And I suppose that, having made a "regulatory compact" with regulated utility businesses, the ratepayer is obligated to guarantee a profit through good times and bad regardless of any market or management circumstance, but that sure is a strong argument for getting rid of the regulated model.

"And I suppose that, having made a "regulatory compact" with regulated utility businesses, the ratepayer is obligated to guarantee a profit through good times and bad regardless of any market or management circumstance, but that sure is a strong argument for getting rid of the regulated model."

No investor-owned utility profit is GUARANTEED, at least in the US. The regulator establishes a set of rates which would result in an ALLOWABLE RATE OF RETURN based on a projection of kWh delivered. Abnormal weather or changed economic conditions affect energy demand and deliveries, thus affecting realized returns.

I have not ever had the experience of a regulator increasing an allowable rate of return as the result of ineffective utility management performance. I have seen regulators excoriate a utility for overearning its allowable rate of return as the result of an extremely unusual winter or summer. The variability in utility earnings as the result of abnormal weather or a changed economy is a function of the regulators' decision to require the utility to collect a portion of its fixed costs through the variable portion of its rates.

With regard to this article, revising rate structures to allow the utilities to recover their fixed costs in the fixed portions of their rates and only variable costs in the variable portion of their rates, would eliminate most of the utilites' disincentives to promoting efficiency and conservation. Realtime pricing, with contemporaneous information transfer, would ultimately reduce the fixed portion of the rate by reducing the need for incremental generation and T&D capacity.

Regulated utilities are not perfect. Utility regulators are not perfect either. Utility regulation exists because utility competition was non-existent or imperfect. The watchword for any transition should be: "First, do no harm." The transition does not have to be a zero sum game.

"Real-time pricing, with contemporaneous information transfer, would ultimately reduce the fixed portion of the rate by reducing the need for incremental generation and T&D capacity." I agree completely with your statement. Contemporaneous means occurring in the same period of time or to happen in real time. To realize this statement requires electronic technology placed into the hands of consumers - essentially AMI smart meters with real-time in-home energy monitors that communicate with the system to make the connection with real-time pricing.

Philip writes "To fully realize what can be achieved from energy efficiency, one must have a strong baseline of the current level of energy usage, and today we lack such data." Since every consumer's energy usage is unique as Philip also points out, real-time monitoring of one's energy usage that can log historical data is the answer. This would be almost trivial for modern electronics capabilities. Utility companies for years have known this but have had no incentive to bear the cost of providing it to every consumer. Is this now perhaps changing Ed ?

The regulated utilities' incentives are largely a function of the rate structures under which they operate. There are ways to restructure rates which allow both utilities and consumers to benefit. Regulators must be willing to allow all customers to see and pay real rates, whether or not those customers choose to modify their behaviors in response to realtime differences in rates. Regulators have been largely unwilling to do so, particularly for residential customers.

Typically, regulators have asked residential customers to modify habitual behaviors for a rate benefit representing only a fraction of the benefits which would result to other customers. Residential customers have also been largely unwilling to make significant investments in higher efficiency equipment as part of short term rate experiments, as well they should have.

There are certainly reasons for changes today. The issue is whether the changes will be allowed/encouraged to happen.

Ed

One specific issue for your consideration. Most electric utilities experience their peak demand on hot summer days. The most efficient air conditioners and heat pumps currently available offer either dual compressors or two-stage compressors.

Several utilities have offered residential customers lower rates if they would permit the utility to interrupt power service to their cooling equipment on-peak, leaving the customer with no cooling during the interruption period followed by the need to recover temperature after the interruption is over. Customer acceptance has generally been very limited, both because the rate reduction was limited and because the interruption caused significant temperature swings. Multi-stage AC systems could offer a far more acceptable alternative: continued low-stage, high efficiency cooling on peak, followed by higher capacity recovery, if necessary, off-peak. This approach would limit the customers' disincentives to reduce load, while assuring the utility that ~ 1/2 of the customers' cooling demand would not appear during peak periods. Realtime rates and information transfer would also allow customers to elect to permit total AC interruption during extreme peak periods to avoid very high power costs.

The key is cost benefit analysis that goes beyond simple economic analysis, based on questionable assumptions, to analysis based on the customers' perceptions of the benefits, which may well differ significantly from the economists assumptions. As one of my managers used to say: "All the RDD&D, packaging and marketing makes no difference if the dogs won't eat the dog food."

Ed

We have had a similar peak-demand reduction program here in Ontario the last few summers called "Peak Saver", where utilities offer consumers communicating thermostats or load switches for swimming pool pumps. But instead of offering rate breaks under our province-wide regulated rates here, the equipment is offered to consumers for free and we are told it will save us some energy costs if you sign up to it.

The program has had some limited take-up success, but utilities with the largest peak demand problems are continuing to promote it, like Toronto Hydro. The main problem with consumers is the energy savings is not a significantly large enough percentage of their utility bill to overcome the majority of consumers aversion to the invasion of their privacy - most don't like the idea of their utility controlling their environment. IF the program however was designed to be controlled by the consumer in response to pricing or other rebate incentives from the utility, there might be much wider public acceptance.

Time-Of-Use rates are coming soon to all Ontario consumers, and while these will still be regulated and fixed for the most part, they will get updated by the regulators every six months. It will undoubtedly complicate our utility bills even further, and those consumers who didn’t understand them before surely wont afterwards. The wider appeal of having real-time in-home energy monitoring is that it would provide consumers with tools to measure EE upgrades or conservation measures when they happen, and help to understand their utility bills under TOU rates.

The bankruptcies of the Columbia Gas System and of Pacific Gas & Electric were very real. Both were and are very large utilities. I understand your point, but you tried to take it a step too far.

Ed

FACT #2: EWPC has not been proven by anyone to be a "breakthrough" market architecture design paradigm. (If some jurisdiction has adopted EWPC, please let us know who it is.)

FACT #3: Many utilities in North America are plunging forward with investing huge dollars in AMI systems and smart grid technologies, but none are appearing to even consider adopting EWPC. They are surely not telling us about it on this website forum if any are.

FACT #4 : Len Gould's IMEUC in my opinion has the best chance of being adopted some day by some jurisdiction in North America. Why? As I write this there is a new affordable consumer residential smart metering technology being developed that will be marketed directly to consumers, not utility companies. It will be a wireless technology that one can retrofit on a house WITHOUT installing meter sockets for a traditional utility meter, and it will have the capability to record specific energy transactions like for future PHEV type of applications etc. This technology will be sold directly to consumers as real-time in-home energy use monitoring and bill tracking for consumers, and potentially also to appliance manufacturers for measuring energy efficiencies. Our utility regulators may even take notice of it and want to access it as a practical means to acquire consumption data for specific residential uses of electrical energy. And, they might just view it as a practical way to implement IMEUC.

And guess what Jose, I am personally involved in developing it.

FACT #4. That's an unfeasible dream. Unless the utilities and regulators let you, by taking down the barriers on the demand side, your have nothing. The only way new business models will replace the utilities business model of winning rate cases to the regulators is by separating the utility grid and the utility enterprise, opening the latter to the competitive market.

EWPC emerged for the world of the third industrial revolution, where demand is no longer an externality and there is a need for a power system that should operate at ultraquality, with the help of demand response, in a wholesale, retail, customer value chain.

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).

I have invested many posts trying to patiently explain myself. I have been writing about market architecture and design, and getting technologies responses. I am sorry to have made the mistake to accept a comparison between EWPC and IMEUC, but they are not at all comparable. EWPC is about market structures and rules. EWPC development is about consulting work, not about technology design.

I am assuming that a shift from today’s regulated markets (where utilities win cases to the regulators) to competitive markets is bound to occur at the global level. The market bridge between supply and demand can filled up by one of many business models. That is what the EWPC architecture is all about. As simple as that!

One of many market bridges (a switchboard business model) is IMEUC that needs to have all customers on board. There are also switchboards that don’t need to have all customers on board. In that case what’s needed is a market design that doesn’t allow free riders. The resulting market rules are very important for the required transition period, where some customers remain under the old rules modified to eliminate cross-subsidies.

There are many other alternative business models that retailers can develop to bridge supply and demand and which customers have choice to select. I contend that today’s 1GRs will be replaced by 2GRs that operate at the Control Level and the Economic Level to integrate demand to power system planning, operation, and control. That is the market breakthrough, not a technology breakthrough.

To make progress, please avoid a technology oriented response.

Gould wrote: "Is electricity service so unique that governments must employ only the services of the seller of the product to encourage customers to buy lees of that product?"

I'd take it a step further. Just how does a firm motivate its employees to help customers use less of the product they're trying to sell, especially when there's no real incentive to provide good service because the customers are all captive. There's an inherent conflict of interest in having all efficiency and demand response programs managed by investor-owned utilities.

Reid wrote: "The key is cost benefit analysis that goes beyond simple economic analysis, based on questionable assumptions, to analysis based on the customers' perceptions of the benefits, which may well differ significantly from the economists assumptions."

Unless and until the costs exceed the benefits.

Reid wrote: "The bankruptcies of the Columbia Gas System and of Pacific Gas & Electric were very real. Both were and are very large utilities."

In the case of PG&E, management was not replaced and shareholders and creditors were made whole. This in spite of the fact that PG&E's management was repeatedly warned by employees that their unhedged position was extraordinarily risky. Of course, the CPUC also bears some blame for the mess, but it appears all this bankruptcy did was enrich certain managers at PG&E and the company's attorneys and financial advisors. Not much incentive for prudent management in this example.

Gould wrote: "...any non-realtime compromise system depends on the goodwill and sacrifice of a portion of customers to help their less responsible neighbours (or, if alternatively the "discount" offered exceeds the actual value of the energy reduction in an attempt to compensate, is subject to constant adjustment as the real market conditions adjust, a costly continuous analysis proposition and fight at reguatory rate-setting sessions) . It simply cannot work well, is a poor temporary bandaid at best, and still spends most of the money required for a useful intelligent system."

It's too bad the results of the California statewide pricing pilot and the Illinois RTP pilot have not been more widely disseminated and discussed. Particularly in the Illinois example, which involved many more customers, satisfaction is apparently quite high. I'm a PG&E customer and I'm hoping they'll have a RTP tariff about the time by shiny new interval meter gets hooked up. Also too bad customers don't understand the regulatory shell games that do little to help them manage energy use and costs under the guise of "protecting them". The real question is, protecting whom from what?

Consumers are accustomed to seeing continuous 'real-time' price variability in many other commercial aspects of their lives like gasoline, food, etc., so it's no surprise really that they would have little difficulty accepting and handling real-time electricity price variations either.

I think the utility industry in North America is a close-knit community, and results of any studies and pilot projects travel around the industry very quickly. Most utility insiders are probably aware of the Illinois and California pricing pilot results.

Real-time prices would be technologically almost trivial to implement if every consumer was equipped with an AMI smart meter and an in-home energy monitoring display of some kind that communicated with the utility company's system through the smart meter. The meter manufacturers know this too, and already have developed design capabilities into their AMI systems that would enable this functionality along with third-party in-home display providers. Historically the real problem why it's not discussed much or implemented is the huge investment cost to provide RTP to every consumer and the lack of incentives for utilities to pay for it.

Things are changing however as I write this. Many large utility companies in Canada and the US are actively researching their options with requests for information and in some cases purchase proposals for AMI systems. Many more pilot projects are likely to be implemented since it is far easier for a utility company to run a pilot test of new technology, even if it’s already been tested elsewhere, and then use the data collected from pilots to later support a larger-scale investment for deploying it to all their customers. But pilots do not always guarantee the large-scale deployments happen, again because it's tough to build business case models for the huge investments.

In that respect, as a level 3, win/win message, I suggest to readers to look at the EWPC article To Congressional Requesters of Utility Oversight, whose summary says: “Being unnecessarily flawed, and complex, today's EPAct causes its own crisis. Under those circumstances, FERC utility oversight will not be able to produce the expected results. What’s needed is the simpler EWPC system to protect customers from supply disruptions and unfair pricing. The political answer is a EWPC EPAct.”

Len Gould's IMEUC proposed market deregulation and technology system ideas proposes exactly this sort of thing and should be strongly considered.

Think that to integrate demand to power system planning, operation and control, the whole system will also include very large investments by the customers, not just those of the utility industry. Under a conflict of interest, captive customers will no have the incentives invest to make the whole power system efficient. Think about it.

Retailers making long-term contracts with customers implies either prescient retailers with perfect hedge strategies, OR regular retailer bankrupcies. How does EWPC provide for service of abandoned customers in a retailer bankrupcy? (a situation which could not happen under IMEUC).

In the EWPC article An Overdue Debate: Customers’ Price Controls, Len Gould already added a comment. Since, that article is based on the EWPC position, I suggest that the debate should be more open and start with my comment Overdue Price Controls Debate to the Technology Review article Focusing on Solar's Cost, by Tyler Hamilton. My comments says:

"Sidlo says that Sunrgi will initially be targeting utility-scale developments and is in talks with strategic partners, including manufacturers." Are utility-scale developments needed just because of regulated price controls to the end-customer?

Sunrgi solar technology on many roofs seems to be the logical case for distributed solar generation that statistically would have a high net input into a smart grid that transport electricity in both ways. Do non utility-scale developments need the elimination of price controls to the end-customer to be viable? Most energy will be produced where needed without transportation losses.

The price controls debate seems to be overdue.

The debate might just confirm my opinion that fixing IMEUC to become an universal system under regulated price controls is a waste of time.

I will repeat [from another article] the origen of the value destruction inherent with regulators price controls: "The difference is very simple: when regulators make those very risky bets, customers' end-up paying the mistake with higher rates that protect utilities and IMEUC. For utilities failure is not a survival issue, which will be for 2GRs."

Today’s prudential requirements should no allow regulators to take such risks. That is an example that clearly justifies the price control debate (for more details hit the red link in yesterday post.) That is the proper meaning of the quote "when regulators make those very risky bets, customers' end-up paying the mistake with higher rates that protect utilities and IMEUC." Those reasons explain the dead-end that regulators have with price controls.

Regulators should not be allowed to make those bets (they are already making) for captive market business model technology systems. Market business models technology risks should be left to open market competition, as has been done successfully for quite some time in the electronic industry.

Statements such as that simply reinforce your lack of cred.

a) How are competing EWPC retailers incented to spend money on customer demand management systems when the benefits will accrue to their competitors as much as to themselves?

b) Is electricity marketed at wholesale to the retailers in an SMD or similar market? If not, then how?

c) What incentive exactly in EWPC causes retailers to promote conservation when that simply reduces their gross sales?

d) Are retailers also allowed to own generation in a market?

e) What happens to a customer contract with a retailer, and any control equipment the retailer has installed at the customer's site, when the customer moves to a different address within the same market? Outside the market?

f) Are customer / retailer contracts items of public information? Consumption history? If not, how is an ISO supposed to prepare dispatch plans?

etc. etc. etc.

h) Is there a "retailer of last resort" for deadbeat customers? If not, how is that issue dealt with? How about the senior citizen with an iron lung machine?

i) How are large new generating investments financed by a bunch of small-cap retailers? You claimed before that they are not small-cap, but huge global entities. Where do they emerge from? I see nothing like that today even though several jurisdictions are already operating EWPC except for the absence of integrated Transmission and Distribution, and the occasional transitional wholesale price cap, which in Ontario was simply implemented to forestall exploitation of customers by generating entities gifted with valuable nuclear and hydro facilities at giveaway prices.

j) Why must Transmission and Distribution merge into a single entity in a market region?

k) What would be the regional extent of a market under EWPC? A US state or Cdn province? If smaller, how distinguished regarding transmission management. If larger, how does it deal with states' constitutional rights?

Commercial electric service that involves the planning, operating and control for the Third Industrial Revolution is similar to that of commercial air travel that emerged in the 1930s with the DC-3. It is only when all the technologies emerged and were tightly integrated that commercial air travel became a reality. A piecemeal approach to commercial electric service is bound to fail, and fail bad.

Tinkering with fractured systems, like IMEUC, is bound to result in higher than 75% risk of failure. Integrating demand (that is now considered an externality) to power system planning, operation and control, involves recognizing that the legal and regulatory system is flawed, as it pushes regulators to make very risky bets without taking into consideration how tightly integrate all technologies. It doesn't matter how bright the regulator, they just can't face the challenge.

This post is self contained, so there is no need to hit the links to get the message. However, if readers want, they can confirm the reference to “…IMEUC is one close and fractured strategy, like any other experienced deregulation efforts… ” (recently repeated in the article EWPC’s Tipping Point,) when 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 summarized previous post with the convincing post, from which I extract the following:

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.

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.”

Vanderhorst-Silverio: After reading the [IMEUC] article suggested and its follow up, I find that after looking closely IMEUC does not corresponds to the new integral reform paradigm. IMEUC is based on mechanistic thinking about fundamental electricity economics, as can be found under the heading “Metrics” a statement that says: “[E]very consumer of utilities will benefit from a system such as this in three ways: first…every entity at every stage in the supply chain will be constrained to making their own good investment and operating decisions or be out-competed by a more efficient operator...”

As the result of efficiency on every stage of the supply chain, any competent electric power system planner would see a repetition of the fault found in the deregulation experiments of the last decade: the system is also fractured. Hence IMEUC does not lead to the maximum value expected by society as is EWPC where the system architecture is modularized at the proper interfaces on the value chain. For example, retail marketing is an essential service for the development of the resources of the demand side that is disintegrated in the IMEUC. A fault on market architecture is evident on IMEUC that becomes a barrier to emerging retail marketing business model innovations under competition.

It was to the innovation concept that Mr. Wimberly responded to my conclusion that “instead of Utilities Enterprise Solutions, a Retailers Enterprise Solutions arrives, which will make much more business for IT suppliers than expected under the Continuity Scenario. The main reason is that current business models are at the end of there useful life, while new technology is available to be transformed into competing innovative business models, leading to true deregulation [now reregulation] of electric markets.”

While under EWPC obsolescence risk of customer interfaces are taken by retail marketers, under IMEUC monopoly regime the bets of the Market Manager on the customer interface (including metering) are transferred to the rate payers. As customers needs evolve, retail competition should be centered on business model innovations for the different market segments. One size fit all system is also big bet.

In addition, under IMEUC the Market Manager remains as an intermediary for base load generation based on very risky forecasting. Forecasting great weaknesses that leads to playing with fire have already been delved at length earlier on under this article. The resulting market design is no robust enough, leading to either excessive costs of over-capacity or under-capacity by missing proper whole system long run risk management. A market design error has been made, as an improper market signal may lead to large levies imposed on customers when there is a large forecasting error.

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