Copyright © 2009 Global Smart Energy

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Copyright © 2009 Global Smart Energy

• Our industry will see more change in the next 10 years than in

• Electric power has always been crucially important, but going forward it will have an even larger role to play in the health of this nation.

• And ultimately, the health of every nation.

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• Everywhere you turn, you see an enormous energy

• Climate change, rising costs, energy poverty, aging infrastructure, peak oil, population growth, and rising demand.... The list goes on.

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• Increasingly, the world is looking to the electric power

• Climate change? Let's ask the industry to put limits on power plants and to integrate massive amounts of renewables into the system.

• Peak oil? No problem, we'll just electrify our transportation.

• Rising costs? We'll just have the electric power industry integrate demand response and energy efficiency.

• Aging infrastructure? We'll ask them to modernize the grid while they are at it.

• But don’t you dare raise rates!

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• RECOGNIZE — Charts make a point that has been overlooked. If you driving trend for the next two decades.

• Accidental Addiction — 1950, GDP 20% dependent, 2008, 60% dependent. And this is before we electrify our transportation.

• It is the end of the Petroleum Economy, the beginning of the

Electricity Economy.

• RETHINK – We are entering an entirely new era with new rules.

• Electricity is no longer just an enabler. It’s not just something in the background that allows innovation elsewhere.

• It is the source of national advantage.

• REMAKE — As a platform on which innovations are launched and distributed.

• In the Petroleum Economy, access to cheap oil was the chief determinant of economic advantage.

• If you didn’t have enough, you were forced to fight wars for it or accept second-class status.

• In an Electricity Economy, access to cheap, reliable, clean electricity will be the key determinant of national advantage .

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• Against that backdrop, how do we manage the change that is in the next two decades?

• Apply these four lenses to our thinking.

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• By patterns, I simply mean learning from the lessons of the

• More specifically, the lessons of previous infrastructure transformations.

• When we look back, we discover that infrastructure innovations and infrastructure upgrades have been our country’s primary engines of innovation and new jobs and growth.

• Infrastructure is one of the three things that has provided national advantage and kept us at the forefront despite some of our mistakes:

• Educational system

• Entrepreneurial capacity

• Infrastructure

• We are losing our infrastructure advantage across the board, whether railroads, highways, broadband access, cell phones.

• If we lose it in electric power, we are sunk as a superpower.

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• Transcontinental Railroad was authorized by Abraham

• It was completed in May 1869, and over the next 20 years we built out the network until it reached critical mass

• In 1886 Richard Sears, agent of Minneapolis & St. Louis railway, sent 2-page flyer of watches

• By 1895, it had grown to become a 532-page catalog, the Sears

Roebuck catalog.

• Because of this new infrastructure, Sears could undercut the high prices of the general stores.

• Sears dominated mail order retailing for a half-century.

• He realized the railroad network meant new ways to connect, new ways to conduct commerce, a new competitive advantage.

• For Sears

• For 10s of thousands of manufacturers all over the country

• For the country as a whole

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• What can we learn from the telecommunications network and

• We originally regulated phones and created incentives to encourage a massive build out so every home and office could ultimately be connected.

• Under that regulatory regime, here’s what a phone looked like in 1929 (above).

• Here’s what it looked like 30 years later (above).

• The only innovations were colored plastic and coiled cords.

• Then came Telecommunications Act of 1982, which went into force in 1984.

• Within a few years, venture investment had risen tenfold, and we began the process to take it from analog to digital.

• In short order, we got PBXes, multi-line phones,

800 numbers, cell phones, VoIP, and now Blackberries and iPhones that are phones + computers + MP3 players.

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• And we enabled dozens of important and large new revenues .

• We also created national advantage

• If look back at past patterns, we see that opening infrastructure to innovation brings rapid progress.

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• I could tell similar stories about other infrastructure

• It is no accident that the maps look so similar.

• They are all about national networks that create connections, commerce, and competitive advantage.

• Individual advantage

• Company advantage

• National advantage

• Ask ourselves: Where would we be without the jobs and opportunity made possible by :

• The Interstate Highway network and all the new companies and commerce it enabled?

• The Amazons and Googles and Ciscos from the Internet?

• And where will we be if the jobs and revenues created by this next transformation all flow to China or Europe?

• What kind of money is at stake?

• At least $20B today, according to Morgan Stanley and using a narrow definition

• At least $100B by 2030

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• If we learn from the patterns of the past, if we recognize the role than ever before

• Then it becomes obvious that:

• We must align the profit motive toward the betterment of electric power.

• We must make electric power the best place to innovate and build a company.

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• Our brightest minds are building applications for Web 2.0,

• To the extent they consider energy, they work on wind or solar or biofuels.

• That’s fine but...

• It’s the grid that ties everything together.

• It’s the grid that will make things like electric transportation and remote renewables possible.

• It’s the grid that is so far behind.

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• The difference in power between an electric adding machine of the

• Between the rotary phone of the 1950s and the iPhone of today.

• The planes of the 50s and the stealth bomber of today

• Now think about the grid:

• Invented in the Age of Edison

• Designed in the Age of Eisenhower

• Installed in the Age of Nixon

• Done almost nothing new since

• Joke: If Edison came alive, he could understand and operate the grid (Tesla actually).

• What would it say about the aircraft industry if Orville and Wilbur

Wright could come alive and pilot a stealth bomber or a 747?

• What does it say about our industry that Edison and Tesla could pilot our current grid.

• We shouldn’t be content with a last-century grid.

• We shouldn’t believe that innovation can’t occur here. And rapidly.

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• If I had to pick two metrics you could measure today from now —

• When the Electricity Economy will be well underway and recognized by all

• When electric transportation will be mainstream

• When we will be fully immersed in a hot, flat, crowded, globally competitive world

• I would pick:

1. Broadband penetration

2. Smart meter penetration

(Smart meters are not the only or maybe even most important part of Smart Grid, but a useful, visible metric.)

• Sweden, Italy, New Zealand 100% by end of 2009.

• China by 2013.

• We are on pace to maybe be at 30-40% by 2013.

• How much of a head start can we give the rest of the world before we can no longer catch up?

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• The patterns of the past remind us how important electric

• We must get the power of the profit motive working in its behalf.

• That means we need to construct the Smart Grid as an open framework for innovation.

• We must take lessons from other industries and —

• Embrace open standards.

• Encourage a platform approach.

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• Standards give power to the customer:

• More choices, more freedom, more expandability, more future-proofing, lower prices

• Windows is an analogy we’re all familiar with. The iPhone is another.

• Think of the choices, options, low costs we have in computing

• We can have that in electric power

• Realize this: The national electric bill is more than twice the national phone bill. And think of the choice, innovation, value, and low costs in phones.

• We can have that in electric power (where there is more than twice as much money at stake).

• Think of the choice, innovation, value, jobs from the

Internet.

• We can have that in electric power

• And we can make a heck of a lot of money doing it.

VC John Doerr says:

• Internet: 1 billion users, $4 trillion market

• Alternative energy: 4 billion users, $10 trillion

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• To make that possible, we should adopt lessons from telecom, to provide basic services.

• Then other companies build solutions on top of that platform.

• Clearly, we can’t and shouldn’t allow access in a way that jeopardizes safety or reliability or privacy.

• I’m not suggesting we invite people inside our substations to tinker around.

• But there are many places that could be and should be much more open.

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• Talked about Patterns:

• We must realize the importance of infrastructure transformations.

• We must realize that the grid is the next big transformation worldwide.

• A modernized grid is a legacy that will last for generations.

• Talked about Profits:

• We must make electric power the best place to bring innovations and entrepreneurial ambition.

• Talked about Platforms:

• We must structure the Smart Grid to enable rapid innovation.

• Talk about Policy:

• As Morgan Stanley put it recently: Regulatory change is absolutely necessary. The market will stall if it doesn’t occur fast enough.

• Without getting tangled up in details, there are three principles that will help our thinking.

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• It’s important to acknowledge how difficult it is to create and change

• Electric power infrastructure is very fragmented and balkanized.

• It is very difficult to ask them to make sacrifices for the greater good.

• Especially in a democracy where you don’t have centralized command and control.

• And especially when political changes are the slowest and most difficult.

• I often show this illustration to explain why policymakers have the hardest job of all.

• Here is the typical rate of change for technology, business, social and political.

• Even though I was joking about that last point, I’m not joking with this next one:

• The red line is an approximation of the pace of change in electric power regulation.

• Without debating which policies to change, I hope we can agree that we need to decide quickly.

• Regulatory uncertainty and regulatory inconsistency and regulatory obsolescence are crushing the entrepreneurial life out of electric power.

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• How do we move forward rapidly in policy? First, we have to opportunity for that kind of work

• We must end the stovepipes within utilities, between departments.

• We must end the stovepipes and isolation between utilities.

• Planning together, regionally is what will give us interoperability and economies of scale and economies of intelligence.

• We cannot afford to reinvent the wheel 3,300 times for 3,300 utilities

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• The second principle is to skate to where the puck will be.

• Plan for the future we want, not the past we came from.

• The past we came from:

• Urban electrification

• Great Depression

• Rural electrification

• We rewarded big risky investments in massive centralized plants to electrify all of America.

• We made policies to reward big investments and to reward reliability at all costs.

• This was completely justified and correct.

• Now we have to change the rules to create the future we want:

• Achieve efficiency (do more with less), substitute bits for iron, sell less electricity, and make it interoperable

• We must move to a system that rewards utilities and innovators and entrepreneurs for efficiency.

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• Very simple equation: We get what we reward

• If we want...

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• I will give you a quick Stimulus Update and then finish with a

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• I assume that you saw this announcement before you came in

• Here is Secretary Chu’s original promise (see above).

• I confess I was worried that he would not be able to come up with a system that was quick enough and avoided the cumbersome government contracting problems.

• So I was delighted to see this quick and easy system that they have developed.

• Quick warning: I stopped off this morning to get a couple billion. And it really makes it hard to fit your wallet back into your pocket.

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• At SmartGridNews.com, we developed a Stimulus Scorecard to help people be sure they are taking a holistic look that considers all the stakeholders.

• Go to SGN and search for Scorecard to see the full article and explanation.

• We have 23 criteria in all, and we will be updating to version 2.0 soon and adding some more.

• I won’t list them all, but here are a few key points:

• Consumers first:

• Empower consumers as participants, not sheep to be herded.

• E.g. tangible, measurable benefits that consumers can grab onto, that policymakers and regulators can explain to their constituents.

• Utilities win:

• Open, interoperable

• Scalable and replicable — we can build platforms from day one

• Country wins:

• Short-term jobs

• Long-term asset

• Implementation plan and experienced team

• Planet wins:

• Environmentally beneficial

• Enable renewables

• Please contribute and improve!

• Will be distributing to governors and policymakers

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• Unprecedented challenges but unprecedented opportunity as well.

• Several perspectives can help us get it right.

• Talked about Patterns from the past:

• Must realize the importance of infrastructure transformations and that the grid is the next big transformation worldwide.

• Talked about Profits:

• We must make electric power the best place to bring innovations and entrepreneurial ambition.

• Talked about Platforms:

• We must structure our systems to enable rapid innovation.

• Talked about Policies:

• Planning for the future we want.

• Thank you to Senator Cantwell and Tim Thompson and their team:

• For the chance to gather with leaders like you

• For the chance to influence where things go

• Thank you for putting your shoulder to the wheel as well.

• Alan Kay said the best way to predict the future is to invent it.

• This is our chance to invent an electric power infrastructure that truly can be:

• An opportunity for ourselves and our companies as well as

• A lasting legacy for those who come next.

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