A federal plan to pay companies and individuals for reducing their use of electricity was struck down last Friday in a United States appeals court. The court decision is considered a victory for utility companies, which argued that the plan would discourage general investment in power plants.

The federal regulator’s plan involved a rule to encourage conservation of electricity by paying smart-grid companies (such as Comverge Inc.) and consumers (such as Alcoa Inc.) for using less electricity. Under this rule, individuals and organizations that cut back in their own use of electricity when utility prices and demand rose were paid similarly to generators that produced electricity. The majority of three judges on the panel in the U.S. Court of Appeals ruled that this rule did indeed go too far in infringing upon a state’s right to regulate the sale and retail of power within the state.

This case represents a significant trend: organizations and individuals in the power production industry view energy conservation as a threat to their business.

The practice known as demand response is a technique in electricity market places such as Texas.  Texas electricity providers have struggled in recent years to keep up with demand for electricity in the state.  A strong demand response program in the state have help about power shortages in recent years.