Independent Market for Every Utility Customer - Preliminary Business Case

Independent Market for Every Utility Customer - Part 2 - Market Operation

with Q&A and notes here:

Energy Central Blogs - IMEUC - Independent Market for Every Utility Customer

Clients of regulators (customers of all sizes) need to start lobbying their regulators to plan a logical progression to the IMEUC market system, where instead of turning control of your premises over to the utility to manage as it sees fit, market incentives are used to match precisely supply to demand in real-time.

A few things not pointed out in the article above need to be considered. Most important, it is much cheaper for a central control system operated by the utility, as advocated above, to reduce demand by shutting down it's large industrial and commercial customers rather than managing small loads at residential sites, but the cost to society of the lost productivity of the interrupted industrial / manufacturing / commercial operations is not adequately considered. Productive enterprises should be the lowest priority on the shed list, not the highest. Highest should be eg. oversized residential and retail A/C equipment and domestic water heating. Market-based incentive systems need to be implemented to accomplish this.

Residential demand management will require widespread electronics technologies deployed in homes beyond the billing meters. Many companies in the high-tech electronics industry are developing or have already developed it in various forms, like smart appliances, load shedding controls, home automation, and in-home energy monitoring devices, and are salivating at the opportunity to commercialize it. The only missing link is the intimate involvement of the players in the power industry, particularly the utility companies and smart meter AMI manufacturers. Len's IMEUC proposal has a great potential as one way to bridge this link.

Bob Amorosi, M.Eng.

A) advanced Nat Gas-fueled micro-CHP home heat and power generators such as those coming onto the market from WhisperGen (Stirling engine), Honda (piston engine and fuel cells) and GE (SOFC) among many others. These units have the capability to convert extra Nat. Gas into electricity at near 100% efficiency whenever the waste heat can be used for water or space heating in place of simple gas burners, and should be given top priority in any efficiency strategy.

B) plugin hybrid vehicles, especially grid-smart units, which have the potential to significantly reduce our dependence on imported oil while also load-leveling most electricial consumption off of expensive low-efficiency peaker units onto high-efficiency low-emissions baseload units. This direction should also be given top priority by utility planners and regulators.

C) several others.

In order to implement widespread changes to the power industry, technology providers and market players and regulators must be convinced that any system reform proposal will work. IMEUC has the respectable and desirable end goals of attaining an efficient and competitive power system to provide value for consumers, and, necessarily it specifies in detail the technology methods and financial incentives to implement it to reach those end goals.

Any system reform proposals that omit such details, such as Jose Antonio's EWPC proposal on this website, can only be viewed by everyone as nothing more than hot air originating from wishful thinking, and will not be practical.

http://www.prosefights.org/pnmelectric/pnmelectric.htm#reportdraft1

Will pnm be able to meet demand?

Or will demand decline to meet energy resources?

Some of us may live to see the outcome.

http://www.prosefights.org/nmlegal/hearing/hearing.htm

Your conference looks to be very useful in promoting discussion and learning throughout the utility industry.

DR and EE are obvious ways to reduce overall load requirements for utilities, but DR is not that new to the utility industry. Here in Canada we've had phone-line connections to residential load shedding of air conditioners decades ago, and widespread participation in DR programs for large industrial consumers of power. An example of today's DR technology for consumers is the utility-controlled load-shedding thermostats (e.g. Cannon) for air conditioners that communicate through pager networks. DR however is not widespread throughout the public and faces a tough time becoming so.

From a consumer's viewpoint both DR and EE can save money on their energy bills, and with the worldwide participation in Earth Hour at the end of March, it's very clear consumers all over the world view lowering power demand as key to fighting climate change. There's no need to convince consumers since most already believe this, but voluntary conservation and adopting energy efficient appliances requires a cultural change with consumers especially to get sustained results.

The first key to enabling more sustained widespread DR and EE with consumers is implementing an affordable communication connection between utility companies and consumers and their residential appliances (smart appliances), and by helping consumers to adopt home automation technology that can use this connection. Since DR and EE by definition deals with power demand intimately, it necessitates integrating real-time and past power demand information from the consumer with the utility company. Tools like real-time energy pricing, real-time in-home energy monitors, and smart appliances would make the smart meter the logical place to do this integration. A smart meter is both a real-time demand measuring device and a communications link to the utility through its AMI network.

The second and more important key is to permit the consumer to use DR technologies under their own control rather than their utility company’s control. Most consumers tend to view utility-controlled DR technology as an invasion of privacy, and are loathe to accept it even when it is touted as saving them money on their energy bills.

The third key would be to financially reward consumers to buy more efficient and smart appliances when replacing their old inefficient ones. While this already happens to some degree with some utility companies, much more could be done. If the energy-efficient appliance manufacturers incorporated energy measuring and logging capability into their products, and made this information available to the consumer, it would make possible monitoring of specific appliance performances. Utilities could then devise clever financial incentives to reward those consumers whose specific appliances use less energy.

In conclusion the utility industry needs to engage the consumer much more in the future with new technology and clever financial incentives that are targeted at individual consumers. This however would not be easy for utility companies to swallow because they are accustomed to uniform billing for all their customers, and would have to adopt targeted consumer services and billing strategies like you see in our Cable-TV and telephone industries.

Perhaps some discussion of these ideas might be worthwhile at your conference.

"The current case involve pages of complicated financial questions such as whether to include pre-paid pension assets in the rate base and whether refunds relating to gross receipts taxes should be applied to income or coal mine decommissioning costs.

According to an estimate by attorneys for Albuquerque, Santa Fe and the water authority testimony and arguments in the case covered more than 40 such issues.

Most parties identified the biggest ticket as the calculation of PNM's allowable rate return."

A clear illustration of one of the main defects of Vertically Integrated (monopoly) Utility models. Arguments in rate cases all depend on data and forward estimates provided by the utility, and guesses from customer intervenors. Since the consequences of under-funding the VIU could be severe (bancrupcy etc.) the regulator's natural tendancy is to over-reward the utility in any case where doubt may exist. A poor excuse for a system.

Your article's concluding point on using an holistic approach to demand management cannot be emphasized enough. Here's a simple real-life example that could come true very soon in the electricity industry to support my claim.

Both economic and (parametric) demand data will need to communicate 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.

PHEV automotive technology was unheard of not long ago, and is an example of why it is so difficult to predict the future needs of demand management. One way to deal with these needs is the adoption of open standards in the electricity system for both technology interfaces to utility companies and the grid, and for energy marketing. Len Gould's IMEUC proposal is in essence an open standards proposal that deals directly with the consumer technology interfaces at the consumer end of the system and the energy market reforms to handle them.

A direct analogy was the adoption of open standards in the personal computer industry and the internet to continuously permit any company to make new products that can connect to a PC and communicate over the web, without having to depend on proprietary technology from the PC manufacturer, and minimizes the cost of these interfaces. It also helps to enables internet service providers and telecommunications companies that form the internet to have complete interoperability and handle any new consumer technologies that emerge.

The meter company who "opens the box" to enhancements wherever possible, such as those Bob proposes, should win the market. Too bad there aren't comparable competitive pressures on the utilities who select the meters.

Please consider the EWPC article Utilities and Regulators’ Value Destruction.

Be aware of False Fact #9: "A never-ending series of confusions." Also read carefully because of False Fact #10 [it is actually #11]: My "constant eroneous comments about IMEUC." Please recall that "By no means am I saying that retail markets development [to integrate demand to power system planning, operation and control] will be easy."

Right now there are more than 110 EWPC articles, but I will try to condense the idea. Please concentrate on the difference between the market vs. market competition (which I don't mention below) won by EWPC at the beginning of last year and the company vs. company competition between competitive retailers. Such separation is a mean to reduce complexity.

What follows is an update of my suggestion of 12.21.05 and Len's response on the same date. A few updates within brackets:

The architecture [and design] of a "true" deregulated [now the re-regulated EWPC technology neutral market] model is centered on independent retail-marketers [now 2GRs], and a new value chain [different from the supply chain], whose mission is to segment customers [to deploy marketing expenses effectively] according to electricity value added services, which customers can select. The value chain is wholesale, retail, end customer, leaving the [physical] distributor [under a fully integrated T&D controlled market] as a pure transporter charging a toll [False Fact #8. The utility enterprise and the utility grid separation will never "get ever implemented politically." This is where your corageous article has a lot of value]. Retail-marketers then take control of the strategic [now Retailers'] Enterprise Solutions [see The Sixth Disruptive Technology, today's most viewed article on EnergyBlogs with 1110 hits], developing innovative [instead of just one regulated monopoly] business models. As each customer selects what he perceives [not what the utility thinks] is the maximum value addition [taking into account custumers' own long term investments], the economy as a whole maximizes welfare.... By no means am I saying that retail markets development will be easy [or inexpensive]. No; there is a lot of work needed to make it happen [in the company vs. company competition, instead of regulators bets under the monopoly business model of utilities winning rate cases]. Most [customers'] investment in energy efficiency needs to look to the next 5 years ... I will be very happy if one place in the world decides to initiate the experiments required for the development of new business models on retail marketing, and I wish to be there.

In response to the above, Len Gould wrote: “Jose: You're close, just not going quite far enough. You need to eliminate [False Fact #5. 2GRs are not needed] your "Retail marketers" by implementing intelligent software [who is going to pay for the marketing costs and customer investments costs or is the government to impose the solution on every customer at all costs - see "False Fact #4: IMEUC operates on the Economic Level," and can do it without retail marketers] within the customer's meters which takes over the simple task of selecting either a lowest-cost supplier from among all available in a [physical technology biased] central electronic "marketplace", or alternatively choose to not purchase, and shut down some of the customer's less critical loads if the price exceeds customer-set limits.”

With the intention of keeping the utility intact, Jeff Tolnar has made a great contribution to EWPC market architecture and design paradigm second phase of competition. He has contributed to the art and practice of the holistic approach of Second Generation Retailers business model innovations, which is The Sixth Disruptive Technology (1118 hits so far. Please hit link here and below to read article) of EWPC.

DD is a great example of a retail marketing activity of 2GRs that is required to be performed at the economic level, under competition, and not under monopoly at the control level. Once agreed on a service plan contract, DD is not an invasion of privacy to those customers that perceive it as a good money saving opportunity, having a very large worldwide market segment potential.

Updating what Jeff wrote from the Demand Integration EWPC breakthrough perspective, the following results: “In order to maximize the investment in a demand … [Integration] solution, we must take into account as many parts of the value proposition as possible. A holistic demand … [integration] approach can be used to manage … [low reserves, in time and space,] and address [customers’ value creation and] other operational concerns.”

The EWPC article The Electricity Revolution is highly recommended.