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jason bordoff:my name is jason bordoffwith the white house council on environmental quality andthe national economic council. i want to thank you all forjoining us for this morning's white house gridmodernization event. modernizing our nation'selectric infrastructure, encouraging innovationin the electric grid, promoting a cleanenergy economy, these are all key prioritiesfor the administration. and that's why we're so excitedto have you with us here today

for a dialogue about how we canaddress the challenges that face our electric infrastructuregoing forward and what steps the administration has takenand will be taking to help us achieve that goal. and before i turn the programover to the president's distinguished science advisor,i just want to take a moment to thank just a few of thepeople -- i apologize, i probably won't capture themall -- who really helped make today's event possible as wellas the policy framework that

is being released today. i, in particular, want toacknowledge my white house colleagues, phil weiser andannese chopra who worked with me to spearhead this efforthere in the white house. george arnold of nist and pathoffman of the department of energy who chaired the smartgrid subcommittee of the national science andtechnology council. and then the dedicated andinfatigueable and incredibly talented staff who have donesuch extraordinary work to help

pull this all together,particularly daniel kilduff, nick sinai, katrina pielli,rob letzler, doug mckeel, michelle dallafior, as well asmany of those from a range of agencies who participatedin this effort. this has really beena true team effort. and i'm sure i'mforgetting some. again, i apologize for that. so again, thank you for coming. and it's my pleasure to welcometo the lectern the director of

the office of scienceand technology policy, dr. john holdren. (applause) dr. holdren:well, thank you, jason. and good morning, everybody. and let me add to jasonbordoff's welcome, the welcome from presidentobama and myself to this quite extraordinary event. clearly we can seewe've got lights.

we can hear; we've got audio. i know everybody's pockets andbelt holsters are stuffed with the electronic devices thatwe all charged overnight. so the grid is well representedhere; it's functioning. but we're here today reallyto consider more closely how valuable and indeed howcrucial the grid is. it's a creation like so many ofthe creations of technology that we really tend tounderappreciate until we lose it.

we can lose it, of course, aswe did in snowmageddon a little more than a year agoin washington, d.c., we can lose itfrom a hurricane, we can lose it froma geomagnetic storm, and when we lose it we cometo understand really more graphically how important it is. but we're also here to considerhow much more valuable the grid could be with the additionalbenefits that modernization could bring to it.

thinking just how importantthe grid is as a baseline, when the national academy ofengineering convened in 2003 to rank the top engineeringachievements of the 20th century, all the products ofhuman ingenuity and engineering acumen that havetransformed our lives, electrification ranked asthe number 1 achievement above the computer. above the telephone,above the automobile, and every other modernconvenience, electrification,

that is, the grid, was thefirst-ranked engineering achievement of the 20thcentury according to the nae. now, a lot has changed obviouslysince of day 125 years ago when the city of greatbarrington, massachusetts, installed a 1kv alternatingcurrent distribution system, be coming and doing that thefirst city to switch over from the then state of the art directcurrent system and thus free itself from the need to installmultiple generators all across town each tethered closelyto its particular load.

in those days, the headliner fora gathering like this might have been nikola tesla who is smartenough that he might not have laughed if you had told him thenthat a hundred thousand dollar vehicle would someday bear his name. (laughter) he might not also have laughedif you told him that the lower rates one might enjoy byplugging in that vehicle at night would be one of thecountless good reasons why the grid he helped develop would inthe year 2011 find itself on the

brink of a revolution. but that's exactlywhat's happening today, not just tesla's but also voltsand leafs and other members of a new generation of electricvehicles are helping to inspire us to re-imagine the grid. and it's not just the devicesthat consume electricity that are transforming our ideasabout what the grid can be. new ways of generatingelectricity from the largest wind turbines to the smallestrooftop panels are demanding

a new degree of flexibilityand adaptability in the grid. we know it's possible toget that flexibility and adaptability and greaterefficiency and reliability, too, by calling on the capabilitiesof contemporary information technology to create a moreintegrated, more responsive, yes, a smarter grid. that task is big but itcertainly is doable and indeed it's already begun. the obama administration inpartnership with a wide array of

private companies and utilities,many of which are represented in this room today, is infact making it happen. a 21st century grid, one endowedwith interoperable digital and communications technologies isgoing to better accommodate and integrate renewable sources ofelectricity and it's going to facilitate the greater useof electric vehicles and electricity storage. smart grid technologies are alsogoing to help utilities manage stresses on the grid such asthe peak demands that this last

week's heat wave imposed,to minimize blackouts, and to shorten the time thatit takes to restore power when it does go out. and, of course, a smarter gridmeans an empowered consumer. a household or small businessnot only with greater and more reliable access to power, buta consumer with unprecedented knowledge about his or herenergy use and a consumer able to use that knowledge tomodify use patterns to enhance efficiency andshrink energy bills.

as many of the players in thisroom appreciate in addition a smart grid is smart forbusiness in other ways. it provides a fertile technicaland economic environment in which a whole new eco system ofproducts and services can evolve and thrive bringing benefits toconsumers while providing new high quality jobs and helpingto ensure that this nation is the leader in theclean energy economy. now i said we've alreadystarted, and we have. already the obama administrationis making historic investments

in smart grid technologiesincluding $4 and a half billion of recovery act investments in140 projects across the country matched by over $5.5 billionin private funding to modernize america's electricity infrastructure. and as you will hear soon fromothers in our distinguished lineup of speakers thismorning, those investments are just the beginning. but it's important that we nothurdle down this path without a plan and clear priorities.

and that's why i want to mentionin closing an important report that is being released thismorning created by the white house-led national science andtechnology council which is a cabinet-level interagency group,the report entitled "a policy framework for the21st century grid," charts a path forward andhighlights the opportunities that a modernized electricsystem will provide for america. specifically the reportsays we are going to enable cost-effective smart gridinvestments by scaling what

works, working with partners tobetter align market incentives and learning from the recoveryact smart grid investment so that every dollar we spendupgrading the grid gets the maximum return for consumers. we're going to unlock thepotential of innovation in the electricity sector witha continued focus on open standards that will help createnational markets and promote plug-and-play operability fordevices like appliances that can use energy when it's thelowest cost and thereby help

reduce peak demand. we're going to empower consumersand enable informed decision making by giving consumersaccess to their own energy use information in consumerand computer friendly formats so they can take advantageof new tools and services to manage that use. with proper privacy safeguardsand consumer protections a smarter electricity systemcan benefit everyone. and we're going to securethe grid by making sure

grid operators have access toactionable threat information. by supporting research anddevelopment for improved cyber security measures. and by working with privatesector stakeholders to establish accountability for meetingcyber security standards. i hope that you are as excitedas i am by the opportunities we now have to turn today's gridinto a far more powerful, flexible and more consumerand business-friendly tool. one that can help our nationachieve important goals in

the domains of clean energy,innovation, economic growth, and resilience. to tell you a little more aboutthe many benefits linked to where this administrationis going with the grid, i'd now like to introducemy close colleague, good friend and the whitehouse's environmental steward in chief, nancy sutley,chair of the council on environmental quality. nancy sutley:thank you, john.

and good morning andwelcome to the white house! and we're really excited to haveyou all here as we talk about some incredibly important issuesin our country's transition to a clean energy economy. now as john said the presidenthas been talking to americans about what we need to do to winthe future and compete for the jobs and industries of our age. and he's laid out aplan to out-innovate, out-educate and out-build therest of the world by investing

in the creativity andimagination of our people to secure our nation'sclean energy future. and the smart grid plays acritical role in this clean energy transformation. and the president has discussedon a number of occasions how a smart grid will modernizeamerica's ability to generate, store and manage energy use. and he reaffirmed this in theblueprint for a secure energy future that he released in aprilwhen he called for an expanded

and modernized grid that willintegrate renewable energy and improve reliability. now, the smart grid empowershomeowners and businesses to make smarter energy choices andthat will translate into energy savings and cost savings forbusinesses and consumers. and a modern grid can also helputilities avoid blackouts and reduce the demand that createsa demand for new power plants. and it will help us reach ourvision for a 21st century energy economy by bringing clean energylike wind and solar to where the

demand is in accommodatingelectric vehicles as a greater part of our national fleet. modernizing our grid willalso create jobs in the u.s. because many of these products,technologies and services that will help consumers reap thebenefits of a smarter grid are being conceived andmade right here at home. the president has made thegrowth of clean energy and electric vehicles, jobs and theeconomy, a national priority. and a more modern grid willhelp bring this vision to life.

the administration,as john said, has invested billions of dollarsin smart grid demonstration and development which has alreadyattracted billions more in private sector investment. and we remain committed tobuilding on this progress and working with states, cities andregions to support the necessary electricity infrastructure andhelp design policies that's moved the transition toa clean energy economy. now, my last job before i gothere was as a deputy mayor in

los angeles and working withthe largest municipal utility in the u.s. and we understood how importantnew grid technologies are to help keep the lights on, toimprove operational and energy efficiency and to help consumersand small businesses better manage their energyuse and save money. and i know that gridmodernization goes beyond smart grid technologies. it also includes the need fornew transmission to integrate

renewables and toincrease reliability. and different states anddifferent regions across the country have very differenttransmission needs. in the administration we'retrying to address this need through a variety of measures. most recently we've createda ten agency renewable energy rapid response team. this rapid response teamwill help to achieve the administration's goal ofdoubling renewable energy

by 2012, by ensuringclose coordination among key federal agencies onthe citing and permitting of renewable energy projects andthe transmission to support them. this team builds on our previousefforts to improve the process for citing transmissionon federal lands. now, these efforts are vital andimportant but we know that we have to win this cleanenergy race together. we need your ingenuity and yourleadership if we're going to modernize the grid and turn theunited states into the clean

energy leader inthe 21st century. and we know that leaders in thisarea come from every corner of our country andevery walk of life. and i am very pleased to tellyou a little bit about a couple of students who are joiningus here today from the harker school in san jose, california,who are already generating positive change in theircommunity and for america's clean energy future. by using off-the-shelvesmart metering technologies,

these students were able toreduce their high school's energy consumption by13% and saved their school more than $20,000. and they've inspired othersin their area to do the same. so it is my great pleasure, andi think the best job of the day, to introduce you to these veryinteresting and exciting young women here who arejoining us today, please welcome sharjah indocurieand daniela lapidus from the harker school in sanjose, california.

sharjah indocurie:good morning, everyone. and thank you forhaving us here. i'm sharjah indocurie. daniela lapidus:and i'm daniela lapidus. sharyah indocurie:we're two high schoolseniors from the harker school in san jose, california. daniela lapidus:and we're here to talkabout a simple solution to two problems that willcontinue to effect us for the rest of our lives: climatechange and education.

sharyah indocurie:two years ago we saw apresentation by the alliance for climate education,a national nonprofit, educating students onclimate and energy. you can check them outat we applied for a grant from aceto reduce our school's carbon footprint and we installedan organic garden, window insulating film,and a smart energy system. daniela lapidus:the smart energy project wasour favorite and most impactful element, because it givesthe school superintendent

the knowledge of where energy isbeing used by the installation of smart submeterring deviceson a per building basis. the superintendent can accessthe information in carbon tons, kilowatts or dollarson an informative online energy dashboard. sharyah indocurie:knowledge truly is power. no pun intended! within the first week ofinstallation the dashboard brought severalanomalies to light.

daniela lapidus:for example, they foundout there is excess energy use in the gym. it turns out that the airconditioning had been running all weekend and noone knew about it, so when they became aware andjust flipped a switch we were able to save our schoolseveral thousand dollars on their energy bill. sharyah indocurie:the results at our schoolwere simply phenomenal. from february 2010to february 2011,

we saw 13% savings onour energy bill and a 250% return on investment. daniela lapidus:in fact, the problemis not ours alone. epa statistics show that 30% ofan average building's energy use is used inefficiently. sharyah indocurie:we figured our schoolwas not the only one that could benefitfrom such a project. we co-founded smartpowered.orgin november 2009 and since then have worked with sixschools in the bay area.

daniela lapidus:take saratoga and losgatos high schools, they are very close to harker. one student heard of our projectand she immediately contacted her superintendent and set upa meeting and with our guidance she convinced her school boardto pass money for the smart meter project into thenext year's school budget. sharyah indocurie:we lead passionate studentsthrough this project and let them take it above and beyondwhat we could have imagined. the four simple steps are:taking an energy benchmark with

the epa's onlineportfolio manager; presenting to theadministration; finding funding; and installing the devices. daniela lapidus:it's a great opportunity becauseof it's low barrier to entry. it only costs about 10 to$20,000 per school with an 18-month payback period. even if you're notan environmentalist, it's pretty hard toargue with a 250% roi. sharyah indocurie:beyond just the numbers, it's aripple effect of energy awareness.

our superintendent observes thedashboard to reduce energy use. student leaders can educate thestudent body about smart energy and inspire behavioralchange on campus. daniela lapidus:we have seen students use socialmedia tools such as facebook and twitter to spread the news. rival schools have createdfacebook pages to compete with each other just likefootball rivalries. one high school got over 300likes on their smart meter fan page in less than 12 hours.

sharyah indocurie:needless to say, it's alwaysbetter to invest money into students rather than wasted energy. daniela lapidus:just as secretary chu saida few weeks ago on npr, we would love to see amarch madness of schools competing for energy efficiency. sharyah indocurie:through smartpowered we aim tospark a dialogue for students who care about energy usebecause contrary to popular opinion, they are definitely outthere and ready to take action. daniela lapidus:we, though, as two peoplerepresent only a very,

very small fraction of thepotential of youth and students to help solve our nation'senergy problems so we want to know how are you goingto harness that potential to its fullest? how are you going to prioritizeenergy education and inspire students to act just like thealliance of climate education did for us? sharyah indocurie:so in your amazingcomplicated lives and work, remember the powerof simplicity and the

willingness of youngpeople to get involved. we're here and we are listening. daniela lapidus:thank you so much forlistening to us today and we're excited to learn fromat the rest of this event and hopefully answer some ofthese questions together. sharyah indocurie:thank you. daniela lapidus:thanks. secretary vilsack:well, nancy sutley mayhave had the best job today. i think i've got the worstjob having to follow that.

i'm tom vilsack, usda secretary. and, young ladies, that was avery impressive presentation. i was thinking back towhen i was a junior, almost a senior in high school,no way could i have done that. that's extraordinarily impressive. and these young ladiesrepresent the future. but i think it is instructiveas we talk about smart grid technology today to alsoreflect on the past. seventy-five years ago thiscountry was going through a

tough economic time. and we could have walked awayfrom economic opportunity. we could have suggested thatthere were many reasons why this was not the righttime to make investments. but indeed we did not shrinkas a nation from the challenge. we used this as an opportunity tobring electricity to rural america. and what a difference thathas made to agriculture, to small town life, and toactivities that are taking place now in the bread basketof the united states.

we find ourselves today ina similarly economically challenging time. and again we have thatopportunity to make a fundamental difference forthis country, and particularly, in rural america. we can, instead of having tobring electricity to rural america, we now have theopportunity to create a more modern, more efficient,cleaner and smarter system. why is that important?

well, rural america represents75% of the land mass of the united states, and 42million people call rural america their home. that's one of the reasons whyusda has been heavily engaged and involved in investingin rural utilities. last year alone, jonathanaldstein and his group at rus, invested $7.1 billion innew infrastructure at no cost to the taxpayers. those loans and resourcesprovided additional

opportunities for 4 millionpeople living in rural america and helped to improve4600 miles of lines. we work with 600 ruralelectric systems. rec's, publicly owned andinvestor-owned utilities. as part of that 7.1 billion, wecommitted $152 million in loans for smartmeters. this was in addition to the over$300 million that was invested during the recovery act insmart grid improvements. we want to build on theopportunity that they present.

as has been mentioned earlier,this is about consumers saving money; it's about respondingto shortages and outages more quickly; and improvingthe recovery time. for that reason, we'reannouncing today our intent through our u.s. tocontinue our investments in smart grid technology andto increase that commitment. we're committing a minimumof $250 million this year in commitments towardsa smart grid. in addition, an additional $106million will be made available

for additional upgrades. as we saw with these youngladies from california, the future is brightfor this country. there is no question about it. we want to make surethat as it brightens, it brightens for all americansregardless of where they may live, work or raisetheir families. one of the individuals who isprobably more responsible than just about anyone in thisadministration for focusing

our attention on thefuture is secretary chu. there are many ways tointroduce secretary chu to you. most everyone knows who he isas the secretary of energy. most know about hisaccomplishments professionally. but i'd just simply like tointroduce him as someone i've gotten to know in thelast couple of years. one, he is an extraordinaryproblem solver; and, two, he has a very clear vision forthe future of this country. a vision that is compelling,inspiring and exciting.

and so with that, igive you steve chu. good luck, iapologize for leaving. secretary chu:thank you, tom, for avery generous introduction. i, too, want to speak withadmiration about what you just heard from the two highschool soon-to-be-seniors. i have to say that inthe department of energy, we submetered our buildinginto four sections. we'd like to submeterevery part of our building. we, too, discovered that theenergy use over the weekend

is anomalously high. the only difference is theydid it for about a quarter of the cost. so i will be talking toyou later about where you buy your stuff! i'm here to talk about the grid. but i want to emphasize thatthe grid is just not the smart meters and it's just notthe electrical transmission distribution system.

it is really the integration oftransmission and distribution with power generation. john holdren mentioned tesla andit was tesla and westinghouse who finally won theac/dc war against edison. edison wanted dc; teslaand westinghouse wanted ac. and they won. but edison actually wasthe first to introduce electricity generation anddistribution in a new york city power-generating station.

edison, of course, inventedmany, many other things; the lightbulb and thephonograph, among others. now, let's assume that you cantransport through a time machine both tesla and edison andwestinghouse from the late 1800s until today, to today. and edison would be amazed atthe progress in lighting and sound recording. he wouldn't understandhow an led works. he wouldn't understand howmp-3 compression works or

how an ipod works. but on the other hand, he wouldfeel really at home with most of today's power-generating system. and that's in the lasthalf of the 19th century. and here we are at the beginningof the 21st century and we do need a modernizedelectrical grid for this 21st century economy. so let me give you a couple ofexamples are how other countries are moving now.

ireland and spain haveintegrated their renewable energy with fossil. ireland, forexample, is 20% wind. what that means is time average,20% of its energy comes from wind; it has a very smallinterconnection with the british isles so it'sessentially an island. and when you're 20% wind,that means you're up to 40% peak wind. and yet in theirsystem of integration,

they claim they are notlosing much of the value of the investments madeon the conventional power supply systems. they have an automatic systemthat immediately ramps up gas generation to compensate forwind when wind dies down. so there's no power demand-sidemanagement in ireland. they think they can go to 40%wind which means 70% peak wind without demand-side management. spain is about 25% similarly.

they feel that they are notlosing much of their return on investment in fossil fuel butthey have an automated system. china has the highest voltagetransmission distribution system around the world. their dc lines of 800,000kilovolts, they can, with that they can transmitrenewable energy from the western part of chinato the eastern part. 1,200 miles lose lessthan 7% of the energy. i looked up what thespecifications of the u.s.

lines at 765 kilovolt linesthat we use today are. if we had to transmit thatamount of energy over that distance, this is the distance,that's also multi-gigawatts, i think it's 6 or 7gigawatts for this line, if we had to transmitelectricity over 1,200 miles we would lose80% of the energy. so that just gives you asample of where we are. and so what do we need to do? we need to modernize the grid.

we first, of course, we needto improve the reliability, especially as we face the newcomplexities, for example, increase two-way flowsand the cyber security. we need to increase theoverall efficiency of regeneration transmissiondistribution system. it loses about 6-8% of theenergy even though we're not transmitting over long distances. we need, the grid has tofacilitate the growth of renewable energies.

and enable electric vehiclesand disburse generation. and we need to develop methodsto synchronize the electrical systems so that in addition tothe market bidding that's an hour or 30 minutes, actuallyautomatic responses that go down to a few minutesand phase control. so and the modern grid needsto support both distributed and central generation. the transmission distributioncontrol systems have to keep pace with renewable energy.

and, you know, in thepresident's call for generating 80% of electricityfrom clean energy sources by 2035, and putting a millionvehicles on the road by 2015 and we actually appearto be on schedule. as you may know, gm's volt hashad huge consumer response. they have gone up in productionfor next year by 50% and they're planning to go up evenfaster, i believe. but they see the response. so we need all of these things.

we see them coming. and yet we also need tolook very -- take a hard, sober look at the transmissiondistribution planning for states, regions andnational entities. and you need to understandthe options and tradeoffs. for example, there's a bigdebate between wind from the midwest and doesit get transported, this is the northern stateslike north dakota, south dakota, other states of that.

do you transmit that energyto chicago, to st. louis, to the east coast, or doyou develop sources local to your state? you know, this is avery deep question. and people need to understandmost states will say, well, we want jobs in our states,we want the generation in our state. but sometimes if you take thatstand it actually drives up the cost of electricity.

and i think going forward, andwe fully understand that it creates jobs in a local state,but i think you have to make that tradeoff with the fact thatif you're allowed to transmit energy across regions, theoverall costs can be less. and i think you should havean eyes wide open approach to deciding what's the costand what's the benefit. and above all, all the things wedo to modernize the grid should be affordable, they shouldpromote overall efficiency. and to use the sophisticatedwords of our high schoolers,

a better roi, something ilearned when i was about 50. but in any case, theseare incredible challenges, but they're incredibleopportunities. what's the opportunity? well, if utility companies,merchant generators, market operators, regulators gettogether and realize what are the technologies andopen up a little bit, you will want to open it up sothat you don't leave investments stranded and you don't geta return on those initial

investments, but if you do that,you can get a much better return on your investmentsin the transmission, in the distribution, inthe generation of energy. and this is what it's all about. there is money beingleft on the table, and so my line to you is i'mfrom the federal government, i'm here to help you make money. in any case, president obamais committed to creating the 21st century electric grid.

and in the recovery act,we've invested $4.5 billion to upgrade the grid. as you may know, we haveinstalled today more than 500 smart -- sorry, 5 millionsmart meters and 140,000 programmable communicationthermosets nationwide. we've -- throughthe recovery act, we've deployed a number ofsmart grid technologies, supporting research anddemonstration projects and workforce development,and so it goes.

as one example, we arealso trying to improve the reliability and efficiencyin customer service. for example, the westernelectric coordinating council and its partners are installingsingle phaser technology across the western interconnection,real-time information and automated controls from thesingle phaser technology would permit grid operators toeventually raise the power flow operating limits of thecalifornia/oregon intertie and allow an additional hundredmegawatts of operational

capability, a small example ofa better return on investment. but i go back to the fact thatwe need to look to ourselves and promote innovative businessmodels that reward efficiency and improve performance. and for that we need tobetter understand the consumer behavior. we need to actually have honestdiscussions and dialogue incorporation, and stressthat partnerships between the power generators, therto's, the regulators,

the market operators, there isreally something to be done, i've been told over andover again that this is very contentious. certainly if the federalgovernment tries to force you to do something,your backs bristle. i understand that. so -- but i -- sohere's the good news. we have no authority. it's kind of like i had noauthority over what was

happening in deep watersin the gulf of mexico. but we can facilitate solutionsin the department of energy, and we are very serious abouttrying to facilitate these discussions and brainstormingsessions so that cooperation among these various stakeholderswill really increase the return on investments in ourelectrical system. and so in addition to that, wesee incredible opportunities for technology development. for fy budget 12 requests,we've asked for an energy

innovation hud on smart gridtechnologies and systems. in arpa-e, for example, we seewide spaces in wide band-gap semiconductor materials. we still shift voltages up anddown at 60-hertz, you know, the same as wedid 120 years ago. we can actually domuch better than that. and we can developthose technologies. and i can go on and on. but i just want to say thatwe're investing into the

research, we also want tohelp facilitate discussions, to -- so all of you canget a better return on your investments, and we look forwardto working with you all here today to build a smarter,stronger and more secure grid, and help us seize theopportunity to once again make the american electricaldistribution transmission generation system theleader in the world. this is our opportunity and,in fact, we have to do this, because if we don't, we will bedisadvantaged relative to all

the other economiesof the world. so with that, i thank you. and i guess i cantake questions. audience member:thanks, tom turnerwith plats newsletters. a question addressingcyber security. there's, as everybody'smentioned, it's a progress, a work in progress that'sbeen in place for years. there's been private investment,there's stimulus funding going in place, yet the cyber securityelement of a policy framework is

just now coming out. and i know nist is workingon standards and whatnot, but that's a year'slong progress or at least a long-term effort. can you address the concernabout cyber security being addressed midstream so to speak. secretary chu:well, i think it is -- youknow, this is one part which is -- justifiablyhas a lot of concern. i think it's no secretthat if our grid system,

and as you go to evenmore automatic controls, that if this is not really madeand designed and put in a secure place, there could bereally some serious consequences of this. and we know of examples of othercountries monkeying with another country's grid because of somedispute regarding a bill, for example. and so this issomething very serious. we in the department of energydo think this is very serious

and we are trying to cooperatewith all the other agencies in doing this. i mean, we do have someexperience in the department of energy on keepingsecure networks. this is a verydifferent situation, because in many instancesyou keep a secure network by actually physically puttingin physical firewalls. this is somethingvery different, because by its very natureit has to be interconnected.

but it is a very big deal. we are doing what we can do. there's continuing -- but thisis not something that is put on the back burner, this is verymuch on the front burner. and that's all i cansay at the moment. and we are looking at everythingwe can do and discussing with all the other agencies. audience member:mr. secretary,thank you very much. tom catania withwhirlpool corporation.

i want to make sure i understandthe example you gave of ireland and their use of iassume natural gas peakers or something to sortof instantaneously respond. would you still advocate thatmaybe a more elegant solution is demand response throughsmarter products, for example, on the grid, as opposed tobringing on peaker plants? secretary chu:i actually think it's goingto be a mixture of both. certainly demand response issomething which makes a lot of sense, it distributes the loadsso that when your refrigerator,

for example, when it heats --when it goes into the defrost cycle, you don't want it togo into the defrost cycle, as you well know, at 3:00 the afternoon on a hot summer day where it's blowing in hotair and has to cool it down, you might as well do it at 3:00a.m. where energy is very cheap. so those automatic demandresponse things are a natural and a no-brainer. but in addition to that, thereare -- right now we keep spinning hot reserves going.

we -- there are technologiesbeing developed today, for example, general electricjust announced, as one example, a combined cycle generator,this is over 55% electrical generation, that has anincredibly fast ramp-up speed, i mean, megawattsper minute ramp-up. so that's fromcold, not from hot. so there are technologiesbeing developed today, it's going to requireall of these things. so while we want theair-conditioning systems

-- here's another example. since energy is muchcheaper at night, you can actually think ofstoring a thermal inertial system at night that you canthen use to cool your building during the peak of the day. okay? these are all demand shifts thatmake it better to have a better return on investment of allour power generation and distribution systems,all these things.

so i think thatit's not either/or, you want to do all these things. and, you know, i see the day,it's debatable whether it's going to be ten yearsor 15 years from today, maybe as long as 20, but that'sthe time scale where solar, for example, will cost in termsof levelized cost of electricity somewhere around six, maybeseven cents a kilowatt hour. so, you know, there's a50/50 chance it will occur within this decade.

so imagine what happens when itis six or seven cents a kilowatt hour, it goes ona lot of rooftops, especially in warehouses. and so, again, you're going toneed a grid that can handle that, that will do alot of peak shaving. so there are many, many things. but our grid right now cannothandle the fact that when renewable energy gets to bethe same price as fossil energy without subsidy,which will happen,

we need to concurrentlydevelop this grid. and it's going to happenover the next 20 years. otherwise we will be, youknow, staying at 20, 30, at maximum 40, but say20 or 30% renewables, because it's intermittent. i also didn't mention the factthat when you can lower the cost of energy storage at themegawatt and megawatt hour or tens of megawatt hour, thatwill have a profound effect on how we use our electrical system.

you know, just dostabilize the voltage, those very short-term things,can have -- you can save a couple percent right offthe bat of energy loss. what we do now,as you well know, is we overfill and we just throwthe energy away because it's overfilled, and it just sloshesaway if someone doesn't use it. so with a factor of two or threedecrease in what i call this 10-megawatt, one-megawattenergy source, you could have a profound impacton the cost structures as well.

there's many, many thingsthat will happen within -- and yet we don't seem to beanticipating these technological changes and building --start to build it into the planning process. and i see significantlymore, quite frankly, in europe and in asia. so i'm just saying, hey,there's opportunities. these technologies, these pricesand these technologies of the ones closest to this know verywell how rapidly they're coming

down, energystorage, for example. so huge opportunities. speaker:we have time for one more question. audience member:hi, lillie coney, the electronicprivacy information center. our interest is on theindividual customer energy usage data. i'd like to hear what more isbeing done to make sure that the privacy principles called famformation practices are built into the thinking process fordeveloping the grid so that

consumer's data is protected. secretary chu:i think this is something thatis being built in automatically. the last thing you want to dois to have anybody be able to broadcast your use of energy,because, for example, it tells you whenyou are on vacation. and so there's asecurity issue there. and so i think all the utilitycompanies are very aware that you need to really make surethat the privacy that someone can't hack in and startto read, you know,

the daily use ofsomeone's energy, it's a very important part ofthe cyber security, for example. so i think we're all aware ofthis and want to make sure that no one can hack it. okay? thank you. phil weiser:all right, i'd like to call upwith me here my fellow panelists. sitting next to me here, davidhayes is the deputy secretary at the department of the interior,which has a very important role in the siting of transmissionfacilities and will talk about.

sitting next to him,bob shapard from oncor, which is a utilitylocated in texas, and will talk about a veryexciting initiative they're going to be rolling out. cheryl lafleur is a commissioneron the federal energy regulatory commission here in washington, d.c. and finally we have from northdakota the president of naruc, tony clark who isalso joining us. and this panel represents thechallenge and opportunity of

energy policy inthe 21st century. it does cut acrossdifferent disciplines, different agencies and differentparts of the overall eco-system. a couple points that thesecretary of energy just made are worth underscoring. there are a number ofinteracting parts of the overall grid. i will mention three, all ofwhich get lumped under smart grid, and it's also worthnoting what he mentioned,

that other parts of theeco-system; think about storage, he had an example there,transmission lines are also part of the overall fabricof our energy system, and that's what makes this suchan exciting and challenging set of opportunities. with respect to the three thatwe'll focus on today that are the -- part of the report,one is the local transmission distribution part of theelectricity network, the wires, if you will, there isenergy loss in those wires,

there is vulnerability to them,that's an area where the smart grid opportunityis taking shape, helping us manage our energybetter by real-time visibility into the grid. the meters, and it's notjust about smart meters, even in what i'mcalling smart grid here, provide the interface betweenthe network and the user, be it a business or a consumer. there is the most modern kind ofmeters that we talk about in the

report, and my meters isan earlier generation, amar and even the originalmeters that some are still actually out there. all of these are being used. and there's a huge opportunitythat was mentioned about how energy usage information, andthe high school students said it better than i could, couldreally change behavior in a very impactful way, so weappreciate you all bringing that home to us.

and then finally, and thegentleman from whirlpool asked this very question, thereare all sorts of applications, appliances and now even electricvehicles that plug into the grid, and those can besmarter and can help manage energy more efficiently. so let me start off with a broadquestion about this opportunity about grid modernizationand what it means and why it's important. and i'll start with davidright here next to me.

as you look at thischallenge, how do you get your arms around it? deputy secretary hayes:thank you very much, phil. from the department of theinterior's perspective, the grid modernizationissue is important for a couple of reasons. one is that we are playing anincreasingly significant role in generation in facilitatingthe siting of new renewable projects, as well as ourtraditional role in facilitating

conventional energy development. just to give you a littleflavor for how significant our attention in this area is,in the last quarter of last year, we permitted more than 4,000megawatts of new renewable energy on our public lands. the department of interior,as you probably know, manages 25% of the landmass of the united states, and in addition,has the offshore permitting responsibility.

those 4,000 megawatts are mostlyin the southwest, mostly solar, some geothermal, some wind, butthis administration and this president has pushed us veryhard to move in this direction. prior to thepresident's election, there were no commercial solarfacilities in the united states on public lands. this friday, secretary salazarwill be in blythe, california, with a groundbreaking ofthe largest solar facility in the world.

so we are interested in the gridbecause in order to bring this generation to market,we need transmission, we need the ability to dealwith some of the variability of renewable energy, particularlywind in that respect, so we're quiteinterested in that. the other aspect i will say,and i'm sure we will get into more of this as wedo more discussion, as a primary land managerin the united states, in addition to dealing with theopportunities for generation,

we are -- we have aspecial role to play, particularly in the west,in terms of hopefully facilitating the sitingof transmission lines. that's not only the west,but also the great plains and the midwest. as you know, there aretremendous stranded generation opportunities, stranded becauseof the lack of transmission. we have been putting on a fasttrack basis working with the department of energy and ourother federal partners the

identification of transmissionlines that need to be cited on our public lands, and workingup strategies to facilitate the permitting of those lines. last year we permitted 500miles of new transmission, this year we have a fasttrack goal of another 6, 5 or 600 miles, we have 5,000miles of identified corridors that affect our landsthat we are working in a multi-disciplinaryway to help site. so those are some of the areas.

finally i will mention we alsosee as one of the enormous potential resources for ourgrid the offshore atlantic, and we have a new system calledsmart from the start to develop those enormous resources,which, of course, are tremendously attractivebecause they are so close to the major load centersin the northeast. and as you know, and apologiesto those who live on cape cod, we did permit thecape wind project, which will be the largest -- oneof the largest offshore projects

in the world, offshore windprojects in the world. so that's our angle, phil. phil weiser:well, you've teed up afterthe secretary did as well, tony from north dakota, whereobviously there is a great deal of interest in your wind. how, coming from a windrich state, does the grid modernizationproject look to you? tony clark:well, thanks, phil. and north dakota does seem tocome up an awful lot when they

talk about windy states,so i guess i resemble that particular remark. the potential for gridmodernization does have a great impact on states likenorth dakota, south dakota, geographically remote states,but states that have a very wind-rich environment, butit's an intermittent resource, and so you need to be able tomodernize the grid to fully tap the potential ofrenewable resources. an example that i like togive is, in north dakota,

we're one of those still alittle bit strange states where we're a winter-peaking statebecause of our cold winters. we have a higherpeak in the winter. it's also, if you lookat the wind profile, wind tends to blow a lot inthe winter and in the middle of the night. so the type of devices thatwe're looking at, for example, are electro thermal storagedevices where you can -- you literally heat up bricksin the middle of the night,

and as long as that furnacebasically can interact with the market in a real-time basis,then it can help load shape so that it's drawing power off thenetwork at times when we'd like it economically to draw off thenetwork, store that energy, and then be able to use it inyour home during parts of the day when you need to. similar things can be donewith water heaters that act as thermal storage devices. and if you can interact with thegrid, it's not the only answer,

there are lots of issues withrenewables and there's lots of things that we need todeal with intermittency, but it's one of those tool setsin certain circumstances that can have a tremendouslybeneficial impact, not only for consumers,but for the grid itself. phil weiser:and electric vehicleswould function the same way, you'd want those beingcharged at night as well. bob, you've seenthis, in some sense, texas is at the front lines ofthis grid modernization project.

maybe you want to give people alittle bit of insight into some of what's happening there, andparticularly with your utility. bob shapard:sure, i'd love to. it's working. just to set this up, onestatement i'd like to make. we're going to invest a halftrillion dollars in the next decade in the grid in thiscountry, $500 billion. so it's not like we're not goingto invest a lot of money in the grid, but we're tryingto make sure, i think, is that we don't look backin ten years and see that

all we've done is replicatedthe capability we've got today. there's a biginvestment ahead of us, we're simply trying to modernizethat and take advantage of these technologies that exist today. the t and d business hasbeen kind of sleepy for three or four decades. most of the technology andinnovation in this industry has been in generation. we've made greatstrides in generation,

we've dramaticallyimproved coal plants, we've cut heat ratesin half at gas plants. a lot of investment made,a lot of technology gains, and we're set up today to makethose gains on the grid because of some of the micro processingcapabilities and some of the communications capabilities thatexist today that enable us to do all these things. so we're real excited about it. we think there's tremendouseconomic and environmental

benefits to doing it. but what we need to dois engage consumers. we get a lot of push-back today,there's a lot of questioning of advances to the grid,specifically the meters. questioning by consumers,and therefore, by regulators. so we've got to first tell thecompelling value proposition, why it's -- whythis is a good idea, why the investmentsare compelling, and then engage withconsumers and get the

momentum behind that. so we're announcing a program intexas and in california actually called the biggest energy saver. and both oncor in texas andcenterpoint in texas and san diego gas & electric and somecomponents of it are announcing a program today calledthe biggest energy saver, and it's a program to reallyengage consumers and really see what the benefits are ofgiving them all this additional information and thetools to use that.

it's a three-part program thatstarts with a blog program where consumers can talk to expertsabout how to use energy wiser, how to use less electricity. they also have an app contestwhere we're going to encourage app developers to develop appsfor these devices on your belt and iphones andthose type of things, where you can manage yourenergy consumption in your home from those. and then an energy savingscontest for the months of

august and september, we'regoing to measure who can reduce their consumption the mostin percentages, percentages, not absolute dollars, it's notbias towards large consumers. and we're going to give prizesup to and including plug-in electric vehicles, a suiteof ge electrical appliances. tendrils can offer in-homedevices to consumers. we're going to really get thereaction of consumers and we're going to see what consumerscan actually do if they have the data we plan to give themto reduce their consumption.

you're going to see that result,you extrapolate that across the country, and the resultswill be enormous what we can get from that. again, it's centerpoint, oncorand san diego gas & electric, we have strong support of lansegment gear and itron meter manufacturers, ibm and geare very strong supporters of it as well. so i think we're real excitedabout the results of that. and i think then we'll beable to look back and say --

phil weiser:do you have a websiteyet you can announce? not yet, huh? bob shapard:there is and i don't know it. phil weiser:stay tuned. stay tuned. bob shapard:stay tuned, it's coming. but there will no longer bea question of can consumers use power smarter. we are going to -- one lastthing and then i'll give it way. all we've ever done withconsumers is send them an

electric bill once amonth, and it's high. they don't know anythingabout it, it's just high. we don't give them any details. it's like going tothe grocery store, packing your cart withgroceries, and once a month, the grocer sends you a big bill. it doesn't break outsteaks from eggs from milk. you don't know howto cut that bill. we're trying to give consumersthe data to allow them to use

energy smarter. i hate the response from somepeople who say they won't use the data, why are we bothering,why are we spending the money. that thinking, we wouldn't havethis thing on our belts today. so i think it's just the start,and we're real excited about it. phil weiser:so you've nicely seguedto the next question, which is changing therelationship about how we think about the grid. that affects policymakers andregulators who are looking at

regulatory reforms, it affectsconsumers in ways you've already adverted to, we'll talka little more about that. and if affects businesses,because there's some different business models. it's worth saying herethat historically; electric utilities were notthinking first and foremost how do we enable consumersto save electricity. the contest you've mentionedis a leadership effort; we applaud it, to do just that.

from a regulatoryperspective, tony, i wonder how do you look atthis question about what are the incentives, what are theregulatory models in terms of the message that we're sendingoverall to businesses and consumers alike. tony clark:sure. the issue of smart gridhas engaged state commissioners in a big way, and a lot of it isbecause we understand that a lot of the decisions that are goingto be made are going to be made at the state level.

if you look at a recent reportby the electric power research institute, they indicate about70% of the costs are on that distribution side or thestate side of where the costs are goingto be coming down. so we're very keyed into it. at the same time, we understandthat in some ways smart grid challenges some of theold regulatory models that we've had. one of the issues that can comeup and is sometimes difficult in

a traditionalrate-regulated world, is when you have something likesmart grid where the costs are fairly precise, you havea general sense for what the costs might be toroll some of these out, but the benefitsare more diffuse, especially in a world where wedon't know exactly all of the things that are going to happenbecause of this technology, in that sense, it is a littlebit about the wireless world where you wouldn't have beenable to predict today all of

the applications that rideon that wireless network, that can be a challenging thingto try to incorporate as part of a regulatory process. in the wireless world,it was somewhat easier, because we could just cleaveoff wireless and say that's not a part of regulatedworld really anymore, but we'll keep plain oldtelephone service over here and continue to regulate that. much more difficult to do inthe electricity space where

it's really a part ofthat regulated system, it's harder to break it out. but nonetheless, i thinkwe do have tools to analyze some of this data. the important thing is ensuringthat the information gets in those actual records infront of each of the states, so states have a good baselineon which to base their decision. and there are probablyopportunities to explore alternative forms of regulationin this space that may be able

to facilitate some of it. i've heard some folks talkabout the potential for price cap regulation and how thatmight work with the smart grid. i've had other folks talk aboutperformance-based regulation, where you might allow a utility,especially where there are operational reliabilitybenefits to the grid, you may allow them costrecovery with some sort of performance-based principlesthat would allow rate recovery. so i'm convinced that wehave the tools to do it,

it's just a matter of how do weadopt those tools to this new reality that wehave in smart grid. phil weiser:cheryl, one of thesign posts on the road, if you will, is looking at someof the bulk industrial users and others who can buy directlyinto wholesale market. and one thing that ferc hastried to do is help look at that market with an eyetowards what's the opportunity for demand response. in fact, i think yourchair, wellinghoff,

said demands response isthe killer application of the smart grid. that of courseremains to be seen. but nonetheless, the experiencein the wholesale market suggests there is some opportunity tohave people selling back to the grid on a more dynamic basis. maybe you want to tell islittle bit about that story. cheryl lafleur:yeah, at ferc,thank you, at ferc, we regulate the wholesaleand intrastate electricity

and gas markets andthe wholesale electric infrastructure transmission. and so our job is to help insurethat the wholesale markets are set up fairly for both supplyside resources like the new renewable generation thatsecretary chew talked about. in demand side resources likeaggregated demand response. and ferc has been working onmaking sure that demand response is paid fairly in the wholesalemarket so that when it's beneficial to customers to relyon that rather than on firing up

the generator, the marketwill work to make that happen. and, we, i think really have towork closely with the states, like tony's and others who areworking on demand response in the retail market and thecustomer specific applications. we are more worried aboutthe ones at that are large aggregated groups of customerwho might bid in together almost like a power plant isparticularly as we see more intermittent resources where youneed something to fill in when wind or solar is not available,demand response has huge

potential there. so i think we are just reallybeginning to unlock the power of how much we'll seeon the wholesale level. phil weiser:another point iwant to get to bob, for you is this point of isthis point about consumers. you're obviously very passionateabout getting consumers access to the energy data. i share that passion. i've also, over the years,and tony knows this,

talked to sayregulators about them, innovation policy business. i usually did that from thestandpoint of telecommunications where there was a lot ofdynamism going on in the '90's, in the telecom act 1996. now i can do also with an energyside perspective because smart grid is basicallyinnovation policy, and the issues around accessto data get into privacy, thinking about thecost recovery of this,

whatever technology is necessaryand thinking about security, how do you talk to yourregulators and how have the texas regulators takenchallenge on board? bob shapard:well, firstly in texas, by law,the data belongs to the consumer. so that data can onlybe provided through a third-party with their consent. now we have a lot of parties,google and others who want to help consumers managetheir electric bills. and we love the fact that theyare all going to throw their

products at the consumer. but first and foremost,the consumer owns the data. therefore, that'sthe first point. we actually believethat's the right model. donna is nodding, soshe made the rule. so we believe the consumershould own the data, and that kind of addressesthat issue right up front, where that belongs. in terms of security, i know thequestion was asked of the energy

secretary, we design thesesystems with firewalls. it's going to be very difficultfor someone to go through a house and take out atransmission system. there are other ways to takedown a transmission system. they will -- phil weiser:don't tell here by the way. bob shapard:i would blow up a few substations before i try to get through your smartmeter into the transmission grid. that's a long pathto go to get there.

so we really think we firewalland protect that very well. but consumer data belongs tothe consumer first and foremost. and then they will providethat to third parties. i think it's real exciting thatthere's so many third parties that want to come in andhelp them with their energy consumption andhelp them manage it. we are just starting to seethe innovation that will come. when we went from analogueto a digital phone switch, the brass ring wasthree-way calling.

and i think we havegot a ways to go here. let's just give theconsumer the information. let the market work. let people like tim help,or let others help them. i don't think weknow where it's going. and then there's theenabling capability. it's going to enabledistributed generation; it's going to help electricvehicles penetrate much quicker because you've got theability to recharge at night.

i just think it's the beginning. phil weiser:so you've set me up nicely forsomething else that secretary chu talked about. even without the formalauthority that the states have respect tooverseeing this point; the federal government hasthe power of convening. in the case of george arnold-- where are you george? are you here? inpatient convening.

and that's an importantrole to be played. the standards being developedunder the auspices of eisa, the energy independentsecurity act, are a part of what's going tofacilitate interoperability in this realm. that's an area that'sstarting to unfold. it's an area where ultimatelyferc has some oversight. and there's a ferc policythat talks about it. cheryl, i don't know if youwant to give people a little

background as to how the roleof the federal government, as on convener and facilitatorin this standard setting, and then i want to talk a littlemore about the states and the industry on bestpractice as well. cheryl lafleur:yeah, thanks. under the 2007law, ferc has the authority to work with nist -- georgearnold and others -- and look at the -- oversee the process bywhich standards for the smart grid, including the security of thesmart grid with being developed, and determine when there's beena sufficient consensus that the

standards can be adopted. and, we are really a pieceof the process to work with all the people who areworking on the standards, because it's a voluntarystandard setting process, a consensus builtprocess to give them, increase theirutilization through adoption at the ferc level. we've had two technicalconferences in the last several months and are working closelyon the next step of the first

suite of standardsthat have come forward. and then, i think adoption isone more step on the path to insure that the standardsare there to benefit. we are also very involvedin security through our reliability, direct reliabilityauthority, and the critical infrastructure standardsthat are mandatory for the transmission grid, that areanother big part of security. phil weiser:tony, i'm going toask you same question. from the state side, standardsetting is not an area where the

states have a lot of experienceand yet these standards are going to impact on them. how do you take a look at that? tony clark:state commissioner arevery interested in it because as we all know, thetechnical standards eventually become a commercial standardwhich eventually directly interface with the retail sortof regulation that states do. but as you mentioned phil,standard setting itself is not a core competencyof state government.

and states as regulatorswe are really trying to focus on the ideaof core competencies, which level of government does what best. so there's obviously going tobe a very large federal role in standard setting andin cyber security. the one issue that i thinkstates are very concerned about in addition to simplythe reliability of the grid and insuring its security isthat we want to make sure that as part of the processes that wehave, those rate cases that we have,

that we have as much informationas we can have to make sounds decisions as we passthose rate cases through. the one thing that frustratesstate commissioners, we want to be sure that wedon't get into are these sort of blank check operationswhere the utility comes to us and says well, thisis all very important, you just have to trust us. here's the check and passit along to consumers. we want to make sure that we arefully engaged in the process,

so we understand exactly what isbeing asked of state commissions to pass through to their consumers. phil weiser:and i should say on thefirst principle we talked about of costeffective investments, to embark new technology,that's what it's getting at. a shared understandingabout scaling what works, understanding what the roi isfor a particular investment, and that's something that takes,again ongoing work and there's a lot going on at doe.

i know pat hoffman is herefrom the office of electricity, she's done an unbelievable jobwith her team to help work with the state on that very point. let me go into the federal levelon another dimension which is we talked about this transmissioninfrastructure that ties it all together and the necessarycooperation there. i'm going to start withdavid on this point. that's not a small challengeacross different regions, across the federal government.

how are you goingabout pursuing that? deputy secretary hayes:that's a -- it has beena big challenge, phil, in terms of how to dealwith the planning side of transmission from thefederal point of view. and, there is a -- there's anawkwardness here about the relative authorities involved. shortly after we took office,secretary salazar, chairwoman chu, or rather secretarychu, chairwoman sutley, tom vilsack and thejohn wellinghoff,

started having meetingsthat we participated in on a monthly basis to basicallyfigure out how can we as part of the federal family helprationalize where the investments need to be made froma planning perspective in terms of new transmission lines. we all stand ready wanting tofacilitate the investment at the right place, in the right way,at the right scale, and avoid what we were hearing fromany governors that we have a chaotic situation out there.

governor freudenthal ofwyoming was the most famous. he's probably visited mostof you on this subject. even now in private life wherehe complains about the spaghetti that wyoming is going to looklike because companies a, b, c, and d all have their owntransmission projects. often these are smallerprojects, right? and here as we are stewardsof our public lands, we prefer to have one largeproject running through the public lands rather thanseveral smaller ones.

but what has evolved out ofthat are a couple of things. one is the recovery act. the doe invested significantfunds in a planning effort that many of you in thisroom are engaged in. and we've been following upour sort of kitchen cabinet if you will, of cabinet officialswho have been following up with some of you on this. you've identifiedfoundational lines, both in the west and theeast where we should give

priority attention. that's a big step forward. we want to continue towork with you on that. we are very interested and iknow that cheryl and john and john and their colleagues atferc are working at how to figure out the cost allocationissues associated with bringing together, consolidating some ofthese lines, and having fewer, larger lines. but it's, frankly it's anongoing work in progress.

and i think there's someopportunities for more creativity between governmentand industry here as we try to figure this out. what you have in thisadministration is a cabinet that is eager to deliverresults in terms of having more and better transmission. and obviously, the overlay ofa smarter grid is part of that. but we need that foundation aswell if we are going to move into the next generationof a smart grid.

phil weiser:very well said. cheryl, do youwant to (inaudible) that from the first perspective. cheryl lafleur:yes, we -- definitely weneed to modernize the grid. we need more high voltage,interstate transmission for reliability, to replace aginginfrastructure, to make markets work better, reduce cost toconsumers and businesses. to enable all smart grid thingswe've talked about already this morning and finally to connectnew clean energy resources. there's clean energyrequirements already

in 31 states. i'm talking about them on thefederal level and many of our best opportunities areremotely located from load. these are investments that aregoing to be around for a long time, maybe not the ones stillfrom tesla and edison may not be up, but these investments,last 50 or 60 years, so we need to be sure we putthem in the right places, we plant them carefully, weuse the best technology that's available and we make themas efficient as we can.

and ferc is working really oncomplimenting the doe planning efforts, we are working ona proposed rule that would strengthen and broaden therequirements that are already in place for regionaltransmission planning, this is mandatorytransmission planning. also require potentially theproposal was to require regions to plan with the neighboringregions over to facilitate projects across regions that areconsidered by both reasons to be in their best interest.

and finally to insure thatplanning doesn't just take into account reliability which iswhat utilities have done forever and done very well, but also newpolicy requirements that are being put in place at thestate and federal level. so i think we arehoping that that rule, it's just a step on the path,but it will be an important next step because we need toget this planning done right. phil weiser:tony, from the state sidehow does this planning of transmission and sitinglook to you and why is

this continually such apersistent challenge? tony clark:well, it's a challengebecause you have lots of different state intereststhat are out there and we've seen some of that eventhrough our own regional planning efforts. but i think the goal is reallyto -- it was something that secretary chu said that ithink really hit home for me personally which is this ideathat through regional planning we can have a better sense forwhat the true costs and benefits

of different options are. obviously i have bias comingfrom north dakota that i think it's a pretty good idea to buildgreat plains wind and then bring it to load. there are other folks who withintheir own states have said no, we'd rather have thatgeneration built close to load. i think secretary chu's wordswere we should go into this with our eyes wide open. and i think that's what thisplanning process will help do

and that's why states havebeen so involved with it. look, if great plains wind ismore expensive a proposition for those end-use customers inother parts of the country, then you shouldn't build. on the other hand, if the otherparts of the country that might want generation closer to loadgo into it knowing that they may in fact be raising their ratesto a degree much higher than they need to be raised, theni think they have a very real policy choice to make about whatthat means for their existing

manufacturing base, what thatmeans for their businesses in those communities and atleast all of us are making those decisions from a point ofhaving information as to point of ignorance. phil weiser:so bob, i want to endthe panel discussion, i have a little time for a fewquestions on this broad point about cooperation acrossdifferent disciplines as we set out with our eyes open,call it a investment agenda with prioritizations, thoughtful,understanding of what is coast

effective, how to make itwork engaging consumers, the utilities, et cetera. as you look at that challenge,what are some of your top of mind principles and reactions interms of making this next decade of efforts, successful, so welook back, as you said, say, we didn't juststay on auto pilot. we really took a lookat what our direction was and moved the needle. bob shapard:i don't think we cansolve this state by state.

i think we have to buildmomentum nationally. i'm chairman ofgridwise alliance, and we created a 501 c3 calledgrid 21 which is going to oversee our customerengagement program. also designed to oversee futurecustomer engagement programs around the country. i think we have to dothis and spread this. if we get more and moreresults of consumers that will drive opinion.

we need to develop acompelling value proposition. and there is a compellingvalue proposition. investment in the grid will savethis country tens of billions of dollars a year and have greatenvironmental benefits. we've got to develop that policyso regulators around the country will get -- frankly air coverfrom it and be compelled by it, consumers will becompelled by it. i think we need to give them acompelling value proposition, support consumer engagementand let the momentum build.

to go sell this one state bystate is enormously painful. and if we can buildthat support for it, i think you'll have consumersand regulators saying we need to do that. phil weiser:you're nodding your head. do you want to jump on that? deputy secretary hayes:well, i think that thesestatements are so true to be self-evident. i sound like i'm starting thedeclaration of independence

here, but you know we aretalking about enormous change in this country, about theopportunity for a clean energy economy, about much moreinformation of consumers about how they use theirenergy, you know, resulting in much moreefficient use of energy. these are enormous changes. and the -- we do need to find away to build off the strength of our state system and the committhe of our federal government together along with the businesscommunity to fine a new paradigm

here because it's frustrating toeveryone in this room i think as status quo, which does -- wherethe institutional structures are not well designed fordealing with this challenge and this opportunity. and i'm very pleased that weare all here together because we need to buildon this dialogue. as i mentioned before thisadministration has such a forward lean into these issueswe want to -- we want to improve the status quo, provide theopportunities for investment,

modernize our grid situation,help all citizens and all businesses along the way. so i welcome these ideas andlet's keep this dialogue going. i was just in a schedulingmeeting this morning we have another meeting on fridaywith chairman wellinghoff, secretary salazar, with secretary chu, with secretary vilsack, with chairsutley on this subject. and we are ready to continue toput our shoulder to the wheel and we'll look forward to thefollow up from this discussion.

bob shapard:i just have one comment. phil weiser:please. bob shapard:one of the nice thingsis this doesn't take government money. if we can get clarity, theutility industry can deploy all of the capital. with clarity we can raiseall of the capital we need. so this is up to the governmentcan encourage through rules and clarity, but doesn't takefederal money which is great

in these tight budget times. phil weiser:tony. tony clark:well, i think one of thethings that we need to make sure to do is leveragethe strengths of each level of government. so i've been very pleased. we've been working closely withdoe and i think we are just in the infancy of a partnershipto work on issues related to consumer privacy and date.

the key is that that sort ofinformation can then be put into the records at state commissionso that you begin to build sort of a standard of best practices. at the same time i do reallyfeel that we need to continue to have that flexibility at thestate level to implement these in ways that work inthose specific regions. we are going to make verydifferent decisions probably in places like the upper greatplains where we have six and seven cent retail rates in aparticular load profile and

generation profile than theymight in texas or southern california or new york. and that's okay to havesome of those differences. but to the degree that we candemocratize information about best practices with regardto consumer privacy issues, how technology can be integratedso you can utilize that in ways that make sense for your region. i think the federal governmentcan be a tremendous partner for states as we are really onthe front lines of trying

to implement some of thesevery powerful technologies. phil weiser:cheryl. cheryl lafleur:well, i just want to echowhat my colleagues have said. i think that the solutions forthe future are going to come from really the federalgovernment and the states and local actors workingtogether in a consensus building process. the grid is goingto be modernized. we are going to spenda lot of money on it.

the question is are we goingto spend it in the right places. are we going tospend it efficiently? are we going to dowhat we really need? and the best way to getthat is to work together, look at these issuesbroadly and then act. and that's what i -- that'sthe step we have to take. phil weiser:so, in terms ofwhat we'll do next, we are going to break-up intobreak out groups and continue three of the high level themesthat have been outlined.

the first is this changingparadigm of how the regulatory system works, howbusinesses operate, and how consumersact within that. you all should have onyour set of sheets which one you're going to. the second gets this point aboutinnovation, access to data, interoperability and howtechnological changes in this area will beable to be impacted. finally, we are goingto hear more about

this regional planning,transmission challenge, that obviously there's a lotof good shoulder to the wheel. and what we'll do then is comeback to this room and have sent a report out. we'll hear from our chieftechnology officer and my brother in arms inthis, aneesh chopra, about this very point. this report and this discussionis more like a revival meeting than a victory lap.

we are not done. we are in the midst of revivingour energy level to continue to take on what is a high level,from the present on down, commitment to how we can movetowards a clean energy economy and we need the grid in the21st century fashion to do that. so, each room by the waywill have a state co-lead with someone from thefederal government. tony said the folks in naruchave worked very closely with all those involved inthis effort, george arnold.

pat hoffman and others. it's going to continue to workacross a number of issues. so if people don't know wherethey are going right out here, someone will help direct you. for now i want to thank ourpanelists for really helping to get us revved up for this.

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