Headed to Lubbock …

Lynne Kiesling

As you read this, I am on a plane headed to Lubbock, Texas, to attend the Collegiate Triathlon National Championship and to race in the Collegiate Sprint Triathlon on Saturday morning. I am pleased and honored to be the faculty advisor for the Northwestern University Triathlon Club, and we’ll have a great group of athletes racing in both the sprint race and the championship race on Saturday!

Please send us your positive vibes … especially in the early morning, when the water temperature will be around 60F and the air temperature will be around 48F. BRRRRRR!

And then in the afternoon I get to see Mike and have a KP meetup. Sounds like a great day to me!

Regulated utilities, Wall Street, and smart grid investment

Lynne Kiesling

This earth2tech post comments on a presentation from Rich Sedano at the Ceres conference this week in San Francisco. Rich has been working on electricity regulatory issues, demand response, and institutional design for a long time, and his insights as reported here are very important and frequently overlooked:

The way Sedano sees it, the Securities and Exchange Commission, which oversees Wall Street credit rating agencies, and state-level utility regulators have failed to communicate and, by extension, to establish consistent rules and incentives — leaving utilities “waiting for a sign that it’s safe to pull the trigger on an investment and hoping they don’t miss the opportunity to do the right thing.”

Not enough people realize the role that credit rating agencies, and/or a utility’s perception of a credit rating agency’s likely response, play in influencing utility investment decisions. I’ve often argued that the 100-plus year history of regulatory codependency between the regulator and the regulated reinforces a culture of risk aversion and cautious decision-making that stifles innovation and the adoption of new technology. The credit rating agency dynamic reinforces that pattern:

As Sedano noted, when it comes to considering investments, utilities keep credit ratings top of mind — and ultimately their very perception of how credit raters will view different investments can cause them to rule out certain options, thus avoiding or postponing investment in efficiency tools or smart grid technologies altogether. Instead of leading innovation, utilities are waiting for markets to catch up. Meanwhile, state regulators often focus on immediate stakeholders and overlook utilities’ place in the larger financial market.

Plus, he said, there’s a jargon problem — financiers don’t speak electricity, and utility regulators don’t speak Wall Street. Better communication between Wall Street regulators, credit rating agencies and state utility regulators, which control utility rates and investments, could help ease the gridlock.

Hear, hear.

On another note, why is it that conferences like this very cool-sounding Ceres one never include academics? I think academic economists who work on applied institutional design topics would add substantially to this conversation in the technology, investment, and sustainability space. Here I’m thinking not just selfishly, but also of outstanding economists and communicators like David Zetland.

Edmund Phelps explains “knowledge problem”

Michael Giberson

Occasionally we hear from readers curious about the blog name, “knowledge problem.” Edmund Phelps explains the knowledge problem in an excellent essay that appeared in the Financial Times. (Registration may be required for FT.com; the essay is also posted in full at the FT‘s Capitalism blog.)

Joseph Schumpeter’s early theory proposed that a capitalist economy is quicker to seize sudden opportunities and thus has higher productivity, thanks to capitalist culture: the zeal of capable entrepreneurs and diligence of expert bankers. But … most growth in knowledge is not science-driven. Schumpeterian ­economics – Adam Smith plus sociology – captures very little.

Friedrich Hayek offered another view in the 1930s. Any modern economy, capitalist or state-run, is a great soup of private “know-how” dispersed among the specialised participants. No one, he said, not even a state agency, could amass all the knowledge that each participant “on the spot” inevitably acquires. The state would have no idea where to invest. Only capitalism solves this “knowledge problem”.

There is much more in the essay than this brief clip reveals. In fact, the very next paragraph provides the one of the best brief explanations of Hayek’s central insight into capitalism. In addition to a little Schumpeter and a lot of Hayek, Phelps nods to David Hume and invokes some Frank Knight on uncertainty.

The whole thing is worth reading.

(HT to Greg Ransom at Taking Hayek Seriously.)