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UNITED STATES OF AMERICA

DEPARTMENT OF ENERGY

PUBLIC HEARING

ENERGY CONSERVATION PROGRAM FOR

CONSUMER PRODUCTS

(ENERGY CONSERVATION STANDARD FOR

THREE TYPES OF CONSUMERS PRODUCTS)

(DOCKET NO. EE-RM-93-801)

Friday 20 January 1995

The public hearing was held in Room 1E245,

1000 Independence Ave., S.W., Washington, D.C. at 9:35

a.m., Barry P. Berlin, presiding.

PANEL MEMBERS PRESENT:

BARRY P. BERLIN, Presiding Official

MICHAEL J. McCABE, DOE

EUGENE MARGOLIS, DOE

HOWARD GRUENSPECHT, DOE

ALSO PRESENT:

JOHN ANDERSON

JAMES VAUGHN

A. JOE CONNOR

DALLAS BUTRAW

ROBERT SANSOM

CHARLES SAMUELS

JOSEPH VAN DEN BERG

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EE-RM-93-801 COMMENT 0E1

UNITED STATES OF AMERICA 

DEPARTMENT OF ENERGY 

PUBLIC HEARING 

ENERGY CONSERVATION PROGRAM FOR 

CONSUMER PRODUCTS 

(ENERGY CONSERVATION STANDARD FOR 

THREE TYPES OF CONSUMERS PRODUCTS) 

(DOCKET NO. EE-RM-93-801) 

Friday 20 January 1995 

1 

The public hearing was held in Room 1E245, 

1000 Independence Ave., S. W., Washington, D. C. at 9: 35 

a.m., Barry P. Berlin, presiding. 

PANEL MEMBERS PRESENT: 

BARRY P. BERLIN, Presiding Official 

MICHAEL J. McCABE, DOE 

EUGENE MARGOLIS, DOE 

HOWARD GRUENSPECHT, DOE 

ALSO PRESENT: 

(202) 797-2525 

JOHN ANDERSON 

JAMES VAUGHN 

A. JOE CONNOR 

DALLAS BUTRAW 

ROBERT SANSOM 

CHARLES SAMUELS 

JOSEPH VAN DEN BERG 

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A-G-E-N-D-A

SPEAKER: PAGE NO.

Opening Remarks by

Presiding Official Barry P. Berlin 3

John Anderson, 10

Electricity Consumers Resource Council

James Vaughn, 21

Vaughn Manufacturing Company

A. Joe Connor, 37

The Southern Company

Dallas Burtraw, 44

Resources for the Future

Robert Sansom, 65

National Coal Association

Charles A. Samuels, 76

Association of Home Appliance Manufacturers

A. Joseph Van den Berg, 84

Edison Electric Institute

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A-G-E-N-D-A 

SPEAKER: PAGE NO. 

Opening Remarks by 

Presiding Official Barry P. Berlin 3 

John Anderson, 10 

Electricity Consumers Resource Council 

James Vaughn, 21 

Vaughn Manufacturing Company 

A. Joe Connor, 37 

The Southern Company 

Dallas Burtraw, 44 

Resources for the Future 

Robert Sansom, 65 

National Coal Association 

Charles A. Samuels, 76 

Association of Home Appliance Manufacturers 

A. Joseph Van den Berg, 84 

Edison Electric Institute 

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P-R-O-C-E-E-D-I-N-G-S

9:32 a.m.

PRESIDING OFFICIAL BERLIN: I've been

asked re-read the opening remarks from yesterday for

those who weren't here, so bear with me.

Good morning, welcome. I want to thank

you all for coming and participating in the

Department's Energy Conservation Program for Consumer

Products. I'm Barry Berlin and I'll be the presiding

official for this hearing.

The purpose of this hearing is to receive

oral testimony from the public on the Department's

supplemental advance notice of proposed rulemaking

regarding evaluation and consideration of the

environmental and energy security externalities

associated with different energy efficient appliance

standards as published in the Federal Register on

October 7th 1994. That's quite a sentence.

The issue of attaching positive monetary

values to the environmental and energy security

benefits associated with amended appliance efficient

standards has been raised in several comments in our

Federal Register notices over the past few years. By

this supplemental advance notice in hearing, the

Department is beginning an investigation into whether

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1 P-R-O-C-E-E-D-I-N-G-S 

2 9:32 a.m. 

3 PRESIDING OFFICIAL BERLIN: I've been 

4 asked re-read the opening remarks from yesterday for 

5 those who weren't here, so bear with me. 

6 Good morning, welcome. I want to thank 

7 you all for coming and participating in the 

8 Department's Energy Conservation Program for Consumer 

9 Products. I'm Barry Berlin and I'll be the presiding 

10 official for this hearing. 

11 The purpose of this hearing is to receive 

12 oral testimony from the public on the Department's 

13 supplemental advance notice of proposed rulemaking 

14 regarding evaluation and consideration of the 

15 environmental and energy security externalities 

16 associated with different energy efficient appliance 

17 standards as published in the Federal Register on 

18 October 7th 1994. That's quite a sentence. 

19 The issue of attaching positive monetary 

20 values to the environmental and energy security 

21 benefits associated with amended appliance efficient 

22 standards has been raised in several comments in our 

23 Federal Register notices over the past few years. By 

24 this supplemental advance notice in hearing, the 

25 Department is beginning an investigation into whether 

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there is a sound analytical basis for attaching

monetary values to the Department's estimates of the

effects of appliance standards on the physical

quantities of certain emissions or on oil imports.

The supplemental advance notice discussed

a number of issues that need to be addressed and

developing estimates of monetary values of such

external affects. The Department will monetize the

values of such external impacts of appliance standards

only if it can develope a sound analytic basis.

That's been in our notices in the past that we insist

on having a sound and legally defensible analytic

basis before developing a number before we even get

into this. If we're not able to develope a sound

analytic basis for driving monetary values for

externalities, we're going to continue to estimate the

physical impacts on the environment and energy

security and take these impacts into accounts in

determining what efficiency standard levels are

economically justified.

Comments received here today and those

submitted during the written comment period will

assist the Department in determining the feasibility

of pursuing this issue. The written comment period

for the supplemental advance notice ends February 6th

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1 there is a sound analytical basis for attaching 

2 monetary values to the Department's estimates of the 

3 effects of appliance standards on the physical 

4 quantities of certain emissions or on oil imports. 

5 The supplemental advance notice discussed 

6 a number of issues that need to be addressed and 

7 developing estimates of monetary values of such 

8 external affects. The Department will monetize the 

9 values of such external impacts of appliance standards 

10 only if it can develope a sound analytic basis. 

11 That's been in our notices in the past that we insist 

12 on having a sound and legally defensible analytic 

13 basis before developing a number before we even get 

14 into this. If we're not able to develope a sound 

15 analytic basis for driving monetary values for 

16 externalities, we're going to continue to estimate the 

17 physical impacts on the environment and energy 

18 security and take these impacts into accounts in 

19 determining what efficiency standard levels are 

20 economically justified. 

21 Comments received here today and those 

22 submitted during the written comment period will 

23 assist the Department in determining the feasibility 

24 of pursuing this issue. The written comment period 

25 for the supplemental advance notice ends February 6th 

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1995. All comments submitted on the supplemental

advance notice will be considered before DOE

establishes the proposed rule on revised energy

efficiency standards for central air conditioners and

furnaces. We may or may not announce our final

decision on what we plan to do in that notice, but we

hope to. Comments received after the comments period

is closed will be considered to the fullest extent

possible.

As the presiding official for this hearing

I'll set forth guidelines for conducting the hearing

and provide other pertinent information. A complete

transcript of this hearing will be available for

inspection and copying at the Department of Energy's

Freedom of Information Reading Room. Anyone wishing

to purchase a copy of the transcript may make

arrangements with the court reporter. For those of

you who have been in the building before, you might

remember the FOI reading room is just down the hall

from here. And for those who haven't been, be

informed.

This will not be an evidentiary or

judicial type of hearing. It will be conducted in

accordance with Section 553, Title 5, United States

Code, in Section 336 of the Energy Policy and

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1 1995. All comments submitted on the supplemental 

2 advance notice will be considered before DOE 

3 establishes the proposed rule on revised energy 

4 efficiency standards for central air conditioners and 

5 furnaces. We mayor may not announce our final 

6 decision on what we plan to do in that notice, but we 

7 hope to. Comments received after the comments period 

8 is closed will be considered to the fullest extent 

9 possible. 

10 As the presiding official for this hearing 

11 I'll set forth guidelines for conducting the hearing 

12 and provide other pertinent information. A complete 

13 transcript of this hearing will be available for 

14 inspection and copying at the Department of Energy's 

15 Freedom of Information Reading Room. Anyone wishing 

16 to purchase a copy of the transcript may make 

17 arrangements with the court reporter. For those of 

18 you who have been in the building before, you might 

19 remember the FOI reading room is just down the hall 

20 from here. And for those who haven't been, be 

21 informed. 

22 This will not be an evidentiary or 

23 judicial type of hearing. It will be conducted in 

24 accordance with Section 553, Title 5, United States 

25 Code, in Section 336 of the Energy Policy and 

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Conservation Act as amended.

To provide the Department with as much

pertinent information and as many views as can be

reasonably obtained and to enable interested persons

to express their views, the hearing will be conducted

in accordance with the following procedures:

Speakers will be called to testify based

on a schedule of those people who responded to the

notice of this hearing. The speakers have been

allotted 20 minutes for their oral statements.

Speakers are requested to summarize the written

statements to the maximum extent possible. The

speakers who are making essentially the same points as

previously speakers, we encourage you to save time by

merely referencing the previous speaker's testimony in

your testimony. References about similar points or

arguments will save us time here and will be treated

as fully as if the points had been developed anew.

This procedure was followed in an eight

product notice of proposed rulemaking t hat we had out

last March and it worked very well. Some speakers got

up and merely referenced what other speakers had said

and we have treated those comments just as if they had

developed them.

If time allows, anyone may make

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EE-RM-93-801 COMMENT 0E1

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1 Conservation Act as amended. 

2 To provide the Department with as much 

3 pertinent information and as many views as can be 

4 reasonably obtained and to enable interested persons 

5 to express their views, the hearing will be conducted 

6 in accordance with the following procedures: 

7 Speakers will be called to testify based 

8 on a schedule of those people who responded to the 

9 notice of this hearing. The speakers have been 

10 allotted 20 minutes for their oral statements. 

11 Speakers are requested to summarize the written 

12 statements to the maximum extent possible. The 

13 speakers who are making essentially the same points as 

14 previously speakers, we encourage you to save time by 

15 merely referencing the previous speaker's testimony in 

16 your testimony. References about similar points or 

17 arguments will save us time here and will be treated 

18 as fully as if the points had been developed anew. 

19 This procedure was followed in an eight 

20 product notice of proposed rulemaking t hat we had out 

21 last March and it worked very well. Some speakers got 

22 up and merely referenced what other speakers had said 

23 and we have treated those comments just as if they had 

24 developed them. 

25 If time allows, 

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unscheduled oral statements after scheduled speakers

have delivered their statements . Persons interested

in making a statement who have not submitted a request

in advance should submit their request to the

registration desk.

At the conclusion of all presentations,

scheduled and unscheduled , each speaker will be given

the opportunity to make a rebuttal statement , subject

to time limitations, and will be called in the order

in which the initial statements were made.

Questions will be asked only by members of

the panel conducting the hearing . However, I will

afford any interested person an opportunity to

question speakers who have made oral presentations.

This opportunity will be afforded after any rebuttal

statements to the extent that the presiding official

determines that such questions likely to result in a

more timely and more effective resolution of the

issues.

Persons interested in making use of this

opportunity must submit their request shortly after

the completion of any rebuttal statements at the

registration desk. The question submitted should be

identified as to who is the author of the question and

to whom the question is being directed. I Will

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1 unscheduled oral statements after scheduled speakers 

2 have delivered their statements. Persons interested 

3 in making a statement who have not submitted a request 

4 in advance should submit their request to the 

5 registration desk. 

6 At the conclusion of all presentations, 

7 scheduled and unscheduled, each speaker will be given 

8 the opportunity to make a rebuttal statement, subject 

9 to time limitations, and will be called in the order 

10 in which the initial statements were made. 

11 Questions will be asked only by members of 

12 the panel conducting the hearing. However, I will 

13 afford any interested person an opportunity to 

14 question speakers who have made oral presentations. 

15 This opportunity will be afforded after any rebuttal 

16 statements to the extent that the presiding official 

17 determines that such questions likely to result in a 

18 more timely and more effective resolution of the 

19 issues. 

20 Persons interested in making use of this 

21 opportunity must submit their request shortly after 

22 the completion of any rebuttal statements at the 

23 registration desk. The question submitted should be 

24 identified as to who is the author of the question and 

25 to whom the question is being directed. 

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I will 

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determine whether the question is relevant. If the

question is allowed, I will be the one to ask it.

Furthermore, I'll afford any interested

person an opportunity to question employers of the

United States who have made written or oral

presentations with respect to disputed issues of

material fact. This opportunity will be afforded

after any rebuttal statements to the extent that I

determine the touch question is likely to result in a

more timely and effective resolution of such issues.

Persons interested in making use of this

opportunity must submit their request shortly after

the completion of any rebuttal statements to the

registration desk, and should state specific

justification including why the issue is one of

disputed fact and how the proposed question would

expedite its resolution.

The question should then be identified as

to who the author of the question is and to whom the

question is being directed. I'll determined whether

the question is relevant. If it's allowed, I'll ask

it.

As mentioned earlier, the close of the

comment period is February 6th 1995. All comments

received will be available for public inspection at

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1 determine whether the question is relevant. If the 

2 question is allowed, I will be the one to ask it. 

3 Furthermore, I'll afford any interested 

4 person an opportunity to question employers of the 

5 united States who have made written or oral 

6 presentations with respect to disputed issues of 

7 material fact. This opportunity will be afforded 

8 after any rebuttal statements to the extent that I 

9 determine the touch question is likely to result in a 

10 more timely and effective resolution of such issues. 

11 Persons interested in making use of this 

12 opportunity must submit their request shortly after 

13 the completion of any rebuttal statements to the 

14 registration desk, and should state specific 

15 justification including why the issue is one of 

16 disputed fact and how the proposed question would 

17 expedite its resolution. 

18 The question should then be identified as 

19 to who the author of the question is and to whom the 

20 question is being directed. I'll determined whether 

21 the question is relevant. If it's allowed, I'll ask 

22 it. 

23 As mentioned earlier, the close of the 

24 comment period is February 6th 1995. All comments 

25 received will be available for public inspection at 

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the DOE Freedom of Information Reading Room. Such

comments should be addressed to the Department of

Energy as noted in the advance notice. Ten copies of

the comments are requested. In addition, we'd

appreciate an electronic copy of any comments that you

might submit, and we're currently, I believe, still

using Word Perfect 5.1.

Any person submitting information which he

or she believes to be confidential exempt by law from

public disclosure should submit to the address in the

proposed rule one complete copy and six copies from

which information claimed to be confidential has been

deleted, and in accordance with procedures, establish

a 10 CFR 1004.11. The Department will make its own

determination as to whether or not the information

shall be exempt from public disclosure. In the past

we have received comments with confidential data and

we have treated it as such.

We appreciate the time and effort you have

taken in preparing your statements. We are pleased to

receive your comments and opinions.

I would now like to introduce members of

the panel. I'm Barry Berlin, as I mentioned. I'm

from the Office of Codes and STandards, and I manage

the analysis that determine the economic justification

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1 the DOE Freedom of Information Reading Room. Such 

2 comments should be addressed to the Department of 

3 Energy as noted in the advance notice. Ten copies of 

4 the comments are requested. In addition, we'd 

5 appreciate an electronic copy of any comments that you 

6 might submit, and we're currently, I believe, still 

7 using Word Perfect 5.1. 

8 Any person submitting information which he 

9 or she believes to be confidential exempt by law from 

10 public disclosure should submit to the address in the 

11 proposed rule one complete copy and six copies from 

12 which information claimed to be confidential has been 

13 deleted, and in accordance with procedures, establish 

14 a 10 CFR 1004.11. The Department will make its own 

15 determination as to whether or not the information 

16 shall be exempt from public disclosure. In the past 

17 we have received comments with confidential data and 

18 we have treated it as such. 

19 We appreciate the time and effort you have 

20 taken in preparing your statements. We are pleased to 

21 receive your comments and opinions. 

22 I would now like to introduce members of 

23 the panel. I'm Barry Berlin, as I mentioned. I'm 

24 from the Office of Codes and STandards, and I manage 

25 the analysis that determine the economic justification 

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for appliance efficiency standards as well as being

responsible for the environmental assessments.

Michael McCabe is Director of the

Department's Office of Codes and Standards.

Not present right now from the Office of

Policy Planning and Program Evaluation, Howard

Gruenspecht is Director of the Office of Economic

Analysis and Competition.

And Mark Fredericks is from the Office of

Energy Demand Policy.

Eugene Margolis is the program attorney

from the Office of General Counsel.

At this time I'll call the first speaker.

For the record please state your name and who you

represent. I guess John Anderson is first.

MR. ANDERSON: Thank you very much for the

opportunity to appear before you today. My name is

John Anderson and I am Executive Director of the

Electricity Consumers Resource Council, or ELCON.

ELCON is a non-profit association of large industrial

consumers of electricity. Although we have only 24

members, those 24 members represent nearly five

percent of all the electricity that is consumed in the

United States today. So we have a very significant

interest in issues such as this.

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1 for appliance efficiency standards as well as being 

2 respons~ble for the environmental assessments. 

3 Michael McCabe is Director of the 

4 Department's Office of Codes and Standards. 

5 Not present right now from the Office of 

6 Policy Planning and Program Evaluation, Howard 

7 Gruenspecht is Director of the Office of Economic 

8 Analysis and Competition. 

9 And Mark Fredericks is from the Office of 

10 Energy Demand policy. 

11 Eugene Margolis is the program attorney 

12 from the Office of General Counsel. 

13 At this time I'll call the first speaker. 

14 For the record please state your name and who you 

15 represent. I guess John Anderson is first. 

16 MR. ANDERSON: Thank you very much for the 

17 opportunity to appear before you today. My name is 

18 John Anderson and I am Executive Director of the 

19 Electricity Consumers Resource Council, or ELCON. 

20 ELCON is a non-profit association of large industrial 

21 consumers of electricity. Although we have only 24 

22 members, those 24 members represent nearly five 

23 percent of all the electricity that is consumed in the 

24 united States today. So we have a very significant 

25 interest in issues such as this. 

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ELCON members are strong supporters of

energy efficiency. Now, they have invested billions

of dollars of their own money in equipment in

equipment and facilities that have resulted in

substantial energy efficiency improvements in their

manufacturing and their industrial processes. ELCON

member companies make these investments nd

expenditures because the marketplace requires them to

do so. Fierce global competition is an extremely

powerful and effective motivator to maximize the

efficient use of all resources, not just energy. Many

ELCON members also produce and market products that

enable other customers to use energy more efficiently.

Saving energy is good business.

Large industrial electricity consumers

believe that competition in free markets inherently

assures the most efficient use of all resources,

including energy. Markets, not the complex rules

often promulgated by government agencies, are the best

allocators of resources. Industrial consumers believe

that maximizing competition in retail and whole energy

markets will help all consumers efficiency use

resources consistent with environmental protection and

other important social objections.

However, industrial users question

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1 ELeON members are strong supporters of 

2 energy efficiency. Now, they have invested billions 

3 of dollars of their own money in equipment in 

4 equipment and facilities that have resulted in 

5 substantial energy efficiency improvements in their 

6 manufacturing and their industrial processes. ELeON 

7 member companies make these investments nd 

8 expenditures because the marketplace requires them to 

9 do so. Fierce global competition is an extremely 

10 powerful and effective motivator to maximize the 

11 efficient use of all resources, not just energy. Many 

12 ELeON members also produce and market products that 

13 enable other customers to use energy more efficiently. 

14 Saving energy is good business. 

15 Large industrial electricity consumers 

16 believe that competition in free markets inherently 

17 assures the most efficient use of all resources, 

18 incl uding energy. Markets, not the complex rules 

19 often promulgated by government agencies, are the best 

20 allocators of resources. Industrial consumers believe 

21 that maximizing competition in retail and whole energy 

22 markets will help all consumers efficiency use 

23 resources consistent with environmental protection and 

24 other important social objections. 

25 However, 

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attempts to achieve the goals of energy efficiency and

environmental protection by the arbitrary manipulation

of resource cost assumptions. This is precisely what

the methodology int he proposed rule will do. At

best, such attempts will achieve legitimate public

policy goals only by chance. At worst, it will result

in abusive government apparatus that can only lead to

higher social costs, including increased air

emissions. We believe the proposed rule is bad

policy, and if promulgated in final rules, would

create a disastrous precedent.

The Department should continue its review

of appliance efficiency standards to the extent that

they are cost effective to all consumers, they promote

competition in end-use markets and do not distort

these markets, and they rely on traditional economic

analysis for the evaluation of future levels of

efficiency standards.

The Department's proposal to develope

revised efficiency standards based on the monetization

of selected environmental external costs would not

meet these criteria however. ELCON has long

questioned the efficacy of attempts to fix prices

based on administratively-determined adders that

purport to internalize externalities.

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1 attempts to achieve the goals of energy efficiency and 

2 environmental protection by the arbitrary manipulation 

3 of resource cost assumptions. This is precisely what 

4 the methodology int he proposed rule will do. At 

5 best, such attempts will achieve legitimate public 

6 policy goals only by chance. At worst, it will result 

7 in abusive government apparatus that can only lead to 

8 higher social costs, including increased air 

9 emissions. We believe the proposed rule is bad 

10 policy, and if promulgated in final rules, would 

11 create a disastrous precedent. 

12 The Department should continue its review 

13 of appliance efficiency standards to the extent that 

14 they are cost effective to all consumers, they promote 

15 competition in end-use markets and do not distort 

16 these markets, and they rely on traditional economic 

17 analysis for the evaluation of future levels of 

18 efficiency standards. 

19 The Department's proposal to develope 

20 revised efficiency standards based on the monetization 

21 of selected environmental external costs would not 

22 meet these criteria however. ELeON has long 

23 questioned the efficacy of attempts to fix prices 

24 based on administratively-determined adders that 

25 purport to internalize externalities. 

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We have published a profile on this issue

which was attached to our original filing last

February, and I urge you to review it, and I urge that

it be included in the record again.

I strongly urge the Department to reject

any attempt to monetize external costs associated with

atmospheric or other emissions or alleged social

harms.

There are literally unlimited numbers of

externalities, both positive and negative, upstream

and downstream. Most can neither be reasonably

qualified nor quantified. It is humanly impossible to

ascertain whether net external costs are a positive or

a negative, and therefore the common presumption in

public policies that net external costs are zero is a

very reasonable assumption.

Implicit in the definition of

externalities is the need to strike a balance between

the costs or the benefits of the externality and the

costs or the benefits of the cure. The Department

does not propose to do this in its proposed rule.

Also implicit in the definition of externalities is a

lot of theoretical fine print that rulemakers do not

have the luxury to ignore.

For example, first, the valuation and use

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1 We have published a profile on this issue 

2 which was attached to our original filing last 

3 February, and I urge you to review it, and I urge that 

4 it be included in the record again. 

5 I strongly urge the Department to reject 

6 any attempt to monetize external costs associated with 

7 atmospheric or other emissions or alleged social 

8 harms. 

9 There are literally unlimited numbers of 

10 externalities, both positive and negative, upstream 

11 and downstream. Most can neither be reasonably 

12 qualified nor quantified. It is humanly impossible to 

13 ascertain whether net external costs are a positive or 

14 a negative, and therefore the common presumption in 

15 public policies that net external costs are zero is a 

16 very reasonable assumption. 

17 Implicit in the definition of 

18 externalities is the need to strike a balance between 

19 the costs or the benefits of the externality and the 

20 costs or the benefits of the cure. The Department 

21 does not propose to do this in its proposed rule. 

22 Also implicit in the definition of externalities is a 

23 lot of theoretical fine print that rulemakers do not 

24 have the luxury to ignore. 

25 For example, first, the valuation and use 

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of externalities cannot be applied in a piecemeal

fashion to a class of appliances, as proposed, or for

that matter even more broadly to any subset of the

economy.

Second, attempts to accurately quantify

externalities have failed miserably. The range of

estimates are so broad as to nullify any legitimate

use to policy-makers. Even the advance notice of

proposed rulemaking recognizes this by talking about

orders of magnitude differences. By carefully picking

and choosing values within these broad ranges, any

outcome can be achieved. It is the goal seeker's

miracle machine. Analysts can't possibly account for

all relevant external costs and benefits. The results

will always be dictated by some overriding political

agenda, which is usually to discourage the use of the

nation's most abundant resource, fossil fuels.

Third, to the extent that emissions

already are internalized by laws and state regulatory

practices, any further consideration in the standardsetting process will lead to double counting and

overly restrictive standards. Implicit in any attempt

to directly internalize externalities is the need for

some government agency to set all applicable prices by

administrative fiat. This must follow a process in

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1 of externalities cannot be applied in a piecemeal 

2 fashion to a class of appliances, as proposed, or for 

3 that matter even more broadly to any subset of the 

4 economy. 

5 Second, attempts to accurately quantify 

6 externalities have failed miserably. The range of 

7 estimates are so broad as to nullify any legitimate 

8 use to policy-makers. Even the advance notice of 

9 proposed rulemaking recognizes this by talking about 

10 orders of magnitude differences. By carefully picking 

11 and choosing values within these broad ranges, any 

12 outcome can be achieved. It is the goal seeker's 

13 miracle machine. Analysts can't possibly account for 

14 all relevant external costs and benefits. The results 

15 will always be dictated by some overriding political 

16 agenda, which is usually to discourage the use of the 

17 nation's most abundant resource, fossil fuels. 

18 Third, to the extent that emissions 

19 already are internalized by laws and state regulatory 

20 practices, any further consideration in the standard21 setting process will lead to double counting and 

22 overly restrictive standards. Implicit in any attempt 

23 to directly internalize externalities is the need for 

24 some government agency to set all applicable prices by 

25 administrative fiat. 

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which all market prices are periodically reassessed to

determine the extent to which each externality already

has been over-internalized, under-internalized,

precisely internalized, internalized just a little

bit, internalized but for the wrong reasons, or never

internalized. This is government price controls in a

truly grand manner. It is the government planners

ultimate dream, total control of every and all

transactions in the economy.

Therefore, any attempt to recognize or

internalize external costs is the responsibility of

legislative, not regulatory bodies or executive

agencies. Should DOE continue to pursue this proposed

rule, we believe the Department will ultimately meet

the same kind of judicial reprimand that beset the

Massachusetts Department of Public Utilities very

recently. The Massachusetts Supreme Court recognized

that there was no one set of values and unequivocally

told the Massachusetts DPU that "The department is not

authorized to take environmental considerations into

account to the degree that it has."

There is a lack of accepted and

analytically and scientifically sound method for

monetizing external costs and benefits. Considerable

research has failed to yield an acceptable approach

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1 which all market prices are periodically reassessed to 

2 determine the extent to which each externality already 

3 has been over-internalized, under-internalized, 

4 precisely internalized, internalized just a little 

5 bit, internalized but for the wrong reasons, or never 

6 internalized. This is government price controls in a 

7 truly grand manner. It is the government planners 

8 ultimate dream, total control of every and all 

9 transactions in the economy. 

10 Therefore, any attempt to recognize or 

11 internalize external costs is the responsibility of 

12 legislative, not regulatory bodies or executive 

13 agencies. Should DOE continue to pursue this proposed 

14 rule, we believe the Department will ultimately meet 

15 the same kind of judicial reprimand that beset the 

16 Massachusetts Department of Public Utilities very 

17 recently. The Massachusetts Supreme Court recognized 

18 that there was no one set of values and unequivocally 

19 told the Massachusetts DPU that "The department is not 

20 authorized to take environmental considerations into 

21 account to the degree that it has." 

22 There is a lack of accepted and 

23 analytically and scientifically sound method for 

24 monetizing external costs and benefits. Considerable 

25 research has failed to yield an acceptable approach 

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even where unlimited funds are available. The

National Acid Precipitation Assessment Program, or

NAPAP as we know it, was one such venture. Despite

spending over a half a billion of taxpayers' money to

try to get a handle on the acid rain externality,

NAPAP has been dismissed by everyone who does not like

the result.

Let's be realistic. The tremendous

difficulty associated with assigning monetary values

to human life or health, aesthetics, and quality of

life contributes to the fact that these are external

costs or benefits in the first place. Given the

experience of NAPAP, proponents of this concept would

seemingly have to bankrupt the federal government in

order to achieve their objectives.

Environmental impacts for many emissions

are local, region-specific, or multi-national and,

therefore, are not appropriate for setting simplistic

national efficiency standards. Complex computer

programs and black boxes don't make it any easier

either.

Accurate internalization requires

compensation for both beneficial as well as harmful

effects, up to the point where all marginal social

costs equal all marginal social benefits. Those who

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1 even where unlimited funds are available. The 

2 National Acid Precipitation Assessment Program, or 

3 NAPAP as we know it, was one such venture. Despite 

4 spending over a half a billion of taxpayers' money to 

5 try to get a handle on the acid rain externality, 

6 NAPAP has been dismissed by everyone who does not like 

7 the result. 

8 Let's be realistic. The tremendous 

9 difficulty associated with assigning monetary values 

10 to human life or health, aesthetics, and quality of 

11 life contributes to the fact that these are external 

12 costs or benefits in the first place. Given the 

13 experience of NAPAP, proponents of this concept would 

14 seemingly have to bankrupt the federal government in 

15 order to achieve their objectives. 

16 Environmental impacts for many emissions 

17 are local, region-specific, or mUlti-national and, 

18 therefore, are not appropriate for setting simplistic 

19 national efficiency standards. Complex computer 

20 programs and black boxes don't make it any easier 

21 either. 

22 Accurate internalization requires 

23 compensation for both beneficial as well as harmful 

24 effects, up to the point where all marginal social 

25 costs equal all marginal social benefits. Those who 

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receive benefits should pay for them. Those who are

victims of harmful effects should be compensated for

harm done, to the extent external impacts are not

remedied. The externality police cannot collect

compensation from entities outside their jurisdiction

which receive beneficial effects, nor can they

compensate entities outside their jurisdiction who are

victims of harmful effects. There is a better way.

Maximizing competition in retail and

wholesale energy markets will help energy producers,

appliance and equipment manufacturers, and all

consumers to efficiently use resources consistent with

environmental protection. The manner in which

appliance efficiency standards are established should

take advantage of market discipline and avoid any

approach that relies on government intervention in the

marketplace.

Ironically, it doesn't seem that the

Department supports competition in end-use electricity

markets. The Department's recent criticisms of the

California Public Utilities Commission 's historical

proposal to restructure the electric services industry

in that state is ample evidence in the mind-set of

many her in the Forrestal Building which remains old

fashioned central planning.

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1 receive benefits should pay for them. Those who are 

2 victims of harmful effects should be compensated for 

3 harm done, to the extent external impacts are not 

4 remedied. The externality police cannot collect 

5 compensation from entities outside their jurisdiction 

6 which receive beneficial effects, nor can they 

7 compensate entities outside their jurisdiction who are 

8 victims of harmful effects. There is a better way. 

9 Maximizing competition in retail and 

10 wholesale energy markets will help energy producers, 

11 appliance and equipment manufacturers, and all 

12 consumers to efficiently use resources consistent with 

13 environmental protection. The manner in which 

14 appliance efficiency standards are established should 

15 take advantage of market discipline and avoid any 

16 approach that relies on government intervention in the 

17 marketplace. 

18 Ironically, it doesn't seem that the 

19 Department supports competition in end-use electricity 

20 markets. The Department's recent criticisms of the 

21 California Public utilities Commission's historical 

22 proposal to restructure the electric services industry 

23 in that state is ample evidence in the mind-set of 

24 many her in the Forrestal Building which remains old 

25 fashioned central planning. 

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I submit a relevant quote from the CPUC's

April '94 order "Competitive markets, where they exist

and function reasonably well, offer a superior

regulatory tool when compared to command and control

regulation and government central planning designed

for an era that has passed and will not return."

In summary, attempts to monetize

environmental externalities will surely result in the

miss-allocation of resources in both the regulated and

competitive markets. Price signals will be distorted

in retail and wholesale energy markets, resulting in

inefficient investment decisions and consumption

behavior. This will force a shift in energy

consumption and associated economic activities in ways

that actually may increase adverse environmental

impacts and unduly discourage the development of

potentially important and more environmentally

acceptable appliances and technologies. Certainly

this is counterproductive to the goals of

environmental protection.

Finally, I find myself, certainly

surprising to many, agreeing with the Edison Electric

Institute. And I have in my prepared remarks a quote

from EEI which I urge you to reconsider. The intent

of the law is for DOE to promulgate simple and more

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1 I submit a relevant quote from the CPUC's 

2 April' 94 order "Competitive markets, where they exist 

3 and function reasonably well, offer a superior 

4 regulatory tool when compared to command and control 

5 regulation and government central planning designed 

6 for an era that has passed and will not return." 

7 In summary, attempts to monetize 

8 environmental externalities will surely result in the 

9 miss-allocation of resources in both the regulated and 

10 competitive markets. Price signals will be distorted 

11 in retail and wholesale energy markets, resulting in 

12 inefficient investment decisions and consumption 

13 behavior. This will force a shift in energy 

14 consumption and associated economic activities in ways 

15 that actually may increase adverse environmental 

16 impacts and unduly discourage the development of 

17 potentially important and more environmentally 

18 acceptable appliances and technologies. Certainly 

19 this is counterproductive to the goals of 

20 environmental protection. 

21 Finally, I find myself, certainly 

22 surprising to many, agreeing with the Edison Electric 

23 Institute. And I have in my prepared remarks a quote 

24 from EEl which I urge you to reconsider. The intent 

25 of the law is for DOE to promulgate simple and more 

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straightforwad rules that are more conducive to

promoting and sustaining maximum efficiencies in the

competitive marketplace. The complex, burden-laden

approach suggested by the proposed rule risks imposing

greater distortions in the marketplace than that ones

the rules are attempting to correct.

Thank you for the opportunity to be before

you today, and I'll look forward to your questions.

PRESIDING OFFICIAL BERLIN: Thank you for

your testimony. Do you see any role for the positive

environmental effects of appliance efficiency

standards, any role that they should play in

consideration of future appliance efficiency

standards? In the past what we've done is present the

physical quantities that are expected to occur and

that has been considered along with the other

legislative required criteria in setting efficiency

standards. Do you see that as justifiable.

MR. ANDERSON: When you say in the past

you have presented, which I think I understand, but

let me make sure. The quantities of externalities

that would be associated with the consumption of

energy from appliances and the savings from that?

PRESIDING OFFICIAL BERLIN: It would be

the expected quantities of reductions of reduced

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1 straightforwad rules that are more conducive to 

2 promoting and sustaining maximum efficiencies in the 

3 competitive marketplace. The complex, burden-laden 

4 approach suggested by the proposed rule risks imposing 

5 greater distortions in the marketplace than that ones 

6 the rules are attempting to correct. 

7 Thank you for the opportunity to be before 

8 you today, and I'll look forward to your questions. 

9 PRESIDING OFFICIAL BERLIN: Thank you for 

10 your testimony. Do you see any role for the positive 

11 environmental effects of appliance efficiency 

12 standards, any role that they should play in 

13 consideration of future appliance efficiency 

14 standards? In the past what we've done is present the 

15 physical quanti ties that are expected to occur and 

16 that has been considered along with the other 

17 legislative required criteria in setting efficiency 

18 standards. Do you see that as justifiable. 

19 MR. ANDERSON: When you say in the past 

20 you have presented, which I think I understand, but 

21 let me make sure. The quantities of externalities 

22 that would be associated with the consumption of 

23 energy from appliances and the savings from that? 

24 PRESIDING OFFICIAL BERLIN: It would be 

25 the expected quantities of reductions of reduced 

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emissions.

MR. ANDERSON: I think that there's

absolutely no value at all to attempt to do that. In

our research into monetization of externalities, the

numbers range all over the place. I mean sometimes

thousands of percent differences between the low and

the high.

PRESIDING OFFICIAL BERLIN: We understand

the monetization, but we're talking just about the

physical quantities that would be expected.

MR. ANDERSON: Well, I'm not even sure

that you can do that. Certainly if that's part of, if

what you're saying that you save a certain amount of

electricity it would reduce the amount of C02 that

goes into the atmosphere, if you can do that in any

kind of a precise way, a statistically relevant way,

I'd like to see it, but I don't know that you can do

that. What you're really talking about is with an

appliance and saving an amount of electricity. I mean

that's what it's based on. Then you have to go back

and say, what does that do to generation.

In each utility, at each time of the day,

would have a different mix of generators that are

actually operating, so you'd back down those. It's

going to be a very arbitrary kind of a process as to

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1 emissions. 

2 MR. ANDERSON: I think that there's 

3 absolutely no value at all to attempt to do that. In 

4 our research into monetization of externalities, the 

5 numbers range allover the place. I mean sometimes 

6 thousands of percent differences between the low and 

7 the high. 

8 PRESIDING OFFICIAL BERLIN: We understand 

9 the monetization, but we're talking just about the 

10 physical quantities that would be expected. 

11 MR. ANDERSON: Well, I'm not even sure 

12 that you can do that. Certainly if that's part of, if 

13 what you're saying that you save a certain amount of 

14 electricity it would reduce the amount of C02 that 

15 goes into the atmosphere, if you can do that in any 

16 kind of a precise way, a statistically relevant way, 

17 I'd like to see it, but I don't know that you can do 

18 that. What you're really talking about is with an 

19 appliance and saving an amount of electricity. I mean 

20 that's what it's based on. Then you have to go back 

21 and say, what does that do to generation. 

22 In each utility, at each time of the day, 

23 would have a different mix of generators that are 

24 actually operating, so you'd back down those. It's 

25 going to be a very arbitrary kind of a process as to 

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what you pick that's backed down. So, therefore, I

would think, I would asset that the numbers would have

no statistical relevance at all, and I would think

that it isn't worth the agency's time to try to even

do it.

PRESIDING OFFICIAL BERLIN: Thank you. I

have no further questions.

Mike?

MR. McCABE: No questions.

PRESIDING OFFICIAL BERLIN: Thank you.

Gene?

MR. MARGOLIS: No questions. Thank you,

sir.

PRESIDING OFFICIAL BERLIN: Thank you.

MR. ANDERSON: Thank you for the

opportunity again.

PRESIDING OFFICIAL BERLIN: The next

speaker is James Vaughn.

MR. VAUGHN: Good morning, gentlemen. I

must apologize Doctor Margolis. I find it necessary

to read from my presentation. I want you to know that

I put two weeks in on this thing to get it down from

40 pages to ten, and the basic problem here is that

the memory is the second thing to go.

This proposal should be rejected. It's

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1 what you pick that's backed down. So, therefore, I 

2 would think, I would asset that the numbers would have 

3 no statistical relevance at all, and I would think 

4 that it isn't worth the agency's time to try to even 

5 do it. 

6 PRESIDING OFFICIAL BERLIN: Thank you. I 

7 have no further questions. 

8 Mike? 

9 MR. McCABE: No questions. 

10 PRESIDING OFFICIAL BERLIN: Thank you. 

11 Gene? 

12 MR. MARGOLIS: No questions. Thank you, 

13 sir. 

14 PRESIDING OFFICIAL BERLIN: Thank you. 

15 MR. ANDERSON: Thank you for the 

16 opportunity again. 

17 PRESIDING OFFICIAL BERLIN: The next 

18 speaker is James Vaughn. 

19 MR. VAUGHN: Good morning, gentlemen. I 

20 must apologize Doctor Margolis. I find it necessary 

21 to read from my presentation. I want you to know that 

22 I put two weeks in on this thing to get it down from 

23 40 pages to ten, and the basic problem here is that 

24 the memory is the second thing to go. 

25 This proposal should be rejected. It's 

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not going to work, and it's going to do more harm than

good. It's not a sound strategy for Department of

Energy or for energy efficiency. The cost of the

externality adders or taxes will far outweigh the

benefits derived. The strategy cannot work because it

treats a specific local problem on a national average

basis.

There is a spare copy over here. Would

you like it? You see the advantage of notes is that

I can up where I left off and not repeat it.

The imposition of net average will benefit

few and penalize many. The mandates proposed are

unfair, biased and impractical. This proposal is not

new, gentlemen. It's been rejected many times over

the years by Congress and by DOE itself. The reasons

for past rejections include the fact that the

credibility of the results became serious problem

concern and did not improve relationships with

Congress. And the conclusion was that reflecting

external benefits in life cycle cost methodology was

neither practical nor effective.

I think it's significant that no one else

in other endeavors has found a way to put

externalities into hard costs and make it credible.

DOE did in fact include externalities as

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1 not going to work, and it's going to do more harm than 

2 good. It's not a sound strategy for Department of 

3 Energy or for energy efficiency. The cost of the 

4 externality adders or taxes will far outweigh the 

5 benefits derived. The strategy cannot work because it 

6 treats a specific local problem on a national average 

7 basis. 

8 There is a spare copy over here. Would 

9 you like it? You see the advantage of notes is that 

10 I can up where I left off and not repeat it. 

11 The imposition of net average will benefit 

12 few and penalize many. The mandates proposed are 

13 unfair, biased and impractical. This proposal is not 

14 new, gentlemen. It's been rejected many times over 

15 the years by Congress and by DOE itself. The reasons 

16 for past rejections include the fact that the 

17 credibility of the results became serious problem 

18 concern and did not improve relationships with 

19 Congress. And the conclusion was that reflecting 

20 external benefits in life cycle cost methodology was 

21 neither practical nor effective. 

22 I think it's significant that no one else 

23 in other endeavors has found a way to put 

24 externalities into hard costs and make it credible. 

25 DOE did in fact include externalities as 

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part of the eight product rulemaking last year. it

was used in a manner the same or similar as proposed

in the present documents. If that is an example of

the credibility, practicality or effectiveness of the

present proposal, then I say it serves as a compelling

reason to reject this proposal and put it away for the

final time.

Any new or amended standard is required to

achieve the maximum, dah, dah, dah, dah. The question

therefore is, does this proposal establish a need to

go beyond those established standards. The proposal

presents a new and expanded function for DOE. It's

clearly outside of the present function. In fact the

legal legality is open to challenge.

The text points out that the same or

similar tasks are now being performed by others. It

mentions that the Clean Air Act Amendments could

result in significant changes. It mentions that the

EPA is the one required to set standards to protect

public health.

There is no defense in the proposal that

claims the super imposition of DOE on the present

structure will result in improvement. Neither is

there a claim that DOE possesses any special talent

that would provide a unique ability to perform better

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1 part of the eight product rulemaking last year. It 

2 was used in a manner the same or similar as proposed 

3 in the present documents. If that is an example of 

4 the credibility, practicality or effectiveness of the 

5 present proposal, then I say it serves as a compelling 

6 reason to reject this proposal and put it away for the 

7 final time. 

8 Any new or amended standard is required to 

9 achieve the maximum, dah, dah, dah, dah. The question 

10 therefore is, does this proposal establish a need to 

11 go beyond those established standards. The proposal 

12 presents a new and expanded function for DOE. It's 

13 clearly outside of the present function. In fact the 

14 legal legality is open to challenge. 

15 The text points out that the same or 

16 similar tasks are now being performed by others. It 

17 mentions that the Clean Air Act Amendments could 

18 result in significant changes. It mentions that the 

19 EPA is the one required to set standards to protect 

20 public health. 

21 There is no defense in the proposal that 

22 claims the super imposition of DOE on the present 

23 structure will result in improvement. Neither is 

24 there a claim that DOE possesses any special talent 

25 that would provide a unique ability to perform better 

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than EPA or others. However, there's no question that

DOE's expanded function will duplicate and possibly

interfere with other programs.

The proposed program will not improve

appliance energy efficiency. The present law provides

safeguards which include reviews and guidelines by

which judgments and criteria are made. I find nothing

offered in the present proposal that provides clear

measurable guidelines for proper standards.

There is a need for clarify and for

consistently which is not included in the text. The

text seems to imply a license to use information that

fits the purpose and apply it in a manner that serves

a predetermined conclusion. DOE's past record doe not

defend their ability to make judgments on a fair and

unbiased bias.

There is clear evidence in the text that

the intention is to mitigate against and raise the

cost of electricity on a nationwide basis. There is

a clear commitment to use national average value in

spite of the fact that it has apparent shortcomings.

There is a strategy which attempts to alleviate local

emission problems with national energy cost adders.

There is clear evidence of bias and omissions that

support a conclusion of unfair and counterproductive

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1 than EPA or others. However, there's no question that 

2 DOE's expanded function will duplicate and possibly 

3 interfere with other programs. 

4 The proposed program will not improve 

5 appliance energy efficiency. The present law provides 

6 safeguards which include reviews and guidelines by 

7 which judgments and criteria are made. I find nothing 

8 offered in the present proposal that provides clear 

9 measurable guidelines for proper standards. 

10 There is a need for clarify and for 

11 consistently which is not included in the text. The 

12 text seems to imply a license to use information that 

13 fits the purpose and apply it in a manner that serves 

14 a predetermined conclusion. DOE's past record doe not 

15 defend their ability to make judgments on a fair and 

16 unbiased bias. 

17 There is clear evidence in the text that 

18 the intention is to mitigate against and raise the 

19 cost of electricity on a nationwide basis. There is 

20 a clear commitment to use national average value in 

21 spite of the fact that it has apparent shortcomings. 

22 There is a strategy which attempts to alleviate local 

23 emission problems with national energy cost adders. 

24 There is clear evidence of bias and omissions that 

25 support a conclusion of unfair and counterproductive 

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strategy.

If standards become variable and are

adjusted to fit changing subjective judgments, chaos

will result and the whole process will become

unworkable. While the societal effects of fuel

production may need to be addressed, the appliance

efficiency standards are not the proper place to

accomplish that task.

This came up several times yesterday, and

I would emphasize that it's apparent that there is a

job there to do. What is not apparent is who or how.

Trying to judge the societal effects through the

appliance energy standards is analogous to spilling

oil on water. The two will never mix, but each will

foul the useful purpose of the other.

The basic strategy expressed in the

proposal fails because it does not address the

problem, it treats the symptoms. The fact is that

emissions are not caused on a net national basis.

They occur only locally at a site-specific chimney

that has a fixed address. Programs implemented at the

source have a clear, specific, quantifiable purpose.

The cost and the curative alternatives can be

evaluated on a factually valid basis. This is

infinitely more fair and more effective than the net

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1 strategy. 

2 If standards become variable and are 

3 adjusted to fit changing subjective judgments, chaos 

4 will result and the whole process will become 

5 unworkable. While the societal effects of fuel 

6 production may need to be addressed, the appliance 

7 efficiency standards are not the proper place to 

8 accomplish that task. 

9 This came up several times yesterday, and 

10 I would emphasize that it's apparent that there is a 

11 job there to do. What is not apparent is who or how. 

12 Trying to judge the societal effects through the 

13 appliance energy standards is analogous to spilling 

14 oil on water. The two will never mix, but each will 

15 foul the useful purpose of the other. 

16 The basic strategy expressed in the 

17 proposal fails because it does not address the 

18 problem, it treats the symptoms. The fact is that 

19 emissions are not caused on a net national basis. 

20 They occur only locally at a site-specific chimney 

21 that has a fixed address. Programs implemented at the 

22 source have a clear, specific, quantifiable purpose. 

23 The cost and the curative alternatives can be 

24 evaluated on a factually valid basis. This is 

25 infinitely more fair and more effective than the net 

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national average penalty proposed in the notice. To

treat emissions on a national average basis is to

treat them after they are in the wind.

The text of the proposal makes no pretense

of fairness, equity or impartiality. There is no

sensitivity expressed about people who are penalized

in order to induce them to move their private values

closer to DOE's perception of social values. The text

says that if environmental damage is increased in some

areas and reduced in others, only the net national

change is relevant. That seems to imply that if

people don't fit the DOE mold, and they are punished

thereby, so be it. The focus of the proposal is

clearly and heavily on subjective social value as

judged by DOE and private values are required to move

or change to conform.

This process is wrong. Where is it

written that the voters appointed DOE as the judge of

social values. That judgement belongs to the Congress

and the voters.

A reading of the proposal will illustrate

that net national value will always be out of date

with the facts that are relevant. DOE concedes that

the Clean Air Act will change things. It will require

time to find a sound method of analysis, if one can be

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1 national average penalty proposed in the notice. To 

2 treat emissions on a national average basis is to 

3 treat them after they are in the wind. 

4 The text of the proposal makes no pretense 

5 of fairness, equity or impartiality. There is no 

6 sensitivity expressed about people who are penalized 

7 in order to induce them to move their private values 

8 closer to DOE's perception of social values. The text 

9 says that if environmental damage is increased in some 

10 areas and reduced in others, only the net national 

11 change is relevant. That seems to imply that if 

12 people don't fit the DOE mold, and they are punished 

13 thereby, so be it. The focus of the proposal is 

14 clearly and heavily on subjective social value as 

15 judged by DOE and private values are required to move 

16 or change to conform. 

17 This process is wrong. Where is it 

18 written that the voters appointed DOE as the judge of 

19 social values. That judgement belongs to the Congress 

20 and the voters. 

21 A reading of the proposal will illustrate 

22 that net national value will always be out of date 

23 with the facts that are relevant. DOE concedes that 

24 the Clean Air Act will change things. It will require 

25 time to find a sound method of analysis, if one can be 

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found. Setting new appliance standards involves

substantial lags. It takes five to ten years after

implementation for appliance standards to have a

primary effect. Information needed to make judgments

is often out of date. The factors to be analyzed are

in a constant state of change and societal values are

subject to changing conditions. Therefore, it becomes

obvious that the process of analysis will always be in

process and never currently accurate.

The appliance efficiency program requires

future planning time and accurate specifications.

This proposal offers only subjective judgments about

irrelevant factors on a basis that lacks the present

credibility, let alone future reliability.

A review of the process used by DOE to

evaluate externalities is available. All those

considering the validity of this notice are urged to

review carefully the eight product rulemaking from

last year, including the technical support documents.

And evaluation of emissions of sulphur,

nitrogen and carbon is included. Without going into

detail, the errors, emissions, and exaggerations are

beyond reasonable limits. Worst of all, the

information necessary to make a reasonable evaluation

of the facts and conclusions is not available.

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1 found. Setting new appliance standards involves 

2 substantial lags. It takes five to ten years after 

3 implementation for appliance standards to have a 

4 primary effect. Information needed to make judgments 

5 is often out of date. The factors to be analyzed are 

6 in a constant state of change and societal values are 

7 subject to changing conditions. Therefore, it becomes 

8 obvious that the process of analysis will always be in 

9 process and never currently accurate. 

10 The appliance efficiency program requires 

11 future planning time and accurate specifications. 

12 This proposal offers only subjective judgments about 

13 irrelevant factors on a basis that lacks the present 

14 credibility, let alone future reliability. 

15 A review of the process used by DOE to 

16 evaluate externalities is available. All those 

17 considering the validity of this notice are urged to 

18 review carefully the eight product rulemaking from 

19 last year, including the technical support documents. 

20 And evaluation of emissions of sulphur, 

21 nitrogen and carbon is included. Without going into 

22 detail, the errors, emissions, and exaggerations are 

23 beyond reasonable limits. Worst of all, the 

24 information necessary to make a reasonable evaluation 

25 of the facts and conclusions is not available. 

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Therefore, there are no responses even from the

experts and professionals like Arthur D. Little. The

numbers in that analysis were very large. They were

expressed in quadrillions.

I had to go to a book and look up what

quadrillions was.

However, when the realistic practical

values are concerned and substituted for the

assumptions and the exaggerations, the truth, in my

opinion, is less than ten percent of the claim. If

this is an illustration of how DOE would intend to

impose penalty taxes on a national basis, then the

social values of the DOE need to be re-examined

carefully.

This proposal clearly intends to penalize

the generation of electricity on a national basis.

This action is unjust, discriminatory and

counterproductive. The very electric utilities that

have helped us get to the present state will have

contributed their time and resources and effort, and

who incidently continue to do so, are now being

penalized.

DOE justifies that penalty suggesting that

an emission tax on electricity is a way for enforce

alignment of private decision making and DOE's

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1 Therefore, there are no responses even from the 

2 experts and professionals like Arthur D. Little. The 

3 numbers in that analysis were very large. They were 

4 expressed in quadrillions. 

5 I had to go to a book and look up what 

6 quadrillions was. 

7 However, when the realistic practical 

8 values are concerned and substituted for the 

9 assumptions and the exaggerations, the truth, in my 

10 opinion, is less than ten percent of the claim. If 

11 this is an illustration of how DOE would intend to 

12 impose penalty taxes on a national basis, then the 

13 social values of the DOE need to be re-examined 

14 carefully. 

15 This proposal clearly intends to penalize 

16 the generation of electricity on a national basis. 

17 This action is unjust, discriminatory and 

18 counterproductive. The very electric utilities that 

19 have helped us get to the present state will have 

20 contributed their time and resources and effort, and 

21 who incidently continue to do so, are now being 

22 penalized. 

23 DOE justifies that penalty suggesting that 

24 an emission tax on electricity is a way for enforce 

25 alignment of private decision making and DOE's 

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interpretation of social decision making. However,

there is nothing on the record that gives DOE the

right or authority to impose their interpretation of

social welfare on the public and nothing in the text

that says that will accomplish national goals.

The proposal does not justify it's stated

purpose. It does not offer a sound basis for setting

appliance standards that can be written as

specifications and verified with test procedures. I

believe that's what standards are supposed to be. It

does not offer credible evidence that DOE has a plan

that will provide more benefits than burdens, or even

an ability to contribute something that will improve

the efforts of those more directly involved in that

work as a primary function.

The proposal is clearly a tax on electric

generation. It can be dressed in fancy terms like

externalities, adders or net national benefits, but

the plain fact is it will raise the cost of

electricity on a national basis. It will become

another federal mandate that raises taxes and shifts

the burden for payment to the local level.

If DOE has any talent at judging social

values, they will conclude that this is not a

politically correct time to impose federal mandates

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1 interpretation of social decision making. However, 

2 there is nothing on the record that gives DOE the 

3 right or authority to impose their interpretation of 

4 social welfare on the public and nothing in the text 

5 that says that will accomplish national goals. 

6 The proposal does not justify it's stated 

7 purpose. It does not offer a sound basis for setting 

8 appliance standards that can be written as 

9 specifications and verified with test procedures. I 

10 believe that's what standards are supposed to be. It 

11 does not offer credible evidence that DOE has a plan 

12 that will provide more benefits than burdens, or even 

13 an ability to contribute something that will improve 

14 the efforts of those more directly involved in that 

15 work as a primary function. 

16 The proposal is clearly a tax on electric 

17 generation. It can be dressed in fancy terms like 

18 externalities, adders or net national benefits, but 

19 the plain fact is it will raise the cost of 

20 electricity on a national basis. It will become 

21 another federal mandate that raises taxes and shifts 

22 the burden for payment to the local level. 

23 If DOE has any talent at judging social 

24 values, they will conclude that this is not a 

25 politically correct time to impose federal mandates 

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that raises at the local level. This proposal does

not deserve further consideration.

I listened yesterday, and I'm very glad I

came yesterday, because the questions from the panel

were very interesting to me. As you know, I've been

associated with this program for some long time, even

longer than Mike. The questions were serious and

should be treated seriously. The business of how to

reduce electric generation has some interesting pieces

for me. I think that electric generation is not what

you want to reduce, it's the harmful effects of

electric generation, and it's necessary to separate

the two.

I hear your frustration because more is

being demanded from you folks in terms of productivity

for standards, but you're reaching the inevitable

limits of the physical science in the appliance

standards. Or to put that another way, you did your

job too well. I think you should count your blessings

and realize that you've set a process in motion and

that you have done a good job. It is working. If you

do nothing, the process will continue to improve

energy use.

The most important thing that must be done

now is to avoid spoiling what's already been done.

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1 that raises at the local level. This proposal does 

2 not deserve further consideration. 

3 I listened yesterday, and I'm very glad I 

4 came yesterday, because the questions from the panel 

5 were very interesting to me. As you know, I've been 

6 associated with this program for some long time, even 

7 longer than Mike. The questions were serious and 

8 should be treated seriously. The business of how to 

9 reduce electric generation has some interesting pieces 

10 for me. I think that electric generation is not what 

11 you want to reduce, it's the harmful effects of 

12 electric generation, and it's necessary to separate 

13 the two. 

14 I hear your frustration because more is 

15 being demanded from you folks in terms of productivity 

16 for standards, but you're reaching the inevitable 

17 limits of the physical science in the appliance 

18 standards. Or to put that another way, you did your 

19 job too well. I think you should count your blessings 

20 and realize that you've set a process in motion and 

21 that you have done a good job. It is working. If you 

22 do nothing, the process will continue to improve 

23 energy use. 

24 The most important thing that must be done 

25 now is to avoid spoiling what's already been done. 

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Reflect carefully on what you've done right. The

allies that you have created and the attitude changes

that have happened in the 25 years I've been

associated with this program are very valuable and

they weren't created by accident. People in the field

of thinking about new and better ways to do the same

job you want to do, and are thinking about it every

day, that's not an accident. Is the process all

right? No. You'll never hear me admit that. Are

things like the test procedure right? No. Do I

believe that the test procedures are accurate,

representative and impartial? No. There is clearly

work to do that will improve the programs. I find

that the work should come under three categories:

First of all I believe that DOE should

become more of a leader than a policeman. I said this

in my eight product testimony and I'll say it again

because I believe there is an important role to play.

Secondly, I think we should stress quality

and not quantity.

Thirdly, my best advice is communications

with allies in all of your process is needed. It has

contributed a hugh amount to the progress so far. It

will be absolutely required to go through the

difficult times ahead. Direct, personal, factual

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1 Reflect carefully on what you've done right. The 

2 allies that you have created and the attitude changes 

3 that have happened in the 25 years I've been 

4 associated with this program are very valuable and 

5 they weren't created by accident. People in the field 

6 of thinking about new and better ways to do the same 

7 job you want to do, and are thinking about it every 

8 day, that's not an accident. Is the process all 

9 right? No. You'll never hear me admit that. Are 

10 things like the test procedure right? No. Do I 

11 believe that the test procedures are accurate, 

12 representative and impartial? No. There is clearly 

13 work to do that will improve the programs. I find 

14 that the work should come under three categories: 

15 First of all I believe that DOE should 

16 become more of a leader than a policeman. I said this 

17 in my eight product testimony and I'll say it again 

18 because I believe there is an important role to play. 

19 Secondly, I think we should stress quality 

20 and not quantity. 

21 Thirdly, my best advice is communications 

22 with allies in all of your process is needed. It has 

23 contributed a hugh amount to the progress so far. It 

24 will be absolutely required to go through the 

25 difficult times ahead. Direct, personal, factual 

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communications with the people involved with the rules

you have to make is the best suggestion I have to

make.

Criteria six, it certainly should be used.

It's part of the program. It should be used with the

respective -- It should report that your work is not

done in a vacuum. It should report that standards are

set in relation to a sensitivity to other factors that

go on the government. It should not be used to dump

the additional burdens on an appliance standards

program or anywhere else. It should not be used to

circumvent the rules.

Differentiate carefully between the

identification of a problem or benefit and how the

condition should be treated. Local problems need

local cures. 26 serious sites as cited by Doctor

Montgomery requires concentrated specific attention.

Somebody else hasn't done something about those, and

maybe there's a fine opportunity. Have you thought

about such a strange answer as the solution may

involve an increase in electricity instead of a

decrease?

If you look carefully at The Southern

Company's testimony in the eight product rulemaking,

you'll find out that one of the people that testified

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1 communications with the people involved with the rules 

2 you have to make is the best suggestion I have to 

3 make. 

4 Criteria six, it certainly should be used. 

5 It's part of the program. It should be used with the 

6 respective -- It should report that your work is not 

7 done in a vacuum. It should report that standards are 

8 set in relation to a sensitivity to other factors that 

9 go on the government. It should not be used to dump 

10 the additional burdens on an appliance standards 

11 program or anywhere else. It should not be used to 

12 circumvent the rules. 

13 Differentiate carefully between the 

14 identification of a problem or benefit and how the 

15 condition should be treated. Local problems need 

16 local cures. 26 serious sites as cited by Doctor 

17 Montgomery requires concentrated specific attention. 

18 Somebody else hasn't done something about those, and 

19 maybe there's a fine opportunity. Have you thought 

20 about such a strange answer as the solution may 

21 involve an increase in electricity instead of a 

22 decrease? 

23 If you look carefully at The Southern 

24 Company's testimony in the eight product rulemaking, 

25 you'll find out that one of the people that testified 

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suggested that exactly that was necessary in order to

alleviate a problem in some of the cities down south.

It seems that these problems are urban

problems and may involve particularly the NOx

emissions, what we have to do is get the NOx out of a

concentrated urban area. And concentrated urban areas

typically have a high concentration of flues, whether

their gas, oil or otherwise, and since gas is the most

prevalent I'll pick on them, something I'm not used to

doing.

The other point I want to make is, beside

planting trees, that's a lovely idea, a beautiful

landscape and it helps the carbon problem, no question

about it. Maintenance of home burners, I heard it

said yesterday that emissions at the site are being

monitored, is that true?

PRESIDING OFFICIAL BERLIN: It's being

counted. When appliance standards are being imposed

or considered to be imposed on gas or oil or such

appliances, there is, to the extent there's a

efficiency gain, there is less consumption, and there

is therefore less emission of whatever would be

emitted at the site. And that is counted in --

MR. VAUGHN: Let me suggest, I've been

associated with the industry a long time and I know a

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1 suggested that exactly that was necessary in order to 

2 alleviate a problem in some of the cities down south. 

3 It seems that these problems are urban 

4 problems and may involve particularly the NOx 

5 emissions, what we have to do is get the NOx out of a 

6 concentrated urban area. And concentrated urban areas 

7 typically have a high concentration of flues, whether 

8 their gas, oil or otherwise, and since gas is the most 

9 prevalent I'll pick on them, something I'm not used to 

10 doing. 

11 The other point I want to make is, beside 

12 planting trees, that's a lovely idea, a beautiful 

13 landscape and it helps the carbon problem, no question 

14 about it. Maintenance of home burners, I heard it 

15 said yesterday that emissions at the site are being 

16 monitored, is that true? 

17 PRESIDING OFFICIAL BERLIN: It's being 

18 counted. When appliance standards are being imposed 

19 or considered to be imposed on gas or oil or such 

20 appliances, there is, to the extent there's a 

21 efficiency gain, there is less consumption, and there 

22 is therefore less emission of whatever would be 

23 emitted at the site. And that is counted in --

24 MR. VAUGHN: Let me suggest, I've been 

25 associated with the industry a long time and I know a 

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little about those fossil burners, the fact is that

they're going to decline in efficiency over time. And

the fact is that if they're properly maintained, there

a much larger saving than people normally envision.

I won a bet at a very large gas company

one time because I bet them that, if they went in

their field and checked, they'd find out that the gas

units that they had installed there that were over

five years old were less than 40 percent efficient.

And they took me up on the bet and checked it and were

gentlemen enough to report later that the number came

out 35.

Now, in terms of your energy conservation

and in terms of your emissions, have you measured that

difference, and if not, why not? How many of those

burners are there? Millions. Where are they? Urban

concentrated. What is the payback on the program?

Wonderful. What is the need? It's critical and it's

ongoing.

And it's so simple. You know, in

Massachusetts now they want to implement a program to

measure emissions and correct the emissions from

lawnmowers and outboards. Well, if it's been

successful for automobiles and it's going to be

imposed on lawnmowers and outboards, then why

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1 little about those fossil burners, the fact is that 

2 they're going to decline in efficiency over time. And 

3 the fact is that if they're properly maintained, there 

4 a much larger saving than people normally envision. 

5 I won a bet at a very large gas company 

6 one time because I bet them that, if they went in 

7 their field and checked, they'd find out that the gas 

8 units that they had installed there that were over 

9 five years old were less than 40 percent efficient. 

10 And they took me up on the bet and checked it and were 

11 gentlemen enough to report later that the number came 

12 out 35. 

13 Now, in terms of your energy conservation 

14 and in terms of your emissions, have you measured that 

15 difference, and if not, why not? How many of those 

16 burners are there? Millions. Where are they? Urban 

17 concentrated. What is the payback on the program? 

18 Wonderful. What is the need? It's critical and it's 

19 ongoing. 

20 And it's so simple. You know, in 

21 Massachusetts now they want to implement a program to 

22 measure emissions and correct the emissions from 

23 lawnmowers and outboards. Well, if it's been 

24 successful for automobiles and it's going to be 

25 imposed on lawnmowers and outboards, 

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shouldn't there be a simple mandate that burners must

be inspected and maintained. It's such a simple

program, guaranteed it will make an improvement in the

26 critical areas. Guaranteed! And I'll be right in

24 of them.

Gentlemen, thank you for your time. I

know I crab a lot, but I want to tell you that I've

been associated with this program for a long time and

I want to take pride in it, like you do. Thank you.

PRESIDING OFFICIAL BERLIN: Thank you, Mr.

Vaughn. I have no questions.

MR. McCABE: Thank you, James. In 20 days

I guess I can say I've been associated with the

program ten years less than you have. This will be my

15th anniversary.

MR. VAUGHN: 15.

MR. McCABE: Thank you.

MR. VAUGHN: Wasn't it in Boston that you

and I first met when you were up there on the road

with standards?

Incidently, that answers a question that

one of the other panelists asked about the business of

net national rates. I have a very good suggestion,

take rates out of the program. What you can measure

accurately and reliably is energy factor. That's

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1 shouldn't there be a simple mandate that burners must 

2 be inspected and maintained. It's such a simple 

3 program, guaranteed it will make an improvement in the 

4 26 critical areas. Guaranteed! And I'll be right in 

5 24 of them. 

6 Gentlemen, thank you for your time. I 

7 know I crab a lot, but I want to tell you that I've 

8 been associated with this program for a long time and 

9 I want to take pride in it, like you do. Thank you. 

10 PRESIDING OFFICIAL BERLIN: Thank you, Mr. 

11 vaughn. I have no questions. 

12 MR. McCABE: Thank you, James. In 20 days 

13 I guess I can say I've been associated with the 

14 program ten years less than you have. This will be my 

15 15th anniversary. 

16 MR. VAUGHN: 15. 

17 MR. McCABE: Thank you. 

18 MR. VAUGHN: Wasn ' tit in Boston that you 

19 and I first met when you were up there on the road 

20 with standards? 

21 Incidently, that answers a question that 

22 one of the other panelists asked about the business of 

23 net national rates. I have a very good suggestion, 

24 take rates out of the program. What you can measure 

25 accurately and reliably is energy factor. That's 

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measured in the laboratory and that's real. But you

can't, once you put the dollars with it, you start to

homogenize it and then it goes astray. And then you

mix regions and then you mix other things into the

thing, and the first thing you got is hash and not

steak.

MR. McCABE: Those are some issues that we

have been certainly working with on the furnace room

test procedure rulemaking, and it's proven to be

rather complicated, yes.

PRESIDING OFFICIAL BERLIN: Gene?

MR. MARGOLIS: Thank you very much for

your testimony, and especially for your thoughts on

how the program is being accomplished by DOE. I do

appreciate those statements. However, I would like to

correct Michael.

Michael, I think you're a better lawyer

than an engineer because I've been on the program 15

years and you've been here one year more than me, so

I think it's 16, not 15 for you.

MR. VAUGHN: I'm still in '94.

MR. MARGOLIS: No, I completed 15 years in

December.

MR. VAUGHN: The first thing you know

it'll be a steady job.

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1 measured in the laboratory and that's real. But you 

2 can't, once you put the dollars with it, you start to 

3 homogenize it and then it goes astray. And then you 

4 mix regions and then you mix other things into the 

5 thing, and the first thing you got is hash and not 

6 steak. 

7 MR. McCABE: Those are some issues that we 

8 have been certainly working with on the furnace room 

9 test procedure rulemaking, and it's proven to be 

10 rather complicated, yes. 

11 PRESIDING OFFICIAL BERLIN: Gene? 

12 MR. MARGOLIS: Thank you very much for 

13 your testimony, and especially for your thoughts on 

14 how the program is being accomplished by DOE. I do 

15 appreciate those statements. However, I would like to 

16 correct Michael. 

17 Michael, I think you're a better lawyer 

18 than an engineer because I've been on the program 15 

19 years and you've been here one year more than me, so 

20 I think it's 16, not 15 for you. 

21 MR. VAUGHN: I'm still in '94. 

22 MR. MARGOLIS: No, I completed 15 years in 

23 December. 

24 MR. VAUGHN: The first thing you know 

25 it'll be a steady job. 

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PRESIDING OFFICIAL BERLIN: I guess there

are no further questions. Thank you.

MR. VAUGHN: Thank you.

PRESIDING OFFICIAL BERLIN: Mr. Connor,

A.J. Connor?

MR. CONNOR: Mr. Berlin and gentlemen,

good morning. Thank you for this opportunity to

testify before you this morning. My name is Joe

Connor. I'm the Vice President of Operating Services

for Alabama Power Company, one of the operating

companies for The Southern Company.

The Southern Company is the parent firm of

several operating electrical utilities in the states

of Alabama, Georgia, Florida and Mississippi, serving

over 3.5 million customers, employing over 29,000

people. We have about 20 generating units with over

20,000 megawatts of capability that is coal-fired. We

burn approximately 25 million tons of coal a year. We

have a quarter of a million stockholders, and about

half of those are retirees. So we are obviously very

interested in what is going on at this hearing.

As requested I am not going to read my

submitted testimony. Instead I would like to focus on

several of the issues that have emerged over the two

days of testimony. First, let me state that I am a

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1 PRESIDING OFFICIAL BERLIN: I guess there 

2 are no further questions. Thank you. 

3 MR. VAUGHN: Thank you. 

4 PRESIDING OFFICIAL BERLIN: Mr. Connor, 

5 A.J. Connor? 

6 MR. CONNOR: Mr. Berlin and gentlemen, 

7 good morning. Thank you for this opportunity to 

8 testify before you this morning. My name is Joe 

9 Connor. I'm the vice President of Operating Services 

10 for Alabama Power Company, one of the operating 

11 companies for The Southern Company. 

12 The Southern Company is the parent firm of 

13 several operating electrical utilities in the states 

14 of Alabama, Georgia, Florida and Mississippi, serving 

15 over 3.5 million customers, employing over 29,000 

16 people. We have about 20 generating units with over 

17 20,000 megawatts of capability that is coal-fired. We 

18 burn approximately 25 million tons of coal a year. We 

19 have a quarter of a million stockholders, and about 

20 half of those are retirees. So we are obviously very 

21 interested in what is going on at this hearing. 

22 As requested I am not going to read my 

23 submitted testimony. Instead I would like to focus on 

24 several of the issues that have emerged over the two 

25 days of testimony. First, let me state that I am a 

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businessman and not an economist, and thus my comments

on the proposal will focus on the basic policy

question of whether externalities should be factored

into DOE's deliberations on appliance efficiency

standards.

Like many of the others who have addressed

you and testified here, we believe that the

environmental externalities should not be factored

into the cost justification of revised efficiency

standards because the existing environmental laws

already impose substantial cost that result in an

increase in electricity prices and internalize

environmental impacts.

According to Mr. Berlin's opening

statement, where DOE is currently, first estimating

the physical impacts on the environment and energy

security, and also will take into account these

impacts in determining which efficiency standards are

economically justified. One stated goal of the ANPR

is to determine if a new approach is justified and

thus, if there is a sound analytic basis for deriving

monetary values for monetary values for environmental

and national security externalities.

Frankly, we are concerned and uncertain

about what the goal is that DOE is intending to reach

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1 businessman and not an economist, and thus my comments 

2 on the proposal will focus on the basic policy 

3 question of whether externalities should be factored 

4 into DOE's deliberations on appliance efficiency 

5 standards. 

6 Like many of the others who have addressed 

7 you and testified here, we believe that the 

8 environmental externalities should not be factored 

9 into the cost justification of revised efficiency 

10 standards because the existing environmental laws 

11 already impose substantial cost that result in an 

12 increase in electricity prices and internalize 

13 environmental impacts. 

14 According to Mr. Berlin's opening 

15 statement, where DOE is currently, first estimating 

16 the physical impacts on the environment and energy 

17 security, and also will take into account these 

18 impacts in determining which efficiency standards are 

19 economically justified. One stated goal of the ANPR 

20 is to determine if a new approach is justified and 

21 thus, if there is a sound analytic basis for deriving 

22 monetary values for monetary values for environmental 

23 and national security externalities. 

24 Frankly, we are concerned and uncertain 

25 about what the goal is that DOE is intending to reach 

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in taking this approach. If the purpose of the ANPR

is to change basic power generation patterns to reduce

emissions, then we believe it ignores the broad array

of environmental statutes through which Congress has

caused the internalization of pollution cost.

Assuming the environmental laws passed by Congress

were designed to protect public health and welfare, it

seems to us that any additional burdens imposed by DOE

imply that Congress has not gone far enough in

protecting human health and the environment, but with

all due respect, we believe that such policy judgement

has to be left and reserved to the Congress.

If, however, externalities are counted,

and I hesitate to bring that up because as I've

already stated we are definitely opposed to that

approach, but if they are to be counted, we believe

externalities associated with all the energy options

should be included. Electricity generated by coal

should not be singled out. DOE's published proposal

does not clearly indicate that the environmental

externalities of fuel such as natural gas, fuel oil or

propane will be accessed.

If there is any analytical basis for

quantifying electricity externalities, we see no

reason why the same basis is not applicable to other

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1 in taking this approach. If the purpose of the ANPR 

2 is to change basic power generation patterns to reduce 

3 emissions, then we believe it ignores the broad array 

4 of environmental statutes through which Congress has 

5 caused the internalization of pollution cost. 

6 Assuming the environmental laws passed by Congress 

7 were designed to protect public health and welfare, it 

8 seems to us that any additional burdens imposed by DOE 

9 imply that Congress has not gone far enough in 

10 protecting human health and the environment, but with 

11 all due respect, we believe that such policy judgement 

12 has to be left and reserved to the Congress. 

13 If, however, externalities are counted, 

14 and I hesitate to bring that up because as I've 

15 already stated we are definitely opposed to that 

16 approach, but if they are to be counted, we believe 

17 externalities associated with all the energy options 

18 should be included. Electricity generated by coal 

19 should not be singled out. DOE's published proposal 

20 does not clearly indicate that the environmental 

21 externalities of fuel such as natural gas, fuel oil or 

22 propane will be accessed. 

23 If there is any analytical basis for 

24 quantifying electricity externalities, we see no 

25 reason why the same basis is not applicable to other 

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fuels. And further, if externalities will be counted,

both positive and negative externalities need to be

expressly rationalized into the analysis. There are

a number of environmental benefits of electric

appliance usage such as zero site emissions that need

to be quantified.

In addition, the substantial convenience

inherent in many electrical appliances that are not

available from appliances utilizing other fuels would

be lost if the efficiency standards are raised so high

as to price these electric appliances out of the

market. The resulting inefficiencies need to also be

considered.

Again, if externalities are to be counted,

externalities at both the site and the source need to

be evaluated. DOE's proposal appears to focus only on

source externalities, that is externalities resulting

from the generation of electricity at particular types

of plants which are already minimized by environmental

regulation.

We believe site emissions may have just as

much of an impact on the environment when broadly

defined, and therefore the emissions from combustion

of fossil fuels at the point of use need to be

factored into any reasonable, constructed externality

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1 fuels. And further, if externalities will be counted, 

2 both positive and negative externalities need to be 

3 expressly rationalized into the analysis. There are 

4 a number of environmental benefits of electric 

5 appliance usage such as zero site emissions that need 

6 to be quantified. 

7 In addition, the substantial convenience 

8 inherent in many electrical appliances that are not 

9 available from appliances utilizing other fuels would 

10 be lost if the efficiency standards are raised so high 

11 as to price these electric appliances out of the 

12 market. The resulting inefficiencies need to also be 

13 considered. 

14 Again, if externalities are to be counted, 

15 externalities at both the site and the source need to 

16 be evaluated. DOE's proposal appears to focus only on 

17 source externalities, that is externalities resulting 

18 from the generation of electricity at particular types 

19 of plants which are already minimized by environmental 

20 regulation. 

21 We believe site emissions may have just as 

22 much of an impact on the environment when broadly 

23 defined, and therefore the emissions from combustion 

24 of fossil fuels at the point of use need to be 

25 factored into any reasonable, constructed externality 

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evaluation initiative.

Once again, if externalities are to be

counted, why would DOE stop environmental

externalities. The concept of uncompensated cost that

is raised here, uncompensated cost posed on society

could be expanded beyond environmental cost. And we

and others would argue that there should be human

dimensions to DOE's consideration of externalities.

For example, if electrical appliances will cost more

as a result of increased efficiency standards which

have been adopted as cost justified because of

inclusion of externalities, many Americans may have to

spend more of their money on consumer durable goods.

This means other segments of the economy may be

adversely affected, and those impacts should be

rationalized into the externality analysis.

Suppose for the moment that electricity

demand goes down substantially because the efforts to

capture more externality cost, utility employees,

transportation workers and miners might be put out of

work. There may well be impacts on the economy and on

families like those discussed by the witnesses

yesterday from North Dakota. And I would add from

Alabama's standpoint, the State of Alabama has

approximately 6,000 coal miners employed in that

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1 evaluation initiative. 

2 Once again, if externalities are to be 

3 counted, why would DOE stop environmental 

4 externalities. The concept of uncompensated cost that 

5 is raised here, uncompensated cost posed on society 

6 could be expanded beyond environmental cost. And we 

7 and others would argue that there should be human 

8 dimensions to DOE's consideration of externalities. 

9 For example, if electrical appliances will cost more 

10 as a result of increased efficiency standards which 

11 have been adopted as cost justified because of 

12 inclusion of externalities, many Americans may have to 

13 spend more of their money on consumer durable goods. 

14 This means other segments of the economy may be 

15 adversely affected, and those impacts should be 

16 rationalized into the externality analysis. 

17 Suppose for the moment that electricity 

18 demand goes down substantially because the efforts to 

19 capture more externality cost, utility employees, 

20 transportation workers and miners might be put out of 

21 work. There may well be impacts on the economy and on 

22 families like those discussed by the witnesses 

23 yesterday from North Dakota. And I would add from 

24 Alabama's standpoint, the State of Alabama has 

25 approximately 6,000 coal miners employed in that 

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state, producing about 25 million tons of coal a year,

so we again are very interested and very concerned

about that part of the proposal.

If there is a reasoned and analytically

justified basis to quantity impact of acid rain or

global climate change beyond Congressional efforts to

date, it will be necessary to quantify the impacts of

unemployment and disrupted family life that results

from the changes in energy production.

In closing, we believe DOE should focus on

the efficiency of appliances at the point of use. The

focus of its efforts should be on optimizing the

amount of work produced per energy input into specific

consumer appliances. And DOE should not waste its own

scarce resources by engaging in environmental cost

evaluations.

If, however, DOE cannot be persuaded to

withdraw its current initiative, we believe the

current proposal is inherently biased against coalfired electricity and fails to define the concept of

externalities broadly enough to account for the

benefits of electricity use. Again, I thank you for

this opportunity.

PRESIDING OFFICIAL BERLIN: Thank you. To

answer one of your questions, the attempt to monetize,

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1 state, producing about 25 million tons of coal a year, 

2 so we again are very interested and very concerned 

3 about that part of the proposal. 

4 If there is a reasoned and analytically 

5 justified basis to quantity impact of acid rain or 

6 global climate change beyond Congressional efforts to 

7 date, it will be necessary to quantify the impacts of 

8 unemployment and disrupted family life that results 

9 from the changes in energy production. 

10 In closing, we believe DOE should focus on 

11 the efficiency of appliances at the point of use. The 

12 focus of its efforts should be on optimizing the 

13 amount of work produced per energy input into specific 

14 consumer appliances. And DOE should not waste its own 

15 scarce resources by engaging in environmental cost 

16 evaluations. 

17 If, however, DOE cannot be persuaded to 

18 withdraw its current initiative, we believe the 

19 current proposal is inherently biased against coal20 fired electricity and fails to define the concept of 

21 externalities broadly enough to account for the 

22 benefits of electricity use. Again, I thank you for 

23 this opportunity. 

24 PRESIDING OFFICIAL BERLIN: Thank you. To 

25 answer one of your questions, the attempt to monetize, 

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the purpose has solely been that in presenting the

information of the identified effects on appliance

standards we have presented some of the environmental

effects and those have presented in physical qualities

most of the other variables that presented to the

decision makers have been in dollars and cents. And

the idea was that, if a common denominator could be

found, (i.e. dollars and cents) for all the variables,

it might make the information more useful. That has

been the intent of this exercise to explore, if that

would be, you know, if it's doable, sound analytic

basis. That was what the purpose of it was.

I don't have any specific questions.

Thank you.

Michael, do you have any questions?

MR. McCABE: No questions. However, one

comment. I think that you've demonstrated certainly

a lot better ability to make economic arguments than

I demonstrated to be able to simple mathematics.

MR. CONNOR: Thank you.

PRESIDING OFFICIAL BERLIN: Gene?

MR. MARGOLIS: No questions. I'm just

interested in where is the headquarters of your

company?

25 11 MR. CONNOR: The Southern Company?

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1 the purpose has solely been that in presenting the 

2 information of the identified effects on appliance 

3 standards we have presented some of the environmental 

4 effects and those have presented in physical qualities 

5 most of the other variables that presented to the 

6 decision makers have been in dollars and cents. And 

7 the idea was that, if a common denominator could be 

8 found, (i. e. dollars and cents) for all the variables, 

9 it might make the information more useful. That has 

10 been the intent of this exercise to explore, if that 

11 would be, you know, if it's doable, sound analytic 

12 basis. That was what the purpose of it was. 

13 I don't have any specific questions. 

14 Thank you. 

15 Michael, do you have any questions? 

16 MR. McCABE: No questions. However, one 

17 comment. I think that you've demonstrated certainly 

18 a lot better ability to make economic arguments than 

19 I demonstrated to be able to simple mathematics. 

20 MR. CONNOR: Thank you. 

21 PRESIDING OFFICIAL BERLIN: Gene? 

22 MR. MARGOLIS: No questions. I'm just 

23 interested in where is the headquarters of your 

24 company? 

25 

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MR. MARGOLIS: No, not Southern, Alabama.

MR. CONNOR: Alabama Power Company is

headquartered in Birmingham, Alabama.

MR. MARGOLIS: In Birmingham.

PRESIDING OFFICIAL BERLIN: Howard, I

assume you don't have any questions?

Thank you very much.

The next speaker is Dallas Burtraw please.

MR. BURTRAW: Good morning. I have

brought along some revised testimony from what I

submitted earlier this week. Is it appropriate to

leave it with you now?

PRESIDING OFFICIAL BERLIN: Sure.

MR. BURTRAW: Over at the desk here?

PRESIDING OFFICIAL BERLIN: Yes. Here,

this is fine. Thank you.

MR. BURTRAW: Good morning. My name is

Dallas Burtraw. I'm a research fellow and economist

with Resources for the Future. Resources for the

Future is an independent non-profit, non-partisan

research institute focusing on environmental and

natural resource economics.

Resources for the Future and Oak Ride

National Laboratories recently completed a pathbreaking study on the social cost of electricity fuel

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1 MR. MARGOLI S : No, not Southern, Alabama. 

2 MR. CONNOR: Alabama Power Company is 

3 headquartered in Birmingham, Alabama. 

4 MR. MARGOLIS: In Birmingham. 

5 PRESIDING OFFICIAL BERLIN: Howard, I 

6 assume you don't have any questions? 

7 Thank you very much. 

8 The next speaker is Dallas Burtraw please. 

9 MR. BURTRAW: Good morning. I have 

10 brought along some revised testimony from what I 

11 submitted earlier this week. Is it appropriate to 

12 leave it with you now? 

13 PRESIDING OFFICIAL BERLIN: Sure. 

14 MR. BURTRAW: Over at the desk here? 

15 PRESIDING OFFICIAL BERLIN: Yes. Here, 

16 this is fine. Thank you. 

17 MR. BURTRAW: Good morning. My name is 

18 Dallas Burtraw. I'm a research fellow and economist 

19 with Resources for the Future. Resources for the 

20 Future is an independent non-profit, non-partisan 

21 research institute focusing on environmental and 

22 natural resource economics. 

23 Resources for the Future and Oak Ride 

24 National Laboratories recently completed a path25 breaking study on the social cost of electricity fuel 

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cycles that was funded by the Department of Energy and

conducted in collaboration with researchers at the

European Union in a parallel effort.

Also, my colleague, Alan Krupnick, and I

have served on the management board for another pathbreaking study in New York State which was something

of a follow-on, sort of built on the shoulders of the

DOE study, and also was a full fuel cycle study.

These studies had several characteristics in common.

They were full fuel cycle studies, meaning that there

was attention paid to externalities from mining and

transportation of fuels through to generation.

Also, the focus was on site-specific

values. That is, there were specific reference

environments defined and specific reference

technologies. And importantly the technologies that

are characterized in both of these studies are vintage

1990 technologies, that is technologies that would be

involved in an incremental addition to capacity,

rather than average technologies or dispatch of the

utilities resources.

The DOE study was perhaps somewhat broader

in that more attention was paid to non environmental

externalities such as occupational health and safety

or employment effects. The DOE study was unique in

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1 cycles that was funded by the Department of Energy and 

2 conducted in collaboration with researchers at the 

3 European Union in a parallel effort. 

4 Also, my colleague, Alan Krupnick, and I 

5 have served on the management board for another path6 breaking study in New York State which was something 

7 of a follow-on, sort of built on the shoulders of the 

8 DOE study, and also was a full fuel cycle study. 

9 These studies had several characteristics in common. 

10 They were full fuel cycle studies, meaning that there 

11 was attention paid to externalities from mining and 

12 transportation of fuels through to generation. 

13 Also, the focus was on site-specific 

14 values. That is, there were specific reference 

15 environments defined and specific reference 

16 technologies. And importantly the technologies that 

17 are characterized in both of these studies are vintage 

18 1990 technologies, that is technologies that would be 

19 involved in an incremental addition to capacity, 

20 rather than average technologies or dispatch of the 

21 utilities resources. 

22 The DOE study was perhaps somewhat broader 

23 in that more attention was paid to non environmental 

24 externalities such as occupational health and safety 

25 or employment effects. The DOE study was unique in 

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that one of its final products will be a computer

model that will allow the user to calculate

externalities for several reference technologies at

basically any geographic location in New York State.

The lessons from these studies have been

first and foremost that there will not exist one

simple set of values that describe externalities

associated with electricity generation. Rather the

externality estimates that have been arrived at

appropriately differ by location. And they differ by

location due to differences in geography, population

densities, background conditions, as well as the

technology in emissions that are being used.

And so one should not apply a test of the

emergence of a single set of values as a test for how

well these studies have preformed. There has been,

between these studies and five other efforts funded by

other state public service commissions, a convergence

in methodology, if not a convergence in the numerical

estimates that that methodology produces.

The early studies that were done in the

late '80s were making use primarily of a cost of

control method. In the absence of any sort of workedout theory or practical guidelines for how to estimate

externality damages. Since that time the DOE effort

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1 that one of its final products will be a computer 

2 model that will allow the user to calculate 

3 externalities for several reference technologies at 

4 basically any geographic location in New York State. 

5 The lessons from these studies have been 

6 first and foremost that there will not exist one 

7 simple set of values that describe externalities 

8 associated with electricity generation. Rather the 

9 externality estimates that have been arrived at 

10 appropriately differ by location. And they differ by 

11 location due to differences in geography, population 

12 densities, background conditions, as well as the 

13 technology in emissions that are being used. 

14 And so one should not apply a test of the 

15 emergence of a single set of values as a test for how 

16 well these studies have preformed. There has been, 

17 between these studies and five other efforts funded by 

18 other state public service commissions, a convergence 

19 in methodology, if not a convergence in the numerical 

20 estimates that that methodology produces. 

21 The early studies that were done in the 

22 late' 80s were making use primarily of a cost of 

23 control method. In the absence of any sort of worked24 out theory or practical guidelines for how to estimate 

25 externality damages. Since that time the DOE effort 

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first and follow-on by a number of state efforts have

provided tremendous guidance in terms of how

externalities can be estimated in a method that's

consistent with scientific evidence and economic

theory.

So there has emerged a sort of body of

knowledge and a convergence in that body of knowledge

among economists at least as to what approaches should

be used. There actually has emerged quite a

convergence of the numerical estimates also, but there

remains a healthy and appropriate divergence in what

estimates are in different locations. But the

suggestions that there are several orders of magnitude

difference is an exaggeration in fact when the proper

methodologies are used. And the fact that there

shouldn't be any difference at all is also a

misdirection.

The second lesson from the previous work

is that a tremendous amount of information has been

gained with regard to different pathways. Originally

the DOE study, the New York study looked at upwards of

300 potential externalities and externality pathways.

That is pathways linking some sort of economic

activity associated with mining or transportation or

generation to effects on consumers or producers of

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1 first and follow-on by a number of state efforts have 

2 provided tremendous guidance in terms of how 

3 externali ties can be estimated in a method that' s 

4 consistent with scientific evidence and economic 

5 theory. 

6 So there has emerged a sort of body of 

7 knowledge and a convergence in that body of knowledge 

8 among economists at least as to what approaches should 

9 be used. There actually has emerged quite a 

10 convergence of the numerical estimates also, but there 

11 remains a healthy and appropriate divergence in what 

12 estimates are in different locations. But the 

13 suggestions that there are several orders of magnitude 

14 difference is an exaggeration in fact when the proper 

15 methodologies are used. And the fact that there 

16 shouldn't be any difference at all is also a 

17 misdirection. 

18 The second lesson from the previous work 

19 is that a tremendous amount of information has been 

20 gained with regard to different pathways. Originally 

21 the DOE study, the New York study looked at upwards of 

22 300 potential externalities and externality pathways. 

23 That is pathways linking some sort of economic 

24 activity associated with mining or transportation or 

25 generation to effects on consumers or producers of 

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third party effects. And these studies have reviewed

the literature in these regards and essentially one

can now go to the searcher and borrow a value of

information kind of -- use a value of information type

of approach to decide which pathways are going to be

the most important.

And so the burden of proof has sort of

shifted from where I would have advocated three years

ago, that everything was on the table and everything

should be looked at and that the burden of proof in

failing to include an externality was on the part of

the researcher to show that it was not important. I

think that now there is a legitimate body of knowledge

that future state efforts or potential future DOE

efforts to look at externalities can assume the burden

of proof is shifted. And that for a number of

potential externality pathways, it can be presumed

that they are trivial, insignificant or not important

to the kind of final numerical results that are going

to be achieved.

So this points to the first recommendation

that I have for you is that the damage function

approach or the willingness to pay approach, which is

the approaches that were used in these studies, are

appropriate and should remain the preferred

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1 third party effects. And these studies have reviewed 

2 the literature in these regards and essentially one 

3 can now go to the searcher and borrow a value of 

4 information kind of -- use a value of information type 

5 of approach to decide which pathways are going to be 

6 the most important. 

7 And so the burden of proof has sort of 

8 shifted from where I would have advocated three years 

9 ago, that everything was on the table and everything 

10 should be looked at and that the burden of proof in 

11 failing to include an externality was on the part of 

12 the researcher to show that it was not important. I 

13 think that now there is a legitimate body of knowledge 

14 that future state efforts or potential future DOE 

15 efforts to look at externalities can assume the burden 

16 of proof is shifted. And that for a number of 

17 potential externality pathways, it can be presumed 

18 that they are trivial, insignificant or not important 

19 to the kind of final numerical results that are going 

20 to be achieved. 

21 So this points to the first recommendation 

22 that I have for you is that the damage function 

23 approach or the willingness to pay approach, which is 

24 the approaches that were used in these studies, are 

25 appropriate and 

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methodology for DOE in thinking about externality

values. The alternative approaches that have been

discussed such as the cost of control approach, which

is the effort to look in lieu of any kind of damage

estimates, to look at the marginal cost of abatement

and assume that that's a proxy for the marginal

benefits of emission reductions, that this is inferior

for several reasons, but it retains perhaps standing

in certain context when the damage function approach

is not plausible. One case in which that might apply

is if one presumed that there was going to emerge

national standards and an emissions cap for C02, in

which case the damage function approach might --

excuse me, a cost of control approach might properly

reflect the benefits of reducing C02 emissions.

The second recommendation pertaining to

comments that were published in the October 7th

Federal Register is that is the emission, in terms of

those three pollutants that were mentioned, the

emission NOx particulate pathway would be an important

mistake. In the studies that have been done so far we

have learned that NOx particulate effects are

approximately equal in magnitude to NOx ozone effects

for externality estimates.

Now, stepping back a little bit and

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1 methodology for DOE in thinking about externality 

2 values. The alternative approaches that have been 

3 discussed such as the cost of control approach, which 

4 is the effort to look in lieu of any kind of damage 

5 estimates, to look at the marginal cost of abatement 

6 and assume that that I s a proxy for the marginal 

7 benefits of emission reductions, that this is inferior 

8 for several reasons, but it retains perhaps standing 

9 in certain context when the damage function approach 

10 is not plausible. One case in which that might apply 

11 is if one presumed that there was going to emerge 

12 national standards and an emissions cap for C02, in 

13 which case the damage function approach might 

14 excuse me, a cost of control approach might properly 

15 reflect the benefits of reducing C02 emissions. 

16 The second recommendation pertaining to 

17 comments that were published in the October 7th 

18 Federal Register is that is the emission, in terms of 

19 those three pollutants that were mentioned, the 

20 emission NOx particulate pathway would be an important 

21 mistake. In the studies that have been done so far we 

22 have learned that NOx particulate effects are 

23 approximately equal in magnitude to NOx ozone effects 

24 for externality estimates. 

25 

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talking a look at these studies, it is clear that

based on prior assumptions of the researchers and of

the academic community that the estimates that have

been derived so far have been small. The externality

values are small with regards to conventional, that is

excluding C02. But one must emphasize, repeatedly

emphasize, in stating this with regards to application

to appliance standards, that these estimates pertain

to vintage 1990 technologies and not to the resource

mix that would be dispatched in the use of appliances

in the economy. So the values that have been found

pertaining to new sources are relatively small, but

the values that are likely to emerge with regards to

average resources in the utility mix are likely to be

several times larger than that.

I have attached with my previous testimony

the discussion paper by Alan Krupnick and myself

entitled "Bridging the Gap," and I request that that

be included with my revised comments for today. That

provides some guidance in terms of how we suggest one

could think through the epidemiology and the

economics, the valuation of extending social costing,

as it has come to be called, from the state or sitespecific level to national applications. It would not

be easy to do so, but there are some guidelines one

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1 talking a look at these studies, it is clear that 

2 based on prior assumptions of the researchers and of 

3 the academic community that the estimates that have 

4 been derived so far have been small. The externality 

5 values are small with regards to conventional, that is 

6 excluding C02. But one must emphasize, repeatedly 

7 emphasize, in stating this with regards to application 

8 to appliance standards, that these estimates pertain 

9 to vintage 1990 technologies and not to the resource 

10 mix that would be dispatched in the use of appliances 

11 in the economy. So the values that have been found 

12 pertaining to new sources are relatively small, but 

13 the values that are likely to emerge with regards to 

14 average resources in the utility mix are likely to be 

15 several times larger than that. 

16 I have attached with my previous testimony 

17 the discussion paper by Alan Krupnick and myself 

18 entitled "Bridging the Gap," and I request that that 

19 be included with my revised comments for today. That 

20 provides some guidance in terms of how we suggest one 

21 could think through the epidemiology and the 

22 economics, the valuation of extending social costing, 

23 as it has corne to be called, from the state or site24 specific level to national applications. It would not 

25 be easy to do so, but there are some guidelines one 

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could follow in terms of how that might be

accomplished.

But I think that while it's not going to

be easy to do so for the epidemiology and the

valuation, it potentially could be even more difficult

with regards to the emissions calculations. And a

variety of techniques are possible. Some of them were

suggested in the Federal Register, averaging, weighted

averaging. One might think about monte carlo

techniques in order to come up with some sort of

profile of emissions associated with appliance use at

a national average level.

My third recommendation is that based on

what we've learned from the previous social cost study

that it is a proper research priority for DOE to think

about, carefully, how these kinds of averages at the

national level should be calculated, both with respect

to epidemiology and valuation, and with respect to

what the emissions actually are associated with

appliance standards. Or rather I should say the

changes in emissions associated with the change in the

appliance standard including externality effects.

The fourth recommendation is that based on

the previous studies and empirical experience, it's

very important to include upstream costs in the

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1 could follow in terms of how that might be 

2 accomplished. 

3 But I think that while it's not going to 

4 be easy to do so for the epidemiology and the 

5 valuation, it potentially could be even more difficult 

6 with regards to the emissions calculations. And a 

7 variety of techniques are possible. Some of them were 

8 suggested in the Federal Register, averaging, weighted 

9 averaging. One might think about monte carlo 

10 techniques in order to come up with some sort of 

11 profile of emissions associated with appliance use at 

12 a national average level. 

13 My third recommendation is that based on 

14 what we've learned from the previous social cost study 

15 that it is a proper research priority for DOE to think 

16 about, carefully, how these kinds of averages at the 

17 national level should be calculated, both with respect 

18 to epidemiology and valuation, and with respect to 

19 what the emissions actually are associated with 

20 appliance standards. Or rather I should say the 

21 changes in emissions associated with the change in the 

22 appliance standard including externality effects. 

23 The fourth recommendation is that based on 

24 the previous studies and empirical experience, it's 

25 very important to include upstream costs in the 

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externality evaluation. That is upstream costs

referring to mining and transportation of fuels. In

fact with regard to some fuels we learned that the

transportation of fuels can be as important as the

generation of electricity using those fuels in terms

of the environmental impacts and the valuation of

those impacts and their affects on third parties.

There are a number of other issues that

have emerged in previous research that I'll just take

a moment to touch on. One of them is employment

effects. We have found that employment effects can be

important and they should be considered. The

methodology that was used in the DOE study by Oakridge

National Labs and Resources for the Future wasn't an

opportunity cost approach where we attempted to net

out or attempted to think about not just the simple

bean-counting exercise in terms of number of jobs

created or taken away from the economy, but rather

what was the likelihood that this type of a change

would draw a worker from the pool of previously

employed or under-employed or recipient, put a worker

into this pool.

This type of approach is much closer to

economic theory and the way economic theory suggests

one should think about employment effects. It tends

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1 externality evaluation. That is upstream costs 

2 referring to mining and transportation of fuels. In 

3 fact with regard to some fuels we learned that the 

4 transportation of fuels can be as important as the 

5 generation of electricity using those fuels in terms 

6 of the environmental impacts and the valuation of 

7 those impacts and their affects on third parties. 

8 There are a number of other issues that 

9 have emerged in previous research that I'll just take 

10 a moment to touch on. One of them is employment 

11 effects. We have found that employment effects can be 

12 important and they should be considered. The 

13 methodology that was used in the DOE study by Oakridge 

14 National Labs and Resources for the Future wasn't an 

15 opportunity cost approach where we attempted to net 

16 out or attempted to think about not just the simple 

17 bean-counting exercise in terms of number of jobs 

18 created or taken away from the economy, but rather 

19 what was the likelihood that this type of a change 

20 would draw a worker from the pool of previously 

21 employed or under-employed or recipient, put a worker 

22 into this pool. 

23 This type of approach is much closer to 

24 economic theory and the way economic theory suggests 

25 one should think about employment effects. It tends 

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to diminish the effects significantly, but it also

puts the estimates on much firmer theoretical footing.

And they remain important, they remain significant in

order of magnitude compared to the other kinds of

environmental externalities that have been thought

about.

Now, I don't want to go too far in making

great claims about the way we did it with the

employments effects in the DOE study. It's not

adequate, but it's, I would claim, one of the best

that has been done anywhere so far. And there are not

acceptable methods in economic theory that can just be

borrowed and applied to really thinking about

employment effects in a rigorous way.

Secondly, in the Federal Register there

was some discussion of the federalism issue. That was

one and two, and that is what happens with regards to

efforts at the state level and then a double, another

layer, of efforts at the federal level by DOE in

thinking about appliance standards.

I agree with the implications or

conclusions in the Federal Register, that is that it

is appropriate for DOE to think about appliance

standards even if the states are thinking about

externality values and resource planning for two

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1 to diminish the effects significantly, but it also 

2 puts the estimates on much firmer theoretical footing. 

3 And they remain important, they remain significant in 

4 order of magnitude compared to the other kinds of 

5 environmental externalities that have been thought 

6 about. 

7 Now, I don't want to go too far in making 

8 great claims about the way we did it with the 

9 employments effects in the DOE study. It's not 

10 adequate, but it's, I would claim, one of the best 

11 that has been done anywhere so far. And there are not 

12 acceptable methods in economic theory that can just be 

13 borrowed and applied to really thinking about 

14 employment effects in a rigorous way. 

15 Secondly, in the Federal Register there 

16 was some discussion of the federalism issue. That was 

17 one and two, and that is what happens with regards to 

18 efforts at the state level and then a double, another 

19 layer, of efforts at the federal level by DOE in 

20 thinking about appliance standards. 

21 I agree with the implications or 

22 conclusions in the Federal Register, that is that it 

23 is appropriate for DOE to think about appliance 

24 standards even if the states are thinking about 

25 externality values and resource planning for two 

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reasons. First of all at the state level, the focus

is primarily so far on resource planning rather than

on the dispatch of existing facilities. Resources for

the Future has suggested, that is simulation models

has suggested that the whole approach by the states

could be greatly improved if they were to take a

dispatch approach, but no state so far as really done

so in a comprehensive way.

So while the focus at the state level is

on additions to capacity, the focus with regards to

appliance standards is on the use of the resource mix

and utility on average. Secondly, even if the states

were doing dispatch instead of planning there remains

-- the instrument that has been used by policy makers

at the state level has been a shadow costing or use of

adders which are meant to provide a signal to the

utility on how to plan or preferably dispatch its

resource mix, but there's no revenue changing hands,

there's no actual charge. And consequently, there is

no signal made to consumers about the hidden costs

associated with their electricity use.

So there's really competing theories or

notions of efficiency in effect here, one of them

termed "Productive or technical efficiency," which

suggests that for a given level demand what's the

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1 reasons. First of all at the state level, the focus 

2 is primarily so far on resource planning rather than 

3 on the dispatch of existing facilities. Resources for 

4 the Future has suggested, that is simulation models 

5 has suggested that the whole approach by the states 

6 could be greatly improved if they were to take a 

7 dispatch approach, but no state so far as really done 

8 so in a comprehensive way. 

9 So while the focus at the state level is 

10 on additions to capacity, the focus with regards to 

11 appliance standards is on the use of the resource mix 

12 and utility on average. Secondly, even if the states 

13 were doing dispatch instead of planning there remains 

14 the instrument that has been used by policy makers 

15 at the state level has been a shadow costing or use of 

16 adders which are meant to provide a signal to the 

17 utility on how to plan or preferably dispatch its 

18 resource mix, but there's no revenue changing hands, 

19 there's no actual charge. And consequently, there is 

20 no signal made to consumers about the hidden costs 

21 associated with their electricity use. 

22 So there's really competing theories or 

23 notions of efficiency in effect here, one of them 

24 termed "Productive or technical efficiency, II which 

25 suggests that for a given level demand what's the 

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economically efficient way to produce electricity.

The second is, what is the right level of demand. And

the attempt to think about appliance standards at the

federal level could still be important because of the

failure at the state level so far to do anything

that's going to have effect on prices and consequently

adjustments in consumer demand.

Another point that was mentioned and

deserves further thought is the role of pre-existing

social regulation. In some cases this is going to

mean that observed third party effects should not

count with regards to public policy and the

calculation of externalities. The best case of this

of course is S02 trading under the Clean Air Act

Amendments where, if there is emissions cap in effect,

the increase in emissions from one source is more or

less precisely offset by a reduction in emissions from

another source. And more or less the economic value

of the environmental impacts of those emissions are

also going to be offset.

Another case just to extend the

possibilities here would be if there was unlimited

liability, or to the extent there is strict liability

with fuel transportation or oil transportation site.

In this case there remains a probability that one will

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1 economically efficient way to produce electricity. 

2 The second is, what is the right level of demand. And 

3 the attempt to think about appliance standards at the 

4 federal level could still be important because of the 

5 failure at the state level so far to do anything 

6 that f s going to have effect on prices and consequently 

7 adjustments in consumer demand. 

8 Another point that was mentioned and 

9 deserves further thought is the role of pre-existing 

10 social regulation. In some cases this is going to 

11 mean that observed third party effects should not 

12 count wi th regards to public policy and the 

13 calculation of externalities. The best case of this 

14 of course is 802 trading under the Clean Air Act 

15 Amendments where, if there is emissions cap in effect, 

16 the increase in emissions from one source is more or 

17 less precisely offset by a reduction in emissions from 

18 another source. And more or less the economic value 

19 of the environmental impacts of those emissions are 

20 also going to be offset. 

21 Another case just to extend the 

22 possibilities here would be if there was unlimited 

23 liability, or to the extent there is strict liability 

24 with fuel transportation or oil transportation site. 

25 In this case there remains a probability that one will 

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observe an occasional oil spill, but if the oil

transporter has been required to be bonded or there is

some sort of certification to make sure that they are

not going to go bankrupt in the case of a spill, and

if there's bonding or insurance, then one would expect

in the prices of oil some reflection of the expected

liability associated with the occasional oil spill

that will still occur. In that case these damages are

already going to be reflected in consumer prices.

The issue about the distinction between

price and marginal cost can be very important. Rich

Gilbert from UC-Berkeley, currently I think at the

Department of Justice, has estimated that in the

utility grade in northern California the difference

between price and marginal costs directly leads to a

seven percent -- has the effect equivalent to seven

percent of consumer welfare loss associated with

electricity use. In other words it's very significant

and the effect, the indirect effect and induced

effect, of this failure to get prices right for

electricity at the margin can amplify this effect.

The discussion is generally correct in the

Federal Register I think, although not precisely so in

that the real issue is whether or not the adder

estimates that are turned over by the scientists and

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1 observe an occasional oil spill, but if the oil 

2 transporter has been required to be bonded or there is 

3 some sort of certification to make sure that they are 

4 not going to go bankrupt in the case of a spill, and 

5 if there's bonding or insurance, then one would expect 

6 in the prices of oil some reflection of the expected 

7 liability associated with the occasional oil spill 

8 that will still occur. In that case these damages are 

9 already going to be reflected in consumer prices. 

10 The issue about the distinction between 

11 price and marginal cost can be very important. Rich 

12 Gilbert from UC-Berkeley, currently I think at the 

13 Department of Justice, has estimated that in the 

14 utility grade in northern California the difference 

15 between price and marginal costs directly leads to a 

16 seven percent -- has the effect equivalent to seven 

17 percent of consumer welfare loss associated with 

18 electricity use. In other words it's very significant 

19 and the effect, the indirect effect and induced 

20 effect, of this failure to get prices right for 

21 electricity at the margin can amplify this effect. 

22 The discussion is generally correct in the 

23 Federal Register I think, although not precisely so in 

24 that the real issue is whether or not the adder 

25 estimates that are turned over by the scientists and 

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the economists that are worried about valuation of

externalities should be somehow adjusted for the fact

that there's a distinction between price and marginal

cost. And it's as though they are being adjusted by

a coefficient. Then the question is, should that

coefficient be greater than or less than one, not

greater or less than zero.

And finally, in the spirit of looking at

all externalities throughout the entire fuel cycle and

non environmental externalities as well as

environmental externalities, Resources for the Future

has recently completed an examination of the fiscal

benefits associated with fuel cycles and electricity

generation. We looked at a number of different fuel

cycles and it was a full fuel cycle analysis looking

at fiscal benefits, that is taxes paid, through

mining, transportation stages for fuel transport, and

then in generation of electricity using those fuels.

Since different fuels, since there is

different laws applied to different fuels, different

fuels are going to, you know, be harvested, if you

will, in different parts of the country. There is

different capital structures associated with the firms

involved in these efforts. One would expect that

there's going to be a difference in the taxes paid.

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1 the economists that are worried about valuation of 

2 externalities should be somehow adjusted for the fact 

3 that there's a distinction between price and marginal 

4 cost. And it's as though they are being adjusted by 

5 a coefficient. Then the question is, should that 

6 coefficient be greater than or less than one, not 

7 greater or less than zero. 

8 And finally, in the spirit of looking at 

9 all externalities throughout the entire fuel cycle and 

10 non environmental externalities as well as 

11 environmental externalities, Resources for the Future 

12 has recently completed an examination of the fiscal 

13 benefits associated with fuel cycles and electricity 

14 generation. We looked at a number of different fuel 

15 cycles and it was a full fuel cycle analysis looking 

16 at fiscal benefits, that is taxes paid, through 

17 mining, transportation stages for fuel transport, and 

18 then in generation of electricity using those fuels. 

19 since different fuels, since there is 

20 different laws applied to different fuels, different 

21 fuels are going to, you know, be harvested, if you 

22 will, in different parts of the country. There is 

23 different capital structures associated with the firms 

24 involved in these efforts. One would expect that 

25 there's going to be a difference in the taxes paid. 

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And in fact that's what we find to be the case.

2 We find that, for example in comparing

3 goal and natural gas that the taxes paid per kilowatt

4 hour or in a levelized basis of levelized cost of

5 energy for electricity generated with gas, are smaller

6 than the taxes paid for electricity generated with

7 coal. And the difference in terms of these fiscal

8 benefits, interestingly enough, are about the same

9 magnitude as the estimates that have emerged from some

10 of these externality estimates and opposite in sign.

11 Now, of course I reiterate that these

12 previous externality estimates have omitted C02 and

13 have been developed with regards to only increments in

14 capacity, not with the average resourcefulness of the

15 utility. In general when looking at taxes what one

16 fines is that the more fuel-intensive the fuel cycle,

17 the less taxes that are paid, gas being the most fuel18 intensive fuel cycle, and renewables being the least

19 fuel-intensive.

20 So in summary, I think previous research

21 has found that the estimation of environmental impacts

22 and the valuation of those is a feasible enterprise

23 and can be conducted on a consistent basis, that is

24 that increasingly different researchers would come to

25 the same problem and come up with the same numbers in

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1 And in fact that's what we find to be the case. 

2 We find that, for example in comparing 

3 goal and natural gas that the taxes paid per kilowatt 

4 hour or in a levelized basis of levelized cost of 

5 energy for electricity generated with gas, are smaller 

6 than the taxes paid for electricity generated with 

7 coal. And the difference in terms of these fiscal 

8 benefits, interestingly enough, are about the same 

9 magni tude as the estimates that have emerged from some 

10 of these externality estimates and opposite in sign. 

11 Now, of course I reiterate that these 

12 previous externality estimates have omitted C02 and 

13 have been developed with regards to only increments in 

14 capacity, not with the average resourcefulness of the 

15 utility. In general when looking at taxes what one 

16 fines is that the more fuel-intensive the fuel cycle, 

17 the less taxes that are paid, gas being the most fuel18 intensive fuel cycle, and renewables being the least 

19 fuel-intensive. 

20 So in summary, I think previous research 

21 has found that the estimation of environmental impacts 

22 and the valuation of those is a feasible enterprise 

23 and can be conducted on a consistent basis, that is 

24 that increasingly different researchers would corne to 

25 the same problem and corne up with the same numbers in 

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a specific location.

I'm not taking a stand with regards

specifically to the development and application of

appliance standards. There's issues that are larger

than simply the calculation of these environmental

externalities. But I do assert that these

environmental externalities can be reliably estimated

and the exercise of doing so could provide very

valuable information to DOE in setting appliance

standards, and hopefully, eventually in the

development of incentive-based regulation for energy

use throughout the economy. Thank you very much.

PRESIDING OFFICIAL BERLIN: Thank you. I

think you've provided some good insights and you've

done some significant work in this area. It's very

impressive. I don't have any specific questions

though, thank you.

Michael?

MR. McCABE: There have been a number of

comments that have been made over the last day or so

about how this is a national problem. You've touched

on it as well. And one could almost infer from your

statements that at this point in time you don't see

any way that the impacts externalities effects can be

developed for such a national program that deals with

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1 a specific location. 

2 I'm not taking a stand with regards 

3 specifically to the development and application of 

4 appliance standards. There's issues that are larger 

5 than simply the calculation of these environmental 

6 externalities. But I do assert that these 

7 environmental externalities can be reliably estimated 

8 and the exercise of doing so could provide very 

9 valuable information to DOE in setting appliance 

10 standards, and hopefully, eventually in the 

11 development of incentive-based regulation for energy 

12 use throughout the economy. Thank you very much. 

13 PRESIDING OFFICIAL BERLIN: Thank you. I 

14 think you've provided some good insights and you've 

15 done some significant work in this area. It's very 

16 impressive. I don' t have any specific questions 

17 though, thank you. 

18 Michael? 

19 MR. McCABE: There have been a number of 

20 comments that have been made over the last day or so 

21 about how this is a national problem. You've touched 

22 on it as well. And one could almost infer from your 

23 statements that at this point in time you don't see 

24 any way that the impacts externalities effects can be 

25 developed for such a national program that deals with 

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products such as appliances when it is a local problem

at the source. Is that a correct characterization?

MR. BURTRAW: Let me try to make it more

precise. There is not currently off-the-shelf

estimates or even an off-the-shelf methodology for how

to think about national externality estimates that

would engender a consensus among practitioners. But

that was the case six years ago with regards, or seven

years ago, with regards to externality estimates at

the site-specific level where the issue then was sort

of how to think about the breadth of issues that are

involved, the breadth of potential externality

pathways, and the second best effects associated with

pre-existing regulation in the economy, etcetera,

etcetera.

And there's been tremendous advances made

in that literature over the last five or six or seven

years. So at the national level I think that it's an

exercise, and it's not beyond feasible. I think it's

is feasible to do so. But off-the-shelf estimates now

do not exist. I think that the costs, the marginal

costs, of extending the frontiers of this kind of

research have been falling because of it's replication

in various locales, particularly because of the pathbreaking work, the DOE funded research provided in the

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1 products such as appliances when it is a local problem 

2 at the source. Is that a correct characterization? 

3 MR. BURTRAW: Let me try to make it more 

4 precise. There is not currently off-the-shelf 

5 estimates or even an off-the-shelf methodology for how 

6 to think about national externality estimates that 

7 would engender a consensus among practitioners. But 

8 that was the case six years ago with regards, or seven 

9 years ago, with regards to externality estimates at 

10 the site-specific level where the issue then was sort 

11 of how to think about the breadth of issues that are 

12 involved, the breadth of potential externality 

13 pathways, and the second best effects associated with 

14 pre-existing regulation in the economy, etcetera, 

15 etcetera. 

16 And there's been tremendous advances made 

17 in that literature over the last five or six or seven 

18 years. So at the national level I think that it's an 

19 exercise, and it's not beyond feasible. I think it's 

20 is feasible to do so. But off-the-shelf estimates now 

21 do not exist. I think that the costs, the marginal 

22 costs, of extending the frontiers of this kind of 

23 research have been falling because of it's replication 

24 in various locales, particularly because of the path25 breaking work, the DOE funded research provided in the 

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first place.

MR. McCABE: Thank you.

PRESIDING OFFICIAL BERLIN: Gene?

MR. MARGOLIS: I have no questions.

PRESIDING OFFICIAL BERLIN: Howard?

MR. GRUENSPECHT: You raised, I guess, the

issues of the magnitude for the conventional

pollutants being relatively small, although varying on

a site-specific basis. And then you cited some of

the, I think Rich Gilbert's work with regard to

existing differences between price and marginal cost.

While I understand that it's a site by site issue,

just given the relative magnitude, say, you know, is

there some sense in which it's sort of not worth

looking at? I mean could you get into the relative

magnitudes a little bit more and try to address the

issue of, you know, yes there may be some externality

value that we can come up, but given that, we're then

bringing that into a framework or price of marginal

cost diverge, is there really anything that public

policy ought to be doing with such a thing?

MR. BURTRAW: Yes. This kind of question

makes my palms sweat literally. The reason is that we

have learned to be very cautious with regards to any

kind of blanket statement about, well, how big are

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1 first place. 

2 MR. McCABE: Thank you. 

3 PRESIDING OFFICIAL BERLIN: Gene? 

4 MR. MARGOLIS: I have no questions. 

5 PRESIDING OFFICIAL BERLIN: Howard? 

6 MR. GRUENSPECHT: You raised, I guess, the 

7 issues of the magnitude for the conventional 

8 pollutants being relatively small, although varying on 

9 a site-specific basis. And then you cited some of 

10 the, I think Rich Gilbert's work with regard to 

11 existing differences between price and marginal cost. 

12 While I understand that it's a site by site issue, 

13 just given the relative magnitude, say, you know, is 

14 there some sense in which it's sort of not worth 

15 looking at? I mean could you get into the relative 

16 magnitudes a little bit more and try to address the 

17 issue of, you know, yes there may be some externality 

18 value that we can come up, but given that, we're then 

19 bringing that into a framework or price of marginal 

20 cost diverge, is there really anything that public 

21 policy ought to be doing with such a thing? 

22 MR. BURTRAW: Yes. This kind of question 

23 makes my palms sweat literally. The reason is that we 

24 have learned to be very cautious with regards to any 

25 kind of blanket statement about, well, how big are 

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these things.

MR. GRUENSPECHT: Right.

MR. BURTRAW: Because we've found them to

be several times bigger with regard just to the two

reference sites that we looked at in New Mexico and

Tennessee , several times different for different

environmental pathways.

But I think it might be fair to say that

with regards to summing all externalities associated

with conventional pathways and conventional pollutants

that is excluding what has been -- it is important to

know what has been excluded by these studies.

Ecological effects have been excluded, C02 have been

excluded, which as you know are potentially very big.

What we're left with is externality estimates on the

environmental side of less than a cent per kilowatt

hour, more or less. You know, maybe seven mills per

kilowatt hour, maybe a tenth of that, maybe twice

that, but it's going to be somewhere in that range

with everything summed up . And that is associated

with -- that might be high with regards to the results

of the New York study I think. So there you might see

more often than not estimates that are a little bit

smaller than that.

There are so many things to keep in mind

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1 these things. 

2 MR. GRUENSPECHT: Right. 

3 MR. BURTRAW: Because we've found them to 

4 be several times bigger with regard just to the two 

5 reference sites that we looked at in New Mexico and 

6 Tennessee, several times different for different 

7 environmental pathways. 

8 But I think it might be fair to say that 

9 with regards to summing all externalities associated 

10 with conventional pathways and conventional pollutants 

11 that is excluding what has been -- it is important to 

12 know what has been excluded by these studies. 

13 Ecological effects have been excluded, C02 have been 

14 excluded, which as you know are potentially very big. 

15 What we're left with is externality estimates on the 

16 environmental side of less than a cent per kilowatt 

17 hour, more or less. You know, maybe seven mills per 

18 kilowatt hour, maybe a tenth of that, maybe twice 

19 that, but it's going to be somewhere in that range 

20 with everything summed up. And that is associated 

21 with -- that might be high with regards to the results 

22 of the New York study I think. So there you might see 

23 more often than not estimates that are a little bit 

24 smaller than that. 

25 There are so many things to keep in mind 

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when just reporting an estimate, that I have to take

a second and qualify it further. For example, in

thinking about employment benefits, if one is going to

admit them, or the fiscal benefits if one is going to

permit them. It's not simply the case that, you know,

there might be an environmental externality, but an

employment so the two are offsetting so you can forget

about it. Because the use of this information at this

juncture is not in the calculation of some sort of

emissions fee that's going to put our externality fee

even more broadly than is going to be put on a fuel

cycle. Rather it's putting a wedge or a shadow price

between the fuel cycles for planning or for dispatch

purposes.

So one has to net out the employment, the

difference in employment effects. I meant there is

employment benefits associated with fuel cycles. And

there is externality damages basically associated with

all fuel cycles. So one has to bring them all into

the calculation and then compare them side by side and

see what the wedge is in terms of these social costs

between the different fuel cycles.

But to bite the bullet and get out your

question with regards to the order of magnitude, there

you have it. Now, there has been some simulation work

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1 when just reporting an estimate, that I have to take 

2 a second and qualify it further. For example, in 

3 thinking about employment benefits, if one is going to 

4 admit them, or the fiscal benefits if one is going to 

5 permit them. It's not simply the case that, you know, 

6 there might be an environmental externality, but an 

7 employment so the two are offsetting so you can forget 

8 about it. Because the use of this information at this 

9 juncture is not in the calculation of some sort of 

10 emissions fee that's going to put our externality fee 

11 even more broadly than is going to be put on a fuel 

12 cycle. Rather it's putting a wedge or a shadow price 

13 between the fuel cycles for planning or for dispatch 

14 purposes. 

15 So one has to net out the employment, the 

16 difference in employment effects. I meant there is 

17 employment benefits associated with fuel cycles. And 

18 there is externality damages basically associated with 

19 all fuel cycles. So one has to bring them all into 

20 the calculation and then compare them side by side and 

21 see what the wedge is in terms of these social costs 

22 between the different fuel cycles. 

23 But to bite the bullet and get out your 

24 question with regards to the order of magnitude, there 

25 you have it. Now, there has been some simulation work 

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done by colleagues of mine at Resources for the Future

in terms of what type of effect this would have either

in planning or dispatch for a prototypical midAtlantic utility which reflects actually sort of a --

it's been done, we've repeated this work a couple of

times, it's been done in one case representing sort of

a hypothetical utility, and in another case it was

very utility-specific. And when externality estimates

were that small, they would not -- for planning

purposes it turns out that really doesn't have much of

an effect on the utility, the wedge isn't big enough.

And this has also been found in New York

State in a recent paper written by Bob Rowe and Rick

Freeman, that when these externalities estimates are

of that order of magnitude it's not having effect.

But in the New York case there was no inclusion of the

fiscal effects or employment effects. And if those

things head in the same direction, you then could get

this wedge being bigger and it would have an effect.

Secondly, if you look at dispatch the RFF

work suggests that this sort of magnitude begins to

have an effect. And, if you take into account the

kind of externalities that are applied based on cost

and control method in Massachusetts, then there is a

very definite effect. And then further, if you take

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1 done by colleagues of mine at Resources for the Future 

2 in terms of what type of effect this would have either 

3 in planning or dispatch for a prototypical mid4 Atlantic utility which reflects actually sort of a 

5 it's been done, we've repeated this work a couple of 

6 times , it's been done in one case representing sort of 

7 a hypothetical utility, and in another case it was 

8 very utility-specific. And when externality estimates 

9 were that small, they would not for planning 

10 purposes it turns out that really doesn't have much of 

11 an effect on the utility, the wedge isn't big enough. 

12 And this has also been found in New York 

13 State in a recent paper written by Bob Rowe and Rick 

14 Freeman, that when these externalities estimates are 

15 of that order of magnitude it's not having effect. 

16 But in the New York case there was no inclusion of the 

17 fiscal effects or employment effects. And if those 

18 things head in the same direction, you then could get 

19 this wedge being bigger and it would have an effect. 

20 Secondly, if you look at dispatch the RFF 

21 work suggests that this sort of magnitude begins to 

22 have an effect. And, if you take into account the 

23 kind of externalities that are applied based on cost 

24 and control method in Massachusetts, then there is a 

25 very definite effect. And then further, if you take 

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a look at average externalities, externalities

associated with average resource mix rather than the

relatively efficient and clean resources that are

being added at the margin, then these estimates are

going to be two or three or four times larger

probably.

So my hands are still sweating, but that's

the best I can qualify it.

MR. GRUENSPECHT: I don't have any further

questions.

PRESIDING OFFICIAL BERLIN: Thank you.

Robert Sansom please?

MR. SANSOM: Good morning. My name is

Robert L. Sansom. I'm testifying on behalf of the

National Coal Association.

I understand it's the panel's desire that

we summarize our statements rather than read them, and

I'm sure the witnesses has the privilege of assuming

that you're read our detailed statements carefully.

First of all legal authority, I was

surprised to hear at yesterday's hearing somebody

stated that the basis is paragraph 6 of "The need for

national energy conservation." I can't see anything

that gives you the legal authority to do what you're

proposing to do with this advance notice. The

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1 a look at average externalities, externalities 

2 associated with average resource mix rather than the 

3 relatively efficient and clean resources that are 

4 being added at the margin, then these estimates are 

5 going to be two or three or four times larger 

6 probably. 

7 So my hands are still sweating, but that's 

8 the best I can qualify it. 

9 MR. GRUENSPECHT: I don't have any further 

10 questions. 

11 PRESIDING OFFICIAL BERLIN: Thank you. 

12 Robert Sansom please? 

13 MR. SANSOM: Good morning. My name is 

14 Robert L. Sansom. I'm testifying on behalf of the 

15 National Coal Association. 

16 I understand it's the panel's desire that 

17 we summarize our statements rather than read them, and 

18 I'm sure the witnesses has the privilege of assuming 

19 that you're read our detailed statements carefully. 

20 First of all legal authority, I was 

21 surprised to hear at yesterday's hearing somebody 

22 stated that the basis is paragraph 6 of "The need for 

23 national energy conservation." I can't see anything 

24 that gives you the legal authority to do what you're 

25 proposing to do with this advance notice. The 

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rationale that somehow if you conserve energy, you

reduce emissions seems to me to be about analogous to

the rationale that, if you conserve energy you promote

savings and therefore DOE out to go into the savings

and loan business.

My concern about your legal authority is

heightened by the rulemaking's description of how the

externality value would be applied in the appliance

setting process. The rulemaking suggests that there

will be a kitty set up, an externalities kitty, and

that kitty will be used to adjust the net benefits

evaluation in setting the appliance standard. We

don't know whether that kitty is $10 million, one

dollar, $100 million, a billion dollars, but it seems

to me to be just the kind of thing where a bureaucrat

would be requiring the discretion to tweak the

appliance standards quite outside the realm of the

intent of Congress and the specific directions you

have to look at life cycle cost and the other

considerations.

The other thing about legal authority that

jumps out is the fact that -- well, let me tell a

story. I was testifying one time before Congress for

Congressman Whitten with my Administrator Ruckelshaus,

and he said with regard to environmental regulation

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1 rationale that somehow if you conserve energy, you 

2 reduce emissions seems to me to be about analogous to 

3 the rationale that, if you conserve energy you promote 

4 savings and therefore DOE out to go into the savings 

5 and loan business. 

6 My concern about your legal authority is 

7 heightened by the rulemaking's description of how the 

8 externality value would be applied in the appliance 

9 setting process. The rulemaking suggests that there 

10 will be a kitty set up, an externalities kitty, and 

11 that kitty will be used to adjust the net benefits 

12 evaluation in setting the appliance standard. We 

13 don't know whether that kitty is $10 million, one 

14 dollar, $100 million, a billion dollars, but it seems 

15 to me to be just the kind of thing where a bureaucrat 

16 would be requiring the discretion to tweak the 

17 appliance standards quite outside the realm of the 

18 intent of Congress and the specific directions you 

19 have to look at life cycle cost and the other 

20 considerations. 

21 The other thing about legal authority that 

22 jumps out is the fact that -- well, let me tell a 

23 story. I was testifying one time before Congress for 

24 Congressman Whitten with my Administrator Ruckelshaus, 

25 and he said with regard to environmental regulation 

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that we had more power than a good man needs and a bad

man should have. And I submit in the environmental

area, you don't, the EPA does. This rulemaking

actually says, to my utter astonishment, that you're

going to duplicate EPA's actions in ambient air

standard setting, because you're going to look at the

back-up studies on your own and arrive at your own

conclusion of whether EPA has done this properly.

The rulemaking suggests that you're going

to predict how EPA is going to change ambient air

standards in the future. And then the rulemaking

suggests that you know something about least cost

compliance planning and that the compliance standards

will somehow have an effect on the cost of compliance

in meeting environmental regulations. It seems to me

all those are areas outside your expertise and your

delegated authority by the Congress, and it suggests

to me that you're on the wrong track.

The other thing about legal authority that

struck me was the statement in the C02 section, that

even though all damage assessments from C02 were

speculative, which I agreed with and I think is an

accurate statement, but the rulemaking procedure

proceeds to then say that the public has shown no

willingness to pay for the C02 reductions, an accurate

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1 that we had more power than a good man needs and a bad 

2 man should have. And I submit in the environmental 

3 area, you don' t, the EPA does. This rulemaking 

4 actually says, to my utter astonishment, that you're 

5 going to duplicate EPA's actions in ambient air 

6 standard setting, because you're going to look at the 

7 back-up studies on your own and arrive at your own 

8 conclusion of whether EPA has done this properly. 

9 The rulemaking suggests that you're going 

10 to predict how EPA is going to change ambient air 

11 standards in the future. And then the rulemaking 

12 suggests that you know something about least cost 

13 compliance planning and that the compliance standards 

14 will somehow have an effect on the cost of compliance 

15 in meeting environmental regulations. It seems to me 

16 all those are areas outside your expertise and your 

17 delegated authority by the Congress, and it suggests 

18 to me that you're on the wrong track. 

19 The other thing about legal authority that 

20 struck me was the statement in the C02 section, that 

21 even though all damage assessments from C02 were 

22 speculative, which I agreed with and I think is an 

23 accurate statement, but the rulemaking procedure 

24 proceeds to then say that the public has shown no 

25 willingness to pay for the C02 reductions, an accurate 

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statement. And then absent all that, the rulemaking

proceeds to point out that the President and the Vice

President somehow believe that while there may not be

short term effects of C02 reductions, there are long

term effects.

Now, as a regulator I have been faced on

numerous occasions with somebody from the White House

telling me what the President thought, and the answer

was always what our legal authority gave us the

ability to do regardless of what the President

thought. But I can't think that I've ever seen in the

rulemaking a citation of the President and Vice

President as an authority for what should be done.

I'm sure the President and Vice President know how to

proceed with the Congress and seek to get the

authority to do what they believe is right, but I

don't think it's appropriate rulemaking to quote them

as sources for externality value.

The second area I'd like to address

briefly is the lack of environmental knowledge

demonstrated by the rulemaking and certainly the lack

an analytical environmental knowledge. If you review

the rulemaking, you have the feeling that you're in

Pittsburgh in the 1960s with regard to air quality and

environmental quality.

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1 statement. And then absent all that, the rulemaking 

2 proceeds to point out that the President and the Vice 

3 President somehow believe that while there may not be 

4 short term effects of C02 reductions, there are long 

5 term effects. 

6 Now, as a regulator I have been faced on 

7 numerous occasions with somebody from the White House 

8 telling me what the President thought, and the answer 

9 was always what our legal authority gave us the 

10 ability to do regardless of what the President 

11 thought. But I can' t think that I've ever seen in the 

12 rulemaking a citation of the President and Vice 

13 President as an authority for what should be done. 

14 I'm sure the President and Vice President know how to 

15 proceed with the Congress and seek to get the 

16 authority to do what they believe is right, but I 

17 don't think it's appropriate rulemaking to quote them 

18 as sources for externality value. 

19 The second area I'd like to address 

20 briefly is the lack of environmental knowledge 

21 demonstrated by the rulemaking and certainly the lack 

22 an analytical environmental knowledge. If you review 

23 the rulemaking, you have the feeling that you're in 

24 pittsburgh in the 1960s with regard to air quality and 

25 environmental quality. 

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I don't know how many of you have read

this document, this is the latest report on air

quality status in the United States issued by EPA. I

assume you all have that on your bookshelves since

you're now becoming environmental rulemakers. But it

turns out that 77 percent of the population lives in

areas that are in full compliance with air quality

standards. Therefore, if you're imposing a cost on

appliances, 77 percent of the people are paying the

cost for which they're getting no benefit.

Then when the rulemaking proceeds into the

details of the environmental compliance and status and

attempts to develope a methodology for finding an

externality value, it notes correctly I think that --

first of all it doesn't note about the percent of the

country where there are no externalities, but it does

not for the areas not in compliance that if those

areas are capped, emissions are capped in those areas,

that the appliance standard will have no environmental

effect because it won't change the total level of

emissions.

Then the rulemaking appears to surrender

to that possibility without quantifying it or

analyzing it and say well by the way maybe there isn't

any externality, but the appliance standards by

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1 I don't know how many of you have read 

2 this document, this is the latest report on air 

3 quality status in the united States issued by EPA. I 

4 assume you all have that on your bookshelves since 

5 you're now becoming environmental rulemakers. But it 

6 turns out that 77 percent of the population lives in 

7 areas that are in full compliance with air quality 

8 standards. Therefore, if you're imposing a cost on 

9 appliances, 77 percent of the people are paying the 

10 cost for which they're getting no benefit. 

11 Then when the rulemaking proceeds into the 

12 details of the environmental compliance and status and 

13 attempts to develope a methodology for finding an 

14 externality value, it notes correctly I think that 

15 first of all it doesn't note about the percent of the 

16 country where there are no externalities, but it does 

17 not for the areas not in compliance that if those 

18 areas are capped, emissions are capped in those areas, 

19 that the appliance standard will have no environmental 

20 effect because it won't change the total level of 

21 emissions. 

22 Then the rulemaking appears to surrender 

23 to that possibility without quantifying it or 

24 analyzing it and say well by the way maybe there isn't 

25 any externality, but the appliance standards by 

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reducing electricity consumption will somehow reduce

the cost of compliance without changing the net

environmental effect. And this is rank speculation.

There is no analysis to support this whatsoever. But

there is a claim somehow that the state implementation

plans will be effected, and I don't think that's

defensible, it's just speculation.

I think it's been noted here today, and I

understand yesterday, that this national level is a

totally inappropriate level to engage in this kind of

analysis or attempted analysis or speculation. If

there are any environmental externalities, they're

best addressed at highly localized levels, not at the

national level. And of course there are the

procedures in place under the environmental

legislation to do that. States are permitted and

localities are permitted to impose more stringent

standards than the national environmental standards

and national legislation.

Then we get to the question of how do you

value externalities. I think it's pretty well agreed

that the cost control method is intellectually unsound

and empirically meaningless. And I was glad to hear

the previous witness say more or less the same thing,

although he wasn't willing to totally disregard the

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1 reducing electricity consumption will somehow reduce 

2 the cost of compliance wi thout changing the net 

3 environmental effect. And this is rank speculation. 

4 There is no analysis to support this whatsoever. But 

5 there is a claim somehow that the state implementation 

6 plans will be effected, and I don't think that' s 

7 defensible, it's just speculation. 

8 I think it's been noted here today, and I 

9 understand yesterday, that this national level is a 

10 totally inappropriate level to engage in this kind of 

11 analysis or attempted analysis or speculation. If 

12 there are any environmental externalities, they're 

13 best addressed at highly localized levels, not at the 

14 national level. And of course there are the 

15 procedures in place under the environmental 

16 legis lation to do that. States are permitted and 

17 localities are permitted to impose more stringent 

18 standards than the national environmental standards 

19 and national legislation. 

20 Then we get to the question of how do you 

21 value externalities. I think it's pretty well agreed 

22 that the cost control method is intellectually unsound 

23 and empirically meaningless. And I was glad to hear 

24 the previous witness say more or less the same thing, 

25 although he wasn't willing to totally disregard the 

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cost of control method in the case of C02. I think

it's clear now that the cost of control advocates were

nothing more than energy tax advocates, and to the

extent that your rulemaking takes that approach, it is

akin to the efforts to impose a BTU tax which have

been rejected.

On the damage analysis, DOE does not

really in the rulemaking attempt to do a damage

analysis as a basis for an externality estimate. And

I would note and I hope you've seen the OTA study that

I would recommend to you that 's come out this fall

that effectively labels all of these fuel cycle

studies as subjective and analysis by assumption.

I know the previous witness was here to

thank you for studying his study and looking for

further studies from DOE, but I think you should read

the OTA study and consider the value of continuing to

do this sort of analysis. The previous witness

actually had the energy to suggest that maybe if his

analysis were furthered that the kinds of questions

you're asking in this rulemaking one day would be

answerable even though they weren't answerable today.

So what happens in the rulemaking is the

language proceeds to admit the cost of control method

doesn't give you an externality value, it fails to

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1 cost of control method in the case of C02. I think 

2 it's clear now that the cost of control advocates were 

3 nothing more than energy tax advocates, and to the 

4 extent that your rulemaking takes that approach, it is 

5 akin to the efforts to impose a BTU tax which have 

6 been rejected. 

7 On the damage analysis, DOE does not 

8 really in the rulemaking attempt to do a damage 

9 analysis as a basis for an externality estimate. And 

10 I would note and I hope you've seen the OTA study that 

11 I would recommend to you that's come out this fall 

12 that effectively labels all of these fuel cycle 

13 studies as subjective and analysis by assumption. 

14 I know the previous witness was here to 

15 thank you for studying his study and looking for 

16 further studies from DOE, but I think you should read 

17 the OTA study and consider the value of continuing to 

18 do this sort of analysis. The previous witness 

19 actually had the energy to suggest that maybe if his 

20 analysis were furthered that the kinds of questions 

21 you're asking in this rulemaking one day would be 

22 answerable even though they weren't answerable today. 

23 So what happens in the rulemaking is the 

24 language proceeds to admit the cost of control method 

25 doesn't give you an externality value, it fails to 

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provide a damage estimate approach to any externality

values, and then it goes down basically to the

question of how do we average the monetization values

in the seven states that have monetized externalities.

And I submit to you that this is a low point in

federal rulemaking. What in the world, how would one

average 43 states that have a zero externality value

with seven states, which is now six as a result of the

Massachusetts decision, who have monetized

externalities.

I suggest on page 13 in my testimony

several options which are offered really tongue-incheek. You can leave the states alone and stay out of

it. You could take the median, the median would be

zero. You might think about a two-appliance strategy

so people who really want to impose these monetized

externalities on themselves can have more expensive

appliances, and the rest of us who don't want to

engage in this kind of speculation can enjoy an unmonetized externality when we go to the store and

purchase. And of course obviously my recommendation

is that you should reject this entire approach.

Now, the other thing I raise in my

testimony that I think is important, and a lot more

important than externalities, are the effects of a

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1 provide a damage estimate approach to any externality 

2 values, and then it goes down basically to the 

3 question of how do we average the monetization values 

4 in the seven states that have monetized externalities. 

5 And I submit to you that this is a low point in 

6 federal rulemaking. What in the world, how would one 

7 average 43 states that have a zero externality value 

8 with seven states, which is now six as a result of the 

9 Massachusetts decision, who have monetized 

10 externalities. 

11 I suggest on page 13 in my testimony 

12 several options which are offered really tongue-in13 cheek. You can leave the states alone and stay out of 

14 it. You could take the median, the median would be 

15 zero. You might think about a two-appliance strategy 

16 so people who really want to impose these monetized 

17 externalities on themselves can have more expensive 

18 appliances, and the rest of us who don't want to 

19 engage in this kind of speculation can enjoy an un20 monetized externality when we go to the store and 

21 purchase. And of course obviously my recommendation 

22 is that you should reject this entire approach. 

23 Now, the other thing I raise in my 

24 testimony that I think is important, and a lot more 

25 important than externalities, are the effects of a 

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more stringent appliance standards on people with low

income. Now, it may be, and I'll admit that I'm not

familiar with your record, but it seems to me, if you

raise the cost of appliances through some artificial

externality value that allows you to take your kitty

and crank up the stringency of the conservation

standard applicable to an appliance, that you're

impacting disproportionately low income people. And

I've got a table in there that shows how much people,

low income people, spend for electricity. And that

you should address that.

And I suggest at the same time that you

address the issue of the turnover of appliances,

because if you increase the price of appliances, then

you retard the turnover and then you increase the

emissions. And of course you also put a burden on

those who are unable to afford the more efficient

appliance. I mean if you look at the ozone problem

and look at the clunker cars that contribute to the

ozone problem, you have the same potential problem if

you raised the cost of appliances beyond the ability

of certain income groups to buy those appliances.

So I guess in conclusion what I would say

is, I certainly applaud the concept of appliance

standards for energy conservation purposes, and I

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1 more stringent appliance standards on people with low 

2 income. NOw, it may be, and I'll admit that I'm not 

3 familiar with your record, but it seems to me, if you 

4 raise the cost of appliances through some artificial 

5 externality value that allows you to take your kitty 

6 and crank up the stringency of the conservation 

7 standard applicable to an appliance, that you're 

8 impacting disproportionately low income people. And 

9 I've got a table in there that shows how much people, 

10 low income people, spend for electricity. And that 

11 you should address that. 

12 And I suggest at the same time that you 

13 address the issue of the turnover of appliances, 

14 because if you increase the price of appliances, then 

15 you retard the turnover and then you increase the 

16 emissions. And of course you also put a burden on 

17 those who are unable to afford the more efficient 

18 appliance. I mean if you look at the ozone problem 

19 and look at the clunker cars that contribute to the 

20 ozone problem, you have the same potential problem if 

21 you raised the cost of appliances beyond the ability 

22 of certain income groups to buy those appliances. 

23 So I guess in conclusion what I would say 

24 is, I certainly applaud the concept of appliance 

25 standards for energy conservation purposes, and I 

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think you are undermining your credibility and the

credibility of the federal government, if you engage

in this extracurricular activity of trying to bring

externality values into the legitimate appliance

standard-setting process. Thank you.

PRESIDING OFFICIAL BERLIN: Thank you. I

have no questions.

Mike?

MR. McCABE: No questions.

PRESIDING OFFICIAL BERLIN: Gene?

MR. MARGOLIS: No questions. Thank you

for your testimony.

PRESIDING OFFICIAL BERLIN: Howard?

MR. GRUENSPECHT: One question. The

discussion of environmental issues in the context of

appliance standards, do you object specifically to the

development of externality values or do you object

more generally to the consideration of environmental

information in the setting of appliance standards? I

think it's been described "yesterday and earlier

today," that already in the technical support

documents that are used in support of decisions

regarding appliance standards there is quantitative

information presented about environmental

implications.

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1 think you are undermining your credibility and the 

2 credibility of the federal government, if you engage 

3 in this extracurricular activity of trying to bring 

4 externality values into the legitimate appliance 

5 standard-setting process. Thank you. 

6 PRESIDING OFFICIAL BERLIN: Thank you. I 

7 have no questions. 

8 Mike? 

9 MR. McCABE: No questions. 

10 PRESIDING OFFICIAL BERLIN: Gene? 

11 MR. MARGOLIS: No questions. Thank you 

12 for your testimony. 

13 PRESIDING OFFICIAL BERLIN: Howard? 

14 MR. GRUENSPECHT: One question. The 

15 discussion of environmental issues in the context of 

16 appliance standards, do you object specifically to the 

17 development of externality values or do you object 

18 more generally to the consideration of environmental 

19 information in the setting of appliance standards? I 

20 think it's been described "yesterday and earlier 

21 today," that already in the technical support 

22 documents that are used in support of decisions 

23 regarding appliance standards there is quantitative 

24 information 

25 implications. 

presented about 

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1 MR. SANSOM: Correct.

2 MR. GRUENSPECHT: And I wasn't sure

3 whether your argument applied specifically to

4 externality values or objection to the whole

5 consideration because that's the grounds of some other

6 agency.

7 MR. SANSOM: No, the only thing I

8 addressed was your advanced notice of proposed

9 rulemaking and the externality issue in that context.

10 I understand somebody did raise the issue of the

11 utility of these tonnage estimates.

12 MR. GRUENSPECHT: Right.

13 MR. SANSOM: My problem is I haven't

14 reviewed them. And I've found in the past, I mean if

15 you look at the EPA document, they have tonnage

16 estimates, and I didn't know whether the NEPA was

17 applied to you in any way which would require you to

18 do a tonnage estimate in the context of rulemaking.

19 If it does, then it seems to me that's a NEPA

20 requirement that you have to meet. I would say that

21 I haven't found tonnage estimates very useful.

22 MR. GRUENSPECHT: Right.

23 MR. SANSOM: And I don't think they are

24 generally useful at a national level, but at the same

25 time, not having examined how they're used, I wouldn't

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1 MR. SANSOM: Correct. 

2 MR. GRUENSPECHT: And I wasn't sure 

3 whether your argument applied specifically to 

4 externality values or objection to the whole 

5 consideration because that's the grounds of some other 

6 agency. 

7 MR. SANSOM: No, the only thing I 

8 addressed was your advanced notice of proposed 

9 rulemaking and the externality issue in that context. 

10 I understand somebody did raise the issue of the 

11 utility of these tonnage estimates. 

12 MR. GRUENSPECHT: Right. 

13 MR. SANSOM: My problem is I haven' t 

14 reviewed them. And I've found in the past, I mean if 

15 you look at the EPA document, they have tonnage 

16 estimates, and I didn' t know whether the NEPA was 

17 applied to you in any way which would require you to 

18 do a tonnage estimate in the context of rulemaking. 

19 If it does, then it seems to me that's a NEPA 

20 requirement that you have to meet. I would say that 

21 I haven't found tonnage estimates very useful. 

22 MR. GRUENSPECHT: Right. 

23 MR. SANSOM: And I don't think they are 

24 generally useful at a national level, but at the same 

25 time, not having examined how they're used, I wouldn't 

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want to go beyond that.

MR. GRUENSPECHT: Let me go further.

MR. SANSOM: Okay.

MR. GRUENSPECHT: Other than the sort of

the presentation due to some requirement, do you

believe that environmental implications, whether

reflected in tonnage estimates or externality values

can legitimately bear on the decision regarding what

appliance efficiency standard is to be adopted?

MR. SANSOM: My unstudied response would

be I don't think they do play a role. As I say in my

testimony, all emissions aren't pollution. And so

instinctively I am inclined to say that I don't see

the utility in that and I certainly don't see the

statutory requirement other than possibly NEPA.

MR. GRUENSPECHT: Right.

MR. SANSOM: But not having examined how

they used, that's all I want to say.

PRESIDING OFFICIAL BERLIN: Thank you very

much.

Why don't we take a 20 minute break and

resume at about 11:35.

(Whereupon, at 11:15 a.m, a recess until

11:40 a.m.)

PRESIDING OFFICIAL BERLIN: The next

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1 want to go beyond that. 

2 MR. GRUENSPECHT: Let me go further. 

3 MR. SANSOM: Okay. 

4 MR. GRUENSPECHT: Other than the sort of 

5 the presentation due to some requirement, do you 

6 believe that environmental implications, whether 

7 reflected in tonnage estimates or externality values 

8 can legitimately bear on the decision regarding what 

9 appliance efficiency standard is to be adopted? 

10 MR. SANSOM: My unstudied response would 

11 be I don't think they do playa role. As I say in my 

12 testimony, all emissions aren't pollution. And so 

13 instinctively I am inclined to say that I don't see 

14 the utility in that and I certainly don't see the 

15 statutory requirement other than possibly NEPA. 

16 MR. GRUENSPECHT: Right. 

17 MR. SANSOM: But not having examined how 

18 they used, that's all I want to say. 

19 PRESIDING OFFICIAL BERLIN: Thank you very 

20 much. 

21 Why don't we take a 20 minute break and 

22 resume at about 11:35. 

23 (Whereupon, at 11:15 a.m, a recess until 

24 11:40 a.m.) 

25 

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speaker is Charles Samuels from AHAM.

MR. SAMUELS: Thank you very much. I'm

Charles Samuels. I serve as government's relations

counsel for the Association of Home Appliance

Manufacturers, and we appreciate the opportunity to

comment on this ANPR.

My colleague Terry Thiele from Frigidare

Corporation was also going to testify today.

Unfortunately he was unable to make it because of a

death in the family, but if you have any questions or

comments about his testimony, I'd be glad to take it

back to him or you should feel free to contact him

directly.

AHAM is frankly dismayed about the

issuance of the ANPR and we respectfully request that

you withdraw it as soon as possible. Obviously we're

primarily dismayed about the ANPR because it's a

blatant to boot-strap and justify more stringent

standards. But beyond that it shows an utter

disregard for the principals of reinventing government

that Vice President Gore is attempting to impose on

the federal bureaucracy and that Secretary O'Leary has

very warmly embraced.

The ANPR shows a preference for complexity

over simplicity and for diverting resources into

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1 speaker is Charles Samuels from AHAM. 

2 MR. SAMUELS: Thank you very much. I'm 

3 Charles Samuels. I serve as government's relations 

4 counsel for the Association of Home Appliance 

5 Manufacturers, and we appreciate the opportunity to 

6 comment on this ANPR. 

7 My colleague Terry Thiele from Frigidare 

8 Corporation was also going to testify today. 

9 Unfortunately he was unable to make it because of a 

10 death in the family, but if you have any questions or 

11 comments about his testimony, I'd be glad to take it 

12 back to him or you should feel free to contact him 

13 directly. 

14 AHAM is frankly dismayed about the 

15 issuance of the ANPR and we respectfully request that 

16 you withdraw it as soon as possible. Obviously we're 

17 primarily dismayed about the ANPR because it's a 

18 blatant to boot-strap and justify more stringent 

19 standards. But beyond that it shows an utter 

20 disregard for the principals of reinventing government 

21 that Vice President Gore is attempting to impose on 

22 the federal bureaucracy and that Secretary 0 'Leary has 

23 very warmly embraced. 

24 The ANPR shows a preference for complexity 

25 over simplicity and for diverting resources into 

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tangential and unproductive efforts over concentrating

on your core statutory activities.

Yesterday Secretary O'Leary testified

before the House Appropriations Committee and she had

very compelling and articulate testimony about the

importance of many of your missions and the efforts

that she's making to streamline programs and make them

as beneficial and cost effective as possible. This

ANPR undermines her position and damages her

credibility and its proponents to serve her interests.

The ANPR would have you and the private

sector and other affected parties invest enormous

resources in a whole new undertaking for very little

gain. I think it's clear from the testimony over the

last day and a half that the substance and methodology

of evaluating and monetizing externalities is

extremely unsettled even at the state utility level

where at least there is some direct relationship

between what is being attempted to be measured and the

activity that's being regulated unlike the situation

with appliance standards. So we can't understand why

you would attempt to factor such indirect tangential

and unquantifiable secondary intrutionary order

effects into your decision-making.

There was a lot of debate yesterday about

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1 tangential and unproductive efforts over concentrating 

2 on your core statutory activities. 

3 Yesterday Secretary O'Leary testified 

4 before the House Appropriations Committee and she had 

5 very compelling and articulate testimony about the 

6 importance of many of your missions and the efforts 

7 that she's making to streamline programs and make them 

8 as beneficial and cost effective as possible. This 

9 ANPR undermines her position and damages her 

10 credibility and its proponents to serve her interests. 

11 The ANPR would have you and the private 

12 sector and other affected parties invest enormous 

13 resources in a whole new undertaking for very little 

14 gain. I think it's clear from the testimony over the 

15 last day and a half that the substance and methodology 

16 of evaluating and monetizing externalities is 

17 extremely unsettled even at the state utility level 

18 where at least there is some direct relationship 

19 between what is being attempted to be measured and the 

20 activity that's being regulated unlike the situation 

21 with appliance standards. So we can't understand why 

22 you would attempt to factor such indirect tangential 

23 and unquantifiable secondary intrutionary order 

24 effects into your decision-making. 

25 There was a lot of debate yesterday about 

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whether you had the basic authority to get involved in

externality analysis and apply it to appliance

standard decision-making, and I think a lot of

important issues have been raised. I don't have

anything to add to that legal authority debate, but

let me raise a separate legal question which is, think

through how this would work if you did make the error

to proceed with monetization of externalities.

You'll develope, you'll generate

fictitious numbers based on wildly speculative data,

you'll feed that into a pseudo-quantitative objective

analysis, the computer will come out with some

numbers, the three or four significant digits that

mean nothing. You'll have a new test on national

benefits that you'll then claim has had some effect

one way or another on your decision on appliance

standards, and you've just guaranteed that you've now

produced an arbitrary and capricious analysis under

the administrative procedure act and under NAECA that

can be successfully challenged not only by industry

but also by pro standards environmentalist groups.

And it's not necessary. You've got the

authority to make rational decisions under the

appliance standards program. Work on improving your

tools in that area that will allow you to make good

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1 whether you had the basic authority to get involved in 

2 externality analysis and apply it to appliance 

3 standard decision-making, and I think a lot of 

4 important issues have been raised. I don't have 

5 anything to add to that legal authority debate, but 

6 let me raise a separate legal question which is, think 

7 through how this would work if you did make the error 

8 to proceed with monetization of externalities. 

9 You'll develope, you'll generate 

10 fictitious numbers based on wildly speculative data, 

11 you'll feed that into a pseudo-quantitative objective 

12 analysis, the computer will come out with some 

13 numbers, the three or four significant digits that 

14 mean nothing. You'll have a new test on national 

15 benefits that you'll then claim has had some effect 

16 one way or another on your decision on appliance 

17 standards, and you've just guaranteed that you've now 

18 produced an arbitrary and capricious analysis under 

19 the administrative procedure act and under NAECA that 

20 can be successfully challenged not only by industry 

21 but also by pro standards environmentalist groups. 

22 And it's not necessary. You've got the 

23 authority to make rational decisions under the 

24 appliance standards program. Work on improving your 

25 tools in that area that will allow you to make good 

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decisions without getting off on this wild goose

chase.

I would like, the appliance industry would

like DOE to concentrate on developing clear,

verifiable and representative test procedures. We'd

like you to concentrate on getting those test

procedures proposed and finalized before your proposed

energy standards that are based on those test

procedures. You haven't been able to do that thus

far. We want you to concentrate on developing

meaningful and verifiable engineering cost data and

modeling. We've worked with you on some of those

projects quite successfully. There's a lot more work

to be done in that area, that's what you should be

concentrating on.

We want you to develope comprehensible and

valid manufacturer's impact analyses. We've very

pleased that you're moving toward adopting our

proposed government regulatory impact model. There

are still issues that need to be dealt with in

manufacturer's impact analysis. We'd like you to

concentrate your resources on that, not on this second

and third order significance type of analysis.

I think that if there are people in the

Department who are working on the appliance standards

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1 decisions without getting off on this wild goose 

2 chase. 

3 I would like, the appliance industry would 

4 like DOE to concentrate on developing clear, 

5 verifiable and representative test procedures. We'd 

6 like you to concentrate on getting those test 

7 procedures proposed and finalized before your proposed 

8 energy standards that are based on those test 

9 procedures. You haven't been able to do that thus 

10 far. We want you to concentrate on developing 

11 meaningful and verifiable engineering cost data and 

12 modeling. We've worked with you on some of those 

13 projects quite successfully. There's a lot more work 

14 to be done in that area, that's what you should be 

15 concentrating on. 

16 We want you to develope comprehensible and 

17 valid manufacturer's impact analyses. We've very 

18 pleased that you're moving toward adopting our 

19 proposed government regulatory impact model. There 

20 are still issues that need to be dealt with in 

21 manufacturer's impact analysis. We'd like you to 

22 concentrate your resources on that, not on this second 

23 and third order significance type of analysis. 

24 I think that if there are people in the 

25 Department who are working on the appliance standards 

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who don't find it useful or interesting or don't have

anything to contribute to these core elements, then

maybe they can find a more meaningful job somewhere

else other than trying to apply this exotic analysis

to appliance standards which are complicated and

difficult enough as it is.

I think as a general matter we implore you

to concentrate your resources and try and prioritize

work on the matters that will have the most impact,

and try and develope expertise which will directly

allow appliance standards decision-making to make the

most sense.

We note grimly that among the second and

third order costs and negative effects that the ANPR

doesn't indicate any interest in. There's things like

lost employment, lost production, foregone investment

and innovation, disutility of product, and real but

difficult to measure environmental effects due to

additional transportation of bigger, heavier goods, or

more energy that needs to be used for manufacture.

If you want to get off on separate ANPRs,

why don't you issue an ANPR that looks at what the

impact was when freezer manufacturers and production

facilities went out of business in part due to the

impact of the last set of refrigerator standards.

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1 who don't find it useful or interesting or don't have 

2 anything to contribute to these core elements, then 

3 maybe they can find a more meaningful job somewhere 

4 else other than trying to apply this exotic analysis 

5 to appliance standards which are complicated and 

6 difficult enough as it is. 

7 I think as a general matter we implore you 

8 to concentrate your resources and try and prioritize 

9 work on the matters that will have the most impact, 

10 and try and develope expertise which will directly 

11 allow appliance standards decision-making to make the 

12 most sense. 

13 We note grimly that among the second and 

14 third order costs and negative effects that the ANPR 

15 doesn' t indicate any interest in. There's things like 

16 lost employment, lost production, foregone investment 

17 and innovation, disutility of product, and real but 

18 difficult to measure environmental effects due to 

19 additional transportation of bigger, heavier goods, or 

20 more energy that needs to be used for manufacture. 

21 If you want to get off on separate ANPRs, 

22 why don't you issue an ANPR that looks at what the 

23 impact was when freezer manufacturers and production 

24 facilities went out of business in part due to the 

25 impact of the last set of refrigerator standards. 

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Why don't you look at what the diversion

of resources, the effect of diversion of resources, is

on appliance manufacturers when instead of putting

time and money into making more innovative and

competitive products worldwide, they have to put money

into meeting regulations which do not expand the

market or the number of units that are sold one whit.

Why don't we take a look at the cumulative

burden of your regulations, where the five full line

manufacturers have to meet six or seven regulations at

a time all of which are in various different stages of

change.

I mean, if you want to get into some

intellectually but useful separate endeavors other

than the regular appliance rulemaking, I think these

would be prime candidates.

What should you do now to get out of this

mess? Here 's my recommendation, announce very

quickly, announce next week that you're withdrawing

this ANPR. This is an ANPR, not a proposed rule. You

don't have to send this out to a contractor to get the

comments summarized, you don't have to have dozens of

levels of approval, you don't have to have a 30 page

document that justifies pulling this ANPR. What I

recommend is that you put something in the Federal

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1 Why don't you look at what the diversion 

2 of resources, the effect of diversion of resources, is 

3 on appliance manufacturers when instead of putting 

4 time and money into making more innovative and 

5 competitive products worldwide, they have to put money 

6 into meeting regulations which do not expand the 

7 market or the number of units that are sold one whit. 

8 Why don' t we take a look at the cumulative 

9 burden of your regulations, where the five full line 

10 manufacturers have to meet six or seven regulations at 

11 a time all of which are in various different stages of 

12 change. 

13 I mean, if you want to get into some 

14 intellectually but useful separate endeavors other 

15 than the regular appliance rulemaking, I think these 

16 would be prime candidates. 

17 What should you do now to get out of this 

18 mess? Here's my recommendation, announce very 

19 quickly, announce next week that you're withdrawing 

20 this ANPR. This is an ANPR, not a proposed rule. You 

21 don't have to send this out to a contractor to get the 

22 comments summarized, you don't have to have dozens of 

23 levels of approval, you don't have to have a 30 page 

24 document that justifies pulling this ANPR. What I 

25 recommend is that you put something in the Federal 

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1 Register as quickly as possible that simply states

2 that this is a controversial and a difficult issue and

3 that you simply don't have the time and resources to

4 deal with it.

5 And although I agree with many of the

6 substantive points that have been raised in the last

7 two days against the use of monetization of

8 externalities, I offer to you that you don't have to

9 accept those points, you don't have to settle those

10 points. All you have to do is determine that this is

11 just not something that makes sense in your agenda

12 given both your existing limited resources and what in

13 the future will be less resources, not more resources.

14 So that would be my suggestion.

15 I think that would be, just as the

16 issuance of the ANPR was a very poor signal, the

17 Department has sort of been catching on to what's

18 happening in this country in terms of perception of

19 regulation. I think it would be a very positive

20 signal for you to act quickly and withdraw this ANPR

21 as soon as possible. I'd be happy to answer any

22 questions.

23 PRESIDING OFFICIAL BERLIN: Thank you,

24 Chuck. I have no questions.

25 Michael?

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1 Register as quickly as possible that simply states 

2 that this is a controversial and a difficult issue and 

3 that you simply don't have the time and resources to 

4 deal with it. 

5 And although I agree with many of the 

6 substantive points that have been raised in the last 

7 two days against the use of monetization of 

8 externalities, I offer to you that you don't have to 

9 accept those points, you don't have to settle those 

10 points. All you have to do is determine that this is 

11 just not something that makes sense in your agenda 

12 given both your existing limited resources and what in 

13 the future will be less resources, not more resources. 

14 So that would be my suggestion. 

15 I think that would be, just as the 

16 issuance of the ANPR was a very poor signal, the 

17 Department has sort of been catching on to what's 

18 happening in this country in terms of perception of 

19 regulation. I think it would be a very positive 

20 signal for you to act quickly and withdraw this ANPR 

21 as soon as possible. I'd be happy to answer any 

22 questions. 

23 PRESIDING OFFICIAL BERLIN: 

24 Chuck. I have no questions. 

25 Michael? 

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MR. McCABE: No questions.

PRESIDING OFFICIAL BERLIN: Gene?

MR. MARGOLIS: I have no questions.

PRESIDING OFFICIAL BERLIN: Howard?

MR. GRUENSPECHT: No questions.

PRESIDING OFFICIAL BERLIN: Thank you.

The last scheduled speaker is Joseph Van

Den Berg from Edison Electric.

MR. VAN DEN BERG: If I sit on this side,

am I on the left side of things, and if I sit on this

side, am I on the right side of things today?

PRESIDING OFFICIAL BERLIN: It's a state

of mind more than a physical thing.

MR. VAN DEN BERG: Well, in that case I'll

sit over here so I'm on the good side. Thank you very

much for allowing me to be the last speaker of the

day. It's always nice. Mike tried to explain he was

saving the best for last, but given what I've heard

and I think what you have all heard I think you're

basically going to find that you've saved the last for

last as an awful lot of what I have to say you've

heard before.

I understand also that Mr. Margolis would

like me to read my testimony from the very beginning

to the very end, so let me see if I can begin. No, I

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1 MR. McCABE: No questions. 

2 PRESIDING OFFICIAL BERLIN: Gene? 

3 MR. MARGOLIS: I have no questions. 

4 PRESIDING OFFICIAL BERLIN: Howard? 

5 MR. GRUENSPECHT: No questions. 

6 PRESIDING OFFICIAL BERLIN: Thank you. 

7 The last scheduled speaker is Joseph Van 

8 Den Berg from Edison Electric. 

9 MR. VAN DEN BERG: If I sit on this side, 

10 am I on the left side of things, and if I sit on this 

11 side, am I on the right side of things today? 

12 PRESIDING OFFICIAL BERLIN: It's a state 

13 of mind more than a physical thing. 

14 MR. VAN DEN BERG: Well, in that case I'll 

15 sit over here so I'm on the good side. Thank you very 

16 much for allowing me to be the last speaker of the 

17 day. It's always nice. Mike tried to explain he was 

18 saving the best for last, but given what I've heard 

19 and I think what you have all heard I think you're 

20 basically going to find that you've saved the last for 

21 last as an awful lot of what I have to say you've 

22 heard before. 

23 I understand also that Mr. Margolis would 

24 like me to read my testimony from the very beginning 

25 to the very end, so let me see if I can begin. No, I 

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will be brief. I'm sure that there are other things

that you would like to do to summarize all this great

testimony you've heard over the last two days.

I am here on behalf of the Edison Electric

Institute and we are, as you know, the association of

investor-owned electrical utilities. We serve 99

percent of the customers served by the 10 sector and

76 percent of all the customers in the United States.

We generate 79 percent of the electricity produced in

the United States, therefore we are always very

interested in any discussion that relates to the use

of energy and the use of fuels in the production of

electricity.

Let me start out by saying that

historically we have generally supported the approach

DOE has taken on appliance efficiency standards.

There have been times when we had slight disagreements

on the results you've come out on some of those

standards, but in general we have supported the

approach you have taken.

And a little different than maybe what

you've heard before, I want to congratulate you on the

in depth approach you took on outlining the issues

associated with externalities. By outlining the 18

points or 18 questions issues associated with

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1 will be brief. I'm sure that there are other things 

2 that you would like to do to summarize all this great 

3 testimony you've heard over the last two days. 

4 I am here on behalf of the Edison Electric 

5 Institute and we are, as you know, the association of 

6 investor-owned electrical utilities. We serve 99 

7 percent of the customers served by the IO sector and 

8 76 percent of all the customers in the united States. 

9 We generate 79 percent of the electricity produced in 

10 the united States, therefore we are always very 

11 interested in any discussion that relates to the use 

12 of energy and the use of fuels in the production of 

13 electricity. 

14 Let me start out by saying that 

15 historically we have generally supported the approach 

16 DOE has taken on appliance efficiency standards. 

17 There have been times when we had slight disagreements 

18 on the results you've come out on some of those 

19 standards, but in general we have supported the 

20 approach you have taken. 

21 And a little different than maybe what 

22 you've heard before, I want to congratulate you on the 

23 in depth approach you took on outlining the issues 

24 associated with externalities. By outlining the 18 

25 points or 18 questions issues associated with 

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externalities, I think you provided a good basis for

all of us to provide you information which will

justify you not using externalities in the appliance

efficiency standards. And even more importantly maybe

I think you've done a good job of outlining the issues

so that all of us can provide better input to the

state proceedings in the IRP activities on why the use

of externalities is inappropriate in the calculations

of future generation resources.

What I'm going to do is summarize where we

stand. We will in our written comments submit

testimony responding to each of the 18 questions in

much detail, but I don't think that any of us want to

sit here and listen to me go through economic theory

for the next hour and a half. If you do, I'm sure I

can stay around for a later time.

The first thing is, I guess I kind of go

back to the idea that if it ain't broke, don't fix it.

You know, NEPA defined the purpose of the appliance

standards was to determine and make efficient the

consumer's use of consumer products in the energy

arena, and not try to determine what generation or

energy source should be used to satisfy the appliance

needs.

From what I heard about yesterday's

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1 externalities, I think you provided a good basis for 

2 all of us to provide you information which will 

3 justify you not using externalities in the appliance 

4 efficiency standards. And even more importantly maybe 

5 I think you've done a good job of outlining the issues 

6 so that all of us can provide better input to the 

7 state proceedings in the IRP activities on why the use 

8 of externalities is inappropriate in the calculations 

9 of future generation resources. 

10 What I'm going to do is summarize where we 

11 stand. We will in our written comments submit 

12 testimony responding to each of the 18 questions in 

13 much detail, but I don't think that any of us want to 

14 sit here and listen to me go through economic theory 

15 for the next hour and a half. If you do, I'm sure I 

16 can stay around for a later time. 

17 The first thing is, I guess I kind of go 

18 back to the idea that if it ain't broke, don't fix it. 

19 You know, NEPA defined the purpose of the appliance 

20 standards was to determine and make efficient the 

21 consumer's use of consumer products in the energy 

22 arena, and not try to determine what generation or 

23 energy source should be used to satisfy the appliance 

24 needs. 

25 

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discussion with AGA, DOE has indicated they agree that

the use of the total fuel cycle cost analysis is not

appropriate and they don't really have the authority

to do that from a policy and labor perspective. I

agree, DOE should not use the total fuel cycle

analysis in developing standards. Congress never

intended for you to use the total fuel cycle cost, nor

for you to establish a national fuel policy through

the appliance standards process. To date DOE has

followed the consumer-focused approach and by doing so

it has honored the congressional intent and has served

the public well.

In particular by using the system you have

now, energy efficiency discriptors, based on what a

consumer pays for the energy, the embedded price of

energy and what it cost for the appliance, you have

developed and justified standards that are widely

accepted and understood by the general public and

manufacturers and utilities Likewise this allows you

to track the progress of efficiency and the consumer

response to the standards that you have developed.

Let me move now from those generic points

to the rulemaking itself. I heard earlier from RFF

that it is feasible for you to go ahead forward with

this process. When a consultant says something is

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1 discussion with AGA, DOE has indicated they agree that 

2 the use of the total fuel cycle cost analysis is not 

3 appropriate and they don't really have the authority 

4 to do that from a policy and labor perspective. I 

5 agree, DOE should not use the total fuel cycle 

6 analysis in developing standards. Congress never 

7 intended for you to use the total fuel cycle cost, nor 

8 for you to establish a national fuel policy through 

9 the appliance standards process. To date DOE has 

10 followed the consumer-focused approach and by doing so 

11 it has honored the congressional intent and has served 

12 the public well. 

13 In particular by using the system you have 

14 now, energy efficiency discriptors, based on what a 

15 consumer pays for the energy, the embedded price of 

16 energy and what it cost for the appliance, you have 

17 developed and justified standards that are widely 

18 accepted and understood by the general public and 

19 manufacturers and utilities Likewise this allows you 

20 to track the progress of efficiency and the consumer 

21 response to the standards that you have developed. 

22 Let me move now from those generic points 

23 to the rulemaking itself. I heard earlier from RFF 

24 that it is feasible for you to go ahead forward with 

25 this process. 

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feasible, that usually means there's a lot money

involved in it. And I think that's probably true, you

could develope and consider externalities properly,

but to do so would expend significant resources, and

we believe, would result in very little, if any,

significant change in the stringency of the standards.

And it starts with the basic point that

the cost of control methodology, which has been

discussed elsewhere, is fatally flawed. It doesn't

measure the impacts of emissions on human health, nor

the environment. While cost control may be easy, they

are not relevant in any way in measuring environmental

damages. Therefore, you must use the damage cost

approach.

You have found out firsthand that this can

be a very expensive, time-consuming process from your

work with RFF and Oakridge. Having eight volumes of

material for two sites is an extensive amount of

material for those two sites. If you then apply that

we have over 2,500 generating facilities in the United

States, you're going to end up keeping the paper

companies in business for a long time.

But even if you were able to determine

what the externality values were, the amount that

would then be internalized for the three major

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1 feasible, that usually means there's a lot money 

2 invol ved in it. And I think that's probably true, you 

3 could develope and consider externalities properly, 

4 but to do so would expend significant resources, and 

5 we believe, would result in very little, if any I 

6 significant change in the stringency of the standards. 

7 And it starts with the basic point that 

8 the cost of control methodology, which has been 

9 discussed elsewhere, is fatally flawed. It doesn't 

10 measure the impacts of emissions on human health, nor 

11 the environment. While cost control may be easy, they 

12 are not relevant in any way in measuring environmental 

13 damages. Therefore, you must use the damage cost 

14 approach. 

15 You have found out firsthand that this can 

16 be a very expensive, time-consuming process from your 

17 work with RFF and Oakridge. Having eight volumes of 

18 material for two sites is an extensive amount of 

19 material for those two sites. If you then apply that 

20 we have over 2,500 generating facilities in the united 

21 States, you're going to end up keeping the paper 

22 companies in business for a long time. 

23 But even if you were able to determine 

24 what the externality values were, the amount that 

25 would then be internalized for the three major 

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emissions that DOE is considering, S02, NOx and C02,

would be close to or equal to zero. And I agree with

the other statements on this, that the 1998 Clean Air

Act Amendment internalizes S02 for electric utilities.

Every time a new gas furnace goes in, that is an

unregulated source and there isn't anything I can say

about that issue. EPA also does mandate that NOx

emissions are to be below the national ambient air

quality standards, so basically NOx damages again from

the residual emissions are insignificant.

When it comes to C02, it is a global issue

with global proportions of people's view on what the

impacts of C02 damages are, or even if there are no

damages whatsoever. Because of that wide variability

and because the sciences of the greenhouse gas issue

is still in its early stages, it would be

inappropriate to try to put a monetary value on what

the damages are. Likewise, if you then, even if you

were able to be a value of what the damages were, they

would be based on worldwide emissions. And the impact

of doing something in appliance efficiency standards

in the residential sector, which is a very small part

of the overall global C02 issue would have very little

impact and would have therefore a very small number.

Our industry is working very hard in the

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1 emissions that DOE is considering, 802, NOx and C02, 

2 would be close to or equal to zero. And I agree with 

3 the other statements on this, that the 1998 Clean Air 

4 Act Amendment internalizes 802 for electric utilities. 

5 Every time a new gas furnace goes in, that is an 

6 unregulated source and there isn't anything I can say 

7 about that issue. EPA also does mandate that NOx 

8 emissions are to be below the national ambient air 

9 quality standards, so basically NOx damages again from 

10 the residual emissions are insignificant. 

11 When it comes to C02, it is a global issue 

12 with global proportions of people's view on what the 

13 impacts of C02 damages are, or even if there are no 

14 damages whatsoever. Because of that wide variability 

15 and because the sciences of the greenhouse gas issue 

16 is still in its early stages, it would be 

17 inappropriate to try to put a monetary value on what 

18 the damages are. Likewise, if you then, even if you 

19 were able to be a value of what the damages were, they 

20 would be based on worldwide emissions. And the impact 

21 of doing something in appliance efficiency standards 

22 in the residential sector, which is a very small part 

23 of the overall global C02 issue would have very little 

24 impact and would have therefore a very small number. 

25 Our industry is working very hard in the 

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climate challenge and climate change action plan

activity with DOE on voluntarily working to reduce

greenhouse gas emissions. When our resources are

taken away from those voluntary efforts to work on

mandatory responses to C02, the efficiency which can

result from the voluntary programs is lost.

Let me now go to the next question you had

in the supplement which was the issue of marginal

cost. Again, the theory behind using marginal cost is

accurate. It is probably appropriate to consider

marginal cost when you're looking at doing appliance

efficiency standards. The problem again comes to the

same kind of problem you have on externalities, is

that what do you gain in doing it?

The determination of marginal costs and

marginal benefits of any given appliance in the

overall energy equation is going to be tough. And

then to aggregate that all into a national activity

would be very time-consuming and very expensive, and

the consumer would have no idea what you were talking

about. If they see that you've developed appliance

standards based on a marginal cost, which right now

would significantly blow what they're paying, there

are two things that can happen. They can go and bitch

at the utilities, which doesn't help us, or they are

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1 climate challenge and climate change action plan 

2 activity with DOE on voluntarily working to reduce 

3 greenhouse gas emissions. When our resources are 

4 taken away from those voluntary efforts to work on 

5 mandatory responses to C02, the efficiency which can 

6 result from the voluntary programs is lost. 

7 Let me now go to the next question you had 

8 in the supplement which was the issue of marginal 

9 cost. Again, the theory behind using marginal cost is 

10 accurate. It is probably appropriate to consider 

11 marginal cost when you're looking at doing appliance 

12 efficiency standards. The problem again comes to the 

13 same kind of problem you have on externalities, is 

14 that what do you gain in doing it? 

15 The determination of marginal costs and 

16 marginal benefits of any given appliance in the 

17 overall energy equation is going to be tough. And 

18 then to aggregate that all into a national activity 

19 would be very time-consuming and very expensive, and 

20 the consumer would have no idea what you were talking 

21 about. If they see that you've developed appliance 

22 standards based on a marginal cost, which right now 

23 would significantly blow what they're paying, there 

24 are two things that can happen. They can go and bitch 

25 at the utilities, which doesn't help us, or they are 

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going to come to you saying you don't know what you're

doing because you're not basing it on what we actually

see. And I think that results in DOE opening itself

to a wide range of legal, technical, and economic

attacks from all sides and really wouldn't increase

the efficiency standards whatsoever. All it would do

is make you feel that you had done an accurate job of

determining the cost effectiveness of the standard.

But as long as embedded price is above the marginal

cost of energy, you're not going to increase the

stringency of the standards.

In closing, I have to agree with the

previous speaker, I think it would be good for DOE to

close the door on this issue as quickly as possible

and move on to, or moving back almost to continuing

with the current straightforward approach they have

used of using the embedded price of energy and

providing information on impacts of the standards in

the technical support document so that if someone is

looking at it they can tell what kind of impacts the

standards actually have. It all goes back to the

issue of, if it ain't broke, don't fix it.

This morning on the way in there was a

radio talk show and a program where they were asking

people to talk about car repair horror stories. In

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1 going to come to you saying you don' t know what you're 

2 doing because you're not basing it on what we actually 

3 see. And I think that results in DOE opening itself 

4 to a wide range of legal, technical, and economic 

5 attacks from all sides and really wouldn't increase 

6 the efficiency standards whatsoever. All it would do 

7 is make you feel that you had done an accurate job of 

8 determining the cost effectiveness of the standard. 

9 But as long as embedded price is above the marginal 

10 cost of energy, you're not going to increase the 

11 stringency of the standards. 

12 In closing, I have to agree with the 

13 previous speaker, I think it would be good for DOE to 

14 close the door on this issue as quickly as possible 

15 and move on to, or moving back almost to continuing 

16 with the current straightforward approach they have 

17 used of using the embedded price of energy and 

18 providing information on impacts of the standards in 

19 the technical support document so that if someone is 

20 looking at it they can tell what kind of impacts the 

21 standards actually have. It all goes back to the 

22 issue of, if it ain't broke, don't fix it. 

23 This morning on the way in there was a 

24 radio talk show and a program where they were asking 

25 people to talk about car repair horror stories. In 

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some ways I think that's what we have. One woman

called up and said she took her pickup truck in to

have its, you know, six month checkup kind of thing,

get an oil change and that kind of thing, and they

came back and said well, ma'am, you have $289.00 worth

of work that needs to be done to flush the airconditioning system out and recharge it with new

freon, and given the problem of the freon, and of

course this is a closed system and we have to recycle

it and there's a lot of cost associated with that, and

it would be $ 289.00. The only problem is the truck

didn't have air-conditioning. In some ways, I think

we have that kind of situation here.

We have a process that is working.

Throwing something like this into it to try to "fix

it," I think will do more damage than good. With

that, I'll be glad to answer any questions , and if you

don't have, I may turn around and ask you some.

PRESIDING OFFICIAL BERLIN: Thank you. I

have no questions.

Michael?

MR. McCABE : No questions.

MR. MARGOLIS : No questions.

MR. GRUENSPECHT : Well, given Joe's

threat, I guess we'd better ask one question. You

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1 some ways I think that's what we have. One woman 

2 called up and said she took her pickup truck in to 

3 have its, you know, six month checkup kind of thing, 

4 get an oil change and that kind of thing, and they 

5 came back and said well, ma'am, you have $289.00 worth 

6 of work that needs to be done to flush the air7 condi tioning system out and recharge it wi th new 

8 freon, and given the problem of the freon, and of 

9 course this is a closed system and we have to recycle 

10 it and there's a lot of cost associated with that, and 

11 it would be $289.00. The only problem is the truck 

12 didn't have air-conditioning. In some ways, I think 

13 we have that kind of situation here. 

14 We have a process that is working. 

15 Throwing something like this into it to try to "fix 

16 it," I think will do more damage than good. with 

17 that, I'll be glad to answer any questions, and if you 

18 don't have, I may turn around and ask you some. 

19 PRESIDING OFFICIAL BERLIN: Thank you. I 

20 have no questions. 

21 Michael? 

22 MR. McCABE: No questions. 

23 MR. MARGOLIS: No questions. 

24 MR. GRUENSPECHT: Well, given Joe's 

25 threat, I guess we'd better ask one question. 

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talked about closing the door on the issue and

referred to the previous speaker. Is that a desire to

delay the issue for future consideration or is that a

desire on your part to sort of evaluate the record and

come to some conclusion that closes the door on the

issue, because those are two different options?

MR. VAN DEN BERG: You're right. I have

to say that I think that from our perspective you will

get the information in our written document responding

to the 18 points, which you can then use to close the

record very clearly. If you want to close the record

prior to it, you're not going to get a complaint from

me on that.

And that kind of goes back to a question,

which I will ask you, which is I think there needs to

be a much clearer definition of what the purpose of

this supplemental advanced notice of proposal

rulemaking is, and what you're really looking for.

Because I think that the commentators who have come

forward in the last two days have been somewhat

confused as to what really or why you were doing it.

And there was a threat to them, and that's the reason

they were here. If you can, while you're reviewing

it, be clearer on what the purpose was of developing

this, I think it would provide guidance to everyone in

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1 talked about closing the door on the issue and 

2 referred to the previous speaker. Is that a desire to 

3 delay the issue for future consideration or is that a 

4 desire on your part to sort of evaluate the record and 

5 come to some conclusion that closes the door on the 

6 issue, because those are two different options? 

7 MR. VAN DEN BERG: You're right. I have 

8 to say that I think that from our perspective you will 

9 get the information in our written document responding 

10 to the 18 points, which you can then use to close the 

11 record very clearly. If you want to close the record 

12 prior to it, you're not going to get a complaint from 

13 me on that. 

14 And that kind of goes back to a question, 

15 which I will ask you, which is I think there needs to 

16 be a much clearer definition of what the purpose of 

17 this supplemental advanced notice of proposal 

18 rulemaking is, and what you're really looking for. 

19 Because I think that the commentators who have come 

20 forward in the last two days have been somewhat 

21 confused as to what really or why you were doing it. 

22 And there was a threat to them, and that's the reason 

23 they were here. If you can, while you're reviewing 

24 it, be clearer on what the purpose was of developing 

25 this, I think it would provide guidance to everyone in 

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submitting their final comments even.

PRESIDING OFFICIAL BERLIN: Well, as I

said earlier, it's a simple-minded as trying to get a

level playing field of information for decision-makers

on appliance standards. Right now we have a NEPA

requirement to make assessments on what's likely to

happen with appliance standards, and we do that in

that we report emissions, tonnages, reductions of

emissions that might occur in the standards.

This information is presented to decisionmakers along with a lot of cost and price information

from the NAECA requirements, and these are different

kinds -- these are apples and oranges for a decisionmaker. He looks at, although there are going to be

these tonnages of emissions, how does that relate to

these dollars of life cycle cost reduction.

And simple-minded is just trying to get

everything into dollars and cost to --

MR. VAN DEN BERG: Well, you know, that's

very true. But one of the differences is, is that I

have no real problem with you putting the number of

tonnage down, I mean there is always going to be

disagreements among that. But if you look at S02 as

an example, are you providing better information to

decision-makers by saying, if we go through and do

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1 submitting their final comments even. 

2 PRESIDING OFFICIAL BERLIN: Well, as I 

3 said earlier, it's a simple-minded as trying to get a 

4 level playing field of information for decision-makers 

5 on appliance standards. Right now we have a NEPA 

6 requirement to make assessments on what's likely to 

7 happen with appliance standards, and we do that in 

8 that we report emissions, tonnages, reductions of 

9 emissions that might occur in the standards. 

10 This information is presented to decision11 makers along with a lot of cost and price information 

12 from the NAECA requirements, and these are different 

13 kinds -- these are apples and oranges for a decision14 maker. He looks at, although there are going to be 

15 these tonnages of emissions, how does that relate to 

16 these dollars of life cycle cost reduction. 

17 And simple-minded is just trying to get 

18 everything into dollars and cost to 

19 MR. VAN DEN BERG: Well, you know, that's 

20 very true. But one of the differences is, is that I 

21 have no real problem with you putting the number of 

22 tonnage down, I mean there is always going to be 

23 disagreements among that. But if you look at S02 as 

24 an example, are you providing better information to 

25 decision-makers by saying, if we go through and do 

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appliance sectors, in the appliance sector -- let me

change that, in the lamp ballast sector, as a result

of doing something in the lamp ballast in that sector

we would reduce S02 by (X) amount, (X) tons, okay.

If you then said well I'm going to turn

that into a monetized internalized externality, how

much do I internalize, the number is zero. Because on

the society-wide basis there isn't anything. What you

have now is actually better information than you will

if you then expand it out, trying to be more accurate

using economic theory, when really what you have is an

engineering technical discussion, not an economic

theory discussion.

PRESIDING OFFICIAL BERLIN: Thank you. I

have no -- well, we've said we have no questions, so.

MR. VAN DEN BERG: Okay.

PRESIDING OFFICIAL BERLIN: Do you have

any further questions.

MR. VAN DEN BERG: No, I don't.

PRESIDING OFFICIAL BERLIN: Okay.

I guess that's the last speaker. It's

time for any unscheduled speakers. Are there any

unscheduled speakers? No, okay. Any rebuttal

statements by anybody? Okay, I guess then we'll -- I

thank you all for coming, and as I mentioned we'll

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1 appliance sectors, in the appliance sector -- let me 

2 change that, in the lamp ballast sector, as a result 

3 of doing something in the lamp ballast in that sector 

4 we would reduce S02 by (X) amount, (X) tons, okay. 

5 If you then said well I'm going to turn 

6 that into a monetized internalized externality, how 

7 much do I internalize, the number is zero. Because on 

8 the society-wide basis there isn't anything. What you 

9 have now is actually better information than you will 

10 if you then expand it out, trying to be more accurate 

11 using economic theory, when really what you have is an 

12 engineering technical discussion, not an economic 

13 theory discussion. 

14 PRESIDING OFFICIAL BERLIN: Thank you. I 

15 have no -- well, we've said we have no questions, so. 

16 MR. VAN DEN BERG: Okay. 

17 PRESIDING OFFICIAL BERLIN: Do you have 

18 any further questions. 

19 MR. VAN DEN BERG: No, I don't. 

20 PRESIDING OFFICIAL BERLIN: Okay. 

21 I guess that's the last speaker. It's 

22 time for any unscheduled speakers. Are there any 

23 unscheduled speakers? No, okay. Any rebuttal 

24 statements by anybody? Okay, I guess then we'll -- I 

25 thank you all for coming, and as I mentioned we'll 

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take these points under consideration, and I adjourn

the meeting.

(Whereupon, at 12:02 the proceedings in

the above-entitled matter were concluded.)

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1 take these points under consideration, and I adjourn 

2 the meeting. 

3 (Whereupon, at 12:02 the proceedings in 

4 the above-entitled matter were concluded.) 

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CERTIFICATE

This is to certify that the foregoing transcript in

the matter of: Public Hearing: Energy Conservation

Program for Consumer Products, Docket

No. EE-RM-93-801

Before:

Date:

U.S. Department of Energy

January 20, 1995

Place: Washington, DC

represents the full and complete proceedings of the

aforementioned matter, as reported and reduced to

typewriting.

SAG, CORl

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97 

CERTIFICATE 

This is to certify that the foregoing transcript in 

the matter of: 

Before: 

Date: 

Place: 

Public Hearing: Energy Conservation 

Program for Consumer Products, Docket 

No. EE-RM-93-801 

u.s. Department of Energy 

January 20, 1995 

Washington, DC 

represents the full and complete proceedings of the 

aforementioned matter, as reported and reduced to 

typewriting. 

(202) 797-2525 

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VIDEO; TRANSCRIPTIONS