Business model competition for retail services is the key to a breakthrough in utilities services. Economies of scale and scope of electricity, gas and water will enhance their business models. The general public should be aware of the harm of extending utilities business model of winning rate cases to the regulator as we enter the Third Industrial Revolution.
Breakthrough Suggestions for Today's Utilities Environments
By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity
First posted in the GMH Blog, on April 23rd, 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.
Instead of the utility centered "Modest Efficiency Suggestions for Today's Energy Environment, proposed by Philip Hanser, Principal, The Brattle Group, the article EWPC Leadership (w/o links) is offering breakthrough suggestions that “brings absolute clarity and direction to enable a cultural shift to the power industry of the Third Industrial Revolution. Demand Integration by 2GRs [will] result in large coordination savings for society as a whole, both in customers' multiyear investments and operation costs.”
Until recently, utilities have concentrated on the development of the resources of the supply side, where modest incremental results can be expected. Breakthrough is about the development of the resources of the demand side in electricity, gas and water.
I interpret the author’s “Utilities must be made financially whole if they are expected to be a means by which energy efficiency is achieved,” as begging to help utilities develop the resources of the demand side to extend their business model of winning rate cases to the regulator. In that regard, Len Gould asked a question whose answer is already available under EWPC: “For some reason item 4) in your article bothers me. Is electricity service so unique that governments must employ only the services of the seller of the product to encourage customers to buy lees [change to less] of that product?”
The answer is in the EWPC article Shrinking the Regulator’s Jobs, whose summary says: “There is a need for a shared vision to restructure the power industry, shrinking regulators jobs to price controls of the remaining transportation electric utilities and letting end-customers make their own investments and purchasing decisions of electricity. The shared vision needs to go to the public opinion so that high level political decisions are enabled to restructure the electricity industry and shrinking regulators jobs.”
In the Third Industrial Revolution, that same answer applies to gas (GWPC) and water (WWPC) market architecture and design paradigms. Three different independent regulated transportation utilities companies and Second Generation Retailers that will be able to increase their federal economies of scale by developing economies of scope in gas and water will be the result, here and below.
Demand today is still an externality to the power system in a wide open market for customers’ investments in energy efficiency (EE) products, among other products available, making EE (integration to system planning, operation and control) a power system disruptive technology in its own right.
As soon as the EWPC EPAct described in the article Leadership Answers What to do First is adopted, R&D on EE and other disruptive technologies will all be pumped with a lot of R&D money. In fact, those are well known technologies also waiting to become power system disruptive technologies all the way to Main Street (as Geoffrey Moore calls it). As the most viewed EnergyBlogs article The Sixth Disruptive Technology (with 1218 hits at the time of this writing) explains, business model innovations developed by 2GRs will tightly integrate the other five technologies. In gas and water, similar disruptive technologies will be available.
I enjoy reading your posts. I think EWPC probably would be a good model. However, the problem with good models is that the utility industry does not work in a "model environment." In order to adopt EWPC, public utility commissions would have to let go of their authority to regulate rates at the retail level. This is a political issue. PUCs are political entities. Commissioners pretend to believe they are "serving the public interest" by protecting the public from nasty old utilities.
To free retail rates from PUCs would require Congressional or Legislative action. Congress members also nominally claim to be "representing the public intereest." In fact, virtually all of their efforts are geared first toward maintaining themselves in "power." They have learned that they can do that by giving the public "bread and circuses" as predicted by the ancient Greeks and Romans. They aren't going to let go of that power or that pretended rationale for what they do.
While EWPC may make economic and technological sense, it doesn't fit within the practical political/economic environment currently extant in the U.S. Sorry, but that's the way I see it and why most of what I write is about what utilities "can do" to deal with the environment in which they are forced to work. That environment is imposed from above by those whose self-interest (survival in power) does not coincide with rational approaches. The problem is much bigger than the utility industry alone and there is little utility executives can do to solve it.
Best,
Warren
Wow! A leveled 3 win-win communications mode with Jim, Todd, and I think Bob, with much technology too, in response to a simple and clear message. Todd even called it "most readable and sensible." Jim even wrote "agree that was probably Jose's clearest post to date. Thank you, Jose." You are welcome Jim. Thank you Todd.
Please, forget my response to some detailed questions, which have somehow been cancelled out already by yourselves, and some of which I answered before. I will try to be crystal clear once again focusing at the market level and responding the leadership question "What to do First?"
Part of the open architecture of EWPC is based on a market where business models can compete and which customers can select eventually at the global market, where a multiplicity of business models will be adopted initially according to the level of development, the culture of the region, the capacity mix of base load generation (i.e. mostly thermal vs. mostly hydro), etc., Initially also, we should expect several market segments to be served by corresponding business models available to each customer.
Any business model where all customers are forced to adopt it is a closed architecture not open to competition and thus a regulated architecture, where rates will be approved by a regulator.
Todd's traveling reservation system is a great example of a mature 2GR business model innovation. The point is that several reservation systems (or in our case 2GRs) are available to the customers in the open market where airlines compete. I think that is also the case the world of the electronic industry.
Part of what Warren Causey wrote under today the EWPC ...[this] article ... helps this dialogue. He said that "In order to adopt EWPC, public utility commissions would have to let go of their authority to regulate rates at the retail level. This is a political issue."
So accepting that the market architecture and design technical and economic elements are solved, what is missing as suggested in the EWPC article "Leadership Answers What to do First" (please hit the link http://www.energyblogs.com/ewpc/index.cfm/2008/4/1... ) is the political will to adopt a EWPC EPAct.
That is exactly the case of the great depression of the 1930s, when both the financial and electrical industry were restructured as a result of large changes like the ones were are experimenting in fuel prices and the environment, while a new technological revolution is underway to reduce customers transaction costs to make electricity a very familiar business environment.
Best regards,
José Antonio