# Testimony of Kateri Callahan, President Alliance to Save Energy

# Senate Energy and Natural Resources Committee, Subcommittee on Energy February 12, 2007

# Building Energy Efficiency and Utility Energy-Efficiency Programs

### Introduction 

The Alliance to Save Energy is a bipartisan, nonprofit coalition of more
than 100 business, government, environmental and consumer leaders. The
Alliance's mission is to promote energy efficiency worldwide to achieve
a healthier economy, a cleaner environment, and greater energy security.
The Alliance, founded in 1977 by Senators Charles Percy and Hubert
Humphrey, currently enjoys the leadership of Senator Mark Pryor as
Chairman; Duke Energy CEO Jim Rogers as Co-Chairman; and Senators Jeff
Bingaman, Byron Dorgan, and Susan Collins along with Representatives
Ralph Hall, Zach Wamp and Ed Markey, as its Vice-Chairs. Attached to
this testimony are lists of the Alliance's Board of Directors and its
Associate members.

The Alliance is pleased to testify at a hearing on policies and programs
to improve the energy efficiency of buildings, in particular by
encouraging utility energy-efficiency programs.

### The Potential Impact of Energy Efficiency in Buildings

Natural gas prices have doubled in the last few years, and electricity
prices also reached all-time highs. Including gasoline as well, recent
energy price increases cost American families and businesses over \$300
billion each year. The president recognized energy security as a major
issue in the State of the Union message. And the world's scientists just
reaffirmed the urgent need to reduce global warming. These problems are
not going to go away--- electricity use in the United States is
projected to grow by half by 2030. Such growth will lead to higher
prices, greater volatility, and increasing dependence on foreign natural
gas as well as foreign oil.

Building energy use is a major factor in these linked problems of energy
prices, energy security, and global warming, and must be a major part of
their solution. More than one-third of all energy used in the United
States, and more than two-thirds of electricity, goes to heat, cool, and
power buildings. Just over half of that is for homes, the rest for a
wide variety of commercial buildings.

Great strides have been made in improving the efficiency of appliances,
heating and cooling systems, equipment, and the building envelope
(walls, windows, doors, and roofs). At the same time the growing size of
homes and appliances, and the growth in electronic equipment have
overwhelmed the efficiency savings. An even greater savings potential
remains---a 2000 study by several national labs estimated that
energy-efficiency policies and programs could cost-effectively reduce
U.S. energy use in residential buildings by 20 percent and in commercial
buildings by 18 percent over a 20-year span, essentially reversing the
growth they projected in building energy use.

A combination of several policies and programs have made a real impact
on saving energy in buildings, including appliance standards, building
energy codes, labeling programs, tax incentives, and research and
development of new technologies---I will talk about some of these later
in the testimony. But one of the most effective approaches has been
utility energy-efficiency programs, and I will start with these.

### Utility Energy-Efficiency Programs

Why should utilities reduce their sales by helping their customers
reduce energy consumption? Many utilities have found that helping their
customers to save a kilowatt-hour of electricity is cheaper and easier
than generating and delivering that kilowatt-hour. Energy efficiency is
a key energy resource.

As California found out in 2001, a slight excess of demand for
electricity over available supply can cause blackouts, massive price
spikes, and economic turmoil. Small increases in demand have doubled
retail natural gas prices nationwide over the last few years, resulting
in plant shutdowns and home foreclosures. Energy-efficiency programs are
the cheapest, quickest, and cleanest way to respond to these challenges.
In California an aggressive campaign reduced peak electricity demand by
10% in less than one year, and thus helped avoid further shortages.

These demand-side management (DSM) programs use measures such as rebates
for efficient appliances, commercial lighting retrofits, and energy
audits to help their customers use less energy. The cost to the utility
for the energy savings is often around 2-4 cents per kilowatt-hour
(kWh), much less than the cost of generating and delivering electricity.
Such efficiency investments save consumers money, increase consumer
comfort, reduce air pollution and global warming, enhance economic
competitiveness, and promote energy reliability and security.

![](media/image1.wmf){width="3.5722222222222224in"
height="2.5305555555555554in"}Over the last two decades, states worked
with regulated utilities to avoid the need for about one hundred
300-Megawatt (MW) power plants. However, utility spending on DSM
programs nationwide was cut almost in half as the electricity industry
was partially deregulated in the late 1990's. In the last couple years
there has been a resurgence of interest in electricity and natural gas
energy-efficiency programs, with new programs in states such as Georgia
and Arkansas, and added funding in leaders like California and Vermont.
Some states have also chosen to run similar demand reduction programs
themselves.

### Utility Sector Energy-Efficiency Policies

*Recommendation: Fund the Energy Efficiency Pilot Program authorized in
Section 140 of the Energy Policy Act of 2005, and require states to
consider adopting policies to promote utility energy-efficiency
programs.*

Several major new reports have focused in part on the need for new
policies to promote utility energy-efficiency programs, including:

-   The *National Action Plan for Energy Efficiency* brought together
    more than 50 organizations, co-led by Jim Rogers, who joins me on
    this panel. They seek "to create a sustainable, aggressive national
    commitment to energy efficiency through gas and electric utilities,
    utility regulators, and partner organizations."

-   The Western Governors' Association Clean and Diversified Energy
    Initiative set an ambitious goal of a 20 percent increase in energy
    efficiency by 2020 in the West; the *Energy Efficiency Task Force
    Report* examines how to achieve it.

-   The U.S. Environmental Protection Agency's *Clean Energy-Environment
    Guide to Action* details many policies and practices states are
    adopting to manage their energy needs and air quality.

-   The Department of Energy, under section 139 of the Energy Policy Act
    of 2005, was supposed to issue a report last August on state and
    regional policies that promote utility energy-efficiency programs,
    in consultation with the National Association of Regulatory Utility
    Commissioners and the National Association of State Energy
    Officials.

Together these reports set forth policies needed to help utilities
create effective energy-efficiency programs. These policies include:

*Adopt energy efficiency goals, requirements, or commitments*, with
reporting on progress and oversight. For example, California conducted a
study of the potential savings from cost-effective energy-efficiency
programs in the state, set targets for each of its regulated electric
and natural gas utilities, required each utility to submit plans to meet
those targets, and approved \$2 billion in funding for the planned
programs over three years.

*Use energy efficiency as a priority resource* when planning to meet
customer needs. As utilities in some regions plan to build the first new
generating plants and transmission lines in years, they are showing more
interest in alternatives. For example, Georgia Power in its most recent
Integrated Resource Planning (IRP) process agreed to initiate the first
energy-efficiency programs in a decade.

*Provide robust and stable program funding*. Funds can be provided as
part of utility rates or through a small surcharge on utility bills (a
public benefits fund or system benefits charge). For example, Wisconsin
recently increased its public benefit fund and protected it from raids
to pay for state deficits.

*Set rates to incentivize utilities and customers*. Typically utilities
earn more by selling more energy. It is important to "decouple" utility
revenues from sales, or to provide utilities with performance incentives
for effective energy-efficiency programs, in order to align utility
benefits with customer benefits. For example, Northwest Natural, a
natural gas utility in Oregon, has a "conservation tariff" that helps it
promote energy savings rather than sales.

*Carefully evaluate energy-efficiency programs*, with measurement and
verification of energy savings and appropriate cost-effectiveness tests,
so all stakeholders can rely on the energy savings. For example, in
Texas savings estimates used to meet the state peak load reduction
requirements are verified by a contractor to the Public Utility
Commission of Texas.

These policies are typically set at a state level, by public utility
commissions or sometimes by state legislatures. However, as there are
compelling national interests that cannot easily be addressed by
individual states, federal action is needed. While most individual
states are not large enough to affect the shortage of natural gas that
has driven up prices, concerted federal action could have an impact. In
addition, the grid failures that blackened much of the Midwest and
Northeast in 2003 showed that reliability issues are not confined within
state lines.

As a focus for federal policy, the energy efficiency resource has
several advantages:

-   It is readily available in all parts of the nation,

-   It is available for direct natural gas use as well as for
    electricity,

-   It is cost-effective today, and

-   The potential savings are enormous.

The Senate recognized the potential of utility energy-efficiency
programs, and the need for a federal role, in its 2005 energy bill. In
addition to the required report in Section 139, Section 140 authorized
\$5 million a year for five years to create state pilot programs
designed to achieve 0.75% annual reductions in electricity and natural
gas use. In the Senate version of the bill, Section 141 would have
required state public utility commissions to consider policies to
promote utility energy-efficiency programs. The Alliance urges
appropriation of funds to implement Section 140, which was enacted, and
thanks the Senate for including funds in its appropriations bill last
year. We also strongly support enactment of Section 141. But we believe
more concerted federal action is needed.

### Energy Efficiency Resource Standard

*Recommendation: Enact a federal energy efficiency resource standard for
electric and natural gas utility energy-efficiency programs, coordinated
with any renewable electricity standard.*

Several states are already developing innovative policies to set
performance standards for utility energy-efficiency programs alongside
standards for generation from renewable sources.

Like a renewable portfolio standard (RPS), an energy efficiency resource
standard (EERS) is a flexible performance-based and market-based
regulatory mechanism to promote use of cost-effective energy efficiency
as an energy resource. An EERS requires utilities to implement
energy-efficiency programs sufficient to save a specified amount of
electricity or natural gas, such as 0.75 percent of the previous year\'s
sales. Note that an EERS is not a requirement that the utility\'s sales
decrease in absolute terms or a limit on its sales at all; it is a
performance requirement for the utility's energy-efficiency programs.

An EERS gives utilities broad flexibility about how and where to achieve
the energy savings. Utilities can meet an EERS through the kinds of
effective demand reduction programs that have been conducted in many
states for years. They can implement their own programs, hire energy
service companies or other contractors, or pay other utilities to
achieve the savings by buying credits. The program savings are
independently verified. Usually, the costs of the energy-efficiency
programs must be recovered from energy customers through utility rates,
but the savings from avoided energy supply are greater than the
efficiency cost.

According to the American Council for an Energy-Efficient Economy, a
national 0.75% EERS would by 2020:

-   Save 386 billion kWh of electricity (8 percent of total use) and
    3600 billion cubic feet of natural gas (14%) each year

-   Reduce peak electric demand by 124,000 MW (avoiding about 400 power
    plants),

-   Save consumers \$64 billion (net after investments), and

-   Prevent 320 million metric tons of carbon dioxide greenhouse gas
    emissions each year.

An EERS and an RPS may be used in combination. Renewable and efficiency
requirements reinforce each other in several ways in the states:

-   *Texas* has separate renewable and efficiency requirements. The
    efficiency targets focus on peak demand---utilities are required to
    avoid 10% of the expected increase in electric peak demand through
    efficiency programs. They have easily exceeded these targets.

-   *Connecticut* added to its RPS a separate tier under which utilities
    are to save 1 percent of electricity use each year through
    residential and commercial programs and combined heat and power.
    *Pennsylvania* includes energy efficiency with certain other
    resources in one tier of its alternative energy portfolio standards.

-   *Hawaii* and *Nevada* added efficiency resources as options in their
    portfolio standards---with higher overall targets---after utilities
    claimed to have difficulty meeting renewable targets (Nevada caps
    the amount efficiency can contribute).

-   *California* has a "loading order" that sets efficiency as the
    preferred resource; once cost-effective efficiency measures have
    been exhausted, utilities are to use renewable sources, and only
    then traditional sources. The PUC sets targets for utility
    energy-efficiency programs based on a study of their potential
    savings.

While there are many ways to structure an EERS, here is one approach.
The EERS would apply to utilities that distribute either electricity or
natural gas. Distribution utilities are regulated even in restructured
markets. A size cutoff excludes very small utilities.

The EERS would have savings targets that ramp up to require new
electricity savings each year equivalent to 0.75% of utility sales, and
natural gas savings equivalent to 0.5% of sales. The best state
energy-efficiency programs currently meet these targets.

Utilities would be allowed to achieve the required savings through a
combination of customer energy-efficiency programs, customer combined
heat and power, and reducing energy losses in the distribution system.
Utilities also could be allowed to buy credits from other utilities,
other companies with similar energy-efficiency programs, or the
government. Any funds the government collects could then be reserved for
state energy-efficiency programs.

The Department of Energy (DOE) would be required to issue regulations on
eligible measures and on how to count the savings. States would be given
the option to verify and enforce compliance or to have DOE assure
compliance. Funding for the required programs would be generated from a
small surcharge on utility bills, under state regulation. Under this
proposed approach, it will be most important for states to set rates in
a way that utilities are not financially penalized for reduced sales due
to effective energy-efficiency programs.

### Appliance Energy-Efficiency Standards

*Recommendations for [appliance efficiency standards]{.underline}:
Strengthen appliance efficiency standards by:*

1)  *adopting additional standards based on negotiated agreements,*

2)  *directing DOE regularly to review and update both test methods and
    standards to keep pace with rapidly changing technology, with
    accelerated consideration of the products with the greatest energy
    savings,*

3)  *clarifying DOE's authority to set standards that best serve the
    public interest, including multiple specifications for a single
    product, and regional standards,*

4)  *clarifying that federal preemption does not apply to products for
    which there is no federal standard, and*

5)  *providing adequate and stable funding for the DOE program.*

Appliance standards have been one of the most effective
energy-efficiency programs. Standards in place today are expected to
save 7 percent of U.S. electricity use and reduce greenhouse gas
emissions by 65 million metric tons by 2010, and are expected to save
consumers \$234 billion (this is *net* savings---after repaying any
increased first-cost for more efficient appliances). Energy efficiency
advocates and states have identified at least 15 appliance types with
significant energy savings opportunities but no federal efficiency
standards at present. Adopting efficiency standards for these 15
products alone could save 52 TWh of electricity and 340 billion cubic
feet of natural gas annually by 2020, and save consumers \$54 billion in
energy costs between now and 2030. Even more could be saved by updating
existing federal standards.

In recent years the Alliance and other energy-efficiency advocates have
focused much of our attention on lengthy delays and lack of progress at
DOE in setting required appliance standards. Due to a provision in EPAct
2005---and a lawsuit---last year DOE set an explicit schedule for
appliance standard rulemakings, which was later adopted in a court
order. So far, they have met that schedule. However, the two new
DOE-proposed standards (on distribution transformers and residential
furnaces) were far weaker than we and many others believe is required by
federal law, justified by DOE's own data and analysis, and needed in
order to meet the energy needs of our nation.

We urge you to monitor carefully both DOE's adherence to its regulatory
schedule and the actual outcome of the rulemaking process. In addition,
Congress should take additional steps to strengthen the federal
appliance standards and testing program and assure that it is adequately
funded.

First, since EPAct 2005 we have reached additional consensus agreements
with product manufacturers on new and updated standards. DOE believes it
does not have the authority to adopt one of them, for residential
boilers. In addition, efficiency advocates and industry groups are
currently in negotiations on several other products. We urge Congress to
act promptly to enact into law all negotiated agreements that are
reached.

Second, at present, there is no requirement for DOE regularly to review
and update all existing standards and test procedures. The existing law
does require a limited number of reviews for some products, but
subsequent reviews are discretionary. In addition, Congress should
establish a general requirement for periodic review of all standards and
test procedures every 5 to 7 years, updating them if justified, and
should provide funding for DOE to maintain this schedule. In particular,
DOE test methods for a number of products are seriously lagging the pace
of technology development, thus preventing effective standards for those
products (examples include tankless water heaters, products that use
standby power even when turned "off," and many appliances with advanced
electronic controls). If DOE fails to keep its standards up-to-date,
Congress should consider allowing states to act to limit the demands on
their energy systems from those products.

In addition, DOE has limited its schedule for setting appliance
standards to congressionally mandated rulemakings with a date certain.
This narrow approach has delayed consideration of some standards with
the greatest potential energy savings. For example, DOE has identified
furnace fans and residential refrigerators as two product standards that
offer the potential for very large energy savings, but the agency has
yet to even schedule these rulemakings. Congress should direct DOE to
begin these two important rulemakings as soon as possible and to
complete them no later than 2011.

Third, Congress should allow DOE to consider alternative approaches in
setting appliance standards where these better serve the intent of the
law: to maximize cost-effective energy savings. We offer several
examples:

-   DOE has taken a very narrow view of the statutory language regarding
    standards it can set. Congress should clarify that DOE may include
    two or more specifications for different features of the product
    that all contribute to energy efficiency. One example is the
    authority for DOE to set standards for air conditioners in terms of
    both average efficiency, which reduces consumer bills, and
    performance during the hottest summer days, which provides added
    benefit by easing the strain on electric utility systems during peak
    demand periods. A second example is the ability to set efficiency
    requirements for both direct electricity use and consumption of
    (heated) water in the case of a dishwasher or clothes washer.

-   Congress should explicitly authorize DOE to set
    regionally-appropriate appliance standards for climate-sensitive
    products such as furnaces, boilers, air conditioners, and heat
    pumps, since regional weather conditions can significantly affect
    the feasibility or cost-effectiveness of a given technology or
    efficiency measure. In addition, in northern states colder inlet
    water temperatures can greatly reduce the capacity (but not the
    efficiency) of certain classes of water heaters, and also affect the
    cost-effectiveness of some efficiency measures. The implications of
    these regional factors for truly comparable water heater ratings
    should be studied by DOE.

-   In addition, expedited procedures for consideration of consensus
    standards proposed to DOE may speed up adoption of non-controversial
    standards.

Finally, Congress should make it clear that federal law does not preempt
states from setting their own appliance standards, in the absence of a
federal standard in place. This principle has generally been upheld in
interpretation of the federal appliance standards laws, but in some
cases it has been argued that the mere authority for DOE to set
standards should preempt the states, even if DOE fails to exercise that
authority. If DOE fails to act, or if it establishes a "no standard"
federal standard, a state should be able to adopt its own energy-saving
standards for that product.

### Building Energy Codes

One of the most important opportunities for reducing energy use and
costs is by designing and constructing a new building to be
energy-efficient from the start. Every new building that is not
efficient represents a lost opportunity---one that will likely be with
us for another 30-50 years or longer, a time frame that will almost
certainly see much higher prices and much more intense concern over
energy supplies, air pollution, and greenhouse gas emissions.

There is cause for optimism in the growing interest shown by builders
and developers in green buildings and rating systems such as the U.S.
Green Building Council's LEED; the bold new policy commitments to energy
efficiency targets by the American Society of Heating, Refrigerating and
Air-Conditioning Engineers (ASHRAE), the American Institute of
Architects, and the U.S. Conference of Mayors; and the federal
government's own commitment (in EPAct 2005) to design new federal
buildings to be 30% more efficient than current practice. But a great
deal of work remains to be done. Congress can support and encourage
these broader initiatives with specific actions that take best advantage
of federal leverage in building codes and federal financing for home
mortgages.

*Recommendations for assisting [state energy-efficient building
codes]{.underline}:*

1)  *Congress should direct DOE to support a process of continuous
    improvement in the model energy codes for both residential and
    commercial buildings, targeting a 30 percent reduction in new
    building energy use beginning in 5 years and 50 percent savings
    within 10-15 years.*

2)  *To make sure that energy codes are not just a paper exercise,
    Congress should fully fund the programs for state code compliance
    and training authorized in Section 128 of the Energy Policy Act of
    2005.*

Present law requires that DOE review any updates in residential or
commercial model building codes, to determine if the revision improves
energy efficiency. Following that determination, each state is required
to review and, for commercial buildings, update its own building code to
meet or exceed the model code. However, there is no penalty for a state
that fails to comply.

Two changes are needed. First, DOE should set a goal for continuous
improvement of the model building codes. Rather than wait passively for
action by others, DOE should instead take the initiative to engage with
organizations such as ASHRAE and the International Code Council to
advance the model codes steadily toward specific targets: 30 percent
efficiency improvement beginning in 5 years, for both residential and
commercial model codes, and at least 50 percent improvement in 10-15
years or less. ASHRAE has already adopted a similar goal, but there is
no similar urgency for residential buildings, and it is hard to move
diverse, consensus-based organizations to take ambitious action. DOE
support is needed both for technical underpinnings and to represent the
national interest in reduced energy use and greenhouse gas emissions.

Second, the federal government should adopt stronger incentives to
assure state action in updating and achieving full compliance with the
energy codes. States should be required to adopt strong codes for
residential as well as commercial buildings. And in a recent review of
residential energy code compliance studies from a dozen states,
compliance rates were found to vary widely, but the average was far
below 100 percent, and typically closer to 40 to 60 percent. A number of
studies have pointed to the constraints, including staff time and
expertise, facing many local code enforcement agencies in making sure
that energy code requirements are met, both at the design and permit
stage, and in verifying actual construction and installation practices
on-site.

The code compliance program authorized under Section 128 of EPAct 2005
is a small but important step toward providing an incentive for states
to adopt and enforce up-to-date energy codes; it should be fully funded.
In addition, DOE has not made the required determination of energy
savings on any recent code updates: the 2003, 2004, or 2006 residential
IECC or the 2001 or 2004 ASHRAE commercial standard. Congressional
oversight is needed to ensure DOE meets its important duty.

*Recommendations for federal standards for manufactured homes and
buildings funded by the federal government:*

1)  *Congress should require HUD to strengthen the national energy
    efficiency standards for [manufactured housing]{.underline} to the
    same levels required by the model building code for site-built
    homes.*

2)  *Congress should require that [federally insured
    mortgages]{.underline} be available only for homes that meet or
    exceed model energy efficiency codes.*

3)  *Congress should require that all DoD [Privatized Military
    Housing]{.underline} not yet constructed be designed to meet or
    exceed the current efficiency levels for an Energy Star home.*

About one in 12 new homes in the United States is a manufactured housing
unit (147 million in 2005). Because these homes are factory-produced
with many standardized components, manufactured housing units should be
inherently more energy-efficient than their site-built counterparts. For
example, it is much easier and more cost-effective to achieve an
air-tight duct system in the factory than on a construction site.
Instead, manufactured homes are generally much less efficient than
site-built homes, due to poorly insulated walls and roof, single-pane
windows, and inefficient heating and cooling systems. A 2004 Pacific
Northwest National Laboratory report found that improving the energy
efficiency of a manufactured home, not even to the current IECC, would
save an average of \$150-\$180 per year. The initial cost would be about
\$1000 to \$1500.

Congress directed that the manufactured housing efficiency standards be
based on life-cycle cost analysis, but HUD, which is responsible for
adopting the Manufactured Housing Construction and Safety Standards
(MHCSS), has not updated these standards to keep up with changing energy
prices and advances in energy-saving materials and equipment. As a
result, the "HUD-code" standards are now well below the comparable
energy efficiency code requirements for new site-built homes. For
example, a new manufactured home built for Minnesota today is required
to have only as much wall insulation as a site-built home in Miami---and
the ceiling and floor insulation levels required by HUD code for that
Minnesota manufactured home wouldn't even meet the site-built model code
requirements for Miami.

Many of these manufactured units are sold to low and moderate income
families -- those who can least afford to pay the rising utility bills
for gas, electricity, and in some cases propane heating. And often
taxpayers end up subsidizing the ongoing costs to operate these
inefficient housing units through the Low-Income Home Energy Assistance
Program (LIHEAP) or through the Low-Income Weatherization Assistance
Program, which helps pay for energy-saving retrofits. It is far easier
and cheaper to make these manufactured homes more efficient in the first
place.

To qualify for a federally insured mortgage, a new home should be
required to meet or exceed the efficiency levels of the model energy
code (currently the 2006 IECC). This will assure that federal taxpayer
funds are not used to underwrite inefficient new homes with higher
utility bills -- a different kind of hidden, long-term "mortgage."
Updated standards would affect a lot of housing: a 2003 U.S. Census
Bureau survey found, for homes constructed in the previous four years,
486,000 FHA mortgages, 225,000 VA mortgages, 29,000 USDA mortgages, and
38,000 public housing units.

Current law requires HUD and the Department of Agriculture (USDA) to set
energy-efficiency standards for:

-   Public and assisted housing,

-   New homes (other than manufactured homes) with mortgages insured by
    the Veterans Administration and Federal Housing Administration, and

-   New single-family homes with mortgages insured, guaranteed or made
    by USDA.

However, the agencies have never changed the standard from the
legislated backstop of the 1992 Model Energy Code (the predecessor to
the IECC) and ASHRAE Standard 90.1-1989. EPAct 2005 only required public
and assisted housing with HOPE VI grants to meet the 2003 IECC.

In order to move military service members and their families out of
outdated housing units, Congress authorized the Department of Defense
(DoD) to enter financial partnerships with builders to construct an
estimated 185,000 homes using joint funding. DoD is leasing the homes
for up to 50 years, and will pay the energy bills through utility
allowances to the military personnel. DoD imposes many standards on
these units, and energy efficiency criteria are established for some
projects, but there are no uniform energy standards applied to all
Privatized Housing projects.

If these homes are built to ENERGY STAR® Homes criteria, each military
family -- and ultimately the federal taxpayers -- will save an average
of \$300 a year in energy bills. The added initial cost of Energy Star
homes is about \$1,500 to \$3,000.

### Energy Efficiency Tax Incentives

*Recommendation for energy-efficiency tax incentives: Provide long-term
extensions, with improvements, of tax incentives for highly efficient
new homes, home improvements, commercial buildings, and appliances.*

Other important measures to save electricity and natural gas are outside
the jurisdiction of this committee. But the Alliance will not let an
opportunity go by to emphasize the importance of extending and building
on the tax incentives for energy-efficient new homes, home improvements
and heating and cooling equipment, commercial buildings, and appliances
that were in EPAct 2005. These incentives have great potential to
transform markets for energy-efficient technologies, but they are in
effect for too short a time. A large commercial building initiated when
the bill was signed last August will not be finished before the
commercial buildings deduction was set to expire in December, 2007.
While it was extended late last year, a building initiated now could not
be finished before the new expiration date in 2008. The Alliance
strongly supports long-term extensions of the tax incentives, with some
improvements that have been worked out with other stakeholders---notably
a performance-based incentive for whole-home energy-efficiency retrofits
that picks up where the current home improvements credit leaves off.

### Increasing Energy Efficiency in Federal Facilities

When working to address inefficient energy use, the federal government
needs to look no further than its own buildings to start reducing
wasteful energy consumption. The Alliance to Save Energy estimates that
the federal government wastes one billion dollars a year in its
buildings alone through inefficient energy use. This occurs despite
long-standing executive orders and federal legislation. The problem is
three-fold:

-   The federal agencies do not have sufficient appropriations to make
    the necessary upgrades to reduce building energy use. Because of
    this historical problem, the unique Energy Savings Performance
    Contracts (ESPC) were created. With an ESPC, a federal agency can
    contract with a private energy service company to have the facility
    efficiency improved without any up-front cost to the federal
    taxpayer because the contractor pays the initial cost and is repaid
    out of guaranteed energy savings provided by the improvements.
    Unfortunately, this program authority lapsed in 2003-2004, and,
    while now reinstated, agencies are not taking full advantage of
    these contracts, leaving needed improvements lingering.

-   The federal agencies do not have adequate oversight and pressure to
    meet their statutory energy saving goals. While the federal agencies
    are required by law to reduce their energy use, they are not held to
    task by the White House or by Congress. The missions of the agency
    are always paramount; however, a concerted commitment from the
    President and his cabinet is needed so that the agencies will place
    enough focus and priority on achieving energy savings in their
    facilities.

-   The Department of Energy's Federal Energy Management Program (FEMP)
    is the primary resource for federal agencies to turn to for
    technical guidance and assistance with energy improvements.
    Unfortunately, the FEMP program continues to receive funding cuts
    although its mission and responsibilities were increased in
    EPAct 2005. Congress and the administration need to recognize the
    benefits of FEMP and provide the much needed funding increases.

### Technologies and Integrated Systems for Low-Energy, High-Performance Buildings

*Recommendation for a buildings RD&D program: Establish and fund a
program to develop and establish in the market net-zero energy
buildings, with an emphasis on commercial buildings.*

To create the technology and knowledge base needed to achieve the
long-term goal of net-zero energy ("carbon-neutral") buildings, the
federal government needs to make a substantially greater commitment---in
close partnership with states, utilities, and the private sector---to a
comprehensive, multi-year program to transform building technologies and
practices. This transformation must go well beyond individual technical
measures to include a design process that integrates sustainability from
the start, and effective means of managing construction and building
operation to assure continued high performance over the lifetime of the
building and systems.

The need is especially acute in the commercial buildings sector, where
the challenge of maintaining performance, comfort, occupant health, and
amenities while radically reducing energy consumption or significantly
increasing costs is even greater than for smaller residential buildings.
Yet it is "net-zero energy homes" rather than commercial buildings which
have received the lion's share of funding and program attention to date
by DOE, utility and state programs, and private partnerships.

Investing 1/10 of one percent of the \$135 billion in annual energy
costs for all U.S. commercial buildings would represent a substantial
increase over the current federal efforts by DOE and all other agencies.
But this is the equivalent of less than a half-day (12 hours) of energy
costs for the nation's commercial building stock---a reasonable price to
assure that we really have the technology to cut energy use by more than
half over the next two decades. To be effective, these funds would need
to be directed toward a well-orchestrated plan to address
***innovation*** in technology and practices, strategic and
well-monitored ***demonstrations*** of these new methods, and paths to
effective large-scale ***deployment*** in new and existing commercial
buildings.

Such an integrated strategy requires careful preparation and broad
engagement of the building industry, the design professions, financial
institutions, government policy-makers, and private owners and
developers. There is growing interest in sustainable design but the
industry is fragmented, risk averse, and driven largely by short term
economic interests. By itself the federal government cannot create the
needed technologies, nor force the market to accept them. But it can and
should be the catalyst in partnering with industry, states, and
utilities for these essential steps.

### Conclusion

The Energy Policy Act of 2005 included some important measures to reduce
building energy use, including new appliance standards and tax
incentives. But, while helpful, they were not aggressive enough to
address the critical energy issues facing our nation. In the last year
and a half, concern about the linked issues of energy prices, energy
security, and global warming has only grown. There are measures we could
and should take, such as consumer education, that would have an
immediate impact. But polls also show that a large majority of Americans
are rightly more concerned that Congress find long-term energy solutions
than that Congress quickly address current prices. There is an
opportunity now to enact significant energy-efficiency measures that
will benefit the economy, the environment, and energy security for years
to come. The buildings being designed and constructed today will
determine our energy use for decades to come. The Alliance urges you to
seize the opportunity to reduce energy waste, supply shortages, price
volatility, pollution, and global warming, to transform energy crises
into economic opportunities.