[Senate Hearing 110-85]
[From the U.S. Government Publishing Office]
S. Hrg. 110-85
ENERGY EFFICIENCY PROMOTION ACT OF 2007
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HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
ON
S. 1115
TO PROMOTE THE EFFICIENT USE OF OIL, NATURAL GAS, AND ELECTRICITY,
REDUCE OIL CONSUMPTION, AND HEIGHTEN ENERGY EFFICIENCY STANDARDS FOR
CONSUMER PRODUCTS AND INDUSTRIAL EQUIPMENT, AND FOR OTHER PURPOSES
__________
APRIL 23, 2007
Printed for the use of the
Committee on Energy and Natural Resources
U.S. GOVERNMENT PRINTING OFFICE
36-640 PDF WASHINGTON DC: 2006
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota LARRY E. CRAIG, Idaho
RON WYDEN, Oregon CRAIG THOMAS, Wyoming
TIM JOHNSON, South Dakota LISA MURKOWSKI, Alaska
MARY L. LANDRIEU, Louisiana RICHARD BURR, North Carolina
MARIA CANTWELL, Washington JIM DeMINT, South Carolina
KEN SALAZAR, Colorado BOB CORKER, Tennessee
ROBERT MENENDEZ, New Jersey JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont JIM BUNNING, Kentucky
JON TESTER, Montana MEL MARTINEZ, Florida
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
Frank Macchiarola, Republican Staff Director
Judith K. Pensabene, Republican Chief Counsel
Tara Billingsley, Professional Staff Member
Kathryn Clay, Republican Professional Staff Member
C O N T E N T S
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STATEMENTS
Page
Bingaman, Hon. Jeff, U.S. Senator from New Mexico................ 1
Chavez, Martin J., U.S. Conference of Mayors, and Mayor,
Albuquerque, New Mexico........................................ 18
Collier, Alicia, Director, Global Energy Policy, Honeywell
Building Solutions, Honeywell International, on behalf of
Federal Performance Contracting Coalition (FPCC)............... 32
Domenici, Hon. Pete V., U.S. Senator from New Mexico............. 2
Kerr, James Y., II, Commissioner, North Carolina Public Utilities
Commission, and President, National Association of Regulatory
Utility Commissioners (NARUC).................................. 23
Mizroch, John, Principal Deputy Assistant Secretary for Energy
Efficiency and Renewable Energy, Department of Energy.......... 3
Pitsor, Kyle, Vice President, Government Relations, National
Electrical Manufacturers Association (NEMA).................... 53
Prindle, William, Acting Executive Director, American Council for
an Energy Efficient Economy (ACEEE)............................ 39
Schjerven, Robert E., Chief Executive Officer Emeritus, Lennox
International, Inc., on behalf of the Gas Appliance
Manufacturers Association (GAMA), Arlington, Virginia.......... 35
APPENDIXES
Appendix I
Responses to additional questions................................ 73
Appendix II
Additional material submitted for the record..................... 75
ENERGY EFFICIENCY PROMOTION ACT
OF 2007
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MONDAY, APRIL 23, 2007
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 3:04 p.m., in
room SD-366, Dirksen Senate Office Building, Hon. Jeff
Bingaman, chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN,
U.S. SENATOR FROM NEW MEXICO
The Chairman. All right, why don't we go ahead with the
hearing? Good afternoon.
The purpose of today's hearing is to receive comments on S.
1115, the Energy Efficiency Promotion Act of 2007. Senator
Domenici and I introduced this bill a week ago, along with
cosponsors from both sides of the political aisle. I appreciate
the efforts that today's witnesses have made to provide us with
testimony, on rather short notice. I welcome all of those who
have come to today's hearing.
This Energy Efficiency Promotion Act that we've introduced
will ultimately do two things. It'll save consumers money, and
it will reduce our impact on the environment. We accomplish
this by reducing the Nation's use of fossil fuels, and we do
that by improving efficiency of vehicles and buildings and home
appliances and industrial equipment. For example, the appliance
standards that are contained in this bill, when fully
implemented, will save at least 50 billion kilowatt hours of
electricity per year. That's enough energy to power 4.8 million
U.S. households.
For those of us interested in addressing the serious issue
of global warming, reducing electricity use by 50 billion
kilowatt hours per year is a good and an important first step.
Of course, if we're truly to make a dent in reducing use of
fossil fuels, we need to use less gasoline. The Efficiency
Promotion Act sets aggressive national goals for reducing
gasoline usage by 20 percent by 2017, 35 percent by 2025, 45
percent by 2030. And we propose to meet these goals in two
ways. First, by improving efficiency in the transportation
sector. Second, by using renewable fuels, as provided for in
the committee's biofuels legislation, which is S. 987, which we
also introduced on a bipartisan basis a couple of weeks ago.
I'm very glad that we have the bipartisan support we do for
these proposals in this current bill today. I look forward to
hearing suggestions from the witnesses on how we can improve
the legislation.
Let me call on Senator Domenici for any comments he has.
STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM NEW
MEXICO
Senator Domenici. Thank you very much, Mr. Chairman.
Let me first note that we do have present, and we will have
as a witness, a lead witness, the mayor of the city of
Albuquerque. I think we both genuinely appreciate his personal
representation of Albuquerque, but also his representation of
the national mayors on this issue. We look forward to what he
has to say.
Second, Mr. Chairman, I have not yet been to the floor to
support our very interesting bill that you and I worked on a
long time--long and hard, bipartisan--that's on the floor, and
I won't be able to stay for the whole of the witnesses, but
I'll come back, as I'm needed.
Once again, for those who are skeptics, you should know
that this is a bipartisan bill. That's the third major one
we've put out. The second one did not quite end up that way,
but let's say it ended up being a good bill, and we started it
bipartisan.
So, I want to add my thanks to all the witnesses for being
here today. We don't have everything sewed up yet. As we look
at this and look at witnesses, we have some loose ends. But
that may be because we're in a hurry, and when you hurry,
frequently you go slow, because you have some loose ends that
you wouldn't otherwise have. But we have a number of Senators
from both sides of the aisle as sponsors, and that helps. I'd
rather have a few loose ends and have a bipartisan seven
Senators, and they're all willing to work to put these things
together.
As you all know, the Energy Policy Act of 2005 was adopted
by the Congress, and we are still in the process of
implementing it. With that landmark piece of legislation, we
did a great deal on energy conservation and improved energy
efficiency. Such measures included--and we all remember them,
but we didn't get it all done yet--implementing new efficiency
standards for 15 large commercial and residential appliances.
These new standards alone will save 50,000 megawatts off-peak
electricity by 2020 if the Department gets them done. I note
the Department is present here, and they have some difficulty
with the bill, but, overall, are hopeful that we can work
together to get it done. I thank the Department for their
optimism and for their desire to take off big bites like we
have here. We appreciate that.
The original bill continues, the Energy Start Program--this
bill does--to educate consumers to buy more energy efficient
appliances, provides tax incentives to consumers, provides tax
incentives to appliance manufacturers. Still, there's no doubt
that much can be done to improve the way in which we use
energy. S. 1115 is intended to increase energy efficiency
efforts within the Federal Government for buildings and Federal
fleets. In my opinion, the Federal Government is the
appropriate place to start. Indeed, we should be leading these
efforts.
This bill also establishes client standards for consumers
and industrial products, seeks to assist States in energy
efficiency. The bill before us today is a good starting point.
As I indicated, it still needs work. I expect S. 1115 to evolve
over time with input from those who will be tasked with
implementing the policy and those who will be impacted by it. I
hope we'll hear from both sides before we're through.
I'm pleased that we're conducting this hearing today to
hear from the stakeholders. I look forward to working with
them, on both sides, until we get a bill.
Senator Bingaman, thank you for yielding.
The Chairman. Well, thank you very much.
We have two panels today. The first panel is Secretary John
Mizroch, who is the Principal Deputy Assistant Secretary for
the Department of Energy. I'll just add my welcome and
appreciation to him and to the Department for their efforts to
review this legislation on short notice and give us feedback.
We do hope that we can continue to work to resolve issues that
you may have with some of the initial language. I think your
expertise in this area is very much appreciated. Thank you for
being here to testify.
Go right ahead.
STATEMENT OF JOHN MIZROCH, PRINCIPAL DEPUTY ASSISTANT SECRETARY
FOR ENERGY EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF
ENERGY
Mr. Mizroch. Chairman Bingaman, Senator Domenici, and
members of the committee, I want to thank you for the
opportunity to appear before you today and offer some comments
on S. 1115, the Energy Efficiency Promotion Act.
I'd like to say, personally, what an honor it is to appear
before you today. Seventeen years ago, I actually served as
senior staff on the Joint Economic Committee of the Congress.
Senator Bill Roth was ranking member, and asked me to come and
work for the JEC on the issue of American industrial
competitiveness. I know it's an issue that is a priority for
both of you. And while I staffed several hearings, this is my
first opportunity to appear before a Senate committee, and I
appreciate that, although I must say that it's a little bit
different sitting on this side of the table.
I would also like to compliment the work that this
committee is doing to promote energy efficiency. Energy is one
of the most critical issues facing America and the world today,
and energy efficiency is the quickest way to reduce energy
intensity.
As you mentioned, Mr. Chairman, although the administration
has not had sufficient time to conduct its formal review or
coordinate interagency views of the bill to form an official
position, I'd like to offer some preliminary observations on
the legislation.
There are many elements of S. 1115 that appear consistent
with the administration's energy policy objectives. There are
some issues that raise practical, budgetary, or other concerns.
S. 1115, in several instances, contains language that may be
duplicative of authorizations previously enacted in the Energy
Policy Act of 2005, and also would authorize several new
financial assistance programs.
While such programs might help boost energy efficiency in
certain sectors, their potential benefits are unlikely to be
sufficient to justify the budget costs. However, the bill, as a
whole, represents an important contribution to the national
discussion of how best to make our country more energy
efficient. Several of the efficiency standards proposed in this
legislation are absolutely consistent with the Department's
activities and, I think, reflect consensus among efficiency
advocates and manufacturers.
The bill also provides some useful new authorities, such as
authorization for regional efficiency standards that may
provide additional energy savings if the potential Federal and
State burdens related to monitoring and enforcement can be
resolved.
Secretary Bodman and Assistant Secretary Karsner have made
efficiency standards a top priority. Since committing to a
standards program schedule last January, the Department has met
100 percent of its targets to be on time, and we absolutely
intend to continue to do so.
To shorten the time for a completed standard by nearly one-
third, Secretary Bodman recently requested authorization from
Congress to streamline the rulemaking process and allow the
Department to go to a direct final rule for certain products
when a clear consensus for a standard exists among
manufacturers, efficiency advocates, the Government and other
stakeholders. So, we look forward to working with the committee
to have the Department's language considered and hopefully
included in this legislation.
Title V of S. 1115 addresses the important issue of Federal
energy management, and the Department supports the permanent
authorization of the Energy Savings Performance Contracts.
Under the leadership of Secretary Bodman, the Department is
looking to lead by example and revolutionize its approach to
energy efficiency in the Federal Government.
Our goal is to be the first agency to meet all of the
targets in President Bush's Executive Order 13423, and to
exceed the requirements in key areas of reducing energy
consumption, greenhouse gas emission, building efficiency,
clean energy production, and use in fleet management.
The Energy Savings Performance Contracts, together with the
Utility Energy Services Contracts, we feel, are essential for
project investment in the Federal sector. So, to strengthen
these programs, we're working to transform our internal review
process, simplify contracts, remove barriers and impediments
that delay investments and serve as support, get more
efficiency gains at accelerated rate, and create replicable
models.
The administration and the Department of Energy look
forward to working with this committee and the Congress on the
Energy Efficiency Promotion Act, as well as other related
legislative proposals that move us toward a secure energy
future.
Mr. Chairman, that concludes my oral statement, and I would
be pleased to answer any questions that the committee may have.
[The prepared statement of Mr. Mizroch follows:]
Prepared Statement of John Mizroch, Principal Deputy Assistant
Secretary for Energy Efficiency and Renewable Energy, Department of
Energy
Mr. Chairman, Senator Domenici, and members of the Committee, thank
you for the opportunity to appear today and offer comments on S. 1115,
the Energy Efficiency Promotion Act of 2007. I will also present an
overview of some of the larger efficiency efforts underway in the
Office of Energy Efficiency and Renewable Energy (EERE).
comments on s. 1115
The Administration has not had sufficient time to review or
coordinate its interagency review of S. 1115, introduced just one week
ago today, and therefore does not have a formal position on this
legislation. There are many elements of the bill that appear consistent
with the Administration's energy policy objectives, although a number
of provisions raise practical, budgetary, or other concerns. S. 1115
contains language that appears to duplicate authorizations previously
included in the Energy Policy Act of 2005 (EPACT). It also would
authorize several new financial assistance programs. While such
programs might help boost energy efficiency in certain sectors, their
potential benefits are unlikely to be sufficient to justify their high
budget cost. However, the bill as a whole represents an important
contribution to the national discussion of how best to make our country
more energy efficient.
Several of the efficiency standards proposed in this legislation
are consistent with the Department's activities, and reflect consensus
among efficiency advocates and manufacturers. The bill also provides
some useful new authorities, such as the authorization for regional
efficiency standards for space heating and cooling products, that may
provide opportunities for additional energy savings if the potential
Federal and State burdens related to monitoring and enforcement can be
resolved. On the issue of appliance standards, the Department is
working aggressively to address the backlog of rulemakings, and to that
end, the Secretary sent proposed language to Congress in February to
help us expedite rulemakings where there is consensus on a standard.
EERE looks forward to working with this Committee to have that language
included in this legislation.
Title V of S. 1115 addresses the important issue of Federal energy
management, and the Department supports the permanent authorization of
Energy Savings Performance Contracts (ESPCs). ESPCs provide essential
flexibility in leveraging limited Federal resources to achieve
substantial efficiency gains. However, we believe there are some
aspects of the technical language that require further review and
discussion, and we look forward to continued discussion with you and
your staff on these and other issues.
I would now like to provide an update to the Committee on some of
EERE's progress in the efficiency component of our portfolio. Our goal
is to transform the built environment in a manner that maximizes
efficiency gains and delivers meaningful benefits to consumers. Under
the leadership of Secretary Bodman and Assistant Secretary Karsner, we
are revolutionizing our efficiency activities, placing increased
attention on Federal leadership in energy savings.
federal energy management
As is commonly cited, the Federal Government is the single largest
consumer of energy in the United States. Thus, as we look to putting
our Federal house in order, the potential for making a substantial
contribution to becoming a more efficient nation is real and
considerable.
President Bush recognized the significance of this opportunity when
in January of this year he issued Executive Order 13423--Strengthening
Federal Environmental, Energy, and Transportation Management. This
Order targets both improving energy efficiency and reducing greenhouse
gas emissions with a comprehensive approach for Federal facilities,
alternative-fueled vehicles, product purchases, water consumption, and
renewable power. Federal facility reduction goals are scheduled to
increase by three percent each year through 2015, which, overall, is 10
percent more than what was mandated in EPACT 2005. The President's
Order mandates increased renewable energy consumption from new
renewable sources and on-site renewable energy generation.
As required by the Executive Order, each Federal agency must
designate a senior official to take responsibility for implementing its
provisions, and EERE's Assistant Secretary Alexander Karsner is that
officer for the Department of Energy. We are taking the Executive Order
as a challenge to transform the way that we at DOE contract and manage
our energy use. And it is not as if DOE is starting at the top of the
Federal heap. A recent study of energy intensity at 20 Federal
departments and agencies looked at the reduction in Btus per square
foot in 2006, compared to 2003, and DOE ranked 12 out of 20. Our goal,
however, is to be the first agency to meet all of the President's
targets, and to exceed the requirements in key areas of reduced energy
consumption and greenhouse gas emissions, building efficiency, clean
energy production and use, and fleet management. Secretary Bodman
believes that we must lead by example, and he is challenging the
Department to accelerate our energy efficiency efforts.
A key vehicle for reducing our energy consumption is the ESPC. This
performance-based contracting tool, together with the Utility Energy
Services Contracts, is essential for project investment in the Federal
sector. To strengthen these third-party financing and investment
programs, we are working to transform the internal review process,
simplify contracts, remove barriers and impediments that delay
investments and service support, get more efficiency gains at an
accelerated rate, and create replicable models across government.
efficiency standards
Turning to a different area of DOE responsibility, I would like to
give you an update on the Department's energy conservation standards
program, a key vehicle for national energy savings. Established Federal
standards for appliances and other equipment have made a significant
contribution to energy efficiency. Federal residential energy
efficiency standards that have gone into effect since 1988, or will
take effect by 2007, will save a cumulative total of 34 quadrillion
Btus (quads) of energy by the year 2020, and 54 quads by 2030. The
estimated cumulative net present value of consumer benefits amounts to
$93 billion by 2020 and grows to $125 billion by 2030.\1\
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\1\ Department of Energy, Report to Congress on Appliance Energy
Efficiency Rulemakings, including Battery Chargers and External Power
Supplies, January 31, 2006.
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However, as has been publicly stated, the Department has fallen
behind in setting and updating required standards. This is a
challenging area of great complexity, but the scale of potential energy
savings for our Nation demands that we address it with renewed
commitment. Since arriving at the Department of Energy last March,
Assistant Secretary Karsner has made efficiency standards a top
priority, as has Secretary Bodman, who has overseen significant
progress during his tenure.
The Department is committed to eliminating the backlog of
rulemakings and meeting all of its statutory requirements. On January
31, 2006, the Department submitted a report to Congress on its
standards activities, but most importantly, with that report we
submitted our action plan and schedule for rulemakings for the next
five years. Since committing to this schedule for the standards
program, the Department has met 100 percent of its targets. Including
test procedure rulemakings and codification of prescribed standards, we
have completed eight rulemakings since EPACT 2005 and made significant
progress on others that were underway prior to EPACT 2005. In 2006, we
began standards rulemakings for 12 products. These accomplishments
represent a pace substantially more aggressive than at any prior time
in our history. The final rules regarding energy conservation standards
for electric distribution transformers and residential furnaces and
boilers are on schedule and expected to be issued by September 30th of
this year.
Success is coming through a variety of measures, from bundling
similar products together to move them collectively through the
rulemaking process, to organizing staff and contractors into seven
technology teams to focus on similar areas and requesting increased
budgetary support for the standards program.
Most recently, Secretary Bodman sent legislation to Congress
requesting authorization that would significantly speed up the
standards process and ultimately bring more efficient products to
market sooner. This fast-track legislative proposal would streamline
the rulemaking process and allow DOE to go to a Direct Final Rule for
certain products when a clear consensus for a standard exists among
manufacturers, efficiency advocates, the government, and other
stakeholders. This process could shorten the time to a completed
standard by nearly one-third. More than 30 products could be included
if the legislation is enacted, from a variety of home appliances such
as dishwashers to lighting, plumbing equipment, and industrial products
like commercial refrigerators and freezers. We look forward to working
with Congress on this proposal, along with other potential related
legislative proposals.
The Office of Energy Efficiency and Renewable Energy manages a host
of other programs devoted to the research, development, and deployment
of energy efficient products and practices, from solid state lighting
to plans for zero energy buildings. Redesigning the energy fabric of
our Nation will take the combined and dedicated efforts of both the
private and public sectors, at the State, local, and Federal levels.
This Administration, the Department of Energy, and most specifically,
our office, EERE, is eager to join with Congress to find the most
effective paths to a more secure energy future.
This concludes my prepared statement. I would be happy to answer
any questions the Committee members may have.
The Chairman. Thank you very much.
Let me ask about one of these standards, the furnace
efficiency standards.
Mr. Mizroch. Yes, sir.
The Chairman. Since the passage of EPAct 2005, DOE's done a
good job of beginning to move the approval of these rulemakings
on appliance efficiency standards. One of the proposed
standards relating to residential furnaces is controversial,
because it would adopt an efficiency standard that many
northern States believe is too low for their climates. Some
commentators have urged you to set a separate efficiency
standard for warm States, versus cold States. The Department
has said that it lacks authority to do that, but has said,
instead, that States could ask for waivers. And there is
authority to give waivers----
Mr. Mizroch. Yes, sir.
The Chairman [continuing]. As I understand it. Now----
Mr. Mizroch. Yes, sir.
The Chairman [continuing]. We have testimony, on the second
panel, from the Gas Appliance Manufacturing Association,
strongly opposed to the idea of regional standards. We have a
provision in S. 1115 authorizing DOE to set regional standards.
What's your thought as to the appropriateness of us trying to
legislate to give you authority to set regional standards? Is
that something that's important to do, or do you think we
should back away and just have you use your waiver authority?
Mr. Mizroch. I think we are generally in favor of having
the regional standards, but I think they need to be balanced
very carefully with the ability to enforce those standards. We
think that we need to work closely with the stakeholders--in
particular, with the States--to make sure that, if there is
such a standard, that it's enforceable. I think that's one of
the big concerns that industry has expressed, that, in their
view, at least from the statement that I read, that they don't
think it's enforceable. So----
The Chairman. Not enforceable, in what way? You mean
someone might be selling something into a region that was not--
--
Mr. Mizroch. Part of that State standard, yes, sir.
The Chairman [continuing]. Part of that State standard?
What harm is done by that?
Mr. Mizroch. The purpose of doing this is to achieve the
largest energy savings that are cost-effective in these States
in the first place; the northern States, for example, that
we're talking about.
The Chairman. Right.
Mr. Mizroch. Those regulations, one presumes, would need to
be enforced to be effective, if you're going to achieve the
savings that you want to achieve.
The Chairman. So, you might not achieve as much with lax
enforcement or----
Mr. Mizroch. That's correct.
The Chairman [continuing]. Or lack of enforcement as you
would with enforcement.
Mr. Mizroch. Yes, sir.
The Chairman. But you still would achieve some.
Mr. Mizroch. You certainly could achieve some, but I would
just suggest that our position is that we generally like the
authority, but we want to be able to discuss with you what
would be sufficient to be able to enforce that authority; you
know, working, in particular, with the States.
The Chairman. Okay.
Mr. Mizroch. And, I might add, on the specific example that
you mentioned, the final rule on the furnaces will be ready by
September 2007.
The Chairman. Okay. Let me ask about another item. As you
know, a number of EPAct 2005 provisions have not been funded. I
understand that you plan to fund the State Utility Efficiency
Pilot Programs that were authorized in section 140 of EPAct
2005. Could you elaborate a little bit on that program, and
tell us whether you seek to include a program that requires a
utility to reduce its energy use by a certain percentage over
10 years? As you know, we've been urged, here on this
committee, to do something in the nature of an Energy
Efficiency Resource Standard. Is this something that you're
getting done as part of this section 140?
Mr. Mizroch. We have suggested, in our spend plan for 2007,
to spend $5 million on section 140 in 2007. I think the answer
is that we think that this is a start, and that we hope that
it'll be effective. We're going to try to collaborate very
closely with the stakeholders in this area. This is one of
several areas where we're going to be collaborating with States
and stakeholders to promote energy efficiency.
The Chairman. Okay. All right. My time is up. Let me go
ahead and call on--Senator Thomas is next.
Senator Thomas. Well, thank you, Mr. Chairman. I appreciate
what you and the ranking member have done on this bill.
I have some questions, but I'll submit some of those for
the record.
I'm a little concerned that apparently we're going to
consider a bill that's been fairly hastily drafted, and I
wonder--I'm going to ask when we're going to be able to see the
bills, and how much time we're going to have for the
opportunity to consider amendments and those kinds of things.
We've talked about, over the last several months, environmental
performance, and we've talked about efficiency and so on, but
one of the things that I think we haven't talked about as much
as we should is: how are we going to provide affordable energy
for consumers as we move toward these things? All these things
are going to happen over time, but, in the meantime, we're
going to have to have energy and so on. So, I hope that we can
focus on the opportunities to increase energy production and be
able to do some of those things.
So, I'll ask the chairman about bills, and so on, a little
later. But Mr. Mizroch, section 503 allows for the Federal
Government to sell power back to the grid.
Mr. Mizroch. Yes, sir.
Senator Thomas. I'm concerned about that scenario. What
does it establish for the Government to be competing with the
private sector? How does that work?
Mr. Mizroch. I think the thought behind this is not that
we're going to compete with the private sector, but we're going
to promote the expanded use of green power. One of the
important objectives is to enable the agencies to use the ESPC
to expand a generation of renewable power on Federal lands. I
don't think it's our intention at all to try to compete with
the State-governed utilities or the private sector on this.
Senator Thomas. So, you wouldn't be in the market, and you
wouldn't be subject to State and local electric laws and rules.
Mr. Mizroch. I think when we look at all of our power
purchasing agreements now, we assume that we are subject to
those rules, Senator. I would have to check with our Office of
Electricity Delivery and Energy Reliability--and our general
counsel--to get a broader answer, but I would say, right now,
that it's not our intention to be outside of those rules, at
least not ours.
Senator Thomas. Does this provision, the way it's written,
leave the door open for the Defense Department to operate a
power generation facility on a military base?
Mr. Mizroch. I think they have that authority already,
Senator, if I'm not mistaken. I could be wrong, but I think
they have different legislation. They have some sort of
legislation that allows them to do that. I know that they're
looking at assured sources of energy. Under what we're talking
about, I don't know exactly how this would affect the
Department of Defense.
Senator Thomas. Is there guidance as to what can be paid
from the proceeds and how these facilities can and should be
regulated by the environment and other requirements?
Mr. Mizroch. Well, the regulation would fall under existing
regulation. Any sort of power facility would have to comply
with all State, local, and Federal environmental regulations,
to begin with. So, we're not talking about putting anything up
that couldn't be, or wouldn't be, done commercially and under
the same restrictions.
Senator Thomas. Okay. Okay.
Thank you, Mr. Chairman.
The Chairman. Senator Sanders.
Senator Sanders. Thank you very much, Mr. Chairman. Thank
you and Mr. Domenici for your work in writing this bill. We
appreciate working with you on some important provisions, and I
intend to be a sponsor of the bill, and we think it's a very
good start.
Mr. Secretary, thank you very much for being with us today.
Mr. Secretary, let me begin by asking you, as a
representative of the administration, some kind of broad
questions, and then I want to get to a little bit more
specificity.
Is it the administration's position that global warming is
manmade?
Mr. Mizroch. My understanding is, Senator, that we have
acknowledged climate change as a problem, and we are working--
--
Senator Sanders. You have acknowledged climate change as a
problem.
Mr. Mizroch. Yes, sir, and we're working----
Senator Sanders. Well, I'm really glad to hear that, sir.
Mr. Mizroch. We're working, in my view, to do something
about it.
Senator Sanders. Mr. Secretary, when you say that the
administration has recognized climate change as a problem, we
have heard testimony from scientists who say that there are
major cataclysmic changes taking place right now, and that if
we do not move forward within the next 10 years, there are
going to be irreversible changes that will impact billions of
people. I am glad that the administration understands that we
have a problem. That's a good start.
Let me ask you this. Wal-Mart, which is not generally noted
as one of the more progressive corporations in America----
Senator Domenici. Who is that, sir?
Senator Sanders. Wal-Mart.
Senator Domenici. You said they were----
Senator Sanders. Are not usually regarded as one of the
more progressive corporations in the country.
Senator Domenici. Well, you know, Mr. Chairman, I just
wanted to ask--you will tell me if it's inappropriate, but I
just wonder if the questions could have been asked in what
seems to be going forward now from Senators are relevant, have
anything to do with the issues we've----
Senator Sanders. I think they do.
Senator Domenici. Do we want to get right down to this
bill, or do we want to have a question-and-answer about global
warming from a----
Senator Sanders. Well, I think it's important to understand
how strong the commitment of the administration will be, and
I'm going to ask some specific questions, and I wanted to
mention that Wal-Mart itself intends to increase fuel
efficiency in their own truck fleet by 25 percent over a 3-year
period, and doubling it within 10 years.
Can you give us an idea, Mr. Secretary, what the
administration plans on doing with our Federal truck fleet and
car fleet? There is, many people believe, enormous potential to
make our trucks and cars much more energy efficient. Again,
Wal-Mart is looking at a 25 percent improvement over 3 years,
and doubling that within 10 years. What is the administration's
commitment, in terms of our Federal fleet?
Mr. Mizroch. Well, Senator, before the executive order was
issued by the President, January 24, there was already a
significant commitment, which is even more significant now. In
that executive order, I think many of the provisions are
mirrored in the legislation that you have here. They're really
quite extraordinary. We're proposing 3 percent a year, for a
total of 30 percent in 10 years. It's quite----
Senator Sanders. Well, is----
Mr. Mizroch [continuing]. Breathtaking. In order to get
there, Senator----
Senator Sanders. Thirty percent in 10 years is, you think,
breathtaking. That's for fuel efficiency in----
Mr. Mizroch. It's not just efficiency, it includes
renewable energy and includes our fleets. I would be, actually,
more than happy to provide you with----
Senator Sanders. I would like to see----
Mr. Mizroch [continuing]. A number of areas, both on
fleets, on vehicles--it's quite an extensive effort that we've
undertaken for biofuels, batteries, lightweighting of vehicles,
and things that I believe will have a major contribution, not
just in this country, but----
Senator Sanders. Some of us would like to see the Federal
Government becoming a model for what our country should be
doing.
Mr. Mizroch. Yes, sir.
Senator Sanders. It would be important, it seems to me, to
move a lot more aggressively than what you are suggesting,
because we're seeing many corporations already doing that. Can
you tell me, for example, how many hybrids, what percentage of
fuel efficient hybrids the Federal Government plans on
purchasing or utilizing?
Mr. Mizroch. I will send you the specific numbers.
[The information follows:]
In Fiscal Year (FY) 2006, the Federal fleet included 866 hybrid
vehicles, which comprised less than 0.2 percent of the total Federal
fleet inventory. The Federal fleet plans to acquire 379 hybrids in FY
2007, 371 in FY 2008 and 408 in FY 2009. These acquisitions will
comprise less than 1 percent of the acquisitions each year.
Mr. Mizroch. They're actually quite extensive. It's a mix,
not just of hybrids, Senator, but it'll be flex-fuel vehicles,
hybrids, and we're actually moving, in some instances, to see
if we can get approval for electric vehicles. There are actual
electric vehicles that could replace some of the----
Senator Sanders. That's right.
Mr. Mizroch [continuing]. Conventional fuel vehicles that
we have already. I'm not just saying this, but I think we're
moving--it is the desire of the Secretary and of the Assistant
Secretary to move very expeditiously and significantly in these
areas, and----
Senator Sanders. Well, I thank you. I think my time is
expired. I would just suggest that some of us are not skeptics.
Some of us believe that this planet and this country face a
major crisis. Some of us want to see our Federal Government
leading the country, and leading the world, in a new direction.
So, we would hope that we would have your support for that
effort.
Thank you very much, Mr. Secretary.
Mr. Mizroch. Thank you.
The Chairman. Thank you very much.
Senator Domenici. And then Senator Murkowski--why don't you
go ahead?
Senator Murkowski. All right, thank you, Mr. Chairman.
Thank you, Senator Domenici.
I think that this is important legislation, and I
appreciate both of you gentlemen taking a leadership role in
this. I want you to know that, after our press conference on
this legislation last week, I went downstairs and found the guy
who's in charge of all the light bulbs for this building, and
my office is getting converted over. So, it can be done, a
little bit at a time.
I wanted to ask you, Mr. Secretary, a question about the
pre-emption issue. There is a provision--this is under section
205 of the legislation--that clarifies the intent, which is
that the Federal pre-emption does not apply to products for
which there are interim standards. I have heard that from folks
who appear concerned about the effect of potentially allowing
the States to take over the setting of efficiency standards,
whether they're those that manufacture televisions or appliance
manufacturers. They're concerned about different standards. You
spoke to this very briefly in your first response to Senator
Bingaman. Can you just speak a little bit more about this
issue? Because I think this is one that we're really going to
be focusing on, perhaps struggling with, as we try to reckon
with regional standards and the whole pre-emption issue.
Mr. Mizroch. This is a very important issue that you've
brought up, and one that we welcome a continued dialog with the
committee on.
The Federal pre-emption of State standards was a key
motivation for the establishment of the national standards
program in the 1970's and the 1980's. Quite frankly, we think
it remains vital for the future of the program. We welcome the
bill's attempt to clarify the provision of the existing
statute. We think it's essential that Federal pre-emption
continue in those areas where national minimum standards are in
place, or where the Department of Energy has concluded, based
on the public rulemaking process, that no standard is
warranted. So, I believe that we are having a dialog with the
committee on that, and would certainly like to continue to do
so as this bill goes through process.
We do think Federal pre-emption, in most cases--perhaps not
every one--is important and warranted.
Senator Murkowski. But it sounds, at this point, that you
would acknowledge this is one of these areas where we're going
to have continuing discussion, as we try to work this through.
Mr. Mizroch. Yes, ma'am.
Senator Murkowski. Tell me whether or not we have any
standards--modern standards or current standards in place to
govern testing, whether we're talking about televisions here or
computer screens. You know, when you think about all of the
electronics that are out there today, and the ones that, 3
years ago, we didn't even imagine were going to be out there--
I've got teenage boys, and I'm seeing everything new that's
coming out on the market. How do we provide for these mandatory
labels that we reference in section 206? How do we develop the
standards on this emerging technology, so that we know that the
standards are in place? We don't want to do anything that's
going to hinder the development or advances in the technology.
How do you make this work?
Mr. Mizroch. Well, again, you've brought up another good
point. We have test procedures, but they need updating, and
they need updating across the board.
Senator Murkowski [continuing]. How outdated are they
currently?
Mr. Mizroch. Well, the technology continues to race ahead
of us. Plasma TVs are a great example, because they have been
largely unrated for energy efficiency, and they are huge energy
users. Now they've proliferated into the marketplace in a
really short amount of time. So, I would just say they need
updating, and we need to be constantly working on new
technology as it comes onboard.
Senator Murkowski. Well, let me ask you, then----
Mr. Mizroch. Yes.
Senator Murkowski [continuing]. Let's leave plasma-screen
TVs aside for a moment. You take a refrigerator or an
appliance, I guess, a regular TV--although it's tough to call a
TV regular anymore; it's like calling a cup of coffee regular.
[Laughter.]
Senator Murkowski. Are there standards that are current?
Mr. Mizroch. Yes, ma'am.
Senator Murkowski. Okay.
Mr. Mizroch. Refrigerators have actually been one of the
huge success stories, because we've reduced energy consumption
by two-thirds while improving the refrigerator itself. So,
that's actually----
Senator Murkowski. Right. I'm just wondering how difficult
it's----
Mr. Mizroch [continuing]. Been one of our great successes.
Senator Murkowski [continuing]. Going to be for you to
implement what we are suggesting here with the energy
efficiency labels. We want to make sure that when a label goes
on, it's a current label, and that it has some meaning to
today.
Mr. Mizroch. We are in favor of the labeling provision,
generally, and I think that we just want to continue to talk
with the committee about the length of time that it may take to
do the proper work to make sure that the labeling that we're
going to provide--that FTC's going to provide--is going to be
effective.
Senator Murkowski. Thanks.
Thanks, Mr. Chairman.
The Chairman. Thank you.
Senator Domenici, did you have any questions of this
witness?
Senator Domenici. No, I don't. I just want to, maybe, ask
this one.
Since the passage of the Energy Policy Act, a year and a
half ago----
Mr. Mizroch. Yes, sir.
Senator Domenici [continuing]. Which had a lot of--to be
honest, had a lot of this in it, telling you all to get with it
and do some of these things----
Mr. Mizroch. Yes, sir.
Senator Domenici [continuing]. I'm not here, complaining,
although I would tell you that the fact that it has been so
hard for you to get things done leads me to a question that
just reeks for an answer, and that is: are we going to be able
to enforce, in broadbased standards, what we are talking about
here? What is your gut as to how that's going to work, or what
we're going to need to do to make it work? To me, it seems to
be an enormous management job, a huge job of cooperation, and
many other qualifiers that I could think of in a few moments.
How do you assess that?
Mr. Mizroch. Well, Senator, the area of energy efficiency
and the areas included in this bill are very broad. I mean,
they include appliances and vehicles and Federal energy
management through ESCOs. So, the topic itself is an enormous
one.
I would suggest to you that a leadership team is in place
now that is going to work very hard to implement the provisions
of the EPAct, and new legislation that may arise, as well. It
is daunting, but it seems to me that the country--that
Americans, in general, are acknowledging energy efficiency as
something important, and I think if we work together, it'll
happen. I don't think the Department of Energy, by itself, is
going to make things happen, but I think if all of us work on
this, it will happen.
Senator Domenici. Well, that's exactly the way I feel. I
think we've got to do it, but we have to have enough, not only
gumption, but enthusiasm, behind it that we will get it done.
It won't be you all, but it'll be you all, because the
Department--because Congress wants it done and we aren't
arguing and fighting, we're all trying to do something.
So, I thank you very much for what you're doing, and hope
that we can get some reports from you. The work you've already
done is on the law that we passed. Is that not right? You're
doing work on the year-and-a-half-old----
Mr. Mizroch. Yes, sir, absolutely.
Senator Domenici. Is there something you could give us to
show that work is being done under that bill, that we might
feel a little more comfortable that things are achievable and
being done?
Mr. Mizroch. Well, Senator, I think there actually are
reports that we're required to deliver to you, but I will most
certainly send you over, where we are in the process, and----
Senator Domenici. Will you?
Mr. Mizroch [continuing]. The things that are coming up.
Yes, sir.
[The information follows:]
The Department is working aggressively to implement the Energy
Policy Act of 2005 (EPACT). To date we have been working at a fast and
serious pace to complete the 155 sections assigned to EERE and have
completed over one-third of them as of May 27th, 2007. EERE also
continues to expeditiously address the backlog of appliance standards,
in addition to those established in EPACT. Some selected examples of
EPACT authorized activities that EERE has requested initial or
continued funding for in FY 2008 and merit mention are: the selection
of six cost-shared cellulosic ethanol biorefinery demonstration
projects to be funded up to $385 million as directed in Section 932;
the establishment of new EnergyStar qualification levels for clothes
washers as directed in EPACT Section 131; the issuance of grants to
establish Advanced Energy Efficiency Technology Transfer Centers as
directed in EPACT Section 917; reporting on the establishment of a
program to inform the public on various aspects of energy efficiency as
directed in Section 134; developing the next generation of low-
emission, high efficiency diesel engine technologies as directed in
Section 754; providing financial assistance to states to carry out
energy efficiency pilot programs; leading the Next Generation Lighting
Initiative as directed in Section 912; and requests for the
establishment of a loan guarantee office to allow the Department to
issue loan guarantees for early commercial projects that employ
advanced technologies such as those listed in Title XVII of EPACT 2005.
Senator Domenici. We appreciate it. Thank you very much.
Mr. Mizroch. Thank you.
Senator Domenici. Thank you, Mr. Chairman.
The Chairman. Well, thank you. Oh, Senator Lincoln, didn't
see you come in. Go right ahead.
Senator Lincoln. Thank you, Mr. Chairman. I'll be brief. I
know the Secretary has a busy schedule, but we're pleased that
you're here.
As you know, in the 1992 energy bill, we established
Federal and State fleet requirements to reduce our dependence
on foreign oil. Of course, biodiesel can only be 50 percent of
that Federal fleet requirement, despite the fact that most of
our heavy-duty vehicles are diesel vehicles, which could easily
run on biodiesel, probably more easily, until we get the
technology for the design of a renewable diesel from other
sources. Do you think it's still a good policy to allow
biodiesel to account for only 50 percent of that requirement?
How soon do you think that people might be running up against a
wall on that?
The second question would be: how much do you assist, from
the Department of Energy, other agencies in this country, in
trying to meet requirements, or to do a better job in setting
an example, as the Federal Government should be, in terms of
energy conservation?
Mr. Mizroch. Senator, if I could answer the second question
first, the executive order is actually quite sweeping, the one
that the President issued on January 24, I believe it was, the
day after the State of the Union, and our Federal Energy
Management Program collaborated very closely with the CEQ and
the White House on that. I think that it specifically requires
the Federal agencies to pay very close attention to this. So, I
think the answer is that we will be collaborating very closely
with other Federal agencies in trying to promote all of these
new ideas, both in energy efficiency, renewable energy
purchase, and the other things that we're going to be doing,
which includes fleets, as well.
So, while we think that the FEMP program has been doing
okay, perhaps not as well as it could, we expect considerably
more activity through that program. I think some of the
provisions in the legislation that you've proposed to
reauthorize--to, sort of, permanently authorize that--will help
us, as well.
But I think the answer is that with this executive order,
we're going to be doing considerably more. It's very, very
ambitious. It's going to be quite a challenge to meet, but
we're going to take it up.
On your first question about biodiesel, I will answer that
broadly, and probably have to get back to you on a more
specific answer.
But the Department itself is doing work, as I'm sure you're
aware, principally on cellulosic ethanol development. Biodiesel
is much more of a conventional product, the same way that
ethanol produced from corn is a conventional product. The work
that we're doing in biodiesel now is collaborating with ASTM
and private-sector regulatory groups to develop codes and
standards for the fuel itself.
In terms of the requirement for the fleet, I think your
question is more about a production--or is it about a
production----
Senator Lincoln. Well, unless we're prepared to replace a
combustible diesel engine fleet immediately, my question is: is
50 percent as a part of that requirement, enough to meet the
needs that we're going to have, not only now, but in the
future, with combustible diesel engines, which are the majority
of our heavy-duty equipment?
Mr. Mizroch. It would probably be better for me to get back
to you with a specific answer on that question, so that I don't
misspeak on it.
[The information follows:]
The Energy Conservation Reauthorization Act of 1998 (ECRA) amended
the Energy Policy Act of 1992's (EPACT) requirements for Federal
alternative fuel vehicle (AFV) purchases to allow Federal fleets to
generate one AFV acquisition credit for every 450 gallons of pure
biodiesel (B100, equivalent to 2,250 gallons of B20) purchased for use
in diesel vehicles more than 8,500 lb gross vehicle weight rating
(GVWR) (42 USC 13220). To receive credit for an AFV acquisition, the
biodiesel must be neat (B100) or in blends that contain by volume at
least 20 percent biodiesel (B20). Federal fleets are allowed to use
these credits only to fulfill up to 50 percent of their EPACT AFV
purchase requirements. These credits can be claimed only in the year in
which the fuel is purchased for use, and they cannot be traded among
fleets.
Although biodiesel use is limited in terms of obtaining EPACT
credits, its use was not limited under Executive Order (E.O.) 13149,
``Greening the Government Through Federal Fleet and Transportation
Efficiency,'' which required Federal fleets to meet the petroleum
reduction goals. 65 FR 24607 (April 21, 2000). Nor is biodiesel limited
under E.O. 13423, ``Strengthening Federal Environmental, Energy, and
Transportation Management,'' for meeting either the petroleum reduction
or alternative fuel use goals. 72 FR 3919 (January 24, 2007).
Furthermore, this cap has not been a hindrance to biodiesel use as no
individual agency as of Fiscal Year 2006 has used enough biodiesel to
reach the 50 percent limit.
Senator Lincoln. Great. Well, I'll look forward to visiting
with you and certainly moving forward on that issue, because
there's a----
Mr. Mizroch. Okay.
Senator Lincoln [continuing]. Tremendous need to be met.
I'd just remind you that there were some directives, in the
2002 farm bill, for energy conservation initiatives from the
agencies, which--hopefully, the executive order will push
people a little bit harder. But there were some directives
there, which I don't think we got much results out of.
Mr. Mizroch. Okay.
Senator Lincoln [continuing]. But we'll keep pushing.
Thank you, Mr. Secretary.
Mr. Mizroch. Thank you, Senator.
The Chairman. Thank you very much.
We have a second panel. Unless members have any burning
questions. Senator Sanders, did you have----
Senator Sanders. A very brief question.
The Chairman. Yes.
Senator Sanders. Mr. Secretary, my understanding is that
Australia, and, I believe, Ontario, intend to ban incandescent
light bulbs. What do you think about that?
Mr. Mizroch. I'm aware of discussions going on within the
industry itself as to whether they, themselves, want to
consider a ban on incandescent bulbs, or consider, in the
alternative, making them extremely more efficient. I know that
one of the manufacturers has done that already. So, there could
be an efficiency standard, rather than an outright ban, on
incandescents. We're moving ahead, both on the CFLs, to make
the light spectrum better. They improve every year. That's one
of the big consumer concerns, vis-a-vis incandescent, is how
good the light is, the spectrum.
Senator Sanders. What about LEDs?
Mr. Mizroch. It's a transformational technology that the
Department continues to work on. We see that as being one of
the most significant technology developments in decades, or
more. The Department's doing a lot of work in this area, and I
would just suggest to you that it's a very dynamic area that
the market, in part, is going to control, not just the Federal
Government. But we're working very closely with industry on all
three of the--particularly on the CFLs and LEDs, but I would
just suggest to you that the Federal Government doesn't want to
make a decision on banning incandescents right now. I don't
think that's in our purview, just yet.
Senator Sanders. Thank you.
The Chairman. All right. If there are no other burning
questions--Senator Thomas, did you have a burning question
here?
Senator Thomas. No, sir, I'm in the dark about that.
[Laughter.]
The Chairman. All right.
Why don't we thank this----
Senator Sanders. Thank you.
The Chairman [continuing]. Witness and ask the second panel
to please come forward. I'll introduce them as they're coming
forward.
As Senator Domenici said, our leadoff witness is Mayor
Martin Chavez, from Albuquerque, who is here testifying on
behalf of the U.S. Conference of Mayors. We very much
appreciate him being here. He has been a leader in New Mexico
on this whole set of issues of energy efficiency, and not just
a leader in our State, but nationwide, as well.
I am advised that the next witness is Mr. Jim Kerr, who is
the commissioner with the North Carolina Utilities Commission,
and is president of NARUC, the National Association of
Regulatory Utility Commissioners. We appreciate him being here.
Alicia Collier is next. She is the director of the Global
Energy Policy for Honeywell Building Solutions--Honeywell
International, and speaking on behalf of the Federal
Performance Contracting Coalition.
Mr. Schjerven, who is the chief executive officer emeritus
with Lennox International, speaking on behalf of the Gas
Appliance Manufacturers Association, thank you for being here.
Bill Prindle is the acting executive director for the
American Council for an Energy Efficient Economy. Thank you for
being here.
Kyle Pitsor is the vice president of government relations
with the National Electrical Manufacturers Association.
So, we have a very distinguished group of presenters here,
and we look forward to each of you giving your testimony. We
will include your full testimony in the record. If you would
give us about 5 or 6 minutes of summary of your testimony, and
then we'll have some questions.
Why don't we start with Mayor Chavez. Thank you, again, for
being here.
Senator Domenici. Mr. Chairman.
The Chairman. Yes.
Senator Domenici. Mr. Chairman, before we start with the
Mayor, I wonder if I might explain to the panel, and to him,
that it is time to be on the floor for the competitiveness
bill, and I'm going to go and see if I can finish, and come
back and close up with you. But I do appreciate all of you.
It's a terrific panel. If we can just get our work done in
comparison to what you all stand for, we'll be in good shape.
Mayor, we truly thank you for your special effort to help
us today.
Thank you all very much.
The Chairman. Thanks.
Mayor Chavez, go right ahead.
STATEMENT OF MARTIN J. CHAVEZ, U.S. CONFERENCE OF MAYORS AND
MAYOR, ALBUQUERQUE, NM
Mr. Chavez. Thank you, Mr. Chairman and members of the
committee, and Senator Domenici, as well. I'm fully cognizant
of the obligation of voting. My best job in my entire life was
running the elevators up here, in law school.
[Laughter.]
Mr. Chavez. And may end up, yet again, if you still had
them, in that position.
[Laughter.]
Mr. Chavez. I'm speaking, today, on behalf of the United
States Conference of Mayors. I want to applaud the committee
for this initiative. It's a perfect fit with the 10-point plan
of the National Conference of Mayors that we approved in our
last meeting here in Washington, ``Strong cities, strong
families, for a Strong America,'' and particularly endorsed by
our national president, Trenton, New Jersey mayor, Douglas
Palmer.
I want to briefly talk about some of the broader
perspectives on this, because, as you know, America's mayors
have helped lead the fight, if you will, to combat climate
change. In particular, the Energy and Environment Block Grant
Initiative speaks to what we're trying to do. I do want to
thank Senators Menendez--and I know the Senator is not here--
and Senator Sanders, for your assistance on this. Of course I
have got to suck up to my--Senator Bingaman at every----
[Laughter.]
Mr. Chavez [continuing]. Every possible point through the
testimony.
Back in 2005, at our annual meeting, Mayor Greg Nickles,
the mayor from Seattle, started the initiative to have
America's mayors sign onto the Kyoto Protocol. We are close to
500 mayors, now having signed on. Of course, that calls for a
reduction in greenhouse emissions 7 percent below 1990 levels
by the year 2012. I am pleased to report to you that
Albuquerque's emissions are down 63 percent, substantially
below the Kyoto Protocol, and we've done it through a number of
initiatives that we've had the capacity to do, because we have
essentially taxed ourselves, but that other communities don't
have that benefit to do. That's why this particular portion of
S. 1115 is so very, very important.
In terms of new energy supply, we learned a long time ago--
and I think the Senate is cognizant of this--that the cheapest
form of new product is conservation. It is certainly the most
cost-effective. In Albuquerque, when I first took office a long
time ago, we found out that we were facing a substantial
shortage of water, and undertook a massive water conservation
program, reducing our water use by one-third, while we added
new accounts to our rapidly growing city by a full third. We
were recently recognized, in London in November, by the World
Leadership Forum, winning the World Leadership Awards on
Utilities and Water Conservation. Energy is no different.
Again, that is why this legislation is of critical importance
to America's mayors.
Whether it be LED light conversion--which in Albuquerque,
we take 3 percent of all of our capital moneys--we set them
aside specifically for energy programs, and that allowed us to
invest in LED light conversion. It costs a little bit more up
front, but you save, down the road. But, many, many
communities, and particularly the smaller communities and the
counties that would be the object of the energy--of this bill--
don't have the wherewithal to do that. This is a perfect fit
for those communities.
I want to share with you the preliminary survey results of
the cities of the mayors that have signed on to the Kyoto
Protocol. Whether it be Kyoto or anything else, we know these
are just starting points. This is, I think, the most
significant part of this legislation; it's a first step, and
it's a dramatic first step. We won't get where we need to go
unless we have legislation of this nature.
So, here are what America's mayors have said they would use
these funds for:
One, formulate and enforce new building codes that
encourage energy efficiency. We know the building codes are
uniquely local in nature, but they are also very difficult to
draft and do in a way that's business-friendly, that doesn't
disrupt your economy, but also gives you the savings on carbon
emissions.
Retrofit existing buildings to improve the carbon
footprint.
Upgrade vehicle fleets.
Increase use of hybrids and clean alternative fuels.
Albuquerque today has--43 percent of our fleet is alternative.
I listened, for 2 years, to my experts tell me why it couldn't
be done, and why that couldn't be done. I finally did it by
executive order, the first American city to do so. Lo and
behold, 6 months later they've got all types of solutions to
the challenge. I think that's really a good part of this
legislation. It just says, ``Look, let's do this, let's get
onboard and do the right thing.''
Outreach to business communities to ramp up energy
efficiency programs.
Purchase and produce clean alternative energy.
Improve public transportation infrastructure--critical to
addressing climate change.
Expansion of car-sharing into residential neighborhoods.
Development of solar water and electric programs to provide
lower-cost financing.
Promotion and education to the public and developers.
Development of climate action plans that undertake baseline
greenhouse emissions assessments. This is something that's
essential if you're going to have a thoughtful program. You
have to have baselines as to what your carbon footprint is so
that the initiatives are thoughtful.
As I've said, many of America's cities have already
undertaken this challenge, but we desperately need the Federal
partnership. Some things are uniquely local, but the production
of energy, for example, really begs of Federal regulation and
involvement.
So, on behalf of America's mayors, we strongly endorse the
Energy and Environmental Block Grant set forth in section 605
of this legislation. Then, I want to, on behalf of America's
mayors, pledge our continued partnership with the Congress and
with the Federal Government. We can only go so far on our own;
but we can go all the way, with your assistance.
In closing, I was honored to be the only American mayor
invited to the International Conference on Climate Change
hosted by President Jacques Chirac. It was fascinating to have
these delegates from all over the world on this tremendous
challenge. You may not be surprised to hear that we're not
exactly the world darlings on this issue right now in the
global community, but they are looking to the United States for
the leadership in the development of the technology and the
savings. Yet today, they are looking to us, from all over the
world. So, we have not lost all opportunity. We have a
tremendous opportunity to still lead the world on this issue.
Again, Mr. Chairman, thank you for your leadership. Members
of the committee, thanks so much. At the appropriate time, I'm
happy to take questions.
[The prepared statement of Mr. Chavez follows:]
Prepared Statement of Martin J. Chavez, U.S. Conference of Mayors, and
Mayor, Albuquerque, New Mexico
Mr. Chairman, Senator Domenici, and Members of the Committee, thank
you for this opportunity to appear before you today on the critical
issue of promoting greater energy efficiency in our nation, its states
and local governments.
I appear today on behalf of The United States Conference of Mayors.
On behalf of the nation's mayors, I want to commend this Committee for
moving forward with S. 1115, especially provisions of the legislation
which seek to further empower the efforts of local government officials
and state leaders through the establishment of a new Energy and
Environment Block Grant initiative. Mr. Chairman and Members of the
Committee, enactment of a block grant program to support local and
state energy efficiency initiatives is mayors' top legislative
priority, as set forth in the Mayors' 10-Point Plan: Strong Cities,
Strong Families for a Strong America, as set forth by Conference
President and Trenton Mayor Douglas Palmer. As such, this initiative is
strongly supported by mayors throughout the nation.
First, let me share some broader perspectives on the legislation
before you today. We believe the legislation begins to chart a new
direction for federal energy policy. It addresses the many challenges
before us by embracing new policies and incentives for key energy
sectors and governmental leaders at every level. We are especially
supportive of the bill's emphasis on higher efficiency standards for a
variety of important equipment and technologies, expanded research
efforts, and new energy efficiency and reduction goals.
And, the emphasis on state public utility commissions to ensure
that they play a stronger role in advancing local and statewide energy
efficiency efforts is important to our longer-term efforts to increase
energy efficiency and reduce our nation's overall energy use. Finally,
it is bipartisan, which is how we believe the nation will be successful
in addressing the monumental challenges before us in this area.
record of action by mayors
The nation's mayors have been on the forefront of promoting energy
efficiency out of our desire, which we know this Committee shares, to
become more energy independent and reduce harmful emissions from our
communities and regions.
In 2005, at our annual meeting in Chicago, IL, led by Mayor Greg
Nickles of Seattle, The U.S. Conference of Mayors passed a
comprehensive climate protection policy and encouraged mayors to sign
the Mayors Climate Protection Agreement. At that meeting, 141 mayors
pledged to begin the process of reducing greenhouse gas emissions and
promoting green energy efficiency. Today, I am pleased to announce that
more than 460 mayors have signed on to this Agreement, pledging local
actions to reduce carbon dioxide emissions by seven percent below 1990
levels by 2012. Some cities are on their way to achieving this goal,
but most of them will need additional help in reaching this milestone.
Also, at the Conference, we have adopted a goal with the American
Institute of Architects to make all new buildings carbon neutral by
2030. This 2030 Challenge is our way of trying to create momentum and
policy consensus on where we must go with the nation's building sector
over the next generation.
Mr. Chairman, earlier this month, Newsweek recognized the important
role mayors, cities and local governments play in responding to the
challenges of addressing climate change, energy efficiency and energy
independence (``Mayors Take the Lead'' 16 April 2007).
Let me cite some of the efforts now underway in the City of
Albuquerque. We are doing everything in our power to protect and
preserve our natural environment, understanding we have a
responsibility to make wise choices in determining the legacy that will
be shared by future generations. Albuquerque has a history of
demonstrating environmental responsibility and sustainability. It was
an alarming discovery back in the early 1990's that our aquifer was not
limitless, prompting one of the nation's most ambitious and successful
water conservation programs as well as the biggest public works
projects in the City's history--the San Juan Chama surface water
diversion project. That forethought and innovative leadership has
assured Albuquerque has a sustainable water supply now and for future
generations.
In terms of renewable energy and energy conservation, more than 15%
of the power used by municipal government comes from wind. We use solar
thermal and photovoltaic panels for heating and pumping water at City
pools. Traffic signals have been converted to energy efficient LED's
and an aggressive lighting retrofit program is reducing the energy used
in our facilities. More than 40% of the City's fleet is run on
alternative fuels and all new vehicle acquisitions will be fueled with
renewable alternative fuels. We harvest landfill gas to fuel a micro
turbine that generates electricity to support the gas collection system
and for ground water remediation, excess power sold back to the grid.
Other City initiatives include expanding the use of photovoltaic
and thermal solar technology on city facilities; the application of
Leadership in Energy and Environmental Design (LEED) and 2030 standards
to building codes; expanding recycling, targeting zero landfill and
expansion of our multi-modal transit system. These initiatives
represent but a few of the steps on the way to a sustainable
environment. As I talk to my constituents, they want action that
provides them the opportunity to live the American life, with all its
opportunity, while at the same time preserving our environment.
There is no question that the first step is to address energy
efficiency, establish national goals, and give state and local
governments the resources to develop community based, grass roots
programs that result in real energy savings.
preliminary survey results
The Conference of Mayors is now surveying more than 400 Mayors who
signed the U.S. Mayors Climate Protection Agreement. Specifically, we
asked Mayors to indicate how they would use new federal resources
provided through an Environment and Energy Block Grant. Based on very
preliminary responses, here are some of the activities cities would
undertake:
Formulate and enforce new building codes that encourage
energy efficiency;
Retrofit existing buildings to improve the carbon footprint;
Upgrade vehicle fleets--increase use of hybrids and clean
alternative fuels;
Outreach to business communities to ramp up energy
efficiency programs;
Purchase or produce clean alternative energy;
Improve public transportation infrastructure;
Expansion of car sharing into residential neighborhoods;
Develop solar water and electric programs that provide lower
cost financing;
Promotion and education to the public and developers; and
Develop Climate Action Plans and undertake baseline
greenhouse gas emissions assessments.
block grant proposal--section 605
As I said before, many cities have already taken the first step in
establishing very aggressive local goals of energy efficiency and
carbon reduction. But, we need a partnership with the Federal
government that requires the Energy Secretary to set higher efficiency
standards and undertake other actions that appropriately rely on
federal action.
At the same time, as proposed in S. 1115, additional new resources
will help local officials develop and expand local energy conservation
programs, undertake a new generation of energy audits, revise building
codes, increase incentives to adopt new technologies and initiatives
and other efforts to promote alternative transportation systems and
other changes, all aimed at saving energy and reducing our nation's
energy dependency.
Therefore, we strongly endorse the creation of an Energy and
Environmental Block Grant at the Department of Energy, as set forth in
Section 605, giving State and local governments new resources to
establish implementation plans for adopting community energy efficiency
programs and the resources to carry them out.
Such programs will unleash a creative and innovative power of local
communities to coalesce around national and community goals, yet
provide concrete programs that they can participate in to meet them.
Any successful national strategy must have this ``bottoms-up''
community approach that complements the top-down strategies of tougher
energy efficiency standards and other necessary actions here at the
federal level. Only by doing both will we get to where we need to be.
enabling local leadership to change human behavior, local practices
Let me offer some perspectives about the role of mayors in changing
human behavior which is such a critical consideration in dealing with
the myriad of energy issues before the nation. In the early 1990s, when
our nation faced a landfill crisis, cities and counties rose to the
challenge and launched over 5,000 curbside recycling programs, started
local procurement programs to buy recycled-content materials, and
helped to spearhead a green packaging movement that involved the
American Consumers Products industry. For the first time, we made it
inside the American home to change behavior of what was as common as
separating recyclables from ordinary trash so that it could be
recycled.
People said this could not be done, that we could never get the
citizenry to change its behavior in response to something as mundane as
garbage. But we did. And most of those programs continue today with a
national recycling rate of over 25 percent.
local officials ready to meet these challenges
In our opinion the people and their leaders--mayors and other local
officials--are ready and poised again to rise to an even more important
challenge of making ourselves more energy independent, while lessening
our use of fossil fuels and harnessing the ingenuity that resides
within our communities and neighborhoods.
Mr. Chairman, it is at the local level that building codes get re-
written, that demonstration programs can be launched, that new
technologies can be introduced to neighborhoods, that people can rally
to car pool, switch their lights to compact fluorescent bulbs, where
businesses can decide to retrofit their boilers, weatherize their
commercial establishments, transportation facilities can be
reengineered and made available for alternative vehicles and reduced
auto dependency, where energy audits can be performed for the local
museum, girls and boys clubs, local libraries, and the list goes on and
on.
We believe the Energy and Environment Block Grant will unleash a
great deal of creativity that will help us get to the goals that you
have espoused in S. 1115. Certainly, states and local governments can
not do it on our own. We desperately need the Federal government as our
partner. But we can, with your assistance and through more local
innovation and creativity, provide an essential component to our
national energy strategy.
Just to demonstrate the challenge, a study that the U.S. Conference
of Mayors commissioned by Global Insight Inc. forecasts that between
now and 2030, our nation will build over 39 million new homes and over
20 billion square feet of commercial space. If we are to absorb this
kind of economic growth and meet our goals, we must begin now at all
levels of government to promote a top down and bottoms approach,
relying on the right balance of federal policy directives and
incentives aligned with community-based strategies, to help us achieve
greater energy efficiency and reduced energy dependence.
closing comments
We believe, therefore, that the nation's cities and counties play a
vital role in our national goal of energy efficiency, energy
independence and climate protection. The nation's mayors support S.
1115, especially its important provisions for an Energy and Environment
Block Grant program, as a vital first step in meeting the challenges
before the nation. The United States Conference of Mayors endorses it
and urges its passage as soon as possible. Mr. Chairman and Members of
the Committee, thank you for this opportunity to share our views on
this important legislation.
The Chairman. Thank you very much for being here and your
testimony.
Commissioner Kerr, go right ahead.
STATEMENT OF JAMES Y. KERR II, COMMISSIONER, NORTH CAROLINA
PUBLIC UTILITIES COMMISSION, AND PRESIDENT, NATIONAL
ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS (NARUC)
Mr. Kerr. Thank you, Mr. Chairman, Ranking Member Domenici,
and members of the committee.
Following the Mayor's lead, I would like to note the
presence of our Senator Burr on this committee; and, although
he is, I think, at home today, I want to thank him, on the
record, for his service to our great State, his steadfast
support of our Commission, and for his personal support and
friendship.
My name is Jim Kerr. I'm a member of the North Carolina
Utilities Commission, and president of the National Association
of Regulatory Utility Commissioners.
NARUC appreciates the opportunity to appear before this
committee today to work with this committee on this particular
piece of legislation, as well as on the other important issues
that this committee will be dealing with in this Congress.
The issues which we are discussing today are important to
NARUC. It's important to the States that represent the
membership of NARUC, and to the citizens that we serve.
Quite simply, energy efficiency is an important part of the
formula of meeting the challenges that we face as States, as
State regulators, as citizens of our States. NARUC as an
organization, and the individual States that make up our
membership have traditionally, and continue to be, very
supportive of energy efficiency policies. We are supportive of
this legislation, which has been introduced last week, with a
few clarifications, which I will get to at the conclusion of my
summary.
Let me speak briefly to the challenges we face. Despite the
progress that was made in--with the passage of EPAct05, we, at
the State level, continue to face significant challenges.
Energy demand is growing. The cost of generation, both the fuel
component, as well as the capital component, is increasing.
Natural-gas prices continue to be increasing, and are
increasingly volatile. We continue to be challenged by
reliability issues in certain parts of the country. We, as
States, as a Nation, and, as the Mayor has mentioned, as the
world, continue to be growingly concerned about the risk posed
by carbon. We have many pending large transition and generation
investments that are needed in an uncertain investment world.
While not an answer to all of these problems, we, as State
regulators, believe that energy efficiency offers many benefits
in trying to meet these challenges. It offers environmental
benefits, economic benefits, utility system benefits, and risk-
management benefits through the diversification of utility
portfolios.
As I mentioned, NARUC and the individual State members have
actively supported energy efficiency policies. We are among the
founding members of the leadership group of the National Action
Plan on Energy Efficiency, which, in my written testimony, we
speak more about. But this is a collaborative effort of State
utility regulators, industry, other stakeholders, that has been
facilitated by the Department of Energy and the Environmental
Protection Agency, as an effort whose goal was to create a
sustainable, aggressive, national commitment to energy
efficiency. I would like to commend DOE and EPA for their
support of the States through this collaborative--this has not
been a top-down effort, where the Federal agencies have told
the States what they thought they ought to do, but, rather,
have provided a framework and resources to support a
collaborative process, and it has been very successful. In
fact, Assistant Secretary Karsner was in Raleigh last week at
the North Carolina Summit on Energy Efficiency, and we
appreciate his personal commitment to the Action Plan, and for
the work that he's doing in support of States' efforts on
energy efficiency.
Last week, the North American Energy Standards Board met.
NARUC was part of that process, working on the development of
standardized business practices and measurements related to
energy efficiency. NARUC, Edison Electric Institute, and
Consumer Advocates are working on a collaborative process
focusing on ratemaking and rate design issues related to
efficiencies. NARUC has passed specific resolutions supporting
the action plan, appliance efficiency standards in the last
energy bill, innovative rate design to encourage energy
efficiency, transformer efficiency standards, and advanced
metering infrastructure.
We have entered into a collaborative process with the FERC
on demand response. We have participated in the drafting of
DOE's section 139 report, which was issued last month, at the
end of March, whose principal conclusion was that State and
regional policies should capitalize on opportunities to use
low-cost energy efficiency to meet growing demands and enhance
system reliability.
I was asked to, and I want to, briefly mention a few
matters going on in my home State, principally because they're
illustrative of many of the questions which you have answered--
or, which you have asked today from the podium.
North Carolina was the first State to use a public benefit
fund for the support of energy efficiency, and we have used
these funds to support a nonprofit corporation, Advanced Energy
Corporation, whose sole purpose is to work on energy efficiency
issues, not just in North Carolina, but around the world. We,
at the Commission, are currently reviewing our integrated
resource planning process to better prioritize and integrate
energy efficiency and demand-side management with our
traditional supply side resources in the planning process.
A month ago, we approved Duke Energy's request to build a
single 800-megawatt super-critical pulverized coal unit in
North Carolina. The original request was to build two units. We
approved the building of one 800-megawatt unit. As part of that
order, our Commission included the following two conditions:
first, that Duke Energy is required to invest 1 percent of its
retail revenues in energy efficiency in the demand-side
management annually, and that they are required to retire older
coal-fired units on a megawatt-for-megawatt basis to account
for the actual load reductions achieved through those
investments. We have, in the Piedmont Natural Gas last rate
case, approved a decoupling ratemaking mechanism on a 3-year
experimental basis. We have commissioned a study of a renewable
portfolio standard which includes an element of energy
efficiency. Just last month, it has been announced, in North
Carolina, a very unique public/private partnership involving
Duke Energy, Progress Energy, Environmental Defense, the Sierra
Club, and a private foundation, exploring specifically how
State government can lead the way on energy efficiency as the
largest consumer of energy in the State and as a political
leader.
Finally, there is draft legislation pending in our
legislature which would consider an REPS, which would be an RPS
standard that would have a 2\1/2\ percent set-aside for energy
efficiency, or megawatts, as part of the RPS, and it also
addresses potential cost-recovery issues, including
capitalization and the opportunity to earn on energy efficiency
investments and possible incentives for those investments.
Again, we are proud of the work that we are doing, and we
appreciate, very much, the way that this legislation, which you
have introduced, is supportive, principally, of those State
efforts.
We have filed testimony in which we articulate in greater
detail our support for the legislation. I would raise three
points that we believe need further clarification.
First, section 205 in the energy efficiency standards,
which have been the subject of some questions here this
afternoon. We, as a group of State regulators, are of course
concerned about any efforts at Federal pre-emption of State
efforts which may go beyond what the Federal standards might
be. We would prefer that any Federal standards be viewed as a
floor, and that States be allowed to adopt more strict
standards, if appropriate. We also would appreciate the
opportunity to work with the committee to see--to assure that
any existing State standards would be grandfathered if and when
the DOE were to adopt its standards.
Second, the section 503(d)(4), dealing with the sales of
energy from Federal facilities--I believe Senator Thomas asked
about that--I would say that we share the concern that I
perceived in his question, and we believe that, at a minimum,
it should be clarified that any such sales would have to be
made consistent with, and subject to, State and Federal laws
and regulations.
Finally, section 603, having to do with integrated resource
planning and rate design issues being added to the list of
PURPA standards: again, as a representative of State
organizations, I would clarify that these are matters purely of
State jurisdiction and State law. We would prefer that they not
be addressed at all. However, we do believe that the approach
of including these standards in a PURPA-type State shall
consider these issues in carrying our responsibilities is
certainly the appropriate way to address these important
issues.
So, thank you, again, for the opportunity. I'll look
forward to answering any questions.
[The prepared statement of Mr. Kerr follows:]
Prepared Statement of James Y. Kerr, II, Commissioner, North Carolina
Public Utilities Commission, and President, National Association of
Regulatory Utility Commissioners
Good Afternoon Mr. Chairman, Ranking Member Domenici, and Members
of the Committee.
My name is Jim Kerr. I am a Commissioner on the North Carolina
Utilities Commission and I also serve as the President of the National
Association of Regulatory Utility Commissioners (NARUC). I am
testifying today on behalf of NARUC and I greatly appreciate the
opportunity to appear before you today. The issues that you are
addressing here are very important to NARUC's membership and my State,
and I am grateful to have this opportunity to present our views on
energy efficiency and, in particular, your legislation, Mr. Chairman.
I would like to summarize my testimony and have my full statement
entered into the record.
NARUC is a quasi-governmental, non-profit organization founded in
1889. Its membership includes the State public utility commissions
serving all States and territories. Our mission is to serve the public
interest by improving the quality and effectiveness of public utility
regulation. Our members regulate the retail rates and services of
electric, gas, water, and telephone utilities. Indeed, we are obligated
by law to ensure that the establishment and maintenance of such utility
services as may be required by the public convenience and necessity,
and that such services are provided under rates--subject to terms and
conditions of service--that are just, reasonable, and
nondiscriminatory.
I would like to discuss, in detail, efforts at the State level for
implementing energy efficiency programs and, Mr. Chairman, the
legislation you and Ranking Member Domenici introduced last week.
Since 1973, energy use in the United States has increased by 33%,
but we now use half as much energy per dollar of economic activity as
we did then. To run today's economy without the energy efficiency
improvements that have taken place since 1973, we would need 43 percent
more energy supplies than we currently use--more energy than we
currently generate from any single supply source like nuclear, gas,
coal, or renewables.\1\
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\1\ Department of Energy, ``State and Regional Policies that
Promote Energy Efficiency Programs Carried Out by Electric and Gas
Utilities.''
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Clearly, energy efficiency is already playing a considerable role
in meeting our country's growing demand, but the potential for an even
greater savings remains.
A 2000 study estimated that energy efficiency policies and programs
could cost-effectively reduce U.S. demand for electricity by 24 percent
and demand for natural gas by 12 percent by 2020.\2\ This is about half
of the current projected increase in electricity and natural gas
demand. In short, energy efficiency has grown in acceptance from being
considered ``nice thing to do for society'' to becoming more recognized
as a real resource; some even call it ``the fifth fuel.''
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\2\ Interlaboratory Working Group, ``Scenarios for a Clean Energy
Future,'' Oak Ridge National Laboratory, Lawrence Berkeley National
Laboratory.
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For the record, NARUC has consistently supported and encouraged
State energy efficiency policies and it is our belief that energy
efficiency programs can, in some instances, be the quickest, cheapest,
and cleanest energy resource. If broadly adopted, energy efficiency
programs can have many far-reaching societal benefits, including:
Economic.--Reduced energy intensity provides competitive
advantages and frees financial resources for investment in non-
energy goods and services;
Environmental.--Saving energy reduces air pollution, the
degradation of natural resources, risks to public health, and
the threat of global climate change;
Infrastructure.--Lower demand lessens constraints and
congestion on the electric transmission and distribution
systems; and,
Security.--Energy efficiency can lessen our vulnerability to
events that cut off energy supplies.
NARUC members have seen the benefits and are responding by
exploring aggressive investments in energy efficiency as a resource.
NARUC itself passed a resolution in 2005 encouraging States and other
policymakers to review their existing rate designs to determine if they
encourage energy conservation and energy efficiency so as to moderate
natural gas demand and reduce upward pressure on natural gas prices.
Additionally, NARUC was heavily involved in the drafting of the
Energy Department's recent report on State and Regional Policies that
Promote Energy Efficiency Programs Carried Out by Electric and Gas
Utilities. The report, mandated by Section 139 of the Energy Policy Act
of 2005, offers a list of recommendations for States, industry groups,
and other stakeholders to consider when implementing energy efficiency
programs. The report also summarized State energy efficiency
activities.
We have also been active in our efforts to promote Advanced
Metering Infrastructure (AMI) throughout the country. AMI is a system
that records customer consumption of electricity on an hourly or even
more recurring basis and provides dynamic pricing that can afford
consumers the opportunity to better manage their energy intake. The
NARUC Board of Directors at our Winter Committee Meetings in February
approved a resolution that offered recommendations for States that are
facilitating cost-effective AMI technologies.
My home State of North Carolina is actively engaged in pursuing
energy efficiency programs. For instance, my fellow commissioner Jimmy
Ervin and I participated in the recent North Carolina Summit on Energy
Efficiency. The Summit served as a venue for North Carolina
policymakers and stakeholders to share information and best practices
for implementing energy efficiency programs, and also discuss
initiatives for raising awareness and developing a broad coalition of
support for related initiatives.
Also, NARUC and many member States, along with federal regulators
and a sizeable number of industry representatives, are participating in
the National Action Plan for Energy Efficiency. This Action Plan is a
multi-year, multi-sector effort aimed at creating a national commitment
to energy efficiency. I will go into more details about the Action Plan
later in my testimony.
Coinciding with the National Action Plan's activities is an effort
by the North American Energy Standards Board to establish a multi-year
process that aims to measure savings from energy efficiency programs.
NAESB held a meeting earlier this month on this issue and the National
Action Plan will help facilitate this project.
Before I go into more detail about the National Action Plan, I
would like to discuss the important legislation you, Mr. Chairman, and
Ranking Member Domenici introduced last week. NARUC would like to
commend you both for your leadership in moving energy efficiency policy
to the forefront of the nation's energy policy debate by introducing
the bipartisan legislation, S. 1115, and holding this hearing.
We believe that this bill is a generally positive step and there
are many provisions in S. 1115 that NARUC can support. I will limit my
comments today to address those provisions we believe are most
pertinent to our member commissions.
title ii--expediting new energy efficiency standards
NARUC is supportive of the proposals and policies included in Title
II, to the extent that they are intended to permit State action and
standards that go beyond those contemplated in this Title. Cost-
effective and technically feasible energy efficiency standards are an
important tool for achieving energy savings, improving environmental
quality, and reducing energy bills and prices for consumers. NARUC has
always supported meaningful energy efficiency standards at the national
level and, during the debate over the Energy Policy Act of 2005, we
urged Congress to enact cost-effective standards that would result in
the greatest energy savings. Additionally, NARUC has supported the
upgrading of National Efficiency Standards while encouraging and
supporting State efforts on standards to maximize energy efficiency.
While NARUC believes that appliance standards are indeed a highly
effective way to improve end-user efficiency, we have also supported
improvements in system efficiency for delivering electricity through
transmission and distribution networks. By ensuring that fewer losses
occur in the transmission and distribution of electricity to
appliances, we have the opportunity to ensure that electricity is
delivered and used in the most efficient manner possible. In fact,
NARUC this past February passed a resolution supporting new
distribution transformer efficiency standards that are being developed
in concert with the electric power industry and the energy efficiency
advocacy community.
title iv--setting energy efficiency goals
NARUC is highly supportive of the provisions found in sections 402
and 403 of Title IV, as these goals coincide with NARUC's efforts as
part of the above-referenced National Action Plan on Energy Efficiency.
Again, I will go into more detail about this project later in my
testimony.
title v--promoting federal leadership in energy efficiency and
renewable energy
While NARUC agrees that the federal government must ``get its own
house in order'' to play a leading and productive role in this
endeavor, we do have a question regarding language in section
503(d)(4)(C). Is it the intent of this language to permit federal
government facilities, beyond the Power Marketing Administrations, to
sell electricity in both wholesale and retail markets, without regard
to federal and State regulations? If so, we would be rather troubled by
this provision and we would suggest that the language be clarified by
noting that the government sales would be subject to all applicable
State and federal law and regulation.
title vi--assisting state and local governments in energy efficiency
NARUC strongly supports the provisions found in sections 601 and
602, and has indeed benefited, as have many of our members, from the
programs included in these sections.
The U.S. Department of Energy's Weatherization Assistance Program
has served more than 5.7 million low-income families and is one of the
most effective energy efficiency programs in the United States. Low-
income families spend 16 percent of their annual income on energy,
compared with 5 percent for other households, and the typical
Weatherization recipient is a single mother with two children earning
$8,000 per year. According to DOE, families who have their homes
weatherized will generally save between $300 and $400 each year on
energy bills allowing them a better opportunity to pay their future
energy bills. Families who do not receive Weatherization services must
make hard choices between heating and cooling their homes and other
necessities, such as food, clothing and medicine.
Additionally, NARUC has benefited from direct support from the
State Energy Programs. In 2004, for example, we received funding and
technical assistance from the DOE to develop Model Interconnection
Standards & Procedures. These standards provide a clear and consistent
process for interconnecting new generating units to the transmission
grid. Moreover, NARUC members have benefited from interaction with
State Energy Offices and Air Quality Agencies through projects
undertaken between 2000 and 2003 that linked these key State government
sectors on energy and air quality issues.
NARUC is generally supportive of section 603 and technical
assistance provided in section 604, though we note that the decoupling
issue is retail by nature and is clearly under State jurisdiction. We
recognize that the best approach toward promoting energy efficiency
programs for any utility, State, or region may likely depend on local
issues, preferences, and conditions. By placing decoupling language
under the Public Utility Regulatory Policies Act of 1978, a State may
move forward if it is in their best interest and the technical
assistance will help where many commissions are currently overburdened
with implementation of the Energy Policy Act of 2005.
NARUC has begun exploring rate designs that align utility returns
with the delivery of energy efficiency. In August 2006 NARUC began an
ongoing dialogue with State agencies regarding design types and lessons
learned from different approaches. NARUC is developing additional
research on aligning rate designs with demand-side resources, and this
summer will release a brief for Consumer Advocates on Decoupling, and
participate in developing the National Action Plan Leadership Group's
guidebook on the topic.
I would now like to take this opportunity to discuss the National
Action Plan for Energy Efficiency in some detail. As stated above, the
National Action Plan aims to create a sustainable, aggressive national
commitment to energy efficiency from all sectors, including gas and
electric utilities, State and federal utility regulators, and partner
organizations. We believe that this commitment could save Americans
billions of dollars on energy bills over the next 10 to 15 years,
contribute to energy security, and improve our environment.
The Action Plan was developed by more than 50 leading organizations
representing a very diverse set of perspectives. It is a multi-year
collaborative and includes participation from the Department of Energy,
the Environmental Protection Agency, State regulators, industry, and
consumer groups. NARUC is one of two founding partners and our First
Vice President, Commissioner Marsha Smith of Idaho, is the State Co-
Chair of the Action Plan Leadership Group. Jim Rogers of Duke Energy is
the Industry Co-Chair. These organizations have pledged to take
specific steps to make the Action Plan a reality.
The Action Plan itself was released in July 2006 during the annual
NARUC Summer Meetings. This document made five recommendations to
energy policymakers:
1. Recognize energy efficiency as high-priority resource;
2. Make strong, long-term commitments to implement cost-
effective energy efficiency as a resource;
3. Broadly communicate benefits of, and opportunities for,
energy efficiency;
4. Promote sufficient, timely, stable program funding where
cost-effective; and,
5. Review, adopt policies to align utility incentives with
delivery of energy efficiency, and modify rate practices to
promote energy efficiency investments.
NARUC members have made commitments to implementing the Action
Plan's recommendations. For example, the State of Arkansas issued
``Resource Planning Guidelines'' and ordered their jurisdictional
utilities to begin implementing cost-effective energy efficiency
programs. California, meanwhile, issued a Memorandum of Understanding
demonstrating the State's commitment to develop, promote, and implement
the Action Plan's recommendations. Nearly all of the State's energy
stakeholders signed the MOU, including the Governor, the State's PUC,
the California Energy Commission, and most of the State's investor-
owned and publicly-owned utilities. Also, Iowa's Utilities Board
specifically endorsed the Action Plan's recommendations as well, as did
State regulators in Connecticut, Florida, Hawaii, Kansas, Minnesota,
New England, New Jersey, New York, Ohio, Oregon, Utah, Vermont,
Washington, and the Southeast.
This year, the National Action Plan Leadership Group is taking a
grass-roots approach, working with regulators across the country to
implement the recommendations. Currently, the Leadership Group is
working on a number of projects, including communications plans,
promotional strategies, regulatory solutions to reduce impediments, and
ways to encourage utility participation. Also, the participants are
developing guidances on how energy efficiency opportunities can be
captured through energy resource planning and procurement processes,
changes in building codes, as well as in rates, utility incentives,
planning, and cost-benefit studies. In addition, the participants are
also developing Evaluation Guides to account for energy and cost
savings from energy efficiency.
For the next year and beyond, the National Action Plan participants
will study methods to align utility incentives with the best levels of
cost-effective energy efficiency programs and will develop a set of
metrics that can demonstrate the actual success of their commitments to
energy efficiency.
As you can see, Mr. Chairman and Ranking Member Domenici, State
regulators are already embracing energy efficiency as a critical
resource to meet growing demand. But we have only started to tap into
the great potential energy efficiency holds and this hearing and
legislation are both very timely and appropriate. We very much
appreciate your attention and thank you for the opportunity to share
our views on S. 1115. The NARUC membership is committed to working with
you and this Committee as this legislation moves forward.
______
Attachments
resolution to remove regulatory barriers to the broad implementation of
advanced metering infrastructure
WHEREAS, The Energy Policy Act of 2005 amended the State ratemaking
provisions of the Public Utilities Regulatory Policies Act of 1978
(PURPA) to require every State regulatory commission to consider and
determine whether to adopt a new standard with regard to advanced
metering infrastructure (AMI); and
WHEREAS, Advanced metering, as defined by Federal Energy Regulatory
Commission (FERC), refers to a metering system that records customer
consumption hourly or more frequently and that provides daily or more
frequent transmittal of measurements over a communication network to a
central collection point; and
WHEREAS, The implementation of dynamic pricing, which is
facilitated by AMI, can afford consumers the opportunity to better
manage their energy consumption and electricity costs through the
practice of demand response strategies; and
WHEREAS, Effective price-responsive demand requires not only
deployment of AMI to a material portion of a utility's load, but also
implementation of dynamic price structures that reveal to consumers the
value of controlling their consumption at specific times; and
WHEREAS, AMI deployment offers numerous potential benefits to
consumers, both participants and non-participants, including:
greater customer control over consumption and electric
bills;
improved metering accuracy and customer service;
potential for reduced prices during peak periods for all
consumers;
reduced price volatility;
reduced outage duration; and,
expedited service initiation and restoration; and
WHEREAS, The use of AMI may afford significant utility operational
cost savings and other benefits, including:
automation of meter reading;
outage detection;
remote connection/disconnection;
reduced energy theft;
improved outage restoration;
improved load research;
more optimal transformer sizing;
reduced demand during times of system stress;
decreased T&D system congestion; and,
reduced reliance on inefficient peaking generators; and
WHEREAS, Sound AMI planning and deployment requires the
identification and consideration of tangible and intangible costs and
benefits to a utility system and its customers; and
WHEREAS, Cost-effective AMI may be a critical component of the
intelligent grid of the future that will provide many benefits to
utilities and consumers; and
WHEREAS, It is important that AMI allow the free and unimpeded flow
and exchange of data and communications to empower the greatest range
of technology and customer options to be deployed; and
WHEREAS, The deployment of cost-effective AMI technology may
require the removal and disposition of existing meters that are not
fully depreciated and may require replacement of, or significant
modification to, existing meter reading, communications, and customer
billing and information infrastructure; and
WHEREAS, Regulated utilities may be discouraged from pursuing
demand response opportunities by the prospect of diminished sales and
revenues; now, therefore, be it
RESOLVED, That the Board of Directors of the National Association
of Regulatory Utility Commissioners, convened at its February 2007
Winter Meetings in Washington, D.C., recommends that commissions
seeking to facilitate deployment of cost-effective AMI technologies
consider the following regulatory options:
pursue an AMI business case analysis, in conjunction with
each regulated utility, in order to identify an optimal, cost-
effective strategy for deployment of AMI that takes into
account both tangible and intangible benefits;
adopt ratemaking policies that provide utilities with
appropriate incentives for reliance upon demand-side resources;
provide for timely cost recovery of prudently incurred AMI
expenditures, including accelerated recovery of investment in
existing metering infrastructure, in order to provide cash flow
to help finance new AMI deployment; and,
provide depreciation lives for AMI that take into account
the speed and nature of change in metering technology; and be
it further
RESOLVED, That the Federal tax code with regard to depreciable
lives for AMI investments should be amended to reflect the speed and
nature of change in metering technology; and be it further
RESOLVED, That NARUC supports movement toward an appropriate level
of open architecture and interoperability of AMI to enable cost-
effective investments, avoid obsolescence, and increase innovations in
technology products.
resolution on distribution transformers energy conservation standards
WHEREAS, The investor-owned and public power utilities represented
by the Edison Electric Institute (EEI) and the American Public Power
Association (APPA), and the energy efficiency advocacy community,
represented by Natural Resources Defense Council, the American Council
for an Energy-Efficient Economy, the Alliance to Save Energy, Northeast
Energy Efficiency Partnerships and the Appliance Standards Awareness
Project have agreed to jointly recommend new national standards for
distribution transformers; and
WHEREAS, Cost-effective and technically feasible energy efficiency
standards are an important tool for achieving energy savings, improving
environmental quality, and reducing energy bills and prices for
consumers; and
WHEREAS, The recommended joint standards will ensure the highest
technologically achievable energy savings that are economically
justified; now, therefore, be it
RESOLVED, That the Board of Directors of the National Association
of Regulatory Utility Commissioners, convened at its February 2007
Winter Meetings in Washington, D.C., endorses the tiered approach to
the efficiency standards agreed to by the Edison Electric Institute
(EEI) and the American Public Power Association (APPA), and the energy
efficiency advocacy community, represented by Natural Resources Defense
Council, the American Council for an Energy-Efficient Economy, the
Alliance to Save Energy, Northeast Energy Efficiency Partnerships and
the Appliance Standards Awareness Project.
resolution on energy efficiency and innovative rate design
WHEREAS, The National Association of Regulatory Utility
Commissioners (NARUC), at its July 2003 Summer Meetings, adopted a
Resolution on State Commission Responses to the Natural Gas Supply
Situation that encouraged State and Federal regulatory commissions to
review the incentives for existing gas and electric utility programs
designed to promote and aggressively implement cost-effective
conservation, energy efficiency, weatherization, and demand response;
and
WHEREAS, The NARUC at its November 2003 annual convention, adopted
a Resolution Adopting Natural Gas Information ``Toolkit,'' which
encouraged the NARUC Natural Gas Task Force to review the findings and
recommendations of the September 23, 2003 report by the National
Petroleum Council on Balancing Natural Gas Policy--Fueling the Demands
of a Growing Economy and its recommendations for improving and
promoting energy efficiency and conservation initiatives; and
WHEREAS, The NARUC at its 2004 Summer Meetings, adopted a
Resolution on Gas and Electric Energy Efficiency encouraging State
commissions and other policy makers to support expansion of energy
efficiency programs, including consumer education, weatherization, and
energy efficiency and to address regulatory incentives to inefficient
use of gas and electricity; and
WHEREAS, These NARUC initiatives were prompted by the substantial
increases in the price of natural gas in wholesale markets during the
2000-2003 period when compared to the more moderate prices that
prevailed throughout the 1990s; and
WHEREAS, The wholesale natural gas prices of the last five years
largely reflect the fact that the demand by consumers for natural gas
has been growing steadily while, for a variety of reasons, the supply
of natural gas has had difficulty keeping pace, leading to a situation
where natural gas demand and supply are narrowly in balance and where
even modest increases in demand produce sharp increases in price; and
WHEREAS, Hurricanes Katrina and Rita, in addition to damaging the
States of Alabama, Mississippi, Louisiana, and Texas, significantly
damaged the nation's onshore and offshore energy infrastructure,
resulting in significant interruption in the production and delivery of
both oil and natural gas in the Gulf Coast area; and
WHEREAS, The confluence of a tight balance of natural gas supply
and demand and these natural disasters has driven natural gas prices in
wholesale markets to unprecedented levels; and
WHEREAS, The present high and unprecedented level of natural gas
prices are imposing significant burdens on the nation's natural gas
consumers, whether residential, commercial, or industrial, and will
likely be injurious to the nation's economy as a whole; and
WHEREAS, The recently enacted Energy Policy Act of 2005 contains a
number of provisions aimed at encouraging further natural gas
production in order to bring down prices for consumers, but these
actions, together with any further action on energy issues by Congress,
are unlikely to bring forth additional supplies of natural gas in the
short term; and
WHEREAS, Energy conservation and energy efficiency are, in the
short term, the actions most likely to reduce upward pressure on
natural gas prices and to assist in bringing energy prices down, to the
benefit of all natural gas consumers; and
WHEREAS, Innovative rate designs including ``energy efficient
tariffs'' and ``decoupling tariffs'' (such as those employed by
Northwest Natural Gas in Oregon, Baltimore Gas & Electric and
Washington Gas in Maryland, Southwest Gas in California, and Piedmont
Natural Gas in North Carolina), ``fixed-variable'' rates (such as that
employed by Northern States Power in North Dakota, and Atlanta Gas
Light in Georgia), other options (such as that approved in Oklahoma for
Oklahoma Natural Gas), and other innovative proposals and programs may
assist, especially in the short term, in promoting energy efficiency
and energy conservation and slowing the rate of demand growth of
natural gas; and
WHEREAS, Current forms of rate design may tend to create a
misalignment between the interests of natural gas utilities and their
customers; now therefore be it
RESOLVED, That the National Association of Regulatory Utility
Commissioners (NARUC), convened in its November 2005 Annual Convention
in Indian Wells, California, encourages State commissions and other
policy makers to review the rate designs they have previously approved
to determine whether they should be reconsidered in order to implement
innovative rate designs that will encourage energy conservation and
energy efficiency that will assist in moderating natural gas demand and
reducing upward pressure on natural gas prices; and be it further
RESOLVED, That NARUC recognizes that the best approach toward
promoting energy efficiency programs for any utility, State, or region
may likely depend on local issues, preferences, and conditions.
The Chairman. Thank you very much.
Ms. Collier, please go right ahead.
STATEMENT OF ALICIA COLLIER, DIRECTOR, GLOBAL ENERGY POLICY,
HONEYWELL BUILDING SOLUTIONS, HONEYWELL INTERNATIONAL, ON
BEHALF OF FEDERAL PERFORMANCE CONTRACTING COALITION (FPCC)
Ms. Collier. Good afternoon, and thank you, Mr. Chairman
and the committee, for this opportunity to testify today.
My name is Alicia Collier, and I am the director of global
energy policy for Honeywell's Energy Services Group. But I'm
here on behalf of the Federal Performance Contracting
Coalition, and we're a group of energy services companies.
We're responsible for over 90 percent of the energy savings
performance contracts that are being performed on Federal
installations today.
I'd like to mention each of our members. They include:
Ameresco, Chevron Energy Solutions, Constellation Energy
Projects and Services Group, Honeywell, Johnson Controls,
Noresco, and Siemens Building Technologies.
Now, the FPCC is extremely supportive of S. 1115 and the
Federal energy efficiency provisions contained. We're
especially encouraged by the energy savings performance
contracting provisions that will help to advance more of these
sorts of projects within Federal installations, and, as a
result, will reduce the energy used on these installations and
increase the amount of renewables that are being used on
Federal sites.
I'd like to focus the comments today on section 503, which
specifically addresses Energy Savings Performance Contracts.
I'll highlight three of the provisions contained within that
section.
The first one has to do with financing flexibility. What
this section allows agencies to do is to combine appropriated
dollars with the financing dollars under ESPCs. What this is
going to do is to add flexibility to these contracts, and it
will make it possible for agencies to meet the more aggressive
energy goals that have been put before them. Specifically, it
will allow for the inclusion of renewables, which is important
to all of us.
Second, we strongly support the idea of eliminating the
sunset provision for ESPCs. This was originally set up as a
pilot project, but, for over 10 years, it's been successfully
utilized by Federal agencies, and it's become, really, the
primary way that Federal Government agencies are meeting their
energy efficiency goals. So, it's time to make it a permanent
program.
Third, is a conversation that I'm sure we're going to have,
and we've already had some discussion about, and that is making
cogeneration and renewable energy allowable under the ESPC
program. Now, there's an added ability that will allow agencies
to sell excess power under this situation. What it does is, it
gives the flexibility for an agency or an installation to build
renewables on their site and not be concerned about
fluctuations in consumption, in the ability to sell off that
excess power. So, that's the way we perceive that particular
section in that particular provision.
In addition to supporting the provisions in S. 1115, the
FPCC has some ideas of areas where we can see more, better, and
faster ESPCs. We've been working with the Department of Energy
in this area, and I'm very pleased with the support that
they've provided, and their interest in increasing the pace,
the size, and the scope of these contracts.
We've got three specific suggestions for your
consideration:
The first is eliminating the congressional notification
requirement for individual projects under ESPC. What we would
suggest in lieu of that would be to require agencies to report,
on an annual basis, the number of ESPC projects, their size,
their scope, and their value.
Second, we would suggest establishing a program fund that
would help to pay specifically for renewables under ESPCs.
This, again, would result in more renewables on Federal
facilities.
The third item would have to do with renewable energy
credits. The EPAct encourages the agencies to not only build,
but also use, renewables on their installations, and we think
that there's some legislative language that could help clarify
the sale of RECs and how that impacts the agency's ability to
take renewable energy credits toward their goal.
In conclusion, the FPCC is very pleased with the emphasis
on Federal energy efficiency contained within S. 1115. We
believe that the next step is to ensure that agencies start to
use this contract vehicle as a matter of course. What we like
to say in the FPCC is that we want the fear of inaction to be
greater than the fear of action.
We hope to have the continued support of this committee to
urge oversight for the necessary committees to ensure the
energy efficiency and the implementation of renewables becomes
and remains a front-burner issue for the entire Federal
Government.
Thank you, again, for this opportunity.
[The prepared statement of Ms. Collier follows:]
Prepared Statement of Alicia Collier, Director, Global Energy Policy,
Honeywell Building Solutions, Honeywell Corporation, and on Behalf of
Federal Performance Contracting Coalition
Thank you for the opportunity to testify today. My name is Alicia
Collier and I am the Director of Global Energy Policy, National Energy
Solutions for Honeywell. I appear before you today on behalf of the
Federal Performance Contracting Coalition (FPCC), a group of Energy
Service Companies that perform 90% of the Energy Savings Performance
Contracting (ESPC) for the Federal government. Our members are
Ameresco, Chevron Energy Solutions, Constellation Energy Projects and
Services Group, Honeywell, Johnson Controls, Noresco and Siemens
Building Technologies.
We are very pleased with the Federal energy provisions of S. 1115
and are encouraged to see the Committee's continued commitment to
increasing the energy efficiency of our government's own facilities. We
are particularly pleased with the Committee's interest in advancing
Energy Savings Performance Contracts. We believe that this
underutilized program is critical to meeting the Federal government's
energy efficiency and renewable energy goals. Many of the provisions in
S. 1115 will help generate more ESPC projects and increase energy
efficiency in federal buildings.
Most of the Committee members are likely aware of ESPCs because of
the major effort in EPACT 2005 to reauthorize the program. The program
works as follows: under ESPCs, the private sector installs new energy
efficient equipment in federal facilities at no upfront cost to the
government. (Examples of equipment include: new energy efficient
lighting, building controls, boilers, chillers and renewable energy
measures.)
Federal agencies pay off this investment over time with the funds
saved on utility costs. And, the private sector contractors guarantee
the energy savings. By law, the government never pays more than they
would have paid for utilities if it had not entered into the ESPC. In
addition to generating energy, water and dollar savings, years of
deferred maintenance at federal facilities are successfully addressed
by the ESPC program.
We are very supportive of the Federal energy efficiency provisions
in S. 1115. In particular, we are encouraged by the following:
Section 504, which increases energy efficiency goals by
requiring a 30 percent reduction in energy consumption at
Federal facilities by 2015, codifying the new executive order
13423. Federal agencies will have to increasingly rely on ESPCs
if they are expected to meet these new higher goals.
Section 502, which increases the requirement for the
purchase of renewable energy for federal facilities. We
encourage you to clarify that the installation of on-site
generation of renewable energy should be the path forward, not
merely the purchase of green power off the grid. On site power
contributes to energy security and adds new renewable energy
assets to the national mix.
Section 503 addresses ESPCs and is therefore of great
interest to us.
--We support the retention of savings provisions that allow
facilities to retain 100% of the savings on energy
efficiency installation. Your elimination of old language
from the code will eliminate the confusion in the federal
government over the retention of savings.
--Financing Flexibility, which would allow agencies to mix
appropriated and finance dollars under an ESPC, is critical
to meeting the new efficiency and renewable energy goals.
We support its inclusion because only with the ability to
mix appropriated and private sector dollars will we be able
to achieve the government's renewable energy goals. We
continue to be concerned about agency adoption of this
provision and encourage the Committee to reach out to other
authorizing committees to ensure adoption of financing
flexibility throughout all agencies of the Federal
government.
--Eliminating the sunset provision is key. Thank you. This program
was initially set up as a pilot program. It has been used
very successfully by many of federal agencies for over 10
years. It has proven its value and should become a
permanent program because ESPC has become the means by
which most agencies are able to attain their efficiency
goals.
--The addition of cogeneration and renewable energy as allowable
Energy Conservation Measures under ESPCs will be a great
benefit to the government. The ability to sell the power
generated is a significant new component that will allow
for more renewable energy generation on federal facilities,
thereby enhancing energy security, reducing energy use and
greenhouse gas emissions.
--Clarification that water savings are included as allowable energy
conservation measures is also appreciated as this has been
a point of confusion among some energy managers.
--We support the idea of ESPCs for non-building applications and
feel that the study and the ability to include secondary
savings is a good first step in identifying the potential
to reduce energy in mobile applications through ESPCs.
Secondary savings, such as worker productivity, could also
be included in traditional, buildings ESPCs and would
further encourage agencies to utilize the program by
showing greater benefit.
Sec. 505 on Combined Heat and Power is helpful. CHP is an
energy conservation measure with a long term payback and
because of that, it lends itself well to being bundled with
shorter payback conservation measures to create a viable ESPC.
Sec. 506 sets Federal Building Energy Efficiency Performance
Standards, which we support because they push all building
renovations to a higher energy efficiency level. Unless there
are significant new appropriated dollars made available, we
believe that ESPCs and other private financing will be the
major means through which agencies comply with this section.
In addition to supporting these provisions of S. 1115, the FPCC
feels that there are other areas where we can focus on ``more, better
and faster'' when it comes to Energy Savings Performance Contracting.
We have been working with the Department of Energy in this area and are
very pleased with their willingness to focus agencies on increasing the
pace, size and scope of these types of contracts.
Below are some thoughts from the Federal Performance Contracting
Coalition on potentially expanding S. 1115:
We advocate eliminating the Congressional Notification
requirement for individual projects. This requirement was
originally included in legislation because the program was a
pilot project. Instead, we would like to see annual reporting
to Congress on the number, size, energy conservation measures,
and financial value on all ESPC contracts. Most of this
information is already gathered by the Department of Energy's
Federal Energy Management Program and would therefore not
require new reporting mandates for Federal agencies.
We suggest language establishing a program fund to help
offset the high cost of renewable energy measures in
alternatively financed projects. Renewable Energy measures must
be bundled with traditional energy efficiency measures to
qualify under this proposed program. The effect would be to
leverage appropriated dollars for on-site renewable energy
projects, which could substantially increase the number of
projects. This program administered by the Department of
Energy's Office of Energy Efficiency and Renewable Energy. We
would be happy to provide further information on how such a
fund could be initiated and administered.
EPACT set up the ability for Federal agencies to count
double their on-site renewable energy production towards their
renewable energy acquisition goals. In an effort to make
renewables cost effective, many Federal agencies that install
renewables on-site need to sell their commercial renewable
energy credits (RECs) to help pay for the project. There is
some confusion about whether selling those RECs means giving up
credit towards the Federal renewable energy goal. Legislative
language could clarify this ability.
In conclusion, we are very pleased with the emphasis on Federal
energy efficiency and the positive focus on ESPCs and other privately
financed energy retrofit activities. Congress and the Administration
have been working along side our industry to knock down barriers to
doing ``more, better, and faster'' ESPCs. We believe that the next step
is to ensure that the agency personnel start to adopt ESPCs as a matter
of course. As the members of the FPCC like to say, we want to make the
``fear of inaction greater than the fear of action''. It is our hope
that the Members of this Committee will continue to play a leadership
role in urging oversight from all relevant committees to ensure that
energy efficiency and the implementation of renewable energy becomes
and remains a front burner issue for all of the Federal government.
Again, thank you for your continued support and the opportunity to
testify today.
The Chairman. Thank you very much.
Mr. Schjerven, go right ahead.
STATEMENT OF ROBERT E. SCHJERVEN, CHIEF EXECUTIVE OFFICER
EMERITUS, LENNOX INTERNATIONAL, INC., ON BEHALF OF THE GAS
APPLIANCE MANUFACTURERS ASSOCIATION (GAMA), ARLINGTON, VIRGINIA
Mr. Schjerven. Thank you, Mr. Chairman.
Mr. Chairman, members of the committee, my name is Bob
Schjerven. I'm the chief executive officer emeritus of Lennox
International, Incorporated. I have over 40 years of experience
in the heating, ventilation, air-conditioning, and
refrigeration industry. I'm speaking today on behalf of the Gas
Appliance Manufacturers Association, or GAMA.
GAMA is the national trade association for manufacturers of
residential and commercial furnaces, boilers, water heaters,
other gas and electric appliances, and oil-fired, as well.
GAMA's members employ more than 190,000 workers across the
United States, and our members' facilities are found in 43 of
the 50 States. Speaking for Lennox, alone, we have major
manufacturing facilities in several States, including Arkansas,
South Carolina, and Tennessee.
GAMA has been a strong supporter of energy efficient
products, and also an advocate for educating the public on the
importance of energy conservation and energy-saving appliances.
GAMA has worked with State and national organizations to
develop and maintain Federal standards and a national
certification and enforcement process for residential furnaces,
boilers, water heaters, and space heaters.
As a result of that broadbased support for national
standards, our country has been able to conserve a significant
amount of energy. Now, S. 1115 would amend the law to authorize
the DOE to prescribe design requirements, consider new
performance measurements, and open the door to regional
standards, breaking the successful and productive agreement by
environmentalists, the industry, and the States.
Abandoning a single national uniform energy standard in
favor of up to three regional standards is not a move with
which our industry can agree. While the majority of my comments
today will focus on section 202, GAMA has serious concerns with
sections 201, 203, and 205, and I'll talk about these just
briefly at the end of my comments.
Today, enforcement of the national energy standards is
directed at the manufacturing level. Through DOE-approved
certification programs, we find that the standards are
straightforward in order to enforce and to maintain. A product
that's offered for sale in our country that does not meet the
Federal standard is unlawful on its face, period. GAMA's
certification programs assist the DOE by verifying products
meet applicable Federal standards. If uniform national
standards are replaced by regional standards, then standards
enforcement would have to shift to the retail level of the
distribution chain. It's difficult to imagine that the DOE
would have the resources to enforce standards at this level,
and GAMA certification programs would then be of little
assistance to the DOE in enforcing regional standards, since
neither GAMA nor the manufacturers would have control over
where the products are installed.
Faced with the potential for multiple regional standards,
the challenges of certification and enforcement, we feel, would
be enormous. Most of our products are sold to distributors,
who, in turn, sell to contractors, who, in turn, sell to
consumers.
Once our products leave our warehouses, they are no longer
within our exclusive control. A regional or local enforcement
infrastructure would have to be created. What level of
consistency could we expect if the enforcement effort were then
forced to be mandated down to State building departments which
receive no additional compensation or manpower for such an
undertaking?
The economic impact of regional standards to both the
industry and to consumers, we feel, should be seriously
considered. Regional standards will greatly increase the
complexity of ongoing inventory control and distribution
procedures for manufacturers and wholesalers, and, as stated
previously, with no guarantee that a product certified for one
region would not find its way being installed in another
region.
Unable to absorb these increased costs, manufacturers and
wholesalers will be forced to increase the price of their
products, ultimately hurting U.S. consumers and reducing the
energy-savings opportunity.
To that point, in the face of increased costs for new
higher-efficiency equipment, it's becoming clear that many
consumers will choose to simply repair older, much-less-
efficient appliances, rather than buy the new, more-costly,
more efficient appliances. We can see evidence of this trend
already under the new 13 SEER national standard for residential
air-conditioning systems. The cooling segment of our industry
has seen a significant decrease in the demand for new 13 SEER
residential air-conditioning system coincide with exactly with,
at exactly the same time, an increase in the demand for parts
to repair the older, less-efficient systems that have been
installed for a number of years. As a result, older equipment
that uses more energy stays in use longer, rather than being
replaced by newer, higher-efficiency equipment.
Although, admittedly, it's still early in our tracking of
this trend, what's happening on the cooling side of our
business, we feel, will certainly occur for the heating side of
our industry, as well.
Now, GAMA has some additional concerns with S. 1115.
section 201 authorizes the DOE to prescribe design requirements
in addition to performance standards for the full range of
NAECA-covered products. Section 203 directs the DOE to
prescribe furnace fan efficiency standards. While we're
confident that our engineering teams can certainly meet new
efficiency performance standards, prescriptive requirements on
design, or on specific components, we feel, would effectively
limit their ingenuity and innovation in doing so, and at a time
when meaningful technological innovation, we think, is a
critical global competitive advantage.
These proposed standards would also come at an added cost
to industry and to consumers. We feel strongly that any
additional authority that would be granted to the Department of
Energy to prescribe product design requirements should be
limited to the DOE's adoption of consensus standards such as
the new boiler requirements that are contained in the bill.
Finally, section 205 allows Federal pre-emption to lapse
where the DOE has concluded that a national standard for
subclass of a federally covered product is not justified or
cannot be rationally determined. We feel this provision would
unduly limit the DOE's discretion and undermine the entire
Federal standard system. We strongly believe that the DOE
should have exclusive authority to regulate products which are
covered by Federal law.
In conclusion, GAMA strongly supports the current system of
uniform national standards administered by the DOE, and we urge
Congress not to upset the delicate, balanced, and universally
beneficial agreement, that was embodied in NAECA, by opening
the door to regional standards.
Mr. Chairman, thank you very much for the opportunity to
present an executive summary of our views, and our full
testimony, of course, is being read into the record.
Thank you, sir.
[The prepared statement of Mr. Schjerven follows:]
Prepared Statement of Robert E. Schjerven, Chief Executive Officer
Emeritus, Lennox International Inc., on behalf of the Gas Appliance
Manufacturers Association, Arlington, Virginia
Mr. Chairman, Members of the Committee, I'm Robert Schjerven, chief
executive officer emeritus of Lennox International Inc. Through its
subsidiaries, Lennox International is a leading provider of climate
control solutions for the heating, air conditioning, and refrigeration
markets around the world. I have over 40 years of experience in the
heating, ventilation, air conditioning and refrigeration industry. My
company and my industry have asked me to discuss with you the ``Energy
Efficiency Promotion Act of 2007,'' S. 1115.
I am speaking on behalf of the heating appliance industry
represented by the Gas Appliance Manufacturers Association, or GAMA.
GAMA is the national trade association for manufacturers of residential
and commercial furnaces, boilers and water heaters, and other gas, oil-
fired and electric appliances. I had the pleasure of serving as the
chairman of GAMA from 2000 to 2001. GAMA's members employ more than
190,000 workers across the U.S., and our members' facilities are found
in 43 of the 50 states. Speaking for Lennox alone, we have major
manufacturing facilities in several states including Arkansas, South
Carolina, and Tennessee.
I'm confident you won't find an industry more supportive of energy
efficiency than the U.S. heating appliance industry. GAMA, our
industry's collective voice, has been a strong supporter of energy-
efficient products and an advocate for educating the public on the
importance of energy conservation and energy-saving appliances. GAMA
was one of the principal proponents of the National Appliance Energy
Act of 1987 (NAECA). Over the following years to the present, GAMA has
worked with state and national organizations to develop and maintain
federal standards and a national certification and enforcement process
for residential furnaces, boilers, water heaters and space heaters. As
a result of that broad-based support for national standards, our
country has been able to conserve a significant amount of energy. Now,
S. 1115 would amend the law to authorize the DOE to prescribe design
requirements, consider new performance measures, and open the door to
regional standards--breaking a successful and productive agreement by
environmentalists, the industry, and the states.
It is our understanding S. 1115 was intended as a legislative
package composed of consensus agreements on energy efficiency standards
to demonstrate the concern for energy conservation we all support, and
the progress that can be made when we all work together to arrive at an
agreement that serves all our interests. I must emphasize in the
strongest possible terms: S. 1115 is not a consensus agreement. Of
particular concern is Section 202, allowing for regional energy
efficiency standards. Abandoning a single national, uniform energy
efficiency standard in favor of up to three regional standards is not a
move with which our industry can agree. While the majority of my
comments today will focus on Section 202, GAMA has also expressed
serious concerns with Sections 201, 203 and 205, which I will address
briefly near the end of my comments.
Today, enforcement of the national standards is directed at the
manufacturing level and, through DOE approved certification programs,
standards are fairly simple to enforce. A product offered for sale in
our country that does not meet the federal standard is unlawful on its
face. GAMA's certification programs assist the DOE by verifying
products meet applicable federal standards. If uniform national
standards were replaced by regional standards, standards enforcement
would have to shift to the retail level. It is difficult to imagine the
DOE would have the resources to enforce standards at this level, and
GAMA's certification programs would be of little assistance to the DOE
in enforcing regional standards, since neither GAMA nor manufacturers
have control over where products are installed.
Faced with the potential for multiple regional standards, the
challenges of certification and enforcement would be enormous. Most of
our products are sold to distributors, who in turn sell to contractors,
who in turn sell to consumers. Once our products leave our warehouses,
they are no longer in our exclusive control--without any way for the
manufacturer to guarantee a furnace certified for one region will not
somehow find its way to another. A regional or local enforcement
infrastructure would have to be created. Who would be the enforcers of
multiple standards? How would those enforcers be established and
maintained, and at what cost? What level of consistency could be
expected if the enforcement effort were mandated down to State building
departments, which receive no added compensation or manpower for such
an undertaking?
The economic impact to both the industry and consumers should also
be seriously considered. Multiple standards will greatly increase the
complexity of ongoing inventory control and distribution procedures for
manufacturers and wholesalers--and, as stated previously, with no
guarantee that a product certified for one region will not find its way
to another. Unable to absorb these increased costs, manufacturers and
wholesalers will be forced to increase the price of their products,
ultimately hurting U.S. consumers and reducing the energy savings
opportunity.
In the face of increased costs for new higher-efficiency equipment,
it is becoming clear many consumers will choose to simply repair older,
less efficient appliances rather than buy new, more efficient ones. We
can see evidence of this trend under the new 13 SEER national standard
for residential air conditioning systems. As premium, higher efficiency
products, 13 SEER systems mean a higher initial cost to the consumer.
Despite heavy industry efforts to promote the long-term energy savings
of installing a higher efficiency system, the cooling segment of our
industry has seen a significant decrease in the demand for new 13 SEER
residential air conditioning systems, coinciding with an increase in
the demand for parts to repair older systems. As a result, older
equipment that uses more energy stays in use longer, rather than being
replaced by newer, higher-efficiency equipment. Although it is still
early in our tracking of this trend, what is happening on the cooling
side of our business will occur to the heating side of our industry as
well.
GAMA has additional concerns with S. 1115. Section 201 authorizes
the DOE to prescribe design requirements, in addition to performance
standards, for the full range of NAECA-covered products. Section 203
directs the DOE to prescribe furnace fan efficiency standards. While we
are confident our engineering teams can meet new efficiency performance
standards, prescriptive requirements on design or on specific
components would effectively limit their ingenuity and innovation in
doing so--and at a time when meaningful technological innovation is a
critical global competitive advantage. These proposed standards would
also come at added cost to the industry and to consumers. We feel
strongly that any additional authority granted to the DOE to prescribe
product design requirements should be limited to DOE adoption of
consensus standards, such as the new boiler requirements contained in
the bill.
Finally, Section 205 allows federal preemption to lapse where DOE
has concluded that a national standard for a sub-class of a federally
covered product is not justified or cannot be rationally determined. I
have already addressed our concerns over allowing regional efficiency
standards, and we have many similar concerns regarding Section 205.
This provision would unduly limit the DOE's discretion and undermine
the entire federal standards system. We strongly believe the DOE should
have exclusive authority to regulate products covered by federal law.
I state with a great deal of pride our industry's commitment to
energy efficiency, and to a single certifiable and enforceable national
energy efficiency standard, is second to none. Our industry works hard
to produce products to suit every installation situation and consumer's
desires for the lowest possible operating costs. Moreover, we feel it
is of the highest importance to make energy efficiency more easily
understandable and attractive to the public. We strongly support the
current system of uniform national standards administered by DOE, and
urge Congress not to upset the delicately balanced and universally
beneficial agreement embodied in NAECA by opening the door to regional
standards.
Mr. Chairman, thank you for the opportunity to present the views of
our industry on energy efficiency, specifically S. 1115. I'm pleased to
answer any questions you or the Members might have, and of course the
expertise of our industry through GAMA is at your service to help you
arrive at the appropriate decisions in this important matter. Thank
you.
The Chairman. Thank you very much.
Mr. Prindle.
STATEMENT OF WILLIAM PRINDLE, ACTING EXECUTIVE DIRECTOR,
AMERICAN COUNCIL FOR AN ENERGY EFFICIENT ECONOMY (ACEEE)
Mr. Prindle. Good afternoon, Mr. Chairman, members of the
committee. Thank you for inviting me here today.
My name is Bill Prindle, acting executive director of the
American Council for an Energy Efficient Economy, more usually
pronounced ``A-C-Triple E.'' We're a national nonprofit
organization that focuses specifically on energy efficiency as
a national energy policy priority.
I also, parenthetically, want to thank Lennox for
developing the Lennox pulse furnace in the 1980's. I've had one
in my basement for 18 years, and it's going great guns. So,
thank you for that.
[Laughter.]
Mr. Schjerven. You're welcome.
Mr. Prindle. My theme for today is that energy efficiency
is, more than ever, the first fuel in our race for clean and
secure energy. Efficiency is the first fuel, not just because
it's the fastest to deploy, or the least expensive, or the most
abundant resource; it's the first fuel, because if we want to
deploy clean and domestic energy sources, we first have to curb
the growth in our energy demand, if we want to have a hope of
bringing enough of those resources to market.
Efficiency is already a major force in our economy. Some
recent analysis we've done indicates that we, as Americans,
currently spend somewhere in the neighborhood of $200 billion a
year on energy-efficient products and services. That's a lot of
money. In fact, it's more than the entire amount we spend in
the same period of time on all our energy supply investments,
everything from power plants to pipelines and refineries. So,
the demand side of our energy economy is actually larger than
the supply side; it's just invisible, because it's hidden
inside of millions of appliances and building systems and
vehicles and so on.
Even though efficiency is a large economic force today, it
could be a substantially larger contributor to our economy. We
estimate as much as another $200 billion of annual spending
could be generated with cost-effective investment. But, because
we do have substantial market barriers that are large and
persistent, and because we have regulatory obstacles,
particularly in the utility sector, it's going to take
substantial new policy commitments to mine this unique resource
that we have in our country.
We commend the committee for bringing forth the Energy
Efficiency Promotion Act as among its first orders of business
for this Congress. We support the Act's overall goals and
provisions. Of course, we also have a few recommendations for
some revisions and additions.
Titles 1 and 2 focus primarily on lighting and appliance
standards. This is one of our specialties. We support the
several consensus-based standards for a number of products that
are in the bill, continuing on the tradition that the committee
started in the Energy Policy Act of 2005. Title 2 also contains
some provisions we think are important for the committee to
consider, to enhance the Department of Energy's ability to set
the best possible energy efficiency standards for the country.
Among these provisions are, in section 201, to allow more
than one energy efficiency metric to be used in the setting of
a standard. Experience has shown us that it makes sense to do
this in many cases. In fact, one of the consensus agreements in
the bill for residential boilers does include more than one
energy efficiency metric. The Department of Energy told us they
couldn't take it as written, because it didn't comport with
their interpretation of the law, so it would help if the
committee and Congress could clarify that.
We do support regional standards for certain kinds of
heating and cooling equipment. DOE has been unable, in its
interpretation of the law, to do this in the past, even when it
would like to do so. The recent notice of proposed rulemaking
on furnaces contained essentially an open invitation from the
Department for States to bring forward applications for waivers
of pre-emption. DOE basically said, ``We understand that the
cold States need high-efficiency furnaces, so please apply for
waivers.'' However, we think that would be an undesirable
situation. It would result in a patchwork of, ``This State has
it, that State doesn't.'' We think it would be easier if
Congress authorized DOE to predetermine which regions would get
the higher-efficiency equipments. There is a precedent in
Federal law for doing this. Currently, standards for
manufactured housing are set nationally, but applied
regionally, and enforced at the State and local level. So, we
think this can be managed through labeling and other
established methods.
There's a provision to clarify the intent of the law
regarding Federal pre-emption of State appliance efficiency
standards. While I think we all agree that the preference is
for one set of pre-emptive Federal standards, this section
simply makes it crystal clear where the line can be drawn, so
that States' rights in this matter are not infringed. The
history of appliance standards in this country over the last 30
years contained chapter after chapter in which State initiative
was the key to getting Federal standards to occur. So, if the
Federal Government wants appliance standards to continue to
progress, it needs to leave States' rights intact.
We also support section 206's requirement for labeling of
consumer electronic equipment. In our analysis, this whole
class of consumer electronics is the fastest-growing energy use
in the average house. It doesn't take a genius to see that.
One recent estimate is that if you connect the high-end TV
and home entertainment system, you can easily generate the
energy consumption of several refrigerators. So, this is an
important issue.
In title 4, the bill takes important steps to set national
energy efficiency savings goals. We support those goals,
particularly within the oil savings requirements in section
401. We would recommend that fuel economy be specifically
called out. In our estimate, it's quite possible, and cost-
effective, to save 12 billion gallons of fuel through fuel
economy in 2017, 45 billion gallons of gasoline in 2025 through
fuel economy, and 68 billion gallons in 2030.
We also recommend, in the general context of title 4, that
an energy efficiency resource standard be set for the United
States. I know this issue has come up before this committee
before. We simply reiterate this is an important issue if we
want to make a dent in the many problems we face in the
electricity sector. Several States have taken steps in this
direction. But we need a national standard if we're going to
really ramp up progress in this essential area.
One way we would invite the committee to look at this is
that an efficiency resource standard for the country can be
Congress's best downpayment on carbon emissions in the utility
sector, because a carbon cap-and-trade system, which may be
under the purview of another committee, is not, by itself,
going to generate energy efficiency investment.
The appliance standards in this bill could save 50 billion
kilowatt hours. A national efficiency resource standard could
save more than 400 billion kilowatt hours, more than eight
times what the standards are doing. So, it's important to look
at.
Finally, I just wanted to touch on the Federal leadership
requirements in title 5. We support, in particular, section
505, the analysis of mine heat and power sites, and we would
urge Congress to start with the capital power plant, which
currently generates no electricity. If the capital power plant
were simply converted to a combined heat and power system, the
net energy efficiency of Congress's energy supply could be more
than doubled through that one project. So, we'd strongly urge
you to take a look at that.
I'll stop now, and turn the mike over to my colleague to
the left.
[The prepared statement of Mr. Prindle follows:]
Prepared Statement of William Prindle, Acting Executive Director,
American Council for an Energy-Efficient Economy (ACEEE)
summary
Introduction
Energy efficiency is the ``first fuel'' in America's race for a
clean and secure energy future. Energy efficiency has saved consumers
and businesses trillions of dollars in the past three decades,
including more than half a trillion dollars in 2006 alone. These
efforts should now be accelerated in order to:
Save American consumers and businesses even more money;
Change the energy supply and demand balance to reduce energy
prices;
Decrease America's addiction to oil, particularly oil
imports;
Strengthen our economy (since energy savings generate
American jobs and capital investment); and
Reduce the risks of global warming by moderating carbon
dioxide emissions growth.
The Urgency and the Opportunity for Efficiency Policy
America's greatest energy challenges--energy security and global
warming--are converging to force historic changes in U.S. energy and
environmental policy. Our growing dependence on imported oil and
natural gas, combined with high and volatile fuel prices threaten both
our economic health and our geopolitical strength. The recent IPCC
Fourth Assessment reports on the growing evidence of climate change,
coupled with the Supreme Court's recent decision that carbon dioxide is
a pollutant regulated under the Clean Air Act, increase the urgency and
clarify the legal basis for national policy action to reduce greenhouse
gas emissions.
Energy efficiency is the one resource that addresses both the
energy security and climate challenges, while enhancing economic
prosperity. Domestic energy supplies with low carbon content will take
time to develop; but we can start now to accelerate efficiency
investment, which will enable low-carbon domestic supplies to begin
reducing energy imports and carbon emissions. If we do not use
efficiency as the ``first fuel'' in the race for clean and secure
energy, clean energy supply technologies may not be able to be deployed
fast enough to meet runaway energy demand.
ACEEE research shows that new energy efficiency policy initiatives
could make a big difference on the energy security and global warming
fronts. For example:
A 2005 ACEEE analysis found that reducing natural gas use by
about 4% over five years could reduce natural gas prices by
over 20%. Reducing demand for oil and for refined petroleum
products is also likely to reduce prices.
A 2006 ACEEE study finds that we can reduce U.S. oil use by
more than 5 million barrels per day by 2020. That's equivalent
to almost doubling current U.S. oil production--which no
serious petroleum expert views as possible. Improvements to
passenger vehicles account for more than 3 million barrels per
day of savings, but more than 2 million barrels per day of
savings are available in the residential, commercial, and
industrial sectors, and in heavy vehicles and airplanes.
Another 2006 ACEEE study found that the Regional Greenhouse
Gas Initiative (RGGI) cap and trade system for power-sector
carbon dioxide emissions in the northeastern U.S. can have a
positive impact on the regional economy provided increased
energy-efficiency policy commitments are a key part of
implementation efforts.
Past Energy Policy Acts, and the ``Efficiency Gaps'' They Left Unfilled
The Energy Policy Act of 2005 contained some useful efficiency
provisions, particularly new equipment efficiency standards and energy
efficiency tax incentives. Other provisions authorized in the Act may
help as well, but virtually all of these lack funding or other critical
follow-up actions. Overall, ACEEE now estimates that the efficiency
provisions in this law will reduce energy use in 2020 by 1.8
quadrillion Btu, which is 1.5% of projected national energy use. More
than 75% of the savings are from equipment efficiency standards and
efficiency tax incentives. Experience with the Energy Policy Act of
1992 shows a similar pattern--most of the savings came from a few
provisions, and the majority of provisions proved to be more show than
substance.
However, federal energy policy over the past twenty years has
failed to address two of the core energy challenges in our economy:
surging electricity demand and rapidly rising motor fuel usage. These
two sectors are key elements to solving our energy security and climate
problems. It is urgent that Congress take strong, prompt, unambiguous
action in these areas. Had Congress adopted the major electricity and
oil efficiency provisions that were deliberated in the development of
EPAct 2005, ACEEE estimates that 2020 savings would have been up to
four times higher.
The Energy Efficiency Promotion Act
ACEEE commends the Committee for leading the way in the 110th
Congress with an energy efficiency bill. It reflects the principle that
efficiency needs to be the first fuel in our energy resource policy
process. Our comments focus on the following parts of the bill:
1. Title I: Lighting Technologies.--We support the reflector
lamp standard contained in Section 102, which is based on a
consensus agreement among ACEEE, manufacturers, and other
stakeholders. The other provisions are also useful, including
Sense of the Senate resolution in Section 104 that we hope will
soon lead to a consensus agreement on a national standard to
phase out the least efficient general service incandescent
light bulbs, of which more than a billion are sold each year
and pave the way for an eventual transition to dramatically
more efficient light sources. We also recommend a new section
calling for a study and plan for reaching a higher tier of
energy performance for general service lighting that will meet
or exceed the performance of today's compact fluorescent
products with no compromise in light quality and continued
consumer choice in the market.
2. Title II: Efficiency Standards.--This title contains
consensus-based standards for residential boilers, industrial
electric motors, and residential appliances, developed
collaboratively among ACEEE, manufacturers, and other
stakeholders. It also contains important provisions we support
which enhance the Department of Energy's flexibility and
capacity to create efficiency standards which best meet the
statutory goals of ``maximum energy savings which . . . [are]
technically feasible and economically justified.'' These
provisions authorize regional standards for heating and cooling
equipment, clarify the intent of the law regarding federal pre-
emption of state appliance efficiency standards, allow for
flexible application of more than one efficiency metric for a
given product if justified, and allow DOE to expedite
rulemakings based on consensus agreements. We also support
Section 206's requirement for FTC Energy Guide labeling of
consumer electronic equipment. In our analysis, this class of
products is the fastest-growing energy use in American homes,
and American consumers need energy use information to make
informed choices on these products.
3. Title III: Efficient Vehicles.--ACEEE supports the
priorities identified in this title for vehicle efficiency
technology research and deployment. We support the
authorization of loan guarantees to facilities for the
manufacture of parts for fuel-efficient vehicles, as well as
incentives for manufacturers and suppliers to retool to produce
advanced technology vehicles. We note however that the
discussion of advanced lean bum technology should clarify that
fuel economy for diesels is to be compared with that of
gasoline vehicles on an energy-equivalent basis. This issue of
gasoline-equivalence of diesel was not properly resolved in the
EPAct 2005 tax credits, despite Senate intent; it has caused
confusion in the implementation of the credits and should be
clarified through this bill.
We also support the allocation of resources to developing
domestic capability in energy storage for vehicles and to
advancing electric drive technologies. However, it should be
noted that DOE has spent hundreds of millions of dollars in the
past on technologies of this kind without accelerating domestic
manufacturers' production of vehicles that use them. Within the
scope of this bill, we suggest that part of the funding
proposed in this section be used for a competition to produce a
plug-in hybrid meeting certain performance and cost criteria.
This would help to ensure some real-world progress on vehicle
efficiency would follow from the proposed technology investment
of over $400 million per year.
4. Title IV: National Energy Efficiency Goals.--While this
title contains non-binding goals, we want to emphasize the need
to set binding national targets for energy efficiency. While
competitive markets will ultimately deliver the technologies
and practices to reach these goals, markets do best when they
have clear and simple targets to meet. We applaud the Committee
for setting an energy productivity goal for the nation; the
2.5% annual improvement represents nearly a 50% improvement in
current productivity growth, and would sharply reduce energy
demand growth overall.
We especially support the energy savings targets in section
401, though we recommend that the fuel economy aspects of this
section be more specific. We note that the President's Twenty
in Ten proposal, on which the 2017 target for the section
appears to be based, relies very heavily on a loosely-defined
set of alternative fuels, and only moderately accelerates fuel
economy improvement. While the feasibility of deploying
alternative fuels infrastructure is unproven, fuel economy
technologies and costs are well known, and therefore a greater
emphasis on fuel economy provides a better balance of risk for
the nation. Accordingly, ACEEE recommends that fuel economy
targets be set so as to save at least 12 billion gallons of
fuel in 2017, 45 billion gallons in 2025, and 68 billion
gallons in 2030.
We also recommend that a new section be created that sets
electricity savings targets for distribution utilities, such
that covered utilities would be required to save 10% of
electricity sales by 2020. Many states have set such Energy
Energy Efficiency Resource Standards (EERS), often in
coordination with renewable energy standards. We believe that
setting efficiency standards is essential to the success of any
renewable energy policy, because moderating demand growth is
needed to allow clean supply sources to make a discernible
difference in fossil fuel energy use.
5. Title V: Federal Leadership.--ACEEE supports the
provisions of this title, especially the permanent
authorization of the Energy Savings Performance Contracting
(ESPC) program, and the assessment of Combined Heat and Power
opportunities at federal facilities. We recommend that Congress
place a special priority on installing CHP technology at the
Capitol powerplant, which could be accomplished through an ESPC
or similar vehicle.
6. Title VI: State and Local Initiatives.--ACEEE supports the
provisions of this title, especially section 603's requirements
for utilities and states to include energy efficiency in
resource planning, and to reform ratemaking policies to make
energy efficiency a better business proposition for utilities.
We recommend that the bill also include Regional Transmission
Organizations (RTOs) among the entities covered by this
section. This section should also be linked ultimately to a
federal Energy Efficiency Resource Standard (EERS) that sets
quantitative targets for energy savings for utilities, with the
goal of saving 10% of electricity sales by 2020. Sections 139
and 140 of EPAct 2005 called for a study and pilot program for
EERS. The study is complete, and shows that these policies are
gaining acceptance and enjoying success in a number of states.
Given the increased urgency to address carbon emissions from
electric utilities, this should be a high priority for Congress
in 2007.
Energy Savings
ACEEE estimates that the appliance and equipment efficiency
standard provisions in this bill together can produce savings as
follows:
Electricity.--At least 50 billion kilowatt hours per year,
or enough to power roughly 4.8 million typical U.S. households.
Natural gas.--170 million therms per year, or enough to heat
about a quarter million typical U.S. homes.
Water.--At least 560 million gallons per day, or about 1.3%
of total daily potable water usage.
Dollars.--More than $12 billion in net benefits for
consumers.
We also estimate that significant additional savings would result
from the sections that improve DOE authority to set better standards.
Conclusion
ACEEE supports the Energy Efficiency Promotion Act as a major
additional step on the road to a sustainable energy future. We
recommend a number of ways that this bill can be augmented, within its
existing provisions, by adding new provisions, and through additional
legislation.
Introduction
ACEEE is a nonprofit organization dedicated to increasing energy
efficiency as a means of promoting both economic prosperity and
environmental protection. We were founded in 1980 and have contributed
in key ways to energy legislation adopted during the past 25 years,
including the Energy Policy Acts of 2005 and 1992 and the National
Appliance Energy Conservation Act of 1987. I have testified before the
Committee several times and appreciate the opportunity to do so again.
Energy efficiency improvements have contributed a great deal to our
nation's economic growth and increased standard of living over the past
30 years. Energy efficiency improvements since 1970 accounted for
approximately 75 quadrillion Btus of saved energy in 2005, which is
about three-quarters of U.S. energy use and three times as much as
total energy supply growth over the same period. In this sense, energy
efficiency can rightfully be called our country's largest energy
resource. If the United States had not dramatically reduced its energy
intensity over the past 30 years, consumers and businesses would have
spent about $700 billion more on energy purchases in 2005.*
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* Graphic has been retained in Committee files.
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Energy efficiency has also become a major force in the economy in
terms of infrastructure investment. ACEEE ongoing research indicates
that total energy supply infrastructure investment in the United States
in 2005 was approximately $100 billion. Energy efficient technology
spending, from high-efficiency lighting to hybrid cars, was in the
range of $200 billion in the same period. This means that America
spends many times more money on energy-using technology than on energy
supply technology. However, this remarkable truth is masked, by the
fact that efficiency is typically hidden inside our buildings,
vehicles, and factories in millions of products, components, and
systems. Yet collectively, these efficiency investments support a much
larger fraction of the economy than do all the energy supply sectors
combined.
Even though the United States is much more energy-efficient today
than it was 30 years ago, there is still enormous potential for
additional cost-effective energy savings. Some newer energy efficiency
technologies have barely begun to be adopted. Other efficiency measures
could be developed and commercialized rapidly in coming years, with
policy and program support. For example, in a study from 2000, the
Department of Energy's national laboratories estimate that increasing
energy efficiency throughout the economy could cut national energy use
by 10 percent or more in 2010 and about 20 percent in 2020, with net
economic benefits for consumers and businesses.\1\ Studies for many
regions of the country have found similar if not even greater
opportunities for cost-effective energy savings.\2\ A recent analysis
by McKinsey Global Institute found that U.S. energy demand growth
through 2030 could be fully met through cost-effective energy
efficiency improvements. Our ongoing research indicates that current
estimates of $200 billion in annual spending on efficient technology
could be doubled to $400 billion, with strong public policies and
increase private investment.
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\1\ Interlaboratory Working Group, 2000, Scenarios for a Clean
Energy Future. Washington, DC: Interlaboratory Working Group on Energy-
Efficient and Clean-Energy Technologies, U.S. Department of Energy,
Office of Energy Efficiency and Renewable Energy.
\2\ For a summary of many of these studies, see Nadel, Shipley and
Elliott, 2004, The Technical, Economic and Achievable Potential for
Energy-Efficiency in the U.S.--A Meta Analysis of Recent Studies.
Washington, DC: American Council for an Energy-Efficient Economy.
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Unfortunately, a variety of market barriers keep energy efficiency
investment from being accelerated. These barriers fall in two main
categories: (1) principal-agent or ``split incentive'' barriers, in
which, for example, home builders must invest added capital in
efficient homes, but receive none of the energy savings benefits; and
(2) transaction costs, which stem from inability of average consumers
or businesses to make ``economically optimum'' decisions in time-and-
information-limited real world conditions. A recent ACEEE study for the
International Energy Agency found that, in the major residential and
commercial end-use markets in five countries, half or more of the
energy used is affected by these kinds of market barriers.\3\ This
finding suggests that public policies, beyond pricing policies, are
needed to overcome such barriers.
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\3\ Prindle et al. 2007. Quantifying Market Barriers in the End Use
of Energy. Draft report to the International Energy Agency. American
Council for an Energy-Efficient Economy.
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In addition, basic forces in the economy work against the tendency
of higher energy prices to moderate energy demand. This principle of
``price elasticity of demand'', while economically correct, is
countered by ``income elasticity of demand'', under which rising
incomes cause consumers to be less affected by rising prices. A large
segment of our population continues to buy low-mileage, high priced
vehicles with little concern for fuel costs. For less-affluent
consumers, ``cross-elasticities'' come into play that cause them to
keep using energy as an essential service, but to cut back on other
goods and services to balance their household budgets. Economists have
documented the slowing of retail sales among low- and moderate-income
people in response to rising energy prices. Both the income elasticity
and cross-elasticity effects suggest that energy prices alone won't
balance our energy markets, and we need stronger energy policies if we
want to stabilize energy markets without wrecking our economy.
Recent developments in our energy markets indicate that the U.S.
needs to accelerate efforts to implement energy efficiency
improvements:
Oil, gasoline, natural gas and coal prices have risen
substantially in recent years. For example, residential natural
gas prices in 2005 averaged $13.83 per thousand cubic feet, up
61% from the average price three years earlier (prices averaged
$8.57 per thousand cubic feet in 2002).\4\ Likewise retail
gasoline prices are up 87% relative to three years ago ($2.917
per gallon 6/19/06 versus $1.558 per gallon 6/16/03).\5\ Even
more dramatically, Powder River Basin coal has more than
doubled in price since three years ago (spot prices of $13.80
per short ton in May, 2006, up from about $6 per short ton in
May, 2003).\6\ Energy efficiency can reduce demand for these
fuels, reducing upward price pressure and also reducing fuel-
price volatility, making it easier for businesses to plan their
investments. Prices are determined by the interaction of supply
and demand--if we seek to address supply and not demand, it's
like entering a boxing match with one hand tied behind our
back.
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\4\ Energy Information Administration, 2006, Natural Gas Navigator:
U.S. Natural Gas Residential Price. http://tonto.eia.doe.gov/dnav/ng/
ngpri_sum_dcu_nus_m.htm. Visited June 20. Washington, DC: U.S. Dept. of
Energy.
\5\ Energy Information Administration, 2006, Petroleum Navigator:
U.S. All Grades All Formulations Retail Gasoline Prices. http://
tonto.eia.doe.gov/dnav/pet/hist/mg_tt_usw.htm. Visited June 20.
Washington, DC: U.S. Dept. of Energy.
\6\ Energy Information Administration, 2006, Coal News and Markets,
Week of May 5, 2006. http://www.eia.doe.gov/cneaf/coal/page/coalnews/
coalmar.html#spot. Washington, DC: U.S. Dept. of Energy.
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A recent ACEEE analysis found that gas markets are so tight
that if we could reduce gas demand by as little as 4% over the
next five years, we could reduce wholesale natural gas prices
by more than 20%.\7\ This analysis was conducted by Energy and
Environmental Analysis, Inc. using their North American Gas
Market Model, the same analysis firm and computer model that
was employed by DOE and the National Petroleum Council for
their 2003 study on U.S. natural gas markets.\8\ These savings
would put over $100 billion back into the U.S. economy.
Moreover, this investment would help bring back U.S.
manufacturing jobs that have been lost to high gas prices and
also help relieve the crushing burden of natural gas costs
experienced by many households, including low-income
households. Importantly, much of the gas savings in this
analysis comes from electricity efficiency measures, because
much of the marginal electric load is met by natural-gas fired
power plants.
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\7\ Elliott and Shipley, 2005, Impacts of Energy Efficiency and
Renewable Energy on Natural Gas Markets: Updated and Expanded Analysis.
http://www.aceee.org/pubs/e052full.pdf. Washington, DC: American
Council for an Energy-Efficient Economy.
\8\ National Petroleum Commission. 2003, Balancing Natural Gas
Policy--Fueling the Demands of a Growing Economy: Volume I Summary of
Findings and Recommendations. Washington, DC: U.S. Department of
Energy.
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The U.S. is growing increasingly dependent on imported oil,
with imports accounting for more than 60% of U.S. oil
consumption in 2005, of which more than 40% came from OPEC
countries.\9\ The U.S. Energy Information Administration
estimates that imports will account for 68% of U.S. oil use in
2020.\10\ While moderate amounts of new oil are available in
hard-to-reach areas of the U.S., much greater amounts of oil
are available by increasing the efficiency with which we use
oil. A January 2006 report by ACEEE found that the U.S. can
reduce oil use by as much as 5.3 million barrels per day in
2020 through improved efficiency, including more than 2 million
barrels per day in industry, buildings, heavy duty vehicles and
airplanes.\11\ In other words, there are substantial energy
savings outside of the highly contentious area of light-duty
vehicle fuel economy. These 5.3 million barrels per day of oil
savings are nearly as much as we presently import from OPEC
(OPEC imports were 5.5 million barrels per day in 2005).\12\
Energy efficiency can slow the growth in oil use, allowing a
larger portion of our needs to be met from sources in the U.S.
and friendly countries.
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\9\ Energy Information Administration, 2006, Monthly Energy Review
May 2006. Washington, DC: U.S. Dept. of Energy.
\10\ Energy Information Administration, 2006, Annual Energy
Outlook. Washington, DC: U.S. Department of Energy.
\11\ Elliott, Langer and Nadel, 2006, Reducing Oil Use Through
Energy Efficiency: Opportunities Beyond Cars and Light Trucks.
Washington, DC: American Council for an Energy-Efficient Economy.
\12\ See note #9.
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Economists have increasingly raised concerns that the U.S.
economy is slowing and that robust growth rates we have
experienced in recent years will not be sustained. Energy
efficiency investments can help spur additional economic
growth; they often have financial returns of 30% or more,
helping to reduce operating costs and improve profitability. In
addition, by reducing operating costs, efficiency investments
free up funds to spend on other goods and services, creating
what economists call the ``multiplier effect'', and helping the
economy broadly. This stimulates new economic activity and job
growth in the U.S., whereas most of every dollar we spend on
oil flows overseas. A 1997 study found that due to this effect,
an aggressive set of efficiency policies could add about
770,000 jobs to the U.S. economy by 2010.\13\
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\13\ Alliance to Save Energy et al., 1997, Energy Innovations: A
Prosperous Path to a Clean Environment. Washington, DC: American
Council for an Energy-Efficient Economy.
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Overall, the U.S. has ample supplies of electricity at
present, but demand is growing and several regions (such as
southwest Connecticut, Texas, New York, and California) are
projecting a need for new capacity in the next few years in
order to maintain adequate reserve margins.\14\ \15\ Energy
efficiency resource policies can slow demand growth rates,
postponing the date that additional capacity will be needed.
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\14\ North American Electric Reliability Council, 2005, 2005 Long-
Term Reliability Assessment: The Reliability of Bulk Electric Systems
in North America. Princeton, NJ: North American Electric Reliability
Council.
\15\ New York Independent System Operator, 2005, ``The NYISO Issues
Reliability Needs Assessment.'' Press release of December 21.
Schenectady, NY: New York Independent System Operator.
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Greenhouse gas emissions continue to increase. Early signs
of the impact of these changes are becoming apparent in Alaska
and other Artic regions.\16\ And several recent papers have
identified a link between warmer ocean temperatures and
increased hurricane intensity.\17\ \18\ Energy efficiency is
the most cost-effective way to reduce these emissions, as
efficiency investments generally pay for themselves with energy
savings, providing negative-cost emissions reductions. The term
``negative-cost'' means that, because such efficiency
investments produce net economic benefits, they achieve
emission reductions at a net savings for the economy. This
important point has been missed in much of the climate policy
analysis modeling performed to date. Too many economic models
are incapable of characterizing the real economic effects of
efficiency investments, and so forecast inaccurate economic
costs from climate policies. Fortunately, this kind of flawed
policy analysis is beginning to be corrected. For example, a
May 2006 study just released by ACEEE found that the Regional
Greenhouse Gas Initiative (RGGI--the planned cap and trade
system for greenhouse gases in the northeastern U.S.) can have
a small but positive impact on the regional economy provided
increased energy-efficiency programs are a key part of
implementation efforts.\19\
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\16\ Hassol, 2004, Impacts of a Warming Arctic: Arctic Climate
Impact Assessment. http://www.acia.uaf.edu. Cambridge University Press.
\17\ Webster, Holland, Curry and Chang, 2005, ``Changes in Tropical
Cyclone Number, Duration, and Intensity in a Warming Environment.''
Science, 309, 16 September, 1844-1846.
\18\ Emanuel, 2005, ``Increasing Destructiveness of Tropical
Cyclones over the Past 30 Years.'' Nature, 436, 4 August, 686-688.
\19\ Prindle, Shipley and Elliott, 2006, Energy Efficiency's Role
in a Carbon Cap-and-Trade System: Modeling Results from the Regional
Greenhouse Gas Initiative. Washington, DC: American Council for an
Energy-Efficient Economy.
Energy efficiency also draws broad popular support. For example, in
a March 2005 Gallup Poll, 61% of respondents said the U.S. should
emphasize ``more conservation'' versus only 28% who said we should
emphasize production (an additional 6.5% volunteered ``both'').\20\ In
an earlier May 2001 Gallup poll, when read a list of 11 actions to deal
with the energy situation, the top four actions (supported by 85-91% of
respondents) were ``invest in new sources of energy,'' ``mandate more
energy-efficient appliances,'' ``mandate more energy-efficient new
buildings,'' and ``mandate more energy-efficient cars.'' Options for
increasing energy supply and delivery generally received significantly
less support.\21\
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\20\ Gallop, 2005, ``Gallop Poll Social Series--The Environment.''
Princeton, NJ: The Gallop Organization.
\21\ Moore, David, 2001, ``Energy Crisis: Americans Lean toward
Conservation over Production.'' Princeton, NJ: The Gallup Organization.
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However, energy efficiency alone will not solve our energy
problems. Even with aggressive actions to promote energy efficiency,
U.S. energy consumption is likely to rise for more than a decade, and
this growth, combined with retirements of some aging facilities, will
mean that some new energy supplies and energy infrastructure will be
needed. But aggressive steps to promote energy efficiency will
substantially cut our energy supply and energy infrastructure problems,
reducing the economic cost, political controversy, and environmental
impact of energy supply enhancements.
the energy policy act of 2005
The Energy Policy Act of 2005 (EPAct 2005) made some useful
progress on energy efficiency. Particularly notable were sections that
established new consensus federal efficiency standards on 16 products
and that created energy efficiency tax incentives. Other useful
provisions include extension of authority for Energy Saving Performance
Contracts in federal facilities and a variety of reports that hopefully
will help spur future policy action. For example, the EPAct 2005
provision requiring DOE to submit a plan to Congress on steps it will
take to catch-up on overdue efficiency standard rulemakings was timed
just right and DOE has now prepared and begun to implement this plan.
In addition, a variety of promising initiatives were authorized in
EPAct 2005, but to have an impact, need to be followed by
appropriations. Unfortunately, most of the new provisions requiring
funding have not been included in the FY 2007 or 2008 budget requests
nor in appropriations bills. Given recent developments, such as the
lack of funding for many of the EPAct 2005 provisions, ACEEE now
estimates that the energy efficiency sections of EPAct 2005 will reduce
U.S. energy use by about 1.8 quadrillion Btu (``Quads'') in 2020,
reducing projected U.S. energy use in 2020 by 1.5%. Of these savings,
more than 75% will come from the two key provisions--equipment
efficiency standards and energy-efficiency tax incentives.\22\
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\22\ Nadel, Prindle and Brooks, 2006, ``The Energy Policy Act of
2005: Energy Efficiency Provisions and Implications for Future Policy
Efforts'' in Proceedings of the 2006 ACEEE Summer Study on Energy-
Efficiency in Buildings. Washington, DC: American Council for an
Energy-Efficient Economy.
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EPAct 2005 overlooked two critical policy issues: energy efficiency
targets for the electricity sector and the oil sector. These two
sectors are critical for energy security and global warming, and
efficiency needs to be the first-priority policy in these areas.
However, the final bill did not include any specific oil or electricity
saving targets, even though the Senate version included an oil savings
target and Senate deliberations discussed setting utility energy
efficiency targets. If the United States is serious about addressing
its energy security and global warming problems, it must set specific
and strong policies to moderate demand growth for oil and electricity.
key priorities for the energy efficiency promotion act
ACEEE applauds the Committee for its timely and thorough approach
in bringing an energy efficiency bill forward. Our specific comments
focus in on those sections that we find to contain the greatest energy
savings potential, and that are important to supporting effective
policy implementation.
Title I: Lighting technologies.--ACEEE supports the overall aims of
this section, and also recommends certain additions.
We support the reflector lamp standard contained in Section
102, which is based on a consensus agreement among ACEEE,
manufacturers, and other stakeholders. Reflector lamps,
increasingly common in recessed lighting fixtures in today's
homes, represent a growing portion of the residential lighting
market, and this standard will help moderate the impact of this
end use
We also support the Sense of the Senate provision in Section
104, which we hope will soon lead to a consensus agreement on a
national standard to phase out the least efficient general
service light bulbs, of which more than a billion are sold each
year, and pave the way for an eventual transition to
dramatically more efficient light sources. ACEEE is working
with the Alliance to Save Energy, the Natural Resources Defense
Council, Philips Lighting, Osram Sylvania, General Electric,
the American Lighting Association, and others to develop this
agreement.
We also recommend a new section calling for a study and plan
for reaching a higher tier of energy performance for general
service lighting that will meet or exceed the performance of
today's compact fluorescent products without compromise on
light quality and with continued consumer choice in the market.
Title II: Efficiency Standards.--This title contains consensus-
based standards for residential boilers, industrial electric motors,
and residential appliances, developed collaboratively among ACEEE,
manufacturers, and other stakeholders. It also contains several
provisions we support to improve the Department of Energy's ability to
set standards that will save more energy and better balance the needs
of states with federal authority.
Section 201 is designed to allow DOE to set standards which
capture different aspects of a product's efficiency
performance. For example, DOE determined it lacked
administrative authority to adopt the consensus boiler standard
contained in S. 1115 because that proposal called for two
prescriptive requirements and a minimum efficiency rating.
Several other products are currently subject to multiple
standard requirements including commercial clothes washers,
ceiling fans and heat pumps. For some products, it makes better
engineering, economic and energy-efficiency sense to establish
a standard which may combine multiple performance and
prescriptive elements. Our analysis is that this added
flexibility in DOE's authority will save more energy and reduce
costs.
Section 202 authorizes the Department of Energy to set
regional standards for residential heating and cooling
equipment. In our experience with rulemakings for central air
conditioners and furnaces, DOE's professed inability to set
regional standards has frustrated otherwise cost-effective
standards from being proposed. DOE recognized this problem in
its recent Notice of Proposed Rulemaking for residential
furnaces, in which it invited states that need higher-
performance furnaces to apply for waivers of pre-emption under
the law. Several states have already moved in this direction.
This section simply enables DOE to set regional standards
directly, rather than relying on the cumbersome and uncertain
process of waiver applications. A state-by-state waiver process
will result in a patchwork of standards, whereas regional
standards as allowed for in S. 2111 would result in no more
than three large, contiguous regions. Since 1978 manufactured
housing has been subject to very successful regional efficiency
and other standards set by the Department of Housing and Urban
Development. A similar system which relies on manufacturer
labeling of products and state enforcement would work for
climate sensitive appliances like central air conditioners and
heating equipment. States routinely adopt federal minimum
standards into building codes, providing an already in-place
system of state-based enforcement.
Section 203 requires DOE to conduct a rulemaking to
determine if standards for furnace fans are warranted. Congress
authorized DOE to consider furnace fan energy saving standards
in 2005, but the Department subsequently decided to not
schedule a rulemaking. Given the Department's history of
delays, we think it imperative that the Congress give DOE a
hard deadline for action. We estimate that this rulemaking
could offer very large energy and economic savings.
Section 204 would allow an expedited DOE standard rulemaking
based on consensus agreements. While we agree with the
Department on the desirability of this provision, we prefer the
bill's language to an alternative version proposed by the
Department. We believe the bill's current language better
reflects due process and would expedite rules more effectively.
We also remind the Committee that the DOE language was rejected
by Congress in 2005.
Section 205 clarifies the intent of the law regarding
federal pre-emption of state appliance efficiency standards.
Federal law has struck a balance over the years between federal
and state roles on appliance standards. While the general
consensus is that federal states are preferable to a patchwork
of state standards, states have also retained the right to
advance standards for products not covered by federal law, and
for covered products up to the effective date of the federal
standard. History shows that state initiative has led to many
of the advances in federal policy on appliance standards. In
fact, it was state action on standards following the 1982 DOE
``no-standard standard'' rule that ultimately led to the
National Appliance Energy Conservation Act of 1987. Since then,
state initiatives have helped to spur consensus agreements for
federal standards on many other products. The language in this
section simply clarifies key aspects of this federal-state
relationship. We also recommend that the Committee consider
language that would ``sunset'' pre-emption if the federal
government fails to promulgate standards within
Congressionally-prescribed timeframes, and that would require
DOE to conduct new rulemakings on covered products within a
defined period following the effective date of a given
standard. We believe these additional provisions will keep U.S.
appliance efficiency standards policy moving forward, while
striking the right balance between federal and state roles.
Given the increasing urgency of accelerating the pace of energy
efficiency technology improvement, it is appropriate for
Congress to ensure that federal appliance efficiency standards
keep up with and support technology innovation.
Section 206 sets requirement for FTC Energy Guide labeling
of consumer electronic equipment. We support this provision
because, in our analyses, this class of products is the
fastest-growing energy use American homes, and American
consumers need energy use information to make informed choices
on these products. A Natural Resources Defense Council report
indicates that the largest televisions on the market today can
use more energy than the average refrigerator.\23\ Coupled with
other components in high-performance home entertainment
systems, these products threaten to offset many of the energy
savings the U.S. has achieved through its standards programs.
Labeling these products, based on their full operating mode as
well as on standby mode, is an important first step in
addressing this problem.
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\23\ Horowitz, Noah et al. 2005. Televisions: Active Mode Energy
Use and Opportunities for Energy Savings. Natural Resources Defense
Council Issue Paper, 2005.
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Section 209 raises the minimum efficiency requirements for
electric motors covered by the Energy Policy Act of 1992 to the
highest NEMA Premium available in the marketplace. In addition,
the proposal expands the scope of motors covered to include
most of the industrial electric motors of 500 horsepower and
lower. ACEEE participated with NEMA in reaching consensus on
this proposal, and ACEEE feels that the provision provides a
balance between the interest of motor users and the need for
greater energy efficiency among a product that consumes over
two-thirds of the industrial electricity in the country.
Title III: Efficient Vehicles.--ACEEE generally concurs with the
priorities identified in this title for vehicle efficiency technology
research and deployment. Despite the downward trend of DOE funding for
research on lightweight materials for automotive applications in recent
years, we believe there is substantial remaining potential to improve
fuel economy through the use of such materials. Indeed, this is why we
and others worked to ensure that DOT's CAFE reform for light trucks did
not result in a system tying fuel economy requirements to vehicle
weight, which would have eliminated auto manufacturers' incentive to
incorporate lightweight materials into their products to raise
corporate fuel economy.
ACEEE supports the authorization of loan guarantees to facilities
for the manufacture of parts for fuel-efficient vehicles, as well as
incentives for manufacturers and suppliers to retool to produce
advanced technology vehicles. We note however that the discussion of
advanced lean bum technology should clarify that fuel economy for
diesels is to be compared with that of gasoline vehicles on an energy-
equivalent basis. Otherwise, the requirement that the vehicle have fuel
economy at least 125% of baseline fuel economy to qualify for the
manufacturing incentive becomes much more lenient for diesels (11-14%
less stringent) in terms of efficiency, due to the high Btu content of
diesel fuel. While its high energy density does lead to an additional
(non-efficiency) benefit for diesel in terms of petroleum reduction,
carbon emissions produced by diesel combustion are higher per gallon,
so that no climate benefits follow from high fuel density. It is
important to take this opportunity to begin to establish the principle
that petroleum reduction policies should support, not undermine,
policies to address climate change. This issue of gasoline-equivalence
of diesel was not properly resolved in the EPAct 2005 tax credits,
despite Senate intent; it has caused confusion in the implementation of
the credits and should be clarified through this bill.
We also support the allocation of resources to developing domestic
capability in energy storage for vehicles and to advancing electric
drive technologies. However, it should be noted that DOE has spent
hundreds of millions of dollars in the past (e.g. in the Partnership
for a New Generation of Vehicles) on technologies of this kind without
accelerating domestic manufacturers' production of vehicles that use
them. That experience demonstrates the importance of using R&D dollars
to support a policy of mandatory fuel economy increases, rather than as
a substitute for such a policy. Within the scope of this bill, we
suggest that part of the funding proposed in this section be used for a
competition for parts/automaker teams to produce a prototype plug-in
hybrid meeting certain performance and cost criteria (assuming large
volume production). This would help to ensure some real-world progress
on vehicle efficiency would follow from the proposed investment of over
$400 million per year in battery/electric drive technologies.
Title IV: National Energy Efficiency Goals.--While this title
contains non-binding goals, which we support, we also want to emphasize
the need to set binding national goals for energy efficiency. While
competitive markets will ultimately deliver the technologies and
practices to reach these goals, markets do best when they have clear
and simple targets to meet. We applaud the Committee for setting an
energy productivity goal for the nation; the 2.5% annual improvement
represents nearly a 50% improvement in current productivity growth, and
would sharply reduce energy demand growth overall.
We especially support the energy savings targets in section 401,
though we recommend that the fuel economy aspects of this section be
more specific. We note that the President's Twenty in Ten proposal, on
which the 2017 target for the section appears to be based, relies very
heavily on a loosely-defined set of alternative fuels, and only
moderately accelerates fuel economy improvement. While the feasibility
of deploying alternative fuels infrastructure is unproven, fuel economy
technologies and costs are well known, and therefore a greater emphasis
on fuel economy provides a better balance of risk for the nation. ACEEE
recommends that fuel economy targets be set so as to save at least 12
billion gallons of fuel in 2017, 45 billion gallons in 2025, and 68
billion gallons in 2030.
We also recommend that a new section be created that sets
electricity savings targets for distribution utilities, such that
covered utilities would be required to save 10% of electricity sales by
2020. Such Energy Efficiency Resource Standard (EERS) are simple,
market-based mechanisms to encourage more efficient generation,
transmission, and use of electricity and natural gas. EERS-type laws
and regulations are now in operation in several states and countries.
Texas's electricity restructuring law created a requirement for
electric utilities to offset 10% of their demand growth through end-use
energy efficiency. Utilities in Texas have already exceeded their
targets there is discussion about raising them. Hawaii and Nevada
recently expanded their renewable portfolio standards to include energy
efficiency. Connecticut and California have both established energy
savings targets for utility energy efficiency programs (Connecticut by
law and California by regulation) while Vermont has specific savings
goals in the performance contract with the nonprofit organization that
runs statewide programs under a contract with the Public Service Board.
Pennsylvania's new Advanced Energy Portfolio Standard includes end-use
efficiency among other clean energy resources. Colorado's largest
utility has energy savings goals as part of a settlement agreement
approved by the Public Service Commission. And Illinois and New Jersey
are planning to begin programs soon. EERS-like programs have been
working well in the United Kingdom and the Flemish region of Belgium.
Italy has recently started a program, and another is about to start in
France. Details on each of these programs are provided in a March 2006
ACEEE report.\24\
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\24\ Nadel, 2006, Energy Efficiency Resource Standards: Experience
and Recommendations. Washington, DC: American Council for an Energy-
Efficient Economy.
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While many EERS are separate from a renewable portfolio standard,
another option would be to combine renewable energy and energy
efficiency in a single portfolio standard. However, if this is done,
the portfolio target should be significantly higher than if only
renewable energy or if only energy efficiency were included.
Specifically, a combined RPS-EERS should not reduce any previously-set
targets for renewable energy generation. For example, a combined
efficiency/renewables target might be 15-20% of 2020 sales, which is a
higher target than the 10% of 2020 electricity sales that the Senate
has previously passed as a renewable portfolio standard.
Title V: Federal Leadership.--ACEEE supports the provisions of this
title, especially the permanent authorization of the Energy Savings
Performance Contracting (ESPC) program, and the assessment of Combined
Heat and Power (CHP) opportunities at federal facilities. We recommend
that Congress place a special priority on installing CHP technology at
the Capitol powerplant, which could be accomplished through an ESPC or
similar vehicle.
Title VI: State and Local Initiatives.--ACEEE supports the
provisions of this title, especially section 603's requirements for
utilities and states to include energy efficiency in resource planning,
and to reform ratemaking policies to make energy efficiency a better
business proposition for utilities. We recommend that the bill also
include Regional Transmission Organizations (RTOs) among the entities
covered by this section. This section should also be linked ultimately
to a federal Energy Efficiency Resource Standard (EERS) that sets
quantitative targets for energy savings for utilities, with the goal of
saving 10% of electricity sales by 2020. Sections 139 and 140 of EPAct
2005 called for a study and pilot program for EERS. The study is
complete, and shows that these policies are gaining acceptance and
enjoying success in a number of states. Given the increased urgency to
address carbon emissions from electric utilities, this should be a high
priority for Congress in 2007.
energy savings
ACEEE has estimated the energy and water savings from the appliance
standards provisions of the bill.
Consensus standards.--The following standards are included based on
agreements between efficiency advocates and manufacturers. Annual
savings summarized below (at the level achieved when all equipment in
use complies).
Residential boilers--170 million therms natural gas per
year, net present benefits of $2.5 billion.
Incandescent reflector lamps--6 billion kilowatt hours per
year, net present benefits of $5 billion.
Clothes washer, dishwashers and dehumidifiers--560 million
gallons of water per day; energy and dollar savings TBD.
Motors--8 billion kilowatt hours per year, net present
benefits of $500 million.
New rulemakings.--The legislation provides for DOE rulemakings to
set standards for the following products. Potential energy savings from
such rulemakings (assuming appropriately strong DOE rules) are as
follows:
Refrigerators--14 to 23 billion kilowatt hours per year, net
present benefits TBD.
Residential furnace fans--13 billion kilowatt hours per
year; $4.1 billion net present benefits.
Clothes washers and dishwashers--savings to be determined at
a later date.
Provisions to strengthen the appliance standards program.--Various
standards pending before U.S. DOE for rulemakings have the potential to
reduce energy consumption by nearly 200 billion kilowatt hours per
year, roughly the amount of power generated by 65 large power plants
(500 megawatts each). The pending legislation does not directly affect
most of these rulemakings, but will enhance significantly the ability
of DOE to set appropriately strong standards. Provisions designed to
provide the Secretary of Energy greater flexibility in setting
standards include limited authority for regional standards for climate-
sensitive products, authority to use multiple efficiency metrics for a
given product and authority for expedited rules.
Total potential savings
Electricity.--At least 50 billion kilowatt hours per year,
or enough to power roughly 4.8 million typical U.S. households
Natural gas.--170 million therms per year, or enough to heat
about a quarter million typical U.S. homes.
Water.--At least 560 million gallons per day, or about 1.3%
of total daily potable water usage.
Dollars.--More than $12 billion in net present benefits for
consumers.
conclusion
Energy efficiency is the ``first fuel'' in America's race for a
clean and secure energy future. Energy efficiency has saved consumers
and businesses trillions of dollars in the past three decades,
including more than half a trillion dollars in 2006 alone. These
efforts should now be accelerated to meet America's greatest energy
challenges--energy security and global warming. These twin problems are
converging to force historic changes in U.S. energy and environmental
policy. Energy efficiency is the one resource that addresses both the
energy security and climate challenges in the near term, while
enhancing economic prosperity. Domestic energy supplies with low carbon
content will take time to develop; but we can start now to accelerate
efficiency investment, which will enable low-carbon domestic supplies
to begin reducing energy imports and carbon emissions. If we do not use
efficiency as the ``first fuel'' in the race for clean and secure
energy, clean energy supply technologies may not be able to be deployed
fast enough to meet runaway demand.
ACEEE supports the Energy Efficiency Promotion Act as a major
additional step on the road to a sustainable energy future. We
recommend a number of ways that this bill can be augmented, within its
existing provisions, by adding new provisions, and through additional
legislation.
This concludes my testimony. Thank you for the opportunity to
present these views. We look forward to responding to any questions or
providing any additional information that the committee may require to
complete this important legislation.
The Chairman. Thank you very much.
Mr. Pitsor.
STATEMENT OF KYLE PITSOR, VICE PRESIDENT, GOVERNMENT RELATIONS,
NATIONAL ELECTRICAL MANUFACTURERS ASSOCIATION (NEMA)
Mr. Pitsor. Chairman Bingaman, members of the committee,
good afternoon. I'm Kyle Pitsor, vice president for government
relations with the National Electrical Manufacturers
Association. I'm pleased to present our association's views on
S. 1115, and our industry's continuing engagement in advancing
energy efficiency in the residential, commercial, industrial,
and government arenas.
NEMA member companies manufacture the products and
technologies used in the generation, transmission,
distribution, control, and end use of electricity, and are at
the heart of our national effort to reduce dependence on fossil
fuels, cleaner environment, and a higher standard of living.
Federal leadership at energy efficiency in government-owned
and leased buildings is key, since the national government is
the largest user of electricity in the country. We fully
support the government procurement requirements and mandates of
energy-efficient lighting products in section 102, the
enactment Federal building codes and standards, and the
expansion and permanency of the Energy Savings Performance
Contracts contained in section 503 of the bill.
State-of-the-art energy efficient products and technologies
are widely available, yet their deployment and use are not at
the level they should be. S. 1115 addresses this challenge in
several respects, and I'd like to comment on those.
First, the bill calls for a national education campaign to
increase awareness and knowledge of today's products, in
section 403. Consumer education at all levels must be a
national priority, and NEMA stands ready to assist in that
national effort.
Second, new mandatory energy-efficiency efficient product
standards are proposed. The standards are based on consensus
agreements negotiated among manufacturers, environmental
groups, and other stakeholders. For NEMA, these new standards
include new standards for incandescent reflector lamps
typically used in residential downlighting, contained in
section 102 of the bill, and electric motors used in
manufacturing and industrial processes, contained in section
209 of the bill. We support these provisions.
Third, while we support legislating these consensus
standards agreements, we also note that it's not practical to
require Congress to pass legislation each time a consensus
agreement is reached or developed. That is why we support
amending the Energy Policy and Conservation Act to provide a
new route through an expedited rulemaking process, as suggested
in section 204 of the bill. The benefits of an accelerated
process for adopting consensus agreements by the Department of
Energy are numerous, and will provide for greater flexibility
and responsiveness to market and technology changes as they
occur.
Fourth, NEMA's presently engaged in negotiations on new
lighting standards, which are discussed in the Sense of the
Senate language in section 104 of the bill. Lighting represents
20 to 22 percent of the Nation's electricity consumption. We
would be making significant progress toward a comprehensive
proposal, Mr. Chairman, aimed at eliminating the least
efficient incandescent A-line lamps in the 40- to 100-watt
range through the use of performance-based technology-neutral
efficiency standards. We note the historic nature of such an
undertaking by our industry, and that full market
transformation will likely take a decade to complete. We hope
to provide you and this committee with a negotiated proposal in
the very near future.
One aspect of the bill materially changes a significant and
longstanding principle in Federal pre-emption for overseeing
energy efficiency standards, and we believe provision 205
conflicts with the policies contained in EPCA. Congress
provided in EPCA, in the EPCA statute, for certain exceptions
and exemptions to Federal pre-emption for federally covered
products. We do not believe that the provisions of 205, as
drafted, are appropriate, and, if enacted, would radically flip
the carefully constructed comprehensive national policy
underlying the Federal statute.
Fifth, we particularly welcome the Bright Tomorrow Lighting
Prize competition and provision, in section 103, to establish a
competitive performance-based prize for new LED lighting and
for the Federal Government to be early adopters of this
technology through purchasing guidelines.
Finally, Mr. Chairman and members of the committee, I'd
like to close by noting that one of the barriers to wider
deployment and use of energy efficient products and
technologies are initial cost concerns. This applies both in
the residential and the commercial industrial markets. Congress
provided for certain tax incentives, like the commercial
buildings tax deduction, in the Energy Policy Act of 2005, but
most of those incentives expire at the end of 2008, and some in
2007. Renovation and retrofitting existing homes and buildings
with today's technologies, and building in energy efficiency in
the initial construction of new homes and buildings, lock these
energy savings in and provide performance, going forward. Tax
incentives, such as credits, deductions, and accelerated
depreciation, are powerful tools to make this happen, and go
hand in hand with the significant energy efficiency promotion
provisions contained in this bill.
Mr. Chairman, thank you for your steadfast leadership and
support on energy efficiency, and we'd welcome any comments.
[The prepared statement of Mr. Pitsor follows:]
Prepared Statement of Kyle Pitsor, Vice President, Government
Relations, National Electrical Manufacturers Association
Chairman Bingaman, Ranking Member Domenici, and Members of the
Committee, on behalf of the National Electrical Manufacturers
Association (NEMA), I am Kyle Pitsor, NEMA vice president of government
relations. NEMA is the trade association of choice for the electrical
manufacturing industry. Founded in 1926 and headquartered near
Washington, D.C., its approximately 450 member companies manufacture
products used in the generation, transmission and distribution,
control, and end-use of electricity. These products are used in
utility, medical imaging, industrial, commercial, institutional, and
residential applications. Domestic production of electrical products
sold worldwide exceeds $120 billion. In addition to its headquarters in
Rosslyn, Virginia, NEMA also has offices in Beijing, Sao Paulo, and
Mexico City.
I am pleased to be here today to present our Association's views on
this important energy efficiency bill, and to offer our industry's
continuing support in advancing energy efficiency in the marketplace.
The electrical manufacturing community stands at the very heart of
our national effort to achieve a reduced dependence on fossil fuels, a
cleaner environment, and a higher standard of living across the globe.
Energy efficient technologies exist, and NEMA companies are actively
engaged in the research, development, manufacturing and promotion of
them. What we all must strive for is wider recognition, deployment, and
use of today's state-of-the-art products and technologies, and support
for emerging technologies. It is for these reasons that NEMA is very
pleased to testify today on S. 1115 and provisions which, we believe,
will significantly improve efficiency in buildings, homes, and products
while reducing our nation's use of fossil fuels and saving consumers
money.
We would like comment on several titles and provisions in the bill.
promoting lighting technologies (title i)
As the largest user of energy in the Nation, the federal government
must set the example of energy efficiency in its facilities and
buildings through procurement and building standards. The Energy Policy
Act of 2005 calls for federal purchasing of Energy Star and Federal
Energy Management Program (FEMP) designated products. Section 101 in
the bill strengthens the procurement provision through the
establishment of purchasing guidelines with a date certain for all
general-purpose lighting. We fully endorse this Section.
We are pleased that negotiated consensus standards for certain
incandescent reflector lamps have been included in Section 102. These
consensus standards are the result of our industry working with non-
governmental and stakeholder organizations to arrive at definitions and
standards that will further strengthen the national energy conservation
standards program. These certain lamps, typically used in residential
downlights (recessed can fixtures), are presently not subject to
federal energy efficiency standards initially established by the Energy
Policy Act of 1992. Due to technology and market changes, the time has
come to federally regulate the products described in Section 102.
The Bright Tomorrow Lighting Prize (Section 103) offers a
challenging and exciting opportunity for advancing the
commercialization of new solid-state lighting products for the general
market. We support the use of Section 1008 of EPACT 2005 for this
competitive, technology-driven prize for new LED lights that can
retrofit into existing medium-screw base sockets. Further, we endorse
the proposal's direction that federal purchase guidelines are to be
developed based on awards under the challenge. Again, federal
government leadership in purchasing and using new lighting technologies
is important to the marketplace. The Next Generation Lighting Industry
Alliance (administered by NEMA) is the designated industry partner per
EPACT Section 912 to the Department of Energy's Solid State Lighting
R&D program. The Alliance views Section 103 as a complementary market
deployment with respect to the DOE SSL program. The results of the past
few years suggest that there are no fundamental reasons why solid-state
lighting light sources cannot achieve efficiencies of 10-12 times that
of today's inefficient incandescent lamp, and 2 times that of
fluorescent technologies.
The bill contains a Sense of the Senate provision (Section 104)
concerning new energy efficiency standards for lighting products.
Lighting use in the U.S. consumes some 20-22 percent of all electricity
generated. Thirty percent of the energy consumed in an office building
is used for lighting, and 5-10% of residential energy use is for
lighting. There is an array of lamp (light bulb) technologies--
incandescent (including halogen), fluorescent, high intensity
discharge, and solid state.
I am pleased to report that on April 3, 2007, the member companies
of the NEMA Lamp Section announced a joint industry commitment to
support public policies that will transform the U.S. market to more
energy-efficient lighting within a decade. This joint position came
about in response to a growing number of proposals at the
international, state and local levels that would eliminate the presence
of certain general-service incandescent lamps in the marketplace.
NEMA views such a market transformation as a matter of national
importance that should come about through a federal solution in order
to avoid confusion in the marketplace. Central to this commitment is
the setting of standards that will eliminate the least efficient
products from the market, based on the following six principles:
The market transformation must be orderly and target as a
starting point the least efficient medium screw base A-line
incandescent lamps from 40 through 100 watts in widespread use
today.
Performance standards must be used to accomplish the
transformation.
Performance standards must be technology-neutral.
The market transformation will take up to a decade.
The set of A-line incandescent lamps to be addressed
includes clear, frost, soft white and enhanced spectrum.
Performance standards will be needed for each of these types.
The market transformation should begin with strategies that
will save the most energy.
We note that in the absence of a federal solution, states and
localities should follow these principles when deliberating on this
matter.
Prior to the April 3 announcement and subsequent to it, NEMA lamp
members have been engaged in a series of negotiations with non-
governmental organizations (NGOs), environmental advocacy groups, state
government representatives, and industry organizations with an aim to
develop a standards consensus proposal for submittal to this Committee
and Congress. Those negotiations are on-going at the time of preparing
this testimony, and we will report to the Committee on their status.
expediting new energy efficiency standards (title ii)
NEMA supports a robust national energy conservation standards
program under the Energy Policy and Conservation Act (EPCA) as amended.
We believe that a strong national program of standards, test procedures
and labeling/information disclosure is the most effective means to
maximize energy savings for the Nation and the consuming public.
Products are manufactured and distributed on a national (and sometimes
global) basis, and it is key that energy conservation product
regulation occur at the federal level.
The bill provides in the Section 204 amendment to EPCA to provide
the Secretary of Energy the authority to conduct an expedited
rulemaking based on an energy conservation standard or test procedure
if submitted as a ``consensus proposal''. The benefits of accelerating
adoption of consensus proposals benefit the Nation when more efficient,
competitive products enter the marketplace at an earlier date than
would otherwise be the case if handled in the regular DOE rulemaking
proceedings. In addition, manufacturers benefit by improvement in their
planning processes occasioned by the increased certainty of earlier
finalization of consensus standards. Finally, federal regulators and
all stakeholders would benefit from reduced burdens of paperwork,
unnecessary rounds of otherwise mandated process and procedures, and
legal costs. NEMA supports an ``expedited rulemaking'' authority and
commends the Committee for including this meaningful modification to
the statute. We do recommend changing the term from ``joint comment''
to ``joint petition'' to clarify that the consensus proposal does not
have to be submitted only during the time period for which DOE has an
open rulemaking for the product(s) addressed in the consensus proposal.
The bill contains several important consensus proposals and
technical corrections for legislative enactment. As the association
that represents the manufacturers of lighting and motors products, NEMA
is pleased to have worked with various stakeholders to develop these
consensus standards proposals. As noted earlier, Section 102 would add
certain incandescent reflector lamps to federal energy regulation.
Technical corrections (Section 208) include one for the color rendering
index (CRI) for certain fluorescent lamps, and we also have submitted a
definitional clarification regarding mercury vapor ballasts which we
hope the Committee will include in the bill as it proceeds to mark-up.
Both of these are consensus proposals involving the manufacturers and
NGOs.
Mr. Chairman, I am very pleased to note that Section 209 provides
for legislative enactment of new and expanded efficiency standards for
industrial electric motors. Electric motors consume 65-70% of the
electrical energy used in commercial and industrial motor-driven
systems, like pumps, fans, and compressors. As a consequence, increases
in motor efficiency translate to significant energy savings for
industrial and manufacturing facilities. We estimate the savings
attributable to these joint recommendations to be 8 billion kilowatt
hours by 2030, with a net energy savings to consumers of almost $500
million.
NEMA developed the first standard and levels for an ``energy
efficient'' electric motor in 1987, which were included in the Energy
Policy Act of 1992. In 2003, NEMA established new ``premium
efficiency'' motor levels and has undertaken a significant marketing
and promotion effort for NEMA Premium. Section 209 includes important
expansion of electric motors that will be subject to federal efficiency
requirements, including adoption of premium efficiency for the bulk of
the 1-200 horsepower general-purpose motors.
One aspect of the bill (Section 205 ``Preemption Limitations'') as
introduced, however, would materially change a significant and
longstanding principle in federal preemption for overseeing energy
efficiency standards, and we believe represents an open and
irreconcilable conflict with other provisions and policies of the
Energy Policy Conservation Act, as amended.
As such, NEMA cannot support this provision as drafted, and we
would like to work with the Committee and staff to address concerns
that brought about this provision, and seek to find alternative
solutions. If unchanged, the provision weakens rather then improves the
``comprehensive national energy policy'' enacted by Congress in 1975 to
implement EPCA (S. Conf. Rep. No. 94-516 at 116 (1975)).
The twin cornerstones of this comprehensive national policy are (1)
the establishment of national standards for energy efficiency, testing
and information disclosure for ``covered products,'' and (2) express
Federal preemption of State laws and regulations respecting energy
efficiency standards, testing, and information disclosure for those
covered products. The exceptions to Federal preemption were
intentionally narrow: State petitions for waivers required that States
show there were ``unusual and compelling State and local interests''
that were ``substantially different in nature and magnitude from those
of the Nation generally, so that achieving the waiver would be
difficult. State procurement standards would be permitted; and a
narrowly drawn exception for State and local building codes must meet
seven requirements.
For many covered products, Federal standards have been established
by Congress in the various acts; in the case of other covered products,
Congress has delegated to the Department of Energy and the Federal
Trade Commission the authority to determine uniform national standards
and policy. In both cases, conscious decisions are made to exclude from
regulation a subset of the covered products because the expected energy
savings is small compared to the burden of achieving that savings. For
example, in 1992, when Congress enacted energy efficiency standards for
electric motors, it specifically excluded from regulation certain
definite purpose and special purpose motors. At the same time, Congress
excluded from regulation certain ``special applications'' of general
service fluorescent lamps and general service incandescent lamps, and
delegated to the Secretary of Energy the authority to further determine
by rule that standards ``would not result in significant energy savings
because such lamp is designed for special applications or has special
characteristics not available in reasonably suitable lamp types.''
Proposed Section 205 establishing certain limitations on preemption
where the product is excluded or not directly affected by a Federal
standard would radically flip the carefully constructed ``comprehensive
national policy'' underlying the Energy Policy and Conservation Act and
permit States to regulate, for example, where Congress or the Secretary
of Energy have declared that there shall be no regulation because
regulation will not result in significant energy savings or substitutes
are not available. It would allow States to regulate after the
Secretary of Energy, in the course of a rulemaking to prescribe
standards for new covered products or in any amended standards, has
evaluated the projected amount of energy savings, technical feasibility
of a standard, economic impact on manufacturers, the decline in the
performance of products, and any lessening of competition, and other
factors has determined that a subset of a covered product should be
excluded from regulation.
When a State or an interested citizen believes that the exclusions
from federal regulation should be revisited, Congress should insist, as
it always has, that the interested parties bring the policy debate on
this important Federal question to Congress or the Secretary of Energy.
If enacted, Section 205 would open a wide door to the development of
``a patchwork of numerous conflicting State requirements,'' H.R. Rep.
No. 100-11 at 19 (1987), that Congress has always eschewed. Section 205
is in direct conflict with the preemption provisions in the Energy
Policy Conservation Act, as amended, at 42 U.S.C. 6297(d) relating to
waiver because it allows States to regulate covered products without
any consideration of the national interest. Section 205 conflicts with
the central premise and purpose of the Act that energy efficiency is a
national issue that requires a national solution.
setting energy efficiency goals (title iv)
The bill calls for the development of a strategic plan for national
goals for energy savings in the transportation sector, particularly the
reduction of gasoline usage. The deployment of intelligent
transportation systems (ITS), technologies, and communication protocols
on and by our Nation's highways and intersections offers a significant
opportunity to reduce traffic congestion, idling, and delays for the
commuting public and the delivery of goods and services.
The Chairman. Well, thank you all very much for your
testimony. I think it's been very useful. Let me ask just a few
questions, and call on my colleagues to ask whatever questions
they have.
First, Mayor Chavez, again, thank you for being here, and
for your leadership on this set of issues. On these grants that
we are providing, or calling for, here in the legislation,
what's your reaction to us considering putting some more
specific criteria in for what the grant funds could be used
for? Be a little more specific. It seems the language we've got
in here now is pretty general. Do you have any thoughts on
that?
Mr. Chavez. Well, Mr. Chairman, there are some proven
modalities, in terms of reducing greenhouse emissions. Methane
capture is extraordinarily productive. That's one of the
principle things that we did in Albuquerque that led us to such
a low level of carbon emission, at least as a municipality. We
now capture our methane. We used power generators, and we
believe, shortly, we'll be selling electricity back into the
grid. So, my recommendation would be that you look at the
technologies and modalities that are most effective, and
emphasize those, with some degree of specificity, leaving some
room, as well, for creativity at the local level, because I
think some new ideas may percolate up to the top.
The Chairman. All right, good.
Commissioner Kerr, let me ask you, on this energy
efficiency resource standard which is being discussed, I know
some States have adopted that, or some version of that. We have
various people--Mr. Prindle and others--urging that the
Congress step in and direct, essentially, that all utilities
have to meet an energy efficiency resource standard, the
concern being that if we don't do it at the national level,
States will not get around to it, or will basically continue to
talk about it, and for a very long period of time, when it
could be implemented. What's your reaction to that? Is there a
way that we can cause State utility regulatory commissions to
do this, short of just doing it ourselves?
Mr. Kerr. You didn't quite ask the question I thought you
were going to ask, but I had an answer.
[Laughter.]
The Chairman. Well, you go ahead and answer the question
you wanted me to ask, if you'd rather.
[Laughter.]
Mr. Kerr. I think it's very complicated, on both the
renewable portfolio standard and an efficiency standard--a
national approach is very difficult. There are unique aspects,
not just regional, but system-specific aspects, and I think it
is not the right idea for the Federal Government to become too
prescriptive in that area.
The characteristic of the local demand--and it is really a
State-level responsibility and matter of engineering fact as to
how that is best met. So, I think it would be problematic for
the Federal Government to become too prescriptive.
My suggestion would be something such as you have attempted
to do in this bill with respect to integrated resource planning
and with respect to rate design issues, two areas clearly and
historically State areas, but to try to represent the policy,
or to articulate the consideration of the policy goal in that
area. I believe that there is momentum at the State level to
look at these issues. I tried to highlight that in my
testimony. I gave you one example, but we can certainly provide
this information and give you some updated information what is
going on in the various State levels.
But I think it is very problematic for the Federal
Government to weigh in, in such a prescriptive manner, for
reasons of legal jurisdiction, to not having the ability to be
as sensitive to the specific characteristics of the situation
in any given----
The Chairman [continuing]. Well, obviously, you're aware of
the concern--the competing forces that we have on us. I mean,
on the one side, we've got people saying, ``Greenhouse gases
are about to ruin the planet,'' and, on the other hand, we've
got State regulatory commissions saying, ``Now, this has
traditionally been our job, so don't get involved. We don't
want you being prescriptive.'' We don't want to be too
prescriptive, but we do want to be prescriptive enough. So----
Mr. Kerr. Well, and I think the answer to that, Senator, is
that the proof is in the pudding. I mean, if we collectively,
through our efforts and the Federal efforts, aren't making the
progress we need to make, then perhaps we've lost the
opportunity to complain about the Federal Government becoming
too prescriptive. I think we all are playing catch-up, to some
extent, with respect to climate policy. So, I think to go too
far too fast--if we got down the road in 4 or 5 years, and
efforts weren't being made--
But I will give you an example, in terms of why I think it
is troubling--very quickly. We, in North Carolina, have a
unique load. We have a broad summer peak because of the
characteristics of air-conditioning and our large manufacturing
sector, and that is a load that is most cost-effectively
serviced principally through baseload generation, and we don't
have a real spiky peak that can be effectively managed through
a lot of energy efficiency. It doesn't mean that it isn't an
answer that we need to explore and work on, but our peak is,
for instance, very different than Florida's peak, because of
their use of strip heating. My point is, it is a technically
difficult thing to do in a very broad sense. What I would like
for us to do, and the challenge that I think you've put before
us, is to assure you and the other members of Congress that we
take as seriously as you do both the climate policy issue, as
well as the importance of issues like efficiency. I hope I've
demonstrated that through our testimony, and we certainly will
accept that challenge if you'll allow us the opportunity to
work on it ourselves.
The Chairman. All right.
Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman.
I appreciate the testimony of all of you. It was very
interesting.
I want to go back to what I was discussing with the
Secretary, and that's the issue of the Federal pre-emption and
national standard versus regional standard. Coming from the
State of Alaska, I have a very keen interest in making sure
that the furnaces that we've got in our homes have an
efficiency level and meet a standard that perhaps you don't
have down there in Albuquerque, Mr. Mayor. So, I guess I'm
looking at this from the perspective of--regional standards
appear to make a fair amount of sense, for instance, in your
northern States, your southern States. But we don't want to
lose the cost efficiencies that are gained that you have in
meeting one national standard as a manufacturer. So, I guess
the question that I'd throw out--and I'll let anybody jump in
here, and maybe we'll start with you, Mr. Schjerven--is it
possible to have regional standards that still address
northern-climate/southern-climate issues and maintain certain
cost efficiencies? Or do you think that it is not physically
possible once you leave a one-size-fits-all standard?
Mr. Schjerven. Well, Senator, let me couch my answer in
these terms. First of all, our industry has stepped up to the
plate on every front that we have products, and we have very
good technology, and we consistently push the envelop in high
efficiency. Those products are certainly available today, and
are being purchased today.
When you think of the nuts-and-bolts issues that might
drive cost with respect to regional standards, it comes in a
couple of different places. First of all, you see the
deployment of inventory then becomes a bit of an issue,
particularly when you are in your peak season, where you've got
perhaps less--throughout the entire industry, you've got less
product in the overall pipeline. Restricting product for use in
different categories or different regions certainly exacerbates
that problem. It's not just a manufacturing problem, it would
be a problem, for example, for many of the large wholesalers
that are out there who serve contractors in multiple States.
Those that would be close to the demarcation point between one
region or another would be faced with a considerable issue, a
considerable problem. There would be costs associated with
that, and that's fairly clear. We see that modeled, in a small
way, again, during peak seasons, when you see all manufacturers
struggling to be sure that they've got enough of the product
that they need in the locales that are needing it, because
certain types of products are more in vogue in certain parts of
the country than others.
Senator Murkowski. So, is there any way to get around this?
Any of the others? Commissioner, you mentioned that perhaps the
Federal standard being the floor that is set, and then States
can add on. Now, I'm trying to understand if we can still have
the efficiencies--the cost efficiencies that you're speaking
to, Mr. Schjerven, and yet still allow for some kind of
regional standard. I think you said it, Mr. Mayor, you said
that the standards there are very local.
Mr. Schjerven. I think----
Senator Murkowski. How do we bridge this?
Mr. Schjerven. If I might add one more thing. What the
industry has seen over the past several years is a steady
increase in the percentage of higher-efficiency products--
again, you can look at air-conditioning, or you can look at
furnaces, as well--as more and more education takes root and
goes across the kitchen tables, we say, when the contractor is
actually talking with the homeowner, who is making the decision
about what products they're going to put in their home for
replacement. We are seeing--and very noticeable--and
percentage, in terms of double-digit, if you will, year-over-
year increase in the rate at which people are opting for the
higher-efficiency product, higher than what the current
standard would be. So, I think that bodes well, first of all,
for two things: for the future, as well as the efficacy of the
education program that the industry has undertaken, and
continues to undertake, to educate consumers and you get the
pull-through.
Speaking specifically with respect to furnaces, one of the
major cost issues that are associated with this for the
consumer is the cost of installation of the higher-efficiency
furnaces. Once you pass the point where you have what we call
condensing furnaces, the installation costs are increased by
quite a bit, as you need to dispose of condensate and do other
things with venting of the combustion products. So, for that
reason, the consumer, when they go to the higher-efficiency
tier of products, it's not just the quality of the product
themselves, which, because of those components, as well as
materials, that are used, are higher in cost, somewhat. But the
installation costs are significant, the delta----
Senator Murkowski. But then, that gets to the concern that
you raised in your testimony, that the higher cost of the new
appliances will deter people from purchasing them in the first
place, which cycles back to, we don't purchase, we don't move
forward with the energy-efficient appliances.
Mr. Schjerven. It's a very good point. In the case of the
furnaces, I think what's really important to look at is,
homeowners that are replacing furnaces are typically replacing
furnaces that have been in their home for 15 or 20 years,
perhaps longer. These furnaces, in terms of efficiency, are
much lower than the furnaces that we currently see at the 7
percent level, for example. So, even if they were to opt and
make the decision, then, to go with the lower of the higher-
efficiency-category products, having that choice, make that
economic choice would take out of service the vastly
inefficient furnaces that were produced yesteryear, you know,
20 more years ago.
So, in fact, we do get what we want to get, I think, in
terms of the society, as people upgraded to higher-efficiency
furnaces, but, still, the market forces are allowed to work, at
that point in time, and they can decide what they want to do.
Senator Murkowski. Mr. Chairman, my time is out. I think
we've still got some really difficult issues to work out
between how we move to a regional standard, or if we can move
to a regional standard. But if somebody else wants not pick
that up, that would be great.
The Chairman. Thank you very much.
Senator Sanders.
Senator Sanders. Thank you, Mr. Chairman.
Again, thank you all very much for being with us today.
Let me just begin with Mayor Chavez. Thank you very much
for being here. Congratulations for all of the very exciting
work that you're doing in Albuquerque. I am of the belief that
we are on the cusp of some very radical changes in energy
efficiency, that we can make some major breakthroughs. We're
seeing cities and towns all over the State of Vermont taking
some giant steps forward.
I believe, as a former mayor, that, in fact, in our
Federalist form of government, that cities and towns and States
can play huge roles. That's why I've been very active in
supporting the Energy Environmental Block Grant.
Mr. Mayor, why don't you give us some ideas regarding what
you think the impact of an Energy Environmental Block Grant
will mean to the States, cities, and towns all over America,
and moving forward in energy efficiency, sustainable energy,
and so forth.
Mr. Chavez. Well, Mr. Chairman, Senator, thank you for the
question. Obviously, the goal is the containment of carbon
emissions, and so you have to go to the source of those
emissions. It certainly would be worthwhile to have a single
farm in northern Iowa be energy efficient. But if you really
want to maximize the initiative, you need to go, really, where
the population centers are, and that's what I believe these
block grants to do, is, they go to the populations at the right
level, and then above.
The development of baselines for each of these communities
is extraordinarily important, as I said in my direct testimony,
so that you can monitor, measure the progress made against
carbon emissions, and then you can just--you can tick off the
different modalities, whether it's fleet conversion--one of the
most important of----
Senator Sanders. Let me ask you a simple question. If
Albuquerque had a few million dollars coming in from the
Federal Government, what would that mean to your community?
What would you be able to do?
Mr. Chavez. Mr. Chairman, Senator, we would complete the
capture of methane from our landfills. That's the single
biggest thing that I think every urban----
Senator Sanders. Now, in Vermont, what we're doing--we have
a huge landfill near the Canadian border--we are providing
electricity to 5,000 homes from the methane we're capturing. Is
that what you're talking about?
Mr. Chavez. Absolutely.
Senator Sanders. Okay. You need some resources, to do that.
Mr. Chavez. Absolutely. Many of these investments, we know
that there's a tremendous business financial model for them,
but it's the up-front--the investment that is very difficult
for the local government.
Senator Sanders. Now, I noticed in your remarks that 15
percent of the power used by the municipal government comes
from wind. Do you see potential for wind and for solar
paneling? Do you, in New Mexico, perhaps, or in Albuquerque?
Mr. Chavez. Mr. Chairman, Senator, we are blessed with a
lot of sun in New Mexico, and, unfortunately, this time of
year, a lot of wind. I would be remiss if I didn't mention, as
well, at least speaking on behalf of the National Conference of
Mayors, that we've taken the position that nuclear ought to be
on the table. It's not my personal belief, but that is the
position of the Conference of Mayors. In fact, Albuquerque's
energy portfolio is about 30 percent alternative--15 percent
wind, 15 percent nuclear.
Senator Sanders. But do you see substantial possibilities
for wind and solar?
Mr. Chavez. Mr. Chairman, Senator, there's no doubt that
coal is going to be with us for a long time, more efficient
ways of extraction of energy from coal, but I don't see any
reason why we can't set a goal, move toward it, and use the--
whether it's----
Senator Sanders. I mean, California is talking about
installing 1 million solar units in the next 10 years. Is that
a model that you think that the rest of the country could look
at?
Mr. Chavez. Mr. Chairman, Senator, yes. Then, hydrogen
absolutely needs to be in the conversation.
Senator Sanders. Okay. Okay.
Mr. Kerr, if I might ask you a question, there is always--
seemingly at least--a conflict, in terms of energy efficiency
and a utility. Utilities make their money by selling a product,
and we're saying, ``We want you to sell less of that product,''
which seems to be a bit of a contradiction. I know that in
Vermont, what ended up happening, with the exception of the
city where I used to be the mayor, where we're doing a very
strong job in energy efficiency, the legislature ended up
saying that we wanted another agency to be working on energy
efficiency, because they thought there was just too much of a
conflict between the utilities and the goal of energy
efficiency. What do you think about that?
Mr. Kerr. I think that it's a complicated question, because
there are several different elements of it. First, under most
State laws that franchise these electric utilities, there is
some element of running an efficient operation. In other words,
there is some inherent, in just your basic franchise,
obligation to include efficiency, if it's a most reasonably
cost resource. That said, traditional ratemaking has tended to
be volumetric; in other words, the customers generally don't
like fixed facility fees--your monthly $15 to cover some of the
fixed cost of having the service available. Therefore, rates
have been fairly volumetric; and so, a large part of the fixed
cost and profit are tied to sales volumes. That's the
disincentive that you see, or that is argued exists, and I
think it's probably true, but there are other aspects of that.
The utilities earn on their rate base; and so, they are often
more incented in their earnings--from an earnings perspective,
to invest in plants in the ground than negawatts----
Senator Sanders. Let me just ask you this, and my time is
expired. To your knowledge--you, obviously, are familiar with
many utilities in North Carolina and around the country. How
many of them are aggressively, for example, trying to replace
incandescent light bulbs with compact fluorescents? Is this
something that many utilities are doing?
Mr. Kerr. I don't know the answer to that. I would say that
Duke Energy, in North Carolina, its chairman/CEO, Jim Rogers,
has been a national leader in trying to elevate the discussion
on efficiency as a fifth fuel in the utility portfolio. So----
Senator Sanders. But you're not aware of--I mean, see, we
talk about low-hanging fruits.
Mr. Kerr. Yes.
Senator Sanders. This is pretty low-hanging.
Mr. Kerr. I think that there are--I don't know of the
specific programs. We certainly can try to get that information
to you Senator.
Senator Sanders. Okay. Thank you very much.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Lincoln.
Senator Lincoln. Thank you, Mr. Chairman. Thank you so much
for your leadership in this hearing today. I think it's been
most helpful. We all seem to get excited about the
opportunities and the possibilities of what we can do about
taking care of this wonderful planet we've been blessed with,
and the environment, and a whole host of things, but we also
sometimes forget to realize that the most immediate impact we
can make is the conservation.
I'm reminded often, because I have twin boys that are 10
years old, and trying to get them to turn the switch off--their
light off in their room when they just leave the room seems
monumental at this point. But we're getting there.
So, I'm pleased that we're having this hearing, and
certainly grateful to all of you all here at the panel.
I just had three questions, Mr. Chairman. I hope I get to
all of them.
I've certainly been a long supporter of programs that
increase energy efficiency of appliances, and have many of your
members in my State--Whirlpool, as well as Emerson Electric and
Baldor--a whole host of different manufacturing. One that we
are particularly proud of is our Lennox facility, and it's
located in Arkansas, and we have been so excited about some of
the great work that they've been doing, particularly with
another one of our corporate citizens in Arkansas, and that's
Wal-Mart. I took a tour of the facility, where they were going
beyond Federal standards on behalf of a customer that had
requested that. I guess that I'd like to ask Mr. Schjerven, in
terms of that, Wal-Mart, in seeking to achieve greater energy
efficiency, came to Lennox for a product, and it was
interesting to see the balance, in talking with both the
workers and the plant folks, of putting on an additional line
that would produce that product. There's a point, a balance, at
which industry has to reach, in terms of making sure that it's
going to be cost-effective for you, in the long run, to be able
to create a new product, go beyond those standards, develop the
technology, and yet everybody benefits from that, because as
you develop that new technology it becomes apparent in other--
you know, other products that you produce for other people
because you've developed that technology for one.
I noticed, in your testimony, that you had some serious
concerns--and this touches a little bit on what Senator
Murkowski was talking about--the concerns in the bill as it
relates to regional standards for efficiency. I was fortunate
enough to see where the consumer actually drove industry, which
I think is the appropriate way for that to happen. But if those
regional standards exist, you, all of a sudden, may be required
to produce certain products for areas where you may see peaks
and valleys, in terms of demand, and what have you.
But I'd just like to hear from you, and any others that
would like to comment, about what you believe your industry
can, or can't, really certify, in terms of compliance with
regional standards, and why you think it is important to
centralize those standards. I've seen it from touring your--the
plants and realizing how important it is to meet the consumer's
needs, and yet not producing something that, again, is going to
cause people to use an old appliance, as opposed to a newer
standard, which is really going to get us where we're going.
But anything you want to comment there would be great.
Mr. Schjerven. Well, thank you, Senator. Thank you for the
kind comments about our operation, as well.
The reality of what you saw, the investment that you make
in manufacturing facilities is replicated--when you think of
regional standards--throughout the distribution organization,
whether it's owned by a factory or whether you're talking about
the wholesale or distributor level, or even as far as the
inventory and warehousing process that individual contractors
go through. So, there is a replication of costs and concern as
you look at that.
I guess, from an industry standpoint--and I just really
need to be clear on this, because this industry is more than
willing, and more than moderately able, to do whatever it takes
to go ahead and comply and to reduce the amount of energy
that's consumed. When you look at the milestones that we've
gone through as an industry, I think that is aptly borne out.
So, it's not a matter of unwillingness, at all; it's a
matter of failing to see how some of those aspects in this very
complicated legislation really, when the rubber hits the road,
can get done, you know, correctly, and done smoothly.
As far as producing high-efficiency products, I think
everyone in our industry, from a manufacturing standpoint, is
delighted to produce a lot of high-efficiency products, because
it represents, in some ways, the pinnacle of the technology,
and we're just, you know, really proud to do that. But we also
feel that what we've seen in the marketplace is that the
consumer is, in most cases, quite able to make that economic
decision about what is best for them. We have seen, through
education, more and more of these consumers then opt for
higher- and higher-efficiency products. In the case of the
furnace, it's an interesting dilemma, because our products,
unlike other appliances, are not plug-and-play, you might say;
rather, the installation process is a significant part of the
cost to the consumer, and also a significant part of--or a
significant determinant about how well that system operates for
the consumer. That being the case, when you look at the high-
efficiency--the highest-efficiency products on the furnace
side, it drives much--additional complexity, in terms of the
installation in the home, as well as it does drive increased
cost, because of materials and some components that we use
inside. So, it's a very complicated issue to deal with. It
doesn't yield the simplistic answers.
I guess just one concern that we, as an industry, have is,
we want to see this legislation effected in a way that
absolutely does what we want to do for the country, both in the
short term and the long term. But, by the same token, we think
that's important, on something that is this complex, that we
take the appropriate amount of deliberate work with the people
sitting around the table who are experts in all of their
different areas to drive legislation that really will work,
will really get the job done.
Senator Lincoln. Absolutely.
Mr. Schjerven. Just not seeing--in the case of the pre-
emption, if you will, it's just not clear to us how that thing
can be effected smoothly. Yes, we are concerned about the
consumers, at the end of that, retaining their choice and
driving the market forces.
Senator Lincoln. Well, I appreciate that. I also see it in
terms of the effect it may have on your competitiveness, as
well, if you're having to meet multiple regional standards, as
opposed to a centralized standard. To me, it seems like it
would put you at a disadvantage, competitively,
internationally, as we see more and more of our technologies
and our intellectual properties being lost in other countries,
and we'd hate to see that happen.
Mr. Chairman, I just have one more brief question. May I
ask it? Great, thanks.
Mr. Prindle, you mentioned electronics. I was sorry that
Senator Murkowski left. She has two older boys, and she always
prompts me on what I need to be aware of down the road, I
guess. This week, however, in elementary school, it is Turn Off
Electronics Week. It's not for the sake of conservation. It's
their minds that we are asking them to use in different ways--
go outside and do some things, as well.
But you mentioned that consumer electronics--we've been
visited by a couple of electronics groups up here who are
talking about the idea that there is a real opportunity there
for conservation, and that perhaps putting competitiveness into
their industry, or providing incentives for those electronics
industry folks to actually compete with one another in order to
be able to reach that. What do you feel like is the best way in
the electronics industry, that you can see greater
conservation?
Mr. Prindle. We think competition would work very well in
that circumstance, since what the section calls for is simply
some consistent labeling, so the consumers can see, ``Oh, this
TV is going to use 500 kilowatt hours, this TV will use 300
kilowatt hours. Which one would I rather buy? How much more do
I like that high-definition picture than this one compared to
the energy cost?'' Because right now, you can't tell.
Senator Lincoln. So, transparency is your----
Mr. Prindle. Right. I mean, that was one of the first
things Congress did in the 1970's, was simply give consumers
labeling information so they can compare products. That's what
enables competition to work, when you're competing based on
consistent information. So, we need to complete the test
procedures, and then we need to get some kind of labeling that
allows consumers to make those simple comparisons while they're
out shopping. Because what most consumers don't realize is that
the biggest TVs out there today consume more energy than a
refrigerator.
Senator Lincoln. That's amazing.
Mr. Prindle. They don't get that.
Senator Lincoln. Yeah. That's great. Well, thanks so much.
Just a compliment to Mayor Chavez. We have two of our
larger communities in Arkansas that have been capturing, from
landfills, methane gas, and it's been very productive, both in
their ability to attract industry in their industrial park,
where they can provide a consistent energy source at a lower
price, sometimes. But also, just the enthusiasm. I was at one
of the dedications, and the enthusiasm of the community to see
that there's something productive coming out of that operation,
and that there is such great potential there. It's wonderful.
So, we appreciate you leading the way on that, and hope you'll
keep it up.
So, thanks, Mr. Chairman.
Senator Sanders [presiding]. Thank you.
Let me just throw out a question or two, and then we'll let
you go.
Mr. Schjerven, if I can begin with you, Lennox is in the
business of manufacturing products for heating, air-
conditioning, and refrigeration markets.
Mr. Schjerven. Yes, sir.
Senator Sanders. Educate me, please. How close are we, in
terms of what people are purchasing today and what you are
producing, to the kind of optimum that we could reach in energy
efficiency? Do we still have a long way to go, in your
judgment? I gather we've made some progress in refrigeration.
Mr. Schjerven. Well, in fact, we've made good progress, I
think, not only on the heating side, but certainly on the air-
conditioning side--refrigeration, as well. You see--for
example, in the case of refrigeration, you see that it's not
just in the core technology, it's also in the utilization of
control systems that make these devices much smarter and able
to go ahead and drive much better efficiency because of it.
In terms of, ``How far can you go?'' if you look at heating
products, and you look at the highest-efficiency products that
are marketed today, you're talking efficiencies in the
neighborhood of about 94 percent, plus or minus. So, you know,
you're very close. There is a gap between those high-efficiency
and the other higher-efficiency products, which is the low
side, which would be the 78 percent, which is the lowest
standard that's out there today. Those are at least double the
efficiency--at the low level, have doubled the efficiency of
many of the products which are currently installed in people's
homes, which have been running for 20, 25, 30 years. So, it's
for that reason, and the point that I may have botched a little
bit, but the point that I did try to make earlier was that I
think the consumer having the choice, even if they're driven
because of the economic decision that they think is best for
them, in terms of payback, to the lower of the higher-
efficiency products, it still represents a quantum improvement,
and they would be motivated to go ahead and do that; whereas,
if you're looking at only a product offering that is at the
highest level of efficiency, that might drive a different
economic decision to go ahead and repair, in which case, they
would continue to run that older, much lower----
Senator Sanders. Let me ask you this.
Mr. Schjerven. Sure.
Senator Sanders. I assume that, in most cases, the higher-
efficiency product is more expensive. Is that a fair
assumption?
Mr. Schjerven. Yes, not only to purchase, but also to
install----
Senator Sanders. Right.
Mr. Schjerven [continuing]. Correct.
Senator Sanders. In your judgment, what role could Federal
tax credits or Federal financial incentives provide--and help
the consumer? Is that a significant----
Mr. Schjerven. I think that's a very good question. I think
it could be. In fact, if you look--not just on furnaces, but if
you look over the spectrum of equipment over the last 20 years,
we've certainly seen programs at different levels, whether it
was with respect to tax provision or, in the case of utilities,
driving, you know, the purchase of a higher-efficiency product
through rebates of some sort. In all those cases, that creates
much larger interest in the minds of the people. Of course, it
reduces the number of years for payback, and makes what might
have been an unthinkable decision----
Senator Sanders. Well, I am impressed--I don't know if any
of you are familiar with it--and if you are, you can jump right
up--in California, as best as I can understand--which is
leading the country in this way--if you put solar paneling on,
you're going to get a rebate of about $10,000 to cover whatever
it costs, maybe one-third of the whole product. I mean, that's
a very significant rebate.
Mr. Schjerven. Certainly would be.
Senator Sanders. Do you think, if some of us--not
everybody--thinks that global warming is a huge problem, and
that this country has got to address it in a very bold way, and
that it really is not acceptable that we continue to have huge
amounts of inefficient products causing greenhouse gas
emissions, do you think that the Federal Government should be
active--more active, perhaps--in terms of incentives and tax
credits to help people who don't have the money to purchase----
Mr. Schjerven. Yeah, I certainly think that that could be a
possibility. But, you know, there's other incentives, as well
that work. I had mentioned education before, but one program
that I think has been--not just only for our group of
appliances in our particular industry, but for all appliances--
has been the ENERGY STAR program that EPS and DOE have put
together. We've been a large proponent of that. In fact, our
company has been an ENERGY STAR partner, 4 out of the last 5
years.
Senator Sanders. All right, but the beauty of the ENERGY
STAR program is transparency, I gather. You know what you're
buying, and you know what you can save, down the pike.
Mr. Schjerven. Right. That's exactly right.
Senator Sanders. Right.
Mr. Schjerven. But I think those kind of programs, possibly
in conjunction with other programs, such as the possibility
that you had mentioned, could definitely drive that breakeven
point down, and, you know, make other--still keeping the
marketplace working as a marketplace, but driving the end
result that we're all looking for.
Senator Sanders. Well, I think it's interesting, because--I
think it was Mr. Prindle who made the point, a moment ago, that
people who are purchasing these new big televisions are
probably not aware, in many cases, that that television is
consuming more electricity than their fridge is, right?
Mr. Prindle. That's right.
Senator Sanders. All right, I asked Mr. Schjerven that
question: how do other people feel about the potential to move
forward, and the use of tax credits? We are seeing--we do that
now. If want to buy an energy efficient car, a hybrid, you're
going to get a tax credit. That's something that's going to be
discussed in the Finance Committee. Is that important? Is that
an important part of a program, do you think?
Yes, Mr. Pitsor.
Mr. Pitsor. Yes, Senator. NEMA has experience with
commercial buildings tax deduction, which is a deduction that's
available to commercial building owners for new construction,
as well as for renovating and retrofitting existing buildings.
We represent the lighting manufacturers. About 2 billion square
feet of new construction is built each year, and about 2
billion square feet is renovated each year. We have found that
this commercial buildings tax deduction has been very helpful
in providing a way for building owners to help offset the cost
of doing renovation work, which is--the installed base is where
we want to tackle. That's where the energy-inefficient product
is still installed. Getting that out and putting in the new
equipment and new technologies, is the hurdle, and we have
found that deduction to be helpful. It was only for a short
time period, and part of the concern is, it doesn't provide
enough planning for building----
Senator Sanders. So, you would be supportive of a longer--
--
Mr. Pitsor. A longer time period. It's a performance-based
standard, so you have to show that you actually are making the
effort and that the building is going to meet the new
requirements, to qualify for the decision.
Senator Sanders. Wait, before I get to Mr. Prindle, Mr.
Pitsor, you represent light manufacturers?
Mr. Pitsor. Yes.
Senator Sanders. Let me ask you this: not to put you on the
spot here, but one issue that has concerned me as we move
toward sustainability and energy efficiency. Some of us would
like to see these new products manufactured in the United
States of America, new jobs created here. When I look at light
bulbs, the new ones especially, I don't see many of them
manufactured in America. Could you tell me about that? Are we
planning to manufacture the new energy-efficient light bulbs in
America?
Mr. Pitsor. Well, we have a broad range of--you have the
incandescent bulb, the inefficient product; you have CFLs, you
have the new LED----
Senator Sanders. Are any CFLs manufactured in the United
States----
Mr. Pitsor. By and large, most of those are made overseas,
because of the electronics involved in the base and the cost of
producing the CFL.
Senator Sanders. Can't we figure that out in this country?
Mr. Pitsor. Well, we can figure it out. We did the research
and engineering here. But in terms of getting the cost down to
a price that the consumers are interested in to replace--
there's a cost-driven basis here.
Senator Sanders. Well----
Mr. Pitsor. But in the LED area, I think there's an area
where we see a lot of U.S. production in LEDs today, and that's
going to grow, and that is an area where we see a lot of
promise.
Senator Sanders. I spoke, a couple of weeks ago, to a
gentleman from Philips. Could you give me an idea when you
expect LEDs to be commercially available, you know, for homes
and so forth?
Mr. Pitsor. I wish I had that clear crystal ball for that.
We've seen radical improvements in the technology. Cost is
still a problem there, as well as perfecting a white LED, a
white-emitting LED. The DOE has an R&D program that our members
are very active with, trying to find those breakthroughs.
Senator Sanders. Do you think 5 years or so?
Mr. Pitsor. Five to 10 years.
Senator Sanders. Well, that's a big difference--5 or 10
years is a big difference.
Mr. Pitsor. Right. Then----
Senator Sanders. But these will be huge breakthroughs, in
terms of energy efficiency, won't they?
Mr. Pitsor. Absolutely. And we see niche areas today where
these are starting to take place. But, in general lighting,
like for lighting of this hearing room, that's down the road.
Senator Sanders. Okay.
Mr. Prindle, did you want to----
Mr. Prindle. Yes, I wanted to reply to your question,
Senator, on tax incentives. We certainly support tax
incentives, and, with NEMA and others, have supported the
EXTEND Act that's currently in the Senate, S. 822. However you
have to understand that tax incentives are targeted at the high
end of the energy performance market. The tax incentives for
new homes, for example, are targeted for homes that are 50
percent better than code. The data that we have, so far,
indicates that maybe no more than 8- or 9,000 homes apply for
that credit, in 2006, out of more than a million that we built
in the United States. We think that's small--helpful, but
small-impact. On the other hand, appliance standards cover the
entire market. That's why they're important. On that point,
most furnaces are specified, not by consumers, but by
homebuilders for new homes. Homebuilders have no incentive to
specify high-efficiency furnaces.
Senator Sanders. They could just as soon put in the cheaper
model and----
Mr. Prindle. Absolutely.
Senator Sanders [continuing]. Less efficient.
Mr. Prindle. So, what you see is the lowest market share
for high-efficiency furnaces is in the new construction market.
That's why appliance standards and building codes, between
them, somehow have to deal with that fundamental market-barrier
problem.
Senator Sanders. Okay.
Yes, Ms. Collier.
Ms. Collier. Senator, I would just like to answer that
question from the perspective of the Federal Government, and
that is that renewable tax incentives, as well as State
renewable incentives, are absolutely critical to getting
renewables and to ESPCs. So, it's critical that we see those
continue so that we can more effectively----
Senator Sanders. And long term so that there is----
Ms. Collier. Yes.
Senator Sanders [continuing]. Dependability, and all that.
Okay.
Mr. Kerr. Mr. Chairman, I was just going to add in----
Senator Sanders. Please.
Mr. Kerr [continuing]. Following up on our earlier
discussion, where we talked about really eliminating the
disincentive, the throughput issue, part of what NARUC is
working on, and working with EEI and Consumer Advocates on is--
you can eliminate the disincentive, but then it is to create
the right positive incentive to make the investments on
efficiency, whether it be rebate programs, weatherization, and
whatnot. We are working on--and these are complicated issues,
but there is--to assure that those moneys are, first of all,
recovered. Second, is to look at the appropriate ways to allow
those expenditures to be capitalized and earned on, similar to
a supply side option, a plant in the ground, try to bring
efficiency investments on par with other supply side resources.
Then, third, it is to explore appropriate incentives. I believe
that section 603 of this bill, dealing with rate design-type
issues, is the appropriate way. I mean, these are issues
principally of State law. But the point is, to your fundamental
point in your question, getting the economics right to
incentivize folks to invest in efficiency, as opposed to the
other options that might be out there. We're investing a
tremendous----
Senator Sanders. But I'd give you an example of what I
mean. I don't know if it's true or not, but I have been told
that if, tomorrow, we gave away--every person in America--
compact fluorescent light bulbs--we bought 'em, we gave 'em
away--America would save money. We would save--obviously,
there's a cost, in millions of light bulbs, and, on the other
hand, the reduction in electrical use would, long term, save us
money. I mean, I think, seated where you are seated today, in
previous weeks have been people telling us that this planet
faces some very, very dire circumstances if we do not act
boldly. We have got to be thinking big-time outside of the box.
What we thought about 5 years ago is no longer useful.
So, I think I can speak for the whole committee and--or
maybe not, I don't know, but I will----
[Laughter.]
Senator Sanders [continuing]. In thanking you for being
here, for sure, and hoping that we can think boldly in trying
to address one of the great crises facing our planet.
Thank you very much for being here.
[Whereupon, at 5:15 p.m., the hearing was adjourned.]
APPENDIXES
----------
Appendix I
Responses to Additional Questions
----------
Responses of William Prindle to Questions From Senator Domenici
regional standards
Question 1. ACEEE supports the imposition of regional standards for
space heating and cooling products. Would you disagree that the more
efficient products are already on the market? What benefits do you see
from the use of regional standards? How would you address the issue of
enforcement?
Answer. ACEEE supports providing DOE authority to consider regional
standards where such standards could result in improved energy and
economic benefits. Yes, more efficient products are already on the
market, providing a sound basis for stricter energy standards in large
regions where they are most cost effective. For example, in northern
states, high efficiency natural gas furnaces enjoy between about 30%
and 70% market share, depending in part on the extent to which states
and utilities have rebated or otherwise promoted the technology. But
for large market segments, (e.g. rental housing, new construction) the
purchaser remains focused on lowest possible first cost, even when more
efficient equipment is very cost effective. Standards are the best way
to assure a good level of minimum efficiency appropriate for each
region.
ACEEE has estimated that a regional standard for natural gas
furnaces set at 90% annual fuel utilization efficiency (AFUE) applied
in the northern half of the country would save 1.7 billion therms per
year when fully implemented, enough to heat about 3.1 million typical
homes. Consumers would save on net about $8 billion over about 20
years.
State building codes provide a ready enforcement mechanism for
regional standards. Two indications of state interest: Three states
have already adopted stricter-thannational standards for furnaces and
the National Association of State Energy Offices supports the proposal
for regional standards. Once DOE sets a regional standard, states can
adopt it into their building codes and state appliance standards,
taking on the task of enforcement. Manufacturers would assist in
enforcement by marking products as appropriate for either the northern
or southern region. Manufacturers would continue to certify product
performance through their trade associations as they have historically.
expedited rulemaking
Question 2. ACEEE supports S. 1115's provision to expedite
rulemakings for consensus standards and does not support the
Department's competing proposal. Please compare the two proposals and
explain your position on this issue.
Answer. We are concerned that the Department's proposed language
violates precepts of good, open public process because it does not
require the Secretary to respond on a public record to comments
received in opposition to a purported ``consensus'' proposal. If the
Secretary determines that a comment in opposition to a so-called
``consensus proposal'' is not ``significant and legally relevant,'' the
previously published final rule stands. We think a process that does
not require the Department to explain its response to comments on a
public record is bad public process.
We have discussed with the Department these concerns and we believe
they now understand this problem with their proposed approach. With
respect to the approach in the Senate bill, we understand the
Department would like to be able to extend the time periods allowed for
each step of the expedited process provided for in the Senate bill. We
are not opposed to providing the Department authority to grant itself
limited one-time extensions at each step of the process.
standards for component parts
Question 3. ACEEE supports the imposition of efficiency standards
for component parts--in particular for furnace fans. How much energy
savings do you expect from the furnace fan product? Is it appropriate
to regulate both the product and the product's component?
Answer. Section 223 of the bill reported by the committee (S.
1321), ``Furnace fan rulemaking,'' carries a misleading title. The
underlying law calls for an electricity efficiency performance
standard, not a component standard. The bill section, as amended in
committee, sets a deadline of 12/31/2014 for DOE to act on the
provisions of 325(0(3)(d), ``the Secretary may consider and prescribe
energy conservation standards or energy use standards for electricity
used for purposes of circulating air through ductwork.''
A better section title might be, ``Furnace electricity use
rulemaking.'' Electricity use depends on a number of components,
including the fan itself, the motor used to drive the fan and controls.
Furnace electricity use is an aspect of furnace energy use not
addressed by the existing national standard, which only addresses
natural gas and oil use.
ACEEE estimates that a national furnace electricity use standard
could save more than 13 billion kilowatt hours per year and provide net
present value savings to consumers of more than $4 billion.
ftc labeling
Question 4. S. 1115 directs the FTC, in conjunction with other
agencies such as DOE, to issue guidelines for Energy Star labeling for
consumer electronic products such as televisions and computers. Do you
believe there are products currently on the market that will qualify
for Energy Star labels?
Answer. We support Section 226 of S. 1321 which would provide for
FTC labeling of energy performance of certain electronic products.
Energy Star is a voluntary program which enable manufacturers to better
market their most efficient products. The FTC labeling program is a
mandatory label that provides consumer information on all products,
regardless of their efficiency performance. There are currently Energy
Star qualified televisions, computers and other electronic products. As
a rule, Energy Star is designed to identify the top 25% or so energy
efficient products, so, we expect that, when Energy Star qualification
levels are revised, it will continue to demarcate existing efficient
products.
energy efficient lighting
Question 5. The bill contains a Sense of the Senate that Congress
should establish performance targets for lighting products. I am
interested in the lighting industry's recent commitment to support
public policies to transform the U.S. lighting market within the
decade. Where is the industry on this effort to phase-out the least
efficient incandescent light bulbs?
Answer. We understand the industry is developing and bringing to
market incandescent light bulbs featuring efficiency performance better
than today's conventional light bulbs, but not nearly as good as
compact fluorescent light bulbs or next generation LED lighting. The
potential energy and economic savings of this phase out will depend on
its timing and making sure it is carefully designed to prevent
loopholes for inefficient that might be exploited by low-cost Asian
manufacturers.
Appendix II
Additional Material Submitted for the Record
----------
Statement of the American Gas Association
executive summary
The American Gas Association
The American Gas Association represents 200 local energy utility
companies that deliver natural gas to more than 64 million homes,
businesses and industries throughout the United States. Natural gas
meets one-fourth of the United States' energy needs and has
historically been the fastest growing major energy source. Adequate
supplies of competitively priced natural gas are of critical importance
to AGA and its member companies. Similarly, ample supplies of
reasonably priced natural gas are of critical importance to the more
than sixty million customers that AGA members serve. AGA speaks here
for those customers as well as its member companies.
America Should Use Its Cleanest Fuel In The Most Efficient Way Possible
Natural gas is the cleanest fossil fuel. When combusted it produces
less carbon than any other fuel. Importantly, almost all of the natural
gas consumed in America is produced in North America. Thus, from the
perspective of both its environmental benefits and its contribution to
America's energy security, natural gas is nearly the perfect fuel. AGA
believes that America should use its cleanest and most friendly fuel in
the most efficient way possible.
Increased Natural Gas Prices Burden Consumers and the Economy
Throughout the 1990's natural gas producers, for a variety of
reasons, had significant excess production capacity. As a result, gas
prices were consistently in the $23 range per million British Thermal
Units (MMBtu). In the winter of 2000-2001 natural gas prices rose
dramatically. Initially, the general belief was that this spike was an
aberration and that new exploration and production efforts spurred by
these higher prices would bring additional supply online, and prices
would fall concomitantly. To the surprise of almost all involved, this
did not occur, and, over time, it became clear that in fact the higher
prices were the result of a more systemic underlying problem. New
producing areas, which in fact hold prolific supplies of natural gas
that could meet America's needs for many decades, were unavailable for
exploration and production as a result of a number of federal policies.
Accordingly, those in the exploration and production business (which
AGA does not represent) have had no choice but to focus on mature
areas, where even maintaining current levels of natural gas output
requires increasing degrees of effort and financial investment.
As this situation developed, it began to become clear that
ameliorating high natural gas prices for consumers would require not
only efforts aimed at encouraging more natural gas supply but also
efforts aimed at increasing the nation's level of energy efficiency.
With the supply-demand situation remaining so narrowly in balance,
either modest increases in supply or modest decreases in consumption
can have a dramatic effect on the prices consumers pay.
Even prior to the dramatic price increases of 2000-2001, natural
gas had achieved a remarkable level of efficiency. The average American
home today uses 25% less natural gas than it did in 1980. Similar
trends have occurred in the commercial and industrial sectors of the
customers served by natural gas utilities. Moreover, data recently
compiled by AGA reveal that, since the winter of 2000-2001, Americans
have reduced their natural gas consumption at even a more accelerated
rate.
Increased Energy Efficiency Will Reduce Prices, Promote Energy Self-
Sufficiency, and Address Climate Change
AGA applauds Senator Bingaman for his leadership in introducing S.
1115. Strides in energy efficiency will produce many benefits for
America's consumers. Energy efficiency will assist in taking the demand
pressure off natural gas, helping to bring more reasonable energy
prices to consumers. Increases in energy efficiency will also assist in
moving America toward a goal of energy self-sufficiency. Moreover, a
unit of energy not consumed produces zero carbon emissions. With the
current interest in greenhouse gas emissions, climate change, and the
possibility of limiting the nation's carbon emissions, energy
efficiency is now more important than ever.
AGA Offers the Following Recommendations for Improving S. 1115
Use Full Fuel-Cycle Analysis In Evaluating Efficiency. AGA believes
that the federal government has for years overlooked one of the most
productive energy efficiency steps that could be taken--to analyze
energy efficiency issues on a ``full fuel-cycle'' or ``total-energy
efficiency'' basis. In short, America should change its focus from
efficiency improvements solely at the point of energy use to look
instead at the consumption of energy through the whole energy
production and consumption cycle. Such an analysis would ensure that
the maximum productive benefit is received from all of our energy
resources. A simple example is the water heater. Rather than focusing
simply upon the efficiency level of water heaters at the point of
energy consumption, the federal government should also consider the
fact that an electric water heater uses far more energy than a natural
gas water heater. In the case of the electric water heater, large
amounts of energy disappear (as much as 70%) in the production and
transmission process. In contrast, a natural gas water heater makes
productive use of 90% of the energy extracted from the ground. Such
energy-efficiency analyses that seek to make the most productive use of
all of America's energy resources hold the potential to improve energy
efficiency greatly. Moreover, they would also produce improvements in
carbon emissions.
Section 111--Renewable Fuel Standard
This section should be clarified to ensure that natural gas is not
covered as boiler fuel.
Section 222--Regional Efficiency Standards
This section should be clarified to ensure that adopting regional
energy standards that promote certain kinds of furnaces does not have
the unintended consequence of encouraging collateral appliances (such
as electric water heaters) that are less efficient on a full-fuel cycle
basis. This can occur as a result of installation issues with certain
high-efficiency appliances.
Section 227--Residential Boiler Efficiency Standards
This provision could prohibit the use of gas pilot lights on
certain boilers that are not connected to electrical service (``gravity
boilers''). These are relatively small in number, and they should not
be subjected to a prohibition.
Section 273--Utility Energy Efficiency Programs
AGA supports the provisions of Section 273 concerning gas rate
decoupling. It takes no position with regard to the provisions
concerning electric rate decoupling.
discussion
Natural Gas Prices Will Remain at Today's High Levels Into the Future
Since the winter of 2000-2001, the natural gas industry has been at
a critical crossroads. Natural gas prices were relatively low and very
stable for most of the 1980s and 1990s. Wholesale natural gas prices
during this period tended to fluctuate around $23 per MMBtu. Over the
course of the past five years, however, natural gas markets have been
supply constrained. Even small changes in weather, economic activity,
or world energy trends result in significant wholesale natural gas
price fluctuations. As a result, the natural gas industry walks a
supply tightrope, bringing with it unpleasant and undesirable economic
and political consequences--most importantly high prices and higher
price volatility. These consequences strain natural gas customers--
residential, commercial, industrial, and electricity generators.
As this committee well knows, energy is the lifeblood of our
economy. Millions of Americans rely upon natural gas to heat their
homes, and high prices are a serious drain on their pocketbooks. Small
businesses depend on natural gas for space heating, hot water, cooking,
clothes drying, cooling and dehumidification, small-scale electricity
generation and other applications. The impacts of high, volatile
natural gas prices on U.S. industries--including plant closings and
unemployment--are well documented. The impacts on small businesses may
be less obvious but they are no less significant. Directly or
indirectly, natural gas is critical to every American.
The consensus of forecasters is that natural gas demand will
increase steadily over the next two decades. Furthermore, there is no
question that, if the nation should embrace a carbon-control regime of
any type, the demand for natural gas will increase even further. The
electricity generation market will continue to drive this growth (even
more so should we adopt a national climate change policy), as natural
gas has been the fuel of choice for over 90 percent of the new
generation units constructed over roughly the past decade. In part, the
dominance of natural gas in this market is attributable to
environmental regulations that promote the clean-burning
characteristics of natural gas. The overall growth in gas usage will
occur because natural gas is the most environmentally friendly fossil
fuel and is an economic, reliable, and homegrown source of energy.
Should a climate change program be adopted in the United States,
increased demand pressure on natural gas will be unavoidable.
The consensus of forecasters also is that we shall never return to
the era of $2-3 natural gas. The more recent era of $6-7 natural gas
will characterize the years ahead absent aggressive national policy
changes to promote the production of large amounts of the prodigious
natural gas resources that North America enjoys. In all likelihood
adoption of a carbon-control regime will make today's $6-7 natural gas
a thing of the past.
Moreover, recent events show that our gas markets are particularly
vulnerable to interruptions, with dire consequences for consumers. In
September 2005 multiple hurricanes in the Gulf of Mexico eliminated
nearly 25 percent of our total gas supply for a brief period. The
hurricanes resulted in prices that fluctuated between $12.00 and $14.00
per MMBtu, and a brief cold snap in December 2005 produced a price
spike to roughly $15.00 per MMBtu. Only a substantially warmer than
normal 2005-2006 winter heating season has dampened the impact of these
price increases to consumers. Clearly, natural gas markets are higher
and more volatile than at any point in history. Moreover, there is no
sign that this market volatility will abate in the near future.
It is harmful to small businesses, individual families and to the
entire U.S. economy for natural gas prices to remain both high and
volatile. Unless we make the proper public policy choices--and
quickly--we will face many more difficult years with regard to natural
gas prices.
This Committee knows well AGA's position with regard to making more
natural gas supply available for America's homes, businesses, and
industry. The Committee has received AGA's views on this important
topic on a number of occasions over the last five years. AGA will
continue to pursue additional land access for the environmentally
benign production of natural gas.
The goal, of course, is to provide adequate supplies of reasonably
priced energy to Americans. Increasing natural gas supply is only one
half of that process. Energy efficiency measures is the other half of
providing more reasonably priced natural gas.
Increased Enemy Efficiency Can Bring Down The Cost of Natural Gas
The natural gas industry has been a national leader in energy
efficiency. Today, the average American home uses about 25% less
natural gas than it did a quarter century ago. That reduction in per-
capita natural gas use has been driven primarily by energy efficiency.
Homeowners have conserved by adding storm windows, insulation, and
weather stripping to their homes. Over the past twenty-five years gas
appliances have become enormously more efficient. Moreover, new
construction, although producing increasingly larger homes, has also
produced increasingly energy-efficient homes. These trends have also
been seen in both the commercial and industrial sectors of the
industry.
Information very recently compiled by AGA suggests that in fact
natural gas consumers have increased their energy efficiency efforts
since prices increased dramatically in 2000-2001. Over the past five
years, homeowners have reduced their natural gas consumption more than
the 1% per year that has been the trend over the last twenty-five
years. It is uncertain at this point what the exact slope will be of
this reduction curve in the years ahead.
Energy efficiency brings gas consumers benefits in terms of
lowering their energy bills as well as lowering their carbon emissions.
What consumers do not understand, however, is the impact energy
efficiency can have upon natural gas prices. An MMBtu of natural gas
that is not consumed is no different from a new MMBtu that is produced.
Either adds to the gap between productive capacity and demand. Most
commentators recognize that increasing natural gas supply or decreasing
natural gas demand by only several percent can bring natural gas prices
down by 10%, 20%, or more. Thus, the customer that becomes more energy
efficient not only saves on its energy bill. It also plays a major role
in bringing natural gas prices down for all.
Achieving Real Energy Efficiency Requires Full-Fuel Cycle Analyses
There are, of course, many ways that energy efficiency in the
natural gas industry can be continued and indeed improved. But most
significant would be to take a new approach to energy efficiency
policy. Energy efficiency, at least so far as it addresses appliances,
has focused only upon measuring the level of efficiency at the level of
the appliance itself. This is an important measure, but it entirely
overlooks the important goal of putting each of America's resources to
its highest and best use. In a world where the nation is resource-
constrained and where it soon will become carbon-constrained, it is
essential that each ounce of productive effort be extracted from the
scarce resources that we have.
Federal energy efficiency policies have been crafted with the
implicit assumption that reducing energy use at the point of use
automatically reduces total energy used as well as emissions. This
approach fails to consider how primary energy and electricity are
produced and the effects of moving energy over long distances. In
truth, this approach runs counter to efforts to reduce greenhouse gases
and other air pollutants.
It has been the policy of the United States over the last several
decades to support the most efficient use of our natural resources. In
the current circumstances of a precarious supply and demand balance, it
becomes increasingly imperative for policymakers to look at the full
fuel cycle to determine whether the nation is using its natural
resources in the most efficient manner possible. Doing so requires that
we look at the full fuel cycle when measuring energy usage: determine
total energy usage from the point of extraction--whether fossil fuels
from the earth or otherwise--through to the ultimate point of usage.
The nation's approach to energy efficiency measures the efficiency
of consumer products such as appliances and homes based on examining
products that run on different fuels independently from one another.
Products powered by electricity are evaluated differently from natural
gas-consuming products. It is almost as if we assume that the natural
gas and electric appliances perform entirely different functions. No
comparison is made as to the relative amounts of total fuel used by the
competing products. Yet, if we are truly serious about achieving energy
efficiency, the total energy consumption of the two products must be
compared. It is not unreasonable in this context to consider that an
electric water heater using electricity created with natural gas
requires more total fuel than a natural gas water heater that heats the
water directly with the fuel. (Similar comparisons apply to other
industrial, commercial and residential applications.) If energy policy
aims to optimize natural gas usage, and in fact, all natural resource
usage--as well it should in today's circumstances--then energy policy
must consider the full fuel cycle of all delivered energy.
Changing the way America measures, uses, and accounts for energy
will have significant, and positive, implications. These include:
1) America will use its natural resources more efficiently.
The government should begin measuring the full fuel cycle of
energy, thereby considering all primary energy and other uses,
whether that energy is, at any point, turned into another
energy form.
2) It will connect the use of energy with its environmental
consequences. Considering equipment separately from the
``source-based'' energy that fuels it--as the government does
now--does not consider the environmental consequences of
operating that equipment. An electric water heater, for
example, causes almost two more tons of carbon dioxide to be
emitted per year than does a natural gas water heater.
3) Resource-based energy efficiency will allow consumers to
evaluate energy use choices based on the cost, resource usage,
and emissions attached to those choices.
4) Policies that encourage the best overall use of our
natural resources can assist utilities to address line losses
and grid congestion during peak demand for electrical energy,
particularly during the summer months.
5) A resource-based accounting of energy efficiency will spur
investments in new technologies that are efficient on a full
fuel cycle basis. This runs counter to America's current
inclination to squeeze small amounts of efficiency out of
technologies as measured at the point of usage.
In the context of this bill, this important step could be achieved
by changing the beginning of Section 221 of the bill to state:
Section 321 of the Energy Policy and Conservation Act (42
U.S.C. 6291) is amended by striking paragraphs (4) and (6) and
inserting in lieu thereof:
(4) The term ``energy use'' means:
(A) For the purpose of measuring energy use
by a consumer product, the quantity of energy
directly consumed by a consumer product at
point of use, determined in accordance with
test procedures under section 6293 of this
title, and
(B) For all other purposes, including, but
not limited to, determinations with respect to
energy policy, priorities with respect to
energy efficiency, efficiency regulations and
guidelines, and conservation programs, the
quantity of energy consumed by a consumer
product, commercial or industrial product or
process, or residential or commercial property
at point of use and consumed in producing and
in delivering energy to a site, including, but
not limited to power generation, transmission
and distribution losses.
Section 111--Renewable Fuel Standard
The renewable fuel standard refers to ``boiler fuel'', which
appears not to be defined. Arguably this could include natural gas,
although AGA thinks that this makes no sense in the context of a
renewable fuel standard. In all likelihood this term refers to heavier
fuel oils such as No. 6 and Bunker C. This could be clarified by saying
``boiler fuel oil.''
Section 222--Regional Efficiency Standards
AGA is concerned that the adoption of regional energy efficiency
standards can have unintended, adverse consequences. The case in point
most specifically is that adoption of a regional furnace standard for a
northern zone may make it unavoidable that consumers install condensing
furnaces. These must be vented in a specific fashion. In new housing a
builder, after having vented a condensing furnace, is unlikely to
install the necessary chimney for a gas water heater. The result is
that an energy efficiency standard that favors or compel a condensing
furnace may have the unintended consequence of causing installation of
an electric water heater, which uses more fuel through the full fuel
cycle and emits more carbon dioxide than a gas water heater. This issue
can be addressed by inserting, beginning at page 67, line 22, the
following:
(ii) are economically justified: and
(iii) will not result in undesirable levels of source energy
consumption by other equipment, such as water heaters, located
at the site of furnaces, boilers, or central and commercial air
conditioning equipment. Source energy means the quantity of
energy consumed by a consumer product, commercial or industrial
product or process, or residential or commercial property at
point of use and consumed in producing and in delivering energy
to a site, including, but not limited to power generation,
transmission and distribution losses.
Additionally, add the following at the end of page 68, line 9:
The Secretary shall in addition consider whether 1 or more
regional standards will result in undesirable levels of source
energy consumption by other equipment, such as water heaters,
located at the site of furnaces, boilers, or central and
commercial air conditioning equipment. Source energy means the
quantity of energy consumed by a consumer product, commercial
or industrial product or process, or residential or commercial
property at point of use and consumed in producing and in
delivering energy to a site, including, but not limited to
power generation, transmission and distribution losses.
Section 227--Residential Boiler Efficiency Standards
This provision could have the effect of prohibiting pilot lights
for certain types of boilers. There are a relatively small number of
boilers that are not connected to electrical service and where,
therefore, a pilot light is essential to operation for the boiler. AGA
recommends that this problem--as well as a box mysteriously missing an
energy efficiency standard--be addressed by:
Modify the table in Sec. 227(3) by adding ``98.5%'' to
``Minimum Annual Fuel Utilization Efficiency'' for ``Electric
Hot Water'' and ``Electric Steam'' boilers.
Modify Sec. 227(3) by adding a subsection (D):
(D) EXCEPTION--Boilers that operate without the need for
electricity supply shall not be required to meet the
requirements of subsections 227(3)(B) and (C).
Section 274--Utility Energy Efficiency Programs
Natural gas utilities are network industries. They typically
deliver natural gas from the point where their facilities interconnect
with long-line interstate natural gas pipelines to energy consumers--
whether they are residential, commercial or industrial. Natural gas
utilities essentially provide two different services to their
residential customers:
First, natural gas utilities act as merchants in acquiring natural
gas for their customers. They aggregate the requirements of all of
their customers who desire to purchase natural gas, and they purchase
these requirements in various wholesale markets. (In most states
industrial customers purchase their own gas. In some states with
``retail choice'' programs, residential customers also may purchase gas
from an entity other than their local utility.) In their ``merchant''
function natural gas utilities purchase gas in markets that are not
unlike markets for oil, corn, Wheat, or other commodities. The natural
gas utility merchant function is thoroughly regulated by state public
service commissions. Utilities are not permitted to mark up the cost of
gas or to make a profit on it. Rather, in most states utilities pass
these costs on to customers pursuant to state-regulated revolving
accounts usually known as Purchased Gas Adjustments, Gas Cost Recovery
factor, or something similar.
Second, natural gas utilities deliver gas to their customers. They
perform this service whether they have purchased the gas as merchant on
behalf of the customer or the customer has purchased the gas itself.
The charge for this delivery service is calculated in an entirely
different fashion--and entirely separately from--the charge for
purchased gas. It is usually calculated under traditional public
utility cost-of-service ratemaking principles. As with the purchase of
gas for customers, it is determined under the supervision and
regulation of the state public service commission.
The charge for natural gas delivery service has traditionally been
determined under a form of ratemaking known as ``volumetric'' rates.
Under this methodology, the costs of operating the natural gas delivery
service are estimated for a year and then allocated to the projected
volumes of gas that will be delivered over that year. Thus, for each
unit of gas delivered by the utility the customer pays a small portion
of the cost of operating the utility. Should a utility deliver more gas
in a year than projected, it will (all other things being equal) earn
more than its projected costs. Should a utility deliver less gas in a
year than projected, then it will (all other things being equal) earn
less than the projected costs of operating its system.
A short example may make this situation more understandable. Assume
that the costs of operating utility delivery service are $100 per year.
This is composed of operations and maintenance expense of $65,
depreciation of assets of $8, taxes of $12, and return on invested debt
and equity capital of $15. Assume also that it is projected that the
utility will deliver 100 units of gas per year. In this instance, the
unit cost of delivering natural gas will be $1. Should consumers
install new energy-efficient appliances during the year such that
actual deliveries are 95 units, then the utility receives delivery
revenue of $95. This is less than the actual cost of operating the
service. The $5 shortfall drops straight to the bottom line and
represents a diminution in the utility's return on equity.
This example makes plain that, under a volumetric form of rate
design, energy efficiency and energy conservation can be injurious to
the shareholders of the natural gas utility, particularly if it turns
out to be more significant than projected in the ratemaking process.
The consumer has an interest in minimizing its energy bill. The utility
has an interest in providing its expected return on capital to its
shareholders (who all ultimately are energy consumers as well).
A fundamental, and probably immutable, fact is that natural gas
utilities are fixed-cost businesses. The costs of the distribution
service that they provide do not vary much in relation to the amount of
gas that the utilities' customers consume.
As noted previously, natural gas consumers have, over the past
twenty-five years, reduced their consumption by twenty-five percent, or
approximately one percent per year. Over the past five years the most
recent data indicate that this trend has accelerated dramatically.
Although what the exact trend will be in the future is unclear, there
is no indication that the trend of natural gas consumers to conserve
will stop.
This fact, that traditional utility rate design may discourage
energy efficiency, has been recognized on a number of fronts over the
past five or more years. Fortunately, it can be corrected relatively
easily. The solution is to decouple (i.e., disconnect) a utility's
revenue stream from the volume of gas actually delivered. This is not
by any means a radical or unsound policy. Most of a utility's costs are
fixed--that is, they do not vary with the volume of service delivered.
Moreover, most utility's systems are sized to be able to meet
deliveries on the peak cold day of the winter. From a ratemaking
perspective, therefore, it is by no means irrational to suggest that
the revenue should be recovered independent of the volume of gas
delivered.
This model has almost universally been adopted in the cable
television industry. The customer pays the same amount per month
regardless of how many different channels are watched or how many hours
the cable box is on. Similarly local telephone service is largely
recovered through a fixed monthly charge. Both of these industries are
similar to natural gas distribution in that they have large capital
costs, most of their costs are fixed, and the network system is sized
to meet peak demand.
Many states, as well as federal policy makers, now encourage energy
efficiency and conservation. Consequently, several states have put in
place rate mechanisms that ``decouple'' the recovery of distribution
system delivery costs from the volume of gas delivered to customers.
Doing so frees the utility to promote conservation and energy
efficiency actively without a detriment to its shareholders.
There are variety of ratemaking devices that can be implemented to
achieve decoupling. One is ``straight fixed-variable'' rate design.
Under that approach, all of the costs of operating the utility system
are collected in twelve monthly charges. This is the system used by the
Federal Energy Regulatory Commission for interstate natural gas
pipelines.
Another somewhat different method is weather normalization. This
method takes the effects of differing weather (which is perhaps the
largest determinant of volumes in the natural gas delivery business)
out of the revenue stream. It does not, however, take into account the
effects of energy efficiency or conservation. A related approach might
be called ``efficiency normalization.'' Like weather normalization, it
takes the effects of efficiency and conservation gains out of the
utility's revenue stream. In Oregon, for example, the utility actually
compares consumption over time on a customer-by-customer basis to make
an adjustment to rates to make the utility whole for the effects of
conservation and efficiency.
The essence of revenue decoupling, however, effectuated, is to
adjust the actual delivered volumes to the weather-normalized volumes
underlying the last rate case of the natural gas utility. When
delivered volumes deviate from the level forecasted in the rate case,
the true-up mechanism adjusts the distribution charge.
Decoupling is also a fair and efficient means to design utility
rates from the customer's perspective. The symmetrical nature of
decoupling prevents the utility from increasing its earnings by
increasing its delivered volumes because any additional distribution
charges collected by the utility in that event are, one way or another,
refunded to customers. Moreover, decoupling does not shelter the
utility from the impact of increased costs or provide a guarantee that
the company will achieve its authorized return on equity. To be clear,
decoupling is not ``incentive regulation'' because there is no reward
or bonus for the utility.
An independent evaluation of the Oregon decoupling tariff \1\ found
the program to be worthwhile and in the public interest. The evaluators
found that the mechanism is effective in reducing the variability of
utility revenues; removes disincentives to promote energy efficiency;
changes the company focus from sales advertising to conservation
advertising; does not reduce the incentive for good customer service;
and does not shift risk to customers.
---------------------------------------------------------------------------
\1\ A Review of Distribution Margin Normalization as Approved by
the Oregon Public Utility Commission for Northwest Natural, Christensen
Associates Energy Consulting, LLC, March 2005.
---------------------------------------------------------------------------
At present nine states have adopted some form of revenue
decoupling, and a number more are considering it. Decoupling has taken
a number of forms in these states, depending upon their individual
needs, circumstances, and policies. In some of these states, decoupling
is linked to public benefit funding that is aimed directly at energy
efficiency.
The beneficial nature of decoupling is not simply a view of AGA and
the natural gas utility. AGA and the Natural Resources Defense Council
have adopted a joint declaration concerning the value of decoupling.
Furthermore, the National Association of Regulatory Utility
Commissioners, the trade association of state public service
commissioners, has adopted a resolution urging the states to review
their practices to determine whether innovative rate designs of this
sort can assist in bringing natural gas costs down.
AGA endorses the provisions of Section 273 concerning natural gas
and takes no position on the provisions concerning electricity.
______
Statement of ABB Inc.
energy efficiency in the power grid
The U.S. Department of Energy estimates that increasing energy
efficiency could reduce national energy use by 10% or more in 2010, and
as much as 20% in 2020, with net economic benefits for consumers and
businesses as a result.
The concept of energy efficiency has moved in and out of favor with
the public over the years, but recently has gained renewed broad-based
support. The confluence of economic, environmental and geopolitical
concerns around reducing America's exposure to disruptions in the
supply of energy has moved efficiency to the fore. As a result, a
number of initiatives are now underway to improve efficiency in a
variety of areas, but much more can and should be done.
The U.S. is not alone in these efforts. China presently has ten
efficiency programs aimed at bringing the country's energy intensity--
the amount of energy used per unit of GDP--in line with rivals such as
the U.S. and the European Union. The EU likewise has taken steps to
improve energy efficiency in its member countries by 20% over the next
fifteen years.
Efficiency is a simple concept which can perhaps best be summed up
with the cliche, ``doing more with less.'' Perhaps the best-known
efficiency program among American consumers is the Energy Star program
that helps them to identify appliances like dishwashers and
refrigerators that use less energy than other similar models. Indeed,
the term ``efficiency'' is typically associated with how energy is
consumed at the point of end use, but the concept of efficiency can
also be applied to how energy is produced and distributed.
This paper will focus primarily on the electric power system, where
most end-use applications outside of transportation and heating get
their energy. We will first present a broadly inclusive definition of
efficiency and then explore a variety of ways the grid can be made more
efficient.
generation
To gain an appreciation for the impact that improved efficiency can
have, it is useful to examine the price we pay for inefficiency, and
nowhere is this more apparent than in the generation of electric power.
Typically, the process converts the latent energy in a fuel stock
(coal, gas, uranium) into mechanical energy in a generator and
ultimately electrical energy. However, other generation sources like
wind and hydro power use the mechanical energy of moving masses of air
or water to produce electric energy. Still other devices, such as fuel
cells, use chemical reactions to generate electric energy. In all of
these cases, though, some of the input energy is lost in the process.
The efficiency of generation varies widely with the technology
used. In a traditional coal plant, for example, only about 30-35% of
the energy in the coal ends up as electricity on the other end of the
generator. So-called ``supercritical'' coal plants can reach efficiency
levels in the mid-40's, and the latest coal technology, known as
integrated gasification combined cycle or IGCC, is capable of
efficiency levels above 60%. The most efficient gas-fired generators
achieve a similar level of efficiency.
Obviously, though, even at 60% efficiency there is a tremendous
amount of energy left behind in the generation process. That represents
a higher cost of production for the generator, as well as a substantial
waste of limited resources. There is, therefore, tremendous economic
and ecological incentive to improve the efficiency of power generation
so that more of the energy content of the input fuel is carried through
to the output electricity. There are a variety of ways to improve
generator efficiency, such as combustion optimization using modern
control systems, but for the purposes of this paper we will focus on
what happens after the generation process.
transmission and distribution
Once electric energy is generated, it must be moved to areas where
it will be used. This is known as transmission--moving large amounts of
power over sometimes very long distances--and is separate from
distribution, which refers to the process of delivering electric energy
from the high voltage transmission grid to specific locations such as a
residential street or commercial park. Distribution is usually
considered to encompass the substations and feeder lines that take
power from the high voltage grid and progressively step down the
voltage, eventually to the 120v level at which power enters our homes.
The transmission and distribution or ``T&D'' system, then, includes
everything between a generation plant and an end-use site. Along the
way, some of the energy supplied by the generator is lost due to the
resistance of the wires and equipment that the electricity passes
through. Most of this energy is converted to heat. Just how much energy
is taken up as losses in the T&D system depends greatly on the physical
characteristics of the system in question as well as how it is
operated. Generally speaking, T&D losses between 6% and 8% are
considered normal.
It is possible to calculate what this means in dollar terms by
looking at the difference between the amount of electric energy
generated and the amount actually sold at the retail level. According
to data from the Energy Information Administration, net generation in
the U.S. came to over 3.9 billion megawatt hours (MWh) in 2005 while
retail power sales during that year were about 3.6 billion MWh.* T&D
losses amounted to 239 million MWh, or 6.1% of net generation.
Multiplying that number by the national average retail price of
electricity for 2005, we can estimate those losses came at a cost to
the U.S. economy of just under $19.5 billion.
---------------------------------------------------------------------------
* Graphics in this document have been retained in Committee files.
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Congestion charges represent another significant cost of
inefficiency in the T&D system, but are only partially determined by
the physical characteristics of the grid. Congestion occurs when the
scheduled or actual flows of electricity are restricted either by
physical capacity constraints on a particular device or by operational
safety constraints designed to preserve grid reliability. In order to
meet demand, the system operator must find an alternative source of
power that avoids the bottleneck. That alternative generator will be
less economical, and therefore less efficient from a market
perspective. A more robust T&D system, then, can provide a level,
congestion-free playing field on which generators can compete.
Congestion is the result of a number of factors, notably a lack of
adequate transmission investment and an increase in bulk power
transactions in competitive energy markets. Recent figures on
congestion at a national level are difficult to ascertain, however the
experience of two of the nation's largest power markets will serve to
illustrate the scope of the problem.
The California Independent System Operator reported congestion
costs of $1.1 billion in 2004, $670 million in 2005, and $476 million
in 2006. It's worth noting that the ISO attributes much of the
reduction in the '04-'05 period to critical expansions on the state's
``Path 15'' north-south transmission corridor. Similarly, the PJM
interconnection, which serves the largest territory of any regional
transmission organization in the U.S., reported congestion costs of
$750 million in 2004, $2 billion in 2005, and $1.6 billion in 2006. PJM
notes that since 2002, congestion costs have come in at 7-10% of annual
total billings.
As these figures make clear, the cost of inefficiency in the T&D
system is significant. However, the impact of congestion is not limited
to the cost associated with dispatching less economical generation.
Often the situation requires grid operators to curtail service to
consumers in some areas to protect the integrity of the grid as a
whole. These ``transmission loading relief'' actions (TLRs) have
increased dramatically in recent years, up nearly 150% just in the
2001-2005 period.
Clearly too there is an inference to be drawn from these numbers
about the relationship between efficiency in the T&D system and the
reliability of that system. In every region of the U.S., for example,
there are generation plants designated by the local grid operator as
``reliability must-run'' or RMR. These units are run regardless of
their economic merit because their output is needed to maintain voltage
levels. RMR units are often older, dirtier and less efficient than
modern plants, due to the fact that they tend to be located in urban
areas where siting new plants is all but impossible. There are
alternatives to RMR generators (i.e., FACTS devices, which are
described in a later section), but our current reliance on them can be
viewed as a byproduct of a less-than-optimal T&D system.
demand-side energy efficiency
The average person would likely point to energy consumption as the
point where ``efficiency'' measures can be applied, and while our focus
here is mainly on the supply side, it's worth noting a few examples to
illustrate the impact of demand-side efficiency efforts.
Most people are probably familiar with the Energy Star program
mentioned earlier, or with the increasing popularity of compact
fluorescent light bulbs that use a fraction of the electricity used in
conventional bulbs to produce the same amount of light. But the single
largest consumer of electric power is the industrial motor, which is
used to run everything from assembly lines to compressors to the fans
that blow air into the combustion chamber of a coal-fired generator.
It is estimated that fully 65% of industrial power is used in
motors of various sizes, most of which run at full speed whenever they
are turned on, even if they don't need to. This is because the vast
majority of industrial motors are controlled by drives that cannot
alter the speed of the motor. Variable speed drives, also known as
variable frequency drives, ramp the motor's speed up or down to meet
the requirements at a given moment in time. The resulting energy
savings can be enormous. VSDs can reduce consumption by as much as 60%,
which in energy-intensive facilities can equate to millions of dollars
a year in energy costs.
What's important to note here is the leverage that demand-side
efficiency improvements can have when they a) greatly impact a small
number of large energy consumers (e.g., VSDs), or b) have a more modest
impact that is multiplied across many smaller energy consumers (compact
fluorescent bulbs). Obviously, the former case is more easily realized
than the latter, if only because there are relatively few people who
need to be convinced of the value of the new approach. Consider, then,
the potential of measures that enjoy the best of both worlds--a
multiplicative effect combined with a small number of decision makers.
That, in essence, is the main selling point for supply-side efficiency
in the power system, and is where ABB has focused much of its
technology and expertise. If a single utility implements a given
technology across its entire system, thousands if not millions of
customers come along for the ride.
improving efficiency in the t&d system
One example of efficiency measures aimed primarily at the utilities
that operate the T&D system is an initiative underway at the U.S.
Department of Energy to implement new efficiency standards for
distribution transformers. These are the grey cylinders you see perched
atop utility poles in residential neighborhoods, and the metal-housed
units placed on cement pads at ground level. There are over 40 million
distribution transformers in service today in the U.S. They are among
the most ubiquitous and the most standardized pieces of electrical
equipment, and for that reason make a prime target for improvements
that can then be propagated across large areas.
The proposed standards will have a relatively modest impact on the
efficiency of a given transformer, around 4% over current models.
However, when this incremental gain is multiplied across the thousands
of units operated by even a small utility, the result is impressive.
DoE expects to issue a final rule on the new standard later this year
with implementation set for 2010.
There are other initiatives at the distribution level, but if we
focus our attention on the measures that have the greatest potential
for improving efficiency, we inevitably must look to transmission.
There are numerous technologies that are already being applied to boost
efficiency in transmission, and still more that have yet to reach full
commercial implementation. In the following sections, we explore some
of these technologies.
HVDC
Most of the transmission lines that make up the North American
transmission grid are high-voltage alternating current (HVAC) lines.
Direct current (DC) transmission offers great advantages over AC,
however: 25% lower line losses, two to five times the capacity of an AC
line at similar voltage, plus the ability to precisely control the flow
of power. Historically, the relatively high cost of HVDC terminal
stations relegated the technology to being used only in long-haul
applications like the Pacific DC Intertie, which connects the vast
hydro power resources of the Columbia River with the population centers
of Southern California.
With the advent of a new type of HVDC, invented by ABB and dubbed
HVDC Light, the benefits of DC transmission are now being realized on
much shorter distances. The Cross-Sound Cable connecting Long Island
and Connecticut is one example of this technology.
FACTS Devices
A family of power electronics devices known as Flexible AC
Transmission Systems, or FACTS, provides a variety of benefits for
increasing transmission efficiency. Perhaps the most immediate is their
ability to allow existing AC lines to be loaded more heavily without
increasing the risk of disturbances on the system. Actual results vary
with the characteristics of each installation, but industry experience
has shown FACTS devices to enhance transmission capacity by 20-40%.
FACTS devices stabilize voltage, and in so doing remove some of the
operational safety constraints that prevent operators from loading a
given line more heavily. In addition to the efficiency gains, these
devices also deliver a clear reliability benefit.
Gas-Insulated Substations
Most substations occupy large areas of land to accommodate the
design requirements of the given facility. However, each time power
flows through a substation to step down the voltage, more energy is
lost as the power flows through the transformers, switches and other
equipment. The efficiency of the lower-voltage lines coming out of the
substation is also markedly lower than their high-voltage counterparts.
If power can be transmitted at higher voltage to a substation that is
closer to where the energy will be consumed, significant efficiency
improvements are possible.
Gas-insulated substations essentially take all of the equipment you
would find in an outdoor substation and encapsulate it inside of a
metal housing. The air inside is replaced with a special inert gas,
which allows all of the components to be placed much closer together
without the risk of a flashover. The result is that it is now possible
to locate a substation in the basement of a building or other confined
space so that the efficiency of high-voltage transmission can be
exploited to the fullest extent.
Superconductors
Superconducting materials at or near liquid nitrogen temperatures
have the ability to conduct electricity with near-zero resistance. So-
called high temperature superconducting (HTS) cables now under
development, which still require some refrigeration, can carry three to
five times the power of conventional cables. The losses in HIS cables
are also significantly lower than the losses in conventional lines,
even when the refrigeration costs are included. A major vendor of
superconducting conductors claims that the HTS cable losses are only
half a percent (0.5%) of the transmitted power compared to 5-8% for
traditional power cables. Superconducting materials can also be used to
replace the copper windings of transformers to reduce losses by as much
as 70% compared to current designs.
Wide Area Monitoring Systems
Much of the transmission system could feasibly be operated at a
higher loading, were it not for reliability concerns. However, if
operators were given the ability to monitor grid conditions more
precisely and in real time, some of these constraints would be removed.
One example relates to the simple fact that when transmission lines
heat up, the metal becomes pliable and the lines sag, which can cause a
short circuit if they come into contact with a tree or other grounding
object. Wide area monitoring systems (WAMS) have many promising
capabilities, one of which is line thermal monitoring. With this
functionality, transmission operators could conceivably change the
loading of transmission lines more freely by virtue of having a very
clear understanding of how close a given line really is to its thermal
limits.
other paths to improved efficiency
The technologies outlined above represent only a few of the many
available options for improving energy efficiency in the T&D system.
The Business Roundtable's Energy Task Force T&D working Group, which
ABB chairs, recently published a list of efficiency-enhancing actions
and technologies, some of which include:
Distributed generation/Microgrids
Underground distribution lines
Intelligent grid design (smart grids via automation)
Reduction of overall T&D transformer MVA
Energy storage devices
Three phase design for distribution
Ground wire loss reduction techniques
Higher transmission operating voltages
Voltage optimization through reactive power compensation
Asset replacement schedule optimization
Distribution loss reduction via distribution automation
Power factor improvement
Load management (e.g., smart metering or price-sensitive
load control)
Power electronic transformers
These options vary in terms of expense and the changes they imply
for equipment purchasing or operational practices. We list all of them
here simply to illustrate the many ways in which greater energy
efficiency in the power grid can be achieved.
benefits of improved efficiency
The ``business case'' for energy efficiency is fairly
straightforward: using less energy means paying less for energy. But a
simple cost-benefit analysis might overlook some very important
benefits that efficiency brings.
At this point, there is little doubt that regulation of carbon
dioxide is coming, with the power sector as a primary target. While
there are technologies both available and in development to mitigate
CO2 emissions from power plants, the fact remains that the
easiest ton of CO2 to remove from the atmosphere is the one
that is not emitted in the first place. Greater energy efficiency in
the T&D system means lower emissions in generation to deliver the same
amount of consumed energy.
Fuel conservation and diversity is another strong selling point for
efficiency, and here the benefits extend well beyond economic and even
environmental considerations. Reducing U.S. dependence on foreign fuel
supplies--be they oil, natural gas or even coal--pays obvious dividends
from a security standpoint, and the less we use, the less we have to
buy.
Finally, within the context of the power system itself, it's
important to recognize how interrelated energy efficiency is with grid
reliability. In many areas of the U.S., transmission constraints have
reached the point where they not only cost consumers billions of
dollars in congestion charges, they threaten the integrity of the power
system itself. Over the past twenty years, the situation has continued
to deteriorate to the point where now the question of installing a new
line is nearly moot in some locations. By the time it was completed,
demand would long since have outstripped the ability of the local grid
to meet it, so a short-term solution must be implemented in the
interim.
FACTS devices offer a good example of how efficiency and
reliability improvements often go hand in hand. Unlike siting and
building a new transmission line, FACTS devices can be implemented
quickly (less than a year from purchase to completion in some cases).
They immediately boost the transmission capacity of the given line
while also providing voltage support and bolstering the local grid's
ability to withstand disturbances.
As the reliable supply of energy, especially electric energy,
continues to grow in importance, the potential impact of energy
efficiency cannot be overstated. With the array of technologies and
methodologies now available, efficiency stands ready to play a much
larger role in the energy equation.
______
Statement of Stephen R. Yurek, President, Air-Conditioning and
Refrigeration Institute
Mr. Chairman, Members of the Committee, my name is Stephen Yurek
and I am President of the Air-Conditioning and Refrigeration Institute
(ARI). I appreciate this opportunity to present this written testimony
to you about ``The Energy Efficiency Promotion Act,'' S. 1115, and ways
that we believe that government can partner with industry to promote
new and effective energy efficiency programs.
Today, I am speaking on behalf of ARI, a trade association that
represents the manufacturers of over 90 percent of American produced
air conditioning and commercial refrigeration equipment. ARI represents
a domestic industry of 180 HVACR manufacturing companies, employing
approximately 130,000 men and women in the United States. Our shipments
are approaching $50 billion annually. This industry is a domestic
manufacturing industry, contributing a positive $23 billion to the U.S.
balance of trade and employing over 150,000 Americans.
We also have a long history of support for energy efficiency. ARI
was a principal supporter of the National Appliance Energy Conservation
Act of 1987 (NAECA). By joining forces with the Natural Resources
Defense Council, various environmental groups, and a number of states,
we negotiated the initial national minimum standards and standards
review schedule for a wide range of residential products. Five years
later, we negotiated the national minimum standards for commercial
products that were enacted in the Energy Policy Act of 1992.
These acts are a mere sample of key energy efficiency and
environmental initiatives ARI has helped to pass. As of late, our
efforts led to agreements on national standards for commercial
refrigeration products, large packaged air-conditioning units, and
commercial ice makers. These standards were included in the 2005 Energy
Policy Act. We have also completed an agreement to set standards for
walk-in refrigerators and freezers that we are currently looking for a
legislative home.
Over the years, ARI has worked tirelessly to support energy
efficiency. The American HVACR manufacturers that ARI represents are
committed to continuing to build an industry that maintains a dual
focus: To remain steadfast in supporting energy efficiency policies
while manufacturing the best product possible for the American people.
While ARI is in general supportive of initiatives that promote
energy efficiency, we believe that the bill being considered has a
number of deficiencies that, if not corrected, could negatively impact
the HVACR industry. In particular, ARI is strongly opposed to the
following sections of the Act:
section 201: definition of ``energy conservation standard''
ARI opposes the Act's revised definition of ``energy conservation
standard'' and requests that Section 201 be deleted in its entirety. By
expanding its meaning to include one or more energy performance
standards and one or more design requirements, the new definition will
authorize DOE to regulate more than one energy efficiency descriptor as
well as more than one design requirement. Thus, government agencies or
regulating authorities would have the ability to set multiple
performance standards and to interfere with product design. The air
conditioning industry is already heavily regulated and has to comply
with a myriad of test and certification requirements to ensure that
products meet federal minimum energy efficiency standards established
under NAECA and EPACT. Section 201 gives DOE the authority to
significantly expand the testing burden on manufacturers by requiring
more than just one performance standard. However, there is absolutely
no evidence that multiple performance standards will ultimately result
in additional energy savings. In addition, ARI believes that the role
of the Federal government should not be to prescribe design standards.
Prescriptive design requirements are contrary to technological
innovations and should not be encouraged by Congress. Equipment design
is better handled by manufacturers. Furthermore, the DOE does not have
the expertise, time, or resources to accurately and effectively
redesign the plethora of heating and cooling appliances that the IIVACR
industry manufactures.
section 202: regional standards for heating and cooling products
ARI strongly opposes regional standards. The proposed legislation
contradicts the language of NAECA, legislation that stakeholders--
industry, environmental groups and states--labored so hard to achieve.
We oppose Section 202 for the same reasons we negotiated NAECA in the
first place. Regional standards would complicate product distribution,
create additional bureaucratic red tape, and be very difficult to
enforce. Today, enforcement of national standards is directed at the
manufacturing level and is fairly simple. A product offered for sale in
this country that does not meet the applicable federal standard is
unlawful on its face. ARI's efficiency certification programs assist
DOE standards enforcement by verifying that products covered by those
programs satisfy applicable federal standards.
If uniform national standards were replaced by regional standards,
standards enforcement would have to shift to the retail level. This
would prove to be much more difficult and certainly beyond the
resources of DOE. Difficulties would especially arise in the states
that border an adjacent standards region. Ineffective or inconsistent
standards enforcement would result in market uncertainty for
manufacturers, which would make rational product planning and
distribution much more challenging.
section 203: furnace fan efficiency
ARI opposes the provisions of this section for a number of reasons.
First, a provision giving DOE the authority to review furnace fan
efficiency was included in EPACT 2005 as permissive not mandatory. The
change proposed in Section 203 would change this to a mandatory
requirement on DOE. Therefore, DOE can at any time initiate a
rulemaking if there is enough justification to do it. Second, we see no
compelling arguments to mandate that DOE complete a rule on furnace fan
efficiency by December 31, 2012, while there is little evidence that
such a rule will save any significant amount of energy. During the
heating season, the heat generated by the furnace fan is not wasted.
Rather, it is delivered to the conditioned space. During the cooling
season, the same furnace fan is used to move the cold air in the
conditioned space. However, the fan energy consumption is accounted for
and captured in the determination of the energy efficiency rating of
residential central air conditioners. Therefore, establishing an
efficiency standard for the furnace fan would not produce significant
energy savings in the heating season and would constitute double
regulation of central air conditioners. We request that section 203 be
deleted in its entirety.
section 205: preemption limitation
ARI also opposes a policy that promotes the dissolution of federal
preemption when the DOE fails to set efficiency standards for a covered
product, or when the DOE deliberately decides not to set an efficiency
standard for a covered product because it was deemed not technically
feasible or economically justified. Concern about whether DOE is
fulfilling its statutory responsibilities in this area should be
addressed through Congressional oversight of the agency rather than by
automatic abdication of federal authority to the states. This would
result in significant unpredictability for manufacturers and confusion
in the market.
ARI firmly believes in voluntary self regulation, but there are
certain issues that require government assistance in order to ensure
fair competition to protect consumers. However, when the federal
government fails to actively manage these issues, special interest
groups begin advocating for state or regional appliance standards. ARI
strongly supports federal programs that provide preemption provisions
for regulatory programs. Federal preemption promotes predictability and
consistency in regulations particularly regarding energy performance
standards, labeling requirements, information disclosure, and
marketing--therefore, avoiding duplicitous or inconsistent state
regulations.
In order for the HVACR industry to produce efficient, reliable
products, preemption and energy conservation regulations must be
streamlined to fit one national standard. This will provide our
industry with consistent policies that will not disrupt the heating and
cooling appliance marketplace. ARI strongly supports the current system
administered by DOE and urges Congress not to undercut a program that
has worked and continues to work by providing significant actual energy
savings.
effective alternative energy efficiency policy
If it is the purpose of this legislation to save energy as soon as
possible, the proposed legislation as drafted will not accomplish this
goal. However, we are willing to enter into discussions with you,
members of the Committee, your staffs, and other interested parties to
develop policies that will attain this goal. Some of the policies that
could be pursued focus on a combination of effective minimum efficiency
standards, federal efficiency programs, consumer incentives, research
programs, and worker training and certification. Specifically:
Residential Energy Efficiency Initiatives.--Incentives,
rebates and other voluntary programs to encourage the purchase
of higher efficiency residential products.
Commercial Energy Efficiency Tax Policy.--Pass the ``Cool
and Efficient Buildings Act'' to accelerate the current 39-year
depreciation schedule for HVACR equipment to encourage the
purchase of newer, energy efficient, more environmentally
friendly, commercial cooling equipment in buildings and reflect
the actual useful life of the equipment.
Worker Education and Certification.--Enhanced education and
training through worker training programs, shifting general
education funding to applied technology programs, stronger
state licensing, and technician certification--In the HVACR
industry, the Industry Competency Exams (ICE) and the North
American Technician Excellence (NATE), provide the benchmarks
to ensure that equipment is installed and repaired correctly to
reach optimum performance.
Federal Efficiency Programs.--Continued federal funding and
use of innovative financing mechanisms, to help increase the
energy efficiency of government owned housing and buildings. We
also call on federal and state governments to institute
aggressive programs to expedite the replacement of all CFC
chillers, saving energy and protecting the environment.
Research and Development.--Comprehensive energy policy must
include significant funding for research and development of
energy efficient technologies including research for the next
generation of air conditioning and commercial refrigeration
equipment.
It is our hope that we can work with the committee to fully develop
these and similar policies to encourage, promote and achieve actual
energy savings.
In order for the HVACR industry to produce efficient, reliable
products, preemption and energy conservation regulations must be
streamlined to fit one national standard. This will provide our
industry with consistent policies that will not disrupt the heating and
cooling appliance marketplace. ARI strongly supports the current system
administered by DOE and urges Congress not to undercut a program that
has worked and continues to work by providing significant actual energy
savings.
Mr. Chairman, thank you for the opportunity to present the views of
the HVACR industry on the Energy Efficiency Promotion Act of 2007. I
would be pleased to answer any questions you or the Members might have,
and I should add that the expertise of our industry is at your service
to aid you in arriving at the appropriate decisions in this important
matter.
______
Statement of ELCON, the Electricity Consumers Resource Council
revenue decoupling: a policy brief of the electricity consumers
resource council
Every complex problem has a simple solution too good to be
true, and it usually is.--Attributed to H.L. Mencken.
introduction
For over two decades advocates of ratepayer-funded energy
efficiency and load reduction programs have recommended that the
``link'' between utility's revenues and its sales be ``decoupled'' to
eliminate a utility's disincentive to sponsor such programs. The
argument is that the combination of the utility management's fiduciary
duty to shareholders and the use of rates based on a revenue
requirement, that includes sales in its calculation, discourages
utilities from being competent vendors of energy efficiency and load
reduction services.
Revenue decoupling (RD) is generally defined as a ratemaking
mechanism designed to eliminate or reduce the dependence of a utility's
revenues on sales. It is adopted with the intent of removing the
disincentive a utility has to administer and promote customer efforts
to reduce energy consumption and demand or to install distributed
generation to displace electricity delivered by the utility's T&D
system. In regulatory parlance, RD takes the form of a tracker or
attrition allowance in which authorized per customer margins are
subject to a true-up mechanism to maintain or cap a given level of
revenues or revenues per customer. Variations from the targeted sales
or revenues are subsequently recaptured from ratepayers through a
surcharge or credit.
In a significant departure from traditional cost-of-service
principles, which historically provides utilities with only the
opportunity to earn a fair return, RD guarantees actual earnings at the
level of authorized earnings. Under RD, a utility is indifferent to the
impact of sales levels or when the sales occur because of changing
economic conditions, weather, or new technologies.
ELCON members are strong supporters of energy efficiency and are
world-class practitioners of innovative technologies that reduce their
energy costs to improve their competitiveness. But ELCON strongly
opposes decoupling because it disrupts and distorts the utility core
business functions and is not a particularly effective way of promoting
energy efficiency or anything of benefit to customers. Time and time
again decoupling has been tried in several states, only to be suspended
because it unduly interferes with the overall regulatory process. ELCON
believes that there are other ways to promote energy efficiency and
load reduction services that have proven to be more effective. This
paper describes the simple mechanics of decoupling, why decoupling has
historically failed and is not likely to be any more effective in
future applications, and proposes alternative regulatory policies that
more effectively focus on market transformation and the effective
delivery of demand-side services.
THE MECHANICS OF REVENUE DECOUPLING: AN ILLUSTRATED EXAMPLE OF AN
ANNUALIZED RD MECHANISM \1\
------------------------------------------------------------------------
Year One Year Two
------------------------------------------------------------------------
Base Year Assumptions
Utility's Operating Costs (A)... $4 billion........ $4 billion
Utility's Rate Base (B)......... $5 billion........ $5 billion
Authorized Return to Equity 10%............... 10%
Owners (ROE).
Authorized Earnings to Equity $500 million...... $500 million (10%
Owners (C). of $5 billion)
Utility's Authorized Revenue (A $4.5 billion...... $4.5 billion
+ C).
RD Balance Account (D).......... 0................. $45 million
Baseline Sales (E).............. 45,000 GWh........ 45,000 GWh
Base Rate per KWh (A + C)/E..... $0.10............. $0.10
Effective Rate per KWh (F) (A + $0.10............. $0.101
C + D)/E.
Actual Sales YearActual Sales (G) (1% diviation 44,550 GWh 1% 45,450 GWh 1%
from baseline forecast). Below Baseline. Above Baseline
Actual Revenues Collected (H) (F $4,455 million.... $4,590 million
x G).
Unadjusted Earnings to Equity $455 million...... $590 million
Owners (I) (H minus A).
Reported (`Authorized') Earnings $500 million...... $500 million
(C).
Actual ROE (I/B)................ 9.1% Reduction of 11.8% Increase of
90 basis points. 180 basis points
Reported (`Authorized') ROE..... 10%............... 10%
End-of-Year Balance Account (D) $45 million....... ($90 million)
(A + C) minus H.
------------------------------------------------------------------------
\1\ This is a simplified example of revenue decoupling that assumes no
variable T&D costs or change in the number of customers. Also, tax
implications and accounting for price elasticity are ignored.
how decoupling works
RD mechanisms can take several forms but all accomplish the same
thing: customer rates are automatically adjusted to immunize utility
earnings from sales fluctuations.
The first example is illustrated on the spreadsheet on page 2. It
provides a simplified form of mechanism in which true-ups are done on
an annual or multi-year basis. The process usually starts with a
baseline determination of a utility's revenues that may include the
anticipated consequences of a DSM program. This is the `base case' in
the illustration.
The illustration holds this baseline constant over a two-year
period. In the first year, actual sales are 1% below the baseline
amount; in the second year actual sales are 1% above the baseline. The
result is a revenue shortfall in the first year of $45 million. Absent
any other offsetting revenue recovery mechanism, this shortfall reduces
earnings to equity owners and the expected ROE. This illustrates a main
argument of proponents of RD that any small reduction in sales can
produce a significant reduction in the utility's allowed earnings. In
the example, the actual ROE is 9.1%, a reduction of 90 basis points
from the allowed ROE of 10%.
Applying the RD mechanism in the second year, revenues are adjusted
by increasing the customer rate upwards to ensure that sufficient
revenues are collected to achieve the allowed ROE. However, actual
sales are 1% above the baseline amount and the utility over collects
$90 million. The actual ROE is 11.8% or 180 basis points above the
allowed ROE. This simple example highlights the potential year-to-year
volatility of the RD mechanism.
With compounding economic events (e.g., recessions), the accrual
account can grow quite large unless more frequent rate cases or true-
ups are ordered. RD mechanisms tried in the past tended to generate
substantial accruals that quickly became a dilemma for regulators and a
burden for ratepayers.
The second example (on page 4) illustrates decoupling on a revenue-
per-customer (RPC) basis. The base year revenue collected per customer
(RPC) on an average customer class basis is fixed, and the annual
charge is then typically allocated on a monthly, normalized basis over
a reference year. Each month the actual revenues collected per
ratepayer are compared to the allowed monthly RPC and the difference is
either credited or debited to a balancing account. Customers would
still be billed on a per-unit consumption basis, but the rate would be
trued-up based on actual revenues collected per customer. This prevents
the utility from earning additional profit from unexpected sales but
also ensures that the utility recovers its costs resulting from
unexpected customer growth. For unexpected declines in sales per
customer and/or declines in the number of customers, the mechanism
works the same way. Under- or over-recoveries in any month are
automatically trued-up the following month or at the end of the year.
The RPC mechanism highlights the `blunt instrument' nature of
decoupling. The utility is made whole for earnings losses that go
beyond the limited losses caused solely by energy efficiency and load
reduction programs. The net effect of the true-up mechanism is to put
the utility's revenue stream on autopilot. This isolates utility
management and equity owners from the normal business risk inherent to
the utility industry, notwithstanding that the existence of a ROE is to
reward equity owners with a return on their investment that includes a
sizeable risk premium commensurate with the business risk. In short, an
RD mechanism makes retail electric distribution service virtually risk
free for utilities.
THE MECHANICS OF REVENUE DECOUPLING: AN ILLUSTRATED EXAMPLE OF REVENUE-
PER-CUSTOMER (RPC) MECHANISM WITH MONTHLY TRUE-UPS \1\
------------------------------------------------------------------------
Amount
------------------------------------------------------------------------
Base Year Allowed RPC For a Base Year
MonthBase Year Rate per kWh (A)................ $0.10
Base Year (Month) Sales in kWh (B)........ 1 billion
Base Year (Month) Revenue (A x B)......... $100 million
Base Year Number of Customers (C)......... 1,000,000
Allowed RPC (A x B)/C..................... $100 Calculation of Revenue Adjustment For A
Single MonthBase Year Rate per kWh (A)................ $0.10
Actual Sales for the Month (D) 5% 0.95 billion
Reduction from Baseline (B).
Actual Revenues for the Month (E) (A x D). $95 million
Actual Number of Customers (F)............ 1,010,000
Allowed RPC............................... $100
Allowed Revenues (G) (F x E).............. $101 million
Revenue Adjustment (H) (G-E).............. $6 million
Forecasted Next Month Sales (I)........... 1.0 billion
Rate Adjustment (True-Up) (H/I)........... $0.006
------------------------------------------------------------------------
This adjustment is added to rates for sales the following month, or at
the end the year.
\1\ This example assumes that sales per customer decline but the number
of customers grows.
elcon position & recommendations
A. Decoupling Promotes Mediocrity in the Management of a Utility.
The primary function of a regulated electric utility is and will
always be to efficiently sell and deliver electric energy to customers.
For investor-owned utilities, the profit-motive is a legitimate and
practical means to incent utility managers to operate their business in
a competent and efficient manner. There also need not be any conflict
with `unselling' the business' primary product by offering energy
efficiency and load reduction services.
Firms in many industries meet the competition by selling a range of
products competing for different segments of the market share. But in
regulated industries, such as electric utilities, rate structures and
regulatory policies may have to be aligned to make this work. The
attractiveness of revenue decoupling to many utility executives is that
it will immunize the company's earnings or revenues from sales
fluctuations. This can only promote mediocrity and indifference to the
utility's core business, a situation that should not be in the best
interests of either advocates of selling or unselling the energy
product.
B. Decoupling Shifts Significant Business Risk From Shareholders to
Consumers With Only Dubious Opportunities for Net Increases in
Consumer Benefits.
Decoupling does not create an economic incentive promoting greater
energy efficiency or load reduction. It establishes, at best, utility
indifference to these objectives. At the same time, it undermines
customer efficiency efforts and muddles price signals to consumers. For
example, conservation efforts are rewarded with higher future rates,
while excessive consumption paradoxically produces bill credits. This
is a cynical way to induce energy conservation that is not likely to be
effective. Decoupling only removes an alleged disincentive while at the
same time creating real disincentives for competent management of the
business. The Maine Public Utilities Commission stated in 2004:
Revenue decoupling does not . . . provide any positive
incentive for utilities to promote or support energy efficiency
or conservation programs; it only makes them financially
neutral to such activities.
There is growing national concern that utilities are under-
investing in infrastructure and not adequately planning for the future
needs of their customers. Why this situation has been allowed to happen
is troublesome given that for many utilities their allowed return is
already above their actual cost of capital. Regulatory policies need to
refocus utility management on its core responsibilities to efficiently
sell and deliver electric energy and to make prudent long-term
investments. Regulators must not bargain with their utilities from a
weak position that assumes that financial incentives in excess of a
reasonable return is necessary for ordinary business behavior. For all
practical purposes RD mechanisms put utility management on autopilot
and this will only further encourage them to ignore their core
business, the value of economic development in their franchise area,
and the broader needs of the utility's customers. These objectives are
at least as important as any attempt to only eliminate a disincentive
to energy efficiency.
An important feature of the financial structure of investor-owned
utilities is that the utility's shareholders assume normal business
risk. This is the risk-reward model that pervades private businesses in
the US and global economies. Shareholders are best able to diversify
business risk and market-based economies strive on this basis. Utility
ratepayers are least able to do so; yet it is the expressed intent of
RD mechanisms to shift risk from shareholders to consumers, a radical
departure from standard regulatory policy intended to balance the
interests of equity owners and ratepayers.
Proponents of RD mechanisms almost always support preserving the
utility's allowed return on equity at a level that assumes the
shareholders retain such risk. Getting utility management to buy into
the scheme would be difficult otherwise. Hence RD mechanisms are an
attempt to force energy efficiency and load reduction programs at any
cost and with no regard for the economic welfare of the impacted
ratepayers.
Using RD mechanisms in conjunction with general rate cases also can
have a ratchet effect on revenues and rates to the extent the RD
adjustments in between rate cases are memorialized in the next rate
case. For these and other reasons there is ample justification for
dismissing the alleged value of RD mechanisms in ratemaking.
C. Decoupling Eliminates a Utility's Financial Incentive To Support
Economic Development Within Its Franchise Area. This Includes
the Incentive To Support the Well Being of Manufacturers and
Their Workforce.
Promoting growth in sales through the addition and expansion of
business enterprises is a key area where utility financial incentives
and local public interests are precisely aligned. Revenue decoupling
breaks that alignment. While its sole purpose is the elimination of the
alleged disincentive to a utility's active support for energy
efficiency and load reduction programs, it also eliminates the
financial incentive to actively promote the economic development of the
utility's franchise area. More specifically, it neutralizes the
financial incentive to attract new commercial and industrial
businesses--and new job opportunities--to the utility's franchise area,
and to support the well being of its existing commercial and industrial
customers, unless those customer classes are specifically exempt from
the RD mechanism. ELCON believes that regulatory policies should
promote greater customer focus, not less.
D. Revenue Decoupling Mechanisms Tend To Address `Lost Revenues' and
not the Real Issue, Which Is Lost Profits.
To the extent that rates based on sales create a disincentive for
utility efforts to promote energy efficiency and load reduction, the
problem is in the rate design and the failure to abide by longstanding
cost-of-service ratemaking principles. RD mechanisms have the effect of
shifting the recovery of the utility's fixed costs into the customer
(or demand) charge of base rates where they belonged in the first
place. Thus, from one perspective, RD can be viewed as a stopgap
ratemaking mechanism to overcome rate designs that have been used and
abused for other misguided policy objectives such as the imposition of
cross-class subsidies and stranded cost recovery. The complexity of RD
mechanisms also makes them very expensive to administer and regulate.
This greatly reduces the transparency of the ratemaking process and,
even more so in the public mind, reduces the logic of cost causation.
The ability of a utility to have the opportunity to earn a fair
return on assets that are prudently incurred and that remain used and
useful is a grand compromise of regulation that has withstood the test
of over a hundred years of practice. Any increased opportunity for a
utility to earn its authorized rate of return must be commensurate with
an increase in business risk, not the reverse!
There is no inherent inconsistency that a utility would both sell
and `unsell' electric energy if rates are appropriately designed for
the different services. Selling competing products and services is a
common business choice and need not be a moral dilemma only for utility
executives. There are examples of state ratemaking practices such as
shareholder performance incentives that create more explicit economic
inducements for promoting energy efficiency and load reduction. These
practices avoid the collateral damage created by the `blunt instrument'
nature of RD mechanisms.
E. The First and Most Important Step Regulators Can Take To Promote
Energy Efficiency Is To Send the Proper Price Signals to Each
Customer Class.
In the short term, seasonal weather variations are the predominant
cause of variations from sales forecasts. For example, unseasonably
mild winters can lead to below forecast sales. In the longer term,
economic growth in the form of increased customer accounts and usage
drive electric sales and revenue growth. Ratepayer investments in
energy efficiency gradually moderate energy sales growth. Load shifting
efforts from peak to off-peak periods may not reduce overall kWh sales,
but should lower the cost of supplying that energy.
Thus the first and most important step regulators can take to
ensure that ratepayers themselves are induced to make energy efficient
investments and behavioral changes is to implement retail rates that
send the proper price signals to each customer class. This includes
allocation of fixed costs to customer (or `demand') charges and time-
variant energy charges. The Energy Policy Act of 2005 directs the
states to consider expanded deployment of time-based pricing and
advanced metering, and ELCON strongly encourages states to pursue this
path to more efficient pricing rather than the futile pursuit of
decoupling mechanisms.
Large industrial customers are almost always on some form of time-
of-use rate, with a demand charge, and this rate structure is extremely
valuable to the customer for evaluating the cost-effectiveness of
energy efficiency improvements in their manufacturing facilities. Large
industrial customers do not look for guidance from utilities on how to
co-optimize their energy consumption and manufacturing activities, and
`decoupling' does not make utilities experts in these matters. By
further blunting price signals to ratepayers, RD mechanisms actually
undermine incentives for customers to invest in more efficient
appliances and equipment because the reward for reducing consumption is
higher rates in the future. ELCON members believe that a utility's
fundamental responsibility is to efficiently sell and deliver energy at
the lowest possible cost, and appropriate price signals are an
essential component of that objective.
F. Several States Have Successfully Used Alternative Entities--
Including Government Agencies--For Unselling Energy. This
Creates an Entity Whose Sole Mission Is To Promote Energy
Efficiency, and Retains a Separate Entity Whose Responsibility
Is To Efficiently Sell and Deliver Energy.
Some states believe that simultaneously selling and unselling
electric energy is a real conflict of interest and have assigned the
administration of the unselling function to an independent entity or
agency whose mission is dedicated to promoting energy efficiency and
load reduction. This policy recognizes that another entity--the
utility--must be responsible for efficiently selling and delivering
electric energy. States that have taken this path are Wisconsin, Maine,
New Jersey, Ohio, Vermont, Oregon, New York, and Connecticut.
In New York, for example, the New York State Energy and Research
Development Authority (NYSERDA) is charged with the responsibility for
demand-side programs, and is funded by a systems benefit charge that is
collected by the utilities. Wisconsin established Focus On Energy as a
public-private partnership offering energy information and services to
residential, business, and industrial customers throughout the state.
There services are delivered by a group of firms contracted by the
Wisconsin Department of Administration's Division of Energy.
______
GAMA--An Association of Appliance & Equipment Manufacturers
Arlington, VA, April 24, 2007.
Hon. Jeff Bingaman
Chairman, Senate Committee on Energy and Natural Resources, SD-304
Dirksen Senate Office Building, Washington, DC.
Dear Mr. Chairman Bingaman: The Gas Appliance Manufacturers
Association (GAMA) and our witness, Mr. Robert Schjerven, CEO Emeritus
of Lennox International Inc., were pleased to have the opportunity to
present the views of our industries on S. 1115 during the hearing
conducted by the Senate Committee on Energy and Natural Resources
yesterday afternoon. We stand ready to assist the Committee and its
staff in moving this legislation forward with appropriate modifications
to resolve several serious concerns raised during the hearing.
GAMA continues to support the consensus efficiency standards for
residential boilers contained in the bill, but we wish to re-emphasize
that certain other provisions of the bill do not have consensus
support, but in fact are highly controversial. These provisions,
specifically sections 201, 202, 203 and 205, would make fundamental
changes to existing law and they would have very significant market
impacts. GAMA and the industries we represent are very concerned that
these provisions could be passed in haste without an understanding of
their potential for harm.
The proposal (section 201) to authorize the U.S. Department of
Energy (DOE) to establish regional standards for heating and cooling
equipment was, as you know, a major issue at yesterday's hearing. As
Mr. Schjerven explained in his testimony, compliance with regional
standards would impose substantial cost burdens on manufacturers and
distributors, and the likelihood that regional standards would be
difficult if not impossible, to enforce would exacerbate marketplace
disruption and economic losses. Deputy Assistant Secretary John
Mizroch, testifying on behalf of the Department of Energy (DOE),
observed that enforcement of regional standards would create additional
burdens on government that require further consideration. In responding
to your follow-up questions, Mr. Mizroch was unable to say how the
Department would enforce regional standards other than that the
Department would ``work with the states.''
Mr. Chairman, you posed the question to Mr. Mizroch whether,
regardless of the effectiveness of enforcement, a more stringent
regional gas furnace efficiency standard for northern states might get
some higher efficiency furnaces installed that might not otherwise be
the case. I hope it was clear from Mr. Schjerven's testimony that
market forces are responding very well to the demand for very high
efficiency furnaces (i.e. condensing furnaces having an efficiency
rating of at least 90%) in northern states.
Nevertheless, according to recent DOE analysis cited by Mr.
Schjerven in his testimony, 20-24% of households in northern states
would suffer a net economic loss if installation of a condensing
furnace were their only choice.
In any event, I want to be sure the Committee understands that
today enforcement of federal furnace efficiency standards, assisted by
GAMA's own furnace efficiency certification program, is very effective
and essential to a fair and competitive marketplace. GAMA would not be
able to assist DOE in enforcing regional standards because we have no
way of knowing where products get installed. Regional standards, the
enforcement of which would be much less certain, would create market
instability. Companies that earnestly tried to comply with the law
would face the risk of loss of sales to cheaters. The market disruption
and economic losses that would result from regional standards,
especially because standards enforcement would be uneven and more
complicated, would far outweigh any benefits of a regional standard,
especially considering the evident success of market forces in
producing energy savings.
Thank you again for considering our views on this important
legislation. I request that this letter be made part of the hearing
record.
Respectfully submitted,
Jack W. Klimp,
President.