Energy Innovators Roundtable Series | Reshaping regulation to recognize the imperative for technological change

Tom: Good afternoon and welcome, everyone. We're going to get started here in just a couple of moments. Absolutely delighted to welcome everyone to our first Energy Innovators Roundtable session of 2021. As many of you know these sessions, we started doing them about 4 or 5 years ago at Gowling WLG and we have really quite enjoyed them and gotten some really great feedback from people regarding them. This fall we have, once again, three roundtable sessions. Today's, of course, is going to be focused on energy and regulatory matters, in particular, reshaping regulation to recognize the imperative for technological change. Next month's roundtable is going to be focused on equity, diversity and inclusion initiatives in the energy sector. That's on Thursday, October 21 and then our November roundtable is going to be focused on what we need to have learned as a sector, coming out of Glasgow and the COP-26 negotiations, and that, of course, is on Thursday, November 18. My name is Tom Timmins. I lead the Energy Group here at Gowling WLG. I sit in Toronto and I'm absolutely honoured and delighted to pass the microphone, or the virtual microphone, over to my partner and good friend, Ian Mondrow. Ian Mondrow is a partner in our Toronto office as well. He practices in the area of energy regulation and policy, as part of our energy sector group. He is a member of the firm's National Energy Regulatory Natural Gas, Hydrogen and Biogas and Ag Energy subsector groups. Ian has been working in the energy sector and probably known to many of you for, and I hate to say this Ian, for more than 30 years. He is an absolute delight to work with. He's a pleasure to have as a colleague and that is reflected as well. He is listed in Chambers Canada, among the best lawyers in Canada, the Lexpert Special Edition on Infrastructure, the Canadian Lexpert Directory, all listing him as one of Canada's leading lawyers in the energy space. So, Ian, without further ado I'm going to pass it over to you and I'm really looking forward to hearing what Gordon and Joe have to share with us today. Over to you, Ian.

Ian: Thank you, Tom, for that kind and somewhat embarrassing introduction. I appreciate that. Hopefully we can edit some of that down in the final version. I'm going to start and welcome everybody. We've had a chance to look at, obviously, the list of delegates to this roundtable and it's impressive and while I certainly miss our ability to sit around our boardroom table in person, and hopefully we'll regain that, there are advantages to these platforms and that is just being able to allow more people to participate and observe. So we have quite a fantastic range of participants and observers out there so, thanks, and you will be participants I hope. So let me first just remind us of the topic and you will have seen this in the teaser we sent out to get you to register. So whether they like it or not energy regulators are the gatekeepers of the technology shift that's needed to meet Canada's carbon reduction goals. This will require significant and near term changes to the construct under which Canada's utilities have traditionally been regulated and that's what we're going to hear about today. Traditional regulation doesn't incent utilities to retire technology, for example, simply because something better has come along. But should it? Should regulation transition from used and useful to better, and if so, how should that be done and what are the considerations? So, those are the kinds of topics that we're going to talk about today. I want to invite you all, please, to use the Q&A function on the Zoom screen in front of you and please provide comments, provide questions. I will be watching for those and using those to invite Gordon and Joe to share their views with us. I will certainly relate comments that come in so that we can share those with everybody. Please do that. Don't make it too easy for these gentlemen. I've obviously talked to them about some questions I have but let's give them some that they're not expecting and make it a little bit fun. So, don't take it easy on them. I need your help in that respect.

Let me briefly introduce them. I'm going to start with Gordon Kaiser, who I have had the pleasure of knowing for some time and who is, to start with, a wonderful human being. Very generous person. I met Gordon, I guess in earnest, when he was OEB Vice-Chair, and I had the privilege of spending some time at the Ontario Energy Board when Gordon was Vice-Chair, and learnt a tremendous amount from that experience, in general, and from Gordon in particular. Both at that time and over the years reading his decisions, including his dissents, which were among the most interesting of his decisions, I thought. He is now an arbitrator. He's regulatory counsel in proceedings in front of energy regulators. He spent some time as the Alberta Market Surveillance Authority. He is the Editor of Energy Regulation Quarterly, which many of you will know that and will read that publication and its contents regulatory, and I don't think it's an overstatement to say that he is an icon and a leader of the Canadian energy bar and we're very fortunate to have him and his generosity guiding that portion of our Canadian legal community. He has some opinions, as most of you will also know, so I'm looking forward to that.

Then to balance Gordon a little bit, we have Joseph Kelliher who I haven't known quite as long or quite as well, but I do know, as do you, that he was previously Chair of FERC from 2003 to 2009, I think it is Joe, and including through the 2005 Energy Policy Act, which of course reformed the Federal Energy Regulatory Commission in the US and significantly expanded its powers and responsibilities. Interesting how web blurbs say expanded the powers and of course with great power comes great responsibility. So I'm sure, Joe, that you would have been keenly aware, not only of the powers, but of the responsibilities from that reforming legislation. Joe is also now an arbitrator and a mediator and Joe you will know, most of you, and those of you that don't already will find that he is quieter than Gordon but certainly no less knowledgeable or thoughtful. So I'm really looking forward to the discussion that these two eminent gentlemen will guide us.

So I'm going to ask each of them, first Gordon and then Joe, to make a few opening remarks and then we'll get to the discussions, so please start firing in your questions in the Q&A function and I will open that on my screen and watch for it. Gordon, over to you. Initial thoughts on the topic and then as Gordon's speaking, Joe, you can reformulate or formulate your opening remarks, and I'll stop talking. Gordon, please.

Gordon: Thank you, Ian. I think Ian has set the stage as well as anyone can. The energy sector generally faces historic challenge. We have very ambitious carbon reduction goals around the world. Certainly Canada is no different nor is the American's. I think it is true, as he stated, to say that while it's not widely recognized I think my view is that the energy regulators, in this country and no doubt in the US, are going to play a critical role and if they cannot meet that challenge these goals are not going to be met. It's as simple as that. So this is not, as we used to say in the old days, an academic issue. This is a real business issue. We are fortunate in this country to have some very good energy regulators across this country. In fact I don't think we have any bad ones. I think that they're up to the challenge but it is going to be a new day and that new day will require new regulatory procedures to get this job done. So we can take a stab at them and this conversation today. This is not easy. Nobody has a perfectly clear crystal ball so you will excuse Joe and I if we venture off and speculate on some things that may or may not happen. But as any observer we're just trying to do our best to see where this is all going to end up and hopefully we'll do a much better job of this than we did of the Coronavirus. With that I'm over to Joe.

Joe: Great. Thanks. Gordon, I'll probably go at a little bit more length than you, but I agree that the electricity sector is experiencing a greatest influx of technology in a 100 years. A lot of it is poised to enter the sector and I agree, the regulator can be a gatekeeper deciding how much that technology is allowed to enter. To me that's sort of striking because there's a general perception that utilities are slow, or hostile, to embracing new technology and at one point one of my successor for Chairman referred to utilities as dinosaurs, specifically with respect to technology adoption. One US utility CEO, he was sort of offended by that comment, and he said maybe we're dinosaurs but dinosaurs ruled the planet for millions of years. He was trying to find some solace in the insult. I personally don't think utilities are hostile to new technology but they are in love with rate base accretion. That's the essential nature of utility regulation and the utility, a rationale utility, I'm not saying a bad utility, a rationale utility will always prefer a chunky capital intensive solution to a problem where a cheap technology solution might have served just as well. That's just the nature of it. But I do think, in my opinion, utilities will be just as quick to increase rate base with some large capital intensive new technology than they would be with an equivalent increase of some proven technologies. Some older technology. An example would be smart meters. US utilities, I think I would say the more clever ones, the smarter ones. They were very quick to deploy millions of smart meters, and in some cases without having any idea how they would use those smart meters, because that was chunky rate base accretion. So it's a chunky rate base that's attractive. But as Gordon mentioned, another villain in the eyes of new technology advocates, is the regulator. It's not just the utility, the dinosaur, but the regulator and somehow regulators are the problem. They're seen as the barriers to innovation. The classic example would be the black rotary phone. The phone regulator in the US was responsible for not allowing phone technology to advance beyond the black rotary phone. The only competition managed to produce innovation. Again, I don't think in my view, it's not the regulator that is the barrier. It is regulation itself because regulation, when you look at the core of it, it does not incent utilities to retire used and useful technology that is not fully depreciated just because something better has come along. That's just not the way regulation works. Now if you want more technology deployed, I think it's very important to understand how does current regulation discourage or what are the barriers under current regulation, not regulators, but regulation to technology deployment. If you want more technology deployment than is really possible under that construct, how do you change the construct? How does regulation have to change?

I'm just going to highlight four areas that I hope we can discuss, and not just flag an issue, but offer opinion. To me these are four key issues that revolve around how will regulators, how would and could, regulators approve new technologies, particularly carbon technologies. The first is the prudence standard. Does the prudence or reasonableness standard, is it nullified, is it subordinated or does it remain? To me that's really important because I think it's essential that it remain. Perhaps in a mild like form that it remain. But that's critical in deciding how much technology could be approved and what circumstances it could be approved. In my view, if the prudence standard is nullified, it disappears, it goes away. Then arguably any technology investment that is directionally correct, whatever the government's policy goals are, should be approved. No matter what the rate impact is. Even if the technology fails to deliver its expected benefits. I don't see any limiting principle in that approach and I think the result would be horrible for consumers. Utilities would naturally be interested in very large investments and unproven technology. You would see some failures of those technologies with consumers bearing all the risk. I think the end result would be you'd have consumers questioning whether it's worth the candle to pursue carbon technologies. So I think to me that's critical because if prudence goes away, the door is open to technology deployment, but I think that door could close after some pretty big failures.

The second is our carbon goals law and are regulators independent or part of government? To me that's as important as the prudence issue because regulatory approval of carbon technology, I think it really does depend, to a large extent, on whether those environmental laws themselves are goals or are they law or merely policy goals by government. In the US there's a separation between energy and environmental regulators and most US utility regulators, some are part of government, but most are independent. President Biden has set very aggressive carbon goals but those goals are not law and many States have set carbon goals Some of those are law, some of them are not. I think to the extent these goals are not law, the utility regulator will have to balance environmental and energy goals, and there will always be much more weight on the energy side of that equation on the traditional utility goals then on the environmental goals, which are not law and merely policy objectives.

The third is what's the role for regulator? Is it to promote technology development or is to encourage technology deployment? I've a very strong view on that. I think it has to be limited to promoting deployment of technology. Not the development of technology itself. We have seen efforts to do the latter that have been notable failures. There was an effort, of course, in the Southern United States to develop a new coal gasification and carbon capture facility that was supposed to cost 2.4 billion and it ended up costing 7.5 billion. Now under an approach where anything that's directionally correct with carbon goals is okay, and it gets rate based, that would've been a 7.5 billion dollar cost to ratepayers, to customers. I think I have strong view about government R&D. I think most government R&D doesn't produce many results. I think it's interesting that there's never really been a credible external review, or independent review, of US Department of Energy, energy R&D funding, going back for the last 20 years. I think the regulator can play an important role in deploying technology. I just think developing technology itself, it presents too many risks to customers, and it's a much poorer fit for the regulator than deploying technology. I think the regulator could be in a position where they could effectively make decisions deploying technology but development. Not R&D.

Then last, how much regulation change? Typically regulatory bodies don't have expertise in technology. They can acquire that expertise. They can compensate for it by a couple of ways. They can increase their staffing. They can have a technology advisory committee where they get technology experts from outside government to help advise the agency. They can have a memorandum of understanding with a sister agency that actually has that expertise. They can hire consultants, contractors, not typical government employees. They also can rely on independent monitoring and periodic reporting to the extent there is large utility projects whose success is uncertain. But, again, part of the variables are if the regulator is balancing energy and environmental goals, there might actually be a balance if the environmental goals are in law. If they are not in law, if they're just merely a policy goal, I just don't think you can place as much weight on the environmental goals themselves, unless the agency has changed.

A couple of ideas on how could regulation change in a manner that allows a more ready deployment of technology, more ready approval of technology, one would be if these goals are actually incorporated into law. A second would be if there's a price on carbon because then it's actually very easy. If you look at a hypothetical case where deployment of certain technology actually increases rates by 10%25, degrades reliability but it reduces carbon emissions by 20%25, on what basis could the regulator approve that? Now if there's a price on carbon that might be more likely. If it's a command by law that the utility actually reduce its emissions by 20%25, then the utility regulator doesn't have discretion. But if there is discretion then a price carbon helps the utility make a reasoned decision in the end. Another would be to combine energy and environmental agencies so that balancing actually occurs within the same regulatory body. That's been done in the US, in some cases, and I actually think it's not been successful. I think you end up combining an environmental agency that's part of government that is inherently politicized in decision making and, frankly, less merits based in decision making. With a utility regulator, that typically is independent, more merits based and when you combine the two you end up with an entity that's not independent and less inclined towards merit based decision making. So I don't think that's an option that's conceivable. I don't think it's really work. The biggest one that I actually don't think works at all is just redefining what is the public interest standard, in the broadest possible way. There's been tests in the US on what is public interest standard mean under the Federal Power Act and the Supreme Court has said that the term's not as broad as you would first think. You had a super power reference, Ian, at the beginning. I'll have one now. One Energy Bar Association panel in New York, I said my job is for Chairman, it's not Chief Justice of the American Way. That's a broader mandate than what Congress has given us. It's more of the public interest standard and that's found by the statutes that Congress has entrusted to the agency. I can see how an agency could try to reinterpret the public interest standard to include environmental benefits so that you could approve a technology deployment that raises rates and hurts customers but it's good for the planet. I just think that's inconsistent with the Supreme Court decision. I guess you could write that law that way to manually change the statute, to change definition from public interest, but then I don't see any limiting principle. You could say we're going to raise rates but it will reduce poverty in another country. I think you end up, if you were to expand the public interest standard to that point, it ends up seeming infinite. So, anyway, those are my introductory remarks and look forward to questions and look forward to the discussion.

Ian: Thank you, Joe, and fantastic catalogue of considerations and, Gordon, I'm sure there's a lot in there that tweaked you and we're getting questions from you so please keep them coming. Folks, I am reviewing them. I'll maybe combine some, and paraphrase some, but very valuable input. So, Gordon, listening to Joe's comments and looking at some of the questions, let me turn back to you for a minute. I'm going to suggest, and Joe you can reply to this ultimately if it merits it, I'm going to suggest that Joe's comments indicate a relatively more passive role for the regulator than I think a lot of people envision, or would advocate, and I mean that in the sense that we're talking about the energy regulator, and I take Joe to be describing what is an energy regulator that sticks to its knitting. That focuses on economic regulation of energy and utility investment decisions and rate implications of those and operates in accord with, but not beyond the edge, of legislative requirements. So if there's a legislative carbon price, or there's a legislative requirement to consider net zero carbon trajectory in decision making, the regulator will do so, but absent of legislative mandate to do so, that's a broader social policy or another aspect of a broader public interest. So that's a relatively passive role for the regulator. Gordon, would you agree that that's what regulators should be guided by or not, and if not how would you ... ?

Gordon: Let me just say I don't disagree. I never disagree with anything Joe says. There is no doubt that this is going to be a difficult balancing act. It is a challenge unlike any other challenge for the regulators. But it has to be done. That's my starting position. You could leave it up to governments to flip around and do this and that but I think there are two strong players in this process that can contribute either to the success or the failure. The one is the energy regulator and the other is the utility. Now, I know and others know that these utilities, in the old days when I started this business we had the ... Johnson ... or whatever it was, that utilities would go brick and that is what you should always be suspecting and whatnot. That may have been the case at a certain point in time but I think something has happened here that makes most utilities think a little bit differently. Our Chief Justice called this climate change things an existential threat which is pretty strong language in the famous decision on whether the carbon tax is constitutional. I think it's got to the point where most people, including regulators and governments, understand this stuff is real. It's not going away and there's a ticking clock. Now you either believe that, if you don't believe that I'm not going to, no doubt in the energy world there are the equivalent of anti-vaxxers as there are at the medical science world, but I actually believe that the utility will become not only a responsibility pushed on but a responsibility that they would welcome. But you have to start somewhere. Now, you can either sit back and let the applications roll in, and by way of example last year I had written about this, you saw three cases, three decisions. One in Nova Scotia, one in Ontario, one in British Columbia, dealing with on some cases financing, new technology, creating funds and in other cases approving pilots where there as rate payer money at issue. They came up in rate cases. If you read the Nova Scotia decision, in particular, very difficult weighing of it to the point that they said out of the 19 million, 13 million is coming from other people so it's not like the ratepayers are bearing the whole cost. There will be a lot of issues that regulators will have to address. They will address things like cost sharing. They do have to protect the ratepayers. That's not going away. That goal is never leaving the desk. They will have to look at cost benefit studies. You say this is going to reduce carbon, well, is it? That's part of their responsibility to be able to do that. That's not above their pay rate. They have economists on staff. They can bring economists in. It will be a new suite of issues and there'll be a new suite of experts. But I think these issues will be quickly defined. I think the basic problem though is, which I think is where you were going, Ian, is how proactive do the regulators become?

So let me spend a couple of minutes addressing that. The regulators can either sit back and say let's see what comes in the door. We don't have to get too excited about this until an application comes in. That's probably the traditional view. I have a view on that. It may be a little too strong for Joe but we'll find out. I think what the regulators should do, I don't pick any particular jurisdiction, they should ask the utilities that they regulate, and by that I mean those that distribute gas, electricity and also those that generate electricity. You tell us what you think are the five most serious regulatory barriers to the introduction of new technology that will significantly reduce carbon in the energy sector. Because we have got to figure out what we should be doing other than sitting back like the post office. I don't know what those are but you would get a lot of submissions that these utilities would put forward. Some may be in their own interests. Some may see the advantage of new technologies, admittedly new business, and whatnot because I actually believe the utilities, this is not a bad guy / good guy thing, the utilities are an important instrument. They know how to raise capital. They have capital. They have expertise. If they're not part of this process it is not going to work because you can't have the haphazard regulatory so you have to start somewhere. At the end of the day the regulators says we've listened to all you characters, we picked these five, and guess what? The OEB, as you know, started this I think called a sandbox or whatever it is, but we've had guidelines for a long time. They're called different things but you can have policy guidelines and if it is an issue, we had one recently that dealt with whether the utilities could put smart meters, not smart meters, battery storage in rate base and, of course, we had that issue kicking around in rate cases before in Ontario and the board said, no, no, no. We're not going to let you put that stuff on rate base but as over time the argument said, there are significant efficiencies here. So there is no doubt, as Joe said, that utilities love putting things in rate base and in fact their investors or even their shareholders say we invested in you because you're actually in a very interesting business. You're guaranteed a rate of return by the regulator, and you're cost of borrowing money is a number of points below that, and this is a very pretty nice business to be in. That's fine. They're in it and around the world we champion that form of industrial organization. Nothing wrong with that. But I often say that utilities are like poodles. Poodles are very smart but there's one word that they always remember and pay attention to and that's treats. In the case of the utility it's rate base. So I don't have any problems if utilities puts things in rate base if there's a documented demand and public benefit from it. Now, that goes back to where Joe started, in a way. We do have to make sure that the government is giving direction. That they want the regulators to do that because otherwise you'll force a regulator to go back and look at their statute, which is decades old, and say we're not sure we have the jurisdiction. Now you know the three cases that came up in the last year but they all, of course rate cases but things come up in rate cases, and the courts and regulators say we can do pretty well much of anything that happens in a rate case. Our discretion is very broad. But we're not limiting these motions, these applications for new technology to rate cases. There's a separate agenda here. It's not linked to whenever a rate case comes up. It's we have an agenda, a mandate, a requirement, to start putting in new technology as soon as we can, as soon as it's efficient, as soon as it's cost effective to deal with this carbon question. We either have that responsibility or we don't. If we don't, that's fine. If we do, government should tell the utilities and the regulators that they do and that would mean, in a Canadian context as you know, changing the objectives. So in Ontario they added an objective. I think it was by the objective was to promote innovation or something. I would say promote innovation in carbon reduction. Not a small point because God knows what innovation is. We're not trying to create albert Einstein's and create electric light bulb one day and a carbon tube someday and whatnot. This is a very focused mission. So I think presumably in some jurisdictions in Canada it's not important. In BC, the BCUC knows who the big dog is. It's BC Hydro and it's owned by the government, or it's Quebec Hydro and Quebec ... . New Brunswick Hydro under New Brunswick, or in Nova Scotia, of course it's Nova Scotia Power which is a private company. But if you get into a place like Ontario, it's a different story. There's a bunch of different utilities. The question I say is what are you doing? If you look at, I think these guidelines, by the way, are tremendous. I call them real time regulation. We've used them in competition law for 20 years. They work very effectively. I think this is not a thing a where we're going to have a bunch of hearings and spend all that time and we're going to take 20 years, I think, to answer your question, we're proactive. These guidelines, I don't care what you call them, they need to involve the utilities. The utilities need to be encouraged to make applications and guidelines need to be a response. In other words, not an application for an order to put it in rate base, but guidelines. The guidelines may be, as one just issued, what you can put in rate base and when. They dealt with one question which was the storage issue. I have no idea what the best technology is out there. Nor does, frankly, the Ontario Energy Board. But the first thing would be to start, why the hell don't we ask these utilities? They didn't fall off turnip trucks. They're big organizations and big or small they may have an idea; we think this is the regulatory barrier. You're not allowing this or that. Well, let's put it on the table and let's figure out, this is our job. Is it a regulatory barrier or not? If it is, we'll ask the utility if you think it's a regulatory barrier, how should we fix it? It's a responsibility of the regulatory in this new world of asking that question, getting that answer and addressing it. Not by prolonged hearing, interveners floating on. The interveners would be interested in, and I'm not saying that price impact on rates isn't a factor. It's right up there. But there are new some balancing factors and that's the job of the regulator to wrestle with. I guess it's a long answer to say they're going to have to be a lot more proactive than they've been in the past.

Ian: Thank you, Gordon, and you've explained why so, Joe, let me go back to you and I'm scanning the questions at the same time. So I characterized your position as relatively passive rather than proactive, and that may be an erroneous characterization, and I know that there's much more nuance set of comments than that. But FERC, including FERC under your guidance, has a rich history of reaching out to understand what's happening in the sector that it regulates. So I don't recall what you call them but we've used that and advocated for that as a model for the Ontario Energy Board, for example, or other regulators, to bring in the industry on a topic. Open the process to the public but hear from the sector. What are their concerns? What do they see coming? What should we, as regulators, speaking as the regulator extending the invitation, be ready for? What should we be thinking about? Which is proactive in many senses. So can you comment on that sort of idea that Gordon suggested which is the regulator has a responsibility, as I hear his comments, to go out and at least educate itself, and then perhaps start to think about if there are barriers that are of our doing, or that we're responsible for, should we be doing something about those? Maybe some thoughts on that sort of idea.

Joe: Sure. I agree with Gordon. The regulator has a responsibility where there's some legal duty, or where there's things happening in the industry that it regulates that the agency doesn't want to impede, or the agency want's to accommodate, facilitate. I guess an example would be if you look at these different analysis in the US, if the US were to meet its aggressive carbon goals, one thing it would have to change is that US transmission grid capacity would have to increase by like 68%25 by 2030. Which I'm not sure that's even obtainable and increase very steeply after that point. Now, I'm not sure that can happen by 2030. But there you think that's not the question of FERC isn't how do we want to save the planet? The question to FERC is, just this transition is occurring. There is this national policy goal. It's not a law. Some people are acting consistent with that goal and we're seeing really significant wind and solar development in the US. So we don't want the grid to be an impediment to these changes that are occurring, not because carbon reduction is a law because it's not, but they're occurring consistent with this goal that States are forcing and the Federal Government's thinking about maybe forcing. So are there reforms that FERC could undertake that could actually facilitate that kind of expansion in the grid so that it doesn't force wind and solar development. So that's totally reasonable and to me that's not FERC writing carbon policy, that's FERC reacting to events knowing that grid development is long lead times and it would be much better to think about that now and take action now. Like should FERC raise its ROE? If you want to increase investment by regulated utility, raising ROE is kind of the most obvious and the most proven way to increase investment. If all other things being equal raising that are we able to produce more investment? Is that what we need? Or is it other things? Should FERC have more competitive transmission development? Should RTO transition planning be reformed? I agree with that approach. To me that's not being reactive. That's anticipating a possible problem and seeing if you're in the way, and if you can get out of the way, and what changes do you have to make to get out of the way?

Ian: I'm going to read one of the questions, and I'm going to add something, and then I'm going to ask you two to comment on. So this is Mark Rubenstein. Gordon, I expect you know. So he writes in the question box here, many of these new technologies and services, you've been talking about those, Joe, exist in a competitive market already unlike the monopoly utility business. How do regulators balance promoting innovation without harming competition? So, just think about that for a minute and let me add something else that sprung to mind, that comes from some of the other questions I've seen which is, the issue of stranded assets. So, Joe, you talked about the driver of the accrete of rate base, which of course is a function of traditional cost of service regulation, but there's value, arguably and the large customers I act for are very concerned, being the last ones on the system, they fear about investments in long lived infrastructure versus alternative, more flexible but not necessarily utility managed, or utility promoted, solutions to energy services. So how do regulators deal with those dynamics? The fact that DERs, Distributed Energy Resources, are developing competitively quite apart from the utility on the one hand, and utilities have to react to this, on the other hand both, Joe, to keep their systems running and keep providing connectability and services to the sector, both the producers and the consumers, and also to balance their needs, their driver to accrete rate base on the one hand with the concern that regulators might have in the long term, that's going to yield a lot of stranded investment, potentially. Do you want to start with that, Joe?

Joe: Sure. First of all, I think the US is encouraging distributed generation in part through subsidies. Through policies like metering. It overpays. The classic example of somewhat a residential or commercial retail consumer that has rooftop solar. They are paid a retail rate for the sales of the generation that they don't consume. Even though they're making a wholesale sale. To me, they should not get a retail rate. So that's one form of subsidy. To give multiple subsidies. So I actually don't think that's very good policy. I think they should get a wholesale sale because typically, at least when it comes to residential, the people that are deploying rooftop solar and taking advantage of that subsidy tend to be higher income customers. We've seen this problem arise in the telephone sector where many people don't have hardline phones anymore. The people that have hardline phones, a lot of them tend to be lower income customers. So they're paying for the infrastructure that others have departed. So I think that's a legitimate concern.

Ian: Mm-hmm. Gordon? How should a regulator balance competition? That's something you've spent a lot of time on.

Gordon: Yeah. As a matter of fact, preparing for this session, I don't often prepare but I did in this case, I went back and looked at a decision, EB2009-0172. This was an application by Enbridge to put renewable energy assets in rate base. It came at a time when the Ontario government had actually issued a directive, a Minister's directive, to this. So it came before the OEB, and I had forgotten this case, but I'm now reminded I was on the panel and wrote the decision. I was intrigued to read what I had written. It dodged the issue. I dodged the issue. I wrote the decision. I was the Chair of the panel. It went on to say before such costs could be reasonably included in rate base, the Board would have to decide on a case by case basis, and both as in jurisdiction and it would do so, it should do so given the content and characteristics of the project. That went on to say the Board has determined that if does have the jurisdiction and costs associated with these program rate based, a finding that we explicitly do not make, we will not allow these costs to be included in rate base for the reason as set out below. There are a number of reasons why these investments should not be long rate bases. When assets are allowed in rate bases, generally because those assets are related to the monopoly franchise, Enbridge does not have a monopoly franchise for production of renewable energy. It's franchise is related to the distribution of natural gas to the extent that green energy emissions involve the activities of production of renewable energy, they would incur a competitive market. Other participants would be materially disadvantaged were that to occur and so on and so forth. So this is an age old argument. The one that Mark makes and an entirely legitimate one and one that has to be wrestled with. My answer to this, is not a new argument, is the Southern California Gas decision, which was made in 2015, and the State of California decided there was not enough CHP generation in place, basically to reduce the costs of electricity in prisons, apparently they have a lot of prisons in California, and in hospitals and universities. Those three institutions. So they not only allowed the directed utility, Southern California Gas, to put those assets in rate base but with all kinds of productions so they couldn't be cross-subsidization and predatory pricing and all that jazz. So the competition issue can be dealt with. This argument comes out every time we want a utility to do anything. I just make the argument: (a) there are remedies; and (b) I don't think we are going to get anywhere meaningful on this file, this issue, if we don't put these utilities to work. If they're not going to go to work, to quote Joe Kelliher, unless you let them put it in rate base. So we're not living in fairyland here. Utilities don't go to work, they're like my poodles, unless they get the treat they just don't react. That's not a negative statement. That's just a reality.

Ian: Let me read you gentlemen a question that Michael Miller's put in the chat. As usual, a thoughtful question from Michael, and I'm not going to paraphrase. I'm just going to read it to you. There appears to be a pervasive view that energy regulators are impediments to rolling out technologies that would reduce carbon emissions. I find it easier to think about these things with the use of concrete examples and I'm having trouble thinking of any. What are some actual examples of cases where regulators have turned down a prudent proposal from a utility designed to reduce carbon emissions? In other words, what are the carbon sins regulators are thought to have committed? He says, I ask this one from the Ontario context where the regulator generators are essentially carbon free. Any thoughts on that question? I can't think of examples.

Gordon: If there's no carbon problem in Ontario then we can stop this discussion. I think there will be people who will argue that they can be technology. Joe mentioned solar and wind. Let me give you and Michael, or both of you, a concrete example. The Americans and Canadians have developed solar. The price of solar has dropped like a stone. It's non-carbon generation. Let's just assume that Ontario isn't all non-carbon generation. There's a big argument about whether nuclear is carbon free or not. I'm not getting into that argument. But do we want more solar or not? That's a simple enough question. I could make an argument. If you let Toronto Hydro put solar on rate base we'd have a lot more solar in the City of Toronto. A generating carbon free electricity and that may be a good thing. I just use that as an example because most people would agree that the solar rooftop programs that we've been mucking around with here in the United States haven't been overly successful. Now we have had fit contracts which have produced solar and that's been a useful tool. But do we need more solar? That's a question. I don't know that but somebody might have an argument that we could expand solar. Usefully expense the total ... no mystery about the technology. It's available. We still have some shining down in Ontario, at least for a couple more years, so should we have plan to promote solar? Should the utilities have a role in it? I don't know the answer to that question. I'd be interested to know whether the utilities even have a view on it but it's one of those examples, that yes, solar is a competitive market. I don't think that it is the end of the argument. It doesn't stop there. We can make sure that the Toronto Hydros of the world don't cross-subsidize. We have tools for doing that. The more important question is, do we need more solar and is the way of efficiently getting it, utilities put it in rate base? I don't even know whether they have any interest in doing that but I just raised that as a question.

Ian: Joe, I heard a comment this morning from a utility. A gentleman who I respect tremendously works for utility and he said, had we been able to promote hydrogen 10 years ago, we'd be awash in hydrogen today and now we're talking about whether we should blend hydrogen into the gas stream, natural gas from other uses for hydrogen. I was reminded that that may be true but 10 years ago hydrogen was really expensive and it's still relatively expensive. If the utility wants to do this through rate base, and have ratepayers pay for it, should they be leading this edge? In California and Hawaii, correct me if I'm wrong, I don't think the utilities needed to put solar in the rate base for solar to proliferate to the extent that it was challenging low income consumers who were footing the bill for the generation left on the system. What are your thoughts on that?

Joe: You distracted me with California and solar. I had an answer for the first part. Forget about California. Okay, I've forgotten. What was the first part then?

Ian: So, I was relating an anecdote of a discussion of had the utility been able to do this 10 years ago, we'd have lots of it, but it was expensive 10 years ago. It's less expensive now but not quite.

Joe: I just think utilities are utility regulators are very ill suited for R&D and technology development. If you look at the technologies that utilities use now, how many of them were developed in part with the utility R&D? I just don't think that works. When utilities have done typically very big sort of things, like the project in the South that I mentioned, it was an innovative never been built before coal gasification and carbon storage project. It was, I think, the most expensive power plant ever built in the world and it runs on conventional natural gas. First of all, I don't think it's necessary because if you look at all the technologies the utilities use, it was not developed by utility R&D or recovered through rates by and large. There are some minor contributions at play, and some equity programs that are funded through rates, but most of the technologies utilities use were not developed through rates, in any way. So to me, as someone who like history, I think I don't see any reason to think it's necessary and then if you're going to do it, I think there has to be some risk sharing on the part of the utility. I don't know what that is. They have to have some skin in the game because if someone was gambling in a casino, and they knew it was never their money on the table, they would place bigger bets. They'd just naturally would, right? So I think there'd have to be some risk sharing, or they'd at least have to be pretty careful, and to me I just don't think development works. Even on deployment you should have pilots. You should have phase development. You should have monitoring, reporting to the regulator. You'd want to be able to turn the spigot off if it turns out, if it is R&D or a deployment, technology is not as promising as we thought it was. It shouldn't just be a blank cheque to spend X dollars in the hopes of developing this new technology.

Gordon: I don't disagree with one word of that. That is absolutely true. You have to have skin in the game. There has to be monitoring. They have to get into that business. This is not a blank cheque business. This is going to require a new form of regulation and it's going to have to involve all of those things and I don't think that utilities should be developing technology but utilities should be deploying technology.

Joe: Yup. I agree.

Gordon: My solar example is oversimplified because maybe for all I know we don't need more solar. But as you were stating yourself, there are proven technologies that are out there and I think the question here, Joe, is more have we done a good job of deploying these technologies to the extent that we should have?

Joe: I think battery storage deployment in the US, I think that's been a real success story. That regulators were not at all hostile to the idea because they could see the benefits to the system, and in some cases, storage can substitute for transmission so it can prevent the need for transmission. But I think I would give high marks to regulators in approving reasonable, small scale development of utility storage, and understanding the benefits and doing it in a small way, and then in a bigger, bigger way. It's really helped develop the technology. I think that has been very successful and I would tend to look at that as a model we should use, perhaps, in other areas.

Gordon: Just to add to that point. If you were unwilling to go to Michael Miller's case, the utilities here, Toronto Hydro in particular, have been beating the drum for some time about storage assets and we haven't, in this country, not got anywhere near as far as the American regulators have, on that score. I don't know what that is. God knows how many studies we've had, not only just by the regulators, by the ISO and whatnot, but it is a perfect example. I think that you're absolutely right. The American regulators have done a very good job on that. A much better job I would argue than the Canadian utilities.

Ian: Let's drill down into that thought a little bit, Gordon. I want to talk about what the utilities want and you've mentioned beating the drum. I've heard lots of drum beats from lots of different utilities. Lots of different tonal qualities versus what they get. So it's this benefits and burdens matching question, and there's a question from a member of our audience that I'll read to you, which I think is along those lines. I think it's a she. She or he writes, has regulatory compact, in quotes, evolved to adapt to the current disruptive trends arising from technology and policy advancements, or can it? If not, should we or should we not introduce a new framework to supplement, enhance or update them? So assuming you know what the regulatory compact is, and I know an eminent regulator who wrote not long ago, he's never actually seen the regulatory compact, but whatever you think that is, maybe you can tell us what you think that is and address this question of how should that construct be adopted, or amended, or evolved if it should?

Gordon: Are you asking me?

Ian: Yeah. Sorry, Gordon. I'll start with you. How should the regulatory compact evolve?

Gordon: The regulatory compact, in the Canadian system as far as I can tell, if you want to look, it does change gradually. I recall when all of a sudden conservation became an objective and that was a result not of any environmental crowd banging the drum. We'd had a blackout in Ontario. Somebody wasn't cutting trees properly down in the South, in the US, wherever the hell it was, and I can remember we had the first case because, you'll recall, the government said to the utilities, you're not getting the last part of your rate increase unless you come up with a conservation program. I remember the applicant coming before me, I was Chair that panel, and they said listen to us, Mr. Chairman. We are not guaranteeing any of this stuff works. We're just doing it because we want our rate increase. Well, we promised to monitor this stuff. We never monitored a darn thing but back to your question, the regulatory compact does evolve. The government makes a statement like that and if you read these pilot decisions, the three pilot decisions from last year, they all reference, everyone of them, the government policy is to promote this one so regulators aren't always looking over their shoulder to see how the government's moving. In terms of the statute, the way they move it in this Province, is through changing the objectives. That's the safest way to do it because that way you avoid 2 years of legal wrangling through the courts. So there is a responsibility of the government to make it clear to the regulator what the government expects the regulator to be doing. They can do that most clearly by modifying the objectives. They didn't put the word carbon reduction there but it wouldn't be a bad idea. So, the regulatory compact moves. It isn't just make sure the consumers have the lowest possible price. There are other objectives. Conservation was one that we dealt with and we've lived with that now for, I don't know, almost 20 years I would say. It seems like old hat now but when that first arrived on the scene 20 years ago, everyone said this is just goofball stuff. This is crazy. This whole system is broken. Well, we got over it. I think to those, including your questioner, the regulator has to be able to make a judgment that this is now part of the current regulatory compact. The regulator can't be the person making this up. They have to come to the conclusion, we believe it's our responsibility. Regulators are given a certain amount of deference in both the Canadian and American systems. They have a responsibility to fine tune the implications of some policy creation. But in the first beginning it is the government's policy beliefs and usually at the State and Provincial level, as far as this is concerned, so I don't think it's a problem with the compact. The compact gets moved along from time to time and, certainly, world wide climate change is something that has changed the regulatory compact, around the world. We're not just doing this in the little Ontario, staring down the road at people across the border in Michigan.

Ian: Joe, is the regulatory compact changing, do you think?

Joe: I think it does change but I think there are limits. At FERC I would view that I am, if I were back at FERC, I would view that I have very limited ability to address climate change. Some things that are obvious that you could theoretically do I think would be unlawful to do. Like for example, could FERC say let's shorten the use of gas as a transitional fuel. Let's accelerate this transition and let's try to get to more wind and solar faster. Let's stop approving all gas pipeline expansions in the US, forever. I think that would be unlawful and I think that violates the Natural Gas Act because the Supreme Court has said the Natural Gas Act, it's primary purpose is to facilitate the order of plentiful supplies of natural gas. Now if you stop all pipeline expansion how is that possibly consistent with that? You can get away with it for a couple of years though. You probably could. Until you lose a hugely embarrassing court decision. FERC has done a lot to lower barriers to wind and solar because even when I was there, there were a lot FERC rules, interconnection rules, other policies, that were reflecting kind of an unconscious assumption that it was natural gas fire generation that was being built. So the rules were facially neutral but they actually discriminated against wind and solar. FERC I think has really done a lot on that in the last 20 years. But I'm not sure, first of all it's not a legal duty of FERCs, but if you wanted to do it anyway how much could the compact change? Well, to me part of the compact is reason decision making. It's the regulator makes merits based decisions reflecting limits and some factual record. In turn the regulated get something that is reason decision making. If I were to do it like I said earlier, FERC just stops all pipeline expansions, to me that's breaking regulatory compact. That's not reason decision making. I think that would be actually violating the law and I think the regulator loses in court. There's one new branch in the US government that actually still works, and that's the judicial branch, and I think the regulatory compact would be harmed because the regulated would see, can I trust that regulator tomorrow? They did something that was wildly political, obviously illegal and lost, how do I know they're going to engage in reason decision making next time I want to put something important in front of them?

Ian: One of our audience members, by the name of Steve, wants me to put this question to you. Can you think of a way regulators could allow utilities to place new technologies in their rate base without encouraging the utilities to overspend on such technology, prematurely, while they're price is still coming down? So, Joe, when it is a prudent for the utility to jump in? How do you judge that?

Joe: If the question is something different than pilot projects and phasing in, to me small pilot projects are a proven way to demonstrate whether a technology is viable, and then you can scale it up. Or is it more somehow the utility doesn't pass the cost through in rates? Is that what they're getting at? Is somehow the utility develops, invests in some technology, hopefully deployment not development, but that it's pricey so they don't pass it through in rates? I didn't quite follow the logic.

Ian: That's a good question. So let me read it again. Could your guests think of a way regulators could allow utilities to place new technologies in their rate base without encouraging the utilities to overspend on such technology, prematurely, while they're price is still coming down? I guess it's the should they lead this change? Should they keep up with this change? Does prudence require that they wait until the technology is fully proven and economies of scale have taken hold?

Joe: I actually think that has been addressed. If you look at solar development in the US. If you look at the price of solar, from megawatt hour basis installed in California early on, California really was the leader. Then you look at the price of solar now. It's 10 to 1. It's more than 10 to 1 difference. You're seeing the same thing on battery storage. So I think this is not a new issue. I think it's been smaller projects. As you see prices decline you end up with bigger projects and scale results in production. I'd say just look at the track of solar development and prices and battery storage development and prices. You're getting larger storage projects now. Some very large ones. They initially were tiny.

Ian: So it kind of traces a path as your describing it, Joe. The utilities getting approval to start to learn about these technologies. What they can do, how they can be used, what more needs to be done with them on a pilot basis, which is more expensive than traditional utility service but provides longer term value to ratepayers. Then as that learning continues, if the technology proves itself and prices actually come down, then you get a more conventional investment calculus made for that infrastructure and is that the most prudent was to invest in rolling out infrastructure to serve customers? That's what I hear.

Joe: Yeah, probably.

Ian: The question and your response to that.

Gordon: Remember too that pilots are a very powerful tool in many respects. They teach the Universe. They don't just teach the applicant that wants a pilot. To be perfectly clear, none of these things should happen without a well monitored pilot, and that's why a careful reading of that Nova Scotia decision that had to do with the smart grid technologies, it was basically new software, there was cost sharing and the board said it's a good thing that ratepayers aren't footing, but if you look at that decision carefully there was a plan to review that technology through a number of very careful stages to allow for the expansion, and if not, they were going to be dead in the water. That's the way it should be done. So there is a mechanism for dealing with this thing. You just don't go nuts on day one and have authorization to put a million dollars of this stuff in. It is a graduated process and it benefits not only just the utility, and the regulator, it benefits the larger technology market, I believe, and the technology in general.

Joe: Can I clarify something. We've both talked about risk sharing, Gordon and I, and I want to be clear that to me that's not something you do at the pilot stage. I think the pilot stage, there isn't necessarily risk sharing on that and maybe even early phase development. To me it's more appropriate where it's a really big project that the utility would argue this somehow, by the nature of this technology, we can't do a small scale pilot. There I think it's appropriate to have some risk sharing but there also should be a reward. If that technology ends up producing exactly as the utility expected, or maybe even better, they shouldn't just be looking at as something where they have 20%25 risk of a write-off. There should be some benefit too, I think. It should be symmetrical. Or there should be some symmetry.

Ian: So, Joe, under that kind of model you're actually incenting risk taking by the utility, but I guess you're also saying if you're going to do that you need to protect ratepayers as well.

Joe: Yeah, I think the status quo, if the door was open to any kind of investment at any time, any large scale carbon technology, I think classic utility regulation incents risky behaviour and I think Gordon and I were saying there should be some risk sharing to put a little bit of a break on that, the utility might say fine, we're just not going to do that. If you wanted them to actually pursue some projects, accept some risks, it seems like they should get more than the normal return if the technology is successful.

Ian: Let me read you this question from ... ... , who's a regular attendee at our roundtables and always have insightful comments and questions, and this is a long one so I'm going to read it and I think portions of this might pop out at each of you, and feel free to address all or any of the components of the question. It was a very thoughtful question. So he writes, even with firm policy expectations on environmental goals, regulators face some obstacles for determining what can be considered prudent for cost optimizing investment approaches. So, number one, what's the time horizon of investments and are new technologies considered add-ons to the calculation of grid costs or integral to a new cost model? Number two, decarbonization requires an integrated perspective beyond electricity and/or natural gas. For example, the impact of electrification of building heat on peak electricity demand, which may require great upgrades, depends very much on building retrofits. How should regulators navigate these questions and what input guidance can governments, ISOs and utilities provide? So there's a lot in there to unpack. But what jumped out at you, Gordon, from that list of questions?

Gordon: I think that you have to say that, I would say, that this is a problem with a lot of moving parts. You start talking about buildings. That's a whole different world. I think that's a whole different regulatory regime. I mean we're not trying to turn the energy regulators into the Master of the Universe here. They're piece of this pie, we started with this discussion of saying the regulators can, and some people believe do, create barriers to new technology. Now that's either true or not true. So somebody can rightly say, as they have said, tell us what those barriers are? In fact I said, utilities, you're always whining about this. Tell us what the regulatory barriers to new technology, that will promote carbon reduction, are? Because we should be turning our mind to reducing regulatory barriers. The solution will be multiple. We don't need to get into that. This is a question about how we, in the first instance, address our mind to the problem. The answer to that is we better identify the damn problem with some specifics as opposed to just turning a bunch of lawyers and economists free to have a frolic here. That's not our goal. You have to narrow the role of the regulator and, parenthetically, the role of the utility because that's all I'm talking about. I'm just trying to make an argument here. There is a meaningful role for the utility and I think they are an important instrument in this whole process. The utilities aren't going to get into the regulating buildings. God knows how many Municipal regulations there are with respect to that. They don't have to get into that and that's a problem. These things always have to interface with other regulatory regimes and that's just the way it is.

Ian: Joe, you've talked very carefully, I think, about the role of the regulator and the confines of that role, and Gordon's just touched on that, and I think the question I just read out, the multipart question really underscores that this regulated services aspect of energy use, consumption, energy services is one piece of a much broader picture. So what do regulators have to do to bear that in mind, issues that utilities face all the time with various types of customers, various customer demands and regulators face not only the utilities but the customer demands, the government policy. We touched on this at the outset. How can regulators keep on their path while being sensitive to all these other factors?

Joe: It's a little simplified in the US right now because we have a carbon policy that essentially is a vision statement but it's not a law. It's not binding. It's not binding on FERC. It's not binding on States. It's not binding on companies.

Ian: Doesn't that make it more difficult in some respects? Because it's out there. You can't ignore it and yet you don't have a mandate. So how do you deal with that?

Joe: One structure I've been promoting for years that no one seems to have any interest in is there's something established, I think it's Black Friday, Black Thursday, in 1987 where there was a big stock market, not a crash but correction, and there was something called the President's Council, the President's Working Group on Financial Markets, was established. It's a working group headed by the Treasury Secretary that includes all the relevant independent and executive branch agencies. So it's a forum, and usually executive independent agencies in the US don't work very closely together, or they do in narrow slices of activities. But this is a pretty broad structure and it's worked really well even since then. I've thought there needs to be something like that on climate change where FERC would be included, DOE, EPA, because there's very poor coordination between US and energy environmental policy. In fact I was the first FERC Chairman to meet with an EPA head. I was actually kind of embarrassed to learn, towards the very end of my time, that FERC Chairman and EPA have never met. I thought, God that's embarrassing. We should have a first date right before I leave the agency.

Ian: How did it go?

Joe: EPA was very resistant. They were like, why does this FERC guy want to meet with me? At that point that was kind of the very beginning, that was after the Supreme Court decision that said carbon is a pollutant. So I thought, wait a minute. If this climate change stuff affects my stuff at FERC, so we should at least have some working relationship going forward, after our times. The agency still don't have, even a MOU, between the two of them and there is no President's Working Group. So I'd say right now there's a White House vision statement. There's a high level of EPA activity that's coordinated from the White House and there's otherwise not very impressive level of coordination in the US government policy, of all the relevant agencies.

Ian: In other words, keep working on it, is what you're saying.

Joe: I'm not going to stop. I'm Cassandra.

<laughter>

Ian: Gordon, how should a regulator, what's the balance here? There's all these moving pieces. The government has demands. Customers want to do things. Utilities want to do things. The regulator has a mandate but has to move, and I don't think there is an answer, but do you have any other comments on that? Then I have one more question I want to put to both of you.

Gordon: No, I don't have anything to add.

Joe: Can I add one thing, Ian, to that?

Ian: Please, yup, yup.

Joe: The customer interest, the customer commitment and interest in climate change really surprised me and it was very evident after the former President pulled out of the Paris, the non-binding Paris Accords, the level of corporate commitments to making firm, concrete carbon reductions was, to me, staggering and why did they do it? It was because it meant something to their customers for them to make those commitments. Frankly, it surprised me. The customer demand is driving a change in, not just government behaviour, but corporate behaviour. Not just utilities. When I joined NextEra there was a candy company that really wanted to buy wind power. I guess they thought that somehow it differentiates. They knew there was enough customers who would, if they had to choose between two candy bars and one had a green leaf on it and one didn't, they knew enough people would go the green leaf that it is worth the slight differential in electricity pricing.

Ian: Someone mentioned to me this morning there's this talk about a public interest, whatever that is because it's rarely if ever defined, including by regulators and decisions I found, but she said, why don't regulators go out and talk to customers and determine what they're interested in and be guided by that?

Joe: I think they can. At FERC I was fortunately not a retail regulator so our customers were utilities and Municipal public power entities, things like that.

Ian: Right, right. But yet you regulated in the so called public interest. So you had to interpret that. Right? Whatever that meant in the context of your mind.

Joe: Yeah. It did but that was helped by a Supreme Court decision, NAACP versus the Federal Power Commission, and it put the parameters down that if you read the decision it's hard to be confused by the limits.

Ian: So, Gordon, customers want a lot and some people say this is a complicated sector, and we need to listen to them, but they need to trust us. It's not that easy. You can't have everything so should regulators somehow have a more direct line to customers, to the public interest?

Gordon: I don't think so but I think that regulators should listen to the extent the utilities, who do have customers, and the utility shareholders. For instance, the City of Toronto, to use one example. Or the City of Edmonton, if you're talking about ABCorp. Or the City of Calgary, if you're talking about ENMAX, say we want you to reduce the amount of carbon in the electricity you're buying. They have done this. Remember, we are now living in a growing world of ESG investments, God knows what that means. There is all kinds of funds and they're kicking out people that have too much carbon. Where this fits into energy regulation I have no idea, Ian, but it is true that there is a public demand for this. So this is not just an idea. If Anthony Haines comes before the Board, it isn't that he just woke up and had an idea, it may well be that he's getting direction from his board of directors or the Mayor of Toronto, or somebody. Just to add a bit onto what Joe just said, that is going to continue to grow.

Ian: So yeah, Gordon, let's think about Enbridge Gas Inc. Enbridge Limited being its parent company. ESG investors and the need, and this is clearly part of the regulatory compact, to allow the utility operating parameters and financial parameters that allows them to attract reasonably priced capital. Well if ESG is going to drive the allocation of reasonably priced capital, should the regulator allow the gas distributor to green its operations, to the extent that's possible with gas, in order to continue to attract the capital to provide energy services that customers want?

Gordon: I don't know. That's a little bit far stretched for me but I think that regulators like governments. First of all, regulators listen to governments. Very closely. There's no regulator that doesn't have one phone that's directly connected to the Premier's office. You'd be hard pressed to find one. Premier's do listen, not all the time it turns out but often, to the public and the public is on this carbon roll. You see it in the most recent election results here. I'm not enough of a pundit to tell you anything about that. I don't see that going away. I don't see the demand, the carbon reduction from the general public and the political environment, going down. It's going to continue to go up.

Ian: Right. Including from investors.

Gordon: And the fact that the Americans, having got rid of that last President, are now back with one who is all for trashing pipelines, including Canadian pipelines, so is the Governor of Michigan. This is all going to continue on as part of the regulatory environment and it will feed its way into the so called regulatory compact.

Ian: Let me, gentlemen, we have a few minutes left and then turn it back to Tom. So let me go to one question that's a little bit more detailed than what we've been talking about but a very interesting question. It comes back to this kind of this pace of change and the asset investments. So let me read the question to you. It's from Ravi ..., sorry about the mis pronouncement there, Ravi, if I did mispronounce, but you've asked a number of good questions and one of them is this, electronics on power equipment get obsolete quicker with technological change and all that, resulting in the whole getting obsolete. How can we prevent this? Let me ask you, gentlemen, how can and should regulators protect customers against this?

Joe: I don't know. I don't know if they can.

Gordon: Nor do I.

Ian: So let me push this just a little bit with you and maybe it's the same answer. Maybe the 40, 50 year depreciation period is too long, in the context of technological innovation, and the pace of change. On the other hand, shorter depreciation rates, which will protect customers in some sense, raise costs. So should customers pay a premium for that kind of flexibility and the protection of future customers? Maybe you need more evidence, Gordon, and a chance to go away with your fellow panelist and deliberate before answering the question like that.

Gordon: It's an easy question. The reality is new technology has benefits. It will have cost. It will have a shorter depreciation life. You could pretend you didn't want to have electric cars forever. You can do all kinds of things if you want to live in the past. But I think most utilities, prudent utilities, to use the word prudent, they will invest in new technology if the cost exceed the benefits and if the benefits don't exceed the cost, I got that wrong, they shouldn't be investing in it. That's a metric that the regulator should be able to administer. It would take into account the factors that you're describing. Oh, golly gee. The depreciation rates going to go up. Well, that's part of your cost matrix when you make the decision whether you want to proceed with this technology or not.

Ian: Right. But the benefit is you may be mitigating the risk of stranding assets.

Gordon: Yup.

Ian: Joe, what do you think about that?

Joe: I agree with Gordon.

Ian: Alright. We should end it on that note, Gordon. Joe agrees with you too.

Gordon: Stalemate. End it there.

Ian: Tom, over to you. Thank you very much, gentlemen. It's been a pleasure.

Tom: Actually, thank you, Ian Mondrow, Gordon Kaiser, Joseph Kelliher, thank you all three of you. Thank you to all of our audience members. Really amazing to see almost everyone in the audience stayed on for the full session, which to me is a really good sign that what was being said was valuable and on point. For that I have to thank the three of you. So, once again everyone, thank you again for joining us at Gowling WLG. I look forward to seeing everyone again at our next roundtable which, once again, is on Thursday, October 21, where we're going to be looking at EDI in the energy sector and on behalf of everyone, I'd like to thank our team, Shannon and Margaret, for helping us put things together and wish everyone a good afternoon and stay safe and stay well. Thank you, everyone.

Gordon: Thank you.

Joe: Thanks.