**INTRODUCTION: MR. SWISHER**

Our next speaker is Pat Wood. I had the opportunity to meet Pat Wood in
Austin, his first week on the job as Chairman of the Texas Public
Utility Commission. Not surprisingly, he didn't know a lot about wind
power at that point, but he had a passionate belief and commitment to
the power of competitive electric power markets to allow all
technologies to compete and bring value to the consumer.

And over his career as Chairman of the Texas PUC, he oversaw the
implementation of the Texas Restructuring Legislation, including the
renewable portfolio standards for the State.

But he and his staff paid attention to the detail; they got it right,
and from the wind perspective it worked. We now have, \-- Texas is now
the number one wind state in the country, surpassing California. And
just last week a number of wind industry leaders showed up with Governor
Perry and committed 10 billion dollars to investment in Texas and future
of the wind industry. So, he's left a lasting legacy in Texas.

When Governor Bush moved to Washington as President, Pat Wood followed
him and was appointed the Chairman of the Federal Energy Regulatory
Commission, the independent regulator of the nation's interstate
pipeline, and wholesale electric power industries. During his four years
at FERC, he pursued the same agenda on a national basis.

How do we ensure that all competitors and all technologies have a level
playing field bringing value to consumers? Again, he left a lasting
legacy at FERC, making real progress on that challenging agenda.

He did a great job there, he's now back in Houston, where his energy
infrastructure development business with Wood-3 Resources, is focused on
competitive clean power generation, independent power transmission and
LNG, liquefied natural gas. Please join me, in a warm welcome, for Mr.
Pat Wood.

**[CONNECTING CUSTOMERS TO RURAL]{.underline}**

**[RENEWABLE RESOURCES]{.underline}**

**MR. PAT WOOD III**

Thank you all. I appreciate the opportunity to come here and give some
thoughts about a topic that has been near and dear to me, as Randy just
said for the last decade of my life.

And in the context of what we're trying to do today, which is really
focus on objective things that we can actually do in the near future to
make the world advance for renewable energy, I wanted to throw some
thoughts on particularly the electricity sector. I think the biofuel
stuff that I've picked up at this conference is just so fascinating and
interesting, that as an energy guy and as a consumer, I find that
fascinating. But, my expertise is on electricity, half of that picture.
So, I want to take a second here to go ahead and jump into that.

Big picture, you've heard this for two days now, but just to kind of
reiterate the points quickly, up on the screen, I think particularly one
interesting thing is the increased electricity demand in the country. We
are becoming much more electrically intensive than a lot of the people
projected ten years ago, when they looked at what the future would be.

Texas alone this summer just did about a 4.8 percent increase, over last
summer. We didn't grow by that many people, it did get hot, but weather
adjusted it's still well above what the population increase is, and
we're just using more things that consume electricity. Hopefully, we're
using them more efficiently, but we're still using them.

And that fourth bullet, customer interest in buying power, flag that,
I'm going to come to that in just a sec. But the economics are the key
story. I think we heard yesterday and certainly the Admiral talking
about it early this morning, about the subsidy issue here.

But you look at the fourth one over from the left, Gas CC. Now, not in
St. Louis, because it's a much more coal and nuclear driven economy, but
in a lot of the Sunbelt, and even up into New England, all the way
around to California, gas sets the clearing price in most hours, if not
all hours of the day and night and so that bar, that fourth bar,
reflects where gas combines cycle, which is a pretty efficient method of
setting gases, setting the price.

So, you've got really the four solid fuels, nuclear, hydro, geothermal
and wind, the four non-fuel consuming fuels, I guess if you would count
uranium out of there, are below that clearing threshold. Now you put
pulverized coal in there, which is the first one on the left, which is
predominately here in the Midwest, you still have a little premium
that's being paid for wind, but, you know this is a lot different than
this chart would look ten years ago folks.

And where you see solar today, ten years from now you'll probably see it
where wind is, you know. And I got to confess, I'm on the board of
SunPower, which is a solar cell manufacturer. I do sense clearly, that,
that is a very future driven event for the next seven to ten years. All
the solar manufacturers are going to work very hard to make sure that,
that number comes down. It should be noted that those last two fuel cell
and PV on the roof, compete at retail prices, and all the rest of these
charts are wholesale prices.

Big challenge here, of course, as we know, wind is where people aren't.
And so we got to do something about that. I think two things that we can
do is use the power where it is, in a way, distributed generation. And
the other thing is to move power away.

I just want to spend a second on the first option. Using it where it's
generated. If you walk around the panels here outside and look over the
exhibit hall, there's clearly a lot of opportunities there, all those
use some sort of power. Even the most efficient processes that we're
talking about, out in the Midwest, and throughout the agricultural
regions of the country, do consume some power. What kind of power are
they using? Right now they're using coal, generally, some natural gas,
some nuclear, depending on where we you are. Probably near here you've
got a nice mix of those three. We have another option it's the fuel
that's blowing for free. It's right nearby. We don't have to build a
huge infrastructure to get it there.

So, there are a lot of opportunities here, I think, and then again, I
was just free forming here thinking about these things, there are others
more expert than I, that can flush out this option. But rather than
worry about the transmission network, which is the other option, moving
power to customers, there are some opportunities to actually consume it
locally.

But I would like to focus on this last one, because this has been my
bailiwick for the last ten years. How to get the transmission grid
enabled for the new economy. It was built for a different world. As the
Admiral pointed out and we saw so blatantly in the 2003 blackouts in the
Northeast, it was built for a very different world. But, we are putting
demands and uses on the power grid that are so different today than they
were before, we need a bigger and more expanded power grid. I think it
should be noted that the power transport cost at this voltage we are
talking about, probably comprise 4 to 9 percent of the total delivery
cost of electricity. So, were not talking about a humongous part of what
we're paying for when we consume electricity, when we talk about
transmission. We're talking about a very modest cost to enable a very
important commercial transaction to happen.

The second important part, \-- and this is what I didn't realize when I
first got into the regulatory gambit, but that was the balancing markets
for energy are very important. Just like the markets were very important
for the development of our early economy in futile Europe, when farmers
and crafts people came to the market underneath the castle walls and
went to the people who wanted to buy from them. That kind of enabling of
a large marketplace is a very important step that has been very
beneficial, primarily to wind.

And when I talk about renewable power, quite frankly, 93 percent of the
renewable energy that we've talk about here, apart from the large scale
hydro that's been a historic part of our landscape, is wind. So, I am
being a bit wind centric, even though, I've got some solar interest as
well.

So, I'd like to focus on what did work well. In all humility, I must say
that the best example in the U.S. of how renewable power can be
stimulated and then supported is the State of Texas. As then Governor
Bush's Appointee to the Public Utility Commission back in the mid and
late '90(s), I remember one day on one of our frequent policy
discussions in his office, him saying to me as I walked out the door,
"*Pat, we like wind,*" and child of the Reagan Revolution that I am, and
was, I went, *\"Really?\"* He goes, "*Get smart on it and come back,"*
which is what he told me to do about a lot of things that I kind of had
that look about. Which is good; empowerment, he's good at that.

We went about through the next two years deliberative polling across the
State of Texas, where we invited customers to come in, get educated on
pros and cons of every type of electric issue, we would focus on about
four or five key issues, generally, around the State. And we actually
went over into Louisiana, because some of our utilities spilled over
into other parts of the country, and we asked the customers what they
thought; a great thing to do, ask customers what they think? And
customers, in an overwhelming, \-- and even for me, and I like to think
I am in touch, \-- overwhelming majority said that they were willing to
pay more, not a whole lot more, but modestly more, to have green and
clean power. They were also very interested in energy efficiency and
willing to pay more for that, if they understood it better and were
empowered to do something about it, other than just pay a bill every
month.

Armed with that information, went back to the Governor, he said, "*Okay,
let's make something happen. We are on the verge of restructuring our
electricity market,\"* he said *\"Let's make something happen."*

So, with the help of a lot of great people, many of whom are in this
room, I'm going to give special credit to the EDF, they came up with a
very good renewable portfolio standard. We adopted, probably the first,
or at least the first or second one in the country, to enable the
development of renewable power, which what we thought was a very
aggressive target of 2000 megawatts, which by 2009, which we shot
through this year, the state has since upped that target to 5000
megawatts, and I expect that will be surpassed well before 2015, when
it's set to do.

In any event, Governor Bush wanted to have a market based mechanism to
price out the subsidy, so that it worked as much as needed, but not too
much and not too little, and it's been a wonderful, stimulus for
development in our state.

With that, we've seen other states adopt it across the country and
that's certainly a very important thing. But, other things about the
Texas experience were pivotal, one that we could build transmission,
clearly send a signal to the people who are building it, that they are
going their money back, with a decent return, not too generous, but
decent enough to get them to do it and to get the permitting and the
rights-of-way done. Those things sound, \-- oh, that's just utility
jazz, it's why we don't have a grid today, folks. People can't get the
permits, and even if they do get the permits, they can't get the money
so, therefore, they can't get the financing and get it done. It's only 4
to 7 percent, 4 to 9 percent of the bill, but it is big dollars. And so
trying to get those things built is very important, and having a market
into which you can sell and buy power is an important thing to have.

We did solve that problem in Texas, I won't say it was inspired by some
great intellectual knowledge, it was just kind of dumb luck and
listening to the customers and to the people who were trying to make a
business in the State, that we were able to get this done.

Our federal experience, I spent four years at that, is a bit more mixed;
depends on what you've got. If you've got an open market, \-- RTO stands
for Regional Transmission Organization, you have some pretty good
things, all of which have been very good at supporting wind. Even the
RTO(s) however, have not successfully gone through significant
transmission experiences like we have had in Texas. Although, I think
that is on the cusp of changing.

In the non-RTO world, we've got really a bit more of the archaic
mechanism that is a barrier to wind entry. Fortunately, the non-RTO
world is about a third of what's left in the United States. In the
Southeast there's not a lot of wind potential, although there's some,
but this is mostly significant in the Western United States, where we
don't have an RTO and have to basically go through a very kind of old
system of trying to get wind from where it's produced to the
marketplace, in a manner that keeps the economics right.

But the problem really, as I mentioned here, is not a physical one, it's
regulatory. Because of variability, the wind, you know, again, has to
have these large markets. I think about it like a canoe in a pond. The
small pond you fall out of the canoe, it's a big splash on the shore.
For these small pools, you have lot of wind, it doesn't quite fit in
there, it's got sharp elbows. In a large pool with a lot of other types
of power being produced, and a lot of customers consuming power, you
don't really notice when you fall out of the canoe, you just climb back
in and the ripples don't hit on the pond.

Wind can be integrated. We've looked at this from a number of angles, to
make sure that the actual cost impact of making wind firmer than it is.
You got to remember that customer\'s mode is just as variable as the
wind energy, and with the ability to forecast customer load based on
temperature and environment, it's similar to the ability to forecast
wind, based on the wind patterns across the state.

So, with twenty minute nomination cycles, and some of these type of
things that have been innovative, in California and other power markets,
that have rallied wind energy developer or generator to change his
nomination of how much wind he's going to put on the grid, is as close
as twenty minutes to when he's going to actually do it.

Those kinds of things really do keep the cost down and this again is
about how we have 2 to 8 or 2 to 10 percent of the total cost of power
would be these numbers here on the right. I'd be glad to talk about
those with anyone off-line.

Let's talk about what's the point here, my recommendations. The CREZ
Model, which Randy referred to when he introduced me, was if you build
it, they will come. The Governor and the legislature of Texas, \-- and
bi-partisan legislature, not the snippet we see elsewhere, but the
bi-partisan legislature said that,

> "*We want to facilitate wind*. *We know you can build a wind generator
> faster than you can build a transmission line so, we better get
> started on the transmission lines first."*

It's a bit of a gamble, but it's pretty obvious in Texas where the wind
is and where the wind could be and where it would be developed.

So, the legislature, just this last week, the Governor articulated the
commitment of the State to build the transmission grid to facilitate the
10 billion dollars of wind investment.

I think DOE can use a counterpart to that. It's not quite as clean and
clear as the Texas CREZ Model, but in the Energy Bill that was passed
last year, the DOE got authority to designate corridors across the
country for a number of reason and with the procedure that they've
already begun. I think that they've identified that the Dakotas, \--
clearly the Dakotas have a lot of wind potential. North Dakota alone,
could probably produce, if we bided perfectly efficiently, could produce
probably 40 percent of what it would take to keep every electric
appliance going in this country or electric, \-- every electric use in
this country. That's North Dakota alone.

We built a backbone through the Dakotas down to Texas, following the
ridge on the map that we've all come to know and love. That could do a
hell of a lot to get wind. Put the East\\West ties, could be AC, could
be DC, probably mostly above ground, but there's some underground
potentials as well. There's a lot that can be done to really start the
development of the super grid of tomorrow.

I think the Midwest is the obvious choice for that, but I think the
Southeast could also have a good solar wind play. California's moving
actually pretty well on its own, so I didn't put that here as a DOE
recommendation, I think they'll be able to actually get this built in a
manner similar to Texas. They've solved the regulatory problem, even
though they are FERC jurisdictional, and the permitting is always more
difficult in California. But, to get the Tahachapi Wind Projects
developed, which is 3 plus gigawatts of wind, that's a pretty
significant step that will happen.

And so, I think the model could certainly broken open here. Getting it
paid for is a little more complex among multiple states, but we've got
RTO(s) throughout the Midwest. WAPA, the Federal Power Administration,
part of DOE, is also part of that mix and can certainly help with the
rate spreading here, in states. States are very interested in financing
infrastructure in this part of the country and I think that, that's
certainly something that we ought to look for.

Government leadership has done a lot here, even as a small seat
conservative Republican, I think that government leadership can
continue. Certainly it's been a big part of this industry for a long
time, not renewable industry so much as the oil and gas industry that's
made Texas so great, made the country great, has benefited a lot from
government leadership. Although we're populated with people who like to
wear big hats, boots and talk about how much they hate the Federal
Government, the Federal Government has been very good to the oil and gas
industry and I think the other industries should not take notice of the
fact that they can't get it too.

The *infinite* industry arguments that have been used to subsidize
various aspects of oil and gas development vary success, we type gas in.
Section 29 credits over the past few years, have been a good example of
how we've been able to lead with tax credits and use them and then
terminate them when their time is up.

I think similarly the Production Tax Credit for wind and the new credits
that are in place for solar, are good. I think they're similar to the
ones that we see on the ethanol side that are able to, \-- they're a bit
focused on certain types of production, I wish they were broader, but
you know you can't revisit those things at this stage. But, they have
helped get technology where they are.

The focused R & D that's been done by the Department of Energy here and
by numerous governments around the world and by businesses around the
world, has been excellent, it has moved the cost of these wind energy
turbines that you see behind you, significantly, they've gotten bigger
and they've gotten more efficient. They kill fewer birds. They use more
efficiently the wind that come across them. You can actually now put
them on coastal areas and have neither bird problems nor wind
inefficiency problems, that's because the R & D was done.

So, I think even for the conservatives among us, who don't like the
government doing much of anything, because they generally tend to screw
it up, this is one area where they really haven't, and I think it ought
to continue.

Regulators, while I'm one of them, \-- a former one, have done their job
to open grids and promote large power markets. That work's not quite
done. I think it should be completed.

State programs, these are RPS(s) that do a minimum demand created by
setting forth, \-- you know, the Federal Government set a good example,
saying *\"We will buy certain amounts of renewable energy.\"* I think
that ought to continue and probably expand.

States have done that same thing on behalf of their customers, saying,
"*We're going to do this type of thing as we've done in Texas*," and now
twenty-two other states, plus D.C., have moved in that direction as
well.

Bottom line though, as we're moving to more and more open markets for
customers, it's great as I saw through this deliberative polling
process, to educate customers; to help customers understand what it is
that renewable energy does; the cost and the benefits of renewable
energy as we were doing in Texas, through basic people that didn't have
Harvard degrees. Some of them have GED(s), maybe they didn't even have
that, some of them didn't even speak English, we had Spanish only rooms
when we were in Corpus Christi, for example. Those people got their
chance to be educated and to understand what it is that renewable energy
does and how they can be part of it. And I think that is a fantastic way
of empowering people, because that's how these changes become lasting.
Not when government folks, \-- and God bless us all for being here, us,
make these decisions, but when customers are voting with their dollars
to make it happen.

I'm the father of four boys, I will confess these are not my four, but
the picture was irresistible, one of them is too young to actually be
standing out in the little Stetson, but I thought about what kind of
world will it be when they grow up? In 2020, it's my hope, it's actually
my expectation, because I'm a bit of an optimist here and I have always
been, I think the transmission sector would have gone from a low of
about 3 billion dollars a year to double that over the next fifteen
years to really create our super grid for the country that we need.

I think we will have moved from all these different disparate utility
control areas, to about 10 large power pools that really do facility the
trade and transport of wind and other renewable resources, as well as
the traditional fuels.

We'll have a half dozen new long distance, very large, backbone
transmission lines coming out of the central part of the country. This
isn't only my recommendation, I think a lot of other people believe in
it too, so, for that reason I put it in my prediction.

I think we'll be significantly freer of our entanglement with unfriendly
countries from whom we're now dependent on significant sources of
energy. And I think these four boys, \-- my four boys would breathe
freely in a technology friendly, energy efficient country and not really
know how close we've come to a train wreck these past few years, because
we took the needed steps today to advance renewable energy, and that's a
good thing, thank you.

**CONCLUSION: MR. SWISHER**

Thank you Pat Wood.