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• Our industry will see more change in the next 10 years than in previous 50.previous 50.

• 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.

2Copyright © 2009 Global Smart Energy

• Everywhere you turn, you see an enormous energy challenges.challenges.

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


• Increasingly, the world is looking to the electric power industry for solutions. industry for solutions.

• 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!


• RECOGNIZE — Charts make a point that has been overlooked. If you don’t get this, you will miss the point of my presentation and the key don’t get this, you will miss the point of my presentation and the key 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 .


• Against that backdrop, how do we manage the change that is coming — the change that will determine our nation’s fortunes coming — the change that will determine our nation’s fortunes in the next two decades?

• Apply these four lenses to our thinking.


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

• 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.


• Transcontinental Railroad was authorized by Abraham Lincoln.Lincoln.

• 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


• What can we learn from the telecommunications network and the transformation it saw beginning in the 1980s? the transformation it saw beginning in the 1980s?

• 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.


• And we enabled dozens of important and large new companies, tens of thousands of new jobs, billions in new companies, tens of thousands of new jobs, billions in new revenues .

• We also created national advantage

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


• I could tell similar stories about other infrastructure transformations.transformations.

• 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


• If we learn from the patterns of the past, if we recognize the vital national role that electricity will play — a more important vital national role that electricity will play — a more important 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.


• Our brightest minds are building applications for Web 2.0, Facebook, and video games and ringtones!Facebook, and video games and ringtones!

• 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.


• The difference in power between an electric adding machine of the 1950s and a server farm of today.1950s and a server farm of today.

• 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.


• If I had to pick two metrics you could measure today to predict which regions will predominate 10 years to predict which regions will predominate 10 years 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?


• The patterns of the past remind us how important electric power will be to our national prosperity.power will be to our national prosperity.

• 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.


• Standards give power to the customer:More choices, more freedom, more expandability, more • 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


• To make that possible, we should adopt lessons from telecom, computing, and the Internet where they use an open platform computing, and the Internet where they use an open platform 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.


• 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.


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

• 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.


• How do we move forward rapidly in policy? First, we have to start planning together. This conference is an important start planning together. This conference is an important 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


• 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.


• Very simple equation: We get what we reward

• If we want...


• I will give you a quick Stimulus Update and then finish with a final summary slide.final summary slide.


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

• 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.


• 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


• Unprecedented challenges but unprecedented opportunity as well.

• Several perspectives can help us get it right.• 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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