Fred

To add fuel to the burning crisis (pardon the joke), our Ontario provincial government is planning to phase out all coal-fired electric generators by 2014 being the dirtiest of fossil fuel sources. Once coal is gone however the next largest GHG emitter is, by default, natural gas. It is used by the majority here for central heating and water heating, and some use it for stove cooking being cheaper than electricity, and are presently encouraged to do so by the government to ease strain on the grid. To add to future NG supply demands, the province also currently has plans to double the number of NG electric generators over the next 20 years.

The present situation here is ironic. Without the coal plants most of our electricity generation comes from nuclear, hydro, and some wind, so after coal is gone Ontarians would actually create less GHG by switching to more expensive electric heating. The situation is probably similar in many northern US states too, hi-lighting there is no easy solution to addressing climate change and the looming energy crisis.

Good summary and introduction to my new EWPC article Uncertain Generation is Here to Stay. The story is that wind and solar technology distributed generation can be deployed if transmission and distribution are tightly integrated to support system security with very high reliability, which is the same as EWPC ultraquality transportation; and that transportation investments could be done at least costs and saving a lot of impact on ecosystem services.

Ecosystem services, like fuel, land, construction materials, water, keep hitting systemic limits and somehow we keep doing the same that Jared Diamond identified being done by primitive people in his book “Collapse: How Societies Choose to Fail or Succeed.” I suggest reading ecocide in Chapter Two: Twilight at Easter.

You write that “energy prices will continue their dramatic climbs. . .”, while we witness that information technology prices will continue their dramatic drops. The development of the resources of the demand side is about investing in information technology to reduce energy waste all over the place.

I heard the other day that nukes will take close to 12 to 14 years to come on line. If that is true, the world needs to restructure electricity markets under EWPC to open the demand side and allow 2GRs invest in the development of the resources of the demand side to provide demand side system security and well coordinated increases in demand side energy efficiency investments in concert with rising energy prices.

The comment is open ended on purpose.

The fee -- 4.2 cents per metric ton of carbon dioxide -- would affect everything from oil refineries to power plants, and landfills, factories and small businesses like restaurants and bakeries.

The largest emitter of greenhouse gases in the Bay Area, the Shell oil refinery in Martinez, would pay $186,475 a year for its 4.4 million annual metric tons of emissions. The largest emitter in Santa Clara County, the Hanson Permanente Cement Plant in Cupertino, would pay $44,507 a year for its 1.05 million tons. . .

Also from Energy Central News . . . The Ontario Centres of Excellence (OCE) Inc. and its industry and academic partners today announced an investment of $28 million in the research and development of six groundbreaking clean energy projects that promise to create cleaner and more efficient ways for Ontarians to generate, consume and manage energy.

The six projects address issues critical to Ontario's energy sustainability:

- the demand for solar power as a viable, cost effective alternative energy source;

- the need for systems and programs to help people manage their energy consumption;

- the ability to access clean energy alternatives. The projects highlights (see news for more info):

1. Energy Consumption Management System Gives Consumers Control… gives consumers control to change the way they use energy, like programming the system to switch off the central energy grid at peak times, and move to on-site alternatives like solar and wind energy.

2. Low Cost, High Performance Thin Film Cells Charge Solar Industry… Fully recyclable, this new technology is expected to make solar power a competitive alternative resource.

3. High-Capacity Fuel Cell Helps Meet Commercial Demand for Power… The project aims to develop a commercial system to demonstrate high temperature solid oxide fuel cell technology as a viable, commercial alternative for utilities struggling to meet ever-increasing demand for power, by lowering power costs, reducing greenhouse gas emissions, enhancing redundancy and reducing power failures.

4. Next-Generation Solar Material to Boost Solar Production… This new technology will propel Ontario to the forefront of the global solar industry, reduce reliance on market incentives and make solar panels a more feasible option for Ontario homeowners and businesses.

5. Decreasing Diesel Dependency in Remote Northern Communities… aims to develop a low-carbon community energy system that combines wind turbines specifically designed for extreme Northern climates, with a storage system that uses hydrogen and a fuel cell to generate electricity

6. Connecting Solar Farms to the Grid… By developing technologies to efficiently convert solar energy to electricity, and produce innovative software for making weather-based predictions to help manage unique weather challenges, the creation of a robust solar power integration plan has the potential to encourage utilities in Ontario and around the world to adopt solar technologies.

Point 6 hints that utilities will continue to rule. Thus, it seems to me that missing from all this is the proper market architecture and design paradigm shift to enable all that with 2GRs doing a hell of a lot of leadership and management work to aggregate demand for short run and long run system security.

Is project 1 a monopoly retailer? Are regulators making bets on those technologies? Are all customers to pay the marketing campaign whether they benefit or not?

The announcement of Ontario government investment in R&D is part of the massive spending campaign underway here. They are promoting a culture of consumer conservation, energy efficiency, investment in renewable energy sources to eventually reach a hybrid grid of large central generating stations and distributed clean renewables, and as indicated by this news release new consumer technologies to compliment renewable generation sources.

The Energy Consumption Management System described in project number 1. is one that was started some time ago at the University of Waterloo (UofW). It involves the participation of Milton Hydro (small town utility near Waterloo) after they completed deployment of smart metering, and together with the UofW and Bell Canada developed a near-real-time in-home energy monitoring and home automation system around an internet connection to Milton's smart meter system (I think). It's quite expensive last I heard. A natural extension to this technology is adding the ability for a consumer to switch their residence's source of power between the grid and local solar or wind on site if it's available, and make it programmable to switch automatically during high energy prices on the grid.

So in answer to your questions, firstly this project would not be something a utility controls or owns. Secondly, regulators in Ontario are indeed betting heavily on the future of distributed renewable "clean" energy sources like solar and wind. And thirdly all Ontario consumers are currently bearing the costs as taxpayers to fund the R&D in these projects, and will likely bear some costs to help commercialize them later if successful. The government has also shown it will use taxpayers' money to promote new energy technologies to all consumers often with financial incentives for consumers to buy them. But note they still leave it up to consumer choice whether to buy them.

In essence Ontario's utility companies will still be in control of the central grid in a regualted price environment for a long time to come yet, but local small-scale renewable generators are viewed as being privately owned in most cases, and can be controlled by private interests' technology as alternative local power sources for consumers.

Ontario will be phasing out its large aging coal plants by simply shutting them down as more new generation comes on-line in the next 6 or 7 years. The new sources will be from new large nuclear / hydro / NG stations and presumably lots of renewable distributed generators like wind and solar.

Sounds like the California and Ontario politicians are cut from the same cloth. They'll spare no expense for the consumer/taxpayer for a dime's worth of renewable energy.

Thank you for your explanations.

I understand that everywhere, regulators were never good at the business model of utilities winning them rate cases. Now polititians (regulators) go into making bets on innovation projects. Don't you think instead of regulator's bets, those investments risks should be left to the open competition, while providing a transparent and stable market architecture and design of the power industry?

Most of the real barriers to demand integration to power system planning, operation and control, innovative projects, come from the utilities mind set. Sooner or later they will have to break the barriers.Are Ontario polititians avoiding a direct hit to the utilities?

The intermittent nature of solar and wind means the large central stations on the grid will never disappear.

Jose, yes the Ontario government avoids "hitting" our utility companies even if they want them to change their thinking, which they have admitted on occasion using reverse psychology - by praising utilities that demonstrate creative thinking when helping to implement consumer conservation initiatives.

I know what you are thinking, just let there be more competition and a less monopolistic utility industry. This is easier said than done because monopolies are usually tough to break without government intervention.

It may also be true that some of those gentlepersons have encountered the lady or gentleman who informed José that "it might take 12 to 14 years for nukes to come on line". Once the nuclear construction boom that is about to get under way moves into gear, the technicians, engineers and firms producing components for reactors will appear in large numbers again. What this means is that it night take only 4 years for a nuclear facility to 'come on line'.

Fred

A classic case is ethanol here in the US Midwest. The price of corn has doubled in the last year because of ethanol, using ethanol in your car noticeably reduces gas mileage and you end up actually paying more than if you just used gasoline*. Further, some governments (Missouri for example) are requiring that ethanol be used and the fuel is also subsidized by the Federal government. Adding injury to insult, ethanol actually increases emissions of CO2.

Ethanol is a really good example of the many being forced to subsidize the few because of the marriage of a shallow political class and special interest groups with hidden agendas. The net effect is the already suffering consumer is hammered even harder.

Renewable sources have a place but zealot-like overemphasis only serves to worsen a situation becoming direr as oil and gas become scarcer. The same caution applies equally to nuclear and coal energy sources – the technology needs to be practical and cost effective.

* The few pennies price differential between ethanol and gasoline is not large enough to overcome the drop in gas mileage.

But you are correct in that their development and commercialization are being heavily subsidized by our taxes here when the benefits to all consumers are normally very minimal. But the government views them as beneficial to all consumers at times when total peak demand exceeds the province's generating capacity, and any contributions from private renewable generators to the grid reduces the amount of highly expensive power we have to otherwise import from neighboring states and provinces.

For a consumer to put up a solar panel or wind mill on his residence is (still) a huge investment compared to the savings from the "free" energy they get from using them for themselves. So to encourage more private consumers to invest in them, the government offers a huge premium to buy electricity from small generators when surplus power from the generator is fed back into the grid, effectively subsidizing the consumer’s investment. Large wind farm investors whose sole purpose is to sell power to the grid are also given these premiums.

It's not smart to place all renewables in the same group and collectively label them with any label. There are very viable ones and there are low capacity and/or costly and/or opportunity and/or environmentally damaging ones. In the viable category, some are better in all categories than their non-renewable counterparts. This is the reason that the government needs to get completely out of the subsidy game and let the market make all the decisions. Do we really want to be forced to put that many terawatts of solar on our roofs or corn in our tanks?

If you consider the different types of solar and then view the North American insolation maps, you'll notice that a large portion of that energy comes from indirect sources like clouds. Even on cloudy winter days there can be over 2 kwh/m^2 per day way up into Canada. Any wide field of view solar technology can make use of that. Heck, the world record for solar-to-grid efficiency may have been set in AZ, but it was on a cold Jan 31.

Disruptive technologies have the characteristics of getting better and better as time goes by. Those technologies are supposed to get better as transactions costs, which depend on information (and nano) technologies ,get cheaper and cheaper, unlike energy costs which seem to be getting prohibitive. The time frame is 10 to 20 years.

Energy efficiency, energy storage, microturbines, wind and solar generation, business model innovations, ETC. (that is a big etc. holding potential breakthroughs) are demand side distributed resources disruptive technologies when they are thoght as demand integrated to power system planning, operation and control.

The penetration of those technologies depends on having a stable and transparent market architecture and design that levels the playing field. That means taking down the barriers on the development of the demand side, by separating incumbent utilities' enterprise and grid, while introducing 2GRs that develop the cooridnation of investments in those resources at retail and aggregate them for wholesale competition.

EWPC is robust enough to whatever "cost effective fashion" market penetration they get, as time and fuel costs evolve. I see no problem for private sector nukes to compete in this environment, if they assume all the associated risks involved.

The above ideas are wide open for a generative dialogue.

On a broader plain, I suspect part of the driving force behind government "intervention" is green house gas and global warming. I think that is an unwise approach. The higher price of energy will cause the consumer to reduce demand as well as cause technology to evolve, both of which will inherently reduce greenhouse gases. The scarcity of fossil fuels will actually precipitate market dynamics without the unintended consequences of “help” from the “ham-fisted” government. Stated somewhat differently, we need to hit the panic button because we are going to run out of oil and gas, not because of global warming.

Left entirely up to free markets, sure oil and gas shortages will force up their prices and then foster investment in new technologies and alternate energy sources. The problem that the government sees is that the development and commercialization ofall the new stuff would not happen overnight, and the shocks to the economy of the skyrocketing oil and gas prices in the meantime would result in much economic hardship while oil and gas companies get much richer. So to mitigate the economic consequences, they see helping to foster the development of the new stuff by directly intervening, and therefore get it commercialized on wider scale much sooner than would otherwise happen.

If it is known up front precisely how to design a new technology, then the development and commercialization can happen very quickly. But often one does not know precisely how to do it up front, and often its development is therefore an iterative process that takes more time and money than anticipated, all without any return on investment yet. Revolutionary new disruptive technologies are not a given since for every successful new design there are often many failures.

My point is there is no guarantee that left up to the free markets the world's inventors need only be let loose with money and they will come up with good solutions in a timely manner.. R&D is a risky business and always was. If you know you are going to need a solution in the future, then the sooner you start its development the better your chances are of hitting the market at the right time with a success.

This is another take: In systemic terms, the systemic delays on global warming are perceptions - very hard perceptions indeed, supported by scientific research and the world most important institutions - that are driving today's reality.

Case 1 - Too little, too late: If the perceptions turn out right ,in the same time frame of 10 to 20 years, and we do nothing, we have a society that choose to fail, as Jared Diamond advised (see my post above).

Case 2 - Upgrading the power industry; if they are wrong, and we restructure the industry, we will introduce much needed competition.

So, I suggest we do both: level the playing field and provide subsidies for new clean potential disruptive technologies.

Honda and Toyota recognized they could make a good profit by developing fuel efficient automobiles and that is what they did and are doing. The government was nowhere to be seen.

The electronics', communications, software and computer industries are a constant source of innovation with minimal government "help".

Does anyone remember the 1970 oil crisis? Since then, government has successfully stifled the building of additional refineries, increased oil drilling, nuclear power, etc. Now that we are lurching into yet another crisis, up pops Johnny-come-lately, a.k.a. the government.

We have managed to fritter away 35 years and, short of invading the Middle East, I do not see how governments can deal with the oil cartel/monopoly in the near term. Actually … I think we have sort of invaded the Middle East and are spending billions of dollars on that particular adventure.

The government needs to set policy, establish regulations to punish the miscreants and let the free market’s profit motive come-up with and implement clever solutions to economic problems. In the case of energy, the policy should be energy self-reliance. We upend the international oil cartel/monopoly by (1) massive conservation and increased efficiency (2) shifting to our own energy sources.

The problem with energy and related technologies is that there is too often no open free markets for energy. Energy regulation is pervasive in western economies, and usually the regulators are governments themselves. It's the regulated markets that drive AWAY private investment, since private interests too often fear their investments will go sour and not make enough money because of the future whims of regulators stifling their ability to make money.

Governments know this and that's why they intervene to help promote R&D in the energy sector with taxpayers' money.

Bob if there is "no open free market for energy," lets open it. That is what EWPC intends.

This is what's known as a "market failure." The role of good government is to correct market failures. We will also need to avoid "government failures" like foreign oil wars. So energy efficiency and renewables are, I think , very much a part of government's role in this particular mess.

Jose Antonio views his EWPC as a free-market system to lower electricity costs to consumers, but I wonder if his system would foster sufficient investments needed to solve the generating capacity growth needed in the future, and would it foster the R&D investment in the new technologies needed for combatting climate change, like renewable generation sources.

Now that prognosticators such as those folks at CERA (who are having a party in Houston as we speak) figure the steady-state price of oil at around $80 for the foreseeable future we might actually SEE alternatives hit the mainstream, and let the market decide what wins. Will there be failures? Of course. Will there be successes? We can only hope so. My personal take is that oil was too cheap for too long, and now we have to pay the piper a bit. Gas rationing anyone?

Bob,

EWPC re-regulation is not the conventional free market of California, where financial capital took over the industry under an unstable market architecture and design. There is an equilibrium involved to get production capital back into the power industry under a stable and robust EWPC market architecture and design. The open retail and wholesale markets under prudential regulations operate in tandem with an ultraquality controlled transportation utility compact that manages long run (a.k.a system adequacy) and short run (a.k.a. system security) systemic risk. See next.

Tam,

Governments should integrate the externalities costs of fuels and reduce geopolitics investments to subsidize them.

As demand is not longer an externality under EWPC, power industry demand integration planning peers very long into the future, just like generation and transportation. Developing the long run expansion transportation system at least costs, while interacting with the evolving right mix of supply side and demand side resources, leads to a mutually reinforcing open-close markets re-regulation to enable the higher social welfare possible.

Bob and Tam

Regulators' induced market failures will keep destroying value by making bets in a networked economy, slowing the much needed innovations to emerge. We need short and long run efficient pricing to develop ASAP.

So CERA thinks that the 'equilibrium' oil price is about $80/b. Well, that's better than the low twenties, which is what they were arguing a few years ago. And according to my math, the present $90/b is twice the 45 that Forbes thought acceptable. The interesting thing here is that Forbes is a great magazine, but they just cant get this energy thing straight - nor can Business Week or Fortune. As much as I dislike saying it, the Financial Times is the only one of these publications that seems to know how to deal with energy.

Fred

If this is the case, then there is no chance of implementing any "free market" for oil because OPEC is free to manipulate prices upwards to their advantage without the fear of litigation. Dr Fred, is this view too simplistic or am I correct ?

Fred

Could such a thing reasonably be done today? Of course, but the lesson forgotten is that the price floor should be reasonable and LIMITED, not for instance what we are seeing in regards to ethanol, where it is mandated across an entire country AND subsidized.

Good report Martin,

To satisfy the comments of Linda Cook, Donald Evans, Deryk King, and James Rogers, to start a revolution, it is necessary to make EWPC a shared vision to restructure the electricity industry to: 1) eliminate the barriers to the development of the demand side and 2) to enable the integration of uncertain generation. All that is needed to get the political will going is to get the shared vision to the public at large and “do what must be done. . .” without the need “to bankroll energy efficiency initiatives through the ratebase,” as Mr. King suggests.

The ongoing communications revolution is the fuel (pun intended) that reduces transaction costs and introduces the innovative networking effects that allows demand to be integrated to power system planning, operations and control. That way, utilities as we know them and their perverse incentives and barriers disappear and energy efficiency on the demand side will be able to do its job of “saving barrels of oil” with efficient pricing and not on average rates.

The key institution, to integrate demand and make money under EWPC, is the competitive second generation retailer operating at the federal (and eventually global) level that also take on the front and back office operations of the utilities enterprise: the casualty of the revolution. The new utility has a transportation (integrated transmission and distribution) compact at the federal level with a responsibility to transport at ultraquality, facilitating the integration of uncertain generation.

For more details (90 articles so far) go to the EWPC Blog at the link http://www.energyblogs.com/ewpc/

Either that or begin enforcing some effective anti-collusion / anit-market-power rules as Bob hints. Since that sounds a little too militaristic for my personal taastes, I think i'd prefer simply a very high and very stable enforced minimum price on petroleum, implemented via a government tax at-the-border on imports which is re-directed to supporting reaserch on alternatives.

Complex and trickey though.

Perhaps it's time we start realizing that the concept of "sovereign nation" is past it's time, and is presently primarily used to divide people in Africa up into feudally manageable fifedoms.

A subsidy is valuable and economic if it is substantial but on limited output. If the Canadian or U.S. Government subsidized 10,000 PHEVs annually for $10,000 apiece, that would be $100 million. A lot of money, but that would be enough units to get the technology working. The oil companies shouldn't complain, cuz I don't see them paying for Iraq ($100+ Billion/year).

The same goes for net-metering plans. If the use is limited, then I don't see why they can't be a bit more generous in order to figure out how a larger system would actually work.

Like ethanol in the U.S., net-metering in Germany has probably gone overboard (way too generous for solar power) which I think will come back to bite them in the not-too-distant future.

I posted yesterday a “collection of the links, date/time stamp, and introductory words of the first” 90 “EWPC Blog articles” which “is available as an alternative source to the EWPC Blog. I believe that every article can be though of as a holographic image from a different perspective of the whole EWPC market architecture and design paradigm shift.” They can be found through the red links First 45 EWPC Blog Articles and Second 45 EWPC Blog Articles.

In another holographic image of EWPC, I suggest that all governments should be out of decision making on net-metering, term which I propose is already obsolete with the emergence of EWPC. Government should instead concentrate their future effects on the price tolls (after a proper restructuring in price regulation of the remaining controlled utility market) of the smart grid transportation utility under an obligation to transport.

In other words, instead of net-metering plans regulated by government, we need electricity without price controls (EWPC) under prudential regulations. That way we could all forget the imprecise and unstable generous and no-generous governments interventions by letting the open electricity market evolve.

Folks in Texas and other states who are sick of rising electricity prices and want to return to the days of regulators setting rates can forget it.

The U.S. isn't going to change its policy of allowing competitive markets to determine prices, the chairman of the Federal Energy Regulatory Commission said Friday at the Cambridge Energy Research Associates annual conference.

"Our goal at FERC is perfect competition, textbook competition. Competition that is so perfect and beautiful it would make an economist weep," said Chairman Joseph Kelliher.

Further, competition isn't driving prices higher; rising fuel costs are driving utility bills up, he said.

That doesn't mean Mr. Kelliher wants to step out of the electricity markets entirely. He doesn't want to deregulate but to create a balance between rules and competition.

FERC doesn't regulate the Texas grid, which is operated by the Electric Reliability Council of Texas. Still, Mr. Kelliher's speech addressed calls from Texas power executives to preserve competition here, despite some public exasperation with higher prices.

....

"They did what policy and lawmakers are supposed to do: create the environment ... to allow the private sector to do what it does so well," he said.

....

Mr. Kelliher said it isn't about price, anyhow.

He said calls to re-regulate the market are actually calls to cut fuel prices. And regulators can't do that.

The country, including Texas, has become more dependent on expensive natural gas for power generation fuel. Texas gets most of its power from natural gas-fired plants.

.....

Nuclear plants don't emit carbon dioxide when operating but can take 10 years or longer to get permits and build.

Plus, construction costs are rising to the point that nuclear plants could prove to be extremely expensive to build. So expensive, that nuclear plants might not be able to compete with coal plants, even under carbon dioxide regulations, Massachusetts Institute of Technology professor John Deutch said at the conference.

Windmills and solar panels cannot take up the slack because they don't operate 24 hours a day.

For power companies, natural gas is "the only safe option," said Direct Energy chief executive Deryk King, even though building more natural gas plants will probably drive prices higher.

It's kind of nice to see officials finally waking up to the looming energy crisis. If cheap fuel prices are a thing of the past, energy price deregulation is bound to expose the US economy to huge pressures if energy costs continue to climb. While Joseph Kelliher is correct in that they cannot regulate fuel prices, the cries for energy price regulation are in reality cries for subsidies to cushion the looming pressures on the economy.

Here in Canada we have had for many years a huge tax on gasoline at the fuel pump, by both the federal and provincial governments. Consumers in Canada are accustomed to paying a much higher price per gallon than in the US over the last decade or two, until our dollar value took off just recently. In theory if the price of oil skyrockets the governments can reduce the pump tax rate and ease the price shock at the pumps. Indeed there have been calls for them to do this already as oil has climbed to $100 over the past couple of years.

However this is not the case for electricity, there are no heavy taxes on our electricity bills. When electricity prices jump, consumers will often just bite the bullet and absorb it at the expense of other spending, but there are many energy-intensive businesses operating on razor thin profits that cannot.

If fuel prices soar for electricity generation, I wonder then what the tune of FERC will be to the cries for energy price regulation if businesses start going under, and the public demands governments do something to stop the tide of pain. Start another war perhaps ?

Last Friday, the California Public Utilities Commission (CPUC) issued a proposed decision on its recommendations to the California Air Resources Board (CARB) for greenhouse gas regulation. "The proposal demonstrates that the CPUC did not learn from the disastrous restructuring of California's electricity industry and that artificially created market structures have many unintended consequences," said Jerry Jordan, Executive Director of the California Municipal Utilities Association.

"The electricity market crisis in 2000-2001 cost California consumers $20 billion a year (an extra $13 billion a year) for the two years of the crisis when previously, the cost had been about $7 billion a year," said Mr. Jordan. "The electric industry restructuring plan was recommended to the Legislature by the CPUC," he said. "Now, the CPUC is proposing to the California Air Resources Board that it adopt a program of auctioning off at least some of the greenhouse gas allocations. Such auctions can only result in greatly increased costs to consumers and windfall profits to non-electric industry bidders such as hedge funds."

The CPUC proposal also suggests that CARB should regulate energy efficiency and renewable portfolios. California already has mandated all cost effective and feasible energy efficiency and there is great competition for renewable resources amongst all utilities. The CPUC proposal confuses the standards for greenhouse gas emissions with the tools necessary to meet those standards. Publicly owned utilities are fully committed to meeting the greenhouse gas emission standards but must be able to creatively and aggressively manage their portfolio of tools to meet the standards at the lowest cost to their consumers.

The California Municipal Utilities Association is a statewide non-profit association of publicly owned electric, water and gas utilities.

SOURCE: California Municipal Utilities Association

Is this what you mean by "prudential regulation", Jose?

Huge error. Simply designed to provide a huge windfall profit to traders.

If you are refering to the missing political will in "... to start a revolution, it is necessary to make EWPC a shared vision to restructure the electricity industry to: 1) eliminate the barriers to the development of the demand side and 2) to enable the integration of uncertain generation. All that is needed to get the political will going is to get the shared vision to the public at large and “do what must be done. . .” without the need “to bankroll energy efficiency initiatives through the ratebase,” as Mr. King suggests."

Prudential regulation is not to "regulate energy efficiency and renewable portfolios." We need to separate the utilitiy grid from the utility enterprise. Shift the state utility enterprise to the open federal market under prudential regulations, to make sure the public is protected from the risk of the retail enterprise going broke. The utility grid together with the associated transmission becomes the transportation utility in the area.

Maybe those energy intensive businesses with razon thin profits need to fold.

You didn't think "...energy-intensive businesses operating on razor thin profits..." were covered by Jose's "...higher social welfare..." did you? Profit has a different meaning to frustrated collectivists.

Don, I agree completely on what profit means to different people.

Most jobs lost so far are due to the "ongoing communications revolution ," an not to outsourcing jobs abroad. Why use public funds to keep unsustainable businesses going? Maybe some of those "...energy-intensive businesses operating on razor thin profits..." are really unsustainable. Maybe not!

I am glad that Don understood the meaning of prudential regulation and the need for political will.

Folding of unsustainable businesses that operate on thin profits can in theory lead to new businesses over time, creative destruction does usually work this way. The problem with many large unsustainable businesses is that new more profitable ones take time to emerge and grow. For example you cannot replace the American auto manufacturing industry overnight with something more profitable that will employ all of its workers. The problem with rising energy costs is that the financial pressures on business lead to great dislocations in the economy from laid off workers, long before any new industries emerge to hire them.

I think it behooves us to remember the infrastructure issues that have had 100 yrs to build up, that can't be replaced overnight no matter what we do.

Lesson One: Incremental progress shouldn't be dismissed.

Lesson Two: Market forces, not government regulation, provide the most effective impetus for higher gas mileage.

Lesson Three: New technology will require new infrastructure, presenting a chicken-or-egg problem

The oil embargo was uncomfortable for a while, but the real damage was done to our economy as the costs of energy slowly started accumulating, soaking into our everything and leading to the inflation that bugged Jerry Ford and cost Jimmy Carter his job.

Energy is the only wealth in the Universe (as JZ used to say). It's the only stuff that actually gets things done. Trouble is, those things ALL use energy, so every time someone sits in an office and imagines a product, he uses energy - for transportation, communication, space conditioning. Energy has the biggest multiplier of which I am aware, because it ubiquitous - it is used in everything. At every step in every process we use energy. That means an increase AT EACH LEVEL, resulting in inflation that acts like compound interest.

At the end of the Carter administration we had programs of all types and sizes to improve our energy options. We got Reaganed out of them, instead - our bucks went to build nuclear missiles and bail out savings & loans.

Not having learned much, we have yet to reap what has been sown.

Hopefully the implementers of this next round will have learned from past errors.

There are not flaws in creative destruction. It just happens. The example "you cannot replace the American auto manufacturing industry overnight," is not timely. The creative destruction process of Detroit auto manufactures has been going on for years and years.

I agree Detroit's auto industry has been on its way down for years and years. My point was that rising energy prices will force them to go down much faster, and there is no other emerging industry in America to absorb the legions of laid off workers that would create.

Here in Ontario our provincial government ran a publicly owned generation and transmission system known as Ontario Hydro for decades, and used public taxes to build the system. They also continue to regulate consumer billing rates. In the past they kept rates artificially lower than the cost to produce electricity, and in doing so it attracted many industries to locate here over many years. This was basically a form of indirect subsidies to all industries using the tax system, and is an example of how governments can encourage and keep industrial investment through energy regulation.

There was a tradeoff however. Since energy prices were kept artificially low for so long, Ontario taxpayers are now burdened with considerable debt that we are now paying down with surcharges on our electricity bills. But this was considered worth it to attract and keep large businesses here with their associated employment.

In the absence of regulated prices, industries are exposed to economic shocks that the looming energy crisis threatens, which translates to threatened jobs for the masses.

Shrinking the Regulator’s Jobs

By José Antonio Vanderhorst-Silverio, Ph.D.

Systemic Consultant: Electricity

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.

In a timely article, Tam Hunt asks What does $100 per barrel oil mean for us? As the market hit the $100.01 figure yesterday, I suggest that it means that it is about time to start to shrink utilities regulators jobs. I hope that after reading this, Tam is not longer "torn between [a] desire for fair rules to apply to all utilities, and [a] desire for local autonomy."

Just before the great depression of the 1930's, someone like Bob Amorosi (see some of the references under Tam’s article) probably had written "there is no other emerging industry in America to absorb the legions of lay off workers that would create." With his comment, I think Bob just might have signaled the high likelihood of another great depression scenario. At that time, the problem was a banking systemic risk and the solution a paradigm shift to go in favor of the second industrial revolution creative destruction. Presidential leadership was great at the time.

I contend that the problem now is an energy systemic risk and the solution in the electric sector is the EWPC paradigm shift, to go along with the third industrial revolution communication paradigm shift. Hierarchical top down restructuring leadership is missing yet, but we can help push it by letting evolve a networked bottom up shared vision.

The WSJ article referred by Jeff Presley, written by Paul Ingrassia, starts with "Our cities have been straining at their seams, ‘declares a full-page newspaper automotive advertisement.’ Traffic is jam-packed. Parking space is at a premium. And our suburbs have spread like wildfire. People are living farther from their work, driving more miles on crowded streets," reflects a systemic problem (well known at MIT) that is solved by mass transportation, as the personal car itself makes a vicious circle that increases energy waste more and more for societies.

In fact, there is at least another industry that is absorbing Detroit’s jobs – the electricity industry. Gerald B. Sheblé, writing on the Jan/Feb 2008 IEEE Power & Energy magazine, “noticed significant mass transportation developments in Portland Oregon; Nice, France; Minneapolis, Minnesota; and Saint Louis, Missouri…” Detroit jobs are already moving to electric power mass transportation jobs, meaning that we need to solve the electricity problem itself and the regulators are in the way.

Explaining the shift towards shrinking regulator’s jobs, MIT Professor Lester Thurow wrote in 2000 “In the process of globalization governments are losing many of their powers to regulate their economies. If firms don’t like one nation’s system of regulations, they just move their activities to different countries… Systems of government regulation are not taken as given but viewed as a selection of restaurants where one has to choose where one wants to eat based upon the menu offered.” It seems that the CPUC as many other regulators just don’t imagine to restructured themselves out their jobs. A shared vision needs to emerge for restructuring to take place aligned with globalization.

So, I am now convinced that FERC, the CPUC and the three largest California utilities actions were integral part of the natural systemic response that led to the vicious circle of the mistaken efforts that has had a large impact on the delay of restructuring worldwide. As you all know, I disagree with FERC chief that "Deregulation is here to stay,” unless they introduce the EWPC market architecture and design paradigm shift that leaves regulators with just price control over the electric transportation utility. As can be seen in the article Demand Integration is NOT the Province of Politics, state and federal governments have already come to a dead end with the many incremental extensions of the old vertically integrated utility paradigm.

In Don Giegler’s quote of Jordan, the "... disastrous restructuring of California's electricity industry and that artificially created market structures have many unintended consequences..." were all the time under FERC, CPUC and the three large California utilities, as can be seen in the EWPC article Slicing the Last of the Regulated Monopolies (the update to the article by Lester P. Silverman, a director of McKinsey & Company, on The New York Times of July 21st, 1996, is highly recommended reading for everyone):

“The California Public Utilities Commission issued a decision in December 1995 that made it official: the investor-owned electric utility industry in California will be restructured to allow for wholesale and retail competition beginning in 1998,” as it is reported in Barbara R. Barkovich & Dianne V. Hawk, "Charting a new course in California," IEEE Spectrum, July 1996, pp. 28-29.

Barkovich and Hawk, reported something Mr. Silverman didn’t know: "The debate in California has changed remarkably over the past year or two. Discussion now focuses not on whether retail competition or direct access is possible, but on how to make it happen. The three California investor-owned utilities affected by the commission's decision convened an industry working group, called the Western Power Exchange (Wepex) to address the issues related to implementing the new competitive retail market. Its responsibility has included making three filings to FERC by the end of April 1996, seeking [I am copying only the filing to break transmission and distribution, to keep native load and avoid competition]:

• A determination of the dividing line between transmission, over which the FERC has jurisdiction, and distribution, whose regulation is expected to be left to the states."

Now I update my mechanistic thinking with a systemic one, not to say that in the BIG California LIE, the CPUC and FERC also acted very irresponsibly. In fact, I take back that “the three big California utilities, that didn't care about the end-customers, acted very irresponsibly,” as it adds unnecessary confrontation. In fact, the Fifth Discipline explains that “We all tend to blame someone else… for our problems. System thinking shows us that there is no separate ‘other’; that” the CPUC, the California utilities, FERC, and the customers “… are part of a single system. The cure lies in your relationship with your ‘enemy.’”

Finally, lets’ look at Paul Ingrassia’s remaining lessons under EWPC:

Lesson One: “Incremental progress shouldn't be dismissed.” Agreed once a very clear shared vision, like that of EWPC paradigm shift is understood allowing high level leadership to take place.

Lesson Three: “New technology will require new infrastructure, presenting a chicken-or-egg problem,” that is solved by restructuring under EWPC and applying Lesson One.

It seems that the missing element is still some a top down action like the one by U.S. President Franklin D. Roosevelt or even GM’s President Mr. Cole that “had the guts and the clout” to resolve a car infrastructure issue. Now that oil is very costly, and global warming seems to be a great threat, the alternative I am proposing is to generate a worldwide network public opinion leadership or grassroots movement to try to tell elected officials what to do.

While remaining open to debate and dialogue to come up with the emergent shared vision, I suggest readers to browse the first 90 EWPC articles and select those of interest in the links First 45 EWPC Blog Articles and Second 45 EWPC Blog Articles.

Elected officials are rarely technical experts on any subject. To "tell elected officials what to do" will never get them to change what they do because they get bombarded by many people telling them what to do all the time, including other elected officials.

To effectively get elected officials to change what they do either requires that you embarrass them by making their past actions visible as big mistakes, or you give them proof that what you want them do will satisfy their political objectives - recognizing one of their big objectives is to get re-elected in the next election. This is especially true if what you want them to do requires them to spend public money, whereas it's a lot easier if it does not require any spending.

Another approach is to lobby a politician's advisors, or somehow become one yourself. These are the people who generally have the most influence on them.

The only other alternative is to first educate the public about your goals for change, and then get the public to start calling their politicians en masse. If this last approach is what you are proposing, this is far easier said than done unless the public can be effectively persuaded it’s in their best interest, which is usually financial interest. This will be very tough for you because the regulated energy industries are typically not well understood by the public, and to expect them to understand your EWPC marketing ideas borders on wishful thinking.

Your perspective on the external context about how to shrink the regulators jobs is very timely. I am glad that you have not any concern on the technical expert substance. As you will see I kindly accept the conventional wisdom you present.

I believe that the media we are sharing is giving us an emergent unconventional alternative that we need to approach on how to make it happen by telling elective officials what to do, just as other grassroots movement did it in the past in different circumstances. This is also an era of transformation, where leadership is of the utmost importance to resolve the anomaly of the obsolete business model of utilities winning rate cases to regulators, when customers can do it better for themselves if given choice under market competition.

The alternative is a network of engaged global citizens. Eamonn Kelly in his book "Powerful Times: rising to the challenges of our uncertain world," suggests that "Participating together, passionate people will continue to discover and fulfill their potential and exercise their individual and collective power in pursuit of a shared moral purpose."

Kelly adds "we can and must become a 'bigger we.' We have globalized the economy and culture, but we have not yet globalized our sense of ourselves; that lies in our better future... This will not be driven by national governments; it is not how they perceive their role. Neither will it be a priority of businesses small or large, even as they embrace the concept of moral wisdom; it is not their business. In fact, there is only one actor we can expect to promote the growing consciousness of a global self, and that is us: individuals, people, citizens. We have voice, we have passion, we have information, we have unprecedented power, and we have an incredible common stake - only the future of our emergent yet fragile civilization... In the elegant words of the late U.S. President Ronald Reagan, ‘If not us, who? If not now, when?’"

The fastest-growing position -- or calculation -- in the oil market is that oil prices will double, reaching $200 by the end of 2008, Bloomberg News reported Monday.

Options to buy oil for $200 on the NYMEX rose ten-fold in the past 60 days to 5,553 contracts, a record increase for any period."

http://www.bloggingstocks.com/2008/01/07/the-latest-in-nymex-product-chic-200-oil-options/

So not sure what the big bad oil companies gain if what you folks say is true. They are in the petrochemical business not the electricity business. And besides British Petroleum has a whole development arm developing alternative energy supplies. I am no fan of oil companies but to say they are suppressing alternative energy supplies to continue with the oil based economy seems paranoid to me.

In Tams article the point is made that nuclear fuel costs have risen. That is true. The point that is NOT made (typical of his writing style) is that the cost of nuclear fuel has almost no effect on the cost of electricity produced. It could increase many fold without too much effect on the price of electricity. Also missing - no doubt a slip of the pen - is that the high price of Uranium is due almost entirely to the lack of exploration for the last 20 years - not because it is particularly rare. New exploration in Saskatchewan, Ontario and North West territories and Nunavut will produce very large quantities of high grade ore which will lower the price. Price prognosis for Uranium is lower. Price prognosis for everything else is higher - an excellent reason for building lots more nuclear plants. Lots of reliable low cost fuel from stable countires like Canada and Australia.

Just for those that might be misled - it takes a delivery of about one flatbed truck load of fuel every month or so to power a 3600 MW plant 24 hours a day 7 days a week. That is roughly 100 million dollars worth of electricity at just 4c/kw hour.

That is a good deal.

Malcolm

It IS true that Ontario Hydro used the backing of the Provincial Government to ensure that it got the very lowest cost borrowing rates. (not sure why that is considered a bad thing). Ontario Hydro issued BONDS on the world bond market to finance its hydro electric, nuclear and fossil plant construction projects as well as the high voltage grid network. Those bonds were BACKED by the Provincial Government (thus lowering borrowing costs) but the interest on them was NOT paid for by the Province.

Ontario does have about $30 billion dollars worth of debt it assumed after destroying Ontario Hydro but revenues from the utility that now supplanted Ontario Hydro are used to finance that debt - not taxpayers dollars.

Sorry Bob but you have been reading too many Globe and Mail articles and what you says is the popular belief but it is quite wrong.

Malcolm