 I'm Adam Samensky with Deutsche Bank. I'm also one of the outside senior advisors here at Center for Strategic and International Studies. So I'm happy to kind of make that dual role work here today because I've also been a pretty active member of the National Capital Area Chapter of the U.S. Association for Energy Economics. And so it's great to have this joint CSIS-NCAC meeting. Today, we're very privileged to have Commissioner Mark Spitzer from the Federal Energy Regulatory Commission with us. The bio is in your pack. You know, it starts off with his work at the FERC. But I wanted to actually go down to the bottom and work my way back up to the top and introducing Commissioner Spitzer. He was born in Pittsburgh, Pennsylvania, and grew up in Philadelphia. I like that. I'm from Williamsport, Pennsylvania. And graduated from Dickinson College and then went on to the University of Michigan Law School. I guess it'd be an interesting thing to know in the Spitzer living room who he roots for when Penn State is playing Michigan. And maybe the answer is since he moved to Arizona in 1981 because he had family there that he was really rooting for Arizona in that basketball game just the other day. And it's really too bad. I thought, I thought that was an unbelievable performance of that team, Mark. During the, he acted as an attorney in Arizona for some time. During the 1990s, he was actually elected and held office in the Arizona Senate. In the year 2000, he was elected to the Arizona Corporation Commission. And a couple years later was elected by his fellow commissioners to serve as the chairman of the ACC. In Arizona, he focused on grid access for alternative energy and advancing consumer privacy and telecommunications, which I think is kind of interesting because we're going to talk a little bit about that later in terms of the grid and concerns that people have about privacy in the smart grid. Well, in 2006, Mark was nominated by President George W. Bush to the Federal Energy Regulatory Commission and he was, of course, approved by the U.S. Senate. He came to the FERC with a view emphasizing safe, economic and reliable supplies of energy for consumers and robust transparent and competitive markets for suppliers. I think that those are clearly the right goals on both sides of buying and selling in the energy markets. And again, very pleased to have Commissioner Mark Spitzer with us today. Thank you. Thank you very much. It's daunting to be speaking in front of energy economists, given I don't have a background in economics. I'm a lawyer and a recovering politician and I don't apologize for either. And I guess with the leave of the chair, I'm going to come down. I won't look at you. You've got a problem with that term, similarly with the voter. I think it's great for those who care about energy and for the consumers of energy in the United States and across the world who are increasingly caring about energy. Thank you very much. That we have the President of the United States addressing energy this morning and greater focus and debate on the consequences of the production and consumption of energy throughout the world at no time in history has, I think, we've had this attention to the issue. So it's a great time to be involved in energy policy. And I have the great honor and privilege of serving the ratepayers of the United States. A little bit about FERC, unlike some other agencies in Washington in this town where there's been some discord and some acrimony. FERC is a wonderful place to work. Sarah, if she has a contrary view, can so state. She's been there a lot longer than I. I can tell you, though, that there are several, I think, roots in the collegiality of the institution. One is the nature of energy law. It has historically not been partisan. And if you look at the deliberations in energy, historically there has been consensus and bipartisanship. And virtually every piece of energy legislation going back to the 1930s with hydro power and the formation of the Federal Power Commission, the creation of FERC in the 1970s, interest in competition, and energy markets in natural gas and electricity in the 1980s and 1990s respectively, respectively, had their origins in bipartisan legislation. And I think that has interesting consequences. The fact that we've had competitive energy markets in gas, starting with the wellhead, decontrol in 1982, and leading to the unbundling of the pipeline system, electricity with Phil Sharpe's legislation in 1992, the Energy Policy Act, FERC Order 888, which opened up the transmission grid to competition as the PERPA in the 1970s opened the generation market to competition, was supported in a bipartisan way by Congress and the White House and successive FERC administrations, whether they be Republican or Democrat. And I think that's an interesting and noteworthy consequence. I don't want to pick on other agencies, but I have to say as a practicing lawyer, where an agency such as NLRB, the Republican appointees tend to be pretty hardcore management side advocates. The Democratic appointees tend to be pretty hardcore union advocates. And the case is going to be decided based upon the proclivities union versus management as opposed to where I was trained as the facts, you apply the facts of the case to the law, that's demoralizing to attorneys who practice. Do you give your full effort to a case where you know it's preordained because there's a 3-2 majority that's either pro-labor or pro-management? It's also very corrosive to the folks inside the building. My team works very hard. Sometimes I have to say, you work for the government, you can't be staying until 8 o'clock every night here. But they're very dedicated folks and they are throughout the building. And I think they know that each issue is treated on the merits. And it is corrosive and negative not only for those inside the process but for those who are affected by the deliberations where the disputes and debates are not rendered on the merits of the case. And at FERC they are. And virtually every major decision that FERC has issued, certainly since I've been there, but going back to the unbundling of the natural gas infrastructure system and the unbundling of the electric grid in the 1980s and 1990s, every decision was unanimous and it did matter whether it was a Republican or Democrat administration or a Republican or Democrat chair of the FERC. And that has continued. I've served under Joe Kelleher as chairman, now under John Wellinghoff as chairman, one Republican and the other Democrat, and the orders have continued to be unanimous. And the theory is, I think, very significant that FERC speaks loudest when it speaks with one voice. We are asking individuals and companies to reorder their affairs. These investments are 30 to 40-year assets. These investments are now into the trillions of dollars and it's very important that there be certainty and predictability, and that arises best when we know that an election is not going to overturn the result because it was a bipartisan consensus. I give a stump speech where, for a number of years, I've talked about the three-legged stool of markets infrastructure and rule of law. And I believe it's very important to stand up for what you believe in. I got a little lesson from this, and at lunchday we're talking about folks from Tucson, Arizona. So I'll give a little Tucson anecdote. In 1984, I was a very young lawyer in Phoenix and I got a phone call. I was sitting at my desk at the law firm. How would you like to debate against Morris Udall? Great opportunity for you. I said, okay, why, you know, he was running for reelection to the U.S. House. Most of his district was in Tucson, but through the vagaries of redistricting and reapportionment, there was a small sliver of Phoenix that was now in his district, so he was coming up to visit and coming up to debate. And the answer I received as to why I was asked, as a young lawyer, to debate Morris Udall was, the Republican nominee was a schmuck. So would I like to debate Morris Udall? So I show up at the Jewish Community Center in Central Phoenix, on Maryland Avenue, and I start out, I had my prepared remarks and I was, you know, gave my pitch. And Mo Udall cut me to shreds in about five minutes. And I agonized the rest of that debate. It was the longest 90 minutes I'd ever endured. Just getting the hell out of, beat out of me by an icon, a statesman, who by the way, a few years earlier, came within two points of defeating Jimmy Carter in the New Hampshire primary. And the world might have turned out quite differently had Mo Udall been elected president in 76 instead of Carter. And we don't know what would have happened, but of course he had Goldwater and he had McCain. None of them did so hot in their races. And Udall was the one who, of course, was famous for his wit. And this is before, obviously, before the McCain election. Said Arizona's the only state in the union where parents cannot tell their children they can grow up to be president in the United States. After the debate, I was just crestfallen, my head was down, and a throng of folks who didn't normally see Mo Udall up in Phoenix came to the podium to congratulate him. And he parted the adoring multitudes and went over to where I was seated despondently and shook my hand and said, young man, right now I know your dauber's down a little bit, but I do think you have a future in politics. I don't know whether you're right or wrong about that. And more importantly said to me, you need to keep plugging away at this and never ever lose the courage to stand up for what you believe in. And, you know, few years later, you know, Mo got the Parkinson's that ultimately claimed his life, but he was an icon and there are institutions across the country and particularly at the University of Arizona dedicated to his legacy of environmental stewardship, particularly in the beauty of the western United States. But I've kept with me his admonition to stand up for what I believe in. And what I believe in at FERC is what I've said in my interview with the White House I would act on and I would believe in, which is markets, infrastructure and rule of law. And in terms of these issues, energy markets, I believe that markets consistent with the FERC policies on natural gas and electricity, send price signals and lead to the best economic outcomes rather than government micromanagement. And the FERC policies have been to open markets and competitive outcomes. You need infrastructure. You need to have steel in the ground. I was an elected commissioner in Arizona. I had to cite power plants and transmission lines in people's backyards, including Gilbert, Arizona. We were talking about a case, the Santan case in Gilbert. And when you cite power plants and transmission lines in people's backyards, it pisses them off. And I had to ask for their votes at the general election following my decisions to cite infrastructure. But it is essential that we have energy infrastructure of all kinds in this country. And without a robust infrastructure system, we fail to bring the benefits of markets to the ratepayers. And in terms of the benefits of markets, I include environmental benefits as well as economic benefits. And then finally, the issue of rule of law. There has to be settled law. A five-zero decision is good settled law. A three-to-two Republican versus Democrat decision where the next election could flip the result is unsettled law. It's also unsettled law where the federal agencies do not uphold sanctity of contract. And we saw a number of cases arising out of the California energy crisis that predated my tenure at FERC, where entities, and I'm not talking about the fraudulent issues regarding Enron, those can be addressed. And a fraudulent contract, as a lawyer knows, is void ab initio. No, it didn't exist. It's not voidable at the option of a party. It's void. I'm talking about contracts between a willing buyer and a willing seller. And for whatever reason, one of the parties gets buyers remorse, post hoc, and tries to avoid the contract. And that is inconsistent with the framework in which we're trying to have certainty and stability and embrace investment. And trillions of dollars in 30 to 40-year assets will flee if there is not sanctity of contract. And in 2008, the Supreme Court issued a decision arising from FERC orders called Morgan Stanley, and there have been subsequent decisions. And it's an arcane technical doctrine. It's actually called the Mobile Sierra Doctrine, named after our gas case and electric case from the 1950s. But the concept is to uphold sanctity of contract, which is essential. I had a law partner from Arizona who traveled to Ukraine right after the fall of the Soviet Union, and he was asked, because he was fluent in Ukrainian and his wife was, in fact, bilingual, to go to Ukraine and draft the commercial code for Ukraine. He was an outstanding commercial lawyer and a scholar and an academic and someone who had great affinity for the Ukrainian people. But it quickly became evident to him, in terms of his drafting the Uniform Commercial Code for Ukraine, that where there was anarchic circumstances, where the courts were either corrupt or unable or unwilling to enforce a bilateral contract between a buyer and seller of goods or services that commerce could not exist, and notwithstanding the most wonderful code that he could write, if we didn't have rule of law, we didn't have commerce, and we didn't have society as we know it. So it was wonderful to hear the oral arguments, both in the Morgan Stanley case and the main public service commission case. In both, or orders were affirmed, and not my, well, main PSC was our orders. The Morgan Stanley case was from the 01, 02, 03 energy crisis. But the test of sanctity of contract has stood the test of time, and these were unanimous decisions from the United States Supreme Court. They didn't hinge on politics or political preferences, but instead on a vast underpinning of rule of law that obviously appeals to me as a member of the Bar. So where we have markets infrastructure rule of law aligned, we have good results. Now, I understand last year there was attention paid to the issue of shale, the natural gas. Let's explore the relationship between the shale revolution and the Mark Spitzer three-legged stool. Markets. Price signals have been sent. Of course, well-head decontrol arose in 1982. The markets respond to price signals. The price signals were sent in 2008, and the result of the price signals, as always happens when we allow markets to efficiently operate, is there is technological innovation. And the technological innovation, of course, was horizontal and directional drilling, was the fracturing and assuming that the appropriate environmental standards are met and they should be enforced. And I'm, as a Pennsylvania native, like Adam, I'm proud that the former governor, Rendell, who was a Democrat, said, I want to produce natural gas in the Commonwealth of Pennsylvania for the benefit of Pennsylvanians. I want to protect the environment of Pennsylvania and ensure that the roads are safe, that the water is safe, all of the environmental standards and laws are adhered to. And he had a fairly aggressive DEP, Department of Environmental Protection Director, who was prepared to enforce the law, and I'm sure his successors will as well. So you can have both, and we need to have both, both protect the environment and produce the energy in the Commonwealth of Pennsylvania throughout the country. And as a consequence, we have a good outcome, a good environmental outcome. There's been quite a bit of discussion of natural gas displacement of coal for both economic and environmental reasons. And it was the operation of market signals that caused this result. Now, we have to have infrastructure. And the siting of electric transmission is quite a bit different than the history of the siting of natural gas infrastructure. Siting of electricity is largely done by the states. Congress attempted to create a federal backstop in 2005. There were some, I think, aberrant decisions from two separate sets of courts of appeal in the country, the Fourth Circuit and the Ninth Circuit that have impaired that backstop siting authority. But in the area of natural gas, there's no question, going back to 1935, that authority has resided in the FERC to site natural gas infrastructure. And what FERC did was site more miles of interstate natural gas pipelines and more compression areas throughout the country and more natural gas storage facilities than any time in the history of this country. In response to the market signals that were sent, FERC stood up and built the infrastructure necessary to get the gas supplies to market. To the point that I was asked to speak at a dedication of a natural gas pipeline facility in Louisiana, and the television folks came down for a TV interview from Shreveport through FERC's pre-filing process, which allows the stakeholders to meet and confer prior to a filing to work out environmental issues, to meet with the government officials, to meet with the city and local authorities and the environmental protection agencies of the various states to resolve issues and determine the best route and the best means to construct the project, we were able to get this completed in nine months. So I'm being interviewed by the Shreveport TV folks as to the efficacy and efficiency of the federal government, which you don't hear all that often, especially down south, where Yankees may not be held in great esteem, but in this case, they recognize that FERC had worked with the stakeholders to get a very good result and as a consequence, a very low-cost shale gas from the Barnett shale and the Fayetteville shale were finding their way into the markets of the eastern United States to the enormous benefit of the ratepayers of this country. In Arizona, when we had Hurricane Katrina, natural gas prices spiked, I was a commissioner who had to raise rates for natural gas distribution companies, as well as for the electric companies that had gas index charges and it was a difficult and painful process, particularly for an elected commissioner. And I used to study the basis differentials between the delivery points in Arizona and the production points and they were measured in four, five, six dollar increments. The basis differentials across the country because of shale and because FERC doing its job citing natural gas infrastructure has caused those basis differentials to collapse. Okay, we have a great success story. We need to apply that analogy that was so successful in the area of natural gas to the area of electricity. Now there are some real challenges because the historical derivation of electricity regulation is different than natural gas. I'll pose, I guess, two major hurdles and then hopefully pose some solutions, talk about what FERC has been doing on some of these areas that I've posed the solutions and then leave some time for questions. In terms of the challenges, there is still a segment that disputes the notion that electricity is a commodity. It sounds facetious, but if you look at the history of regulation where the local distribution companies in natural gas were never, I think, treated as the proprietary interest of the local city or town in electricity and you talk to state regulators who have been parties to merger or acquisition transactions, many folks feel that there's some local vested proprietary interest in the distribution company and therefore there is a resentment when electrons move across state boundaries contrary to laws of physics. We had a number of proceedings in Oregon and particularly with hydropower. There are some Oregonians that just feel it is an absolute travesty for an electron produced by hydropower in the Pacific Northwest to go to California and I understand that they have issues with Californians up in Oregon, but you've got a sort of a fundamental analytical block here that creates, and people always talked about the power grid being vulcanized and that's, I think, an insult to the Macedonians. I mean, there are 2,000 owners, operators or users of the bulk electric system in this country. The multitude of entities has seriously eroded our ability to deliver the most affordable and most environmentally friendly resource to the ratepayers. Now, I'm a states' rights guy. I was four times elected to the Arizona legislature, twice Arizona Commission and I moved to Washington, D.C. I still root against the Redskins, okay? So I've not gotten Potomac fever and I'm certainly not one who believes that all the wisdom of the world resides in Washington, D.C. and I'm extremely respectful of the states, particularly in areas of RPS. I think sometimes the states are more advanced and the states will lead the federal government rather than follow. That being said, if we treat electricity as other than a commodity that is purely a function of state regulation, I think we will encounter difficulties in getting the best results that we can and results such as I've described in the area of natural gas. The second issue is related to the first in terms of the electricity, whether we agree or disagree that it's a commodity, is the issue of parochialism. There is increasingly a discussion of states using electricity generation to create jobs. Now I understand that and I don't dismiss the term politician. Number one, I was a politician and secondly, you know, people criticize people for elected officials for being political where they're supposed to be political. That's their job. Their job is to represent their constituents. Hopefully they do more good than harm in exercising their political function. And I understand that in an era where unemployment is 4% and the economy is booming and the typical industries that generate jobs within a community, particularly in the East, finance, banking, insurance, real estate, they're manufacturing their economic drivers, their energy. When unemployment is 11% and the traditional drivers of employment have diminished, that poses frankly a challenge. And people look to areas to generate jobs that might not at first blush come to mind. And I, as a supporter of states' rights, I admire elected officials' desire to employ their constituents. But at the same time, in some of these areas, particularly in an RPS where there is a mandate that the generation come within the state, that not only is a challenge, arguably under the Commerce Clause of the U.S. Constitution, but is more importantly for people in this room who study energy economics, irrational in terms of finding the least cost solution to the generation issue and is ultimately if... Some of these folks think that, particularly in the East with regard to the wind, that they're going to get the next giant vestus manufacturing facility in their state. And you can't have 10. You may not have one. I understand the urgency of the creation of jobs. These projects, both the transmission system, necessary to deliver energy to market, as well as the generation facilities, are, again, to repeat the point, 30 to 40-year assets. And they ought to be built on a firmer foundation than, well, we want to get some jobs created and unemployment is very high, so let's find a way to produce these jobs. I think I would look first to the distribution system where you have a smart grid and you have other opportunity to create jobs, plug in electric hybrid vehicles, and I'll discuss those later. I think those will bear more immediate fruit at less risk to the ratepayers than the longer-lived generation and transmission projects. Although, again, as someone who believes in the federal system, I'm certainly supportive of state initiatives and believes strongly in states' rights. The issue of parochialism does present a challenge to implementation of federal energy policy, and I think everyone in the room who believes in economic rationality understands the origins of that challenge. In terms of what FERC has been working on, we have rule makings. One was just adopted in terms of a final rule on demand response, where we are treating demand response as a resource comparable to generation, and the question in that rulemaking was actually an interesting economic question, and there was an economic debate among the experts as to the locational marginal price of... which is a concept in the FERC-regulated markets that does not exist in the bilateral markets, so the rulemaking was limited to the FERC-RTO markets. What is the level of compensation to be paid to demand response? And I will congratulate Chairman Wellinghoff on bringing this issue. This was his pet issue. There's no secret about that, and at the same time, even though it was his heart and soul issue, he saw fit to work with his colleagues very successfully and came up with a compromise proposal that compensated demand response at the locational marginal price with no reduction for the hours in which there was economic benefits to the ratepayers. So it was, I think, a victory for the ratepayers, a victory for the environment, because, of course, when we have demand response called upon to satisfy load through a reduction in load, that is the equivalent of generation, only there are zero environmental costs associated with that application of demand response. And so I think that was a major success. We have a rulemaking that is pending, so it's in the stage of a notice of proposed rulemaking on integration of variable energy resources, which is sort of the code word for renewables. The challenges with renewables, of course, are their variable resource, although if you wind and solar do pair well together, the wind is most effective off of peak. Two in the morning is when the wind blows the most. Solar, of course, disappears when the sun is down. There are technologies that are increasingly available and increasingly economical. There's a project in Arizona that has molten salt storage, so the sun power is available at two in the morning. And wind now has governors and regulators to back off when the wind gets too strong and imposes stress on the grid, as well as generation storage possibilities attendant to wind. So at four in the afternoon on the sultry summer day when the wind's not blowing, you're able to reserve power from the wind energy produced at two in the morning and apply that to the grid. The use of plug-in electric vehicles is another resource used the batteries as basically mobile mini storage facilities to store the wind that's blowing at two in the morning and preserve the economics of the... the economic efficiency of the capacity of the wind. So there are many opportunities that are available. And as is the case with natural gas, we need the market to operate to send the price signals so that the innovators, so that the creators of ideas can implement their innovation to the marketplace in response to the price signals to produce the best economic environmental outcomes. But the regulatory environment has to adapt. One area in which we adapted recently was in the provision of regulation services. The grid has to be maintained at 60 hertz, not 59, not 61, 60. And there are resources that are available and were available under prior law to provide a regulation service to keep the grid at 60, the so-called spinning reserve idea. This was historically done by fossil generation. There was a technology with flywheels that one company of particulars associated with, but there can be others and there can be new entrants into the market. But those existing technologies were not being adequately compensated. So FERC changed the rules for providing what were known as ancillary services to transmission to the grid to maintain the voltage at 60 hertz in a more efficient, economical way. But again, government had to act and we did act last month in order to achieve that result. So again it gets back to what is the correct regulatory environment to send the appropriate price signals to the marketplace and we can expect if we send the correct price signals innovation to be the response. And the difficulty is these goal posts will change over time. We did not have the ability to send nanotechnology in response to maintaining the 60 hertz to the grid 10 years ago. That didn't exist three years ago. We don't know what the next greatest thing is going to be. And I don't want to be the one who decides what the next greatest thing is. That's not government's role. Government's role I think is to provide a open competitive framework. So whether it's clean coal with carbon secretion, whether it's new forms of photovoltaic, whether it's solar thermal, whether it's natural gas, whether it's nuclear or some new form of hydro power. They've now got the Salt River canals idea of little micro turbines in the canals run to irrigate farm fields in Arizona as many hydro facilities. So who knows what the next greatest idea is going to be. We have to keep it open mind. We have to be open as regulators to adapt to change circumstances. But again the conundrum is as we change regulations maintain the overriding concept of rule of law. I think in terms of the smart grid. And I know there's going to be a discussion coming up on the smart grid. There has not been an adequate explanation to the rate payers of the benefits of the smart grid. Sometimes it's not the merits of your arguments is how you serve it up. Two anecdotes. One, there are times when I win wonderful debates against my wife and I end up sleeping in the garage. And she says it's not what you said is how you served it up. And then I got a phone call about a year ago as Pacific Gas and Electric was rolling out the installation of its smart meters. It was a gentleman from I think it was Fresno who said that he wanted to file a complaint with FERC and he somehow found my name through a friend of a friend. And the advanced meter that Pacific Gas and Electric had installed in his house had caused his impotency. And therefore wished to file a complaint with FERC. So of course I told him I think you need to go to the California Public Utility Commission. And that's obviously it's a funny story and it's challenging for the company and the company lawyer later said we got that case and it cost us some legal fees to get rid of it. The company did not do a good job and they'll be the first to admit it in explaining to the rate payers what they were trying to achieve and just simply saying this is stimulus money from the Department of Energy let's not please . . . I walked into that one didn't I? . And it's being paid for by Uncle Sam and so therefore you don't have to worry about it and by the way we get to fire a bunch of meter readers. . That is the answer is not eat your spinach the answer to the smart grid is let's change the world because people do not like being hectored that's the word I would use and there is a tendency upon experts people in government people in the energy sector to hector. That may be what your brother is getting at as the tea party person I'm going to go to New York I want to eat what I want to eat and I'm in pretty good shape I worked out today thin guy workout good heart rate I don't want Michael Bloomberg tell me what to eat when I go to New York I don't think he's well it is an American concept to believe in individual choice and we ought to be able to advert what grid is you will get this meter and you will like it and we will force you to do things that you don't want to do that is government interposition in our personal lives that I think is at the heart of a very legitimate concerns the tea party has about the role of government on the other hand if it is an opt-in where you are the meters need to be rolled out universally but if it is explained that you have now the opportunity to do that first of all you have to have smart prices in our RTO markets I talked about the locational marginal price the LMP Arizona doesn't have smart prices it's not a FERC regulated market it's a bilateral market we don't have LMPs that tell you the price of electricity at 1.15 in the afternoon we have average price so we have stupid prices in Arizona and the Arizona rate pairs don't get the full benefit of a smart meter if you have a stupid price if you have a smart price you can say right now the cost of power is 25 cents because there is a run on the system and we will allow you through the smart meter that tells you what the price is right now to curtail don't run the dishwasher don't run the clothes washer we are going to cycle down the air conditioner and we will cycle back up when the price falls to 6 cents and here is the demonstration it's the amount of money that you have saved I think there are a lot of customers that would be very interested in this my son blesses liberal soul is very interested in the Google chip that goes in the refrigerator because he wants to be able to choose the 10 most environmentally friendly minutes that the refrigerator needs to cycle to keep the food cold and he can ascertain that with a smart meter there are lots of opportunities to get customers their interface with their consumption of energy whether it's in the home or my son wants to know when the energy is coming from the wind that blows in the Shenandoah it's going into the grid or the sun that is shining that brings power to the grid in our subdivision that is extremely interesting to him cost is going to be very interesting to other folks there are homeowners associations that I think are willing to aggregate their demand certainly the large industrial customers the biggest industrial customers already have advanced meters they already have time of use deals that they've cut with their utilities at their state commissions I think that those opportunities ought to be available to smaller businesses to commercial enterprises to law offices and accounting offices in downtown DC to apply these demand response and cost savings opportunities and they're only available if you have both smart meters and prices and as we roll these out that's the change the world as opposed to the eat your spinach arguments and I can tell you that the eat your spinach argument my child will not eat spinach and the rate payers in the United States will not adopt smart meter it will not embrace smart meter technology as a means to achieve good environmental or economic outcomes this getting them to embrace the meters as a positive outcome I want to leave time for questions so I want to close with a little talk and you know I'm told that there's some litmus test issues with regard to this guy I guess follows up a little bit on shows great minds to go like Sarah's question that she posed regarding whether it was about basically Nietzsche kind of nihilism existing in the political process where there's no interest in any type of legislation whatsoever because the political process has tied us up both left and right and there's a lot to blame I'm a Republican so maybe I'll do some more admissions on our side we have these litmus test issues and when I was running I ran eight times for office I've heard the term litmus test and typically it's abortion and guns or the litmus test issues so I thought about this and so this morning I got on the internet and I'm an old guy but I could still do that and the litmus test arose I used to test my pool like Arizona's we all have pools and I would test the water every morning and the old house we had on Harmont tended towards acid so I had and I would test the water at the Orangewood house that we bought in 93 and that would tend the other way so I'd have to add the myriatic acid but litmus test is a term that originated in 1952 and it was a strip of paper and it was to test of a solution could be water, could be anything a drop was put on the paper and that would determine whether the solution was acidic or alkaline it was a one-shot deal and in terms of litmus test in other contexts it is a crucial and revealing test in which there is one decisive factor okay so there can't be 50 litmus tests don't you think there are certain things if you're a hardcore Republican primary voter you're into and that's fine, that's well and good but it's hard for me under this definition and somebody who's run for office a bunch of times to adduce that there is a litmus test over compact fluorescent lights I think the members of the US House if they like them they can vote for them if they don't like them they don't have to vote for them they exercise as Edmund Burke would say their own judgment but I don't think there's a group on the Tea Party right or on the Democrat Left that has imposed a litmus test issue one way or the other on CFLs I think these guys can actually vote their conscience and in terms of voting your conscience it was a rough year for Tucson my former chief of staff at the Arizona Commission and it came to precede me actually to set up my office is an attorney, a U of A graduate and he went back to Tucson to take a position with Tucson Electric Power and he called me one Saturday afternoon and Gabby Giffords is a friend of mine and said that she had been shot and he had acting on a bad press report said that she had been killed and he was actually going to go to that event his boss was her finance committee chairman and because he had a cold that day he didn't go and I went down to my basement I'm a lawyer and a pack rat and I save everything stuff my wife wishes I would get rid of why is this football from 1972 still needed in our house but I went through my files and I found in the last campaign that I ran the campaign contribution from Gabby Giffords with a little sticky note that said go Mark with Mark spelled with a C correctly and I thought that was kind of cool she's a Democrat and we had a number of dealings and I'll compress my long story in the saying that we worked well together and she always showed a lot of grace under pressure and particularly when some of her colleagues were irritated with the state senate were irritated with the Arizona commission we were always able to get down and work it out without one single exception we resolved our issues harmoniously and on a bipartisan basis with the goal to do the right thing for the people that we both represented and I heard this later from a lawyer when I spoke with in Phoenix you know I'm still upset about this he said you know you need your story spits the chairman of the Democratic party called Gabby and said you know we're trying to run somebody we're trying to find somebody to run against Mark Spitzer and this is 06 this is before the White House called and it's not easy and you going out and writing a campaign contribution to him is not helping okay and her answer was interesting and I heard this third hand so I have no doubt it's true I appreciate what you've done for the Arizona Democratic party and the support you've given me in my prior races and the support you've given me and the support I anticipate in future races and I congratulate you and thank you and I have to say though your job is to elect Democrats to office my job is to represent the people of my district and I think the people of my district are best served by Mark Spitzer being in the Arizona commission and this is the type of thing you hear the negative and are bothered by the negative and so I just urge you maybe to step back and there's a lot in this town and throughout the country of people who are very interested energy is a front burning issue and there are a lot of people that are in my view very attentive to this issue that like courage but there are a lot of people that think the way she does that do not act based on partisan politics but act based but act based on their motivation to do the best possible thing they can do to represent their constituents whether it be energy or any other issue and my suspicion is although it's not necessarily newsworthy or noteworthy that is found a lot more in our political dialogue and in our lives than you might first assume so with that I thank you and be very pleased to take your questions alright let me please once again remind everybody what the rules are here wait for the microphone secondly tell us who you are and third please put a question mark at the end of your statement alright questions please Mark in the background there Mark Brifogel I'm with a small hedge fund and I do some engineering R&D despite Adam's admonition I want to applaud your stance on the sanctity of contracts as an investor picking the babies out of the bathwater post then Ron and looking at who had contracts to offset debt and then see all those contracts challenged was a it did not help my purse there was no by the way there was no political benefit for Republican and Democrat for standing up for sanctity of contract all the politics was the other way and those were very courageous decisions by my predecessors and I'm proud that they were affirmed by the United States Supreme Court as lawful so was I but it took 8 years not a criticism I'm interested in the distributed generation field typical of all conferences we had 180 minutes of discussion and maybe 15 seconds of distributed generation that appear there once I understand that Commissioner Wellinghoff is very interested in it you mentioned little turbines and canals what's FERC's attitude legally and are you doing things like recommending to the DOE that they fund research in distributed generation I was at a conference last night at MIT local club for entrepreneurs 90% biologist it's hard to go find an RFP for distributed generation please inform thank you okay I don't think it's our role to go to DOE and seek funding for particular technologies what our role is to create a good regulatory framework and DOE as and their folks here from DOE that I'm respectful I think they're perfectly capable to do what they need to do without our assistance but I'd advise you to take a look at two cases one is called western grid and the other case is called primary power and I won't get deeply into the merits I think these one of the one of the two might be under re-hearing as I speak but the question is on an application for treatment as a transmission resource that's eligible for compensation as a FERC regulated transmission asset and potentially for incentive ROE adders under section 219 of the federal power act were distributed resources or storage resources eligible and in both cases FERC said yes a storage facility can be treated as generation can be treated as transmission it's complicated it's not a power line attached to poles but we granted the applications in both cases under the theory that we wanted to provide a regulatory framework that allowed new innovative technologies to compete in the marketplace unanimous decisions I think correct decisions that allowed the entity to choose how it would be compensated now of course generation would have to compete today with the local utility these entities chose to participate as transmission assets I think the FERC transmission compensation metric is very positive that's one area where there is actually some debate at FERC and some respectful disagreement as to the application of section 219 of the federal power act I got to tell you I support what Congress tried to do in 05 Senator Bingaman and Senator Domenici and they wanted to provide an enhanced return to an area that had been neglected because transmission is 10% of the business of the utilities and it was retarding the 90% of the remainder of the business including renewables and as we know renewable resources are not located near load wind blows where it blows sun shines where it shines not necessarily in the load pockets we need high voltage transmission to get these resources to load and we got steel as a consequence of the enhanced ROEs pursuant to the FERC rule and individual FERC orders in cases and I will not apologize for getting infrastructure and steel on the ground to the benefit of the ratepayers yes sir Roger Wallace a pioneer natural resources talked a lot about natural gas this morning I'm wondering what the FERC's position is going to be on the exportation of LNG which is becoming a major topic in our industry well we have two applications in front of us so I can't comment I don't want to prejudge those cases and I really can't say anymore there have been interventions filed and there's debate so wait and see I'm sure I'll issue a good opinion on it I want to be mindful of my judicial role Michael I'm Canadian and I'm necessarily not as familiar with the US regulatory framework as perhaps I could be but I sometimes wonder why in the US it seems that states, state regulatory bodies in particular can effectively impede things that I would have thought the interstate commerce clause of the Constitution was designed to promote things like M&A that would affect synergies across regional boundaries things like transmission that would enable transportation of electricity across regional boundaries and I was wondering if you could talk a bit just even from a legal perspective about whether those problems are constitutional in nature number one and secondly to the extent they're not constitutional in nature why and whether this might change why Congress has not passed legislation that would enable FERC or a federal body to get past those obstacles very interesting question your view as to the applicability of the commerce clause over with respect to state preferences shows a great deal more intellectual acuity than many US politicians I'm being facetious but there was a strong debate in Arizona when we did our RPS as to whether the RPS should be restricted to source in Arizona and it was a three to two vote and the two dissenting colleagues of mine on the Arizona commission didn't disagree with my commerce clause argument they just said this is about politics I want to create jobs in Arizona and labor organizations were supporting the in-state sourcing and that was often times in life there's a clash between law and politics and it's not surprising that it arose in this context and particularly when I was discussing parochialism back then the unemployment rate in Arizona because of the booming real estate economy was close to zero real unemployment now obviously it's much higher and I don't know if that vote would come out the same way under this current circumstances of high unemployment that they would then we have for better or worse in our country also in Canada FERC has more authority than the National Energy Board because in Canada there's a great degree of provincial authority provincial in the good sense authority over regulation of electricity and the states often times can be very innovative and where states have good policies there tends to be more investment than in those states that lack the good policies and that's something to be commended so I remain a states rights guy on the other hand we need an interstate grid we have an interstate highway system there were winners and losers when the interstate highway system was built all route 66 in northern Arizona there were some economic losers attendant to when I-40 went in and when we build out the transmission grid there are winners and losers and there are some entities that benefit from the current inadequate status of the grid those who have generation in constrained areas are getting more those locational marginal prices are higher than they would be had we had a fully robust grid so I understand that there's some perceived as a zero some game I think that's unfortunate that that is the perception I don't- I'm not entirely sure it's the reality and then there are the forces I alluded to earlier with regard to the historical origin of the electric grid which was you had a local monopoly that was franchised that derived all of its generation from within the franchise monopoly service territory and the transmission lines were needed only to get the generation from within the monopoly franchise to the customers within the monopoly franchise compared with what FERC did what Congress did in 1992 and what FERC did in order 888 in 1996 which was open up the transmission grid to have the transmission grid now transmit energy on a most efficient basis across the country across multiple service territories and potentially through thousands of miles of geography in order to get the best outcome both in terms of environmental and in terms of economic and we're asking the electricity grid to do far more today than it's ever done in the past and the forces are aligned against transmission because there's no natural constituency for transmission transmission traverses thousands of miles engenders political opposition from those in its path the longer the line the more of the opposition and so it is a huge challenge and in some respects given the political hostility and the structural barriers it's amazing that we've gotten the transmission in this country that we have but Congress recognized there was this delict so Congress in 05 enacted section 219 I spoke about the enhanced ROEs Congress also enacted section 216 which is the federal backstop citing authority that I alluded to earlier that has been somewhat eviscerated by two adverse decisions from the courts of appeal I think there needs to be some federal citing authority let me say when I was in Arizona we cited every power line application that came before us it might not have been the same route that the applicant chose we chose different routes based on the facts we had a legal proceeding and we wanted to impact the environment and impact our constituents to the least possible but we cited the lines in most states the state commissions do a very good job of citing power lines there are two problems one is where power is being proposed to transmit it from state A to state C and state B is the intermediary state B may not have much of a nibby problem nor great objection to the citing of the line but under state law in many cases they have to show a benefit to that state and where power is going from A