May you live in interesting times

Issue 1 and Volume 101.

May you live in interesting times

JOHN C. ZINK, Ph.d., P.E., managing editor

A mixed group of electric industry stalwarts and iconoclasts met in Vancouver, British Columbia, Canada, in early November for an Electric Power Research Institute-sponsored meeting on distributed resources. “DR Week 1996: Technology and Market Strategies for a Competitive Environment” provided a forum for discussion of new small-scale generation technologies and the strategies for their implementation.

One of the most interesting features of the meeting was a keynote address by Peter Schwartz, Global Business Network chairman. In Schwartz`s presentation, “The restructuring of the electricity industry in context: the reformation of all industries,” he applied his experience as an oil company planner during the deregulation of the oil and gas business, and his observations of other recently deregulated industries, to the electric business. For nearly all businesses, “the rules are changing,” said Schwartz.

There are three theories to explain the changing business world: the changes are driven by a philosophical shift in favor of deregulation and reliance on market discipline; the changes are coming about because of market power held by major customers who, themselves, are now experiencing global competition; dramatic new technological changes are driving the structural changes.

The third theory, according to Schwartz, is the most reasonable explanation for what is happening. That is, new technologies in computers, telecommunications and power generation are driving irreversible changes in the business climate. Computers are making it possible to control and cope with the difficulties of managing network-type business relationships, and the barriers to entry in these types of businesses are typically lower. Telecommunications and transportation innovations are speeding up all logistics processes and making us all more impatient, so the value of smaller, quickly installed power plants is greater than the traditional economic analysis would reveal.

Schwart¥believes these changes in the electric power business are irreversible. The trend will continue to favor smaller plants, quick installation time, low inventories and lower excess capacity until we experience another dramatic shift in technologies. And what that next wave might be is anybody`s guess.

Schwart¥concluded that, “connection to the customer is the most important thing for ultimate survival in any business.” New technologies enable this connectedness in ways never contemplated in traditional utility regulation, so new business relationships are forming outside the traditional utility/customer model. These relationships are forcing changes in the old regulatory structure.

An interesting counterpoint to Schwartz`s comments is a recent news release promoting a Public Broadcasting System show called World Business Review. The news release quotes Roger Feldman, McDermott, Will and Emery senior partner. “Electric deregulation is not different in principle from gas or telecom, and it`s doing the same thing,” said Feldman. “It`s sparking the introduction of technologies that there was never a perceived need to have before.” Thus, Feldman seems to believe that deregulation is the driving force for change in the industry.

Donald Marier, in the November 1996 issue of Independent Energy, argued that, “… this dramatic move toward competition is in response to increasing pressure from large industrial users who, themselves, face an increasingly competitive environment.”

So he favors reason number two as the basis for the dramatic shifts now taking place. So there we have it. Three knowledgeable observers of the current upheaval in the electric business and three different interpretations of what is responsible for the turmoil. Regardless of what`s driving the changes in the business, few can argue with the World Business Review assessment that, “for pure excitement and electricity (literally), few industries rival the changes occurring in the electric power industry.” It reminds me of the ancient Chinese curse: “May you live in interesting times.”