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There is much discussion about the failure of the restructuring process and the inability of regulators to see the forest for the trees. The alternative has been to turn the process back to "the industry experts" who know better. The industry experts didn't know better, they just had an advantage of different economic drivers. Under "cost of service" regulation, the electricity rate case structure is designed to reduce investment risk to the point where utilities have an incentive to provide all the capital investment they can. In this manner, the regulatory structure becomes a "supply push" incentive structure. It doesn't matter what the customer wants to buy, the regulator has set what the customer will pay for. Once that basis is set, the regulator and the planning process can become one of picking and choosing the most pleasing engineering solution. The utility is not incentivized for economic efficiency; the regulatory process incentivizes for maximum regulatory efficiency. Since the utility earns on employed capital, the question becomes how to get the most capital employed. The regulators job is to act as a brake on utility investment. In essence, the regulator gets to be the monopoly buyer for the market; interveners in the rate case are merely back seat drivers in this process. Under open market structures, there is not risk mitigation from the regulatory process. Instead, as we can observe, the risk mitigation process is handled by tax incentives. However, unless tax incentives reduce the risk to the point where everyone wants to invest – leading to overbuilding and uneconomic investment – the system still requires a "demand pull" cost structure. However, "demand pull" markets have greater risk of under investment and resulting systemic, rather than episodic, periods of price spikes and hyper volatility. This creates unacceptable political risk for regulators and the political process – consumers want low, stable rates. We are seeing the similar problems occurring in natural gas. As long as natural gas was also a significant by-product of oil production the supply push caused by oil exploration managed the issue. The NGPA of 1978 created another massive "supply push" from the rapid escalation of the market price of natural gas. Now that we have worked off the last hangover from that era we are observing the first true "demand pull" cycle in the natural gas market. The results have not been pretty. What can be done to correct the problem? Volatility Managers has been frequently speaking to the difference between the "build" options in energy – the addition of additional production capacity – and the "run" options in energy – the use of that capacity to supply energy at any given time. The infrastructure issue – both supply and transport – is the creation of market structures to ensure a stable and adequate amount of build options are exercised in any given period to assure delivery of energy at a cost consumers are willing to pay. But how can the risk tolerance of the consumers and the price they are willing to pay for reliability be determined? In the past, this risk tolerance has been the risk tolerance of the regulatory commission. Most governmental entities are more risk adverse than many consumers and are likely to be significantly more risk adverse than commercial and industrial customers. Therefore, it is likely that the regulators will pay more for reliability than many consumers would. But we do not do that for certain. What we do know is that regulators will pay a lot for reliability (look at the PPA contracts of the early 80s at avoided, rather than operating, cost). Similarly, if ISOs and RTOs are responsible for replacing the regulator as the arbiter of reliability risk for the market there is a great likelihood that their risk tolerance will not be that of the marketplace. For example, DSM, in the form of voluntary load reduction or shedding, is nothing more than the customer’s statement of the value at which it is more valuable for them to have reduced reliability than to continue receiving service. Mechanisms need to be put in place where the willingness of consumers to shed load is compared with the cost of new generation and/or transmission resources. Only then is the most economically efficient allocation of capital achieved. The existing capacity markets and most proposed reliability markets are based on eliciting offers from the generation and transmission side of the market – in essence, attempting to create a weaker open market version of "supply push". The current state of restructuring has removed strength of the "supply push" which assured the luxury of selecting the most physically efficient system. Yet, it has not achieved the point of creating a "demand pull" process that allows the most economically efficient allocation of capital between new supply and load control. Until this happens, the system will be prone to "boom – bust" cycles and all the economic, political and engineering issues that they entail.