now i will directly address some of the questions posed in front of us today the opportunity for energy efficiency savings in the united states is enormous the united states is presently using approximately forty improvement is equal to over nine million barrels per day or the equivalent of three point four billion barrels per year now if we assume at the cost of one hundred dollars per barrel  so therefore as we move forward in our national energy policies we believe that it is extremely important that congress should include energy efficiency as an integral and as the most important aspect utilities oil dealers et cetera to make investments such as one point six percent per year reduction in their energy use and i use the one point six per year so that by the yea the twenty percent reduction in energy use and the corresponding twenty percent reduction in emissions in addition emission allowances should be held in trust for the public good we are opposed auctions will be distributed we recommend that at least fifty percent of the proceeds be dedicated to energy efficiency investments if we make this national commitment to energy efficiency we can accelerate the realization of energy savings by buying down projects let's say from ten years to seven years and then expand the opportunity and hopefully get from the twenty percent level to the thirty percent level also by investing in energy efficiency the congress can reduce overall energy costs for individual customers business and institutions this investment will also reduce energy demand and as i pointed out emissions and substantially chairman markey ranking member sensenbrenner and members of the select committee i am honored to be here on behalf of pg and e corporation to share our experience and perspective on the role of energy efficiency policies and climate legislation when we look at the options for addressing climate change is clear to us that energy efficiency has to be a front line response the potential greenhouse gas reductions from energy efficiency are substantial the technology is in almost all cases available today and the investments are highly cost effective especially relative to supply side options in addition customers like it the highest marks we get from our customers are relative to our interactions with them around  energy efficiency programs and procedures in fact aggressively pursuing energy efficiency could increase overall economic productivity i am not going to go into details on the mckinsey study which others have mentioned  my written testimony but move to a few comments on the strategic levers that we found in california which may be hopefully helpful one is that using financial and regulatory mechanisms to align energy efficiency with utility business interest is critical this includes eliminating the traditional link between earnings in energy sales and it removes the disincentive to promote energy efficiency by also establishing multiyear program periods w aggressive goals combined with the financial incentives for achieving energy efficiency savings regulators can drive utilities to aggressively pursue savings and partnership with their customers another important strategic lever is establishing building codes and appliance standards these provide the foundation for all other energy efficiency efforts and serve as a catalyst for new technologies programs and practices another strategy is providing incentives and reforming tax policies to facilitate deployment of new highly efficient smart technologies in distributed generation the utility industry is poised to make approximately nine hundred dollars billion in transmission and distribution infrastructure investments over the next twenty years we should look to ensure that these investments are channeled to help build the good of the future one that is itself efficient and that also facilitates utility customers being more efficient comprehensive climate change legislation can also use allowance allocation and auction revenues to advance energy efficiency and dismantle market and regulatory barriers for example the lieberman warner bill uses allowances and auction revenues in this manner the bill includes numerous incentives for states utilities manufacturers and consumers to aggressively pursue energy efficiency examples include targeting of auction revenues to buy down costs of new efficient  end use technologies and providing allowances to serve load serving entities for the amount of electricity their customers save the bottom line is that energy efficiency is the deepest untapped reservoir of cost savings avoided air emissions and greenhouse gas reductions available in our nation today any prudent climate strategy must look to fully harvest this resource as quickly as possible thank you again for the opportunity to be here today assistance to public officials on public electric utility regulation we welcome you mister cowart please go ahead mister cowart thank you chairman markey i appreciate the opportunity to speak with you today about the critical role that end use energy efficiency can play to reduce greenhouse gas emissions contain the cost of climate legislation and to protect the environment the most important message i can deliver today is that national climate legislation absolutely must be designed to call forth to the greatest degree possible low cost end use efficiency investments a message have heard now from i think all of us today the good news is that this actually can be done the challenging news is that most climate legislation including most cap and trade legislation is badly designed to deliver efficiency have seen great attention to delivering price signals and on supply side investments but much less attention to cost containment through efficiency so one of the key questions facing congress is going to be how can cap and trade systems be designed to accelerate investments in energy efficiency my written testimony addresses four points which i will touch on here first echoing the comments of the other panelists energy efficiency is the low cost equivalent of the carbon scrubber for the electric power sector and the most important resource we need to look to as the bridge fuel to a low carbon power sector in the coming decades secondly the cap and trade architecture used in the acid rain program and copied in other systems like the european carbon trading system is frankly not optimal for carbon management it focuses on smokestacks and b awarding carbon allowances to emitters on the basis of historic pollution they cost consumers more than they should and they miss crucial opportunities to enhance end use efficiency i work with air regulators quite a lot and i often ask them what did the acid rain program do to advance energy efficiency and most of the time they just sort of look at me quizzically and then they say well it didn't do anything for energy efficiency cap and trade wasn't designed deliver energy efficiency in customer locations it was designed to change behavior at power plants but energy efficiency happens at customer locations so if we are going to use cap and trade for carbon we are going to have to change the architecture of cap and trade to do a much better job for efficiency my third point is about prices sure a timely topic in today's economy and as the others have said efficiency is the best cost containment strategy we can think of as part of cap and trade now adding a carbon price signal to the price of electricity is directionally correct but trying to reduce emissions through price alone is going to be much more costly and it will actually save less carbon than a cap and trade program that builds efficiency through its architecture and relies less on price pressure this is a point that is often overlooked by regulatory economists but i can tell you mister chairman that it has not been overlooked by the governors and legislators in the ten rggi states that actually studied the issue and tried to design a cap and trade program people are often surprised to learn how hard it is to reduce power sector carbon through price signals whether delivered through carbon taxes or through auctions at the consumer level demand as we know is highly inelastic and higher power prices alone are not to reduce demand enough to meet our carbon goals we have the same problem for different reasons at the generator level it requires a very high carbon price to make a meaningful change in greenhouse gas emissions through redispatch of the existing u s generation fleet this is true in coal regions and in gas regions an epri study in the upper midwest found that carbon prices would be high enough to double the wholesale price of power would lower emission by only four percent studies in california right now are finding that even at ninety dollars a ton carbon prices cause very little change in california's dispatch fortunately there is a way out of this high cost approach a crucial design a crucial fact is that the same dollar cost in rates efficiency programs will save five to seven times more carbon than would result from carbon taxes or credit markets alone we need to integrate that kind of thinking into the design of cap and trade programs how can we do this two suggestions  experience of the rggi states provides a great lesson for us after studying this issue extensively the rggi states realized that the best results for consumers and the environment would be to auction allowances and invest the money in energy efficiency the chairman if you could summarize please mister cowart i have one sentence congress has the opportunity to build on this experience through a national performance based efficiency allocation in which a significant fraction of national allowances would be awarded to states or entities appointed by states on the basis of their performance over time in reducing emissions from their own historic baselines well the hearing is reconvened and again i apologize to our witnesses and hopefully we will get a little bit of a break right now let me ask of all of our witnesses if congress were to use emission allowances or auction revenues under a cap auction and trade program to promote efficiency measures would it be better to channel allowances or funds through the states or directly sakellaris as i indicated in my testimony i thought that it might be best for the federal government to set up a program and administer the distribution of those funds but if i were to choose though between the cowart as i said in my statement i think there should be a large performance based allocation to states and the method of distribution has to be carefully managed frankly because we really do there is a great risk i say this as a former state official and that is the reason why i think crafting this carefully is important number one number two i believe the allocation should be performance based so that the states are confronted one step removed from the budget discussions that occur at state levels certainly would be happy to accept the money i would say i would require at least two prerequisites for the state whoever it is or the utilities to get the money the first is that the state itself on some level and it could be decided who it is whether it is public service commission or the state energy office or the governor but that there is an actual plan that the state has not just for spending the money that year but a longer term strategic plan on where they are moving with energy efficiency and then the second requirement that i would have is that there is some program with some confidence for measuring and verifying that you are actually getting the savings in energy efficiency i am a state we love to get money but if we are really going to get energy efficiency we want it to be successful and i think those two decotis i would agree with both of those conditions and add further that i think that the risk of misappropriating the funds is less now than it might have been in the past and i think that is because the  accurate all the tobacco awards that went to the states the states just use it as a big piggy bank and they essentially wind up not actually spending the money on prevention which it is supposed to targeting children so that they don't get into it now who doesn't want to stop children from smoking everybody the public would demand it except all this money gets looted so it gets drained down to a shadow of what it is and that would be one of the concerns that is obviously you know it is something that there is no trophy on the wall it is stuff that never happens because you were smart you know kid doesn't smoke energy is not consumed it is hard to build a big groundswell around it as you can tell from the size of the audience at this hearing  o if this was on the future of nuclear power which is only going to be zero role of this the room would be packed and people would be hanging from the chandeliers so politically realistically you know we just have to deal with that since i missed the testimony i hope i don't ask questions that have already been answered and if i do please show a little patience my underlying question here is how quickly can we scale back fossil fuel consumption and c o emissions with efficiency measures one of the ways to measure that would be if we could offset the rising costs of energy by implementing efficiency standards or implementing efficiency measures in our state and i would like to know if anyone thinks that that is possible starting with ms grueneich from my home state of california it is possible the great thing about energy efficiency is we have the technologies we have the knowledge this is not an r and d program that we are going to get the results five ten years from now i just returned from a  trip to china last month on energy efficiency and china is very interested in energy efficiency and they are ramping up very quickly at the provincial level to do it it is a matter of thinking it through making sure that you have got you know it set up in a way that you are delivering it but energy efficiency once i believe there is the policy the leadership and the funding one on the low end side to two percent of the annual consumption right now i would say in the united states we are probably reducing the demand by maybe a quarter to a half a percentage and then you have the commercial the industrial the institutional sector the federal government for example tremendous potential in each and every facility we go we save thirty to forty percent if i take one minute we were in elmendorf air force base we congressman that is the way we structure programs in california where basically the utility designs programs we have about eighty five separate programs that are designed to do exactly what you described to pay down the cost of some of these investments facilitate a faster payback and to get over some first time hurdles for example a lot of commercial buildings are built by people would like to add also that i would concur that i think electric and gas efficiency programs could save on the order of at least a half to one percent per year i also believe i believe this is the experience in california and i know it is in new york because we have been offering efficiency programs for nearly three decades now there is an industry that has been developed that is poised and ready and waiting to take on a competitive market for energy efficiency and it is really quite a robust market it is disparate in different states but i have seen the industry grown from infancy to what it is today and it is quite a robust market mister mcnerney am i imposing on my sakellaris that is correct the chairman so as you are breaking down the forty seven million including where it goes in the transportation sector the building sector you know commercial industrial and home  where do you see the biggest potential gains that is out of the forty seven million barrels of oil equivalent which one of those categories is where the biggest gains can be reached and which is the smallest mister sakellaris i think the fastest one it w work which you are already doing and we are trying to hold you up as an example to all of the states and all of the utilities other companies that aren't quite meeting the same standards that you are right now huh and so  do the work they can study they buy the textbook like two days before the exam but at least they know there is an exam coming up so there are many states many utilities that really aren't doing any of this in a significant way so what do we have to do in order to get other states to adopt the policies that are existing in the states that we see here what do we have to do about decoupling what do we have to do how do we create this dynamic whereby these other ill make two points the first is that if carbon legislation climate change legislation enacted by congress is going to has the potential to cause significant price increases we know the problem what do we have to do mister cowart well i think we have to create a performance based allocation of a significant fraction of carbon credits that would be available to every state and would be available to states in proportion to the degree to which they meet their own state's baseline so indiana isn't competing with california indiana in order to earn allowances under a performance based system has to beat indiana's past performance mandate or bribe states to do it because if you don't accomplish that then fundamentally you are not going to change the mindset of utilities it is the first step and then the second step as my colleague has just their interest anyway to move in this direction so why do we have to do that can you explain that mister kline so we can just get your perception of what is it about these other states that don't move in this direction that we have to figure out a way quote unquote to bribe them to do what is in their best interest is it just the power of these local utilities and they don't want a change at all because they must obviously know that this is working for you why don't they move in that direction mister kline i think honestly because many of them make a lot more money selling more  grueneich let me just quickly what you have just said i was just at a national governors association meeting in kansas city this week talking with a number of utility executives and you know they know if they can still if it is still legal in the united states or in their state to build a conventional coal plant and they can put it in the rate base they will make a profit and there are great uncertainties still  they know they can get that coal plant in they can make a profit they know how to build coal plants there is still great unfamiliarity with how to run energy efficiency programs on the scale of an equivalent of a power plant  chairman so in telecom law everything just kept going along never changed and then we put price caps in and all of a sudden huh you a saw a huge change in utilities across the country they realized they had so even a cap and trade system here is kind of the equivalent of the once you set the cap then all of a sudden new thinking has to occur ms grueneich and i think the challenge is is that there isn't going to be one item that congress can do in terms of here is one line in the bill that is going to get energy efficiency at the level we need to have it if we are going to deal with it it is going to be a series of fairly complex different things to think through i mean i would say in addition to everything else i have heard a statement in whether it is another law on energy or in the climate change that literally does say energy efficiency is the number one top priority policy or among them that we one of the things that excites me the most about global warming is the opportunity for us to create jobs and prosperity in our own country if we follow a sensible path and ms grueneich mentioned that i think in china i think you were the one  mentioned it you were there and they are very excited about energy efficiency where do you think we are with regard to technology that we could export to china or other countries of the world creating jobs here in this country vis a vis where they would can especially with the product where we finance the projects because that is one of the products that we have where we finance the particular energy savings project and then we guarantee that the savings will be there number of jobs to be had by accelerating energy efficiency in the united states most of them will be jobs deploying energy efficiency in the united states as opposed to producing products that we will ship to the rest of the world i just didn't want to overlook the fact that this is a very big potential area of job growth economy wide to implement all the measures that my colleagues here have been talking about mister mcnerney well the hope is that we have technology we can ship overseas that would help them make their buildings more efficient or but especially what i want to avoid is having them do the reverse  for what we are talking about the numbers earlier will create between three to five million jobs per year anyway here because most of those jobs over fifty percent it is labor you need the electricians you need mechanical contract innovations in technology on energy efficiency frankly are happening in california i had the opportunity to do a tour of silicon valley about six weeks ago and there is a company that is starting up making for example zero net energy cement they took the brightest of the brains and said here is what we are going to do here are the parameters we want to have a product that has as close to zero net carbon emissions as possible we want to have a product that performs as well or better in terms of quality we want to have a product that right out of the box it is as cheap as what is the existing product on the market and we want to have it scal because we know we need to be using it throughout the world they have been able to literally now develop a process that is close to zero net energy production for cement another company is working on drywall that you put in the buildings so we are  really seeing and these are also setting up some factories in california to produce the products so i think it is another example of we can be creating the jobs and we can be creating the industry and we in growing in its recognition and its certification of employees and we coupled that with a research and development program that new york runs which is developing and working with industry in new york to create that technology that they are then trained on and as the technology is developed and we have workforce training and certification we then deploy those technologies through our energy efficiency programs with exactly the point in mind that you made that we need to be the okay this one is for mister kline i have noticed with pg and e that the company is fairly receptive to energy efficiency measures which will reduce the need to put in new power plants and i think utilities to get them onboard with that i mean it seems like ultimately if you give up all the power the energy supply needs that you are going to be a distribution company and  organization for the electric utility industry has created a new institute for energy efficiencies so i think there is increasing interest in wanting to know more i think identified is that if companies extrapolate and it means that they never build generation then they don't want to shrink necessarily so there needs to be a mechanism to assure that that doesn't is there a concern about competitiveness if you continue this business model with neighboring utilities it might offer communities an alternative to your business mister kline i think it has been an issue in some cases where w e compete for customers with irrigation districts for example who aren't under the same requirements and don't provide the same services but on the whole i would say it is not a big problem  chairman i thank the gentleman and the gentleman's time has expired what i am going to do right now is ask each one of you to give us the one minute one minute that you want to be on the record for eternity as we look back in history and they come to this hearing and they say there it was there in that one minute that those five people in their one minute summarized all you needed to know about the future about energy efficiency about economic growth our nation's climate strategy it must be and the congress has to think about the ways to build energy efficiency attainment into any carbon program a cap and trade program that congress enacts and that requires thinking creatively about what it takes to motivate the delivery of energy efficiency which is different from the architecture that we have historically used for carbon cap and trade the cha the federal government can start by putting building standards in place minimum standards that states can rise above i think that would be an amazing start because we continue to be  that is going into california's economy it is not going overseas at all it is growing our economy that is the message i think that wins secondly please act buildings are going up appliances are being for leadership at the federal level to bring the states together toward clean energy policy and i think it is important to create what we call in new york an energy efficiency ethic so when people make decisions purchase decisions we could change the way they think and we thank all of you for your testimony absolutely fascinating and central this is the most exciting least glamorous hearing that is going to be conducted in the congress this year but like many other non collar down in malden massachusetts that was a dream california that almost seemed too good to be true and it turns out it was too good to be true it never did exist there or anyplace else however here the new two for one rule coming out of california and massachusetts and out of new york for every dollar you invest in energy efficiency you get back two additional dollars kind of a miracle huh no not a miracle just how my mother used to say my mother used to say eddy always try to work smarter not harder she would say that immediately immediately before she said eddy i am donating your brain to harvard medical school as a completely unused human organ  and that was because i wasn't thinking smarter now we have many utilities and many states whose brains collectively should be donated to harvard medical school because this is obviously the way to go  is proven it is a money maker and yet people still resist it why because it is not the way they have done business in the past and so this is a tremendous opportunity for us we saw  eleven years later twelve years later broadband is almost ubiquitous in its deployment companies like amazon google youtube didn't even exist three years ago but are only possible because we got the policy right revolutionizing these issues and so that same kind of technological revolution is possible here in the energy sector as well it is all there as mister kline said the technologies are already there they are ready to go but we need the will and political policies put in place so that we unleash this revolution in a way that isn't just isolated to individual utilities individual states but that the united states is the leader looking over its shoulder at number two and three and four and the world as we export these products export these ideas all around the planet and so that is what this hearing really represents to me because in a lot of ways efficiency is the whole key to solving the problem of global warming to reducing our energy dependence and and this is hard to believe creating the new major economic driver in our whole society the job creator the way in which we kind of revolutionize the way in which we look at these issues now it was hard for the telephone companies to change you know at and t had one point two million employees we all still had our black rotary dial phone why would you want to change it is working out great each one of you is renting for three dollars a month every single month for your whole life a black rotary telephone that is a good business and the utilities you know loved it and the regulators let them get away with it my mother paid one thousand two hundred dollars for renting it for forty years a black rotary dial phone but no innovation no new phones no new devices no google no amazon no youtube but yet you could dial that phone huh well that is what we are still doing in energy huh that is what we are still doing we are still relying on old ways of generating electricity so who would have thought that in the old days when you got on the phone and somebody called from another state you know your grandmother was calling in they would hand around the phone saying you have got to talk fast it is long distance because it was going to be so expensive huh and at and t made so much money on the long distance call now you talk long distance like you are talking across the street because through new technology and new ways of looking at the issue we have lowered the price dramatically all that happened in one technological generation we are going to be able to do the same thing here in energy efficiency and it is going to become the new source the major engine for economic growth in the united states in the next generation millions of jobs economic growth export opportunities for us your insights are valuable we need to get you more allies in this fight but i think ultimately the truth of your testimony will set the congress free and we will be able to pass the legislation  before copenhagen in december of two thousand and nine that will make it possible for us to see this revolution in all of its full flower we thank you for the leadership you have shown this hearing is