WEBVTT - Bigger Than Texas 0:00:15.396 --> 0:00:25.076 Pushkin from Pushkin Industries. This is deep background. I'm Noah Feldman. 0:00:26.236 --> 0:00:30.196 Last month, we all saw the devastating images from Texas. 0:00:30.796 --> 0:00:34.276 Plunging temperatures and two severe winter storms in quick succession 0:00:34.676 --> 0:00:38.036 led to a breakdown of the state's energy grid. More 0:00:38.076 --> 0:00:40.316 than four and a half million homes and businesses were 0:00:40.396 --> 0:00:44.076 left without power. Not only that, water service was disrupted 0:00:44.116 --> 0:00:47.156 for more than twelve million people because of pipes freezing 0:00:47.156 --> 0:00:51.116 and bursting. It was an unprecedented failure of the state's infrastructure. 0:00:52.076 --> 0:00:55.036 This disaster in Texas was a wake up call for 0:00:55.316 --> 0:00:59.996 places all across the country. Our infrastructure is consistently and 0:01:00.156 --> 0:01:05.636 concerningly outdated. It often was not built to withstand extreme 0:01:05.716 --> 0:01:09.436 climate conditions of the kind we're seeing more of era 0:01:09.516 --> 0:01:13.116 of climate change. We don't seem to be prepared for 0:01:13.236 --> 0:01:18.036 more frequent and severe storms. Without a serious overhaul in 0:01:18.076 --> 0:01:21.196 the coming years, our electric grid, our water, and our 0:01:21.196 --> 0:01:25.156 sewage systems have the capacity to fail again, and to 0:01:25.236 --> 0:01:29.476 fail massively. Here to help us get behind the story 0:01:29.756 --> 0:01:33.276 of what really happened in Texas and what we can 0:01:33.316 --> 0:01:37.796 do about it going forward is Alice Hill. Alice is 0:01:37.836 --> 0:01:41.876 one of the country's leading experts on climate resilient infrastructure. 0:01:42.396 --> 0:01:44.756 She's now a Senior Fellow for Energy in the Environment 0:01:44.876 --> 0:01:47.916 at the Council on Foreign Relations, but before that, she 0:01:48.036 --> 0:01:51.556 was Special Assistant to President Obama and Senior Director for 0:01:51.636 --> 0:01:55.036 Resilience in the White House. She led the national policy 0:01:55.316 --> 0:01:59.876 regarding preparing for the impact of climate change. In that role, Alice, 0:01:59.876 --> 0:02:02.596 I'm very grateful to you for joining us. Welcome to 0:02:02.676 --> 0:02:05.996 deep background, Alice. I wonder if we could start with 0:02:06.116 --> 0:02:09.796 you walking us through what you see as the true 0:02:09.916 --> 0:02:15.356 root causes of the disaster that we saw in Texas, 0:02:15.516 --> 0:02:17.436 because there, you know, there are many opinions out there 0:02:17.436 --> 0:02:21.156 about quote unquote what really went wrong, So maybe just 0:02:21.276 --> 0:02:27.276 start with the temperature anomaly and what its immediate consequences were. Well, 0:02:27.276 --> 0:02:30.956 I'll have to start with the statement of temperature anomaly. 0:02:31.196 --> 0:02:33.796 I guess it depends on how far back you want 0:02:33.836 --> 0:02:40.236 to go, but certainly these temperatures were not an unprecedented 0:02:40.276 --> 0:02:45.276 event for Texas. Forty years ago, they had a similar 0:02:45.316 --> 0:02:49.836 event of at least as long duration and as least 0:02:50.436 --> 0:02:55.556 as cold temperatures. So if you want to drill down 0:02:55.956 --> 0:02:59.756 on what's an issue here, it's a choice not to 0:02:59.876 --> 0:03:05.556 invest in preparedness. You choose not to prepare your grid 0:03:06.276 --> 0:03:10.636 or extreme events, You're going to line that those extreme 0:03:10.676 --> 0:03:15.516 events can do heavy damage, and once your electric grid fails, 0:03:15.636 --> 0:03:20.236 it just cascades through all the other infrastructure sectors, causing 0:03:20.356 --> 0:03:24.796 widespread damage. And with climate change, we have an added 0:03:24.876 --> 0:03:29.196 twist the extremes that we will experience in the future 0:03:29.956 --> 0:03:34.556 that are fueled by warmer temperatures global average warmer temperatures 0:03:35.196 --> 0:03:39.836 will exceed the extremes in the past. So if Texas 0:03:39.836 --> 0:03:42.316 had done its job, it would have been if the 0:03:42.396 --> 0:03:44.476 utilities had done their job, they would have been prepared 0:03:44.516 --> 0:03:47.036 for a cold snap like what they just saw. But 0:03:47.436 --> 0:03:51.396 going forward, they also need to prepare for what will 0:03:51.476 --> 0:03:56.236 be unfamiliar events, events that have never occurred in recorded 0:03:56.396 --> 0:04:01.636 human history, and that will take perseverance and additionally money. 0:04:02.516 --> 0:04:04.716 We'll dive into that, but I think what you said 0:04:04.796 --> 0:04:07.716 is already really fascinating. If something was just a one 0:04:07.756 --> 0:04:12.236 in forty year probability, would you already have thought that 0:04:12.276 --> 0:04:14.476 If something is a one in forty year probability, let's 0:04:14.476 --> 0:04:20.596 say that an expenditure should be made to prevent that 0:04:20.756 --> 0:04:24.756 from having disastrous side consequences. What metric would you have 0:04:24.916 --> 0:04:28.556 used of costs and benefits. If someone had said, yeah, 0:04:28.556 --> 0:04:30.956 well it gets this cold in Texas every forty years, 0:04:31.356 --> 0:04:33.756 Well you need to do a cost benefit analysis of 0:04:33.876 --> 0:04:37.876 what are the costs of reinforcing your grid, and then 0:04:38.116 --> 0:04:41.636 what are the potential costs that you will suffer when 0:04:41.636 --> 0:04:45.716 that grid fails. We're hearing that it could be upwards 0:04:45.716 --> 0:04:49.916 of ninety billion dollars worth of damage, thirty lives lost, 0:04:50.836 --> 0:04:55.236 and there may be other consequences that are never included 0:04:55.356 --> 0:05:01.076 in that tallly. So, in terms of looking ahead, if 0:05:01.076 --> 0:05:04.276 you just take the basic cost benefit analysis that the 0:05:04.356 --> 0:05:08.956 federal government has provided across the board, if we spend 0:05:09.196 --> 0:05:13.196 one dollar now in for example, hardening our grid to 0:05:13.276 --> 0:05:18.396 extreme weather, we save six dollars in recovery costs. Now, 0:05:18.396 --> 0:05:21.796 there's a reason why electric grids don't want to invest 0:05:21.876 --> 0:05:24.596 in that, because it costs more money and that will 0:05:24.636 --> 0:05:30.436 increase rates and then you might have your rate payers upset. However, 0:05:30.756 --> 0:05:34.596 who ultimately bears the cost when the whole system collapses, 0:05:35.356 --> 0:05:38.116 And in this case, there'll be many people bearing the cost, 0:05:38.196 --> 0:05:42.636 but ultimately it could also be the federal taxpayers who 0:05:42.716 --> 0:05:47.476 have had nothing to do with the calamity that befell Texas. 0:05:48.276 --> 0:05:50.116 I do want to talk about bearing the costs, because 0:05:50.116 --> 0:05:54.076 I think it's vastly important. Is the one dollar spent 0:05:54.276 --> 0:05:57.436 save six dollars later a national statistic or is it 0:05:57.556 --> 0:06:01.396 one that could have been applied concretely in Texas? I mean, 0:06:01.396 --> 0:06:03.716 I guess what I'm wondering is how much would it 0:06:03.796 --> 0:06:09.036 have cost Texas to harden its infrastructure grid against cold 0:06:09.196 --> 0:06:12.116 Whether they're by saving the ninety billion dollars, Is it 0:06:12.436 --> 0:06:14.996 one sixth of that or is it a larger percentage. 0:06:15.756 --> 0:06:18.556 I think it's a lower percentage. The figure that I 0:06:18.676 --> 0:06:23.756 read is sixteen billion. We will get a lot greater 0:06:23.876 --> 0:06:28.556 granularity going forward on this. The vulnerabilities the electric grid 0:06:28.676 --> 0:06:33.636 in the face of climate change are huge. The costs 0:06:33.676 --> 0:06:37.516 are significant to harden the grid against those costs. But 0:06:37.676 --> 0:06:41.716 because our electric grid is central to human existence at 0:06:41.716 --> 0:06:44.836 this point in a developed nation like the United States, 0:06:45.356 --> 0:06:49.076 if we lose our grid in an extreme event, we 0:06:49.236 --> 0:06:53.836 will have enormous costs. It's not as if this hasn't 0:06:53.836 --> 0:06:57.876 happened before. It happened with Hurricane Sandy, and in that 0:06:57.996 --> 0:07:01.156 instance it was a very strong storm, but it was 0:07:01.196 --> 0:07:03.876 the fact that New York had neglected to include in 0:07:03.956 --> 0:07:07.196 its planning that lower Manhattan had suffered about a foot 0:07:07.196 --> 0:07:10.676 of sea level rise, and because they failed to include 0:07:10.676 --> 0:07:13.036 that in their planning, when the storm search came in 0:07:13.396 --> 0:07:15.676 the water, the storm surge at wall of water that 0:07:15.756 --> 0:07:19.236 comes in front of a storm quickly overcame the flood 0:07:19.276 --> 0:07:22.796 berriers that Manhattan had built. Those were built to assuming 0:07:22.876 --> 0:07:26.476 a maximum of twelve feet, came in close to fourteen feet. 0:07:26.796 --> 0:07:31.196 The water immediately poured in, a substation exploded, and the 0:07:31.276 --> 0:07:35.676 city that Never sleeps plunged into darkness. Eight million people 0:07:36.236 --> 0:07:41.036 along the Northeast corrid or lost power, and huge downstream 0:07:41.436 --> 0:07:47.276 failures of transportation, healthcare, communications, And that was a sixty 0:07:47.276 --> 0:07:52.516 billion dollar event as well. Now, in response, con Edison, 0:07:52.916 --> 0:07:56.916 after some pressure, has really emerged as a leader in 0:07:57.036 --> 0:08:01.196 hardening its grid to future events. Also, I'm really fascinated 0:08:01.236 --> 0:08:04.476 by the Sandy comparison for the following reason. Part of 0:08:04.516 --> 0:08:09.076 the narrative about what went wrong in Texas is about 0:08:09.116 --> 0:08:15.556 out a deregulatory environment in a state that believes in deregulation, right, 0:08:15.596 --> 0:08:19.556 a state that like Texas, self consciously separated its grid 0:08:19.716 --> 0:08:22.596 from the grids of other states in part, at least, 0:08:22.596 --> 0:08:25.836 as I've read, to avoid being subject to certain kinds 0:08:25.836 --> 0:08:28.236 of federal regulation, and so we sort of think to ourselves, Oh, 0:08:28.396 --> 0:08:32.676 Texans don't want to be regulated. But you're describing that 0:08:32.916 --> 0:08:38.796 events of comparable consequence and of comparable error were made 0:08:38.996 --> 0:08:42.836 in New York, which is not characterized by that kind 0:08:42.876 --> 0:08:47.116 of deregulatory impulse. So I'm wondering were the motives in 0:08:47.156 --> 0:08:49.996 the Sandy case for the failure to harden the grid 0:08:50.676 --> 0:08:54.516 similar to identical to the motives in Texas, namely that, 0:08:54.596 --> 0:08:56.556 as you said, nobody wants to spend money right now 0:08:56.596 --> 0:08:59.316 to save money sometime in the future unless they're obligated 0:08:59.356 --> 0:09:02.836 to do so. I think that's the largest challenge, is 0:09:02.956 --> 0:09:06.916 that everyone's trying to run a lean machine at low costs. 0:09:06.916 --> 0:09:11.356 But I would just point out it's not just Texas 0:09:11.476 --> 0:09:15.996 or New York. Look at California. We have utilities that 0:09:16.036 --> 0:09:19.316 have underinvested in preparation for the wildfires. The wildfires have 0:09:19.356 --> 0:09:23.636 been worsened by climate change. Going forward, you have to 0:09:23.676 --> 0:09:29.196 ask how does the world's strongest economy function when it's 0:09:29.236 --> 0:09:34.996 grid is not up to even historical risks, much less 0:09:35.076 --> 0:09:37.916 the future risks that climate change will bring or is 0:09:37.996 --> 0:09:41.316 already bringing these new extremes that have never been experienced. 0:09:41.476 --> 0:09:44.516 There was just a study issued today by one of 0:09:44.516 --> 0:09:48.476 the major consultancies, ICF estimating that there's at least five 0:09:48.556 --> 0:09:50.676 hundred billion dollars worth of work that needs to be 0:09:50.716 --> 0:09:53.316 done on the electric grid to harden it to the 0:09:53.356 --> 0:09:56.316 kinds of extremes that we will be experiencing to get 0:09:56.356 --> 0:10:00.596 ourselves prepared for climate change. I'm genuinely fascinated by this, 0:10:00.756 --> 0:10:03.036 by what you're saying, and I'm also really surprised by it. 0:10:03.156 --> 0:10:07.316 So right away, there's a takeaway here that I didn't anticipate. 0:10:07.756 --> 0:10:09.796 And if I can say it and tell me if 0:10:09.796 --> 0:10:12.476 I'm getting it right. You know, the social psychologists and 0:10:12.516 --> 0:10:15.796 the behavioral economists have taught us that we as humans 0:10:15.796 --> 0:10:22.396 are really bad at calculating improbable but very bad future events. 0:10:22.556 --> 0:10:26.196 Also in probably very good future events, we hyperbolically discount, 0:10:26.116 --> 0:10:28.516 and we do it very badly. And if I'm hearing 0:10:28.516 --> 0:10:33.556 you right, the failure to invest sufficiently in hardening infrastructure 0:10:33.756 --> 0:10:39.116 against climate extremes seems to be more caused by that 0:10:39.396 --> 0:10:42.916 human tendency that's universal. Doesn't matter what your politics are, 0:10:43.036 --> 0:10:45.756 doesn't matter where you stand on regulation, because as you 0:10:45.756 --> 0:10:47.716 say it, exists in New York. It existed in New York, 0:10:47.716 --> 0:10:50.556 although it's better now. It exists in California still, and 0:10:50.636 --> 0:10:53.556 it exists in Texas. And so from that perspective of 0:10:53.596 --> 0:10:56.316 the version of the story that's been circulating in I 0:10:56.316 --> 0:10:58.436 guess it would be fair to say liberal elite circles 0:10:58.796 --> 0:11:02.916 that tends to blame Texas distinctively is kind of misplaced. 0:11:02.996 --> 0:11:04.596 You know, I mean, Texas got it wrong, and that's 0:11:04.596 --> 0:11:07.436 not good. But California also got it wrong, and in 0:11:07.476 --> 0:11:09.716 the past, New York got it wrong. And that's because 0:11:09.756 --> 0:11:12.316 we're all humans, not because some of us have one 0:11:12.356 --> 0:11:13.836 view of regulation and some of us have a different 0:11:13.916 --> 0:11:17.396 view of regulation. Well, I would say that what's difficult 0:11:17.476 --> 0:11:21.836 with climate change is that because we are risk is humans, 0:11:21.956 --> 0:11:27.436 based on our own experience, the availability bias, we tend 0:11:27.476 --> 0:11:30.116 to think that the last extreme is the very worst 0:11:30.196 --> 0:11:32.916 thing that could happen. When someone says, you know, I've 0:11:32.956 --> 0:11:35.476 lived here for fifty years and this has never happened before, 0:11:35.516 --> 0:11:41.036 it's just unprecedented. That's understandable, but it's not really particularly 0:11:41.076 --> 0:11:45.876 newsworthy because with climate change, we are going to be 0:11:46.196 --> 0:11:50.196 seeing successively worse events, and so the challenge is what 0:11:50.916 --> 0:11:54.516 level of preparation do you need. In Texas' case, they 0:11:54.636 --> 0:12:00.956 didn't invest in preparing for past extremes. In California's and 0:12:01.556 --> 0:12:06.676 in New York's it was future extremes that had then materialized, 0:12:06.876 --> 0:12:11.836 so it was planning from based on historical path. In Texas' case, 0:12:11.876 --> 0:12:15.756 they actually had had this experience. In California case, they've 0:12:15.756 --> 0:12:19.836 had a lot more development in these areas wildland urban 0:12:19.876 --> 0:12:24.036 interface that put more people in places where fire occurs, 0:12:24.156 --> 0:12:28.116 and then there's more ignitions and can be more flammable 0:12:28.356 --> 0:12:32.076 materials accumulating, and a lot of other complex factors. But 0:12:32.236 --> 0:12:36.116 in Texas, there was a choice not to prepare for 0:12:36.756 --> 0:12:40.076 an event that had occurred forty years ago and an 0:12:40.076 --> 0:12:42.996 event they had a cold snap in twenty eleven that 0:12:43.116 --> 0:12:47.156 they didn't choose to change how they did business after that. 0:12:47.556 --> 0:12:50.876 With regulation, you might see improvement on that, and that's 0:12:50.916 --> 0:12:54.796 what we've seen with con Edison. Regulation or agreement by 0:12:54.796 --> 0:12:58.476 the company in the course of being regulated has led 0:12:58.516 --> 0:13:02.076 to improvement. Am I right in interpreting what I've read 0:13:02.156 --> 0:13:07.436 to suggest that Texas wasn't subject to federal regulation here 0:13:07.516 --> 0:13:10.636 by virtue of the way that it chose to keep 0:13:10.676 --> 0:13:17.196 its grid separate from adjoining grids. Yes, it consciously said 0:13:17.316 --> 0:13:19.276 we don't want to have to deal with the fits, 0:13:19.796 --> 0:13:25.316 so we're going to keep all our generation within our state, essentially, 0:13:25.796 --> 0:13:30.516 and had increased its vulnerability because when you're having trouble 0:13:30.636 --> 0:13:35.676 in one area, of classic solution is to ask somebody 0:13:35.716 --> 0:13:38.876 else nearby to lend a helping hand, and that could 0:13:38.876 --> 0:13:41.316 be in the utility in another state that could send 0:13:41.556 --> 0:13:45.116 transmit some power to you. But Texas had basically made 0:13:45.116 --> 0:13:47.196 a decision that it wanted to be an island and 0:13:47.276 --> 0:13:51.516 to itself, which increased its vulnerability. Would you think that 0:13:51.596 --> 0:13:54.116 a good solution for this is that federal law should 0:13:54.156 --> 0:13:57.436 be changed so that states can, assuming it's possible, which 0:13:57.476 --> 0:14:00.396 maybe it isn't, so that states can't really opt out. 0:14:00.636 --> 0:14:03.596 I mean, under the constitution, Congress would certainly have the 0:14:03.676 --> 0:14:08.076 power to regulate state power grids even if they were 0:14:08.196 --> 0:14:10.956 separate from other states, because the power grade in a 0:14:11.076 --> 0:14:15.116 state like Texas affects the interstate economy, even if they're 0:14:15.156 --> 0:14:18.556 not literally physically connected to the grids from other states. 0:14:18.556 --> 0:14:21.596 So that's just a policy choice by Congress to run 0:14:21.636 --> 0:14:24.036 the regulatory system this way. I mean ought that to 0:14:24.116 --> 0:14:26.716 be different, so that all states, no matter where they are, 0:14:26.796 --> 0:14:30.796 no matter what choices they make, are subject to federal regulation. Well, 0:14:30.836 --> 0:14:36.956 you've raised essential point when it comes to climate change, 0:14:37.556 --> 0:14:43.636 because under our current system, the federal government largely differs 0:14:43.756 --> 0:14:47.596 on these decisions to state and local authorities, and that 0:14:47.676 --> 0:14:55.636 includes regulation of land use, regulation of building codes. And 0:14:55.676 --> 0:14:58.596 what we get is a patchwork across the United States, 0:14:59.036 --> 0:15:02.836 and in the area of building codes, all of our 0:15:02.876 --> 0:15:06.676 building codes at this point only look to historic past. 0:15:07.116 --> 0:15:10.156 We don't yet even have model that really look to 0:15:10.196 --> 0:15:14.396 the future. But even with our history model codes that 0:15:14.436 --> 0:15:18.636 look to protect us from extremes of the past, more 0:15:18.636 --> 0:15:21.356 than fifty percent of the states don't even bother to 0:15:21.396 --> 0:15:25.596 adopt those codes, including states that are in the path 0:15:25.916 --> 0:15:30.916 of frequent extreme events. So that is just a decision 0:15:31.036 --> 0:15:34.076 that we've said constitutionally, we're going to let the state 0:15:34.076 --> 0:15:39.316 and locals make this decision. But this collides with the 0:15:39.356 --> 0:15:43.356 expectation that has now grown among Americans that when things 0:15:43.396 --> 0:15:45.716 go wrong, the federal government's going to bail us out. 0:15:46.676 --> 0:15:50.036 So you saw Texas said, oh, look this is terrible, 0:15:50.156 --> 0:15:53.916 we need help federal government, And we see that all 0:15:54.036 --> 0:15:57.236 the time. And we've also seen a paradigm that shifted 0:15:57.396 --> 0:16:03.836 from Eisenhower's time, when basically before Eisenhower, local communities were told, yeah, 0:16:03.836 --> 0:16:06.116 you get to make your choices locally about what you do, 0:16:06.556 --> 0:16:09.516 but you also are going to take care of the disaster. 0:16:09.916 --> 0:16:12.356 We're just we'll send you help with the Red Cross. 0:16:12.436 --> 0:16:15.396 At the federal government, we're not in the disaster recovering business. 0:16:16.556 --> 0:16:21.036 But that changed with Dwight Eisenhower. And from a very 0:16:21.276 --> 0:16:25.196 modest like I think it was about five hundred thousand 0:16:25.276 --> 0:16:29.596 dollars or something under Dwight Eisenhower, it's now the federal 0:16:29.636 --> 0:16:35.316 government typically pays seventy percent, sometimes ninety percent, and often 0:16:35.476 --> 0:16:38.836 one hundred percent of disaster recovery in these big events. 0:16:39.396 --> 0:16:42.116 So you've got state and locals making choices about how 0:16:42.156 --> 0:16:46.356 they want to live, and those choices often involve significant risk. 0:16:46.916 --> 0:16:50.396 Living in floodplains, living in areas prone to fire, and 0:16:50.516 --> 0:16:57.156 building codes that are not floodproof or fireproof. Bad things happen, 0:16:58.036 --> 0:17:01.796 huge losses, and then Congress says, oh, yes, we need 0:17:01.836 --> 0:17:05.076 a bailout. Saint Paulson who called these climate bailouts, and 0:17:05.076 --> 0:17:08.356 he astutely observed that it will be very hard to 0:17:08.396 --> 0:17:11.476 turn off the spick it on climate bailouts. And that's 0:17:11.476 --> 0:17:15.796 why it's so important to encourage local communities and states 0:17:15.836 --> 0:17:19.356 to invest in risk production so we get take advantage 0:17:19.356 --> 0:17:22.596 of this one to six ratio. You're really describing a 0:17:22.676 --> 0:17:25.916 tremendous moral hazard problem. I mean, it's polite of you 0:17:25.956 --> 0:17:28.556 to say that we should encourage the states, but the 0:17:28.556 --> 0:17:31.796 truth is, if the states can spend less and then 0:17:31.836 --> 0:17:34.076 be bailed out by the whole country, by the taxpayers 0:17:34.076 --> 0:17:37.876 of the whole country, their incentive is precisely to underinvest. 0:17:38.276 --> 0:17:41.276 I mean, that's you know, it sounds like you're making 0:17:41.276 --> 0:17:45.516 a case for requiring the states to invest in hardening infrastructure, 0:17:45.596 --> 0:17:47.796 not a case for encouraging it. I mean, you're being polite, 0:17:48.036 --> 0:17:51.076 but it sounds like, given the incentives you're describing, if 0:17:51.116 --> 0:17:52.676 you and I and the tax payers everywhere else in 0:17:52.676 --> 0:17:54.876 the country are going to be paying for it, we 0:17:54.956 --> 0:17:59.636 should be upfront demanding that and requiring as a matter 0:17:59.676 --> 0:18:03.676 of law that individual states invest enough that they don't 0:18:03.676 --> 0:18:07.356 have to be bailed out. Well, I agree with that policy, 0:18:07.836 --> 0:18:11.876 but it turns out it's very difficult to gain the 0:18:11.916 --> 0:18:16.396 political will to implement such policy. In the Obama administration, 0:18:16.476 --> 0:18:20.716 there was an idea of a disaster deductible. So essentially, 0:18:21.116 --> 0:18:26.876 if states would invest more in pre disaster reduction of risk, 0:18:26.996 --> 0:18:31.956 better building codes, better land use practices, better investments in 0:18:31.996 --> 0:18:37.556 their electric grid, when the disaster hit, the federal government 0:18:37.636 --> 0:18:41.716 would pay more a higher percentage to that state of 0:18:41.756 --> 0:18:45.596 their losses in recognition that they'd already spent money in 0:18:46.116 --> 0:18:50.116 risk production. And those who chose like Texas, which has 0:18:50.196 --> 0:18:53.756 not historically had strong building codes or land use practices 0:18:53.876 --> 0:18:58.716 or electric grid requirements, you would say under that scenario, well, 0:18:58.756 --> 0:19:01.196 you chose not to because you wanted to keep your 0:19:01.196 --> 0:19:03.596 tax base a high and you wanted to attract all 0:19:03.596 --> 0:19:05.716 this investment, but you didn't want to have the higher 0:19:05.756 --> 0:19:08.836 prices of the homes in the land develop use issues. 0:19:09.236 --> 0:19:13.116 So you will pay more in post disaster. You're going 0:19:13.156 --> 0:19:16.276 to pick up more of the tab that it got 0:19:16.316 --> 0:19:21.116 all the way to comment under Obama in the rags, 0:19:21.596 --> 0:19:24.716 it was very quiet. Under Trump, I think it will 0:19:24.796 --> 0:19:28.836 be difficult. The politics of it are so difficult. We 0:19:28.916 --> 0:19:31.516 do have one example where we have successfully done this 0:19:31.596 --> 0:19:33.796 as a nation, at least one and that is on 0:19:33.836 --> 0:19:37.236 our barrier islands. We have passed the Coastal Barrier Act 0:19:37.316 --> 0:19:41.716 in the sixties that essentially said, in those areas, we're 0:19:41.756 --> 0:19:44.796 not going to give any more federal money to development 0:19:44.796 --> 0:19:47.356 in those areas, and if a disaster occurs, you're on 0:19:47.436 --> 0:19:50.876 your own. So we essentially said the federal government's interest, 0:19:51.036 --> 0:19:54.316 it's just those areas are too vulnerable. The local communities 0:19:54.356 --> 0:19:56.036 can go ahead and do it, but we're not going 0:19:56.076 --> 0:20:00.156 to be supporting it, and that has held. We'll be 0:20:00.276 --> 0:20:12.436 right back. Let's talk a little more about where the 0:20:12.516 --> 0:20:17.596 costs of this disaster have already fallen. One of the 0:20:17.676 --> 0:20:22.516 issues that's gotten the most attention is that some individuals 0:20:22.836 --> 0:20:28.516 and also some energy businesses basically had versions of contracts 0:20:29.236 --> 0:20:34.036 where they would get a lower price of service for 0:20:34.716 --> 0:20:38.316 the ordinary days in exchange for the idea that when 0:20:38.796 --> 0:20:43.596 costs went up, they would pay some proportion of the 0:20:43.636 --> 0:20:47.116 wholesale costs of energy, which is, in principle, was supposed 0:20:47.116 --> 0:20:48.796 to be a fair contract. Right, I get a lower 0:20:48.836 --> 0:20:50.436 price when the price is low, and then I pay 0:20:50.436 --> 0:20:53.516 a higher price when the price is high. Then, for 0:20:53.556 --> 0:20:58.676 a brief time, some number of days during the disaster, 0:20:59.036 --> 0:21:03.716 when electricity went offline, the price of power skyrocket to 0:21:03.836 --> 0:21:08.396 an enormous set of prices enough that it could bankrupt 0:21:08.876 --> 0:21:13.276 ordinary people with some enormous power bills. Are contracts like 0:21:13.316 --> 0:21:16.756 that just flat out irrational? Should we not be allowing 0:21:16.756 --> 0:21:19.316 those kind of contracts at all because of the fact 0:21:19.396 --> 0:21:22.476 that at the extreme they have these effects, or are 0:21:22.516 --> 0:21:26.316 those contracts that actually would be morally justifiable provided that 0:21:26.356 --> 0:21:29.076 they're actually carried through, you know, provided that you save 0:21:29.116 --> 0:21:30.636 money when you save it, and then when you when 0:21:30.636 --> 0:21:31.876 it costs a lot of money, you have to pay 0:21:31.916 --> 0:21:34.076 the money. Well, I think this is a point where 0:21:34.116 --> 0:21:40.356 the market collides with people's expectations. And yes, the Harvard 0:21:40.516 --> 0:21:44.876 professor who helped construct the Texas system said the system 0:21:44.956 --> 0:21:48.676 was working as it was supposed to when when their 0:21:48.756 --> 0:21:51.556 resources scarce, the price is supposed to go go up. 0:21:52.276 --> 0:21:55.036 But we're talking about ordinary humans at the other end 0:21:55.036 --> 0:21:57.916 of this, and sometimes it's the utilities, but sometimes it's 0:21:57.916 --> 0:22:00.236 going to be the individuals who were just shopping around 0:22:00.236 --> 0:22:05.076 for a cheap break. And we're not investigating what would 0:22:05.156 --> 0:22:08.356 happen if there's a forty year event that shuts down 0:22:08.356 --> 0:22:11.436 the entire group in Texas and they have trouble generating 0:22:11.436 --> 0:22:16.276 power that's just beyond the average consumer. And I think 0:22:16.276 --> 0:22:19.316 it's naive for us to expect the average consumer would 0:22:19.516 --> 0:22:23.396 in fact investigate that. So that's why it's shocking when 0:22:23.396 --> 0:22:26.476 we hear these numbers. No one contemplated it when they 0:22:26.476 --> 0:22:30.076 were entering it, certainly as an ordinary investor and probably 0:22:30.596 --> 0:22:34.676 even sophisticated investors. Because of the availability bias and our 0:22:34.756 --> 0:22:38.076 optimism bias, we think these bad things won't happen. We 0:22:38.196 --> 0:22:40.996 never really pencil it out how bad it could be 0:22:41.076 --> 0:22:44.756 and that it could drive us into bankruptcy. But when 0:22:44.756 --> 0:22:48.556 we're dealing with extreme events, I think regulation is appropriate 0:22:49.196 --> 0:22:54.116 because they're not ordinary events. There are events that are 0:22:54.236 --> 0:22:58.196 not in the ordinary course of business. So just as 0:22:58.196 --> 0:23:01.156 we need insurance for in case we have a terrible 0:23:01.196 --> 0:23:04.476 car accident, we want insurance on our best and most 0:23:04.516 --> 0:23:09.396 important assets, our home. We need to find ways to 0:23:09.396 --> 0:23:13.836 provide insurance but also regulate this market. For me, it's 0:23:13.876 --> 0:23:17.676 a bit of an analogy of these building codes. Building 0:23:17.716 --> 0:23:21.876 codes have been around for thousands of years. People have 0:23:21.996 --> 0:23:26.476 recognized for a long time that it's too hard for 0:23:26.516 --> 0:23:29.636 the purchaser to figure out whether their house is sound 0:23:29.756 --> 0:23:32.956 or not. We need building codes to help us make 0:23:32.996 --> 0:23:37.116 those judgments, and that's where regulation can help drive better outcomes. 0:23:37.236 --> 0:23:41.516 I think regulation of the electricity grid, for in terms 0:23:41.556 --> 0:23:45.356 of hardening and in terms of limits on the extremes 0:23:46.196 --> 0:23:50.036 of the prices, is just sound business. What we'll see 0:23:50.116 --> 0:23:53.476 now is a lot of finger pointing saying you left 0:23:53.516 --> 0:23:56.036 those prices too high. I saw that article this morning. 0:23:56.036 --> 0:23:59.636 For too long and we will see a lot of 0:23:59.676 --> 0:24:03.276 people trying to get out of these agreements. As a 0:24:03.316 --> 0:24:06.316 former lawyer and judge, and I'm sure you appreciate the 0:24:06.436 --> 0:24:08.276 lawyers are going to have a field day with this 0:24:08.396 --> 0:24:10.756 for a long time. This will be in the courts, 0:24:10.836 --> 0:24:16.356 the insurers, those who drafted the contracts. Lawyers will have 0:24:16.556 --> 0:24:19.396 a lot to work with. So why not design a 0:24:19.436 --> 0:24:24.116 system that can deal with these extremes and put those aside, 0:24:24.876 --> 0:24:29.276 versus leaving ourselves so vulnerable and then spending a lot 0:24:29.316 --> 0:24:33.276 on the cleanup. Since you are a lawyer and a 0:24:33.316 --> 0:24:37.636 former judge, what are your intuitions. I'm not asking you 0:24:37.916 --> 0:24:39.956 to decide on the legal issues, which obviously will be 0:24:40.036 --> 0:24:42.916 very complexibill depend on the individual contracts. But do you 0:24:42.956 --> 0:24:44.996 have a view about the question of what we should 0:24:45.036 --> 0:24:47.556 do here. I mean, I'm very sympathetic to your view 0:24:47.596 --> 0:24:51.476 that we should have regulation that doesn't allow contracts that 0:24:51.596 --> 0:24:55.356 have the effect of bankrupting people for events that they 0:24:55.476 --> 0:24:59.156 should have rationally as a pure economic rational actors calculated, 0:24:59.316 --> 0:25:02.516 but in fact being mere humans that they didn't. I'm 0:25:02.556 --> 0:25:05.436 a little less sympathetic. When it's a sophisticated economic actor 0:25:05.996 --> 0:25:08.676 like a power company on its own, then I'm a 0:25:08.676 --> 0:25:10.476 little more were inclined to say that they should be 0:25:10.676 --> 0:25:13.036 they should have to say that they should have a 0:25:13.116 --> 0:25:14.996 chance to sign a contract like this, dumb as it 0:25:15.036 --> 0:25:17.316 may be, and be that they should be held to 0:25:17.356 --> 0:25:20.596 account when they did sign such a contract. But do 0:25:20.596 --> 0:25:25.596 you have a view, broadly speaking about whether either individuals 0:25:25.836 --> 0:25:30.436 or businesses that are getting these enormous bills should actually 0:25:30.476 --> 0:25:32.436 now have to pay them. Quite apart from the question 0:25:32.436 --> 0:25:34.756 of whether we should allow people to enter contracts like 0:25:34.796 --> 0:25:37.796 this in the first place, I would need to think 0:25:37.876 --> 0:25:43.756 deeply about how much we can let people get out 0:25:43.796 --> 0:25:48.396 of their contractual commitments. You know, they'll be that this 0:25:48.516 --> 0:25:52.996 is an act of God forcemdu. I think going forward, 0:25:53.316 --> 0:25:56.716 we need to say we don't want this to happen again, 0:25:57.356 --> 0:26:00.316 and so what are the parameters we're going to put 0:26:00.356 --> 0:26:04.276 on a system through regulation that keep this from happening? 0:26:05.116 --> 0:26:11.796 And the thing that most people don't realize is that 0:26:12.236 --> 0:26:16.116