 Okay, good morning. I just wanted to thank everybody for coming this morning. My name is Sarah Ladislaw. I direct the Energy and National Security Program here at CSIS. I am very, very pleased to see all of you here today. Sorry for the crowded room. Very, very popular event. We will try and keep it as comfortable as possible. But if you start getting real hot, just wave your hands up in the air or something. We'll try and make it cooler and hear for you. Today is the second in a new series that we've started the second session in a series called Electricity and Transition. And today what we've done is put together, quite frankly, an all-star cast of characters who have been there, done that, are still doing it, and then some, to talk to us a little bit about what's happening at the intersection between technology, markets, and regulation. And for those of you who came to our last event, we sort of announced this series as something we decided to do because we looked out over the electricity landscape in the United States, and indeed in a number of places around the world, which we'll eventually get to in the series, and saw that the accumulation of effects, both in terms of fuel market diversity here in the United States, certainly with an onset of tremendous amounts of natural gas and very exciting things happening on both the renewable and energy efficiency side of the story, low to flattening demand growth out into the horizon. Some business model approaches that sort of are stressing traditional business models, regulatory changes, public policy debates, all of which are putting enormous stresses on the traditional players within the electricity system. Whether you're selling power, distributing it, or regulating the sector, it is certainly a landscape that is in flux. And so the purpose of today's event is to bring people together who have served in a variety of capacities, people who know the technology, who know the business, who know the regulation side of the equation, to say, where are we? Where have we been? Where are we going? And what is the nature of this flux? And so we're really, really pleased to have this panel. I can't take credit for it. Charlie Curtis and my colleague, Michelle Milton, were sort of the brains behind this, and Charlie certainly brought together this esteemed panel. Charlie is a senior advisor with the Center for Strategic and International Studies, and we're very pleased to have him in residence, at least part-time in the energy program. Charlie is sort of the king of been there, done that. I think Charlie knows everybody. Everybody loves Charlie. I hope to be like that someday. And it's because he's done a lot of different things. He's served in a number of prestigious positions as the deputy secretary, undersecretary at the Department of Energy. He's served at FERC, the SEC, founded a law firm, worked at another law firm, and has worked in a range of different portions of the energy sector and is currently sort of president emeritus at the Nuclear Threat Initiative. And so Charlie's gonna moderate the panel today and steer us through the discussion, and then we are very, very pleased to have Chairman Cheryl Lafleur here today to give some remarks after the panel. And the chairman has done something very interesting and unique, quite frankly, for some of our keynote speakers. She's here to actually hear what the panel has to say so that she can be informed about the discussion that she's taking part in, which I think just speaks to her sort of credibility and diligence with what she approaches her work. So without further ado, because we've got a lot on our plate, I'll turn things over to Charlie. So thank you very much for being here. Please do silence your cell phones. Everything is being webcasted and is on the record. Thank you. Thank you, Cheryl. We'll see whether this group of very experienced people can manage the technology of microphones and transparencies. Let me begin with a couple caveats. We have a sitting Maryland Public Service Commissioner. We have the chairman of the Federal Energy Regulatory Commission present. And as those in this audience, schooled in the law and ethic know, when we get to questions or comments, and I'll welcome both either comments or questions that be careful not to raise matters or pending before the commissioners. So that's one important caveat. It's also important that various members of the audience have representational responsibilities, clients, try to separate your comments from any acknowledged representational responsibility as well. I think, Cheryl, that Sarah's introduction is a good statement of where we find ourselves in this evolving intersection between technology, regulatory boundaries, and markets, that as the Supreme Court noted in one relatively recent case, this landscape is changing and it's changing with an accelerated pace. But that changing landscape continues to be either depending on your policy position contained or trapped in a federal state regulatory boundary that was first fixed in 1935 in the Federal Power Act and then enunciated at the Supreme Court level in 1964. I think something to keep in mind is that the 1935 Federal Power Act was written 12 years before the invention of the transistor and by the Supreme Court's setting of the Bright Line boundary in 1964 was seven years before the 1971 invention of the microprocessor. So we have a challenge that has been described as untidy, hazy, evolving or at the very least suboptimal. And the question is whether we can muddle through this evolution of technology in this sector and the structural evolution underway or whether we can do a better job about it. We hope to have a robust discussion. I have one of my favorite phrases is from EM Forrester is how do I know what I think until I see what I say? So we have de-emphasized any real formal presentations. Bob Nordhaus has volunteered to lay out which is available to you a PowerPoint context frame that he will then invite Peter Foxpenter to participate in and then we'll have a broad discussion. Our first though I've asked Don McConnell of Georgia Tech formerly 30 years at the Patel Corporation, someone who's both done hands-on technology and advised on the technical applications of technology to business circumstance. He's an expert in energy technologies just give us a quick contextual statement about the technical technology pressures on this industry. Then Don will join the discussion. Bob Nordhaus who was the first general counsel Federal Energy Regulatory Commission, also general counsel of the Department of Energy. I think he's the only person that has held both positions. A lecturer at Georgetown Law and George Washington Law School practiced many years and continues to represent clients of a broad spectrum of stakeholder interest in this area to speak next. As I say, intersected with Peter Foxpenter, a principal at the, I'm sorry, Bradel Group and Peter is a well-known author of Smart Power, a book that was extraordinarily well received. It's about to have a updated edition. He's working on yet another book and both when I was at the Department of Energy and then through other forms of my adult life relied very much on Peter's insight into this sector. After that, we will then ask comment from our members to respond to anything they've heard or to amplify on what they've heard or add insight that had not been offered. I assembled this panel and frankly, I'm trying to bring together the people that I would like to ask about the change underway. Sarah Ladislau who heads this program at CSIS is fond to say we're a think tank, we're not an answer tank. So I'm in the happy position of asking questions but hopefully we'll elicit some answers from our panel. The three commenters that we've then set up is Larry Brenner, a sitting member of the Public Service Commission in Maryland. He's uniquely also was an administrative law judge of the Federal Energy Regulatory Commission and if you look at his bio and I urge all of you to look at the rich and deep bios of our participants, he's involved in almost every regional aggregation of commissioners and discussion on the operation of these markets and the regulatory boundaries that confront them. We will then follow that with Linda Stuntz. Linda is a former deputy secretary of energy, a practicing attorney of many years. She's served on a number and continues to serve on a number of distinguished boards and someone I have also relied on for sound and measured judgment in things, energy, all things, energy, not just electrical things. And we'll finish with Betsy Mohler who I said to her laughingly before we came down is really the author of this mess who introduced and the competitive model into the electricity sector made possible by the powerful technological capacities for managing these markets that the microprocessor and the transistor ushered in. Things that weren't available when I was at the commission where my innovation was concentrated on introducing selectrix typewriters and the lexatron. And so a different age, a different possibility and an exciting change in the sector. Start it with Bob, thank you. Excuse me, start it with Don, thank you. Well, it's an honor to be amongst such learned people in the area of here of regulation. Usually we're bumping up against that and trying to implement something and trying to figure out how we'll get it shoehorned in in some fashion. I have a couple of slides I'd like to show, Sarah can we run them from here or somewhere run from the rear? So I had the opportunity not long ago to be on a panel with Sarah. This is our technology guy. That there's always a glitch somewhere. But as we go through the process, talk about some of these things as part of an unform on national security and energy plays a very strong part in that. But my objective this morning really is just to give you a couple of images to take away. So as we go through this, we'll try and make some of the things that we're talking about a little bit more clear in people's minds and make the intangible a little bit more tangible in the process. The context I think at least a context for starting this conversation is we're sitting at the juxtaposition of several trends and several vectors that have come together to really begin to reshape probably the most profound way since the development of electric power. The overall architecture of the system that we're dealing with and how it operates. Those three trends are shown in this chart. One of them is basically the advent of natural gas being more widely available, which in the last few years has had a profound effect on where and how electric power is generated and how distributed that system can be as well as the introduction of renewables. The second one really is distributed resource systems in terms of the penetration of renewables and even the penetration of some of the techniques for real-time market adjustments that will basically allow you use curtailment as an additional source of electrons. But probably the most overarching and profound amongst all of these is, as Charlie just alluded to, the introduction of intelligence in a whole series of devices and economical ways to connect them together. All of these basically represent significant departures from the model that we historically grew up with in terms of central generation and distribution systems based on that. A cartoon that sort of captures the degree of chaos that we're creating for ourselves with this technology is illustrated here and it basically goes to the following. It is no longer a priori clear that a central generation system is going to dominate what the flow of electrons is to any given application. People now have the opportunity to elect how they want to participate in that market and largely dependent on the regulatory structures how they will either contribute or take from that system as time goes on. You can have, as this chart illustrates, distributed generation that's running on natural gas. Most recently in the Northeast and PJM territory, sufficient new generation has come online using natural gas that fundamentally it's reversed the flow and on the system and during the course of summer months and as such has really changed what dispatching looks like in that system. I'll come to a minute of some of the consequences of that. The other element is that we're beginning to see and I think this is where it impacts the business model that utilities have to decide am I going to remain a commodity producer of electrons or am I going to sell energy services? There are lots of instances as you see as to how these systems can come together and people will be able to buy into that system specifically with either solar systems, distributed generation or alternatively storage systems which will have a significant impact on the system. So all of these are playing back and forth. Ultimately, the question on the table is what is the architecture of the future and how do all these elements interact with one another? We've had demonstrations now of the ability to do curtailment all the way down to the appliance in the home at the election of the homeowner. We've had demonstrations of the ability to use that to balance wind in the Northwest. We've seen it being able to deal with electric vehicles in the operations of GridSmart that AEP did. So we've just begun to see what the implications of this technology are. There is no agreement as to how this architecture is going to operate in the future. Some of the new ideas we're looking at basically say the system will balance itself if in fact you use the right types of interactive controls. These are the same type of systems that allow aircraft to fly in formation, drone systems to track and so forth. So the technology has advanced a great deal of the way. The challenge in the meantime is the structure within its operator has not advanced at the same rate and that's causing one set of tensions. The other issue in this particular case is is that because of the shift in natural gas we have now come to a point that we really have coupled natural gas and electric markets in a substantial way probably for the first time in its history. I chose this chart in particular. Again, it's an incident the Northeast although we could have used Hurricane Sandy as another example. In January of 2014, in essence, power generation is lower on the sequence of dispatch for the gas companies than residential and commercial heating is. We went through a very cold snap. As you can see here, the consequence of that was the jump in gas prices from $4 a million B to you, roughly $5 a million B to you to over $400 a million B to you. And so as a consequence of that, during that period of time, the jump in power because you could not get to gas to the turbine systems that were operating at the rate you needed it went over $1,000 a megawatt hour. At the same time, all those gas turbines are being centrally monitored by their manufacturers and they were within a few percentage points of going unstable in terms of combustion simply because gas pressures were down so low in the system. So all of that says, okay, we have coupled these two systems together and in fact what's in the pipeline is in essence, the replacement for the spinning reserve that was historically the balance point for the systems in that particular case. Probably the most interesting aspect is we don't really have a way to effectively clear those markets today. We've done some things in timing to get people on the same routes but there are challenges in terms of just understanding what day ahead means now when I'm dependent on gas lines to meet that requirement going forward. And then lastly, we have any number of challenges that the technology can respond to but the technology also is driven by. One of them quite frankly is the adaptation to the effects of CO2 emissions and climate and the fact that we have more outages now that we've had before and you can see the rates here as they've jumped up by almost a factor of five over that planning period. There's no indication that this is going to change except to continue to be more intense and we do have systems that could be self-correcting at this point but they are incompatible with the way we operate our distribution and transmission systems of today. The second one is physical threats. You may have noticed over the weekend that our friends in San Diego had the same substation hit a second time even after they installed security. There's no reason to suspect that there aren't additional opportunities of that that'll play place but for me, one of the most startling aspects in the area that's really just been seriously begun to be looked at in terms of the technologies involved is cyber security. And DOE statistics suggests that 53% of all attacks on systems were on energy related systems and that's anywhere in the energy chain from production, not just electricity, gas and others. But I think this interaction between systems become critical. Sandy pointed out to a number of people the risks that we have of these coming together in that particular case. And one of the great challenges in Sandy was in order to bring up the power system you had to bring up the gas system which required you bring up the power system. And so as a consequence, we were stuck in a not so righteous do loop in this particular instance which I think is a challenge. So the bottom line I think comes to the following. We have developed a tremendous number of capabilities. We've begun to demonstrate them. We haven't really internalized how best to use them as Charlie suggested. There's no optimum arrangement at this point. And we know that in all of these we're bumping up against both state and federal requirements in terms of the regulation of these systems. All of which makes the deployment of technology that much more complicated as we go forward. That's my comments, Charlie. Thank you, Don. And we're gonna ask Don to also participate as a commentor after Betsy gives her cleanup remarks. Bob. So thanks a lot for technologically challenged here as you can tell. So first of all, great honor and a little intimidating to be on this program with the three FERC chairs and with some overlap, the three DOE deputy secretaries. And I think Peter shares that view. What I'd like to do and what Charlie's asked me to do is to take a look at what are, how our current division of labor between state and federal utility regulators, how we got there, how it works for today's grid and what the options are for doing it a different way. And what I'm gonna do is talk about how we got there some recent cases and issues that have come up in the courts. Peter's going to talk about some technology and policy issues from the point of view of an economist. Then I'm gonna lay out some options for discussion on different jurisdictional arrangements and then we go to the panel. So what I'd like to do is start out with some history which those of you who do what we lovingly call FERC work are intimately familiar with, but there are many in the audience who may not be. The current jurisdictional divide between state and federal utility regulators came about from a famous 1927 case, the Attleboro case in which the Supreme Court held that the dormant commerce clause prohibited states from regulating interstate wholesale sales of electricity, saying only Congress can do that. Congress a few years later in fact did that, enacted the federal power act, part two of the federal power act which directed what's now FERC to regulate sales for resale in interstate commerce and transmission in interstate commerce. The exempted generation which turned out really not to be a exemption and local distribution and stated sort of incidentally that federal regulation was to extend only to matters not subject to regulation by the states. This dormant commerce clause doctrine which actually derived from a case a century earlier when John Marshall enunciated the original package doctrine turned out to be totally unworkable with today's economy, Supreme Court gradually moved away from these mechanical tests. So by 1964 the type of analysis under the dormant commerce clause that the Supreme Court used was much different from the 1927 analysis at which point California and Southern California Edison argued that a wholesale sale of out of state power by a regulated utility to a municipal utility in the same state was subject to regulation by the state under then commerce clause doctrine thus not subject to regulation under the federal power act. Court however said no, that's not the way it works. The Congress drew and this is the court's words bright line easily ascertained between state and federal jurisdiction making for federal jurisdiction plenary overall wholesale sales and interstate commerce. Well, that's been the principal dividing line between federal and state jurisdiction ever since and what an effect that case has done has frozen the 1927 view of what states of what state and federal regulation should be into our current jurisdictional arrangements so that we're still living with the 1927 division of labor or if you prefer the 1935 division of labor and there've been a few modifications of this over the years in 1978, 1992, 2005 but that's the basic division of labor. States regulate retail sales. The now FERC regulates full sale sales and interstate transmission. The problem of course is that the world has changed and since 1927, 1935 and 50 years ago, 1964 and the bright line has generated a lot of complaining over the years even before the changes in the grid and federal regulators utilities and federal regulators complaining about state particularly with state siting and retail rate decisions interfering with federal policies, states complaining about FERC encroaching on state jurisdiction but what we see now is a whole new set of issues that have arisen as we change the way we use the grid and those have come up in the context of particularly with net metering with respect to demand response policies with respect to how state what the role of states, state generation or resource adequacy policy as it applies in the context of FERC full sale markets and there were a series of, there've been a series of recent cases which I won't go into, sorry about that, which I won't go into in any great detail but suffice it to say that as the take demand response the demand response for those who are not into the intricacies of this, demand response is an opportunity for end use customers to offer, to reduce demand into FERC regulated wholesale markets and the courts particularly the DC circuit is struggling with well is this a retail sale, is this part of a regulation of a retail market which in the court's view FERC can't do or is it really part of a regulation wholesale market similarly with net metering, net metering is the quintessential combination of retail and wholesale, a retail and wholesale transaction where you're netting your sale, your deliveries of power to the utility against your, the utilities deliveries of power to you and if the, and paying only for the net amount consumed and FERC and the courts have come up with a dividing line for between state and federal regulation of that which is I'd say not less a bright line than sort of a doodle it's almost, you could read the cases and sort of all right I sort of see where they're going but it's, I think that illustrates in particular what, where we are now and that is that we're sorting this, sorting out respective federal and state jurisdiction using the bright line derived from a commerce clause case in 1927 in an industry that's rapidly changing and probably assuming you could even sort it out which the courts are you know bravely trying to do courts and commissions but assuming you could even sort that out the question is does it make any policy sense and the question is do we have, do we have and this is exacerbated by the fact that most of the grid is managed not on a state by state basis not on a national basis but on a regional basis by regional transmission organizations or by multi-state utilities like AP, Southern, et cetera. So as we look at where we might, where we seem to have fixed it. Okay, thank you. Anyway, we're, I apologize for, as we look at where we might go from here we have to sort of look at well what's necessary for today's grid and can we, do we look at some alternatives to the bright line? So before we get to what the alternatives might be I'd like to turn it over to Peter who will give us some detail on what's actually happening out there and why it may or may not work. Thank you, thank you Bob. Also thanks to Charlie and Sarah for inviting me up here. It, as Bob mentioned, it's an enormous honor to be up here and amongst so many longtime friends, colleagues and mentors I see in the audience. I grew up in Chicago as a Cubs fan watching the great Harry Carey comment on Cubs games. And as all of you who ever saw him know he was the consummate announcer, he knew the game, he knew the players backwards and forwards. In this long game we're playing and in this particular presentation this morning think of me as Bob Nordhaus' color man. I cannot think of a role, I've relished more. And my modest contribution will therefore be to just give a couple of examples of what's going on here to illustrate hopefully very concretely the changes that we're confronting and the issues that we're confronting. So the first story I wanna tell you about is PJM's current experiment with a little company called V Charge that's controlling 134 thermal electric storage heaters about two kilowatts in Pennsylvania. The really interesting thing about this for some of us old timers in the room is that there's probably somebody in the room who can tell us the story of why General Public Utilities built 6,000 ceramic public heaters to take nighttime load off Three Mile Island in the form of electric resistance heated thermal storage units. These things are basically like radiators, they look just like radiators with covers on them inside our basic ceramic bricks wound with resistance wire. And you heat them for five hours and they give you heat for 24. So they're designed for taking the electric load at night. So this little company V Charge takes control of these heaters and has some pretty sophisticated software where they buy power day ahead or real time and charge the heaters up. They guarantee to the homeowners a level of heat so they sell heat to the homeowners. They pay the power bill to give the heat, they buy either day ahead or real time and they have a pretty sophisticated algorithm for figuring out when to buy, but they also are allowed to sell back in the form of dropping below their day ahead schedule to sell back into the real time market and they do into the PJM market and New York. 15 minute basis. And even better, they also sell regulation back. I don't know if the picture's up here, they have a wonderful graphic up. Let's see if it's, yeah, there it is. So this is their total load profile and each of those little block is a little two kilowatt heater sitting in somebody, radiator really, sitting in somebody's home and they've aggregated them up to, you can see too close to one megawatt up at the top. By the way, they guarantee a 25% drop in your bill versus oil. So, let's be clear, we have home radiators being bid into the PJM spin market. The second vignette I wanna talk about is a proposal by two very distinguished engineers, colleagues of Don, Faruk Rahimi and Sasan Mokhtari, two of the senior leaders of OD, Open Access Transmission International, which is as many of you know the firm that runs many of the Oasis sites. Talking about blaming Betsy for things here. So they have proposed something that many of you probably heard about called a DSO, a distribution system operator, quite analogous to an ISO. And there's some good articles they've published that have a lot of engineering discussion of it, written very much by engineers. But as a regulatory economist who operates in a lot of regulatory proceedings. Okay. I read the following description and I lost count of the number of alarm bells that went off in my head about how's this gonna work and how's this gonna work, just in terms of the give and take of the proceedings that we all live in. So here's what they say. Under the construct we propose here, the new DSO is intended to take on the responsibility for balancing supply and demand variations to the distribution level and linking wholesale and retail market agents all while maintaining the traditional role of the operator as a custodian for distribution system reliability. No laughing Betsy. They give an example here, which I think is wonderful. Consider a distribution feeder with a nine megawatt phase balance load, three megawatts on each of the three phases. Assume 10% of its load, 900 kilowatts is registered as DR with a 300 kilowatt DR on phase A, 270 on phase B, and 330 DR on phase C. When the DR is deployed, since the initial load is phase balance, the remaining load will not be phased balance and will thus lead to neutral currents. Excessive neutral currents may trigger protection relays. Even if the resulting neutral current is below the protection trigger level, it will result in neutral losses which will reduce the effect of DR. For example, if the increase in the neutral DR entails 30 kilowatt of losses, the effective DR would be 870. Both power operational decisions, they go on to conclude, including DR deployment are based in their proposal on the premise that the system is three phase balanced. The distribution operators in a much better position to monitor and control such impacts. So that's my second little vignette. And the third one comes from the work that we do at Brattle Group. I'm joined here by my colleague, Ira Chevelle. And we do lots of modeling at Brattle of the grid. And we have been doing it for decades and for decades we have been doing it with in a way just the separation that was envisioned in 1927 in that bright line case and it sort of worked. The separation was when you modeled the wholesale power system, the loads were just load profiles. They were just pictures of load and that's that. Now we are having to design models where the distribution system isn't a load, it's a generator just like the rest of the system. And so we have to model the entire thing as this dynamic enterprise instead of being able to treat, to model the distribution system with one set of tools and the whole sale or bulk power grid with another set of tools. I think I'd like to reserve all the rest of my comments for Rebunel, for the part of our conversation after Bob puts his ideas out, which I prefer not to think of as Rebunel. Thank you. So what I volunteered to do was to lay out some ideas, a set of options. Let's see if we can start to pull them up here. Set of options to think about and for my fellow panelists to discuss on how we might change these current jurisdictional arrangements. And I think there are two questions here. The first threshold question is, do we really need to change them? And there's a school of thought that says, well, the commission's state and federal and the courts will muddle through and they'll figure out how to make the existing jurisdictional arrangements work. I'm personally somewhat skeptical that this is a viable long-term solution, though it may be where we end up. If we were to look at some different ways of doing things, let me just lay out a couple of things for discussion. First is as we have a mechanism under the existing Federal Power Act, joint boards, which are rarely used, under which FERC can delegate to a board of state commissions the exercise of any of its functions. And the problem is there are a couple of problems with that mechanism, which I think probably count for why it seldom used. First, it's not quite clear what the effect of the state board decision is, is it reviewed as if it were an administrative law judge decision? Is it final? States do not appear to be bound by the decision so that they're free to litigate it even if one of their commissioners was a member of the board. There's no federal representation on these boards. So it's turned out to be something that as far as I know has been very rarely used. You could look at another approach, which is to change this joint board procedure so that the board by agreement with the state, the FERC by agreement with states could set up a board that exercises both federal and state jurisdiction all over particular cases when you get into these rather messy situations where it's with respect to siting, with respect to feed-in tariffs, joint or bidding into wholesale markets and things like that, that metering, there you would, and you could think of trying to restructure this statutory procedure so that it would handle both state and federal issues, have a FERC commissioner on the board, you still have the question of judicial review, who is, the federal courts review the state law issues and further issue exactly what law would this joint board apply. You could take, go beyond that to a whole different, or take a whole different approach and this is under, for instance, under the National Labor Relations Act, the NLRB and state, the state labor authorities can enter into jurisdictional agreements so Congress could authorize FERC and the states to enter into jurisdictional agreements where they move the bright line one way or the other in a way that permits them to come up with a different and hopefully more rational way of regulation. You, finally, we could look at interstate compacts, there is a model for that in the current law for transmission siting there and the interstate compact, which if it's actually binding on the states requires congressional approval, but could be advanced congressional approval if FERC approves it. The interstate compact might be a mechanism by which states and the state commissions and the FERC could come up with a joint regulatory system or by which states could take over through a multi-state agency, both the, their own, have a, excuse me, have a multi-state agency that takes over both state regulated, what's now currently state regulation and what's now currently federal regulation within a particular region. An alternative to that would be a regional federal agency that has commissioners appointed by the president from the states involved and a federal presence and would be a federal agency regulating the entire portion of the grid covered by that region. So those are some ideas just to throw out as to how you might change the existing arrangements if you had the need and ability to do so. Most of them are dependent on Congress acting, which is not something we've seen much of recently, but there's always hope for the future. But I offer those as a starting point for discussion of these jurisdictional arrangements. Thank you both. Before I turn it over to Larry, just let me point out there was one thing at Bob's talking points that he did not get the mention, but in my personal point of view, it may bring all this to a head and that's the Environmental Protection Agency's implementation of 111D, which in essence invites the states to construct compliance plans that focus on the emissions from power generation facilities that can necessitate regional coordination of that will necessarily intersect with Ferts, the Federal Energy Regulatory Commission's jurisdiction. There, if we expect the Congress to help find a solution, we might have even fainter hope for congressional aid to this process. The essential bottom line in Bob's suggestion is this is all triggered by circumstances in which the states and the commission voluntarily agree. And then a mechanism by which the Congress blesses that agreement to provide room under the Congress clause for the sharing of jurisdiction. So no one is envisioning imposing something on unwilling states in these circumstances. I think that's an important point to keep in mind, although it might come to that in the case of the 111D issue. Let me open it up now, please to Larry for his comments. I wanted to get that point about voluntary action by states and before I recognize Larry. Well, thank you and it's a pleasure to be on this panel and particularly to be on a panel with Peter and Don who actually know something about the technology. You know, lawyers like to prognosticate on this, but they didn't teach home's law in law school and it helps to have people who are doers here. I've heard it said that about the technical proceedings such as the ones at Fert that it's a forum where the lawyers testify and the witnesses argue and I think we need to guard against that sometimes. My only trepidation in following Peter is a holy cow. I was afraid you were gonna talk about the cubbies just recently sweeping the Orioles, but I'm glad you didn't go there. So, you know, picking up with the thought of the technology being a game changer which Don talked about and Peter also. The bear in mind that in the climate today, the only forms of actual generation that are going to be put in at least in this region and in large parts of the country are going to be natural gas fired units. We're not gonna start traditional coal plants. There are, you know, test projects underway for IGCC and things like that, but in terms of large scale reliability over the next few years, it's gonna be gas combined with demand response and renewables, but much as I, and in this case I can safely say the state of Maryland and the region believe in renewables and demand response if you have 100% demand response or 90% demand response and 10% renewables, well you don't have any generation. So you're gonna need it. And the technology is an important reason. A modern combined cycle gas plant operates in a heat range of 7,000, maybe 7,500. So a unit like that combined cycle is base load as well as load following. It can do it all. It has a rapid ramp up time and so on and natural gas for now is cheap. But we can't put all our eggs in one basket. As Don pointed out what happened in the East this past winter calls into question if we can rely completely on gas at least without changes and proper planning. The, it's come to be known as the polar vortex. One leg said that that would be a great name for a 60s rock group but it wasn't so popular on the East Coast at three delivery points this winter. So with that in mind, I have looked at life from both sides now and I'd like to think that even when I was on just the initial federal side I was interested in harmonizing what we could do properly and effectively at the federal level combined with what we could do at the state level. But along with the harmonization as we muddle through, I think I agree with Bob's use of that verb in some instances, as we muddle through there's a tension in how these things will work out. And sometimes the tension can be productive as we go forward and sometimes it can throw us for a loop as a fork in the road. And I'll try to talk about that a little bit in the time allotted. So, you know, one questions on jurisdiction would be how much jurisdictional authority did states lose to the FERC when states deregulated their electric markets and allowed vertically integrated utilities to transfer their generating facilities? Part of that is has FERC's approval of these highly complex markets, energy capacity, ancillary services, divested states of some of the traditional jurisdiction over generation. I'd like to talk about where I think that tension can be productive going forward. And but to what extent must states rely on the wholesale price signals to determine what generation is needed? Can states still use state instruments such as long-term contracts, tax breaks, or subsidies that are less intrusive to FERC markets in the sense that the markets can still operate as they should regionally, but states can still dictate what generation is needed or demand response, I think of that as a supply product, although it can be structured differently, in effect you're providing energy that is needed or you're foregoing energy that's no longer needed to sides of the equation, but the benefit is the same when it works. So in today's climate, whereas Bob's pointed out, the bright line is somewhat hazy where does that get us? And in two recent cases, you may think that my view is a little perverse, but I think there is a harmonizing theme in the Electric Power Supply Association versus FERC DC Circuit case. I think I could talk about it. It's not pending before any of us. The DC Circuit issued a decision. It's pending for re-hearing. And I'm not gonna talk about whether the case is right or wrong, sometimes hard facts yield results that are interesting, but what FERC tried to do there is something that I think could continue to work in various contexts. FERC set up a paradigm for demand response bidding into, participating in the spot energy markets of regional authorities, including PJM, which is of interest to Maryland, and it was the daily and the day ahead energy market. Demand response is also very important, maybe even more important in the capacity market that is operated in regional transmission arrangements such as New England and PJM and New York, which is a one state RTO. So FERC provided the means by which demand response could be compensated in these markets, but states were not required to participate in the market. It was voluntary on the part of Maryland and all the other states that participated. I thought that was a good model, and if we didn't like the way it was working, we wouldn't have participated. As it turned out, from the point of view of state interests at least, and I recognize that's not everyone's interested in a given moment, but it worked great. We stimulated demand response. It was there when needed. It was even there in important roles during the polar vortex when the demand response product wasn't actually required to be there in the winter. In the east part of PJM, actually in all of PJM, it was set up as various summer products, but the court said that FERC had intruded on state, the area reserved to the state because these are retail customers who are providing the demand response to retail aggregators as agents. And you would think that, gee, maybe a state commissioner would like that result, but maybe some of the court's reasoning was sound in the sense that there was a concern about what limits there should be or are on the state's affected jurisdiction, where actions affect wholesale rates. Does that open the door for FERC to act regardless of how small, how large the effect is? And I'm certainly interested in reasonable limits on that, and the court was concerned about that, but on the other hand, the court derailed a program that was very important to the states, which again, we voluntarily were participating in. So I thought that was a harmonization of federal and state jurisdiction that now we have to look at another path. Now, what effect that is on future state and federal jurisdiction for demand response is interesting. The parties who were concerned in challenging what FERC had done there have stated in re-hearing papers in other areas that, well, it's no big deal. You just have to figure out how to compensate demand response differently. States can set it up and do it. Well, if it's no big deal, what was all the carrying on about, and what all the carrying on about was, is it's going to be much less effective unless we can establish a uniform product that is recognized in a market, and that's not going to be so easy because of different interests of the sellers and the aggregators, even if the states all could agree. So compare that case a little bit. Federal jurisdiction is limited by the court, or more precisely, the court found that FERC exercised federal jurisdiction in area, which it couldn't. So a case that Bob mentioned, and I don't want to go into detail about these cases, I'm just trying to illustrate where there are differences as we're trying to figure out the policy of going forward, but the Fourth Circuit case, PPL, the Nazarian et al. I should disclose I'm one of the et al's, but I know the attorneys who sued me very well and they've assured me it's just business, but it's not personal. So in that case, the Maryland felt that we needed additional generation beyond what we thought the capacity market would provide by its stimulating price signals, and we set it up with a contract for differences for a natural gas plant of a certain size, and we opened it up for proposals, and we had quite a number of proposals and selected one and directed our utilities to enter into long-term contracts, 20-year contracts, for that power from that plant. Well, the Fourth Circuit said that we were impermissibly affecting the wholesale price in the capacity market. So, and I think if they would have stopped there, I just found conflict preemption, we could have found a way to harmonize that going forward, but the court said there was a field preemption, those of you who remember constitutional law from law school, that means we have to stay far away from that playing field, and what concerns me about that is it gets in the way of my hope, looking forward from a policy point of view, of figuring out how in the area where things have to work regionally, as well as preserving the authority for states in traditional areas, how that can work in terms of states being able to stimulate generation, the vet court and other courts recently, the New England Power Generators Association case versus FERC, these the last two are 2014 decisions in the last few months, April, and the DC Circuit case, I think June or July, said that was a minimum office offer price rule case, and the court said that states, that it doesn't intrude in the federal area because it directly affects or importantly affects the wholesale price, but the court said states remain free to subsidize new generators, they believe are necessary for FERC's orders simply regulate the price construct that result in offers into the capacity market. So, all right, maybe there would be a way to work that out. Part of our argument in the fourth circuit case, which we lost due to preemption, was that our decision is ahead of FERC's decision of whether the result in price at which the unit we directed utilities to contract for would bid into the market, and it still had to meet FERC's rules for the minimum office price, and in fact, ironically enough, that proposed generator, because the capacity market, as many of you know, is a forward market, three years forward, that unit had cleared the capacity market under FERC's rules several years before the court said that we had intruded. So, it gets a little harder to harmonize that going forward. What may be of concern to states is if a FERC rule, a minimum offer rule only applies to certain types of generation, and the minimum offer rule applies mainly to gas generation in the PGM market combined cycle and combustion turbine, and recently FERC added the integrated gasification combined cycle units to the minimum offer rule. So, does that divest the state, at least to some extent, of our traditional authority to decide on an integrated resource planning basis what type of unit we'd like to stimulate? So, beyond that, going forward, if we're interested in renewables such as offshore wind, and we want to, as a state, incent that, and there is a law in Maryland, and we're gonna, in the process of developing regulations, we actually just approve the final regulations. I think they're about to be published. That provides out-of-market money to the offshore wind. Are we preempted because of the Fourth Circuit case, or is it just a matter of FERC being able to set the price rule in that case, we're okay, because, as at least as of now, the minimum offer rule doesn't apply to wind generation. So, we're struggling to try to get back in some, there's a lot to capture, and I don't wanna go over my time, but Bob's ideas are stimulating. I don't think they're gonna work in the next year, or the next two years, or the next three years, pick your time frame, but we need to work something out. I'm a little concerned about if I'm the state commissioner representative on a joint board, and we decide a certain way, along with our federal colleagues, what my fellow commissioners in Maryland, let alone the other regional states will do when I get back to the office. Yeah, and if I could just add, especially if you're in a state where the commissioners are elected, and you're only one of a number of those elected commissioners. So, I think I'll conclude there. I will point out that I'm a believer in regional arrangements. I'm very active in a group called the Organization of PJM States, where all the states served by PJM, which are a large number. It's not your grandparents PJM anymore. And we try to work things out to the extent we can, and then work it through the infamous PJM stakeholder process. I've said on more than one occasion when I used to mediate cases that came to me after going through some long period of time in the PJM stakeholder process that that process never put me out of business as a mediator, but people do get to have their say in it, and PJM gets to act even when there isn't agreement if they have the basis for a needing to act for reliability purposes and that can file with FERC and other people have their say. In terms of the Charlie's very good addition regarding environmental EPA controls, there are, as you know, very complex proposed regulations for carbon control for existing plants, known as 111D, sometimes overlooked. There are regulations 111B for proposed plants and Maryland participates in a group of states in the mid-Atlantic and New England states called the Reggie, the regional greenhouse gas, I forget what the I stands for, I should know this initiative, thank you. And we think, and the proposed regulations by EPA recognize the value of regional arrangements to help implement that and, you know, air quality doesn't stop at a state boundary so it makes sense there. Commissioner, actually chairman, of a Washington metropolitan area transit commission which is not the metro, that's WMATA, this is WMATA-Z and it's an interstate compact of Maryland, Virginia and DC and we regulate surface transportation not taxis but except in a limited area but van services, it makes sense in this region not to have to get licenses and approvals and reviews by three jurisdictions. This covers not all of DC but just the Washington area of Northern Virginia and two counties in Maryland with one exception. So those work very well and logically you say why not? The pollution crosses state borders, the transit services cross state borders, why is electricity different? Well, you know, locating a generation plant is a big deal to everybody and if you need one and you're not getting one that's a bigger deal and locating transmission lines as opposed to underground natural gas lines is a big deal and we just have to work it out because we can't live in a vulcanized environment but we can't hamhandedly outstate of their jurisdiction. You know, I think Larry's last comment right there is the essence of this, working it out. Ask yourself how does innovation and investment occur in a circumstance in which the workout takes years to be affirmed in the courts. That's the real challenge that we have and people who are laboring in the field like Larry and the sitting members of the commission, states and federal are very conscious of that but they've got a very significant problem on their hands. So let me turn to Linda, please at this time and who has a sol... Noah, thank you for your comments. Thank you, Charlie. It's a great honor to be here and a privilege to be with some of my mentors and teachers and see so many friends and similar teachers out in the audience. Let me just make a little humbling to think of what I could add to this panel but let me make two points, just two. One, I agree with Larry that we are going to be in a middling through mode for a while yet and one reason is because we don't have all the answers to the question jet and I don't think we can decide even who should be answering those questions until we have the answers. You certainly could not build the consensus to develop legislation until we had a clear notion of what the questions are, what the answers are and who do we think should make those answers and implement them and I guess I would submit and I was teasing Charlie earlier, there's of course I'm on the right side of this panel because I'm probably the only Republican here but that's okay. You know, I think there may be multiple answers. I grew up in the Midwest. I have the opportunity to travel around the country. It is very easy and I'm married to Virginia but it's very easy for us to get myopic about the way things are here in the Northeast Mid-Atlantic, the way things are in PJM. They are not that way other places and I know some of you in the room well appreciate that and so it could be that there isn't going to be one answer or one architecture. There may need to be multiple answers and architectures depending on whether you're in the hydro of the Northwest, whether you've got really good solar resources and a vibrant distributed generation resource-based growing in California and Arizona or not. So I think we're gonna have to muddle through and I don't think it's all necessarily bad but my second point is and I guess someone once told me if you're on a sinking boat, don't worry too much about the design of the new boat until you deal with the sharks that are right in the water next to you and there are about three of those at least that I worry a lot about in which collectively make me believe this may be as challenging a time for FERC and for the states in the near future as any time since the California energy crisis. Let me just list these three. One, there's been seeming an assumption as we've talked this morning that RTOs and the markets and RTOs are working fine and they're universally accepted. Obviously that's not the case because we still have a lot of the country not in RTOs. Secondly, there are very real problems in the real world about the operation of RTOs and the commission is looking at these appropriately. I think things like uplift payments, which I love is to me it's a euphemism for market override payments. The market isn't doing what we want. We have to do something else to keep the lights on or for other reasons. The commission's looking at those, I think that's important. But what does that speak a bigger problem with these markets or is it just something natural? I'm looking forward to the answer to that. I don't know, but to me it's a worrisome sign that they seem to be increasing capacity markets. Are they working or not? They don't seem to be working. Maybe we have work arounds, maybe that's what we have to do. But there's a fundamental issue of whether the markets is currently structured actually elicit the resources, generation, demand side, whatever we need in an efficient way. Secondly, the carbon rule. I read with great interest the answers of the commission to the questions posed by the House Energy and Power Subcommittee before the commission appeared before it. I actually commend them to you. I think the breadth of the commissioners answers, the questions themselves. I thought touched on some really important issues and at least for me I am struggling to see how this rule and its implementation is gonna overlay on the way electric markets are currently structured and regulated. There's a lot of time or some time, depending on whether you're a state that's got to come up with a SIPP plan really quick, but I don't see how it's gonna work. And then lastly, we haven't talked about this, but anybody that's out there trying to do anything, infrastructure is not getting any easier. And whether it's state or whether it's feds, whether it's transmission, whether it's natural gas pipelines, I mean we're sitting here with knowing as Don talked at the outset, we need more natural gas pipelines in New England. And there have been some creative ideas offered to deal with that, but it doesn't seem to be happening yet. And so we are talking again about price spikes this winter because we can't get infrastructure in there. So I guess those are the sharks I'm worrying about. Those are the things that I think that the commission and commissions really need to worry about. And maybe in working through those, there will be some illumination Bob about how we have to align the jurisdictions to deal with this, but it may take that kind of a pragmatic, problem-driven approach to get there. Thanks. I have a lot of agreement with what's just been said. Let me before I turn to Betsy, point of clarification. I have great admiration for the work Betsy and her colleague Vicki Bailey, who's sitting in the audience today, did at the commission. And it's I think one of the most remarkable examples of economic regulation that we have in the annals of regulation, where she had invited in market forces and substitution for much of the commission's individual decisional actions that were exercised in the past and has really created the change function that is with all of its messiness, operated extraordinarily well to the benefit of the public and its customers. So Betsy. Wow. If I had any sense at all, I'd say thank you very much and then shut up. But I will prove first, thank you very much, Charlie. And thank you for the invitation to be here today. I'm with many friends, I would say old and dear friends, but I'm gonna drop the old word. It's a very sensitive subject these days. But anyway, Bob Nordhaus, whom I've known for many years, has proven to all of us why he's a lawyer's lawyer. Here he is thinking these deep thoughts about things we could do under the Federal Power Act as it is and takes you back to Brattleboro and all the great cases that I'm sure I read someday, but I've repressed them and instead he's worrying about them still. And he's got some very, very, very creative ideas of ways that we could put band-aids under the existing system or maybe improve the existing system if Congress were to act and pay attention to electricity markets. Well, and he longs for the bright line. Well, there is no bright line. You can see that in any of the slides. You can see it in everyday life. Everybody in this room knows there is no bright line between federal and state jurisdiction. Bob longs for a new regulatory framework, but here inside Washington, we all know it ain't gonna happen. Congress is not going to legislate productively in this area anytime soon. I would say maybe 20 years would be my horizon, not one, two, or three, Larry, it's just, and if they were to legislate, I'm not at all confident that it would be a good thing. I think it might be a really bad thing as a matter of fact. Congress is broken. They're not going to delve into the intricacies of joint boards, multi-state regulatory agencies or interstate compacts. And if Congress were to address power markets, it would likely be in the context of EPA's Clean Power Initiative or Clean Power Plan Initiative, which at least a majority of the House hates. Their engagement would not be productive. And I believe that they were to act, they would ultimately do more harm than good to markets. So that clearly puts me in the muddling through camp. And I would like to focus attention on several things that have, some of which have been mentioned here today and some of which have haven't, which I think are several areas that are worthy of attention, careful thought and work. First order number 1,000 implementation. I frankly underestimated order number 1,000 when it was issued. I assume that Chairman LaFleur will comment on this in her lunch remarks, but I think that successful order 1,000 implementation is a very high priority, especially with nothing good happening on the legislative front in Congress. It's the only viable regional collaborative that we have. Now, maybe all parties are not at the table. Come on, join the party. I believe with Linda's comment, I agree with Linda's comments that capacity markets need work. They are the new competitive battlefield. We need to figure out what's working, what's not and where we go from here. And there are lots of issues there. The minimum offer price rules are very complex. I would, one could say a mess. How do we deal with subsidized generation? How do we deal with subsidized generation when, for example, still has a production tax credit? Who knows how long that will last? But that means that they can bid a negative number into the market and displace everybody else who still has to make money that doesn't have this, doesn't have the production price, PTC production tax credit. That is a very, very challenging area. Demand side management, how should we deal with the jurisdictional issues, especially in light of the recent EPSA versus FERC case? How dependable is DSM? Do we, how do we measure the baseline for DSM? Is there such a thing as too much DSM? Or is it a really dependable product long-term? I think those are all very open questions. What are we doing about integrating green resources, particularly in the non-RTO states? Are subsidized resources killing competitive markets? There are variability, dispatch challenges and other technical issues that I assume Don and his colleagues will solve and we won't have to worry about them. But in the meantime, until they solve all those things and or Peter, I do worry about it. We do need to worry about the impact of the Clean Power Plan initiative on the generation map. Will there be massive coal plant and nuclear retirements? We're certainly seeing a lot of that already on the coal side and we're beginning to see it in the nuclear side. Can anyone compete with natural gas? The answer right now is no. Maybe that's a good thing. But that does call into question pricing rules and again, the organization of organized markets. Should economic regulators be FERC and the PUCs care about the generation mix? I mean, is that their role traditionally not? PUCs more than FERC have because they do regulate generation directly when it's cited. They do care, but it's a very open question. I think that transmission siting, especially multi-state and presumably again in the absence of workable federal eminent domain authority is another important issue. It's another thing that Congress should deal with but they haven't and I don't think they will in any time soon. Integration of gas and electric markets, especially information systems is absolutely critical and going forward and I know that FERC has been working on this. So in short, there's plenty of work to be done and there are plenty of issues worthy of our attention and so I'm pleased to continue to worry about them and I see work for a long time in the future. I'm tempted to recall Mr. Justice Jackson's comment and FPCV Hope where the Supreme Court first shied away from having any involvement in rape regulation and Mr. Justice Jackson said in his dissent, the more it's explained to me the less I understand it. So I'm worried that we are in a regulatory position in a very frame that is going to grow increasingly complex and muddled as we muddle through. I'd like to ask Peter Fox-Petter to make a comment, offer an opportunity to Don and then open it to questions. Thank you, Charlie. Thank you to all the panelists. I wanna make a comment that really triggers off a lot of what Commissioner Brennan has said but forgive me, it's a little abstract. First of all, I completely agree that Congress is unlikely to act in this area except maybe on a time scale of decades and that might be okay. But I do note that 25 years ago I was sitting at a conference table with a representative from the Edison Electric Institute talking about the creation of ISOs and RTOs and they said, there's number one thing I wanna make sure is that these new organizations don't turn into regulatory entities. Well, I think sitting here today, to me, to a non-lawyer, it looks to me like they have turned into quasi-regulatory entities that do in fact mediate state and federal interests. The commissioner talked about participating in them and they do so differently across the different RTOs and states and regions. And similar things happen in regions that don't have RTOs, quite similar in some ways. So that just my first note is that we could look across them in the great laboratory of democracy that we do are fortunate to have and see and learn things about how states and federal folks are interacting and what's working and what's not working even without congressional action. The reason I mentioned that is that sort of leads in the next part of my comment, which is what we have now in the RTO regions are these RTOs that are helping to mediate state and federal actions as well as state commissions with their statutory authority and we have the FERC. And if you think about that as one big black box that is in total the system with its jurisdictional wonderment that we now have. And as I was listening to the commissioner Brennan I was hearing him talk about how well is that black box dealing with a couple of issues from the standpoint of the state's interest and he mentioned two to my ears. He mentioned the ability I'll say of the states to determine their own resource adequacy requirements which is I think how he would phrase the contract dispute Nazarian at all that you mentioned. And that he would say the black box did not work. The MOPA rules and with all their complexity have not led to an outcome that's sufficient to represent state interests and probably many folks are unhappy with it. And he pointed to the black box also not working on a second issue which is demand response jurisdiction where he said actually the black box works such to undo something, the demand response policies that actually the state's like. I think it's great to think about things in those terms. And as I started to do that and I started to think about Bob's alternatives I realized that I needed to put on my head as an economist and talk about a dimension of these alternatives that has to do with how well this black box works and how any other black box that we design works. If you look at the alternatives Bob put up and they absolutely are worth thinking about as we also think about how well the current black box and the RTOs are working. The dimension that he tends to point out as any good lawyer would is again to my ears who gets a vote? What is this body consist of is it one state person appointed by the president and another state person appointed by the governor and so on and so forth? And that's how good constitutional thinkers and lawyers work and that's obviously very important. But there's another dimension of how well these black boxes are gonna work that I want to commend to you wearing my hat as an economist and it really goes to the heart of what's hard about regulating things today. And that is what we're doing today is we're blending in extremely complex markets into a legal system of regulation and the markets that we're creating are extremely complex and they're evolving quickly and a lot of this transformation is blowing up the old way markets work and it's recreating new ways that market work that we're at the cutting edge of even trying to understand an iron eye or trying to model the legal system as I understand it was really well developed to figure out whether some guy sitting in a pub in 1600 did or did not punch some other guy in the face. It's a finding of fact process. What we have to realize about setting rules and laws about these unbelievably complex and fast evolving markets is that in some cases there are no facts to find out. There are only simulations of how markets are gonna work or should work or hopefully will work if we change the rules from way A to way B. And one of the reasons that I think RTOs and their function in the black box has helped work is that they're not constrained with the same resources as traditional regulatory bodies. They actually have big fleets of modelers and the power system models inside and so they can do exercises that don't establish facts about the future but at least they help inform it. So to close up, one dimension we have to recognize that this black box has to have is a degree of analytical sophistication, a degree of neutrality towards analysis and a ability to be, how would I say flexible with respect to what we know and what we don't know and what we will learn on an evolving sense to create more flexibility than an administrative procedure where you take a long time to cross-examine witnesses in a very cumbersome way with warring models that never really ever talk to each other or come to any kind of common understanding. So thank you, thank for that ability to respond Charlie. And so Don, what about innovation and investment in these evolving markets in a regulatory circumstance which is I think hazy is kind of generous. He's for it. I think the question is a question of scale and it's a question of the progress over time sort of banking off of comments that Linda made and that Peter made in the process. To me the most important aspect of this is that the regulatory environment has to be an open learner system. We have our constructs, we have rules and regulations we apply at this point in time. They may or may not apply as we put some of these technologies in the field just to give you a couple of examples in that case. And the type of demand management system that was piloted first in the Northwest then in Central Ohio, market signals are generated in less than five minute intervals for the entire system to respond in terms of either curtailment or the beginning of generation. We've demonstrated that you can get dramatic improvements in the operation of the system and the effectiveness of the system in that particular case. The real question at this point is anybody actually advanced that into the field only in trials? And I think the most important aspect of that is those trials are fundamental to understanding what should those models be talking about that Peter just referenced in the process. That kind of experimentation today takes place in part because individuals like Larry suspend rules for periods of time to allow us to experiment with these technologies. We're an aberration in the field in those particular instances. Paul Santalela did it in Central Ohio. We did it in the Pacific Northwest. We are just now beginning to understand what we did. We had hypotheses. We have what we call the virtual generator system which basically looked at the entire Central Ohio system in terms of where were the puts and takes in the entire system. This is the first time we had the opportunity to actually calibrate whether or not we had it even close to right in that case. That experimentation has to take place and it's gonna take place in this messy environment. We're talking about the question I put on the table, Charlie, is what can we do to facilitate that? What's there to encourage it? A lot of the rationales we put in place for the grid smart activity at AEP are no longer on the table because they've all been suspended. And so the investment in that has basically stalled at this point. We'll learn something, but the question is can we advance it? I think the other point that I think is probably perhaps one of the less discussed in this entire panel Linda brought up was regionality. Fundamentally different systems operating on fundamentally different architectures with fundamentally different mixes. South California does not look like the state of Washington does certainly doesn't look like PGM territory, certainly doesn't look like New England. And so as we look at each of these, I think we need to understand that because we're creeping up on boundaries that by historic measures are going to be very interesting from the viewpoint of do you have a stable system? Once tradition wisdom says, once you get to 40% distributed resources that are intermittent, you no longer have control of your system. We've had illustrations of some of that take place in Germany at this point. We've had some issues in the San Diego area with those things. We need to understand those because if not, we will have inadvertent outcomes from the regulatory structures we're putting in place, be they incentives or disincentives for any of those investments that we have in place. So continuing that sort of sense of experimentation I think is essential to advancing the technologies to the point that we actually understand how they can and should be deployed. And that has to happen in parallel with this discussion about regulation we just had because the two can't fly independently. It's that simple. I think very well said. Let me, I'm going to open it to three questions. I'm sorry, I worried that we'd have more to say than the time allotted. I think there is more to say. Let me open it to three questions, ask the three questions and then we'll open it up to the panel and I'll start with Bob Nordhast. So I see three hands right there. Let's do those three. You've asked the question and there's just a microphone. The microphone, yeah. Okay, Tom Goldberg with lineage. Thank you very, very much. The issue that really strikes me as creating an inflection point is cybersecurity. This, whether you're distributed or just basically baseloaded, we are driving towards a regime that we have to put in place to eliminate malefactors from our systems. And Commissioner Mueller mentioned the gas is everything today and pipelines are going to be required hither and yon to distribute this, yet living on our pipeline systems are foreign nationals who are ramping up and down, flow rates, direction, pressures, things that we should have within our own dominion. Is that therefore, is this crisis going to create a opportunity whereby maybe Congress or whereby the federal courts decide we need greater harmony and very dramatic changes in law, or at least in authorities distributed between locals or states and federal to deal with that question. Thank you. Just pass it to your right, please. Thank you. Thank you. We'll have comments for the panel. Walter Howells, Vertical Capital. I would advocate that this was excellent, superbly done, but I would advocate a voice that got precious little time until the end with Don here is the role of the capital markets in solving any one of these equations. As an investor in energy, I look at every single sentence that came along here and you just scream risk and uncertainty. I mean, it's a phenomenal barrier to progress and security in this area and one that is, I don't see any brilliant fix for it right now, but it's a great tragedy when we have trillions of dollars around the planet earning negative interest rates and nowhere to go. So if we could find a way to collectively open up some of those gates to bring in capital, I think that would be a great driver for innovation and for change. And when we sit here in gridlock in Washington, DC, I think it's also one approach to Congress, which is to say, if we can educate Congress on the role of capital markets in creating more jobs, exports for trade and security, it might be a way to get them to act on energy and to open up the floodgates for capital. And to your right, please. Yes, very good. Andrew Patterson with EVI. To extend that capital market question further, we live in a hybrid landscape, as Linda Stunt said. That's just the way it's gonna be because Congress isn't going to change that. And so if commissioner, we've looked at life from both sides now, the two sides aren't just federal and state, they're merchant and rate base or dispatch preference. And it strikes me that if you're just gonna build gas, you need merchant. But if you're gonna build low carbon generation to take on commissioner Mueller's point, then don't compete with gas. Use rate base, use renewable energy standards, use dispatch preference, that's what lenders and bondholders want. They want predictable cash flows for the term of the debt. They don't want variable pricing. And consumers don't really want it either. They're not gonna be day traders in electricity. The real issue is how are you gonna raise three trillion dollars over the next 20 years to upgrade the system that we've got? Capital markets are more important than consumers. As I said, I'll start with Bob Nordhast, but we've heard this Judy Collins phrase looked at, you know, from both sides. Now she was talking about clouds, right? We remember that. Bob. Well, let me just remark on the capital formation and risk issue. I think I tend to agree with my fellow panelists that at least in the near term and perhaps in the long term, we're gonna be muddling through under existing law that it's gonna be hard to come out with a legislative solution to this muddle. But that said, there is a fourth category of sharks that Linda didn't mention. And there's members of my profession who take advantage of every opportunity to exploit the jurisdictional issues that the current operation of the grid raises. And this contributes extraordinarily much to the risk that investors and utility planners have in trying to figure out what it is that they can do, who's in charge, what the rules are, and whether they're ultimately going to be able to recover, get their money back with some return on investment. And this is not only for physical assets, but any number, I mean, if you're in the demand response business, what do you do now after the EPSA case? If you're a generation developer who's contracted with a state to develop a new gas-fired power plant, what, where are you with respect to is your contract valid at all? Can you participate in FERC regulated capacity markets? I think that the issue now is, well, maybe we are stuck with existing law, but if we are, then we've got to find ways to provide more certainty on these jurisdictional boundaries so that it doesn't take four, five, or more years to figure out who's in charge and which rules you can rely on. Thank you. I'm just gonna go right down the panel, please. Well, let me just say I don't agree that the capital markets are more important than consumers, just to get that on the record, but I agree they are very, very important. And I feel like is a sort of amateur historian for the industry like I had this 1922 moment because right around then regulation was invented because the capital market said, well, this new industry called electric power is getting a little too political. The political risk is too big and we need to simplify that risk and we put everything under a system where we can gauge the risk because in effect we need to build out the grid of the United States and we did that and regulation did that very effectively. It's much harder now because we have this combination of regulation and very complex markets. We have a fast moving evolution of technology and therefore the products that markets have to incorporate and regulators have to regulate and you have neither regulation nor unbridled competition, nothing close to either one of them in any of these markets appropriately. So where does that leave guarantees on capital risk in this landscape? It's obviously, it's three orders of magnitude more difficult problem, but one point about it that I want to disabuse everybody of, there certainly are instances where you can take specific assets and take the risk out on that particular asset class and get that asset class built, but you have to be very careful in these markets because they're like balloons if you push on one part, another part pops out and if you're guaranteeing returns on one asset classes, the rest of the asset classes in that market are then impaired and their risk profile shifts and the market won't work the way it was designed to work. Now, that's not an argument against some risk reduction tools in these markets. In fact, I want to say that I agree with the questioner and say that we need them. I think there is too much risk, it's difficult to even quantify it or even come close to quantify it or bounding it. So one of the things, another criteria if you will against how we judge the black box that we create is it does have to reduce risk, not increase it in order to enhance investment. Peter talked about balloons. The thought that I had was actually goes back to, I guess, freshman chemist, there was a principle that says any system will move to relieve the stress on the system. And I think in this context, if you look at specific implications, you mentioned the type of thing with cybersecurity or the type of events that happened with Hurricane Sandy and so forth, what you can see when you look at those is locally, people find a way to respond in that particular instance. Southern company is building two reactors plants that defies all logic that we just described in this process but it happens to fit the logic of their particular marketplace perhaps at this point. And so, and I was about to say that and because we have intervened in that market to guarantee a certain outcome in that case. So my observation in that context is that perhaps it's on a more local basis that we can resolve some of these issues and rectify it in terms of both managing risk and in terms of deploying systems that we believe have societal benefit to it. And I personally believe 111D is gonna force us to come up with those solutions because you can't operate the system without doing those things now. Ambassador Brenner. So, you know, at the state level we know capital markets are important but we don't wanna gold plate it and provide that something will be built at any price no matter what. So our attempt in Maryland at establishing a long-term 20 year contract for a generation resource was an attempt to provide the certainty that capital markets need to go forward. On the other hand, a problem area is the transmission grid. We need infrastructure improvements in the very near future, including for concerns about cybersecurity but also for the new system that Don and Bob have talked about. And a regional authority like PJM and others establish relatively long-term, maybe capital market, as we'd call it, medium-term planning for a transmission. They come up with the regional transmission plan and they dictate what's needed for a transmission line. States still need to license it but those plans can be changed so there's not certainty. So as demand flattened out, certain large-scale transmission projects in PJM were first postponed and then canceled because the demand wasn't there. Again, we don't want a gold plate it and have ratepayers pay for it forever in the future when it's not needed. So there's this tension between markets and independent generation as opposed to the old rate base where the state would control it. Now, in the past, large capital projects were sometimes securitized by bonds and there have been such programs in Maryland, not for full generation, but there were certain actions that were taken. For example, provision as part of settlement for the risk of carrying the nuclear decommissioning fund would be for reactors in Maryland. And to lay off the risk from ratepayers, part of that was securitized and I'm wondering, I don't know enough about it going forward, whether that could be a benefit where the state is no longer rate-basing generation but can be securitized through a body. A quick note of optimism, not necessarily on capital markets but on where we're going with this model and Peter's point on neutral analysis is very important. There is a large Eastern Interconnect Planning Council, two bodies, one populated by the states and one by the transmission owners and RTOs and Eastern's a misnomer because it goes all the way to the far Western states. And we are at states, we are actively participating using pooling the resources of RTOs and DOE and others and FERC has been involved too of running these models and seeing what transmission is needed where, now getting it built is another story but at least we're looking at it on a large scale, not even just within an RTO because we're all in this together and hopefully this will work long term. Once something is set through that larger planning I'd like to think there's going to be more certainty to it which would attract capital. Cyber security is a big concern. I'll step there with that. Thank you. Betsy, please. Let me just comment briefly on cyber security. Whether you're worried about your photos in the iCloud or whether your credit has been hacked because you bought a blower at Home Depot last week or whether your latest airline airplane flight was screwed up because their information system was down. I mean, when I was still at Exxon we had literally hundreds of thousands of hits on the Exxon assets regularly. It's a huge, huge challenge. I think the industry is belatedly taking it very seriously. They got a slow start. I think it's actually a credit to the sector that the cyber problems have not been worse than we've seen. They don't talk about it a whole lot and if you do talk about it it's only in scary rooms in the basement of the Department of Energy which Linda, Charlie and I have all spent a lot of time in. So it's a huge challenge. It's going to get more difficult and it's not unique to the electric or gas sector. It's endemic across our society and I don't pretend to have answers. Linda. Sure, on cyber I agree with what Betsy said but I would add that I think the commission has played an important role in this as well in terms of leadership and I do think never to be complacent because you can't but it does create again, it's an interesting dimension of challenges when you think about the new technologies that Don was talking about and the more people we have participating distributed generation and all the smart technology talked about are basically in cyber portlands more portals, more ways for people to access and they can do something remotely that you like. Somebody could do something remotely that you don't like and so all of that has to be taken into account. On capital markets and innovation I would just say, again I think there's good news out there. Look at transmission. There are things where there is the amount of certainty and where there's been the correct, I think congressional action in 2005 followed by policy leadership but for it we've seen investment. Now it's still a strain. There are huge cost allocation problems. There are issues with uncertainty about changing demand but I almost and I would say at the state level when I'm following now with interest so storage has always been the big challenge, right? Storage would make renewables. So California said, bless their hearts in typical California way, we are gonna mandate the utilities to come up with a certain amount of storage and I've forgotten the exact numbers and it's definitely I feel if we will mandate it and you will come and I think it's gonna be interesting because you know what, stuff is stuff that they're having solicitations, stuff is being sent in, it's a sort of the classic old way to do it and that may well stimulate more technology the other way around than all of the sort of the R and D kind of bottom up stuff that we've tried to do from Washington and elsewhere and it certainly I think is a way to sort of get capital moving into that area. You talked about your offshore wind. One last point that it does raise in my mind though that sort of goes maybe to the top of what we started talking about today. You know it is, utilities have been made an instrument of policy, social policy. They are tax collectors, they are portfolio providers and to the extent that business model changes because of distributed generation and they become, you know, while they're just a virtual wires company now or they're just, you know, is that going, will that be possible in the future and if not what will take their place? So just throw that out there. Obviously there's much to think about and talk about. I wanna end with just two brief comments on the, Congress is consistently disappointing in the last several years. It's the most generous way I could reflect on it but it's democratic societies are inherently reactive and I think that what will provoke Congress is not the good sense of doing something but the necessity to react to circumstance. I think your comment about cyber may be that necessity. There's an underlying question whether these markets are evolving to produce a system that is less resilient or more resilient because of the embedded vulnerability of the existing infrastructure that we've built over the last 75 years. It's not just physical protection, it's malware, it's lots of other things that go bump in the night when it comes to the cyber danger. That could, as your comment suggested, provoke a congressional response, I believe. So thus the homework assignment. In terms of regionality, all of the circuit courts of appeal are important if I can evoke something from Animal Farm but one of the circuits is more important than the others and that's the DC circuit. Right now the DC circuit is prominently defining the boundaries between state and federal regulation. That cuts against regionality and so Bob's solutions that he laid out actually have the potential of restoring a regionality that the courts as they try to reset the boundaries of federal and state regulation may because they're searching for constitutional a frame of interpretation of the Federal Power Act that the courts may in fact end up with the feared national rules that don't accommodate the regional circumstance to the benefit of the diversity of resource and policy objective of the region. So A, you may have to join this issue because of events may provoke it before the Congress. B, the fruits of innovation and investment are so potentially significant that may obligate the Congress to act and so I encourage you all to really think about the options that Bob put on the table because the Congress is very unlikely to discover the path unaided by your collective help in addressing this boundary issue if they ever join it before the Congress. Thank you very much. We will break, we have box lunches. Do you want to announce it? We have box lunches available. Grab your box lunch coming back here and or wherever and Chairman LaFleur will give a keynote at 1 p.m. Thank you very much. Thank you so much. Thanks.