Work Smarter – retail v’s wholesale rules

The various ways innovation can be killed off achieves only one goal, to prevent us from doing things smarter. In 1994 the Department of Finance issued a statement aimed to clarify working smarter. In 2014 the Australian Government again said: We need to work smarter. What does smarter mean? You could take the view it is a balancing term where working smarter is a term that illustrates the rigor and complexity of the English language. Smarter used this way works equally well in arts, literacy, and performance tasks. However, what if it were used as a verb as an irritating means to stop something innovative?

The US gives us a good example of this where the legal challenge to a regulator that issued a rule for good and smart behaviour needed to be defended because it balanced the demand supply equation and that disrupted business as usual. This example was blogged by Joel Eisen: D.C. Circuit Vacates FERC Smart Grid “Demand Response” Rule.

Joel B. Eisen is Professor of Law and Austin Owen Research Fellow at University of Richmond School of Law. His scholarly work is available here.

Last Friday (May 23), in Electric Power Supply Association v. FERC, a D.C. Circuit panel split 2-1 and vacated Order 745, a Federal Energy Regulatory Commission (FERC) rule designed to promote “demand response” (DR). DR is a rapidly growing and valuable means of reducing electricity demand, thereby benefiting consumers and the environment. It is also an important part of the Smart Grid, in which smart meters and devices that communicate with one another and energy service providers can further promote these goals. Indeed, former FERC Chairman Jon Wellinghoff has called DR the Smart Grid’s “killer app.”

The case tested a question of near first impression about the Smart Grid: which level of government regulates it? For now, the D.C. Circuit has held squarely for the states, concluding that DR regulation is a matter of exclusive state jurisdiction. If the decision stands, it will have many adverse implications for federal regulation to advance the Smart Grid and use the wholesale electricity markets to achieve energy reductions and environmental goals.”

What was the argument for the smarter innovation? 1. Directly affects wholesale rates by reducing prices and improving overall market functioning. 2. It has the effect of enabling demand-side resources, as well as supply-side resources, and improves the economic operation of electricity markets. 3. The regulator believed there would be limited Demand Response participation in the markets without encouragement.

The disruption to the smarter solution was achieved by dissention. It was not an issue of being straightforward and sensible, it was that it was competing with the established market and compensated those other than the supply side of the market. The smarter practice affected (can do) the wholesale market in a positive way, but it was “a part of the retail market. It involves retail customers, their decision whether to purchase at retail, and the levels of retail electricity consumption.” The regulator was empowered to regulate practices affecting the wholesale market, not the retail market.

So dear innovators, we have a situation: Working smarter has drawbacks, it can inflict pain, it can wound and be irritating to watch the dissenters argue you have no right expecting a retail outcome where it might affect the wholesale heaven of the established. It does tend to put the perspective on the ‘valley of death’ referred to in commercialization preamble!