 This next panel is going to focus a little more on the investment picture, both from a macro-micro-economic point of view. Suganda Tuledar is with Nira Economic Consulting. He's the Associate Director in Energy, Environment, and Communications, covers a lot of territory. We're delighted he's here today. He's been working in various areas for quite a bit of time, and I think this probably is his first appearance at a Wires meeting, and we're delighted. He's got a Master of Science in Operations Research, Industrial Engineering, and a PhD in Economics from UT, University of Texas. Thank you, Suganda, for being here. Christy Tezak, you have probably seen her at other Wires events, but she has been a very well-known analyst in the Washington area for quite a while. She's Managing Director at Clearview Energy Partners and covers electricity markets, interstate pipelines, energy infrastructure, and environmental policy. She came to Clearview from Robert Baird and the Washington Research Group. She has been honored by the Women's Council on Energy and the Environment, affectionately known as WISI, and she has a degree in Russian from Boston College, which these days you never know could come in quite handy. So thank you, Christy, for being here as well. Our next panelist is Jim Lucere. Jim is very well known to people in the FERC and energy analytics space. He's Managing Director at Capital Alpha. He used to be Capital Alpha Partners, but I think it's just Capital Alpha now. And he leads the energy environment and tax practices. Jim tells me his first love is really tax, and he's kind of migrating back in that area, but we're happy we could lasso him for this appearance. He was Senior Vice President of Prudential Equity Group and has been doing, sharing his views with Wires and other energy associations for quite a while. Jim is a great friend. Todd Ryan comes to us from SmartWires, where he is Director of Regulatory Affairs. SmartWires is out in the Bay Area, but they're an increasingly prominent, very interesting company, also a member of Wires. Todd previously worked at Beacon Power, did a lot of work in the flywheel-based energy storage area and other technologies. He too has a PhD and is a guy with a fresh perspective on a lot of the issues we've talked about today. So we're going to start with the macro and maybe move to the specific technology. So if you would, thanks, Jim, for having me. This is my first time, as Jim said, participating in Wires, and to be honest, I didn't even know what Wires was before Jim called me last week, and I had to step up because a friend of mine basically pushed me into the fire here. So today my talk is going to be a little bit slightly, not slightly, quite a great deal of difference than what we've heard in the previous panels. And I'm going to take a little bit of a macro approach of looking at infrastructure investment in general and then dive into a little bit about what does this mean in terms of transmission investment to the broad economy at large. Because oftentimes the question comes about is the investment infrastructure in the best interest of the consumers and does it serve as a public interest in terms of public interest determination? Is it good to invest and is it serving the community at large? We've certainly heard earlier this morning about trying to look at an infrastructure or even a transmission project in terms of just from a very micro perspective of looking at the benefit and looking at the cost and then looking at what is the net benefit or net cost and then rationalizing the project on that aspect. But I'm going to take a little bit of more macro approach in a sense that any infrastructure project does not sit in an island, it is connected to the broad economy at large. What the transmission infrastructure does would have impact on the electricity rates and then it's going to have impact on the, let's say, industrial sector, how they use their energy, what might happen to their cost of production, what does it mean in terms of their export values or supplying it to the domestic and then what does it mean to the consumers at large, do they get let off, do they get more wages and their income increases, do they have more purchasing power to sort of spend on goods and services. So that's the broad theme I'm going to talk about and I would sort of conclude sort of just trying to bring all these together, trying to figure out, trying to sort of put forward what are the necessary ingredients of a sort of an economic tool or a model that might be able to capture these uncertainty that surrounds any infrastructure investment, be it some sort of macroeconomic driver or technology uncertainty or other forms of uncertainty. So I try to put forward a framework that might be useful and that's a framework I've been sort of developing over many, many years. And let me start off by my first slide here, you know, so I think I'm going to start off by trying to sort of put all this in context with some of the projects that I've done that might be sort of infrastructure in nature, but not necessarily a transmission project. So we heard a question from there for Pat on Alaska. So my first example is basically looking at an infrastructure project in Alaska. This is basically the LNG, Alaska LNG project, essentially as the gentleman there commented that basically you have pockets of markets in Alaska and the pockets of sort of cities are not well-connected. As a result, there is obviously the gas supply is much more constrained. And if you look at the gas price in Alaska relative to the lower 40, obviously the consumers are paying much higher price. At the same time, there's a potential of this Alaska natural gas resource on the North Slope, right, that might have tremendous value if that was to be exported given that there's a differential between, you know, when I started this project way back then, couple of years back, there was a differential between what the natural gas was being sold in the East Asian market versus what it might cost in terms of trying to produce in the local market. So basically this particular Alaska project is it was like, you know, you've got to build this 800-mile-long pipeline all the way from North Slope down to the LNG liquefaction plant on the south side. At the same time, there was a declining sort of domestic supply from the cook inlet into the domestic market. And then we need to build this liquefaction plant, which is, again, an infrastructure heavy. So there is a combination of building the liquefaction plant, which is quite infrastructure, quite heavy investment, coupled with 800-miles long of pipeline in order to then be able to supply that LNG to the market abroad wherever that might be taking place. So that's the setting. And this to me is like no different than trying to construct a transmission infrastructure anywhere here where either we bring wind energy from North Dakota all the way down to wherever there's a demand pocket by sort of building in a long transmission project. It's a similar concept, but then the question really becomes, is this project in the best interest of the community? Is it in the best interest of the people living in Alaska? Would they be able to enjoy lower natural gas prices? Would that natural gas support the domestic industry? And then would the export value of that natural gas provide additional sort of export value to the U.S. as a whole? And then would that improve our terms of trade? And then at the end of the day, is that beneficial? So that's sort of the scene. And obviously, after doing this analytical work, what we found that is basically, obviously, after we build this pipe, there's a cost associated with building the pipe. But at the same time, there are economic benefit that comes as a result of increasing natural gas. There's more sort of, it relieves the pressure in the domestic natural gas market. So there's a lower price that the domestic consumers, Alaskans, they enjoy than in the current case where there are supply constraints. At the same time, since there's lower natural gas, you get an sort of impetus in terms of natural gas using industry, and there's an industrial growth that essentially means that, you know, the wages goes up, people are getting more income, and then it improves the quality or the purchasing power of the consumers. At the end of the day, there's an improvement in the consumer well-being. So that is sort of how we capture, you know, is it worth investing in this infrastructure? And our analytical sort of, our analysis shows that it certainly had the economic benefit not only to the consumers on the ground, but as also it justified the investment of this magnitude. So that's one example. I think along the same vein, we also did just a couple of years back looking at, not the second example, but a very similar sort of energy-related work was we looked at what would be the potential economic benefit to the U.S. if U.S. was to lift the ban on crude oil export. Basically there, in that analysis, again, we showed that, you know, we need to, then our analysis shows where the crude is going to be produced, how much refinery expansion is possible, and where the demand might be, and what would be the implication on the global crude oil market as well as what are the potential benefits. So again, that's an infrastructure sort of driven project that we are able to look at looking at various economic drivers of, you know, what if there is a change in market condition in Asia or if there was a strategic behavior from UPEC on their price response, what would that ultimately means to the benefit and can we rationalize the infrastructure investment that we are potentially sort of envisioning. So I think one needs to be aware that it is, when we think about infrastructure, transmission infrastructure or any old infrastructure, we need to think much bigger than the sector itself because it has essentially relationship with other aspect of the economy. So the second example is just looking at, again, a small project that I did, we're looking at what is the potential of, you know, building a hydroplane investment in an East European country. Again, this country depends a lot on the natural gas import, obviously, from Russia with a lot of uncertainty associated with it. They wanted to sort of build in hydroplanes so that they can minimize the risk and then basically just to, is it justified in from trying to sort of be dependent on natural gas and sort of move away and try to produce their own domestic sort of produce electricity. And obviously, again, same line of thought where they basically, with this infrastructure investment, which is a hydroplane, which has a lifetime of sort of about 40 years that essentially sort of increase the supply of electricity in the domestic market, reducing the electricity price, and then displacing imports of natural gas. So there are all these benefits at the same time. There's a cost of investment where it was financed by an international bank and these guys have to pay it over a certain period of time. Even with those sort of payments that these guys had to pay, I think it certainly justified. Now, I think moving on, I think moving on, looking at just on the different types of uncertainty that might matter and how it might impact the generation, so this is sort of looking at, I did a couple of just runs where basically I've sort of created a baseline, oops, sorry, so basically we have the baseline generation, obviously we've got coal, natural gas, nuclear gas, CCS, CC with CCS, a wind solar buyer and other generation, and I did a couple of sensitivity just to look at, just to give you a viewpoint that market conditions does matter and the regulatory policy does matter and this provides a wide range of mix of generation which obviously is going to have an impact on how you build your transmission and where the demand pockets and the supply pockets emerges as a result of these types of uncertainty. The first line is obviously the baseline, the second one is a very aggressive RPS, the third is basically I just simulated a very Trumpian economic growth about 3.5%, then the fourth scenario is basically a deep decarbonization scenario, you know, consistent with like a Paris Accord type of scenario and then a very mild $25 tax, so on the right side is the long run sort of generation mix and on the left side is the short run generation mix, obviously not much happening on the short run because the policy uncertainty is not that great in terms of trying to change your generation mix but certainly it does have impact on the long run as to how the market evolves or even the technology or the regulatory uncertainty evolves, so I think one aspect is that when we think about transmission sort of investment we certainly need to think about what is happening or transpiring in the long run either in the form of regulatory policies or in the form of market conditions that might emerge, so I think it is sort of one needs to have some viewpoint of where things are going to evolve in the long run, so this is just a very sort of high level overview of how the market sort of uncertainty might evolve and then impact the total generation mix and then ultimately sort of give you an indication of how the infrastructure might, transmission infrastructure might be devolved over time, obviously I could have shown the like somebody did in the previous panel where it shows how the prices emerge over a period and then layer that with the transmission concession then I can certainly show where the concessions are sort of emerging under these different policies so that certainly give you a much nice pictorial viewpoint in a heat map sense, so I looked at basically between the baseline and in the high growth scenario case basically I sort of counted how many transmission lines were constrained in the baseline versus the high growth scenario and it's sort of doubled and it's not surprising that as your growth picks up your electricity demand picks up and the generation picks up obviously the connecting pipes gets constrained and there's you know rents to be had at some point somebody's can going to build an infrastructure investment going forward, now so tying that all these sort of nuances of what one needs to sort of take into consideration when you're trying to evaluate an infrastructure project, so this is a sort of a cartoon of just a different blocks or different pieces of sort of a model that one can put forward right so on the left side so anyway so on the left side you see these various blocks of sort of economic actors one obviously we need to have representation of region at sufficient granularity right so in the model that we have on the right hand bottom side we have about 63 reasons in our model so we are able to capture exactly you know at a good fine detail level as to how the demand might emerge and what sort of generation pattern might emerge based on the resources that are available in those regions so that's certainly a requirement in order to look at a transmission sort of infrastructure investment to have some sufficient regional representation obviously having a detailed electricity model is a must right in order to sort of do any kind of sensible sort of analysis of the electricity sector so basically buried underneath our electricity sector we have a very detailed dispatch model of not only the US regions but as well as connecting Canadian regions so that we are able to look at cross border issues as well as well as sort of bringing all these new technologies into the modeling framework so that is another sort of a prerequisite when we think about trying to look at how do you look at the problem you know what are the parameters of the modeling framework that we need secondly given that the transmission infrastructure is a long-run investment right you just can't look at one static period and do your analysis you need to have a dynamic sort of model going forward and obviously that dynamic also is required if you are trying to capture the uncertainty surrounding regulatory policy or market condition that might emerge in the future so obviously so anticipation is required certainly there are requirements of capital markets and labor markets in the model because as I said infrastructure investment does not reside in an island it is connected with all parts of the economy so we need to bring that into the into the framework so just concluding here obviously you know we need to have a broad range of modeling instruments if you want to capture the market condition different market conditions or technology that might emerge in the long run so so in general at the end of the day the modeling work the model framework that we have developed is in an economic parlance it's called an equilibrium general equilibrium model that sort of gives these types of flavors such that at the end of the day we are able to sort of evaluate and judge the investment from a pure economic sense with that let me conclude and I look forward to any questions well thank you Jim and I appreciate being back to to be with all of you today I only brought one slide and it got all kinds of super squishy on the screen so and and Jim we're kind enough to make some copies for you which are actually on the table which will probably be a little bit easier to see transmission is a pretty good business when you talk to investors they have different styles as many of you may know you have the the groups called widows and orphans they like dividend paying stocks which utilities and transmission companies tend to be you have folks who prefer higher growth higher risk investments like technology companies or people who invest in Amazon which hasn't even made a profit yet but has a dizzying valuation and so utilities are have a very specific investor base in Wall Street and part of that is because of their stability their income potential income being the fact that they pay dividends the return on your investment is not limited to a hopefully constantly improving stock price and so what you have is a business that has been around for a long time it requires a whole lot of capital to be raised up front and then that capital is recovered by the investing entity in this case the utility over time over a long time usually 40 years so this is the system that we all rely on today the basis of it was actually built there was a lot of capital raised up front with the promise that all that money would come back with a reasonable return over the next four decades or more so what you have is you have a system that in many ways isn't fully paid for that we're constantly asking more of and that everyone wants to in some way avoid so it's a difficult environment to do things revolution that are revolutionary or to change very quickly because that regulatory compact that commitment between the company that went out to investors and raised money and told them they be able to pay it back and the way they have deployed those assets is something that cannot be taken lightly it can't merely be thrown out the window because we'd really rather have an iPhone and it is one of the limitations that not only the company is operating in the space space but also the policy makers and the regulators that are confronted with trying to create an environment that allows them to grow and to deliver the services that all of us as consumers want and so you know when we look at first jurisdictional transmission returns the way first sets rates is a not very complicated math you know math equation but since I'm a Russian major I get to sort of you know just walk talk past that and for purposes of a post lunch conversation I'm definitely going to do that but what you see is you see a basic target for returns on equity that range as low as about seven percent to depending on the year about as high as just over 14 percent and that's what the norm was when interest rates were higher when capital market conditions were different since 2008 that is really started to compress and it really started to compress dramatically after 2014 and so now utility opportunity for returns on equity is really now limited to a band which I tried to show here today of about seven percent still on the bottom and about 12 percent if it's been a good month on top so return potential has come in about 200 basis points which is not inconsistent with the fact that we are in a period of structurally low interest rates and since equity rates tend to follow debt and utility returns tend to be 300 basis points are better over debt that bringing in at the top end of the range in the wake of a change in the FERC methodology and soft capital market conditions have sort of bounded the opportunity set for utilities but it's still a pretty good business the question then is is if the returns are in a vacuum pretty okay then are they really correct and the reason I bring up this question is the fact that there's a lot of politics when it comes to the utility sector in case you haven't noticed notwithstanding the fact it's not a central part of a pending energy bill that doesn't mean it's not important and it doesn't mean it's not political um citing we've talked about today is difficult um getting uh getting your returns back over over the entirety of your investment window is a challenge and why is that because consumer tastes are changing what you have is you have customers who are saying but maybe I want solar on my house or maybe we should have a micro grid for our housing development because interested micro grids is certainly not limited to rural Alaska or places that are isolated okay you have people who are interested in something else other than what's out there there's batteries we have electric cars we've got all this cool stuff and we've got this boring electric grid and that is one of the real things that utilities have to deal with it is a for real problem because there is no value assigned to the electric utility grid by most customers and maybe it's only just my friends who think it's easy that you just turn the switch and the lights come on and they don't want to pay anything for it really the power sector has done a great job delivering a service in fact it's so good it's assumed to be there all the time when we look at um the power sector today we have a surplus of generation we have a dizzying surplus of generation in fact if this were a generation conference everybody would be complaining that prices are too low and what that has done is that has basically driven retail electric utility prices to be pretty flat if not to go down and that's been afforded to us by the decline in natural gas prices that have really sort of caused a lot of the volatility and a lot of the price spikes that we used to see in our power bills driven by natural gas prices to be smoothed out and we've all gotten used to it we all like it so it's difficult to suggest that this wonderful system that we turned the switch and the lights come on and we have the last time we had a big blackout was 2003 it's hard to buy into this argument that the grid's broken could it be better well sure everything could be better my computer could be better my phone could be better everything could be better but that doesn't mean it's broken and it's a challenge I think sometimes to make the case that there's this crying you know need for 80 billion dollars of investment everybody's like what it works it's fine and that's part of the challenge of doing a good job um to Laura's point you know um earlier why has investment been so limited part of it was the demand growth slowdown that Judy mentioned um we have uncertain regulatory and power generation preferences uh people who are out there selling solar for rooftops like to cast the utility as a big bad guy who's being mean to you and that you should get this cool thing on your roof because somebody else is going to pay you money to do it and you get to do this to the utility well what did the utility ever do to you rather than keep your lights on I don't know um when rates are already modest they have one direction to go it's up usually when you talk about bringing market forces into an environment you talk about I'm going to do it for you better and I'm going to do it for you cheaper now the proposition is I'm going to do it for you better and it's going to cost you more okay not as compelling and it's a real impediment for politicians because when we thought we were going to restructure the utility business and wasn't that going to be great the whole idea was prices were too high there was a better more efficient way to do this now in the power industry we have more supply we have softened demand growth we get more gdp gdp out of every unit of energy than we ever have and now people are saying but I want to be paid for value I want to be paid for my emissions free characteristics I want to be paid for being solar I want to be paid for being base load reliability never mind my emissions I want to be paid because I'm a natural gas plant because I'm flexible everybody wants to be paid and the customer is not interested in writing any checks because they like low power prices and we have a new administration that loves low power prices this is a tough environment to raise money in it is a challenge to sell an intangible it is difficult to say that we're all going to be great because we're going to have this great grid okay not everybody thinks lattice towers are beautiful although if you've been on facebook you might see some really cool pictures of what they're doing in parts of northern europe they've got them like sculptures it's really actually kind of cool but they're far away preferably well out of your neighborhood in somebody else's neighborhood solar panels are blue who doesn't like blue my dad likes blue no matter what color it is they're local they're right there you can see them if your power bill goes up you can point at it and say that's what happened to it it's right there it's not in colorado it's not in montana when you're sitting in chicago it's right there that is a tough sell when you're trying to convince somebody that their rate needs to change because of an improvement they can't get their hands around investors really don't care who pays for transmission to them all the money's green they don't care if illinois plays for part of it and west virginia pays for another they just want to know if this company builds this project will they recover the money that they that there's been a commitment to deliver that's all they want to know i would love to be able to call up my mortgage company and say you know i know we had a deal and i know i promise to pay you four percent but you know your cost of capital went down so i'd like to just pay you two you're good with that right that's part of the challenge with renegotiating rates it's logical to say well the utilities cost of capital has gone down i'd suggest but that's utilities that's a utilities existing infrastructure underpinned by existing commitments to the capital markets that still need to be paid that's why we have tensions over rate of return that's why no matter how bad the capital markets get and how low the cost of capital goes that's why when you look at settlements which are all these little green dots for rate cases and complaints they're above the median projection of ferx model which is the bit the blue line that sort of hops through the middle of the gray area okay that's the median projective return based on ferx discounted cash flow but when you look at what customers and utilities negotiate when they have to sit down and work out a settlement it's above that because of all these intangibles and because of the uncertainty that goes on because it works if both sides feel they have gotten a good deal it takes two to tango as my great uncle used to say well actually he used to say it takes one to tango because he used to negotiate with russians and that's the way they like to do it there's other competition for capital and there's other competition within the electric utility for capital we've got a lot of generation i'm going to set that aside for now that's a whole separate psychosis and it involves cocktails lots of cocktails but the other entity competing within the utility for this type of capital is the distribution infrastructure and the distribution infrastructure has an advantage similar to those blue pretty solar panels that you can actually see on your roof for your neighbors there's clear jurisdiction the local regulator the state regulator is going to settle that ray case you don't have to argue with different states in a much bigger stakeholder group you have a much smaller group of cats to herd again it's tangible most outages on the electric system occur in the distribution system they used to occur in my neighborhood all the time and then dominion finally put something in our mailbox it said on wednesday where i'm plugging your power because we're finally fixing that above ground substation that goes out every time it rains awesome we haven't had an outage since and that is again tangible it's close to the customer it's something they can see when people talk about reliability resiliency that's something close to home and it's something that they can get their heads around so if you're going to ask them to pay more you know it's a lot easier for me to say well my rates go up a little bit in virginia then i'm cool with that because dominion finally fix that thing that used to go out all the time you got to make a trade there's got to be value in the transaction and then the last thing i'll leave you with because i when jim said he was going to talk about fashion i thought i'll i'd set him up for the handoff what we've been seeing at clearview is um fragmentation is the theme we are calling it it's this reversion away from globalization it's brexit it's nationalists in europe it's the election of a nationalist oriented new president who feels very strongly to put our country first and so we're seeing neighborhoods put themselves first we're seeing municipalities put themselves first it is difficult to be a fabulous excellent world-class world-beating regional and global technology when everybody's interested in buying their groceries locally so with that i'm going to pass it off to jim well thank you christie that's uh scintillating as always i'd like to say thank you to jim hecker too because jim hecker runs the classiest conference in town i think this is the single best conference venue in dc i like to keep it as a carefully kept secret for my own meetings you get the wonderful view of the capital and of course coming into the elevator and seeing the sign that advertise the new top of the hill menu for cigars and whiskey i thought i have hit the jackpot today so i look forward to the uh i look forward to the libations uh and reception after the event jim also touched on something that front runs my own talk a little bit when he mentioned my background as a tax analyst uh i was actually the tax policy guy at prudential securities until about the year 2000 and then there wasn't much tax going on but there was a california power crisis and they said well mr lucier you can start doing some of this electric power stuff or you can find another job i said i'll take electric power for 2000 please and that's basically what's happened to me for the past 17 years i spoke to a wires meeting with christie and a number of other luminaries uh back in february and i expressed the pious hope that maybe taxes would be back in fashion and i'd be taxing up a storm but sadly sadly no there's not much tax stuff going on maybe um you know maybe we'll get a tax bill out before the fourth of july but i tend to doubt it now so the electricity world has come back but you know electricity is interesting because the story of infrastructure not to mention the industry itself now goes back well more than a century and you've got to look at great historical events and trends that have shaped policy uh i will express my skepticism about the high-tech bionic super grid of the future but the reality is that we've had shocks over these past hundred years that impact fixed assessments over and over and over again whether it is in fact that california power crisis in 2000 uh in 2001 or whether it's the financial crisis in 2008 which ushered in our low interest rate environment or um any number of other things i'll mention in the context of my talk i'm going to focus mostly on policy from a policy makers perspective because i think we have a lot of people from the hill as well as industry in the room and i also knew that christie was going to take us more strictly investor uh view of things so i want to talk about the policy makers case for uh reasonable rates of return and also for building out the grid i've got uh four major topics i'm going to look at which is just first and foremost from a policy perspective the investment case for transmission though i imagine you probably heard quite a lot of that already today i do want to talk about the great historical cycles and transmission investment because that's really what you need to understand what is happening today at the state and regional level which in fact is still where most of the important things are happening i'll talk about the past policy agenda which is going forward from the uh great uh northeastern blackout of 2003 and the energy policy act of 2005 and then finally the future policy agenda what is going on at FERC and what is going on uh on capitol hill with regard to a transmission policy in the near term and again this is sort of geared toward a congressional staff type of audience so those of you who are financial wizards will just have to be satisfied that you heard christie today um look the investment case for transmission it's pretty simple and it's pretty obvious and i think christie nailed it on the head um transmission is an extremely attractive investment it's a great asset we have a world that is aging demographically we have huge retirement populations and we also have a very yield hungry world so the idea of a fixed investment that produces steady cash flow over time is extremely attractive there is lots and lots of capital available for these investments um we've talked a lot at this conference about renewables you see rob back in the the back of the room making sure i bring up wind power or reliability those are all very important drivers and things that justify electric transmission back in the days those long ago days when we cared much more about power prices i think a really key argument for transmission investment from a policymaker's standpoint was that transmission gives you a tremendous amount of bang for the buck from a rate payers perspective relatively small investments in transmission can do a lot to lower power prices and certainly increase reliability and support economic development we've seen it again and again in areas like wisconsin and michigan and other areas where they found that beefing up the transmission infrastructure also supported the industrial employment in those areas so all of these things are very significant reasons why policy makers should want to support adequate if not outright robust levels of transmission investment another one tends to get passed over which is the transmission increasingly is a high tech investment there is a stereotype the transmission means a wire in the ground a wire between two large pylons my personal favorite place is not actually the the electric power pylons of europe i just love driving through the houston ship channel at night when they've lit all the towers up you know that is truly one of the most beautiful sites in america but with regard to um transmission technology whether you think mostly about investment in the distribution level of the grid whether you think about grid 2.0 another fashionable buzzword uh we're incorporating a lot more intelligence into the grid a lot more provision for cyber security we're supporting uh you know micro grids we're supporting many many diverse sources so the bottom line is for policymakers really should understand that the united states does need to proceed and develop much more of a high tech grid with everything from digital switching technologies to advanced composite materials advanced conductors and so forth it's very important strategically and countries such as china such as other asian countries that don't have the benefit of 100 years of electric history the way we have have really been barreling forward uh getting the benefits of a higher tech grid finally from a policymaker's perspective you need to think about transmission as a risky investment and certainly risky for all of the reasons of technology change and thickl consumer preferences that christy mentioned but frankly it's risky for another big reason and this is something that policy makers need to understand uh there is a mentality in utilities world there is a mentality perhaps even at FERC today there's a mentality in a lot of places that wires between two poles that's not high tech that's not so risky that's an asset which will last 100 years and i think that's a really wrong attitude because a lot of the investment risk in transmission is risk up front if you have a project that's going to take you 10 or even 20 years to get approved and you've got to tie capital up while you're waiting for this project and you have to deal with large amounts of uncertainty while waiting for the foreign service to give you a permit that you thought you'd get in two or three years and in fact is taken 10 um you do need those higher ROEs to justify moving into a space where uh you're going to wait a long time you'll have to tie up capital and um you know you'll have any number of last minute surprises um you know it's very very difficult to break into this area so i think our ROE policy definitely does need to represent that level of risk as well so if you look at transmission right now uh clearly trendy for many reasons utilities have uh been talking in recent years not so much now about investing in marquee transmission projects big long-distance high voltage projects as a way of boosting their earnings per share in an environment where power markets are flat if not actually declining you know all of that is fine um but uh the major head ones for transmission investment i would say right now are simply that declining demand demand that is flat declining for good reasons whether it's energy efficiency whether it's demand response whether it is simply moving to more efficient lighting you know all of these things help but the uh declining demand the um the low power prices historically low power prices because of the shale revolution and um other factors are really discouraging major private equity investors and other institutional investors for moving into the transmission space they just don't know what's going to get done uh the sorts of projects that are getting done now tend to be the smaller projects the more regional projects and things that essentially are building out a regional grid or linking a regional grid uh dealing with reliability issues dealing with seams issues and so forth and that gets to me to my point about uh the uh the uh you know massive national backbone power grid that was a slogan and a buzzword really from the 2003 power crisis you know the bush administration to a lot of this they had a report called grid 2030 uh president obama's stimulus bill in 2009 was again supposed to support a lot of grid spending and um you know it's very interesting to wonder where is this national super grid right now you know we talked about it for 15 years after 2003 and you do here and there see references to grid point 2.0 you hear see other grid discussions but it's almost as if this has dropped off the face of the earth and a lot of it is just because number one trends fade over time but number two the us power grid is not something that was designed from the top down in the first place it's really been a bottom up process the us power grid is uh you know something that historically originated as a patchwork quilt uh different regions different business models and it originally wasn't really designed to operate as if it were going to be a set of national super highways for power it was a set of very regional markets and what we're doing in the bottom up process is gradually making that more and more robust more and more regional and it's actually a pretty good network but um you know it's simply not that kind of uh isonhower style national highway for power that some people think about uh if you think about the history of transmission development in the u.s clearly the early days the pearl street station the initial forays into electric power did not involve a lot of transmission building uh frankly dillena roosevelt actually actively discouraged uh utilities from serving more than a limited local area he discouraged interstate transmission building except for a couple of his pet mega projects immediately after world war two uh president truman asked congress to update the natural gas act and he gave furk the authority to do eminent domain for natural gas pipelines which was great but they didn't think about electricity at the time the really great and golden age of transmission development was in the 50s 60s and 70s when you began building out the grid again to serve regional markets but also to serve very large base load power plants whether they were nukes or mega cool plants and that was a trend that continued into the early 70s you could argue what resulted in well i mean jim hecker would tell us there's never excess capacity in transmission but we certainly had a huge build out uh in that era that served us quite well until this second and more recent round of building uh began uh from 2003 onward and as i said at least according to ee i's projections we're still in this second phase of build out um 1990s here in capital hill we're all about uh electricity restructuring about um unbundling about merchant power companies remember those those were a really big deal in the early 2000s and uh really only uh left the stage very slowly and uh now of course we've got the present era where we are looking at um um you know many challenges really challenges that uh that um again make investors pause before moving in i won't go into the challenged economics of base load power but the reality is that the FERC regulated wholesale markets are looking at a very dubious future right now there's a lot of uncertainty there so again you know a strong layer of policy support and attention to this from policy makers is going to be key um moving on quickly uh just mentioned the 2005 energy policy act that was in many ways a uh capitulation after the the electricity wars of the mid 1990s to the early 2000s uh they did have a federal backstop citing there to get transmission lines built they had incentive rates again to give financial incentives for companies to incorporate this great high tech stuff into the grid and to build transmission lines in high priority areas whether it was high priority for renewables or high priority for other purposes and finally FERC was made the ultimate regulator of reliability you know a single agency that had responsibility for the whole wholesale power market and was there to basically police these reliable reliability issues and make sure we had far fewer of the blackout incidents which I think we have and we certainly had a lot of weather related backups we've had to get through the um the uh polar vortex but on the whole you know reliability has improved since 2005 um switching the attention to FERC uh FERC implemented the 2005 energy bill they discovered though that those wonderful adders for transmission were hard to square with just unreasonable rates in a low interest rate world and gradually backed off them uh FERC also um you know looked at order 1000 as a way to expedite the siting process and you know perhaps encourage the financing and transmission projects uh that way um coming up the new agenda at FERC uh clearly we need to come up with a more rational way of doing ROEs a more predictable way uh Christie said the process was complicated it's not really that complicated what you do is you take fortune cookie slips uh and uh these are called a proxy group and you you know write down everyone's R&E ROE and a fortune cookie slip drop it in a hat and you uh pick a number out of the hat until you get a politically acceptable result and you know what could be more predictable and reliable than that uh so we'd like to see FERC work on a more predictable ROE policy the DC circuit has given them an exact opportunity to do that uh we'll be looking at what FERC does on baseload power markets uh we'll be looking at FERC on order uh 2000 as well uh 2000 was a great idea but it was kind of a complex idea too and some key terms uh I think need better definition what does it cost what does it benefit what does a regional market I think that this coming FERC is probably going to be more results oriented they want to cut to the chase rather than planning about planning and I'd like to see them take a strong look at order uh 1000 the congressional agenda really depends on the infrastructure bill will there be an infrastructure bill um the uh best things they could do is possibly revisit some of the backstop siting we talked about that uh a little earlier there are many proposals out there I'm skeptical that Congress is really going to walk right back to the line the federal eminent domain but they're looking for ways of applying some body language to the process and maybe perhaps giving um you know FERC siting authority for allowing eminent federal backstop authority for projects which have gotten approval through a order 1000 deciding process maybe they're not even going to go something maybe they're not even going to do something electricity specific at all and simply try to make the permitting process more predictable by putting a shot clock on different agencies or having some form of accountability for agencies like the interior department or the agriculture department so a Forest Service can't just run out the clock forever without our impunity the way they do now so that's sort of where we are and where the congressional agenda may be tax policy will be important um you know at the beginning of the year investors were very worried about elimination of the interest expense deduction and uh in effect mandatory expensing of capital investments not a good thing in a rate regulated industry I think I told you back in January that I thought there would be a carve out for the electric power industry and I think that's still very likely to be the case overall I wouldn't be surprised if there is a haircut reduction of the interest expense deduction for most industries but I generally think that regulated electric power is going to be fine at the end of the day and that I think is going to go over my notes and see if I missed anything but yeah those are really the major points so I think that you know there are booms and busts there are big swings back and forth and um if the last energy bill was all about dealing with the um the um great blackout of august 3rd 2003 uh the next round of energy legislation is going to be uh dealing with uh um you know supporting development of a grid in this environment where demand growth is flat to declining and there's a lot of uncertainty about how power markets will work in the future so thank you very much as soon as Todd has done with his excellent presentation we'll go directly to the next panel by all means feel free to grab coffee I'm a coffee fiend and I know that this kind of post lunch lull needs a little bit of a leg stretch so please don't hesitate to uh to stretch your legs or get coffee as needed thank you Jim for inviting me it's a real honor to be here I mean so many uh luminaries in the building and um and uh I feel a little uh out of my league but I'll just do my best to uh meet Jim's criteria of not drawing on and actually try to answer the question of the panel which is uh why invest now right we've hearing a lot of questions about or a lot of statements about why it's difficult to invest now right let's actually try to think about what we can do to actually invest today and just to revisit some of the great points that previous panelists have made there's a huge amount of uncertainty that is really causing transmission to not get built even if you have capital available right how much renewables is going to come on the system where they're going to be located how is that going to affect our transmission flows right where is your central as central generation going to be where is your load going to grow is it going to grow net of things behind the meter right so if you don't understand where your central central generation is going to be and you don't understand where your load is going to be how are you supposed to make a 40 year fixed investment in infrastructure it's nearly impossible I don't envy my utility colleagues who are sitting there plugging away doing power flows and having no idea where to build their transmission right can even if you knew where you had perfect you could put your hand on a big glowing orb and see the future and know where you need to build your line can you actually get it built right these are real challenges that are impeding investment today and what you're going to see is that on top of it growing demand that we always have the lights on right that we always can be able to to plug in our gadgets and so you know it's it puts the industry in near paralysis and I think this is what we're seeing and I think what I'm going to do is I'm going to take my smart wire specific hat off and I'm going to represent or try my best to represent a larger coalition of advanced transmission technologies that really can help unlock this paralysis and create near risk-free investment in our grid right the ability to make risk-free great bet investments in our grid today despite all this great uncertainty so it's actually a whole host of technologies right these these technologies include advanced power flow control which smart wires provides and I'll get to what that means dynamic line rating or advanced conductors advanced dms data analytics energy efficiency demand response energy storage all these things can be no regrets investments in this uncertain world a lot of these technologies use existing right-of-ways so you get rid of all of the sighting uncertainty a lot of these technologies are modular so you can scale your investment to precise needs and not have to predict 20 10 20 30 years in the future you can make investments that make sense today for the short term a lot of these technologies are redeployable right so if you have a short term need or you have only a little bit of uncertainty about a need today you use it in that location today and you move it somewhere else right so a lot of these technologies depending on the actual application these technologies mean no regrets investment so that's the one thing I want you guys to understand today is that advanced transmission technologies can allow you to invest in transmission today so how do smart wires do it smart wires is advanced power flow control which unless you have done power flow analysis you're not going to understand but it does one elegant thing and hopefully this is this is something your grandma can understand it pushes and pulls power around problems on the transmission grid that's it one elegant function many many applications and what you see here in this top row is a typical planning study you got load in one side you have generation on the other side you have multiple paths that connect the two on the transmission grid and you have an overload this overload may be five ten years out we don't quite know it may show up in two years it may be five percent it may be 20 percent right all this uncertainty and that I spoke of previously is is driving at what that number is and whether that's 99 or 101 and so what do you do in this case well in the short term you may dispatch generation different differently to get around it operationally but in the long term you're gonna need to re-conductor rebuild or build a new line unless you use advanced technologies to to invest our guardian guardian technology basically goes on the constrained line and pushes power to underutilized capacity wait Jim you said there's no extra capacity on the grid right Jim is there extra capacity on the grid there is there's there's extra capacity on the grid it just currently can't be accessed because of security constraints and I won't bore you with what those are but they if you can help direct power you can soften those constraints and unlock unused capacity in our grid today our second technology is called the router because it both pushes and pulls so you can put it on the constrained line and push power away or you can put it on the underutilized line and pull power towards it just additional level of flexibility a little bit more detail in terms of products and I can't stand animation apologies for this but you have our first technology the power guardian this actually clamps to conductors we've had this deployed at PG&E Georgia Power air grid the Irish national grid operator Australia RTE a whole list of customers I think over four or five years of actual field deployments ready to go being commercialized today you have our power guardian technology that is scheduled to be deployed next year for the first time commercially and you have the power router which would be 2019 first time commercial deployment again pushing and pulling and the key word here is you're going to hear is flexibility flexibility in terms of how we invest flexibility in terms of how we deploy flexibility in terms of your ability to control power in real time so if you want to just deploy a few units you can hang them from the conductor you can put them in a compact deployment between two spans if you need a bit more umph you can hang them from dedicated towers you really need a lot more umph you can put them in state substations and flexibility in terms of deployment right so whatever your our customers need if you want to if your substation space is really limited you put them on towers if you have plenty of substation space throw them in the substation whatever you need so again one elegant function has meant one elegant function of pushing or pulling power around problems can have many many applications right so just trying to build a bit better grid the ability to have more control in real time operations the ability to optimize your spend based on what problems you have where you where you're allowed to deploy capital where you maybe want to try to game the system a little bit you spend in high are we areas and save in other areas maybe you have particular customers that are particularly difficult um in our PG knee uh installation there was vineyards that were particularly difficult with land use rights and by putting our devices on the towers then no boots ever touched the ground of those vineyards we deployed them all via helicopter all the linemen came in through helicopter all the devices got hung through helicopter not a single boot on the ground so that's really solving a very specific locational problem right um again sorry hate up uh capital optimization um not all utilities can put their rates to the sky right so uh when one particular utility we're working with they gave us a portfolio of five hundred million dollars worth of capital improvements they wanted to make they needed to save capital we were able to save two hundred million out of that uh five hundred million dollar uh capital um set and uh we're going to proceed with quite a few of those projects and working with them now to get approval on those projects um rapid solutions our devices can be deployed within a year period full stop right many times with very little to no permitting requirements because we're going into existing substation space or existing towers or in existing existing conductors right all that uncertainty about whether you can actually get iron in the ground and get a project done eliminated and better integration of renewables uh we have a study on our website you can look to where we looked at the pgm uh prism study or prs study uh pgm renewable integration i believe it's the acronym um and essentially to hit 30 percent renewables it would would have cost pgm about four billion dollars in transmission investments we're able to reduce that to 2.2 million dollars in or billion in investment upfront capital so roughly 1.8 in upfront uh billion in upfront capital uh savings an additional 800 to 900 million dollars in reduction in load costs per year which is roughly 10 billion uh net present value so i mean just huge amounts of savings through the ability to tune your investment to the specific need right why invest in an in a gigawatt with our transfer capability when you only need 750 right or we maybe you only need 100 or maybe you only need 10 right so being able to find tune your investments and provide more operational control real-time control of electrons uh provides just huge benefits so um again the one thing i want you guys walking away with today is that you can invest in transmission today using advanced technologies so um to to try to put a second point in your head is that this idea of short term and near term problems is something that the grid hasn't really seen or have been able to deal with recently right with all the uncertainty we're seeing we're seeing a lot of short term projects projects that have a finite duration two years three years four years in duration no longer are they 20 years right there the need is falling off because of declining load or maybe it's uh delay in in build maybe uh it's a generation uh coming offline and then new generation being going back online later on because of a repower those short term problems traditionally are just dealt with through operational problems plan to shed load or or try to redispatch generation but you can actually solve those problems with advanced transmission technologies because they're redeployable and it's not going to be a stranded 40-year investment of permanent iron in the ground right near term problems problems that weren't expected you're permitting instead of taking two years took 10 years and your project isn't coming in on time you thought you were covered you're no longer covered but you no longer have the ability to invest today right because traditional transmission investment does take five 10 15 years to develop so advanced transmission technologies can be rapidly deployed and solve those near term problems right um you know i just going to keep it short keep it sweet and just say again we are uh smart wire specifically is not your typical startup we're not just eight guys in a garage with laptops we are a uh you basically a utility formed startup all of the requirements all the products developed by our utility partners for utilities right we are gaining great momentum around the globe as well as in the united states and uh and i think what we're going to see is that we are able to invest in the transmission grid today so with that i really appreciate being here and look forward to your questions i think you're going to have to deliver your questions in person as these fine folks leave they did a great job i think this is a very very exciting panel and uh i thank them for being here