the second how this fits into the larger decoy purses government panel of the last -- i would even go back as far as 30 years, the little bit farther. because cavan's answer 21 million was arbitrary. ..of fixed and maybe it's not completely arbitrary but there is a lot to it, and that bothers a lot of people. but, dollars are arbitrary. a lot of financial instruments have arbitrariness built around them. the true financial professionals will tell you even gold is arbitrary. and over time we introduce a new financial instruments of any kind whether it is a currency or a commodity there is often a lot of confusion about it, confusion

by government, confusion among the public and even confusion among the professionals. this is no different than when we were introducing paper money when the united states was going to paper money folks could be rolling out all sorts of different dollars. the greenback was the federal government trying to come in and that's why we have the secret service. they rolled it back in the 1860s and the secret service was there to nick sure this was the one currency that we had about the different banks could be printing their own u.s. dollars. and we had lots of other confusions when we rolled out the instruments. the archery stocks. they were in this piece of paper entitles you to a portion of this company. just like we had security issues for thi bitcoin, the stock certificates saw all sorts as one of the classic incidences.

i watch a lot of turner classic movies and it seems like every other movie is about someone perpetuating some stock fraud. i worked in hong kong for a while and you would see the way that the modern chinese are dealing with the stocks that are coming out and it seems very familiar to those movies in the 1930s. the new financial instruments on its confusion about it. a lot of arthur train us david christie si -- arbitrary. on bitcoin i think it might prevent bitcoin from being around in 2050. sorry. the issue of the crypto currency these are all completely solvable if there is a pointer to it. the amount of security that you have to put in to make sure that they can be secure or outside of

what i would even be willing to deal with with a masters and computer security. you have to really protect your self and its best to have a laptop, separate computer that you keep off line that you are only using to keep your wallet. there are some other ways to do it, but as it shows there are a lot of issues in the exchanges. we are still new to this and trying to figure out how it is entirely solvable but it has to be usable for people. there has to be a demand that we are not getting through paypal or credit cards or other things that is going to make it as an exchange for you and me. as far as the brought a change this might be familiar to some of you. this was written in 1996 the declaration of cyberspace. the governance of the industrial

world, giants of flesh and steel i come from the new home and i ask you in the past to leave us alone you are not welcome among us and have no sovereignty where we gather. cyberspace does not live within your borders. you have not engaged in our conversations nor did you create the wealth of our marketplace. there are problems that we need to solve. many of these problems don't exist where there are conflicts we will identify them and address them by our means. the concepts of property, expression, movement in the context do not apply to us. they are based on matter and there is no matter here. even as we continue to consent to the rules over our bodies. he was a later assist for the grateful dead and that was

representing a trend from the writings of the third wave and others in the 70s and 80s coming out of the industrial age into the information age and the government are going to have less power. it's one of the trends that we talk about in to disrupt. the governments used to have a monopoly on a lot of areas and on the force and monopoly on other areas like currency. this is particularly strong now in the post snowden era and we are pretty sure he is not behind bitcoin. where you start to see people come and especially geeks, silicon valley, the younger generation say the stuff the government is doing come enough

already. we can have our own stuff that is separate. we have our own rules that apply. your bureaucracies, we have our own social contract with is sharing media were communicating or having a strong cryptography. if there are problems, we will solve them. cyberspace occurs across the borders. so, to me bitcoin in general is a part of this larger trend of the geeks and i mean that as a term of endearment, the technical change this diffusion of power away from government to say there are problems we can solve on our own without the government being there to have to solve them themselves. this is a really strong trend.

you are going to see it here in the currency and as people say can we invent a new internet that is not so subject to the master surveillance and attacks or are they going to continue to get involved or are other governments going to continue to get involved? i think the money is on the government. it has been in the past when they've had all of their disruptive innovations. sovereignty still matters a lot. so, if bitcoin and other currencies remain something that is kind of difficult to use and kind of arcane and seems confusing for normal people to use then probably the government are going to stay on one side or stay mostly dominant and bitcoin like other things that start with crypto will remain for those people that are willing to try to figure out how to use it.

if it does turn out to be stronger, if privacy turns out to be stronger and we want a more secure and private intranet, bitcoin and crypto currency could fit in with that and we could imagine off to 2050 the 2020 that these could be very much stronger. so i'm a big fan of bitcoin the system of the ledger that says here's a smart way this could get done. it could solve interesting problems whether the actual what gets mine is going to be the solution i think it is too early to tell. >> let me follow up on one issue that you pointed towards and then we'll have a conversation among the panel and take questions from the audience. the last point you made is this business model what i called at

the beginning the block chain basis is already being experimented for in the recent article of the social networks call twister, and encrypted e-mail, alternative messages, domain name systems, so they use seems to be proliferating the encrypted services. where do you see this going in the near-term? as people have heard of bitcoin but don't know much about it. where is the next application of this type of process? can a guy he really think of what i has been needed us can handle clicks the mobile money has made a huge difference because people don't need a wallet. they can use their phone. you have a technology that has changed that society because it

was aimed under society and now they can use their mobile phone not just to get information but to make payments. it's changed society and incredible ways. i'm not quite sure what the need is that we are going to be using bitcoin for. yes it can be anonymous. you don't necessarily know it's going to rob jackie and phil. it's going to need this addressing this address a but te cash already fills that need. it would allow you to do it more easily over the network but how many of us need to have a pseudonym when we are working over the internet? you can't get credit in bitcoin. there aren't any good evidence. you can't say what's the 90 day bitcoin selling for that allows you to hedge. maybe we can get there in ten years but we still have to find

-- it's hugely volatile right now. we will see. >> i don't want to keep chris waiting any longer. he knows the most about that combine appear so we would love to hear your view on the questions. >> thank you for allowing me to go on stage i know fro i'm overe business economics program that you are leadership and scope on this issue is a very important one. i'm a georgetown law professor so i want to take a regulatory stab that i think it is important to think about in very basic terms what does bitcoin do, what is the advantage because it helps you put your mind about how difficult it is for the regulators to deal.

in its essence when you have any kind of transaction between the party, the information relating to the transfer is not processed in a way that one would normally anticipate particularly when you deal with a transaction involving currency. that is quite simply in our modern financial markets, there is an infrastructure for certain kinds of transactions that innocentinessence we have systet allow the parties based in parts of the world to transact with one another and that effectively validates and concerns that a party has what it says it has and that will deliver those committed currency to the counter party in a transaction. now, what we have in the bitcoin

system is very different. instead of having a central clearing mechanism, we have a democratized process whereby all of the participants in particular the miner who receive incentives go out and fact check the transaction to make sure that on the one hand at the party who was given the bitcoin actually has what party a says it has anything closely related, there is a recording process by which the transaction is recorded and is then transmitted to the world so it creates a kind of public good good once te block changes created. so it is a democratized system

people can participate in the information gathering and the information sharing and to a degree is a market based information system. that is what is fascinating and different from the payment perspective. and then they obviously, the interesting part is that it's a string of numbers. it's not just a piece of paper that a string of data created with software that is given value that is undergirded by space that a normal currency is backed by the space but it is generated by certain digital communities as opposed to national. thof the participants in that community ultimately give that

data the value that the other participants in the system agree exist. that is a 21st century phenomenon because on the one hand you have these new platforms and data and young geniuses at penn state sitting around and it's something to create the computational models by which you can continually process the data candidates responding to a world that has a growing skepticism about finance and money, about counterparties and finance. then you have the regulators. one of the main reasons one goes

to all schools because they cannot do the computational models that allow them to the hedge fund. my students grow up to become fancy lawyers and regulators and it is useful to sort of think about what then is the place of the regulator in the world in which. what an algorithm is you have to say what is the infrastructure behind the system and what are the relative weaknesses and how does it relate to your own specific mandate. the fact we have a 21st century currency in and of itself

creates problems because no one really knows if it is currency or not. i just released a book myself this last week that is basically this idea that the multilateral system of the brendan woods era is under stress. the foundations of the international economic diplomacy are under religion. certain aspects or characteristics is that you don't try to aspire to the universalist that everybody is involved. sometimes we have certain communities. second, you don't necessarily rely on the economic affairs with the formal legal obligations that the informal obligations perhaps and finally the last is the fact that we are losing this dollar that focuses on different kind of blocksss dt

kind of block and increasingly the system. no regulators ask themselves what does all of this mean? but could bitcoin be considered to be? because you can't regulate anything if you don't know what it is so what are some of the contenders for what it is? so you could view it as a commodity currency however we have an entire list of what the specific data costs for the commodity. but here you have a theme that has an exchange value but it doesn't necessarily have a value from the perspective of the consumption. you do not consume the same way that you eat. so this creates a kind of

question is this a commodity? a currency was discussed. we use this term in a larger rhetorical sense. those economic and legal. the currency as an instrument of payment. on the other hand we have a payment that is not universally accepted and it isn't backed by any government it is considered a store of value for many of us in the room you know that bitcoin has fluctuated beyond the means of the fluctuation one would associate with other kind of interest. it doesn't need to the traditional concession. the unit i don't go to the store in which my baseball bat is done

nominated in tha bitcoin. if i go online it is rare that i see any object necessarily denominated. i use bitcoin to pay for it that the unit of count is some other currency. so it's hard to think of it as a typical currency. is it an investment? may be its security. i see in the background someone that has been in the security. the security lawyers have a definition of what constitutes the security. and there are certain key elements of what the security is with no commonality. you don't have lots of folks participating in the same way which one participates in the bitcoin. maybe we will call it an asset and that is what they are going to say this is property that it

is very weird because the property is not always given this anonymity much less pseudonym so then how do you address ss property rights that you have the fluctuations but you don't necessarily have identities created in a typical property-based system and then finally is it a then we will say it's not a currency that it is a payment system. we've already had the different participants in these burly and young miner that create a ledger that has been broadcast to the world and therefore it is a settlement system. that's hard because it isn't centralized. and the different parts in that settlement system don't operate in anything that we have seen

before for the reason that they have tried to call it a money service business. to make them more compliant with the customer money laundering systems. but even here there is a certain question as to what is the integrity of the payment system where you have not only the exchanges themselves, or you have these folks that can create ponzi schemes around the bitcoin system. what happens to when you keep the bitcoin what is the integritbut is the integrityof e digital wallet. it doesn't look like and doesn't seem to pass the same kind of institutional muster that one associates with more established regulatory systems. so, as a result, each of those questions is a commodity.

is it secure in the payment system? is it a currency? how you answer each of those questions leads you to a different answer of who is in charge. once you get to the question of who is in charge, sometimes various regulators can look at any particular aspect and say that's me. then you have possibilities of overlap, confusion and the like. but to top it all off, you have a very dynamic system that's always evil thing and it's deeply international. we run out of tokyo that creates new kind of stresses and challenges for the international regulatory system. so from the regulator's perspective, things are just started in washington, folks are going to obviously b be employig the young geniuses to help them figure it out, but it's very

hard to formulate a response if you don't know what it is or who is in charge. .. >> that was the greatest set of late 20th century jargon from the government that i've heard, and it's not wrong within the

confines of that system, but it is a natio se-bd system nation state based system, and it is nation state based rules. r friend here is referencing, is that there are people now who wish to work outside of that. and the question is in terms of international law, whether or not, in fact, we have those kinds of controls. again which he said is perfectly -- run down the list i can hear exactly what you're saying but those are nice dollar-based, bretton woods system kind of rules. the thing i would say to you is do we need to think more carefully about how those rules are designed? i think you talked about that. perhaps approaching us a little differently. >> i was describing with the regular the response is currently, as is being developed -- regulatory. let me confirm it.

so just how difficult it is to i was simply trying to explain to people what the process is unfolding. to your point, do you then look at a big coin -- a bitcoin as an asset, as a property? sounds interesting enough. well, then that means do you have to figure out a way to tax any appreciation of the bitcoin in any given point in time where there's a wide fluctuation? so when for example, the irs makes it release, tax bitcoin, everyone is saying in his system and there's a large degree of of pseudonymity not mentio mentione are wide fluctuations on a daily basis, not to mention you'll be able to write it off or you can't write out the losses but that doesn't seem like a very viable approach to always be there looking at it like a commodity.

>> precisely so there's this question as to how viable, or how exactly would the iris do this? when you talk the international aspects, germany will i believe, and i'm talking later today with the head of -- called this to a digital commodity, whatever that is. on the other hand, some countries have called it a currency which obviously gets your banking regulators involved. the fcc is worried about fraud. again to your point, tries to come up with an approach that is where the market and technology has outpaced the regulatory infrastructure. you're not going to always end up with the optimal results. one of the challenges that argue in my book is the snake is sort

of update how financial market participants and authority talk to one another even across national boundaries. i will say one last thing though. depending on the size of the bitcoin market, that's where you have certain kinds of issues but as i tell my students, always remember this, you choose, young man. i love the fact i can say young man. spent i'll write it down. [laughter] >> how do you spell that? >> young people twitter. cheese attracts rats. the question is, once you start to create value, once you start you great value you will get lots of shenanigans. lots of jamaican immigrants, all the examples i don't has mentioned. silk road, ponzi scheme. that doesn't mean it is

inherently good or bad but it does mean that where you have certain kind of opportunities, you know, folks -- maybe not always the best of all people with the best of all motives. sometimes hereditary mechanisms are not nearly enough so the question is how do you leverage the power of the crowd actually dealing with crowdsourced information, and how do you model the market and get the market involved in a way, you know, i work into something's with the self-regulatory agency. how to get market participants involved in a way to speak to 21st century problems where the problem outpaces the human capacity, intellectual capacity and regulatory capacity of these. and that is precisely why we are all gathered here today. >> and to bring it even a more

practical perhaps, will governments allow a system that allows money to be moved around, that there's no, know your customer requirements, you've got an address, a mobile phone and you can essentially signed up. governments, especially since 9/11 have been particularly strong in saying you've got to know who's working with you. you've got to know signing up for a bank account. that allows the money to move across borders without salute no visibility by the government. one of the reasons i suspect why russia and china are particularly not like it is, not just because it can be used for illicit purposes, because it completely evades capital control. if i were russia or china would be paranoid about this because of capital. people want to get the monies out of both countries and to get into safer currencies. and those governments have controls on what monies can be

allowed to leave the borders. there are no such controls on the. so to imagine the are a lot of government interest involved in trying to stop something like bitcoin right now. now, can bitcoin really be able, if it roasters becoming important, stand up not just against the u.s. government and the irs try to figure this out, but very dedicated bureaucrats to what extent that any such as the that they can't control speech and what they want to control the transmission of monetary policy. as you say. >> there's a lot backed up against it. >> not all necessarily, not all of that control businesses to the good and in a way i would put it reflective of the values that the atlantic council stands to promote. [laughter] >> i'm giving kevin and little protection here in defense, but he can do it himself. kevin. >> a couple points i want to give my point -- as was

mentioned, it's a lot better than bitcoin view that barry -- bitcoin does have an identity crisis. nobody knows if it occurred to come is it a stock? i don't know a lot of terms who's talking about. [laughter] i haven't taken economics get a, but nobody knows what to classify. the easiest thing to do is to say, to fight tooth and nail come is a currency? is a stock? in reality it's kind of both. as we were talking about earlier, some people just want to treat it like a currency and some people view it as a stock. so it is the best of both worlds where if somebody wants to have a look at the bitcoin and make transactions they shouldn't be penalized as if they were bartering stocks your and another name that was thrown that there is not docks, the

online exchange for bitcoin. they were the people to go to if you want to exchange bitcoins 2-dollar yen the pesos. whatever. and the funny thing is that not many people know where encouraging. it stands for magic the gathering online exchange. it was basically a platform for trading card game. when it first came out and 2011, it sent your password plaintext overcome you could see a password on the url. any script kiddie and his mother could find your password. >> not my mom. [laughter] >> and to basically this was built on a platform that was expecting -- bitcoin was you work and you couldn't avoid bitcoin if you want to but it was worth less than a penny a going. so the build on the platform that was doomed to fail. as bitcoin start again more and more popular be they just kind of added more servers, packed

up, date code. so reached the point where there were so many holes and gaps but they were just too big to stop everything and rework the entire system. of course, eventually they were hacked into and the bitcoins were transferred out, or so they say. a lot of people are like, they just hightailed and ran. so that was something that was favoring early investors. in the day that mt. gox went down i got so many texts saying so, ahead of bitcoin failed. no, it's just an exchange. bitcoin is fine. and so the system really does favor early investors, like if you're to invest in apple or microsoft early on, you'd get rewarded for that. and another thing i wanted to talk about was, it would be nice if the irs were to talk to a

bitcoin expert on where, what points they should keep in the regulatory matter. by now that they have something on paper, something sort of grasping it. i really do believe the bitcoin committee will be able to work with them in educating them on what they should do, what works. it's something that bitcoin people believe is stupid or just outlandish, they are not going to follow it. they just won't pay taxes on it, which is lose-lose because one thing is illegal and one is not getting taxes. they need to work together to come up with a policy that works for everybody. it would be, worst case scenario, the wonderful thing about bitcoin is that governments don't need to approve it. bitcoin can function completely normally without government intervention. so government can ban -- china has been in the news lately because they banned a going from

-- their currency to bitcoin and bitcoin to their currency. at the transacting on in the bitcoin, that's completely fine. and even if the work is said don't even touc touch a bitcoin adopted would still be able to do it. so think it's just a moot point for government to ban anything with bitcoin. because that's up with attraction is moving to direction is moving back towards the power to the people, and the government are having a hard time with it. but it's going to happen anyways so you might as well just not fight it. [laughter] >> tell that to the irs. so now we will open it up for questions. we have a number -- the gentleman here in the middle with his hand up. we will grab everyone over here. >> my name is martin apple and i'm sorry i can't be puffy but i will do it again. i want to look at this as a different phenomenon. to me, this is an experiment and

the alternatives to currency as we have known them. and whether it fails or not is irrelevant. it is going to be probably succeeded by yet another experiment and until people get to the notion that everything that we have always embodied as something physical in the digital world doesn't have to be. secondly, everything that is in the digital world is so universally distributable, that it's out of federal controls of any particular country, and there will always be some kind of a threat. so the question is how do we want to learn to live with this new evolution? because i think trying to stamp it out will not be the successful story. i think it will continue to evolve and create until a successor does occur. >> so, you made an excellent point i wanted to bring up. when the internet was first coming about and servicing,

congress had no idea what to do with it. there was a lot of discussion on just completed stamping it out, making sure it didn't, you, cause any harm or do drug-related activity. than today, you can do anything on the internet. you can do anything, you can get drugs, hitmen, whatever. spent what have you been doing on the internet? [laughter] >> sorry i disagree with you earlier. anything you said is great. [laughter] >> don't mess with me. but basically when it first came out, it was textbased because completely unappealing to the average person who just wanted it for e-mail or just a look at funny pictures of cats but you couldn't do it without knowing whatever coded language it used at the time. and then innovators like google came up, apple, just basically was able to have it, if people want to get really technical they could, and if people wanted

it for e-mail, that's fine, too. i think bitcoin is somewhere in away that right now it is a good point that it's not natural for people to have something need to be so secure because if you have $100,000 in bitcoin and then one day you leave your computer on or you go to the wrong website and to download the wrong things, it's gone. so that's something that in the next khmers i'm sure that developers will be able to help people make it easier for them to make this a viable method of exchange. exchange. >> i think one of the real problems here is that this is a 20th century down with 20th century ideas and 20th century institution. i keep saying that, that's what we grew up in. this is the 21st century. this is about the cutting edge of technology, but it's also about jumping generations here, too. i'm less concerned about -- not less concerned, but it interest

me that many world -- third world countries or underdeveloped countries, -- i could see an unstable countries -- unstable countries in africa. are you kidding me? this is great. so while it's interesting that we are of course the status quo, and we're status quo power and we're protecting ourselves here, that in pakistan is going to go on. i quite agree with you. i think this will go on quite well in terms of the 21st century. the challenge of course would be for these guys down here which is how deregulate this in a nationstate? i don't know how you do that, frankly. >> one of the first things to do is to write up something that you don't understand, or at least be very careful at least when you regulate something in fact you don't understand because you do want to make sure that you the opportunity for that, for technological innovation to develop. i did want to make a couple of basic points are it's not just

the chinese just wanted -- they are really basic power politics, interested about controlling the national mantra supply and the like but there were questions about showed a bank be able to lend -- should a bank able to lend money to a broker giving and bitcoin? in the 2008 posted enterprises will that becomes not a 20% your bubble but because the problem of the last couple of years. what should be the relationship of this new payment system -- was should be the relationship between 21st century payment system with a 20th century payment system? like that is something that you cannot just overlook. and so, and then how does a 21st century -- how does a 21st century exchange deal with a 20th century exchange. we are using words like a ponzi scheme very, very -- you know,

loosely but how that is an old school problem that works itself out in very interesting ways when you have a potential bitcoin exchange. the only reason why i'm saying this is because, bitcoin offers some amazingly interesting opportunities. on the one hand, one of the drivers behind bitcoin was in an age of what appeared to be western prophecy. you had the opportunity for individuals to create value among themselves where you're not entirely dependent on ostensibly purely politically driven government decisions, right? so you give this opportunity for people to great their own hedge to protect themselves. it creates essentially or in some ways when done right, you know, by cutting out certain kinds of middlemen and by employing minors it at least offers the potential prospect of

being able to make payment transactions in a way that is more efficient and less costly to people in the marketplace. so it's not like it's all coming out of nowhere. at the same time wherever you have the internet and have the opportunity for human trafficking or hitmen -- please don't hurt me -- obviously coming, both of those problems are age-old problems that you a new life when you have the 21st century technology. answered even at the nationstate level there are questions, and to the when the nationstate looks at it, ma they will ask themselves how can we regulate the a lot of times the question is they will never be able to be entirely successful but we just want to make sure. regulators and market participants are as good as possible and to keep a certain dollar open because they will

not be able to cure all the downside with just one for sure. >> let me collect a couple questions. >> please identify yourself. >> charles. i'm from new york. [laughter] >> microphone. >> isn't that right? >> can you speak into the mic? >> yes. i'm a recent graduate from fordham law at am writing an article right now on bitcoin, and i would like to create either a market and law and this is typically. i share your skepticism regarding the regulation. in regulation you're always wondering about the policy behind it. i'm directing my question though to doctor brummer. you expressed the problem of basically regulated trying to

basically fit a square peg in a round hole. that's not a unique issues surrounding bitcoin. is generally anytime something is new you are dealing with the traditional system. i'm wondering whether perhaps the best way for regulators who are facing serious issues, real issues and were unique regulation and good regulation is whether they should look at bitcoin and define it by its function isn't trying to look at is this a commodity? it doesn't fit into the traditional norms of what a commodity is, and what looks like a currency, regulate as a currency. obviously, not just to regulate regulations sake but for serious real issues. >> i think what, i think it's a great point. and the 21st century of have a much more objective base process we want to ask yourself, what am

i trying to do before i get involved. but understand what you want to do again yet to answer basic questions of what it is, what is the nature of the problem i'm trying to deal with. and in a new technology, this is not, bitcoin is a great interesting question but there are other important ways in which technology is impacting finance. you can look at everything from high-frequency trading to crowdfunding to all kinds of related issue areas where you get crowdsourced information and new technology and new platforms that impacting the way people do business. you have to take a step back. in bitcoin i think is particularly difficult because of the math, because of the fact that to do with pure data and it

stretches the human capacity intellectual capacity of lots of folks over at agencies, including myself. what i try to figure out, what would i do? people will call me as well and see what would you do, what we do? i can't tell you exactly how it would come out, i can only give you some basic idea of the process that i would undertake to begin to figure out what i would do. and i think that's the best and the wisest course for most of our regulatory agencies because everyone is try to figure it out the particularly when the market participants themselves, granted the rest of the world is a little dumber but nonetheless actively for the market participants themselves that there is a challenge for them to fully articulate what it is that they are doing. and in that kind of world you have to move to create a smarter dialogue and a smarter process. and i have ideas of how you would get that up and running but i can't tell you precisely

right now. >> take quicker questions because her time is running out. if you can keep your questions short. >> thank you. i'm the treasury of the bank in washington and my very much involved in transactions on a daily basis. go back to the questions about rules and saw. would it be in the bitcoin communities own interest if you mainstream bitcoin? wouldn't you becomes dead of winter, to try to get what it is an regulate, would it be better if you said please, help us move bitcoin into the mention because then you will become a dominant exchange of value? thank you. >> national intelligence university. my question along your lines is it inherently beneficial for the government to get tax revenue and not make its citizens a criminal win-win situation. how does a government help provide better security and have

access to the big paper trail, that ledger you call, that way the irs contract and made when you fire taxes yet to give your public account domain, username so that way they can help track for tax purposes? for you, doctor, can you explain money service manager versus exchange and how that will affect tax filing purposes and how you maintain being a user and not become a money exchange manager? >> let's take those two questions for kevin and chris, and then we will take a couple more. >> you a question is basically how would a government be able to track your funds and, therefore, tax them? summit. >> for social security. [inaudible] >> i think it's somewhat to the first question which is, is it a

useful approach for the bitcoin community to help figure out the regulatory approach that works for all parties. >> i do completely agree that there is a need for coming in a, bridging of the two worlds. as for how they would do this, they could theoretically give the government, your public address and if because bitcoin is based on a public letter they could see exactly who you're paying a two -- not like you but they can see the addresses it's going to come and then where you're getting the money from. so it could adapt maybe to like it or using it as a currency, maybe because i know tiger direct and overstock.com, accepting bitcoin as payment. so maybe if you're doing transaction like that maybe the tax purposes will be a little different than if you're using an address for something a

little bit more substantial, more like a car or a boat or something that would need a little different tax implicati implication. >> hold on a second. spent just to say, the money service is just to do with whether that you look as a payment system and irs is asking module basic questions, is it a property or asset that needs to be tax? want to jump off on one thing. the irs has said that even using the public key, that they can in certain instances backtrack and look at the patterns of certain kinds of payments, even using the pseudonym to be able to identify the real person. the wizard behind the curtain. for each transaction. but the power and the time required for each of this stuff is so extensive that it would be very hard under, in today's world and to be able to regulate every bitcoin transaction but instead, like the irs and the

idea of looking at the money services industry, the idea is how can we better make sure that bitcoins aren't being used for illicit purposes, in particular, money laundering, terrorism, narco trafficking spent which put you in a position which part of the government has that capability. and i'll give you three letters that do. [laughter] after all said and done there's only one that has that kind of computer capability and do you want to do? >> i think it's in a very difficult place to get the bitcoin committed to stand up to the. you can get there a couple of ways but either they're threatened by extinction by regulation, government crackdown so hard that it's an item of last resort. so many folks in that community see anonymity as one of the reasons for this system i if you have anonymity and assistant, what's the point? why don't you just use dollars? i think they would have to be

some value but if you come forward. if it's kyc, an it's easy for an exchange to exchange will be recognized i the authority to kids easier. more safety and security. if you come out publicly to be associated with your private key and associate with an exchange. there are benefits that come from the. you can imagine other ways we have done this that you come out, but it's not like bankers. it's not like you can go to ubs and tell us everyone who ever is because there's no real they are there. as you do in going after other corporate. i mean other sovereign, sal burns that have corporate banking secrecy laws spent unfortunately were out of time for questions or any last comments from any of our panelists before we formally and they see the? >> i must tell you as a member of the intelligence community, i think i would have a numbers problem dealing with his. i think for both a

counterterrorism standpoint but also from the standpoint of what this does to nation's currencies, especially beginning in countries where you get unstable perches. are going to get a class of people that are using this in the elites for instance, and has that going to affect their behavior for the government. >> so two things. one after this if you want to see my mining rig, i worked so hard on it, i'm happy to show you. and the second is, you know, we're talking about bitcoin here but like i said before, the greatest get bitcoin is given us is a blockchain.info the way they can do something like this without needing a central authority. so in the next five years is it going to be bitcoin? maybe. who knows? but i do know that there's more and more people getting interested, more and more ingenious developers, even smarter than me, who will create

something that would just be able to make crypto currencies something that everybody would want and everybody could use. spent i been skeptical in the brodom -- broader term. look at what we've been going through this last week on ssl. it's open source, people and look at this standard for years and years and years to the internet is fundamentally insecure. at almost every level, even those places that have had a lot of scrutiny. so if crypto currencies are going across, they've got a lot stacked against them. dollars at the end of the day, you can have counterfeiting, that happens. you can have inflation to it tends being an issue we can get past backed by the full faith a united states government. or whatever whatever government. when you have easy to problems in wednesday's crypto currencies, it's more difficult to get past. it's 51% of miners agree on something, you can make changes

to the standards in ways that allows power and energy you just don't have been fiat currencies, or only left to the sovereign. i think that a lot of things were going to have to get through. there's a lot things that sound like a good idea on internet but then to work out. we don't order our groceries that much. is because something make sense, just because it's technically possible dozen it's going to happen or else we would've all gotten you you on jet packs. >> i guess i will actually -- speaking of jet packs. i think that the core question of what happens when you digitalize information and what are the new kind of opportunities it allows market participants of all shapes and sizes to connect with one another and to transact with one another across borders, it's not in the bitcoin iteration. one of the challenges will be

exactly how do you engage this phenomenon, that is fundamentally reshaping our society? >> i could go on another two hours. i've really been educated and also entertained, but please join in thanking our fantastic panelists. [applause] >> thank you. >> [inaudible conversations]

>> with early headstart and enhanced headstart wide we have the other two because

the first one was not working. one 1/3 to as the second was not working.

[inaudible conversations] good morning. thank you for joining us for this important hearing this morning entitled keeping the lights on. are redoing enough to ensure the reliability and security of the electric grid? i am pleased to chair the first oversight hearing that this committee has had in quite some time on this important subject is important to many members of the senate with a letter sent on a friday issues i think the numbers soared joining us for the reliability of electricity is so commonplace in america today that most people spend a little time even thinking about it. except when the power goes

out and the lights go off. father for a few minutes or a few days or weeks it can be inconvenient and maddening and a life-threatening. and a small neighborhood from the of the art stock exchange 1882 thomas edison -- edison station in lower manhattan eliminated 400 claims in homes, offices and businesses for the first time for 85 customers. it was a glimmer of how delicious the wood, and to dramatically change and improve and strengthen our country to make our daily lives more convenient and pour prosperous. the u.s. electrification rates steadily increased from there for a few percentage points in the early 1900's through 70% in the early 1930's.

at that point to only 10 percent of rural households in america headed electricity compared to 90% of urban homes. the government's action and great effort on the part of many parties was near 20 percent by 1960. during the 20th century electricity production is shifted from being produced from coal and hydro power from a diverse mix of coal and natural gas and nuclear and petroleum and recently of the renewals. with the rapid development of new technologies 50 years from now we can be certain there would be even more diversity in energy sources to power our country. however the economy and technology rapidly evolves of our dependence on electricity on the average stay and how much we rely on electricity the alarm clock for the cellphone, the

coffee pot, the toaster or the refrigerator, a traffic lights to make your commute to safer or the phone that you used to stay in contact to conduct important business that is just to mention a few. there is a few of the ways we rely and electricity of artillery -- they live lives even a few minutes could be a real threat or a inconvenience particularly when temperatures are very high or low or the aftermath of storms or disasters or floods or hurricanes mudslides or fires. in the louisiana we felt the impact of long-term power outages while understandable is still extremely difficult to deal with. today our committee will receive testimony but the public and private organizations that have

responsibility for their bread are doing to maintain to prevent brownouts or blackouts could it be made more secure but doing so in a cost-effective way? the first panel will focus on new and emerging cyberthreats as well as long standing physical threats to the electricity grid. this committee has already taken steps to address this issue with the energy policy act of 2005 the first of its kind to establish reliability standards including addressing cyberthreats to the electric grid. in fact, electricity sector is you depart of our national critical infrastructure subject to cyberthreat standards in boyle discuss that today. for the physical threat to the attacked last year from california's silicon valley was the most serious attack ever on the u.s. electricity

system. fortunately it did not result in a blackout in silicon valley. but the incident as has been reported was close to shutting down a large portion of the western grain i commend the industry in federal and state partners for the significant improvements they have made to reduce the risk of a physical attack and i know that last month we voted to direct some additional standards and gave it 90 days to do so. grid reliability is the responsibility of the industry as well as state and federal agency partners each of us has a role to play. in my view it is essential the information regarding the threat of the attack is transmitted to others that

need the information in a timely answer care fashion of a bike at this time to submit a letter regarding to a record and the response from the chairman on this subject that we will go into in more detail without objection it will be submitted. we must take very seriously these issues to develop a proper responses to these threats but it must fit the size and the nature of one size does not fit all. in the louisiana we have too large utility companies law as well as a number of relativity's co-ops and municipal utilities it does not make sense for small co-ops with animal critical infrastructure to be subject to the same requirements as larger suppliers. we must keep fats interview. the second panel focuses on different aspects if there

is sufficient to generation of unfettered transmission to keep the lights on when electricity demand a peak we have been particularly focused on this issue the adequacy of power generation differs from region to region as a rather tackle the entire issue with one at the request of senator manchin but look at coal-fired generation route requirements during the polar for attacks earlier this year and i appreciate all senators' concerns regarding the threat to reliability from coal-fired plants with new environmental standards as well as competition from the gas market. called retirement is multifaceted different perspectives will be shared today in a look forward to a lively discussion with the second panel. in closing we have a panel of expert witnesses to discuss these issues and i

thank you for your help to plan this hearing today and for your cooperation and i will thank all of you who traveled a great distance to be with us today. i will now turn it over to the senator for opening statements. >> i appreciate the opportunity the critical issue that is timely. are we doing enough to ensure the reliability and security of the u.s. grade is the central question posed today but everybody in this room knows the answer to this question. we can always do more. the next important question is how to repair ties those efforts? we can judge by the committee room how important this issue has become with standing room only on electric reliability i think that says something about

the importance of this issue and we can judge from recent press reports the first commitment should be to do no harm or no further harm. you mentioned the recent stories of the metcalf incident that was sensationalized by grid security instead of helping to protect the grid from attack. the disclosures we have seen potentially increase with physical vulnerability. last month the asked the energy department's inspector general to handling the sensitive nonpublic information and it would be published in "the wall street journal" late yesterday the inspector general issued a formal management alert to the fact this information should have

been classified and protected from release at the time that it was created. this revelation with the national security implications i find extremely troubling. and it pledged swift action in response to the classified information regardless of how sensitive national security information was handled are found its way to the report we have passed the ig to find this out the orders of the grid and regulators are quick to respond to incidents such as metcalf making use of the regulatory framework established by the 2005 energy policy act it provided needed information in a timely fashion. government agencies including vhs and the fbi and the checks significant work with the industry to promote communication

measures then last month under the leadership we were directed to develop physical security within 90 days even before the standards was under way we saw of lessons learned from metcalf being applied immune to that is critically important here. as experts have recognized for some time it is likely impossible to ensure every part of the grid combusting and physical or cyberattacks a we need to property scale and continuously improved the approach to reliability and security. after the facts of the threat smith are clear we can debate if new legislation might be necessary. summer interested to direct the emergency action to protect the grid i have my own thoughts but clearly the commission must do better going forward to protect

nonpublic information from disclosure progress has been apparent for some time we may need to empower to protect the grid from our own federal actions. this sort of everyday vigilance as he does not need to be high profile but we should not lose sight for the electric grid reliability and affordability must remain the court's consideration. the challenge before us is how to maintain and improve reliability and affordability while keeping environmental performance in balance. madam chairman we have an impressive group of panelists before us today i think each of you and in particular the chairman for your steady leadership with extensive experiments as we tackle the new breed of issues including the us cyberand fizzle security concerns. to each of you and to the

second panel as well fully credentialed i appreciate the opportunity to discuss this this morning. thank you madam chair. >> senator murkowski thank you for joining me of a bite to submit the documents from the inspector general of relative to what you and i both referred to in our opening statement this morning. but me at this time will come up and all that is joining us. first the honorable chairman from dave regulatory commission one of the main responsibilities is the reliability of the grid to thank you for your leadership we will have further questions. next president and ceo of nerc leading programs one

out of the 900 bulk power system operators and users. next president and ceo of american public power who is advocating to thousand non-profit community owned utilities throughout the country in addition to others. i last witness from the arkansas public service commission representing the national association of regulatory commission's rishi's serves as president. thank you for being here and let's begin with your testimony chairman. >> senator landrieu senator murkowski and members of the committee, nearly four years i have had the honor to serve of the federal energy regulatory commission and i

appear as the acting chairman and the appointment i received in november thank you for holding this hearing in the fighting to testify one of the first decisions at ferc was to make electric reliability a personal priority. it supports the reliability of the grid in several ways first we directly over seek the forssmann of mandatory reliability standards and also support reliability through the regulation of wholesale rates and markets which compensate resources can send signals needed for reliability and a trustee electric transmission. finally ferc is responsible for permits and infrastructure with lng terminals and hydro facilities. the reliable old the grid is to publish as planned, constructed and operated how asset owners

respond to events that happened that means to oversee reliability standards and ferc has to pay attention to nuts and bolts to the emerging issues like cybersecurity last november preapproved the fifth generation of the cybersecurity standards for the first time looks at the cyberassets weren't concerned with the impact of the great. reliability also with the physical security of the assets from tampering and of the vandalism or sabotage. it was highlighted by the april 2013 attack of the substation in northern california. in the wake of that attack ferc worked with other federal agencies to communicate the facts in and the lessons learned. also provided guidance to asset donors to improve

security is based on modeling it had performed. in addition to these efforts on march 7th, 2014 ferc and directed physical standards for a the grid within 90 days in directing nerc to develop the standards we recognized that the asset owners have an already taken these steps to protect their critical facilities but a mandatory standard will reinforce and strengthen and broaden the efforts. also recognize that every facility is a light so we have a need to have the list right to protect the most critical than the responsive actions be customized to the circumstance for i like to discuss another aspect of this issue that has received considerable attention. as i noted earlier ferc has applied its familiarity with preparations to perform

sophisticated modeling to identify system vulnerabilities. last month of all street journal published an article that included in some detail of some such ferc modeling. i stated then and i believe publication of such information about the grid undermines its security. appreciate senator landrieu and senator murkowski statements highlighting the importance of protecting this type of information. in light of the release of internal ferc modeling information reworking on many fronts to understand what happened to and to ensure that it doesn't happen again. as part of this effort i asked the department of energy inspector general to advise us of how we could improve the process with respect to information security. yesterday the inspector general issued a management alerts indicating that some of ferc modeling work when

he created early 2013 should have been designated as classified information at a secret level of a rather than a critical energy infrastructure information as it was classified. inspector general outlined a number of steps to take and we are taking them immediately and giving it a top priority. with a foreword to your recommendations and we do our own workout we can improve our process ceasing culture to make sure this does not happen again. it is critical the public has the confidence that sensitive information is protected. during my four months as acting chairman they have spent some what's even fall and has faced many challenges including these today. in this area repeatedly emphasized to the wonderful team of folks who work there an extra early we have to have our actions guided by

two things. one is protecting the reliability of the grid for customers and to protect the integrity of the commission so people can have confidence. think you for this opportunity to testify and i look forward to your questions. >> good morning chairman and senator murkowski and other committee members i have three main points of light to offer to the committee this morning. the first is that nerc in the industry have been working really hard to redress both the physical and cybersecurity as well as some resilience and remind the committee this is a north american international grid that we do work with. not long after 9/11 to develop the first set of security guidelines put the best practices in terms of physical security and nerc

approved the standards august 2003. as a chairman mentioned we just approved the fifth generation of those cyberstandards to encompass the entirety of the boca electric system and adopt risk based security methods captured in the standards. we have a robust audit and compliance program to monitor companies through the aid to regions and we have been very active to ensure the companies are addressing issues a lot of work has been accomplished with cybersecurity. and it is important to know the electric industry with nuclear is the only industry that has mandatory cybersecurity standards. we have another little those standards that requires companies if there is of physical or cyberincidents were seven tie sivas suspected they must report

it to nerc the and law enforcement. response to the ferc order of march 70 have been working hard and click provo order demonstrates thought i have been saying is the commission does have the authority to direct nerc to do a standard they feel is in the public interest they did that with the solar disturbance order now the physical security order. it is a good order one of the most critical assets it provides for a risc based approach and it provides for accountability. the industry is behind this develop and support us to get it done and we have taken steps to abbreviate the process to get the standard done within 90 days. my second point, is that nerc has a number of important tools be on the standards to redress cybersecurity and we operate

the industry information in sharing and analysis center to share threat to information and also to collect information to share with other partners at isac is in a controlled and confidential environment so that information is maintained and secure. also have a system of the alerts since january 2010 we have issued 27 alerts to industry covering a number of physical and cyberissues and immediately following the metcalf incident last april the very next april 60 be provided an alert to industrial mining the message and tactics used to address the issue. i believe we have the most robust private public partnership between industry

and government through our electricity sector coordinating council. approximately 30 ceos themselves meeting on a quarterly basis with the top officials including of white house, homeland security, a deal reid, nsa, fbi to make quarterly and to discuss what actions we can take with this is a response and tools. of a great exercise last november was a severe a level attack it was the opportunity to demonstrate readiness also identify what areas we need to improve in terms of security and reliability. my third point madam chair, in direct response to keeping the lights on our we doing enough? my answer is we're doing enough, the right things and the right things on a

prioritized basis to make progress and continuously improve. the metcalf incident was serious but a good a symbol of the resiliency of the grid no outages occur during the incident but also metcalf is an important turning point a signal to look at physical security from a different perspective not just keep being bad people out of substation's but other aspects of security. in the context of all the things we looked at physical and cybersecurity there are other issues as we are under constant attack from nash -- natural phenomenon operator trading and -- training and equipment failure in humid air so we want to make sure we take those into context of the full spectrum of risks we have to manage. thank you. >> thank you very much.

i am the president and ceo of the american public power association. a national trade association that represents more than 2,000 not-for-profit committee on direct -- utilities i appreciate the opportunity to testify but today i represent investor-owned and cooperative and public bonds and canadian utilities as well. for the january since we often have different views on the policy issues facing our industry but we have all come together on grid security when all support section 259 was passed in 2005 and giving and the changing nature of the arrest also work with d0e and d chess with the sub sector were dating council that i will discuss later. the overall reliability were keeping the lights on for ourselves and neighbors is of paramount importance to utilities because electricity is consumed

instantaneously and follows the past to ensure reliability and crude security is a collective affair we are engaged together. cyberattacks, a terrorist acts have driven much of the discussion of this issue by utilities for decades have planned for physical threats. my cybersecurity threats that has been around for many years. utilities take these but the sheer size with the remoteness of the infrastructure requires we prioritized and concentrate on the bonds of damage would have the most severe impact on reliability. simple risk mitigation plan cameras and blocks to help address routine problems but the key is defense that relies on resiliency, redundancy and the ability to recover should this event to occur. while the systems are built

to sustain and to build redundancies and to the system with the most critical assets but we have over 45,000 substations prioritizing the most critical assets it is extremely important. in recent months a few high-profile attacks have drawn increased scrutiny one such incident took place in california at the metcalf substation. that is not uncommon but this incident demonstrated above follows sophistication not previously seen in our sector and we have been working to understand and share the lessons learned. industry and government conducted a series of briefings across the country and canada for utilities and local law-enforcement to help utilities learn more about the attack and the potential implications from them. our fellow a electric trade association take this very seriously the notion that a recent media stories

purchase to action is inaccurate these briefings were initiated prior to the story. however in response to the metcalf incident propose reliability standards are to be proposed within 90 days. appa and our members along with stakeholders are actively engaged in the nerc process right now to develop this important standard. turning to cybersecurity appa believes the best way to enhance security across critical of the structure is to improve information sharing between the federal government and the sectors. of information sharing legislation that passed the house and we look forward to reviewing the senate's version. so far cyberrelated section coupled with best practices have prevented a successful cyberattack. but that does not mean it will not happen. the industry therefore --

[no audio] continue to evolve the sharing of sullivan threat information is crucial to the insecurity the sec plays a central role to coordination and information sharing. [no audio] and members coordinate with officials from the white house, the da test, a federal law enforcement and national security organizations it is focused on three areas tools and technologies an incident response. in conclusion appa on behalf of the entire electric industry should like to reaffirm the ongoing commitment to protecting critical infrastructure from both cyberand physical threats. to do this we have to work

in partnership with all levels of apartments -- departments. sharing and tools and technologies are needed. thank you for the opportunity to appear before you today. >> thank you. chairman honorable? >> good morning senator landrieu and senator murkowski and members. i am president of the national association of regulatory utility commissioners. figure for the opportunity to testify about the security of our nation's electricity grid. there are three main fox i wish to share with you this morning. state utility regulators share your concern about the resilience as job number one. second, it expects not only security from physical and cyberattacks but also the ability to bounce back from

severe storms and accommodate the impact of market and regulatory changes. finally lazore day taken steps to a more resilience period and we welcome this conversation about what more could be done. the seriousness of the metcalf incident was not be discounted but one of the challenges utility face each day the phone abilities could take the shape of a metcalf attack for massive storm such as hurricane sandy we have extremists consecutive 100 your ice storms along with vandalism to infrastructure last august allegedly several attacks were attempted on the infrastructure it of central arkansas the suspect was apprehended and was indicted on federal criminal

and violations the task force responded swiftly with the respective utilities and met with my staff during the investigation and was a shining example of a cooperation. economic regulators view the challenges through the broad lens was severe weather more frequent crying over cyberin physical security of one with the general day-to-day operation of the transmission system providing reliable service may not be enough anymore. watery doing to improve resilience? utilities own and operate the infrastructure they know their system is better than anyone there for the utilities are ultimately responsible for safety and security. , but we acknowledge it is our responsibility as well. the public has faith the public utility system marks

but it could be shaken during a prolonged outage or a pipeline accident. we are thankful for federal, state, and local law-enforcement and intelligence officials who are focused on criminal accountability and national security. as regulators our duty is to ensure reliable service in the face of all threats no matter the source. the could news is despite these and other abilities our systems are resilience and the entities that own and operate our skill level restoration when something goes wrong. although customers will become disgruntled when the lights go out the industry does an excellent job to overall restoring service. to spend dollars to educate and maintain a physical infrastructure so delights are restored as quickly and safely as possible. here it is the role of the states is paramount. and two sets the rates for

utilities and those that govern them. to determine how much they pay and who pays and state commissioners take this role very seriously it is solely a responsibility. my colleagues and i must weigh the cost of every proposed improvement to the system jurisdiction against the risk and benefit of how these will impact consumers. in the end we but all like to have the safest most reliable system possible and that is everyone's goal. we're doing a tremendous level of the reach and education through workshops, seminars, training scam a participation and more. we are incorporating some of multitude of challenges the industry faces and also preparing for new federal emissions reductions rules with different impacts from the country.

while many states and taking great efforts to reduce carbon emissions well in advance of any federal environmental regulation some of my colleagues have concerns regarding local reliability issues due to the retirement of coal-fired generation. state commission seek investment that will defer the best system improvement. whether these address physical or cybersecurity they must meet the prevailing expectations of reliability and affordability for the rate payer.

we cannot become better prepared and we are committed to its. thank you for the opportunity to address you this morning senate 84 abiding by your time because we do have a very important subject and also have both set 10:30 a.m. will try to keep the hearing moving and we will keep it going. before we start i'd like to call the attention of the members to the documents the staff provided particularly page three with the

interconnected the of the grid. it says there are actually three independent regional grids, the western, eastern and texas has its own grid by hawaii is not on your new areas p.r. or alaska. [laughter] i want the staff to upgrade this list. [laughter] that the reason i call it to your attention as we are supportive on both sides of the eye with the importance of state authority said is impossible to keep that encourages stood up without a regional and national cooperation and this document clearly shows the interconnected ready as well as into canada so it does take a culmination of federal regional and as well

as private entities it is quite complex and important subject. let me start my first question to you chairman la fleur. what are you doing specifically to respond to the inspector general's management alert yesterday that said in part, the department subject matter experts have confirmed the least one electric grid related presentation should have been classified and protected from release at the time it was created. this document and the others with the essence of its contents has been provided to federal and industry officials and the island classified setting was not appropriate methods used to pray and distribute the document led us to the preliminary conclusion that the commission may not possess adequate controls to

identify and handling classified national security information. there are four specific recommendations in this management letter you are familiar with. could you comment on what you are doing to employment these and what additional steps you may be taking as the acting chair to make sure this does not happen again? >> thank you for the question madam chairman. clear meticulous the following the instructions of the inspector general management alert which means we've met with have privately to understand the documents he was speaking of to gather in a paper copies to put into the secure facility, wiping and scrubbing all databases, computers and any portable devices across the

commission to make sure the documents in question that should have then classified are protected and then we reach out to the g.o.p. with classification going forward in reaching a to former employees including the former chairman to get her arms around any information that may be out there. >> can i ask you does ferc have a high-level person that is responsible and make your legal department with what is classified or unclassified? to you have any additional resources in that sphere over the last few years? >> p.s. the chief security officer has a classification authority has that under the delegation from the dot and general counsel has been very involved also. says it has happened retaken

steps internally with an immediate reminder of the regulations that govern integration security and i have ordered a full internal review of a chain of custody of documents when they word document -- created and ultimately we have to develop the class -- a crisp and clear process what information we are creating to have a process the right professionals can play in on what level of classification it should have. >> mr. cauley 90 stand that you testified i generally agree the private sector is doing a fine job with a difficult circumstance with a lot of different views and sizes of companies in nature of entities involved to provide is critical

infrastructure for our country but you said you thought the industry was doing all that it could either understand with metcalf that there were no cameras facing to the outside perimeter only to the inside. can you comment about that? and what actions as the industry take incense to face the cameras and a different direction to see who may be in the area that should not be? >> i think common and best practice prior to metcalf was focused on keeping not on the bad actors but children from public safety to keep them out of substations. we have a very experienced driven industries of never focused on what they thought was the threat. that is the value of metcalf hindsight is there is opportunities to improve that.

my understanding without disclosing too much there has been a change of perspective of cameras, lighting, a motion detection and other devices to help protect further. even around the industry. >> one final question to hit this quickly that i will turn it over to senator murkowski for crimes toe with supportive of public-private partnerships i find in merry -- many areas to be very effective and unique in the united states they don't operate it other parts of the rope that way and that is generally and what our constituents believe is the effective way to handle some government responsibilities to do it with public-private. and nerc and ferc represents the best ferc n is federal and it nerc is the private

sector. how is this working and quickly give one example of the improvement you could think of. >> really be have only been at this between ferc and it nerc around eight years and i think it is working quite well. we have a somewhat unique hybrid system where the old voluntary system of nerc guidelines has superimpose the $1 billion a day penalty it is an odd marriage so there were some tensions and the beginning of what has helped is to set priorities because of the hybrid system we have to have the same reliability priorities even though we may disagree but you do to get there and the

communication at the top between the two agencies has led a culture at nerc to set priorities and i think that is the biggest of we have taken to make the standards better which is what keeps reliability going. >> i think the model is working well and it is almost unnecessary because it is so complex electric grid connected internationally with canada and mexico to bring the expertise of the industry together and work out the standards in a way with no unintended adverse consequences to get the body and yet have oversight and direction from ferc day exercise that the number of times and have pushed back and direct us to do a standard to the solar magnetic disturbances and we have the best of public interest and government oversight with the expertise and fall understanding from

industry. >> i would generally concur what's the chairman has said that i play bad we're moving past adolescence into adulthood. there have been some bumps but one of the things i would point to with ongoing cooperation the you andrew -- user's orders and operators anyone who turns on a toaster is one of those people also when it was first enacted and implemented we have to figure that out and we made the initial cuts so now we go back and nerc is taking a second look who truly needs to be in and who can be out with the small co-ops in the louisiana some of those entities really do not material impact the system therefore could be exempted without adverse impact to the system so we're taking a

closer look at that and we welcome that because frankly that will free up resources to concentrate on the entities and facilities that truly do impact so that is a perfect example is a move for verge we are refining co regime and improving it. >> a tighter brisk pace analysis would be welcomed. >>. >> thank you. i concur with the comments. we supported this legislation that created the nerc and ferc en partnership. in the real world once the standards are implemented retail investor on gentility's come to the respective state commissions to integrate and implemented these standards and certainly in arkansas with improved cyberstandard investments even though last year we expect utilities to

he did these standards sam plan to be responsive when these requests come our way. >> thinking is chairman for your responses to the question now is to the steps you are taking at ferc to implement or lactone ig recommendations. that will be critically important to moving forward. i was going to ask you what you might be doing to strengthen the culture within ferc that supports the work of the professionals. i hear you say a notice to the employees has gone out to remind them of certain aspects of confidentiality, but it that may be an area you need to

look get more critical aid for piebald not suggest how you do your job but that is an important aspect. in this vein i want to do just make clear that you understand what you will be receiving from the as the chairman of ferc you are the chief executive to whom does staff reports and i will be asking the agency some more extensive questions of supporting materials and handling documents that are referred to in the id management over to. also have written questions about the inception of the study itself and its uses and have directed my staff to prepare interrogatories for the agency provides or not seek sensitive information about the findings of the study for the merits of the modeling of which is based but i will have questions about the

manner it was conceived and documents and how they've handled and intended to be used and were used. cast mine staff to contact your general counsel today to begin discussing to get answers to these questions without drawing further attention to this substance will be recognized to be sensitive information itself. i will turn over the answers that i received to the ig but what i am asking of you today is to have your cooperation and the cooperation foley of the agency, leaders and senior executives and other federal employees to get full and complete prompt responses to my questions. >> we will absolutely cooperate and hopefully a lot of them may be the same

questions we have been asking ourselves. i agree about your comments on the culture. i think it ferc has a strong culture all the decades i have dealt with ferc i have never heard of merger rumors to the court any of the confidential information we deal with the day today not to say we don't need to learn the lessons of the deal with confidential information all the time that i have given this a lot of thought that culture starts at the top. when i ran the operating company the ceo everybody has to take safety tour is is a rule even a brand new treaty could stop the job if they saw any electrical safety incident because that is our you convey that safety is important. the culture or respect for confidentiality house to start at the top as well to make sure every bloody nose they can ask question before

-- make sure every buddy knows that we have care and attention to way and i will take accountability for that because it has to start at the top to go to the organization. >> i appreciate that. the chairmen honorable not alive we seem to have trouble with your title. [laughter] you spoke a lot about the reliance of the resiliency of the grid. the college and except there are risks that present themselves when it comes to reliance. you mention and adages with hurricanes or major storms. people can relate to is that the sec more assets, energy

assets retiring there is a more consensus there is a localized reliability effect is growing. the question to you is having acceptable a risk is this if the impact to the reliability is caused by federal policy? the push within the administration to move coal lie about that we have seen so many coal facilities cough line with the polar for tech's we saw it was 89 percent of the capacity to go off line was utilized as a backup to meet the demand.

i think folks are prepared to accept of level of risk with the outrage but to what extent if that is brought about by federal policy? >> 84 the question, to a9. it is a great example of the many challenges that economic regulators face across the country to assure reliability. your question is how in acceptable is that within economic regulator is not acceptable so we have been very engaged with the epa and the personnel even the administrator about this very important topic of reliability we are were charged with ensuring reliability that is the main focus in addition to ensuring safety and affordable utility service.

the utilities on the front line must ensure reliability and there is a disruption or an outage for any reason utilities need to make sure the lights come back on and the generation is moving better the source. we certainly don't pick winners or losers we approach all the virtues and i know you do also and we believe coal is a low-cost option and it should be a part of the energy mix so we are working with the epa to make sure they hear us and at the november 33 beating be issued the process to urge the epa to insure the state had flexibility federal government respects the oval of the states and the epa also honors the notion of diversity. we embrace that with

economic regulators. fuel mix in one state is different from another state such as kentucky or buster, jr. or indiana very heavily rely on coal also any rulemaking that impacts the state generation x is of importance to those states but also to all of us with regulators. i want members of the committee to know we are working every day of the early on this issue and we are a constant voice to help all stakeholders surrounded this issue continue to remember the importance of reliability. it is job number one for us. >> they give for your leadership senator franken. >> thank you for your testimony i agree chairman honorable. >> excuse me a minute i will

locofocos and leave senator cantwell in charge. >> we need state flexibility to address with the rules the epa will make on existing coal-fired plants chris security is us a kit -- serious issue with the attack on the substation in california could have happened anywhere at any number of substation's across the country. as chairman of energy subcommittee i want to make sure be do everything we can to secure hour electric grid. . .

>> the order requiring security standards, one of the things it requires is that after the critical facilities listed done, each asset owner identifies the mobilities and it contemplates the day will involve government agencies such as law enforcement assessing the threat and