standards, which with the big bets by regulators, to guarantee that utility win the rate cases, will eventually destroy a lot of value that ratepayers or taxpayers will have to absorb.
Jose Antonio: Happy dreams.
Jose Antonio: If EWPC was born just last year as a baby, maybe you should feed it more convincing arguments and data to make it grow. Or is the baby perhaps just a fake doll.
Better yet, why not take up religious preaching and air your own TV evangelist show to start a new religious cult. Disguising EWPC as a religion just might get people to believe in it, since your writings on this website sound more like a Sunday morning evangelist than a technical expert when you talk to us techies. It might be much more fun too than trying to convince us on this website, and certainly would get a bigger audience than going begging to the US government in Washington to force EWPC on the electricity industry.
Religious preachers make the best happy dreamers, and don't forget to say prayers too. EWPC will need tons of spiritual help to come true.
Responding to Len, above I wrote that ""under EWPC the layers of overhead of both utilities and the regulator are removed." The regulators are making bets on utilities projects that will go into the rates structure. Just as it happened with reengineering, where 75% of all projects failed, we should expect similar negative results of utilities bets."
Don should be very proud on how expensive is going to be for California customers to have the utilities winning rate cases to the regulator as they keep making big bets on risky technology projects. Len confirmed that idea, when he wrote on 8.31.07, that "It's depressing to see so much money spent with so little imagination," in response to the investments of California utilities. "Below is a summary of the decisions made by" the state of California "in which AMI / Smart Grids are advancing."
San Diego Gas & Electric
• The CPUC's 2005 Energy Action Plan established a framework for implementing AMI plans by mid-2006. CPUC's May 13, 2005, Order approved SDG&E's plan to implement and obtain cost recovery for AMI. The plan was based on vendors' responses to an RFP. When the CPUC approved the plan, SDG&E had not yet selected the technology it will use.
• In 2007, SDG&E will develop a new information technology system, integrate that system into the company's existing information and billing systems, and prepare preparing for AMI meter installation. In 2008-2010, SDG&E will then install 1.4 million new electric meters and 0.9 million AMI-enabled gas modules, and add supporting communications infrastructure.
• The CPUC required a cost/benefit analysis over 17-year period, e.g., based on useful life of the longest-lived asset. The estimated project costs were $652 million, which were exceeded by the estimated direct customer benefits of $660 million. The CPUC allowed consideration of non-quantifiable benefits (for items such as public safety benefits, by accepting a reasonable quantification) and societal benefits.
• The revenue requirement for the project costs is recoverable through a tracker, with no after-the-fact prudency review for the authorized costs. Shareholders receive incentives of 10% of the first $50 million in project cost savings, and shareholders pay 10% of first $50 million in project cost overruns. SDG&E can recover cost overruns caused by: force majeure; changes in project scope/functionality required by government