The above assumption does not hold under the EWPC basic innovation, where information is more than affordable to allow for short run marginal costs of supply security to replace long run marginal costs of power demand, which by the way is next to impossible to predict in this highly uncertain world.

We know that *regulated* prices are often perverse signals, being high during surplus and lower during scarcity. But the industry will never escape from retail regulation peacefully if it means that we abruptly re-trade the deal under which investments were made, essentially forcing investors in regulated assets to lose their investments. The transition is tricky and political. Hitory provides plenty of examples. [An aside: In the case of public entities there is no way to cancel recovery of cost other than default on debt. Short of going bancarota, customers must pay... eventually.]

In the meantime, regulated prices can and should do a better job of providing price signals, using rate structures with marginal rates suggestive of avoidable cost. If a utility has low variable cost because it has invested in high fixed-cost plants, then perhaps recovering all of its costs through per-kWh energy rates gives an inappropriate price signal. But then there is the problem of how to allocate the fixed costs fairly. Granted, prices in a market would deal with these problems efficiently, but the *transition* to a market presents huge problems of its own.

In my mind the FT article was not written in enough detail to know whether the writer really understood what was being implied by his words “fixed fee.” I thought he was just talking about decoupling in too-strong language.

The electricity grid is, in some ways, analogous to the driveway at your home. You contract, or someone contracted previously or on your behalf, for the installation of a driveway two cars wide, the fact that you choose to own only one car does not entitle you to a refund for the half of the driveway that you choose not to use. Similarly, if you choose to rent a home with a two car wide driveway, your decision at a later time to own only one car does not entitle you to a reduction in your rent. The investment in the driveway is sunk and its cost is part of your cost.

The decision to install electric service to a structure triggers a requirement on the utility, not only to provide the connection to the grid, but also to assure that the grid is capable of supplying the required power to the new connection to the grid. Depending on the nature of the regulatory environment, however, the establishment of a connection to the grid may or may not impose an obligation on the utility to assure that adequate power is available to flow through the grid and the connection to the customer’s loads.

It is entirely reasonable that the utility should have the ability to recover its fixed investment to provide service to a customer, as long as the customer contracts for service. It is not unreasonable that the utility not have the ability to recover if the customer elects to disconnect from the grid; however, it is also not unreasonable that the utility no longer have the obligation to assure that the grid is capable of supplying the power which was previously required by the customer which has now elected to disconnect from the grid.

If there is a desire to revamp the “utility compact”, or to completely eliminate it, then step one in the process is for the customer to purchase from the utility the ownership of the physical investment in the facilities which are necessary to provide the customer’s desired level of service and to take responsibility for its maintenance. Somehow, I suspect that that would be a relatively undesirable prospect.

There are two ways to decouple: artificial and natural. To extend the obsolete Investor Owned Utilities Architecture Framework (IOUs-AF) and its incremantal extensions way beyond its useful life, artificial decoupling is one of the key incremental extensions.

Natural decoupling arrives with the EWPC Architecture Framework (EWPC-AF) paradigm shift, in which customers choose the Second generation Retailer (2GR) that best fulfills his needs. 2GRs develop competitive business models that replace IOUs-AF obsolete monopoly business model.

As we get deep into a world that no longer guarantees low energy costs (a key assumption of the IOUs-AF), while increasingly providing lower and lower information costs, pre-programed arrangements designed and implemented by 2GRs that take care the management of the usage needs of customers, which need not worry. That is how the EWPC-AF leads to maximun social welfare.

What D.O.U.G. said about the “opportunity to earn” is correct, and not beside the point.

These statements:
“Regulated utilities are legally entitled to recover all of the costs that the regulators allow, plus a markup for their regulated rate of return. They are guaranteed that by law.”

are way, way off. Surprising.

The point I get from the data/article is that people can actually respond to rates–whatever and however they are set–without all the doodads of smartgrid, real-time prices, etc.–all the RTP behaviour paradigm shifts that you tout. Do you really think people want to manage their usage on a minute-by-minute basis? A small minority, yes; the majority, no.

Are utilities able to provide such service as to enable maximun social welfare? Can retail regulation provide it? Is power system demand larger than necessary because of perverse incentives since EPAct 92?

If the paradigm under which utilies as we know them is unable to provide maximum social welfare and a new paradigm is able to do it, what is keeping society stuck on an obsolete paradigm? When will the paradigm shift.

Notice that the new new paradigm is not retail deregulation as practiced under the flawed wholesale organized markets, where the policy economics first, system performance second ruled.

It is under the EWPC basic innovation paradigm, under the policy system performace first, economy second, where retail and wholesale markets mutually reinforce each other, with unregulated retail being the driver.