Efficiency and the Electric Grid

ENERGY:  A CONVERSATION
ABOUT OUR NATIONAL ADDICTION

PROGRESS TOWARDS A “SMART” WORLD
OF ELECTRIC ENERGY SERVICES

PANELISTS:
JON WELLINGHOFF,
FERC COMMISSIONER

MIKE WARWICK,
PACIFIC NORTHWEST LABS




MONDAY, SEPTEMBER 17, 2007
5:45 – 8:30 P.M.


DOUBLETREE HOTEL
ARLINGTON, VA




Transcript by:
Federal News Service,
Washington, D.C.



STEPHEN WEHRENBERG:  Ladies and gentlemen, if you’ll find your seats and get situated, we’ll get started.  For those of you who are squashed in the back, there are some seats up front here.  That never does any good to say that, but I just thought I’d try it. 

Well, good evening ladies and gentlemen, and welcome to our energy conversation this evening.  I’ve lost track of what number this is, must be twentyish, something like that, yeah.  We’ve been doing it for a while and we’re much impressed by the direction that things seem to be going.  All are own making, I’m sure.  For those of you who are in the room, you know that very well, of course.  Most important announcement first: when you leave, drop your name tag off.  These are – these are incredibly expensive and they’re plastic, and it’s one of those ugly plastics that we don’t want to throw in the thrash.  So we will recycle these name tags and use them next time you show up.  So if you would be so kind as to drop those off in the basket on your way out the door, that would be just wonderful.

My name is Steve Wehrenberg.  I’m with the Coast Guard by day, by night, an energy vampire of sorts.  Just a couple of announcements, and then it’s going to be a real treat for me.  I have a gentleman I want to introduce who has meant a lot to our cause here.  For those of you I’ve been keeping informed and some of you here in the room been working on this, we are involved in creating a web presence that is really designed as a way to enable collaboration in the energy environment world.  Some of the folks here have been working on that, and of course, as you might imagine, it has become a tremendously collaborative effort.  Always, of course, the usual suspects would be involved: Energy, EPA, FERC, OSD, Coast Guard.  You know, those  kinds of people who will worry about that sort of thing a lot, but we’ve recently been joined by the Department of Commerce, Department of Education, Homeland Security, Interior, Labor, DNI, State.  It’s really becoming an amazing collaboration, and most of the people who are in the room working on it are working together to make sure that the information that is there is useful and that it does indeed provide the opportunity to collaborate across the entire government.  That’s where we’re starting.  Who knows?  Tomorrow the world, right?  Right, absolutely. 

It’s safe to say that we are turning some corners when it comes to awareness.  Sitting in front of me, I’ve got three interesting examples of that.  Let’s see, at the federal level, this is a recent media advisory: Senior Department of Energy official in New York just signed agreement with the Green Grid to increase energy efficiency in data centers.  That’ll be tomorrow’s announcement, I guess, something like that.  And I get probably five or six of these kinds of things in my e-mail everyday, and I’m not even in the energy business, so that’s pretty amazing. 

At the state level, we’re – there’s a tremendous amount of activity.  I know my home state of Maryland has been doing some very interesting introspection here in the past few weeks.  I’ve got an announcement here from California, of course, usually at the cutting edge or this sort of thing, a behavior energy and climate change conference in November, the purpose being to try to understand how individual behaviors lead to energy usage or not and how that might be changed.  So I’m very enthusiastic about that personally as a psychologist.  And then at the – that’s at the state level.  At the local level, I’ve got a notice here that – there are actually some copies of this outside the door.  This is sponsored by the Arlington Central Library, or I guess it will be at the Arlington Central Library sponsored by Arlington County’s Library system and Northern Virginia Regional Park Authority, a community conservation conversation regarding energy and energy conservation.  Again, notice is outside the door, but I think these things together demonstrate that we’re seeing an awful lot of awareness at just about every level.  One can only hope that this awareness will be converted into effort and action, and that’s one of the reasons we’re involved in this, so –

I have a kind of a rare pleasure this evening.  I’m going to – I was going to introduce our speakers, but we have an opportunity here.  We’re joined by Dr. Marv Langston this evening.  He’s a senior vice president of SAIC.  I think that’s still the case, isn’t it, Marv?  No, that’s ex.  I know you’re a principal Langston associate at this point, but I – then I said, well, why on earth would it say SAIC on your name tag there, so – yeah.  (Laughter.)  Okay, he’s crossing that out quickly, so that’s all right.  Marv has been an inspiration to a lot of us who are involved in this right now as far as his own background.  He comes from about 35 years of public service and a number of years in the private sector as well.  He was the Navy’s first chief information officer.  He was DARPA’s information systems director, and I guess left the government as a DOD’s deputy CIO.  Is that correct? 

He was and he –and I will give you a quick story why he’s been sort of an inspiration to us.  He’s also a director and cofounder of the Energy Consensus, which is our nonprofit, aimed at trying to educate folks about the issues it faces.  He was – related to me that he was aware of a presentation by Jim Woolsey who was giving free advice in the run-up to the ’04 election, as he does every time he has an opportunity, and I believe that Jim was asked the question, if you were elected president, what would you do?  And after a pause he said, well, I’d start some kind of a victory garden program for energy, so that we could engage the nation in what will be one of the real problems confronting us in the not too distant future.  Marv thought that was prescient and all he had to do at that point was turn to Mitzi Wertheim and say, how do we make this happen?  And you are here.  Amazing, isn’t it?  It’s just amazing the way that happens. 

Marv has been an inspiration to us in that he helped catalyze where we are today, this program that’s now 20 or so months running and a nonprofit that’s aimed at the same general direction. 

So if I may, Marv Langston, great pleasure to introduce you.  (Applause.)

MARVIN LANGSTON:  So thank you all for being here, and you’ll notice that some of us are not wearing our coats because it is a little warm here, so please feel free to take off your coats.  We’re trying not to be very formal tonight.  But as you know, if you’ve been reading your flyers, this is a wonderful evening tonight.  We’ve got a great forum planned for you.  We, of course, have over here Commissioner Jon Wellinghoff who was the Federal Energy Regulatory commissioner sworn in through President Bush almost a little over a year ago.  He got another year or so to complete that five-year term which he has backfilled.  He’ll probably tell you a little bit more about that.  It says here that Commissioner Wellinghoff recently published an article in August 2007, called “Dropping Your Load to Reduce Your Carbon Footprint.”  So I imagine there’s a good story there that he could tell us about.  (Laughter.)

Commissioner Wellinghoff actually grew up and spent his career in the Nevada area, next to my Salt Lake City, Utah area that I grew up, and only he’s done wonderful things for the state of Nevada all through his law career, including trying to help renewable energy and anything that relates to moving the energy process forward.  So he’s – so he’s coming to us in FERC as a fitting tribute to the work that he’s done in Nevada.  Some of the things he might talk about that has occurred is he’s actually authored for Nevada, the Renewable Portfolio Standard, which has become legislated into law in Nevada and it’s one of the two state renewable energy laws that have been given an A rating by the Union of Concerned Scientists.  So that – so the law – in my book for what’s happening. 

He also will probably talk about the priorities for FERC which relate to opening renewable resources.  I was talking to the Commissioner just a minute ago.  I serve on what’s called a federal security telecommunication advisory panel, NSTAC, National Security, and NSTAC recently did a study with FERC to talk about the interdependencies between our telecommunication grid and our electric grid, and as you might imagine, they’re enormous.  And so the vulnerabilities across both grids become very, very important to us as we go forward. 

I’ll come back up when the Commissioner completes and talk a little bit about Mike Warwick who is here with us from the Pacific National Laboratories, and he’s been doing a lot of great future thinking work related to, I think, things that you all will find interesting.  And as you heard a minute ago, we have honorable Secretary Woolsey with us to today who – recently the three of them have served on the Defense Science Board on Energy Policy.  So it’s a great pleasure to have you all here, and I’ll turn over to you, Commissioner. 

Thank you.  (Applause.)

JON WELLINGHOFF:  Thank you, Marv, appreciate it.  It’s a great honor to be here today and I really look forward to speaking before you all.  I’ve been to a number of your sessions in the past, and I know how interested and engaged you all are in this topic of energy and how you get it really deeply into some questions.  Although I’m not going to talk too much about FERC today at all – and you know, I noticed Marv is carrying like I am – you know, that the latest and greatest – we’ve got our iPhones on, and I hope someday these iPhones will be in a place – and I don’t think it’ll be too far – in fact, my 15-year-old, I think, has it figured out how I can put my keynote presentation on the iPhone and put it on the projector because my – my iBook dumped out on me today and it’s not going to work.  So I’m not going to have my presentation.  I had a couple of slides I was going to show all today, but I’m just going to work off my hard copy slides.  Well, what I will do for you, however, it’s to make sure that those slides are available, and that at least will give you a summary of my presentation.  We can put it on the web –Mitzi is shaking her head over there – and you all will have access to it.

But what I am going to talk to you about today is sort of the 10,000 foot view and then Mike’s going to give you lots of slides – in fact, some of the slides I had are ones that he has, so you won’t miss out too much on actually seeing those – is the smart world of electric energy services over the smart grid.  And there’s a number of different entities, including EPRI and other private groups who have different terms for this concept of actually putting together communications and electric services in a very efficient 21st century way.  So I’m going to talk about that.  I’ll talk a little bit about FERC’s jurisdiction in the area, and FERC does have jurisdiction generally over the interstate transmission system and over interconnections by generators to that system, although we were talking at the table interestingly enough we don’t have direct authority over siting and approval of those generators unless there are hydro systems, but under the Federal Power Act, we only have authority over approval for interstate transmission lines, interconnection interstate transmission lines, the cost and cost allocation for building those, and also the cost to in fact deliver electricity over those lines. 

We also have authority over interstate gas pipelines, and with respect to gas pipelines we have specific siting authority.  Under transmission lines, our siting authority is sort of what they call backstop authority.  That is if the states don’t do it after a year and it’s within a specific designated corridor by DOE, and DOE has been authorized under the 2005 Energy Policy Act to designate specific transmission corridors where there’s congestion.  It’s within one of those corridors and the states do not authorize a line to be built , then the applicant for – the private developer wants to build that line can come to FERC for authority.  Hopefully, we’ll never to exercise that authority because there’s a lot of, as you can imagine, political issues with respect to overriding the state’s authority in that regard.

So that is the area of our jurisdiction.  But with respect to that, we also have authority over the operation of wholesale electric markets within what they call RTOs, regional transmission organizations, or ISOs, independent system operators that operate the transmission system in certain areas of the country on an independent basis.  There is six of this, I believe.  There is one in New England.  There is one in New York.  There is one in what they call PJM which is generally the area from New Jersey through Pennsylvania, down to Virginia and all the way actually to the east and a little part of Illinois and Chicago.  There’s another one called the Midwest ISO which is in basically Midwest portion of the country.  There’s one in California.  There is one in the southwest, SPP, and there’s one in Texas which is the state of Texas. 

So these entities, we have some level of jurisdiction over with the exception of Texas actually.  Texas is an entity unto itself.  But we have the jurisdiction over the California one, the New York one, and the ones in the Midwest and mid-Atlantic and New England.  And in those entities they do have generally real-time day markets and in some instances their head markets, and we have authority approving the tariffs and the operation of those markets, and within them, we have the authority to approve what are the rates that are provided for electricity, whether they’d be cost based rates or market based rates, and in some instances rates can be at market.  And we also have the authority to say, you can sell not only electricity from generation, but you can bid in things like what they call demand response which would be lowering your loads overall, and in doing so those can be bid into these real-time markets and provide much like generators provide for capacity into the markets to ultimately make those markets change.

So let me talk a little bit about this concept of smart grid now that I’ve given you a little bit of background of FERC and what FERC does in general.  You know, in the past, the last century, we really looked at the grid as one of simply demand of load, of large buildings, and consumers and residential buildings as well, putting our load on the system and somehow meeting that load with generation and keeping in balance like a big scale.  And that is all changing now, changing with advanced communications, changing with advanced sensing, changing with ways that both the utility on their side and generators on their side can look at their systems in more detail, and how consumers on their side can look at their loads and operating control their loads more.  Control on both sides of the system is changing.

In the 20th century, grid was primarily electromechanical.  You know, you’d have to go out and throw a switch.  In the 21st century, we’re talking about digital.  In the 20th century, we had primarily one-way communication.  Now, we’re talking about two-way communication between systems.  Systems were primarily built for central generation.  We had a model of large central plants, whether it’d be a fossil fuel plant or nuclear plan, and we had ultimately the power of flowing into those loads and then those generators regulating the load – regulating the system by going up and down to make sure that it’s in balance in frequency and voltage, to make sure that the system doesn’t spin out of control. 

System now in the 21st century is starting to accommodate what they call distributed generation, distributed loads as well which will include loads – generation at a load center which would be microturbines, also photovoltaics from solar, also demand response and energy efficiency, things that happen on the load side instead of the supply side.  We’re also seeing a change from radio topology which in essence is again the central stations and the lines going out to the loads to more of a network system where it’s all networked together from distributed system having both loads and generation and then working out through the whole system. 

We’re looking at the system that usually – that used to have very few sensors and very few ways to determine what was happening at different nodes in the system to one that has multiple sensors and monitors throughout.  We’re looking at one that was only ultimately blind.  You can imagine that your utility, and this is still the case with many utilities, when they have an outage in an area, they have no idea if it’s just one house or if it’s a whole area that’s involved, or it’s multiple parts of an area, without going actually and taking a truck out and going up and down the streets.  There is obviously now sensing technology that would obviate that, where they can tell right down to the customer level whether or not a particular customer’s out or a particular neighborhood or a substation, a transformer, and they can make this much more transparent to the utility and then target the way that they ultimately do their maintenance and outage response. 

Again, manual restoration, where they ultimately can self automate this or semi-automate restoration.  A system that was in the past very prone to blackouts and failures, and I’d say our system still is prone to that, but we have the opportunity with respect to this advanced technology to make it adaptive and protective, to have (a healing ?) grid, and Mike Warwick will talk to you about ailing of grid systems and how that will work.  Equipment in the past was checked manually.  We can now monitor remotely.  Emergency decisions were made by committees and phones, and we can now instead have decisions supported by predicted variability and other means to determine what is the best way to restore and respond the system outages. 

Limited control over power flows was the situation in the past.  We now have systems that have pervasive control, and I’ll talk about some of those systems with respect to the transmission system specifically.  In the past, we had very limited price information.  Now, we can have price information with respect to every node in the system.  You can have – show what locational marginal prices are in the system at a wholesale basis.  We do that now.  You can go on the web and you can look at PGM, this one regional transmission organization I talked about, in any day, at any hour, at any given moment, you can look and see what the locational marginal prices are with respect to that system, and they’ll differ by where the electricity is flowing because in certain places there’ll be congestion.  In certain places, there’ll be excessive loads and as a result of that, there’ll be prices that will be higher.  In other areas, there’ll be very little congestion, very few loads, and prices will be lower.  So you can actually see how prices will flow based upon load requirements.  And you have ultimately, few customer choices in a previous chancery system and what we can, in fact, intend to deliver as many customer choices.

So I would say there’re seven key characteristics to this smart grid.  One, it should be self-healing, where the grid can rapidly detect, analyze, and respond to the situations and restore itself.  You should be able to empower and incorporate the customer into the grid.  In other words, you need to have that demand side of the grid.  It’s not only – it’s not only a supply side equation.  You’ve got to look at what that customer can do and incorporate the customer equipment and behavior into the grid design and operation. 

Third, it should be tolerant of attack where the grid mitigates as resilient physical and cyber attacks both, because we have vulnerability on both ends, both the physical side and the cyber side, and we need to ensure that that’s tolerant to those attacks and can do things like – like islands and so forth.  Provide power quality needed by 21st century users.  We have to have grid quality that’s consistent with consumer and industry needs with respect to our electronic equipment and other very sensitive equipment.  We have to make sure that the grid provides that power quality.

Sixth, that must accommodate a wide variety of supply and demand.  The grid should accommodate not just large central station units, as I mentioned.  It should accommodate distributed generation.  It should accommodate energy efficiency.  It should accommodate demand resources, and it should all play a part in how the overall grid operates.  And finally, it should fully enable maturing electric markets to then allow consumer’s cost to be reduced by all of these interacting and ultimately make for the best competitive markets possible.

So with the – with respect to these parts of a grid that we look at as the characteristics of a smart grid, what are then the elements?  Well, what are the things you have to do to make this work?  Well, first you have to have rapid and robust data acquisition and analysis, and what I mean rapid data acquisition, right now we have skater systems.  Systems that in essence are sensors at substations and at the transmission level that provide data back to these grid operators, like these regional transmission operators and to individual utilities that may operate their portion of the grid if they’re not within an RTO or so.  At something like once every three seconds they get data back sensing voltages, sensing frequencies, sensing other information.  We’re looking at new equipment like phase monitoring units and other things that can actually monitor what’s going on in the grid, monitor voltages, monitor frequency that can provide not every three seconds, but every one-30th of a second, and I’ll talk about in a minute why that rapid kind of a data acquisition is important. 

We must have acquisition of data that’s robust down to the customer level.  We can’t just have data acquisition at the transmission level or generation level, or even at the distribution level or the local transformer level.  We’ve got to have it down to the customer level, not only to be able to operate the grid better, but also for the customer to operate their systems better, to be able to ultimately respond to prices, respond to other events in the grid and help them manage their costs, manage their overall system.  So we have to have things like advanced metering infrastructure, which is termed AMI in the industry, which basically means putting an advanced metering for customers so customers can have real-time prices and understand what the real-time impacts on the grid and consequences are of their consumption, even though they may not necessarily be built on that real-time price.  They should at least be able to understand what prices are as loads fluctuate on the grid. 

At the transmission levels, I mentioned we have to have sophisticated devices like phase monitoring units.  Substations should be automated.  Distributor fitters should be automated.  And we should have distributed resource sensors for things like distributed generation and storage on the grid.  The analysis that we have has to be more sophisticated as well.  We have to have advanced transmitting capabilities at the transmission operation level to ensure that we can do sophisticated forecasting and modeling.  We need visualization tools so the operators of the grid can see like that what’s happening to the grid before them, so they don’t have to analyze – the data’s been analyzed behind it, but ultimately the visualization comes out in a way that ultimately they can see, yes, this node over here is failing.  We have a frequency problem here.  We need to respond immediately.  And we have to have rapid forecasting in near real-time with respect to the operation of the AC system.

So at the customer level, what kinds of things can we do to ensure that customers have this ability to respond and understand?  Well, Mike will talk a little bit about things like a smart grid that has greatly – excuse me – grid-friendly appliances.  There’s been work done by PN&L that Mike works for to actually embed chips into appliances like water heaters and dishwashers, and other appliances that actually can sense frequency on the grid, and by doing so can determine virtual prices with respect to what the prices are on the grid.  So those appliances can respond and react without any consumer interaction set in essence by the consumer at some predetermined level, but it can determine whether or not they want to turn on at a certain level or not, determine whether or not they could respond with respect to incursions and control those appliances to act as spinning reserve with ultimately no communications required by the grid operator and no physical activity required by the customer, and this is really advanced stuff that PNL is doing.  We’d like to see a lot more of this happening.

In addition, I think, what we’re going to see with respect to the grid, and we all I think need to be prepared for this, is electrification of our transportation system.  I firmly believe that we’re going to move to plug-in hybrid electric vehicles.  We’re going to go from the hybrids we have now that currently have batteries and internal combustion engines, but those batteries are only used to supplement an internal combustion engine and are in fact charged by the engine itself or by regenerated braking, to cars that will be charged by a plug.  You plug in at night.  Those plugs ultimately will charge the batteries and for some initial period, for 20 to 60 miles, you’ll actually be operating on the battery, and the internal combustion engine will either be used just to charge that battery as it is with the series system that GM-Volt is proposing to be, or it ought to be one that you’ll run on that internal combustion engine after the battery charge is gone. 

But ultimately, we’re going to need to figure out how to integrate these systems into the grid.  We’re going to have to determine how those systems can be used to benefit the grid.  And ultimately, there are significant benefits that a plug-in hybrid electrical vehicle can provide to the grid if set up and controlled properly.  If set up and controlled properly, a plug-in hybrid electrical vehicle can provide ancillary services which include spinning reserve and regulation that are right now provided by generators.  You have a grid system that has to be kept in balance.  That system is one where if the load goes up, generation has to go up.  If the load goes down, generation has to go down.  If this generation doesn’t follow this load quickly enough, the whole system spins out of control, and you have a brownout or a blackout.

These ancillary services, as they’re called, can be provided instead by some intermediary, a storage system, and in essence in this case, a massive mobile storage system which would be plug-in hybrid electrical vehicles.  So that’s one thing that can be provided.  Another one is similar service dispatchable reactive power.  You can provide peak demand services, or you in fact at peak times in fact need to lower demand.  These automobiles could provide that service.  Again, all these services would be provided at a payment to the vehicle owner.  In fact, there’s been a study done by the National Renewable Energy Lab that indicates that if you used a plug-in hybrid electrical vehicle to provide ancillary services alone, depending upon the size of that vehicle and its characteristics, you might be able to expect payments between $1,000 and $3,000 per car per year for the ancillary services that it provides, because that ancillary service marker rate now where these generators go up and down the match this load is currently a $5-$10 billion market in this country where those generators are paid to provide those ancillary services.  Instead, we could pay that money to people who own these vehicles. 

Other things that you can do with the vehicles would be reduction of operating and planning reserves.  You can, in fact, provide distribution and substation support.  You can reduce line losses, improve power plant efficiency, and ultimately improve load factor.  The way you improve power plant efficiency, for example, when these power plants do provide ancillary services when they go up and down to meet the load like this, they’re not operating at their optimum level.  If you could keep the power plant operating at this optimum level efficiency, if it didn’t have to go up and down, but instead the automobiles had a little bit taken in and out of them to keep everything in balance with the load of the system, these generators will operate more efficiently.  So even though they wouldn’t receive the payments that they were receiving in the past for ancillary services, they still in fact would be operating at a – at a lower cost overall because they would be operating more efficiently. 

So we need to figure out how to integrate these things into a system, a system that is part of your spark smart grid system that would be all integrated into this advanced metering infrastructure, where you can plug these vehicles in at home.  They would charge at night primarily, and then you drive them to work in the day.  You could keep them plugged in during the day at work, and at work they can provide some of these ancillary services and you’d get a payment.  A payment would be, in fact, matched to your automobile.  It would have a transmitter to ultimately give it an IP location, just like you have a computer IP location.  You’d have economic settlements to that account and it would all be – all be worked transparently through a communication system. 

These advanced metering systems utilities are currently in the business of putting these in.  Everyone from Conn Edison to Portland Electric and a number in between seems like their primarily utilities on the two coasts that are the ones that are most engaged in this – Pepco is engaged, as is San Diego Gas and Electric, Pacific – PG&E, Southern California Edison, and they’re spending literally billions of dollars to do this.  Overall, it’s projected that the total cost of projects ongoing right now are about $7 billion to put in this advanced metering system.  Average cost for the utilities is $775 million.  If you were to look at how these meters have been put in over time, you’d see that back in 2002, there were less two million of these meters nationwide.  As of 2007, you’re seeing somewhere in the neighborhood of 17-18 million of these meters either already installed or contracted for, or in an ongoing plan that’s been filed with the State Public Utilities Commission, and they will by 2008 approach 20 million meters.  These meters have been put in extensively throughout Europe.  In Italy, for example, they put in 38 million meters throughout the entire country of Italy.  So this is something that Europe’s a little ahead of us on, but it’s something that we’re starting to catch up.

With respect to the savings of these meters, are projected to save for customers and utilities, the lower bound estimate over 20 years that I have from a number of sources, RAND Corporation estimated that over 20 years, the meters could save as much as $30 million and the high bound of that is somewhere in the neighborhood of $120 – excuse me – billion, from $30 billion to $120 billion.  So certainly the cost benefit ratio with respect to saving on these meters is very high.

Let me talk a little bit about smart grid at the transmission level.  One of the things we’re starting to see our technologies to start – that are coming into place now that we just didn’t have the capability for in the past.  I had a group from GE coming to me – my office last week, and talk about VFT technology, variable frequency transformer technology, where they actually can do phase angle shifting on a 360 degree basis in increments of one degree, and they can do it continuously and variably.  And by doing that, ultimately you can adjust in the phase angle, regulate the power flow in these transmission systems and ultimately controls in a smooth and steady and continuous manner, rather than stepwise control that was required in the past with phase angle shifters.  They could change electronically, but had to do in increments. 

By doing this, they can improve stability.  They can lower harmonic generation.  These systems act in essence just like – it looks just like a generator to the system.  They’re going to put one in between New Jersey and New York.  The result is going to be 300 megawatts of additional transfer capability they can get from what is a congested area in New Jersey into a real need of a load pocket in New York City and by using this system they can hopefully increase amount of flow through that line by 300 megawatts.  So it’s going to be a great tool and one that they’re putting in that one area and hopefully successful they’ll be able to put it out throughout the transmission grid in the United States in many other areas where it would appropriate.

Smart grid visualization tools, they’re using these tools now to ultimately see what’s happening on the grid, see what’s happening again in some places in now one-30th of a second increment.  And why those kinds of increments are important is because things happen so quickly on the grid that if we don’t have that kind of data acquisition that quickly, you don’t have the ability to put it into a model to forecast what’s going to happen in the next ten seconds out.  If you can’t determine that, ultimately you can’t do things that are necessary to stop cascading events.  The blackout in 2003 that went from Ohio to New York, it took nine seconds from going to Ohio to New York, and the data they had was three-second data.  So if you start putting three-second data into a computer analysis, you can tell by the time you get through gathering enough data to do a prediction to determine what you need to do to stop that cascade, it’s gone.  It’s already run away from you.  So ultimately if we can get data in one-30th of a second, get that data into a model quick enough, we can know what to do ultimately, or the system itself can automatically know what to do to ultimately heal that system and stop a cascading blackout that we had in 2003 that cost us billions and billions of dollars of lost economic productivity. 

One other thing I finally want to talk and wrap up here is something called demand response, where again I talked about customers responding to load where they can reduce their load.  This is something that’s traditionally been done by industrial and large commercial customers, entities like Alcoa, for example, can take their aluminum pots that are 30 megawatts a piece and they can cut those off the system for a period of time and they know exactly how long they can cut them off and not lose their production line productivity, go back on the line, make sure that the system’s still operating and continue production, but ultimately by cutting them off at critical times when there are peak loads within the PJM system, they can be paid substantial dollars. 

The overall demand response by entities throughout the country has varied, but if we look at the summer of 2006, for example, in the California area, it was 4.1 percent of peak load was actually reduced by demand response.  In the Midwest, it was 2.3 percent.  In PGM, it was about 2 percent.  In New England ISO, it was about 2 percent.  In New York, it was about 3 percent reduction.  This was at the peak times.  This reduction sounds like it’s very small, but ultimately it’s increasing every year, number one.  In fact, in the PJM area, it’s increased from 2002, it was like under 2000 megawatt hours to 2006, it was over 250,000 megawatt hours.  So you can see the order of magnitude of how much the trend has been in increasing that response. 

And I think the key date is, if you look in 2006 in one week in August, the first week in August which was the primary peak time in August, PGM called upon its demand response and they received a high level of demand response from a number of customers.  They paid approximately $5 million during that week for those customers to do what they did, whether they reduced their production line, whether they shifted load from one time, but whatever they did, they got off that particular peak.  That $5 million that PGM paid reduced the prices on the wholesale market.  PGM went back and did a backcast.  What would have happened if those loads didn’t come off?  How much would have prices been during that week period of time that the prices ultimately were reduced by this demand response?  And their result was that if they had not had that demand response, prices would have been $650 million higher in that one week in the wholesale market.  So pretty high cost benefit ratio for a $5 million payment they ultimately received $650 million in saving.

So again, if we look at the smart grid costs and benefits, we’re looking at investment levels over a ten-year of anywhere from $40 to $60 billion potentially, a tremendous amount of money on the one side.  On the other side, estimates show us that for that kind of investment, we can expect somewhere between $15 and $20 billion per year in savings over time.  So ultimately, I’d submit to you that this smart grid is something that’s good for us.  It’s good for the electric system with respect to improving efficiency, reliability, and for security, but I think ultimately it’s good for our economics as well. 

Thank you.  (Applause.)

MR. LANGSTON:  We’re going to ask you hold your questions and go ahead and let Mike talk first and then we’ll answer questions from both gentlemen.  So as I mentioned earlier, Mike Warwick is an engineer and an economist who comes to us from the National – Pacific Northwest National Lab.  He’s got over 30 years of experience in this energy business as well, beginning a lot of his energy work back there in the early – energy crisis in the early ‘70s.  And so a lot of what he works on has to do with how can we be, in a big picture sense, more smart about our future?  What can we do to solve some of these infrastructure vulnerabilities, and try and help bring about things like the smart grid that you just heard about?  So let me let Mike get up here and say a few words, and then we’ll go into some questions. 

MIKE WARWICK:  Good evening.  Jon said everything I was going to say, but I have slides, so a little advantage here.  What I’d like to do today is – Jon and I talked before, so I was a little prepared for what he wanted me to talk about, some of the talk about smart grids and talk about plug-in hybrids and some of the work that we’ve done, and I’m going to talk a little bit about how do we get from here to there if these things are as good as Jon says and some of our research supports his comments.  That’s where he got some of them.  To talk about some of the structural changes that may confront you to all this getting from here to there. 

I subtitled it “Dude, Where Is My Cell Phone?” because I like to characterize the utility industry as an institution that uses 19th century technology and a 20th century business model to deliver services to 21st century consumers.  It’s not really well fit with the demands people are putting on it or the expectations consumers have in general, and we saw in the telephone industry a transition that it went through from the same kind of a technology limited business model to something that who knows where is going to end up.  But when Google starts providing a phone service instead of a wired firm like AT&T or something like that, we’ll have much better sense of where it’s going.  Transition’s taken 15-20 years and we’re only about 15 years in the transition into the electric industry at this point.  So we’ve got some catching up to do, but I think that we’ll get there.  But one of the things that I’m going to conclude with is we probably do need to look at very different ways of organizing the business in a business model sense. 

Practical considerations in what do we expect the utility to deliver to us, and if the smart grid can do these better, then what can it do better, and I have to do some convincing, I think, of skeptics that yes, it can do this better, but just because it can do it better, it has to be worth it.  That’s the benefits issue, is the trade off that Jon’s already eliminated that that point that the others, pretty significant financial benefits.  Then, okay, if it makes sense to do economically and is technically possible, then how do we make that happen and why isn’t it happening today?  And I’ll talk a little bit about all that at the very end. 

I’m not going to get super technical.  Some of these slides have some animation in them.  If people want to get into details, I can fire that version of the presentation up and you can see the animation, walk through it step by step.  But I’m going to kind of gloss through over a lot of this.  You’ve heard a summary from Jon, so I’ll just kind of highlight some of those points, and we can get into that more in the discussion phase, if it’s needed.

MITZI WERTHEIM:  Mike, I wanted to ask you –

MR. WARWICK:  Sure.

MS. WERTHEIM:  Jon talked about the visualization helping.  So if any of your visualizations would help in explaining some of the things that –

MR. WARWICK:  I have some graphs that do illustrate some of the things Jon was talking about, not the visualization tools per se.  There’s a whole – that’s a whole other discussion – (laughs) – as Jon was saying.

So the utility does a bunch of different things that people may or may not know that they get out of it, but they expect all these things and if they’re explained to them, well, we’re going to take this away.  They’d say, oh, no, we don’t want you to do that.  They get capacity which is essentially the ability to use power whenever you want.  They get cheap energy, so you can use as much energy as you want and it doesn’t cost you an arm and a leg, always.  They want constant voltage.  If the voltage goes up or down – Jon talked a little bit about that – and you want that at your house.  You don’t want the lights dimming, or whatever it used to be in the old TVs – you know, those TV screens would go shrink down and expand as the voltage would change, back in the bad old days.  You want constant frequency.  Most people don’t know they want constant frequency, but there’re a lot of electronic devices that use the frequency of the grid as a time keeper.  So there’s a clock function there that’s important. 

And then you want (mid-level ?) harmonics.  Most people don’t know what harmonics are on these grids, but they’re very important and they will screw up your electronic equipment, but good if they get way out of whack.  So the harmonic looks like a signal to electronic equipment and it’ll turn things on and off and that can do weird things.  So these are all things that people have to get out of the system, or they’re not going to get what they want out of – or have come to expect from the utility.  Most of those are subject to some kind of regulatory control.  The utility commissions dictate what they have do, or professional trade associations dictate that utilities have to be run certain ways so that those services are provided within certain limits.

So talking about smart grids, smart grid is fundamentally the idea that – you know, it’s kind of Lutheran’s challenge to the Catholic Church.  You can be your own priest.  It’s the same thing.  You can be your own utility.  But before you leap to that simplistic conclusion, you need to know all the things that a utility does, some of which I’ve just talked about, and how you need to replicate that, in other words, to not only provide what you want out of – out of electric service which is reliable power, but also how you don’t screw it up for your neighbors.  Okay, being utility means, as Jon indicated, that generation load have to match – have to be identical in real-time.  If you don’t do that, the voltage goes up and down and you have problems with it.  If it goes down, you burn out your motors.  If it goes up, you burn out your lights. 

So you have to have generation sitting there to provide backup in case the generator goes down, because that will cause the voltage to – (unintelligible) – or alternatively, you need to be able to shed load to match generation if you want to do it on the demand side.  You have to have black start capability.  When the gird does go dark, when you lose everything, you’ve got to be able to start this thing up.  Okay, you have to have that little startup motor to start up.  So you’ve got to have something somewhere that you can push a button on and it’ll start up and produce electricity, and then you use that to bootstrap the whole system up. 

You must have ability to regulate generation automatically, maintain phase angle.  Jon talked a little bit about reactor power.  I’m not going to get into details of that stuff, and frequency which is the 60 hertz signal and to minimize the harmonics.  You do that by having generators that do nothing but sit in the background and speed up and slow down and do all other kinds of weird things.  But that’s – they’re not producing power.  They’re just kind of sitting there, providing the service.  I’ll talk a little bit about what that means to us today which didn’t mean ten years ago. 

The ability to damp harmonics when they start and you see them.  You can start to put some equipment on that slows those things down, to be able to control your generation air connection.  This is what a utility does.  Individual consumers wouldn’t need to worry about that other than where they connect to the grid itself.  They must be able to disconnect from it.  So you can turn things off if they’re not working, turn things on when you need to bring them online. 

You need to be able – utility needs to be able to serve all the load and provide minimal levels of service, and of course, as Jon was kind of indicating a little bit about forecasting, it’s a guessing game.  Who’s going to be using power the next minute and the minute after that and the minute after that?  So you have to be able to do that because that’s the job you’re in as a utility, but it’s – it means in order to know what’s fundamentally unknowable, you have to have a lot of other equipment there just in case.  It’s very much a system designed around a just-in-case environment as opposed to the current manufacturing technology of just-in-time.  And you need to be able to isolate customers and problems created by individual customers.  If I got a big sawmill next door to my house, every time he turns on the saw, I don’t want my lights to go dim because of something he did.  It has to be a way to mitigate that impact so that my service isn’t debased by what the other customers are doing. 

This is just a pictorial illustration of the same sort of thing, but it’s a nice way of capturing to some extent elements that you see driving around in the country side or in the city that are how the utility really does.  It invests in all of these assets.  All of these assets are needed to provide electric service to you.  So if you’re going to become your own utility, you have to invest in equivalent assets yourself, and you can see there’s a lot of assets there – (laughter) – the wires that connect them, something that you wouldn’t have to do if it was something in your backyard, but all the other stuff, yeah, you’d have to do all that. 

Jon talked a little bit about ancillary services.  I talked about these generators that just sit there and do things to control the grid.  Those are all called ancillary services in the industry now.  Used to be, the utilities provided all these services themselves and they didn’t get into a big exercise of trying to name them.  When deregulation happened, it became real clear that generators were doing work that wouldn’t be compensated for by just paying for kilowatt hours.  And so the owners of those generating assets said, hold on a second, I need to be paid for that.  So we created this whole structure to create markets and to price services that were not rally priced or accosted out or bought and sold in a market place prior to deregulation. 

Here’s a short list.  This list is – these are all critical ancillary services that are bought and traded to some extent.  There’s probably another 40 or so that you could identify that may or may not be in the market.  Most of them are not in the market because they’re such esoteric services.  They don’t – you couldn’t build a market around them. 

One of the interesting things about this – and we’ll get into this in the later discussion – is that virtually – no, not all of these – but an awful lot of these trade and individual independent markets, even though they may come from the same generator, the service that generator provides can be sold three or four different ways.  And on top of that, it can be sold in a minute ahead market, in a five-minute ahead market, an hour ahead market, a day ahead market.  So for the same service, you can have 20, 30 markets pretty easily.  When they were doing the post-mortem on the California energy crisis they said, my God, they have 1,500 separate markets operating simultaneously, to provide the same power service that 20 years before, of course, just got one bill for. 

Okay.  There we go.  Okay.  This is one of the slides that Jon didn’t show you, but I decided I’d use that as a good transition from his presentation to mine.  It is more or less kind of a picture of what a smart grid might look like and what it would like in our minds, which is it’s very much focused instead of focused on that big power system that we saw back here – instead of focused on – kind of go backwards – on this, is focused at the consumer level. 

And here we have some independent generation that is not on the house.  You have some smart appliances that can be used to provide the services of the generators running the background, speeding up and slowing down.  You might have a car to provide some storage capability.  You have some kind of a charging station to run the car.  I guess some kind of a disconnect switch that ties you to the grid, when you want to be tied to the grid, or disconnects you from it if the grid is down for some reason – those kinds of things. 

So you expect it to have some kind of connection to the grid, so you can use the grid when you want to.  You have to have some kind of home control system so you can run all these stuff, presumably have some kind of self-generation that has to be converted to the same voltage that you use in your house.  End-users have to have kind of two-way communication so you can talk to them either inside the house, or they could talk to teach other, or if you’re at work and you want to turn on your air conditioner, turn it off or whatever, all these promises that people are making that you can do that. 

And then you have to be able to have this interaction with whatever your load is.  If you’ve got a storage device like a battery or a plug-in hybrid, so that you can direct it – which way the power is going from it.  And you can also – I just have a battery storage system, or – I didn’t put down electric storage system for a reason.  Some of the storage can be thermal.  And as we get into the smart grid technologies and the grid-friendly appliances, a lot of the promise of some of these services is the fact that you have an awful lot of storage devices in your house today, you just don’t know it and don’t use them that way.  And they include everything that basically heats or cools.  Those things can – a refrigerator stores cold for a day basically.  So if you could switch that thing on and off on a daily cycle, you could use it to store energy, or provide other services in the ancillary service markets. 

Okay.  So this is kind of what it requires.  I’ll go back to the picture of the power system, and all the stuff that I said a utility needs to do.  You’re going to need to have these kinds of things in your little self-contained island, if you think that’s what the smart grid is all about.  To some extent, I’m trying to dissuade you of the nation that the smart grid means everybody’s going to be self-sufficient, in part because all this stuff costs a lot of money. 

Interconnection to the gird?  Obviously.  You have to have some kind of on-site generation – can’t be self-sufficient if you don’t have it.  You need transformers and inverters for your renewables.  Each of these are gong to require a separate device to convert the power that comes out of it to the voltage that you use in the house; a voltage regulator to make sure that that voltage doesn’t get too far out of whack; chargers for the storage devices or your car; reactive power supply.  I won’t get into what that’s needed for, but trust me, it’s needed. 

Two-way communications, you’re going to need switches for each of the things that you’re turning on and off, or trying to control or trying to charge.  You need control so that some device somewhere knows what the heck is going on.  That’s done in the control room of the utility grid that you’ve seen pictures of the big room with all the maps and stuff on it, and lights and stuff going on.  That’s same kind of thing you have to have in your computer.  Not a big deal, but you’re going to need one. 

You’re going to need some kind of a smart meter to track what’s going on partly, if there’s going to be a market in these products and services that you’re selling back, you need to be able to audit it for yourself.  Say, you know, I got a check for $20.  Well, you know, I’ll go back and look at my records.  I should have gotten a check for $21.  So you’re going to need to do that, and you’re going to need to have some kind of control station of your own so you can turn the stuff – dictate how this stuff operates, rather than just leaving it up to somebody else.  Right now, pretty much some of these, about half of this stuff exists, but it’s controlled by somebody else.  That’s the demand response program stuff that Jon talked a little bit about. 

Okay.  This presentation – Jon’s seen before, so he suggested I use it, so I’m using it – it is not my presentation.  It’s one of my colleague’s presentations.  So actually I have his contact – (unintelligible) – if you want to ask detailed questions.  But it kind of goes through describing what the smart grid does and uses some graphics to point out some of this stuff.  In this case, we’re looking primarily the first three or four slides are on demand response.  We get more into smart grid a little later on, but this is demand response.  The smart grid delivers command response, but it can also come from not so smart technologies. 

The issue here that’s important – oh, is this – oh, it is.  Ah, okay.  Just go over here.  The important issue here is that a substantial fraction of the utility grid is not used very much of the time.  This is what’s called – (unintelligible) – curve and it’s a ranking of the highest fuse number so it’d be the maximum energy demand on – either in this case, the distribution line, or in this case, on the whole grid for generation, and then you just – the second highest, third highest, all the way down to the 876th highest.  And you get a curve that looks very much like this.  Most of these things look like this.  This curve will come up in another variation we talked about, plug-in hybrids. 

So there’s an awful lot of investment providing just a very small fraction of the load.  And that is one reason why power costs so darn much.  It’s for all these assets that just sit there, get on there, okay, use 5 percent of the time.  The other 95 percent are just there, not doing anything.  And the generation tends to be more heavily loaded because of the way generation’s added to the system than distribution which is kind of lumpy – well, all of it’s lumpy.  But you build distribution systems with some gross capacity in and so you end up with a lot more idle capacity than in generation. 

On average, the estimate that we’ve come up with is the transmission and generation – the whole grid is probably used about 60 percent of the time if you were to level it all out.  So 45 percent – 40 or so percent of the assets that are invested in that they’re – never get used.  That’s headroom you could use if you could find the way to use.  And it’s finding a way to use it that is – was the driver behind all the research we did on looking at the smart grid.  The reason for that is if you can find a way to tap into some of that end-use capacity in the peak periods, then you can shift the demand curves so that the price of power goes from being very high, which would be over here, to something that slides down this demand curve and the supply curve to a lower level. 

And EPRI’s estimate is a 1 percent change in demand results and a 10 percent change in price.  So it’s a pretty significant leverage.  The more you can control that, the lower you can push prices down.  And of course, the perverse but good effect is that if you can do that and institutionalize the process, you make the people who run the grid believe you can do that all the time, then you don’t have to make all those investments that you’re making here, because now you’re doing the demand responses that are something else, so you can avoid making all those capacity investments. 

Okay.  Providing ancillary services.  We’ve talked a little bit about ancillary services.  Here’s a little picture what indicates just what reserves are needed on a typical peak day in the U.S.  And you can see if you could control the peaks by shutting off appliances, you could get substantial reductions in the amount of capacity that you have to provide for meeting those peaks.  And that’s money in the bank or arguably.  As to where this goes, right now, current demand response programs, somebody pays you to reduce the peak.  Another way of doing this – a different business model would be that the system is not designed to provide those peaks, but it has automatic controls in it – the smart grid – that just reduces them and it flows back in a cheaper power bill.  So it’s six of one, half a dozen of the other.  Do I pay you a check, or do you just get cheaper power? 

I’m going to show this picture here – a little more detail.  Next, it illustrates some of the questions, I think, that Mitzi is getting at and certainly that Jon was talking about pretty explosively.  This particular case is looking at frequency regulation.  The grid from the appliances, the GFAs we’re going to talk about, we develop using frequency regulation as a control metric.  Because it’s – the frequency’s ubiquitous signal, anybody can tap into it and find out what their frequency is on the power grid.  And so we just did with a little chip.  And then give the chip some intelligence and a relay so that it can turn our appliances on and off, depending on what the frequency was doing. 

In this particular picture, you can see 60 cycles.  Sixty Hertz is the frequency that you’re shooting for, and that’s regulated by law.  And there are deviations you can have in that in real-time over the course of an hour, it has to average exactly 60.  Every hour, it has to average out at exactly 60.  But in the course of an hour, it can deviate up and down a little bit, but not very much, as you can see from the scale here.  If it does, bad things start to happen.  The reason for that is all the generators that are hooked up and running at the same time, if they get out of sync with each other, which is what frequency does, they’ll start working against each other and they can literally tear each other apart.  So you don’t want that to happen. 

So frequency regulations is a really important thing to do.  And in this particular case, you can see an example in New York – yeah, New York-New Jersey.  Frequency got out of whack.  You can see the frequency is going down and all of a sudden it crosses over.  System separates.  It separates into two parts.  This part is in New York – there’s a New Jersey part.  This is the New York part.  New York doesn’t have enough generation.  An under-frequency event comes in.  There’s no generation there to pick it up.  So when it splits apart, the system just crashes, and that’s what you see tailing off there.  What happens when it drops offline, is the generation that’s still running outside of New York, speeds up.  Okay, that’s the frequency deviation going up and it produces extra voltage.  Okay, it tries to correct for that and then eventually goes into this oscillation which is – they brought demand – actually the system restored itself of automatic generation, all these things that sit there just in case brought this thing back online. 

What we’re saying is that if we had GFAs in this application, these things could have kicked in right in here, and held the system together.  They would have kept it from separating.  Basically, it would have sensed the frequency deviations, appliances would have turned off or on as was needed to bring the right kind of control to the system and it could have happened automatically.  And as Jon says, we’re talking of these fractions of minute-type reaction.  So this happens very, very fast.  In this case, you know, basically the event has to play itself out.  For some equipment on the grid that’s operating automatically in two or three or four cycles, or a minute cycles, there’s grid operators looking at the power monitoring equipment, seeing this happening, and say, oh, my God, what’s going on?  What should we do?  And by the time they can react, it’s too late, because this is falling apart.  GFAs can respond faster than that.

Now, this is just a more detailed picture, but it’s kind of fun to have some of these things.  This is actually a real even we controlled with GFAs, an experiment I’ll talk about in just a minute.  So you can see that okay, we had an event where something did drop off – I don’t know what this was exactly, but we had a generator fall offline or a line went down and power dropped.  With GFAs, we were able to stabilize the system without losing it.  This – that data came from this Olympic Peninsula demonstration. 

Olympic Peninsula is the northwestern part of the United States, of the continental United States.  It is a peninsula.  Electrical systems have a really hard time delivering services to things that are not in the middle of something, (leaning ?) in the corner:  San Diego, San Francisco, which is on a peninsula, New York, which is on an island.  Those things are exceedingly difficult to manage from electrical point of view because you have a hard time having enough generation to match the load in those areas, and enough other equipment to run the system if it does separate into what’s called an island. 

And so this is – Olympic Peninsula is the same situation.  Not a lot of resources up there, more and more load gross from people in some industry moving up there.  And so the local serving transmission company – (unintelligible) – power was looking at is there a non-transmission construction alternative to building some more transmission to serve this market or not.  And so that’s what this demonstration was set up to prove.  We put – we put grid-friendly appliances in houses.  We managed some load control at a number of commercial enterprises, and just with – just using regular demand response devices.  These are the partners that provide equipment for it. 

We created a new market, built a little software program that had a market that said it’s worth so much for us as peak loads go up and our transmission capacity gets constrained to have somebody – any of these people, these guys or these guys – relieve that, in which case we would give them some money for that.  So it’s a real-time market and some of the equipment was programmed to respond automatically, some of it was done manually. 

Okay.  So this is just kind of a schematic of how this work.  These things are animated in the other version, but rather than walking through it – all those details, I‘ll just kind of give you the high points.  You know, I think I explained most of it.  Yes, we have a five-minute market, where we had to clear the demand and supply prices during these constraint periods.  We did not actually pay people money.  We had a system where we could track how the bills would change if we were paying, or if they were paying for the capacity constraints in their bills.  So nobody actually made or lost any money on this deal.  But we did keep that as an accounting mechanism to see would it be beneficial to consumers and the utility or not.  So how you measure success in this business at this point in time is does it make money or save money? 

This is an example of five-minute market showing you how it would work.  I mean, this is obviously pretty complicated stuff.  (Laughs.)  See all these little dots are individual transactions and this is a post-talk construction of the supply and demand curves that economists make all the time, but these things are happening in for every five-minute intervals.  So you have lots and lots and lots of these markets.  That’s why it needs to be automated.  That’s why we need to have something smart. 

This was an example again, of a stabilization using frequency response – frequency responsive load to an event.  And it shows what would happen if you have low control up here which is stabilizing the system before it goes unstable.  The frequency gets so low that it triggers an outage.  And you get down here where the devices are switching on and off trying to stabilize thing.  Eventually that would unstable and the system would fail.  So pretty quickly, we could restore service and get it back to normal with these devices. 

This was – yes, I think this is on one bus.  There are only 120 customers with equipment in them.  So it doesn’t take very many customers to do this, necessarily – depends on what the event is, but generally it doesn’t.  This is a – schematically, kind of illustrates some of this stuff.  It says if you’ve got these things, you can use them to – if –let’s say, for example, in this particular case, just walk through the list here.  If you have an intermittent power resource is generating more power than you need, well, you can turn something on.  It will absorb the extra power until you can back off a dispatchable generator.  You can work with small signals to control generators, which are called average – AGC, automatic generation control, in the utility industry that does these kinds of balancing to keep things at 60 cycles. 

You can anticipate events so that you can get a reaction on the grid at work quicker that a grid operator could.  Or then some of the standard relays – static relays can react to.  And then if you get in some kind of a bad case, you can actually lock equipment out for periods of time.  If, for example, you lost a chunk of power, you’re limping along and you don’t what those things to turn automatically on when they cycle back on again for some reason.   

Okay.  This is what one of these things looks like.  Small, they’re very small.  And we’ve worked with a number of manufacturers about installing them in equivalent – actually, did install them in equipment for the (early pen ?) study.  I won’t get into a lot of details here, but fast-acting.  And what they do that’s kind of – that makes them so effective is that they don’t all turn on and off at once.  You get a program in them so that you can either communicate with them, or you can just set them up to be dumb devices, so if they sense – using for frequency control, sense an under-frequency even, all of them won’t turn off, because that would perhaps overcorrect.  They will do it in a staggered fashion so that there will a time for the system to catch up, so maybe 10 percent of them go off.  If the event hasn’t cleared itself, maybe 20 percent will go off.  It will do that in a somewhat random way.  And it’s not the same devices that go off every the time. 

The notion here is that if you control a lot of things just a little bit, people won’t notice it, and you won’t have to pay very much for it.  But you don’t want to keep controlling the same person’s air conditioner or refrigerator.  You want to spread that around among the pool of customers.  And since there are millions of customers, the opportunity to do a little bit across a very large population is pretty good. 

So through the experiment, we determined, hey, people will sign up for this, even if it’s a real-time kind of thing.  Of course, they’ll be sitting around actually doing this in real-time.  We do have some customers who did that.  They were retired.  But if you automate this, then you get a lot better response obviously.  You can change what the cap is right now.  Demand responses say, well, we’re going to limit them out.  We’ll reduce to X, so that it’s only going to affect you five hours a year or something like that.   You can actually change that dynamically depending on the event, and that’s what we did.  Typically, you look at a peak period.  Here, you know, if a wind storm was coming through which was not in a peak period and you needed some relief for some reason, you could still get it. 

You can synchronize it with thermostatically control loads, so you can use a small device to do something that’s pretty powerful, otherwise that’s done with a thermostatic device that costs about $250.  The GFA costs $5.  So the point is the demand can provide regulation services at very, very little cost.  And if it’s integrated into appliances, it’s just another feature.  It’s very inexpensive to do. 

The – (unintelligible) – well, out with the cost.  This is a study that’s also automated.  The numbers would jump up a down, but we won’t get into that – (laughter) – but the key point here is that yes, this stuff can avoid an awful lot of expenses.  Now, I want to point – at this point right here, I want to say we are not looking at conservation.  We’re not looking at how much you can build by saving energy, by being more efficient.  We’re just looking at people doing what they already do, and saving money on investments that don’t need to be made just to run the system the way it is today – the non-smart grid system way of doing things.  If you save energy on top of this, of course, these savings are multiples. 

So this is just – we’re not changing lifestyles, we’re not making people make any big sacrifices, but we’re saving a heck of lot of money.  And that money can be – if you could find a way to do it, then this is something to talk about at the very end – is deferred capital investments: How do you incense somebody to do that?  And I’ll talk a little bit at the very end, because that’s the key to this thing.  People will pay less if they do this, but only if they do it, will they pay less.  So some – there’s a catch-22 in here.  How do you get the investment made so that that happens?   

Okay.  Here’s another pictorial, looks at the same sorts of things.  It’s a different way of describing the same sort of stuff, and it’s automated, so the example – numbers happen, jump up and down.  Not all that interesting, but in this particular example that we used in this based on an (early pen ?) study – both of these, it’s the same number, we found out you could avoid ten out of 15 megawatts of new capacity on distribution – (unintelligible) – that needed to be upgraded.  Okay.  Distribution – (unintelligible) – have to be upgraded or new distribution – (unintelligible) – need to be built whenever somebody builds new houses or whatever.  So it’s not a huge expense for utility, but it is an expense.  And we’re saying, well, you can avoid about two-thirds of that, given that you can reconfigure your distribution system using these kinds of technologies.  That’s a pretty significant savings. 

Connecting dots to the value chain.  This is basically saying adding all this stuff up, these are all different benefits that you can get from doing these things.  And I will return to this chart at the very end to talk about is it possible to do this?  And I’ll, you know, explain why when we get to that.  But basically, you’ll see you can get a pretty quick payback in an awful lot of these things if you add up all the benefits.  And there are a lot of benefits here, and I – get to the end of the presentation, I’ll talk about why it’s really hard to add up those benefits. 

Okay.  These are some of the smart grid technologies.  Jon talked about some of these, but these are all listed here: communication, smart meters, devices that are automated, or have smart thermostats and low control modules, you have EMS systems in commercial residential buildings.  All these are the kinds of technologies that feed into this system.  So to some large extent, replacing the central control grid operator-managed utility will require an investment in these kinds of technologies.  A lot of these technologies, people are putting in for their own selfish reasons.  But if they did it intelligently and they were tied into the smart grid, you could get more bang for the buck.  And a lot of people have smart thermostats, but they don’t communicate back and forth with the utility.  If they did, we could get other advantages out of them. 

Okay.  It’s a lot to what’s going on in this P&L.  We started this work with DOE money probably seven years ago, I guess, about that time.  And we’ve done some test bids.  In order to push the technology out into the field you have to have standards.  So we have architectural council that’s working with manufacturers in the industry to come up with standards to design these tools so that they do the same thing wherever they’re used.  You have to develop simulation tools to make sure that they work.  If I can’t convince a grid operator this stuff actually does what his generator online does, it doesn’t make any sense to invest in this stuff.  So I’ve got to build some pretty convincing tools, so that they can see that it does work and, in fact, have enough confidence that when they push the button, it does exactly what generator does, that it will work. 

And then we’re working at high penetration scenarios for plug-in hybrids, again with DOE money.  Rob is the guy that’s the center of the GridWise program in – here’s his – well, here’s his phone number.  Ah, this is his contact number too.  And we also have a website at the lab for GridWise, architectural council, a bunch of other stuff and DOE’s Office of Energy websites up there as well.  So if you want to follow up on any of this it’s there.  (Unintelligible) – sites get up on the website anyhow, so you guys can dig that up later. 

I’m going to talk about plug-in hybrids is the last – couple of last slides ago, said we’re looking at what happens if you have a large number plug-in hybrids?  Actually, we kind of approached that question two different ways.  One was how many of them could you put on without impacting the cost of power, which was the kind of one-driver that I was in charge of looking as the economic factors, other people are looking at the environmental implications.  And – so basically, this is a question kind of addressing how far could you go with plug-in hybrids to reduce fossil fuel use, and what would the utility impacts be in terms of use of facilities, its impact on reserves and its impact on regular requirements and bills and emissions?  (Unintelligible.)

The notion here was that there is idle capacity in the system, if you have a way of telling into that idle capacity and using some of that spare capacity here to charge up batteries or whatever, that you can kind of get free – from the utility point of view – free access to power recharged plug-in hybrids.  If you’re running on peak, obviously that’s not going to be free, you’re going to have to pay for it, because there is no idle capacity at that point in time.  So we came up with some curves for utility: hourly load curves during peak and off-peak periods.  We looked at their generating assumptions or generating mixes.  And these are kinds of some typical plants using some of the data that we used.  We broke this out by region, so this is just a typical example of one region. 

And then again, you could see from the different generating mix what happens when you start using these things, when you fill the valley – see, here’s the low curve here.  We’re saying, okay, we’re going to fill this thing up with resources to charge our plug-in hybrids, and immediately one of the things that you do see is if you want to avoid using this stuff which is expensive and limit yourself to valley-filling, it doesn’t impact your peak.  If you have a coal-based utility, you start using a whole lot more coal fire generation, which makes sense.  It’s cheap, and you have an awful lot of idle coal capacity, so that does make some sense. 

And this again, a picture of doing – how you do it filling at night times these shoulder periods, because if you don’t you start to some into the more and more expensive resources, which we looked at doing.  We looked at what happens if you have to do that in economic analysis, as you’ll see.  What happens, of course, is you’re using more power so the utility sees increased sales, but you’re using the same capital.  So there’s no more cap requirement.  We just talked in the smart grid, investing in capital is bad.  It raises your bills.  It’s good for the utility, but it increases your bills.  So we’re saying use the same capital, you get more – (unintelligible) – for it. 

So what that means is that more kWh sold, same cost, lower cost per kWh on average.  Okay.  It makes good sense.  Sounds like a win-win.  We can run – have plug-in hybrids and everybody get cheaper electricity.  And that’s true.  We looked through some real examples.  Of course, it’s not true that if you’re charging your car you get a lower power bill, but your neighbor who’s not charging the car will get lower power bill – (laughter) – because he’s not using any more electricity.  You’re using more electricity, so you’re going to have to pay for the extra electricity you’re using. 

So we looked at it, said okay, how much idle capacity is there?  How far will that take us if you used it?  Okay.  It says right there: roughly three-quarters of the energy needs of today’s cars and SUVs, everything could be supplied just using idle capacity in the grid – the existing idle capacity, no new capacity.  And that’s assuming they’re charged off peak only.  If you charge them long peak, you’re going to need some more capacity. 

So we looked at benefits displacing oil imports, on average decreases pressure on rates of – actually the cost per kWH would go down; reduce the CO2 omissions by about 27 percent.  The decrease isn’t as great as you think, because we are using them as coal, but the coal plants are running more efficiently.  So just because you’re using more coal, it is not necessarily a bad thing because with the coal that you (are ?), the plants that you’re using are burning cleaner.  The heavier they’re loaded, cleaner they run.  The emissions with tailpipes or smoke sacks, so you’ve got a mobile source to a fixed source, it’s a whole lot easier to clean up.  And of course, with the PHEVs we already talked about, you get potential for electricity storage – (unintelligible). 

We did the analysis of all the different – (unintelligible) – regions, results very – some regions don’t have as much potential to charge as many vehicles and have not necessarily as good a emission profile.  The West supports fewer vehicles because it has an extremely unique energy base.  It’s all hydropower based and there’s a limit to how much water you can run through a dam before the water runs out, so it’s not like you can just add more coal to it. 

And here’s of course the big kicker, you can’t run these things during peak times.  You cant’ just plug them in whenever you want, so that dictates – in our mind, it dictates a certain kind of way of using these and that’s sort of when it comes back down to the smart grid, is it you have a smart charge that can tell you when it makes sense to charge and won’t let you charge when it doesn’t, unless you foolishly want to pay a very high price for it.  So that whenever there’s idle capacity, and it doesn’t have to be in the middle of the night, it can be April, it can be in the middle of the day in April, it will allow you to charge, but else wise, it basically wouldn’t. 

There’s lot of talk about vehicle to grid and vehicle to home.  I’m not a big fan of this.  I think that the benefits that we see socially from PHEVs are in reducing fossil fuel use, not driving the car to work discharging it at the office and then driving it back home on gasoline or driving it home and then running our house at 5:00 p.m. instead of using grid power.  That just doesn’t make a lot of sense to me.  I don’t think the economics work out very well.  We have not done that analysis, analysis we’re going to be working on, but you can do it, and certainly to the extent that you have the ability to plug these things in in a case of some kind of electrical emergency tap a little bit of that power, not drain your battery completely so you can’t get home on battery power, but use a little bit of it that’s pretty valuable.  I don’t think this slide goes into it.  Yeah.  This is a good point.  Batteries in the quantity of vehicles we’re talking about could run the whole U.S. grid for five hours, so it’s an awful lot of capacity that could be used if we needed to in an extreme emergency you could provide used – (unintelligible) – an awful lot of carrying capacity for somebody who’s stuck in a house or stuck in a neighborhood without power. 

One of the things that came up in our analysis is that eventually, these batteries go bad but they still have a lot of useful life left in them, and there’s likely to be a very good aftermarket in the utility industry for taking the batteries that are no longer useful for vehicles and using them on the grid, so there’s all kind of secondary market that came out of this kind of inadvertently as we talked to each other’s about it. 

We’re doing some follow-on work looking at more impact in playing with some technologies, kind of the main point of this, again, talking about the smart grid is that plug-in hybrids are a great technology, kind of a win-win.  It’s a win for utility consumers, win for utilities, it’s a win for our getting off of fossil fuels, but it really requires a smart grid and more intelligence in the systems to do it in the way that we make sure that we get those benefits and they don’t get squandered through more random and inconsiderate use of that that just adds to the cost on the utility system and to consumer cost.  Okay. 

Returning back to this slide, one of the things that deregulation did is it separated the business of being a utility into transmission distribution in generation and the company that used to provide all of those, the utility as we knew it, can be three different companies or at least firms that have three different very different business models and different profit law statements associated with each.  We Balkanized the value chain.  Now it’s not possible for someone who’s in the distribution business to capture these benefits from whatever it is, and it could be just conservation and avoid addition distribution infrastructure and then also count that same savings on transmission or count it towards generation.  The reasons for that is the generator makes money by selling power.  If somebody’s saving power down here, that’s not somebody he’s happy about.  He doesn’t want that guy to save energy.  He wants somebody to use energy, so he makes money. 

Ditto with transmission, different sort of model on the transmission side and actually, I think I get to that in the next slide, transmission grid is kind of a zero-sum game.  Right now there’s constraints on the transmission system.  If I do something to release some capacity on the transmission grid, there’s a long line of people who want to use that transmission grid to move power over, to sell some power to somebody else.  So saving transmission capacity, reducing congestion means more power sales, not fewer.  We’re going in the wrong direction here.  So some of these benefits aren’t flowing up the way we would hope they would, and if you were building a new transmission line, the model for that is whoever uses that transmission line, pays its cost, so obviously, if you’re doing things that avoid using the transmission line, those people who build it aren’t going to be real happy either and probably won’t get built, but that’s another story.  That’s a current business model we’re imposing on the transmission business framework.  A lot of these companies are – (unintelligible) – John, by the way.  (Laughs.) 

The distribution utility revenues are basically accessed based.  When the distribution utilities recover their money, it is a lot not on sales, although that’s a lot, the way the model’s built.  Fundamentally, they have a bunch of other charges, customer charges, demand charges, things like that that just pay them to keep those wires in the air.  So they’re kind of part of way sort of towards what I think would be a new business model, except they haven’t gone all the way the rest of the way, but if you’re – the telecom system now is accessed based.  You basically pay to get a fixed number of minutes or whatever, and that’s a different kind of business model than it used to be. 

Because of the Balkanization of benefits, I think was mentioned by John or somebody about unbundling or disaggregating revenues from sales, and because the balkanization it’s really, really difficult, it’s not very efficient the way we’ve done this to capture these benefits, even if you do the unbundling.  It sort of works for the distribution companies, can’t do it for generators.  Nobody is going to subsidize generators because somebody put an installation in their house.  That’s not going to happen.  It’s tough to translate from a transmission side and those are small potatoes in terms of cost anyhow, so a lot of talk about, oh, yeah, this is where you solve this problem; I don’t think so. 

I think we need a whole new business model.  And a lot of it has to do with how we’ve imposed markets on the old business model, and it may not be the best fit for that.  Key elements of success of markets, willing sellers, lots of willing sellers, lots of willing buyers, willing sellers, okay.  I want something different than you want, so it stimulates competition of quality of product.  Lots of buyers, so there’s a lot of competition on price.  Moves the other way around a little; is – (unintelligible) – which means if I want to get into the generation business I don’t have to rob a bank to do it – in fact you do have to rob a bank to do it – and it’s easy for sellers and buyers to get out the market.  If I buy a generator it’s going to be really hard for me to get out of the market because I’m going to have a huge mortgage.  (Laughs.)  And same with buyers.  I can’t just say, oh, I’m not going to use any electricity today or tomorrow.  It’s just tough to do. 

The product that moves.  The product is a property, market, you’re buying and selling something and with that thing there are ownership rights.  When I buy something from you, the ownership transfers from you to me.  I can transfer that ownership and that property to somebody else or not.  I can do things with it, and I’ve highlighted property because that’s one of the things I want to emphasize in looking at well, maybe how we change the model has to do with property. 

Clear connection to the price and product.  We know what it is we’re buying.  Lots of volumes, that’s the first who comes because you have lots of buyers and sellers, but you get lots of buyers and sellers who transact business once every 20 years which wouldn’t give you lots of volume.  You transfer in markets so you can see why something costs what it costs in the effective market oversight.  One example of that is in the trading (forums ?) where have buyers and sellers on the Chicago – (unintelligible) – exchange or something like that where the buyers and sellers are across from each other, looking at each other.  Somebody tries to corner the market, I’m seeing the guy who’s trying to do that, and if I don’t like it, I can complain to somebody and somebody would come down to the trading forum and say, straighten them off.  But if you’re trading on a computer, you don’t know who the counterpart that you’re dealing with it’s a 14-year-old kid in Indiana or a sheikh in Saudi Arabia.  So there’s an element of trust implicit in the platform but it’s not necessarily easy to make sure that that trust is legitimate.  This kind of goes through some symptoms like I just said. 

Very few firms control the bulk of the market on the power side.  There are hardly – and it’s also as you talked about ancillary services, there are like literally hundreds of these markets running simultaneously.  Well, you’ve got hundreds of markets you have to trade in order to get a kilowatt/hour of power to your house right now when you want it in the quantities that you want.  That means you’re going to have to deal with a few firms, with some very limited number of sellers in some of those markets.  Limited numbers of sellers it’s monopoly, okay, so it’s been really for somebody to manipulate those markets and that’s exactly what happened in California. 

So part of the problem with using marks to do this stuff is having all these darn little markets running simultaneously.  If (you’re ?) willing buyers, very few people in competitive electricity markets retail buyers are actually executing transactions with (some of the default ?) customers, way over 85 percent.  So there’s not a lot of transaction and volume in that sense.  So not a lot of sellers, not a lot of buyers, okay. 

I just talked about how difficult it is to get in and out, again, hitting on this point again, the buyers are basically giving a service they don’t really have any property of property like rights that they hold.  I think that’s a problem.  And without it, you don’t have much more power in the market.  I can’t say, oh, I just bought this from you, now I’m going to tell it to somebody over there, because I can’t use the market that way.  I can buy from you but I can’t sell to anybody without building the utility myself or power generator myself. 

Disaggregating the product; again, we don’t know what we’re buying.  We’ve got bill that comes that’s got all these different things in it.  Fundamentally I have to buy three or four or five different products to get the power to my house, this hour, although I’m not dealing in all those markets personally, somebody has to on my behalf, so it’s really hard for me to figure out what it is I am buying.  Somebody were to disaggregate my power bill and say, you spent X-amount for kilowatt/hour, x-amount for transmission, x-amount for ancillary services, I’d say, what the heck’s is ancillary services thing?  I didn’t buy that. 

So the real transaction volume between retail buyers and sellers is pretty low, since this is done by proxy which is basically utilities buying in their behalf.  Market fundamentals are hidden.  It’s really hard to find out what’s going on in these markets.  I think John could probably talk about that at length if he wanted to, and almost all of this stuff is done through electronic exchanges, so when something happens in a market, all of the forensics happens in a post – (unintelligible) – way.  You see the prices spike after the fact, then you have to go and try and figure it out.  It’s not like, oh, there’s a gaggle of buyers over there cornering the market and you can kind of see something it’s going on over there because you’re watching these guys.  You don’t have that kind of transparency in these markets. 

Bottom line is the markets that we’ve designed in the business model or operating (through ?) is not a real good design for a retail market place, not for electricity.  So here’s what I’m going to get at on this thing.  So what you need to have is something that looks like every other commodity market where you’ve got tangible products.  You can’t give somebody a tangible product, but you can give them what’s called property like right.  The property like right is a term that FERC invented and it was something that they said, well, the utility owns the transmission line but other people use it, so we can give them property like rights to access the transmission line. 

So I’m saying, why can’t we do the same thing to customers?  Let’s give them property like rights in the same sort of way.  We’ll give them right to some fraction of this utility system that they can trade, okay.  And they I got to thinking about that and said, okay.  Well, if we could do that for getting power to them so that they’re the ones transacting with who wants to – and they’re giving up some of their rights to somebody who’s going to sell power to them, so here’s some of capacity like or property like rights to transmission capacity to get your power to me instead of the other away around, having a central market provide that, so couldn’t you do the same thing for carbon credits?  After all, it’s my air that’s being polluted, not some steel mill’s so why don’t I have a carbon credit, so that I’m trading them to the steel mill so that the steel mill is getting them for free. 

So anyhow, that’s the kind of concept behind this thing.  And so he said, okay how can you do this?  Well, you can say, okay, the customer gets a – (unintelligible) – share of the native load which is a term that FERC uses of the native load T&D capacity.  So I get to say, I don’t know 2KW of capacity on the system and that’s mine and I’m paying for it in some kind of a flat fee.  If I’m not using it, I could sell some of it to somebody, I could sell some of it to my neighbor who’s got a huge house, I could sell some of it to somebody else because I’ve just conserved half of it, I could sell it for some money to somebody else who needs some capacity.  The transmission users could instead of buying it from the RTO, the RTO would be the market that trades this capacity consumers are giving up.  You’d need to give up some of it to get power to you in any case, and essentially you’d probably have some kind of a debit account, I think you’d ended up where you’d basically say, every time I go to buy some power you’d have to debit my capacity account for this.  And it would operate in some kind of a market that would clearly emerge out of this thing. 

So the notion here is sort of like cap-and-trade, you buy a certain amount of rights, you own those things and you could trade them to whoever or not as the case may be, and it would still allow you to do all the demand – (unintelligible) – demand management or the rest of the stuff, but it would really give you something that the smart grid could work off of because now it’s got something to do.  Now, it’s got a capacity limit to manage to or some capacity right you can sell to somebody.  And of course, you could create additional capacity rights by conserving, by putting an onsite generation or storage, your car sitting there could have a capacity right that’s now available because it’s plugged in.  Okay. 

In the sense of the carbon credits, more or less the same sort of thing.  It’s like how come we’re giving the polluters the right to pollute instead of us holding that and saying it’s my right to give away to somebody to pollute, so the little kid who – (unintelligible) – but I think it’s got some sense to it.  And I don’t know how you’d work those in concept, in details, but you essentially get some kind of everybody have a carbon credit, they have a carbon debit card that they apply for or they would be charged against, and consumers don’t necessarily exclude industries.  They can produce new credits by investing in conservation or onsite renewable projects, they can retire them by just not using the credits.  Everybody has some kind of a carbon budget that declined over time to (reduce ?) overall emissions so you get the same kinds of policy objectives, but you’re not doing it with a tax.  You’re doing it, so kind of turning the whole thing upside down or saying we’re going to let the consumers have something of value that they can sell as opposed to taxing them, a little kind of different way of looking at it.  Pretty much that was what I had.  (Applause.)

MR. LANGSTON:  Okay.  That was great, and obviously there’s a lot of interesting things.  You probably have a lot of questions out there, so I’m going to invite our gentlemen back up here and ask Secretary Woolsey if he’d like to join us.  You don’t want to.  Okay.  All right.  Let me just open the floor for questions by asking a question to the commissioner while you’re sitting down.  In your interest in trying to introduce renewable energy sources into our electric grid, what is the most effective thing that could happen in your opinion to kick that off and make something happen?

MR. WARWICK:  Well, I think the most effective thing that could happen, would be developing a way to enhance transmission, because a lot of renewable energy has been restricted by the availability of transmission. We’ve seen a situation where you’ll have a number of developers in a region, and usually most renewable systems were rather small in size that windmills now, largest size are usually 2.5 megawatts, even though you may have a whole wind farm to aggregate them together, but usually the sites are going to be less than 50 megawatts total which in comparison to a central large fossil plant is insignificant, or a geothermal facility or a biomass facility, usually these are all less than 100 megawatts, and if you have a number of them in a region – (unintelligible) – getting transmission into that area to then get the resource out to a load center is very expensive and often in past has been difficult for the first developer to go in essence pay the cost of that backbone transmission line to deliver that system into load and then as each individual’s incremental developer comes on to share those costs. 

So the FERC is actually recently in a decision in California in the – (unintelligible) – area that was filed by the California independent system operator allowed a system to be created where by the costs of those backbone transmission lines can be shared over all the load in the region initially with some core amount of developers saying 35 percent of the total capacity being used initially, and then as additional developers come on as long as we can see that there will be additional development in that area, ultimately those new developers will share to the cost and ultimately pay back the consumers that initially allowed for spreading in those costs but it gives you a way to build those backbone transmission lines in areas that otherwise wouldn’t get done, so we need more of that, beyond the California experience, we need more of that replicated in different parts of the area so we can build up more wind and geothermal and other systems. 

Q:  Don Erbach, U.S. Department of Agriculture, retired agricultural biological engineers.  You kind of bounced around this a little bit, but in order to make the business model work to realize the benefits that you’ve talked about, what kind of technologies do you see that have to be developed and what kind of policies have to be enacted?

MR. WELLINGHOFF:  Let me give you an example, and then I’ll turn over to Mike and I really like Mike’s slides because I think he really – I tend to sometimes gloss over the problems and look more at the promise and the technologies, and I really appreciate individuals who so get down to the details of where you have problems and I agree with a lot of Mike’s slides that there are significant problems to overcome, but let me go back to a (sterling ?) case with respect to the business model. 

In California, the California Public Utilities Commission has told their utilities that they are going to put advanced metering infrastructure in place, so they’re moving ahead with that.  I went down to visit Southern California Edison.  In Southern California Edison which I think has about five million meters that they’re ultimately going to put in with advanced technologies including real time price and ability to do all kinds of things, looked at the business model in 2004.  They couldn’t make the business case in 2004 and told the PUC that they really couldn’t make it economic.  Then they went back and they went to a number of suppliers and I think they started out with 19 vendors and then worked themselves down to five and ultimately got themselves down to two, and each time they went through these iterations, they added more features on them, it drove down price. 

And then ultimately got it to a place now where they have two vendors who are going to supply their entire five million meters, for their customers and they were able to make the business case based upon features that they put into those meters and those features were three features.  One was remote reading of the meter, second was remote outage detection and the third was, and this was the key for them, remote connect and disconnect, because in Southern California they have a number of turnovers in especially residential facilities, and just with that third feature put on – first of all initially, the vendors told them they couldn’t put that feature on for anything less than $150 to $250 for just that feature of remote connect and disconnect.  It finally drove the price down to $20 and it’s part of the total meter package which is going to cost them $100 to $150, and as a result, those three features themselves according to Southern California Edison pay for the business case without all the benefits that you’re also going to accrue to the customers for demand response, real time pricing and others as well. 

I think we’re – to answer your question directly, I think we’re getting there rather rapidly.  What it’s going to take is scale.  In Italy they had 37 million meters put in.  If we can get five million meters put in Southern California Edison, and have that example, then that’s going to be replicated with more and more utilities across the country, and as we can get to more and more scale, we’re going to continue to drive down prices, we’re going to continue to add features and ultimately make this more economical even in relatively small utility service territories.  Mike?

MR. WARWICK:  I don’t think technology is the very – a lot of my slides were about technology.  I think technology is there, as John just illustrated I think very well, was the M&R example.  Scale is the issue, and a lot of this technology can be invented and equipment.  We talked to the plants manufactures at the lab and they all say, well, great.  You get rules passed that say this device can be used anywhere in the U.S. which would require 50 states to agree to it and 370 utilities, 3,000 utilities actually, and prove to us that there’s some value in the utilities using it and we’ll put it in.  It’s not a big for us.  We’ll do it, but we’re not going to put in something that has to be tailored for every city or every state.  That’s just not our business model. 

So I don’t think that’s the issue, but like he says, the real benefit of this is not in having all the large industrial customers have not an automated meter, is in having everybody have automatic meters, because there are those residential customers out there having an automated meter and those things typically cost about  $40.  They don’t cost much right now, the stupid ones don’t cost much.  So for the utility to make a big investment in that as he indicated, they have to convince the Public Utility Commission that the benefits are there. 

What we saw, and this is the Balkanization issue is that the benefits across all the different technologies are there, but the benefits are just one slice of the technology pie.  By itself, are really hard to justify, so doing a piece meal is not going to get us there.  We kind of need a whole different way of looking at it and in the process of doing that – we didn’t get cell phones, because the commission’s let AT&T build the cell network.  We got cell phones because some entrepreneurs went out and invested in the cell network.  They stuck their neck out, and the business model you have today with having to run this stuff through 50 different commissions is just not working.  We need to have a real national push that says this is what makes sense for the United States to do and we should do it and do whatever it is to get the PUCs to sign off on them or find a way to bypass them, stick the whole thing on John’s jurisdictional transmission charges.

MR. LANGSTON:  Jim.

Q:  Jim Woolsey.  I played the terrorist in a number of war games and I was sort of sitting over there licking my chops.  It looks extremely attractive and I love plug-in hybrids in all of that and the smarter the grid the better, but talk to us a bit about how to improve resilience against a handful of guys with – (unintelligible) – with armor piercing rounds that take out a bunch of substations by just shooting one bullet into each transformer, and how, if we have a world in which people have some distributed generation, how can some of us preserve the ability to have some electricity and not get sent back into the 1870s by a terrorist attack on the grid.

MR. WARWICK:  Jim knows I talked about this before.  My attitude towards this is the smarter the grid is, the less central control you need.  The flaw in our current system is it’s a centrally controlled system.  If you can get out of that paradigm and you make the grid smarter, at more – (unintelligible) – scale, it’s a lot easier to restore, survive and restore.  That’s kind of the bottom line.  So I didn’t talk about resiliency in my presentation, but clearly, that’s part of it.  You can in fact operate it as an island, and I think the goal ought not to be every person being an island, but every neighborhood or every distribution theater being an island, and the smart grid could enable that if the business model was changed for the utilities, you could do that, and I think that that would be something that would be very important to do as well. 

I agree with John’s statement about enhancing the electrical grid, but I would temper it with your point there which is the transmission grid is pretty vulnerable.  The more we enhance it, the more we’re going to rely on it, the more we rely on it without some kind of check on how we recover from those low probability, high consequence events, that’s the wrong direction to go.  We need to be able to build in a lot more (islanding ?) capability, you know what that means, other people here may not, but that means having the system break apart into small systems where there is generation to serve load in them as opposed to having to rely on long distance transmission lines.  That’s part of it. 

Again, that requires a real different regulatory model.  The current regulatory model is if the system goes dark, you try and get as much power back to as many people as quickly as possible, and in the kind of events that you’re talking about that may not be possible and we need a regulatory recognition that says, oh, well, you get it back for the important stuff and if the farmers don’t have any electricity, well, it’s to bad, which is a big policy step. 

MR. WELLINGHOFF:  Yes.  I would generally agree with Mike.  We certainly have to improve security at all levels of the grid with respect to internet access.  Right now, we have really severe problems with respect to controls on the grid and their potential to be accessed by people who may want to do mischief that we really don’t want them to engage in that mischief.  If we can set up systems that can be better islanded, that would be very preferable I think.  Certainly, plug-in hybrid electric vehicles give you an opportunity to have whole neighborhoods that could be powered for periods of time by maybe a number of vehicles there to give that islanding capability.  That’s the easiest way.  I see how to do it. 

I don’t see – from some of the costs I’m seeing from stationary storage compared to a plug-in hybrid, to give you an example.  American Electric Power companies talking about putting in one-megawatt sulphur batteries to number one, improve the reliability of certain substations and also to some degree provide some storage for wind.  And I did some really back of the envelope count calculations and to get to that same capacity with a plug-in hybrid electrical vehicle, you give somebody $45,000 per vehicle for the amount that they’re going to pay for these sulphur batteries, so I think there are some real opportunities there.  You’ve just got to get the car manufacturers going in that direction.

Q:  Mitzi Wertheim.  John, you and I once talked about cultures, one of the real issues related to the kind of energy challenges we face, and it seems to me when you start talking about having to deal with regulatory practices in 50 states, the complexity of moving from here to there gets to be really quite stunning.  What would be your suggestion about who takes the leadership, how they create the story, and how we can in fact, move forward?  It’s really a matter of changing a process and people have ownership of the old process.  So the question is how do you create new ones when we have so many people that all feel like stakeholders?

MR. WELLINGHOFF:  Well, and it is a daunting process although it’s not something that hasn’t been done.  We have done it for cell phones and there are 50 states that had to determine their level of jurisdiction over cell phone systems and to some degree state regulators took some level of authority with respect to – (unintelligible) – cell towers and those types of things, and to some degree they didn’t, so again, it’s not unprecedented on the one hand.  On the other hand, state regulators with respect to electricity have typically been very jealous of their jurisdiction and very wanting to hold on to it because there are large political issues over utility rates, so there are things that they want to keep within their control and rightfully so. 

And so one thing that FERC at least has done to sort of move down that road is start collaborative efforts.  We’ve developed for example a collaborative between FERC and the National Associations of Regulatory Commissioners on the issue of demand response, so we meet periodically, we meet three times a year and talk about how we can collaborate and coordinate these issues better, how what FERCs doing in the wholesale side of demand response can coordinate with the states for doing on the retail side and how that we can do things so we don’t bump into each other and hopefully we do things that will interlace in such a way that will enhance choices for consumers, so I think the best way to do it it’s federal state collaboration where we’ve got to set up these right forms and these right venues to be able to do that better.

MR. WARWICK:  Just before we leave that, just to illustrate a point, I started out 30 years ago working for Electric Utility, and one of the first things I learned it was most shocking to me was addressing the board of directors on something rather – was how significant electric utilities in particular but even telephone utilities at the time were in the political environment because they tended to be the largest contributors to campaigns in the States because that’s who regulates them so that’s part of the culture shift that’s so difficult is there are really, really well woven in politically and very, very powerful in that sense.  So that’s tough to get out be that as it may.

Q:  People have been driven by individually put in generators, and I’m sure there are a lot of generators in this country available, and it seems to me we could do effectively the same thing with generators that you’re talking about with electric cars in that we could cut peaks and by that let the generator have more uniform load and with time, billing that would help, and there is time billing basically for the larger industries and I’m not active at moment in this, but I don’t really see that happening.   Few people are unaware that they should run their generator during the day.  It would actually help them because it would exercise the generator and so would be more like to work when they really do need it.  Do you see any progress in this area?

MR. WELLINGHOFF:  Actually –

MS.    :  Could you please state your name?  (Off mike.)

Q:  I’m Bea Kay Lundy (ph), professional engineer. 

MR. WELLINGHOFF:  Actually, there’s a lot of onsite generation emergency generation, but unfortunately, a lot of it it’s run by Diesel and the result is it can’t be run more than a certain number of hours per year because of emission requirements, but interestingly enough, I think we’re seeing a lot more generation that’s lower emission and less polluting.  In fact, I had a group coming to me just the other day that was looking at trying to market in this country an internal combustion engine that runs on natural gas, and apparently is a Hyundai engine that they have sold 50,000 of these in Japan and they put out somewhere between 1.4 and two kilowatts a piece plus they do – it’s combined heat and power.  They do not only this amount electricity which is usually – wouldn’t be enough for the peak amount of a house, but certainly enough, some basic loads for the house, but also put out all the hot water and the heat for the house as a total combined package.  So I think we’re going to see as gas prices go up, electric prices go up, a lot of these types of things are going to become a lot more economical but people have been primarily looking at these things in economics from my experience. 

Q:  Well, many of them do run on natural gas now, and there others that run on oil may have a couple of weeks or certainly 24 hours supply of oil which if they were used at a couple of peak hours a day, would last quite a while and it could refill their oil.  The emissions may be a problem but –

MR. WELLINGHOFF:  That’s the biggest problem.

Q:  I haven’t seen that as a – I used to specify backup generators, and you can have nice words, but I haven’t seen that as a real limit to the use of them.

Q:  I’m not sure if I really wanted to bring the group back to the question that was asked earlier, but given the background of many much folks in the audience, I suspect the – (unintelligible) – is not going to do very much to a transformer just like it doesn’t do a whole lot to the back stop in your target range and the smart grid would at least let you know the – (unintelligible) – pressure in the transformer dropped so you can send a crew out to repair it. 

However, the transformer issue is a real serious problem in particular in transmission level substation transformers which are often special designs, very large, very difficult to transport.  This was identified in National Academy Study a couple of years back.  I don’t know the current status of it.  There’s a program to develop a standardized temporary replacement transformer at the transmission level, and I think maybe a shoulder mounted rocket would be more appropriate or a couple of sticks of dynamite, but it’s an interesting question.  I liked that one, and of course, the plug-in hybrid would give you 15 to 50 kilowatts anyplace where you had a car or light truck, so there’s really quite a bit of flexibility with the future.

MR. WELLINGHOFF:  And I’m not sure of the status of that standardized transformer effort, but I do know the EEI – FERC just passed a rule or passed the authorization of a program that EEI put together for a number of its members and there’s a consortium that’s looking at maintaining a pool backup transformers that can be shared among different utility groups, so they are looking to that problems because there’s long – (unintelligible) – times in these transformers and often times they come from places like Korea and so ultimately, it may be difficult to get them here and it may take much longer than we want to so we’re trying to deal with that issue.

Q:  My name is Lenny Siegel with the Center for Public Environmental Oversight.  What do you think of proposals to encourage or even require federal agencies to purchase plug-in hybrids as a way of developing a large enough initial market to drive down the cost and make them commercially viable for the rest of the economy?

MR. WELLINGHOFF:  I think any entity that has fleet vehicles is a good candidate for potentially start initiating the market for plug-in hybrids, and I know there’s a group out of Boston, City of Austin that’s gotten a number of public and private entities to sign on to a pledge, buy plug-in hybrids for their fleets to basically create a market and I think it would be something good for the federal government to do as well.

Q:  Ted Hilgerman (ph), Northrup Grumman.  My question is really – since you both seem to be grid experts is to address a little bit of what the ultimate limitations on the size of the grid and the growth of the grid, that’s relative to politics, return on capital or physics.  I think it’s probably unrealistic to think that people that get plug-in hybrids are going to only plug them in when you want them to plug them in, and secondly, we see a lot of coal trains and yet, that’s clearly less efficient than siting the generator plant where the coal is and sending it over the grid.  So clearly, there are some things that are restricting the growth of the grid even today.  So any comments you have about where can the grid go when the country needs more power and what is holding it up and what can we do to free that up?

MR. WARWICK:   I blame John.  (Laughter.)

MR. WELLINGHOFF:  Why don’t you take that one – (off mike).

MR. WARWICK:  You’re absolutely right.  Certainly the Western governors and they’re not alone have argued that there needs to be a different – kind of a national highway system for the grid that does in fact reach into the areas of the country that have virtually no population and thus no other need for the transmission grid to tap into the coal and wind resources that exist into the Northern Great Plains, and that makes a lot of sense, but it’s a very – again, the regulatory business model we have in this country isn’t very open to that process because it’s governed by 50 states and it’s just kind of a mess.  That’s why we kind of need a national initiative to say, hey, this is what makes sense.  Again, I want to temperate though by what Jim Woolsey said which is the more dependant we are on centralized resources like that the more vulnerable we are as well, so we have to address that problem and there’s ways to do both.  There are ways to do both.  Right now we don’t have ways to do either.

MR. WELLINGHOFF:  And on the issue of plug-in hybrids and when they take power, I think we can solve that problem with technology and with price.  If you say that, at peaks you can take it if you want to, it will cost you 30 cents a kilowatt hour and off-peak it will cost five, you decide – that will take care of it.  And if you had a chip in the car that could actually sense the price and Mike’s experiments have done, then ultimately the car would decide when to take the charge and when not to take the charge.  With respect to transmission systems, we do need to really have a national grid.  We don’t have a national grid ultimately yet, and part of the problem is well, before 2005 Energy Policy Act, FERC had no authority over siting transmission whatsoever.  That was all within the states to determine where transmission is sited and after that act that was passed as I mentioned in my presentation, it still only gave us backstop authority. 

Now, ironically enough, FERC has complete siting authority over natural gas pipelines.  If somebody wants to go build a natural gas pipeline, they come to FERC, we say whether or no they can recertification it, we do the IES, we do everything and determine whether, they have to comply with state law in doing that, but still, we’re the ultimate authority in siting in natural gas pipelines.  So there is a disparity in the law there that’s something that ultimately congress is going to have to deal with one way or the other if they do want to have a national grid, they’re going to have to look at whether or not some entity like FERC or FERC should have that authority like we do have now for natural gas pipelines. 
 
MR. WARWICK:  And planning a national grid is a very different authority to give FERC than it has today.  Yes.  It’s a political decision. 

MR. WELLINGHOFF:  Yes.  It’s a political decision. 

MR. WARWICK:  There’s absolutely no question about it.  Yes. 

Q:  Yes.  Scott Pew (ph) with Homeland Security Science and Technology.  A barrel of oil is $80 anywhere in the world, and I think nationally we have a set price for natural gas, set at the Henry Hub every day.  As we move forward and we modernize the grid, should the government have some responsibility to make sure that we do so in such a way that a kilowatt hour in California costs the same as a kilowatt hour in Maine or Florida or wherever?

MR. WELLINGHOFF:  Well, actually, a – (unintelligible) – of gas is not the same everywhere.  Henry Hub is a market for gas and there is a market price set there, but the price there can be much, much different than the price in New England.  In fact, it has been by orders of two – (unintelligible) – to two three or four, and so it’s a matter of making markets work and one of the things you need to do to make those markets work is have an ability to get the product from point A to point B and that’s all, but that goes all back to transmission.  If you can limit transmission congestion and limit the ability to flow electricity around the country, then prices will level out ultimately. 

Q:  They won’t all be the same.

MR. WELLINGHOFF:  They won’t all be the same necessarily, but at least they will be closure to some average price.  So one part of it is physical, is actually getting transmission operate and another part of it is what Mike was talking about is transparency of price, making sure that everybody knows what the prices are in real time as they operate, as they’re being traded and that will help bring prices to a level as well, but you really need those things to be done.  It’s not a matter I think of the government setting the price.  It’s a matter of the government putting structures in place to make the markets work better to make these prices more even. 

Q:  Adam Siegel, Energy Consensus.  Thank you both for the presentation.  A lot of interesting things.  First of all, just a comment.  If Jim Woolsey were – (unintelligible) – smart grid would make us a lot more resilient disaster or whether or not it was terrorist or natural.  Going back somewhat to Misty and cultural type environment, a lot of the problem seems to me that there are lot of government regulation, not national grid and otherwise, but it a chicken and the egg problem of trying to get some of the smart things that enable us to have better demand control, peak off.  Let me use one of my favorite small examples.  We have 100 percent of the technology to put four or five pounds of ice making into every refrigerator, in your refrigerator and have it controlled, you make ice when there’s extra power and you use that ice to keep your food when the power’s more expensive or when’s more limited.  That is a type of thing that we could use, but there’s in essence no market for that now.  But if we do those smart metering without controls that have real time pricing, there’s not necessarily the market for let’s say in the Commonwealth of Virginia any reason for smart metering by Dominium Virginian power returns more money by selling more power not by helping people use less power where’s the chicken and the egg in the cultural problem and how do we break through this.  Maryland’s done it with a profiteering, coupling, just announced that Maryland California’s got big demand side reduction.  How do we do this nationally to break that chicken and egg problem?

MR. WELLINGHOFF:  Well, a lot of it has to do with the Balkanization that Mike talked about in his slides, and I agree with that in part, although I think we do have some places where we have actual people who have the ability to effectively have capacity credits to the extent there are some states who are customers in fact can sell into a wholesale market their demand response that’s in essence taking capacity and selling capacity that in essence they got from the utility company and selling it back someplace else, but it is Balkanized because it goes on a state by state basis, on whether or not you can do that and whether you have retail access in your state or not, but I think these are good issues.  In fact, your ice example is one. 

Let me give you a better example.  Everybody here has an automatic defrost in their refrigerator.  Why should that automated defrost be on during peak?  There’s no reason for it to be on during peak, but you don’t know whether it’s on or not during peak and if you had a price signal that could pay you for not having that on peak, then you take it off peak and you’d save money and everybody would reduce the load during peak.  It’s a very simple thing to do, but again, how we put in place the incentives that we can drill down all of the way to a level of your defrost cycle in your refrigerator to make it economical for the manufacturer to put in a little chip that’s necessary to make that happen.  I don’t know the answer off the top of my head, but it’s a matter of putting in place again, structures that allow you to see the prices and putting in place the economic structures that allow you to not only see those but to respond to those in ways that ultimately can give you economic benefits for doing these things is one part of it, one piece of it.  The rest of it, I don’t know.  There’s lots of other pieces that need to be put in place and they all have to do with setting up regulations and structures that consumers can participate in the market and right now they’re not participating in the way they should be able to.

MR. WARWICK:  And as John noted, it was the defrost cycle in the refrigerator and that’s a good example, because he’s been out to the lab and talked to us about this and we talked to the manufacturers about well, the GFA could isolate all the different functions that a refrigerator provides and find ways to control each one of them, so when you open the door the light didn’t come one so you’re saving eight watts or whatever it is, or scheduling your defrost cycle so it doesn’t happen during the peak.  Those are all things that can be done with just a little bit of intelligence in the chip.  They’d rather put a device in there so that you can monitor how old your milk is because that’s something that individual consumers would buy.  Right now they’ll see, you find a market for that, you create a structure where that’s something that people want to have in it, we can put it in.  That’s not a big deal, so the chicken – the egg I guess because the egg came first, not the chicken, but the egg in this is getting the market structures in place so that you have a national standard, a national way of tapping into that resource that’s acceptable wherever they sell that piece of equipment.  That’s the egg, the chicken will come later once there will be consumers buying those things.

Q:  Let me do a follow up for – (unintelligible).  In my very first electrical bill, utility bill I ever signed was oh, and you get a discounted price because we get to turn off your air conditioner and it was canceled one month later because the profit structure was changed in the States so that they money in a different way.  But a question, a cultural question as well.   How does the FERC labs work with let us say other parts of DOE?  Do you get a voice in for example EEI or otherwise for Energy Star to say why doesn’t that become part of a requirement on refrigerators for Energy Star as refrigerators in many ways are the poster child for the success of Energy Star is that dropped what, about 70 percent of power requirements over the past 25 years.  Is this part of the next generation of Energy Star requirements on refrigerators as an example?  Does FERC have a seat at the table for those sorts of conversations?

MR. WELLINGHOFF:  Well, that’s certainly a way to do it, is to make it as a standard, the manufacturer has to put it in.  You got to spend the extra whatever amount rather than –

Q:  (Off mike.)

MR. WELLINGHOFF:  Right.  Right.  Or Mike’s point of show the manufacturer the market first and then he’ll do it.  FERC doesn’t have a direct seat at that table.  There’s no formal way to do that although informally, I’ve made it my business to have an interface with the EEI and ERE, under secretary at DOE and discuss these types of issues with him and we have an informal dialogue going back and forth, so we try to collaborate on those things so they understand what we’re looking at on the grid side, what they can do may impact those things.  It’s something we’ve started very recently.  FERC is just putting in place a new unit called the energy innovation sector and that unit’s going to be composed of a number of people who will have this type of responsibility on an ongoing institutional basis within FERC, trying to create these kind if liaisons and make these kind of points to sister agencies like DOE.

Q:  Dave Kirner (ph), the Tory Group.  A follow up on a question Mr. Woolsey asked.  In terms of energy resiliency, how might you value that so looking at the concept of homeland security, could you come up with a value for what I would call mitigation against disastrous consequences of an attack or some natural disaster?  Could you come up with a way of valuing that and then use that to foster the type of system you need to economically?

MR. WARWICK:  There’s two ways to answer to that question.  The first one is to create a straw man for what it would cost to do this and the second one which a lot of people have done this as well, if we put up generation all over the place then we can – and the second one is to back off of that and say, how can we tweak the system we’ve got today so that the rules allow us to recover from these things to anticipate these kind of events to recover from in a rational way that is an imperfect but 80 percent solution, and looking at that, it would not take very much money to create a bunch of secretive (silence ?) in the transmission grid to make the system extremely robust against those kinds of events.  There would some inefficiencies introduced because big systems are inherently more efficient, more stable than small ones, so you’d have to have a little bit more generation running in AGC mode and stuff like that, so there would be some frictional losses but it would be a pretty small cost. 

Alternatively, you can just do it, so when something bad happens, these things happen, and maybe only 60 percent of the load gets served for a year and the other 40 percent doesn’t.  Those are very, very inexpensive.  That can be done with existing infrastructure, but it requires some policy changes at the state level so the PUCs can be comfortable with the fact that if this one in 100 thing happens, everybody isn’t going to get the power back on.  That’s just the way it is, but everybody – the country’s economy doesn’t go down the toilet, or the other way to do it which is okay, we make sure everybody or almost everybody wants their power to come back on by putting a lot of distributive generation out through everywhere and it costs a lot of money.  So I really think that’s a dialogue question that needs to happen with policy officials about how much do you want to pay for the greater good, for the greater number?  Trade off again.

MR. LANGSTON:  Last question then.

Q:  Hi.  Linda Burchfield (ph), local volunteer with the Sierra Club.  I’m sure you’re aware of the transmission lines the Dominion Allegheny Power wanted to put in in NIETC and in a perfect world with a smart grid it wouldn’t be necessary, but in the short term, do you think the transmission lines are still necessary if Dominion would put in some kind of demand management?

MR. WELLINGHOFF:  And I’ll say, I cannot talk about the subject, because I believe it’s pending before FERC, so I won’t give you an answer at all one way or the other on that one.

MR. WARWICK:  I like the line.  I think it’s a good one.  (Laughs.)  (Unintelligible) – because I did discuss planning work for the state of North Carolina for the public staff down there, and I looked at that line, 10, 15 years ago, because that’s been pending for a long time.  It’s in need of improvement, it will do some really good things for the reliability of the grid that needs to be done.  I won’t get into some details on that, but there’s again, when you start talking national security and grid vulnerability, there are some things that just kind of need to be done whether you like it or not, and I think that’s one that is not being done for those reasons, but it will provide some support that’s needed for those reasons. 

That said, what’s kind of interesting about – and this will – (unintelligible) – John again about an awful lot of the transmission that is being proposed, an awful lot of it is for commercial reasons, is to move cheap power to high cost places.  It’s for somebody to make a profit.  Given the long life of transmission, it is entirely possible we will be investing in infrastructure that when and if a smart grid ever happens, assuming it happens before 50 years it’s up which is the life of these things, that would become at some cost that we didn’t need to invest in at the time, and it would be smarter to have done something sooner or something different to have avoided those investments.  That’s again, that needs to be part of a national dialogue that looks at those issues and it needs to involve more people in it than just generators and transmission filters.  It needs to involve the public and politicians in making some decisions about what do we want to do with those assets that we have?  And there is a really good forum for that, except for Congress and of course, you’ve seen the Energy Policy Acts we have seen lately have not gone in that direction.

MR. WELLINGHOFF:  And although I can’t give you a specific answer on that particular question, let me give you a generic response.  The commission, FERC has recently issued an order, order 8.90 which is a order relative to transmission interconnection and also transmission planning, and in the transmission planning portion of order 8.90 the FERC said very specifically that each transmission owner must look at transmission planning not only within their control or even on a regional basis, and when they look at it on a regional basis, they have to look at the supply side, on a comparable basis to the demand side which in my interpretation means that if someone comes forward to us with a transmission line, they’d better have in that plan what they’ve done to look at the demand side of the equation as well as the supply side of the equation as to the need of the line. 

MR. LANGSTON:  Okay.  So before I thank our gentlemen for what I thought was an excellent evening, let me just give you two quick reminders.  One, please turn in these very expensive badges on your way out, and two, October 9th, Monday October 9th is going to be the next energy event and we’re going to have the National Petroleum Council report discussed by Frank Verrastro from CSIS and he’s one of the authors of that report.  I think it will be another excellent evening.  And to our guests tonight, please let me –

MS.    :  Tuesday 9th. 

MR. LANGSTON:  Tuesday the 9th.  Okay.  I’m sorry.  Commissioner Wellinghoff, I thought that was an excellent discussion.  I’ve always been a fan of the vault and the plug-in hybrids.  Now, I’m even more a fan, since I know what it might do for the grid.  And Mike, I appreciate all of your nice graphics and deep understanding of this subject, so thank you all.  (Applause.)  And we’ll see all of you back here on the 9th.

(END)

File Attachment: 

091707 Transcript.pdf