1 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

SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 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

Thepublichearingwas held inRoom 1E245, 1000 IndependenceAve., 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 SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS2 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

SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 2 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

(202)797-2525 SAG,CORP 4218 LENORE LANE, NW. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS3 1 2 3 4 5 6

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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 SACS, COP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 3 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 ConservationProgramfor Consumer 9 Products. I'mBarry Berlin and I'llbe 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 thepast few years. By 24 this supplemental advance notice in hearing, the 25 Department is beginningan 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 4 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 advancenoticediscussed 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 valuesof suchexternalimpactsofappliance 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'regoingtocontinuetoestimatethe 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 SAG

, COI 11 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 5 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 thepresidingofficialforthishearing 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

(202)797-2525 SAG, CORP 4218LENORE LANE, NW. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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

SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 6 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 hearingwill 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 speakerswho aremakingessentiallythe samepoints as 14 previously speakers, we encourage you to save time by 15 merelyreferencingtheprevious speaker'stestimonyin 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 productnoticeofproposedrulemakingt hatwe hadout 21 lastMarch and itworkedverywell. Some speakers got 22 up andmerely referencedwhat other speakers had said 23 andwe havetreatedthose comments just as iftheyhad 24 developed them. 25 

### If time allows, SAG,CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 anyone may make

(202)797-2525 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 7

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 SAG

, CO ll 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 7 1 unscheduled oral statements after scheduled speakers 2 have delivered their statements. Persons interested 3 inmakinga statementwho havenot submitteda request 4 in advance should submit their request to the 5 registration desk. 6 At the conclusion of all presentations, 7 scheduled andunscheduled, each speakerwill 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 Questionswillbeaskedonlybymembersof 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 identifiedas towho is the authorof thequestion and 25 to whom the question is being directed.

(202)797-2525 SAG, CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 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 SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 8 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 shouldthenbe 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 9 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 copyof any comments thatyou 6 might submit, and we're currently, I believe, still 7 using Word Perfect 5.1. 8 Anypersonsubmittinginformationwhichhe 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 appreciatethetime andeffortyouhave 20 taken inpreparingyour statements. We arepleasedto 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 theanalysisthatdeterminetheeconomicjustification SAG,CORP 4218 LENORE LANE, NW. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 10

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. SACS, CORD 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 10 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 MarkFredericks 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: Thankyouverymuch forthe 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 percentof alltheelectricitythat is consumed inthe 24 united States today. So we have a very significant 25 interest in issues such as this. SAG, CORP 4218 LENORE LANE. N.W. WASHINGTON. D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 11 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

SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 11 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 becausethemarketplace requires themto 9 do so. Fierce global competition is an extremely 10 powerful and effective motivator to maximize the 11 efficientuse of allresources, notjustenergy. Many 12 ELeON members also produce and market products that 13 enableothercustomerstouseenergymoreefficiently. 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 including energy. Markets, not the complex rules 19 oftenpromulgatedbygovernmentagencies, arethebest 20 allocatorsofresources. Industrialconsumersbelieve 21 thatmaximizingcompetitioninretailandwholeenergy 22 markets will help all consumers efficiency use 23 resourcesconsistentwithenvironmentalprotectionand 24 other important social objections. 25 However,

(202)797-2525 industrial SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 users question

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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. SAG, COR® 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 12 1 attempts to achievethe goals of energyefficiencyand 2 environmentalprotectionbythearbitrarymanipulation 3 of resource cost assumptions. This is preciselywhat 4 the methodology int he proposed rule will do. At 5 best, such attempts will achieve legitimate public 6 policy goals onlyby chance. At worst, itwill 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 costeffectiveto all consumers, theypromote 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 revisedefficiencystandardsbasedonthemonetization 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.

(202)797-2525 SAG, CORP 4218LENORE LANE, NW. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 13 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

SAG

, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 13 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 attempttomonetizeexternal costs associatedwith 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 qualifiednorquantified. Itis humanlyimpossibleto 13 ascertainwhether netexternal costs are a positiveor 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 anduse

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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 regulatorypractices, 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 14 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 ordersofmagnitudedifferences. By carefullypicking 11 and choosing values within these broad ranges, any 12 outcome can be achieved. It is the goal seeker's 13 miraclemachine. Analysts can't possiblyaccount for 14 allrelevantexternal costs andbenefits. 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 internalizedby laws and stateregulatory 20 practices, any further consideration inthe standard21 setting process will lead to double counting and 22 overlyrestrictive standards. Implicitinanyattempt 23 to directly internalize externalities is the need for 24 somegovernment agencyto set all applicablepricesby 25 administrative fiat.

(202)797-2525 This must follow a process in SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 15

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 SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 15 1 which allmarketprices areperiodicallyreassessedto 2 determinetheextenttowhicheachexternalityalready 3 has been over-internalized, under-internalized, 4 precisely internalized, internalized just a little 5 bit, internalizedbut 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. ShouldDOE continuetopursuethis 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. TheMassachusetts Supreme Court recognized 18 that there was no one set of values and unequivocally 19 toldtheMassachusetts 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 andbenefits. 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

(202) 797-2525 SAG, COR1 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 VIDEO; TRANSCRIPTIONS 16 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 spendingover a half a billionof taxpayers' money to 5 try to get a handle on the acid rain externality, 6 NAPAP hasbeendismissedbyeveryonewho 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, arenot 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. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 17 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 compensationfrom entities outsidetheirjurisdiction 6 which receive beneficial effects, nor can they 7 compensateentitiesoutsidetheirjurisdictionwho 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 consumerstoefficientlyuseresources consistentwith 13 environmental protection. The manner in which 14 appliance efficiency standards are established should 15 take advantage of market discipline and avoid any 16 approachthatreliesongovernmentinterventioninthe 17 marketplace. 18 Ironically, it doesn't seem that the 19 Departmentsupportscompetitioninend-useelectricity 20 markets. The Department's recent criticisms of the 21 California Public utilities Commission's historical 22 proposaltorestructuretheelectric servicesindustry 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.

(202)797-2525 SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 18 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 SAG, C6 98 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 18 1 I submit a relevant quote from the CPUC's 2 April'94 order "Competitivemarkets, wheretheyexist 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 surelyresult in the 9 miss-allocationofresources inboththeregulatedand 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 consumptionandassociatedeconomicactivities inways 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 surprisingto many, agreeingwith 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 

### SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 19 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 suggestedbytheproposedrule risks imposing 5 greater distortions in the marketplace than that ones 6 the rules are attempting to correct. 7 Thankyou for theopportunitytobebefore 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? Inthepastwhatwe've done is present the 15 physical quantities 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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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 20 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 thatyou cando that. Certainlyif that's partof, if 13 what you're sayingthat 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 savinganamountof 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

SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 21 1 what you pick that's backed down. So, therefore, I 2 wouldthink, I wouldasset thatthenumbers wouldhave 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 frommy presentation. I want you to knowthat 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

SACS, COP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 22 1 not goingtowork, and it's goingto do more harmthan 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 benefitsderived. The strategycannotworkbecause 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 Theimpositionofnetaveragewillbenefit 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 SACS, CORD 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 23 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, practicalityor effectiveness of the 5 presentproposal, then I say it serves as a compelling 6 reasonto reject this proposal andput itaway for the 7 final time. 8 Anyneworamended standardisrequiredto 9 achievethemaximum, 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 thatwouldprovide a unique ability to performbetter

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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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 24 1 thanEPA orothers. However, there's noquestionthat 2 DOE's expanded function will duplicate and possibly 3 interfere with other programs. 4 The proposed program will not improve 5 applianceenergyefficiency. Thepresentlawprovides 6 safeguards which include reviews and guidelines by 7 which judgments and criteriaaremade. 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 predeterminedconclusion. DOE'spastrecorddoenot 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 strategywhich 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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5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 25 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 atthe 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 SAG, COMP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 26 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 Thetextoftheproposalmakes nopretense 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 closerto DOE's perception of social values. The text 9 saysthat ifenvironmental damage is increasedin 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 judgedby DOE andprivate 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 socialvalues. Thatjudgementbelongs totheCongress 20 and the voters. 21 Areadingof theproposalwill illustrate 22 that net national value will always be out of date 23 with the facts that are relevant. DOE concedes that 24 the CleanAirActwill changethings. Itwill require 25 time to find a soundmethodof analysis, if one canbe

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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. SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 27 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 tomake 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 subjecttochangingconditions. Therefore, itbecomes 8 obvious thattheprocess of analysiswill always be in 9 process and never currently accurate. 10 The appliance efficiencyprogramrequires 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, includingthe 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 informationnecessarytomake 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 SAG

, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 28 1 Therefore, there are no responses even from the 2 experts and professionals likeArthur 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 clearlyintends topenalize 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 DOEjustifiesthatpenaltysuggestingthat 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO;TRANSCRIPTIONS 29 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 Theproposal does not justifyit'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 thatwill 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 taxon 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. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 30 1 that raises at the local level. This proposal does 2 not deserve further consideration. 3 I listenedyesterday, and I'mvery glad I 4 came yesterday, because the questions from the panel 5 were very interesting to me. As you know, I've been 6 associatedwith 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 reduceelectricgenerationhas someinterestingpieces 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 beingdemandedfromyou folks interms ofproductivity 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 jobtoowell. I thinkyou should countyourblessings 20 and realize that you've set a process in motion and 21 that youhave done a good job. It is working. If you 22 do nothing, the process will continue to improve 23 energy use. 24 Themostimportantthingthatmustbedone 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 31 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 theyweren't createdbyaccident. People inthe 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 becomemore of a leaderthan a policeman. I saidthis 17 in my eight product testimony and I'll say it again 18 because I believethere is an importantroletoplay. 19 Secondly, I thinkwe shouldstressquality 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 SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 32 1 communicationswiththepeopleinvolvedwiththerules 2 you have to make is the best suggestion I have to 3 make. 4 Criteriasix, itcertainlyshouldbeused. 5 It's part of the program. It shouldbe used with the 6 respective

-- It should report that your work is not 7 done in a vacuum. It shouldreportthat standards are 8 set inrelationto a sensitivitytoother 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 33 1 suggestedthat exactly that was necessary in order to 2 alleviate a problemin 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 concentratedurbanarea. Andconcentratedurbanareas 7 typically have a high concentration of flues, whether 8 their gas, oil or otherwise, and since gas is themost 9 prevalent I'llpickon them, something I'mnot usedto 10 doing. 11 The other point I want to make is, beside 12 planting trees, that's a lovely idea, a beautiful 13 landscape andithelps the carbonproblem, 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 SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 34 1 little about those fossil burners, the fact is that 2 they'regoingtodecline inefficiencyovertime. And 3 thefact isthat ifthey'reproperlymaintained, there 4 a much larger savingthan 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 theytookme up on the bet and checked it andwere 11 gentlemen enough to report later that the number came 12 out 35. 13 Now, in terms of your energy conservation 14 andinterms ofyour emissions, haveyoumeasuredthat 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 programto 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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VIDEO;TRANSCRIPTIONS35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 35 1 shouldn't there be a simplemandate that burners must 2 be inspected and maintained. It's such a simple 3 program, guaranteeditwillmake an improvementinthe 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 associatedwith this program for a longtime and 9 I want to take pride in it, like you do. Thank you. 10 PRESIDINGOFFICIALBERLIN: Thankyou, Mr. 11 vaughn. I have no questions. 12 MR. McCABE: Thankyou, James. In 20 days 13 I guess I can say I've been associated with the 14 programtenyears less thanyouhave. This willbemy 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 oneofthe otherpanelists askedaboutthebusiness 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.SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 36 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 thatwe 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 appreciatethose statements. However, I would liketo 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 15years in 23 December. 24 MR. VAUGHN: The first thing you know 25 it'll be a steady job.SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS1

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 37 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 37 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 SouthernCompanyistheparentfirmof 13 several operating electrical utilities in the states 14 ofAlabama, Georgia, Florida andMississippi, serving 15 over 3.5 million customers, employing over 29,000 16 people. We have about 20 generating units with over 17 20,000megawatts of capabilitythatis coal-fired. We 18 burn approximately 25 milliontons of coal a year. We 19 have a quarter of a million stockholders, and about 20 half of those are retirees. So we are obviouslyvery 21 interested in what is going on at this hearing. 22 As requested I am not going to read my 23 submittedtestimony. InsteadI would liketo 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 SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 38 1 businessman andnot an economist, andthusmy 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 Likemanyoftheotherswhohaveaddressed 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 determiningwhich 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 monetaryvalues 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 

### SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 39 1 in taking this approach. If the purpose of the ANPR 2 isto changebasicpowergenerationpatternsto 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 weredesignedtoprotectpublichealthandwelfare, it 8 seems to us that any additionalburdens imposedbyDOE 9 imply that Congress has not gone far enough in 10 protectinghuman health and the environment, butwith 11 alldue respect, we believethat suchpolicyjudgement 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 externalitiesof fuel such as natural gas, fuel oilor 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 40 1 fuels. And further, ifexternalitieswillbe 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 utilizingother fuels would 10 be lostifthe efficiency standards areraised sohigh 11 as to price these electric appliances out of the 12 market. The resulting inefficiencies need to also be 13 considered. 14 Again, ifexternalities aretobecounted, 15 externalities at both the site and the source need to 16 beevaluated. DOE'sproposal appears to focus onlyon 17 source externalities, that is externalities resulting 18 fromthegenerationofelectricityatparticulartypes 19 ofplantswhicharealreadyminimizedbyenvironmental 20 regulation. 21 Webelieve siteemissionsmayhavejustas 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 anyreasonable, constructedexternality

(202)797-2525 SAG,CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 41 1 evaluation initiative. 2 Once again, if externalities are to be 3 counted, why would DOE stop environmental 4 externalities. Theconceptofuncompensatedcostthat 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 inclusionofexternalities, manyAmericansmayhaveto 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 substantiallybecause the efforts to 19 capture more externality cost, utility employees, 20 transportationworkers andminers might be put out of 21 work. Theremay wellbe impacts on the economyandon 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 thecurrent 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, SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 42 1 state, producingabout 25 milliontons 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 changebeyondCongressional efforts to 7 date, itwill be necessary to quantify the impacts of 8 unemployment and disrupted family life that results 9 from the changes in energy production. 10 Inclosing, webelieveDOE shouldfocus on 11 the efficiencyof appliances atthepoint of use. The 12 focus of its efforts should be on optimizing the 13 amountofworkproducedperenergyinputinto specific 14 consumer appliances. And DOE shouldnotwaste itsown 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 PRESIDINGOFFICIALBERLIN: Thankyou. To 25 answeroneofyourquestions, the attempttomonetize,

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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? SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 43 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 effectsandthosehavepresentedinphysicalqualities 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 andcents) for allthevariables, 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

(202)797-2525 MR. CONNOR: The Southern Company? SAG,CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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 RideNational Laboratories recently completed a pathbreaking study on the social cost of electricity fuel SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 44 1 MR. MARGOLIS : 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 Thenext speakerisDallasBurtrawplease. 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 studywas 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 45 1 cycles thatwas fundedbytheDepartmentofEnergyand 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 servedon themanagement 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 Theywere 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 characterizedinbothofthese studies arevintage 18 1990 technologies, that is technologies thatwouldbe 19 involved in an incremental addition to capacity, 20 rather than average technologies or dispatch of the 21 utilities resources. 22 TheDOE studywasperhaps somewhatbroader 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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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 ofcontrol 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 SAG

, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 46 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 appropriatelydifferby location. And they differby 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 betweenthese studies and five otherefforts fundedby 18 other statepublic service commissions, a convergence 19 inmethodology, 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 controlmethod. Inthe absence of any sortofworked24 outtheoryorpractical guidelines for howto estimate 25 externality damages. Since that time the DOE effort

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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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 47 1 first and follow-on by a number of state efforts have 2 provided tremendous guidance in terms of how 3 externalities 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 amongeconomists at least astowhat approaches should 9 be used. There actually has emerged quite a 10 convergenceofthenumerical estimatesalso, butthere 11 remains a healthy and appropriate divergence in what 12 estimates are in different locations. But the 13 suggestions thatthereare severalordersofmagnitude 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 gainedwith regardto different pathways. Originally 21 theDOE study, theNew York study looked at upwards of 22 300 potential externalities and externalitypathways. 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 SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 48 1 thirdparty 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 informationkindof

-- use a valueof informationtype 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 thinkthatnowthere is a legitimatebodyof knowledge 14 that future state efforts or potential future DOE 15 effortsto lookat externalities can assumetheburden 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 ornot important 19 to the kind of final numerical results that are going 20 to be achieved. 21 Sothispointstothefirstrecommendation 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

SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 49 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 Is a proxy for the marginal 7 benefitsofemissionreductions, thatthis 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 emissionNOxparticulatepathwaywouldbe animportant 21 mistake. Inthe studies that havebeen done so far we 22 have learned that NOx particulate effects are 23 approximately equal inmagnitude to NOx ozone effects 24 for externality estimates. 25

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5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 50

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

SAG, COR® 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 50 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 smallwithregards to conventional, that is 6 excluding C02. But one must emphasize, repeatedly 7 emphasize, in statingthiswithregardsto application 8 to appliance standards, that these estimates pertain 9 to vintage 1990 technologies and not to the resource 10 mix that wouldbe 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 utilitymix are likelyto be 15 several times larger than that. 16 I haveattachedwithmyprevioustestimony 17 the discussion paper by Alan Krupnick and myself 18 entitled "Bridging the Gap," and I request that that 19 be includedwithmy 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 valuationof extending social costing, 23 as it has corne to be called, from the state or site24 specificlevel tonational applications. Itwouldnot 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 51 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, itpotentiallycouldbeevenmore difficult 6 with regards to the emissions calculations. And a 7 varietyof techniques arepossible. Some of themwere 8 suggestedintheFederalRegister, 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 associatedwith appliance use at 12 a national average level. 13 My third recommendation is that based on 14 whatwe've learnedfrom theprevious social cost study 15 that it is a proper researchpriority for DOE to think 16 about, carefully, how these kinds of averages at the 17 national level shouldbe calculated, bothwithrespect 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 inemissions associatedwiththe change inthe 22 appliance standard including externality effects. 23 The fourthrecommendationisthatbasedon 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 52 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 justtake 10 a moment to touch on. One of them is employment 11 effects. We have foundthatemploymenteffects canbe 12 important and they should be considered. The 13 methodologythatwas used intheDOE studybyOakridge 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 orunder-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 SAG,CORP 4218 LENORE LANE, N.w. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 53

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 SAG, COR1 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 53 1 to diminish the effects significantly, but it also 2 puts theestimates onmuch firmertheoretical 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 inmaking 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 acceptablemethods ineconomictheorythat canjustbe 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. Thatwas 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 SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 54 1 reasons. First of all at the state level, the focus 2 is primarily so far on resource planning rather than 3 onthe dispatchof existingfacilities. 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 reallydone 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 doingdispatch insteadof planningthere remains 14 the instrument that has been used bypolicymakers 15 at the state level has been a shadow costingoruse 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 SAG

, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 55 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 fs goingto have effectonprices 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 with 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, ifthere is emissions cap in effect, 16 the increase in emissions from one source is more or 17 lesspreciselyoffsetby a reduction inemissions 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 probabilitythat 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 56 1 observe an occasional oil spill, but if the oil 2 transporterhas beenrequiredto bebondedor 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 ifthere's bondingor insurance, then onewouldexpect 6 in the prices of oil some reflection of the expected 7 liability associated with the occasional oil spill 8 thatwill 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 electricityuse. In otherwords it'svery 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 Thediscussionisgenerallycorrectinthe 23 FederalRegister I think, althoughnotprecisely 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. SACS, CORD 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 57 1 the economists that are worried about valuation of 2 externalities shouldbe somehow adjusted for the fact 3 that there's a distinctionbetweenprice andmarginal 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 allexternalitiesthroughouttheentirefuel cycleand 10 non environmental externalities as well as 11 environmental externalities, Resources for theFuture 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 differentcapital structuresassociatedwiththefirms 24 involved in these efforts. One would expect that 25 there's going to be a difference in the taxes paid.

(202)797-2525 SAG,CORP 4218LENORE LANE, N.w. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS58 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 SAG, CO ®B 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 58 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 paidper kilowatt 4 hour or in a levelized basis of levelized cost of 5 energyfor electricitygeneratedwithgas, 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 theestimatesthathave emergedfrom 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 havebeendevelopedwithregards toonlyincrements in 14 capacity, notwith the average resourcefulness of the 15 utility. In general when looking at taxes what one 16 fines is that themore fuel-intensive the fuel cycle, 17 the less taxes that arepaid, gas beingthemost fuel18 intensive fuel cycle, and renewables being the least 19 fuel-intensive. 20 So in summary, I think previous research 21 has foundthattheestimationofenvironmental impacts 22 and the valuation of those is a feasible enterprise 23 and can be conducted on a consistent basis, that is 24 that increasinglydifferent researchers would corne to 25 the same problem and corne up with the same numbers in

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4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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 SAG, CORE' 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 59 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 canbe reliablyestimated 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: Thankyou. 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 anyway that the impacts externalities effects canbe 25 developed for such a national programthat 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 replicationin various locales, particularly because of the pathbreaking work, the DOE funded research provided in the SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 60 1 products such as applianceswhen itis a localproblem 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 estimatesorevenanoff-the-shelfmethodologyforhow 6 to think about national externality estimates that 7 would engender a consensus among practitioners. But 8 thatwas the case sixyears agowith 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 secondbest effects associatedwith 14 pre-existing regulation in the economy, etcetera, 15 etcetera. 16 And there'sbeentremendous advancesmade 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 todo so. But off-the-shelf estimatesnow 21 do not exist. I think that the costs, the marginal 22 costs, of extending the frontiers of this kind of 23 researchhavebeenfallingbecauseofit'sreplication 24 invarious locales, particularlybecause of the path25 breakingwork, theDOE fundedresearchprovidedinthe

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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 SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 61 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 pollutantsbeingrelativelysmall, althoughvaryingon 9 a site-specific basis. And then you cited some of 10 the, I think Rich Gilbert's work with regard to 11 existingdifferences betweenprice andmarginal 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 thatwe 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 thatwe 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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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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

SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 62 1 these things. 2 MR. GRUENSPECHT: Right. 3 MR. BURTRAW: Becausewe've found themto 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 withconventionalpathwaysandconventionalpollutants 11 that is excludingwhat 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 potentiallyverybig. 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

-- thatmightbehighwithregards to the results 22 of theNew York study I think. So there youmight 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 63 1 when just reporting an estimate, that I have to take 2 a second and qualify it further. For example, in 3 thinkingaboutemploymentbenefits, ifone is goingto 4 admit them, or the fiscal benefits if one is going to 5 permitthem. It's not simplythe case that, youknow, 6 there might be an environmental externality, but an 7 employment sothe two are offsettingsoyou can forget 8 about it. Becausetheuse of this information atthis 9 juncture is not in the calculation of some sort of 10 emissions fee that's goingto 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 shadowprice 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 associatedwith fuel cycles. And 18 thereisexternalitydamagesbasicallyassociatedwith 19 all fuel cycles. So one has to bring them all into 20 the calculation andthencomparethem sideby sideand 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 questionwithregardstotheorderofmagnitude, there 25 youhave it. Now, therehasbeen some simulationwork

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done by colleagues of mine at Resources for the Future in terms of what type of effect this would have eitherin 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 64 1 donebycolleagues ofmine atResources fortheFuture 2 interms ofwhattype of effectthis wouldhave either 3 in planning or dispatch for a prototypical mid4 Atlantic utilitywhich reflects actually sort of a 5 it's been done, we've repeated this work a couple of 6 times, it'sbeendone inone caserepresenting sortof 7 a hypothetical utility, and in another case it was 8 veryutility-specific. Andwhenexternalityestimates 9 were that small, they would not for planning 10 purposes itturns outthatreallydoesn'thavemuch of 11 an effect on the utility, the wedge isn'tbig 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 intheNew York casetherewas no inclusionof 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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5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 65

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 SAG, CORP4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 65 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 Somy hands are still sweating, butthat's 8 the best I can qualify it. 9 MR. GRUENSPECHT: I don'thaveanyfurther 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 summarizeour statements ratherthanreadthem, 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 SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 66 1 rationale that somehow if you conserve energy, you 2 reduce emissions seems to me to be about analogous to 3 therationalethat, ifyouconserveenergyyoupromote 4 savings and therefore DOE out to go into the savings 5 and loan business. 6 My concern about your legal authority is 7 heightenedbythe rulemaking's descriptionof 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 billiondollars, but it seems 15 to me to be just the kind of thingwhere 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 Theotherthingaboutlegalauthoritythat 22 jumps out is the fact that

-- well, let me tell a 23 story. I was testifyingone time before Congress for 24 CongressmanWhittenwithmyAdministratorRuckelshaus, 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 SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 67 1 thatwe hadmorepowerthan a goodman 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 goingto 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 thatyou'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 complianceplanningand that the compliance standards 14 will somehow have an effecton the cost of compliance 15 inmeetingenvironmental regulations. It seems tome 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 Theotherthingaboutlegalauthoritythat 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 topayfortheC02 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.SACS, CORA 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 68 1 statement. And then absent all that, the rulemaking 2 proceeds to point out that the President and the Vice 3 President somehowbelieve thatwhile theremay 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 theWhite House 8 tellingme 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 thinkthat I've ever seen inthe 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 andVice President knowhow 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 rulemakingto 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 demonstratedbythe rulemaking and certainlythe lack 22 an analytical environmental knowledge. If you review 23 the rulemaking, you have the feeling that you're in 24 pittsburgh inthe 1960swithregardto airqualityand 25 environmental quality.

(202)797-2525 SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 69 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 SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 69 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 issuedby EPA. I 4 assume you all have that on your bookshelves since 5 you're now becomingenvironmental 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 Thenwhentherulemakingproceedsintothe 12 detailsoftheenvironmental complianceandstatus and 13 attempts to develope a methodology for finding an 14 externalityvalue, it notes correctly I think that 15 first of all it doesn't note about the percent of the 16 countrywhere there are no externalities, but itdoes 17 not for the areas not in compliance that if those 18 areas are capped, emissions arecappedinthose areas, 19 thattheappliance standardwillhaveno 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 analyzingit and saywell bythewaymaybe 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 70 1 reducing electricity consumption will somehow reduce 2 the cost of compliance without 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 somehowthatthe 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 legislation 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 thatthecostcontrolmethodis intellectuallyunsound 23 and empirically meaningless. And I was glad to hear 24 the previous witness saymore 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 71 1 cost of control method in the case of C02. I think 2 it's clearnow thatthe costof control advocateswere 3 nothing more than energy tax advocates, and to the 4 extentthatyourrulemakingtakesthat approach, itis 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 externalityestimate. And 10 I wouldnote and I hopeyou've seen the OTA studythat 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 thinkyou shouldread 17 the OTA study and consider the value of continuingto 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 thoughtheyweren't answerable today. 23 So what happens in the rulemaking is the 24 languageproceeds to admit the cost of controlmethod 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 testimonyseveral 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 toengage 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 72 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 inthe seven statesthathavemonetizedexternalities. 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 sixas 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 leavethe states alone and stayout 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 SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 73 1 more stringent appliance standards on peoplewith 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 conclusionwhat 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. SAG, CORD" 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 74 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, doyouobject specificallytothe 17 development of externality values or do you object 18 more generally to the consideration of environmental 19 information in the settingof 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 SAG, COI i® 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 75 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 considerationbecausethat'sthegrounds of someother 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 generallyuseful at a national level, but at the same 25 time, nothavingexaminedhowthey'reused, I wouldn't

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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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 76 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 PRESIDINGOFFICIALBERLIN: Thankyouvery 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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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 77 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 andwe respectfully request that 16 you withdraw it as soon as possible. Obviouslywe'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 disregardfortheprincipalsofreinventinggovernment 21 that Vice President Gore is attempting to impose on 22 thefederalbureaucracyandthatSecretary0'Learyhas 23 very warmly embraced. 24 TheANPR showsa preferencefor 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

SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 78 1 tangentialandunproductiveeffortsoverconcentrating 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'smakingto streamlineprograms andmakethem 8 as beneficial and cost effective as possible. This 9 ANPR undermines her position and damages her 10 credibilityanditsproponents to serveherinterests. 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 lastdayanda half thatthe substance andmethodology 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 betweenwhat is beingattemptedtobemeasured andthe 20 activity that's being regulated unlike the situation 21 with appliance standards. So we can't understandwhy 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 79 1 whetheryouhadthebasic authoritytoget involvedin 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 letme raise a separate legalquestionwhichis, think 7 through how this wouldwork if you didmake 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, andyou've just guaranteedthatyou've now 18 produced an arbitrary and capricious analysis under 19 the administrativeprocedure act andunder 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 80 1 decisions without getting off on this wild goose 2 chase. 3 I wouldlike, theapplianceindustrywould 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 proceduresproposedandfinalizedbeforeyourproposed 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 Wewantyoutodevelopecomprehensibleand 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 concentrateyourresources onthat, notonthis second 23 and third order significance type of analysis. 24 I think that if there are people in the 25 Department who are workingon 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. SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 81 1 who don't find it useful or interestingor 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 thinkas a generalmatterwe imploreyou 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-makingtomake 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 indicateanyinterestin. There'sthings like 16 lostemployment, lostproduction, foregone investment 17 and innovation, disutility of product, and real but 18 difficult to measure environmental effects due to 19 additionaltransportationofbigger, heaviergoods, or 20 more energy that needs to be used for manufacture. 21 If youwant to get off on separateANPRs, 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.

(202) 797-2525 SAG,CORP 4218 LENORE LANE, NW. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 82 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 SAG, CORl 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 82 1 Why don't you look at what the diversion 2 ofresources, theeffectofdiversionofresources, is 3 on appliance manufacturers when instead of putting 4 time and money into making more innovative and 5 competitiveproductsworldwide, theyhavetoputmoney 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 atthe cumulative 9 burden of your regulations, where the five full line 10 manufacturershavetomeet sixor sevenregulations at 11 a time all ofwhich are invarious 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 shouldyou 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 anANPR, not a proposedrule. You 21 don't have to sendthis outto a contractorto 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

(202)797-2525 SAG,CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS83 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

ti 22 ons.

ques 23 PRESIDING OFFICIAL BERLIN: Thank you, 24 Chuck. I have no questions. 25 Michael? SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 83 1 Register as quickly as possible that simply states 2 that this is a controversial anda difficult issueand 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 givenbothyourexistinglimitedresources andwhat in 13 thefuturewillbe lessresources, notmore 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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VIDEO;TRANSCRIPTIONS84 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 84 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, inthat case I'll 15 sit over here so I'mon the good side. Thankyou 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 basicallygoingto findthatyou've savedthe last for 21 last as an awful lot of what I have to say you've 22 heard before. 23 I understand also thatMr. 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 85 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 hereonbehalfof theEdisonElectric 5 Institute andwe 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 electricityproduced 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 historicallywe have generally supported the approach 16 DOE has taken on appliance efficiency standards. 17 Therehavebeentimes whenwe had slightdisagreements 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'veheardbefore, I want to congratulateyouonthe 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 SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 86 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 efficiencystandards. Andevenmore importantlymaybe 5 I thinkyou've done a goodjobof outliningthe issues 6 so that all of us can provide better input to the 7 stateproceedings inthe IRP activities onwhy the use 8 of externalities is inappropriate inthe calculations 9 of future generation resources. 10 What I'mgoingtodo is summarizewherewe 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 backto the idea that if itain'tbroke, 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 shouldbe used to satisfy the appliance 24 needs. 25

(202) 797-2525 From what I heard about yesterday's SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 87

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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 87 1 discussionwithAGA, DOE has indicatedtheyagreethat 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 intendedfor youtousethetotal fuel cycle cost, nor 8 for you to establish a national fuel policy through 9 the appliance standards process. To date DOE has 10 followedtheconsumer-focusedapproachandbydoingso 11 ithas honoredthe congressionalintentandhas served 12 the public well. 13 Inparticularbyusingthe systemyouhave 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 andutilities Likewise this allows you 20 to track the progress of efficiency and the consumer 21 response to the standards that you have developed. 22 Letme move now from those genericpoints 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 88 1 feasible, that usually means there's a lot money 2 involved in it. And I thinkthat's probablytrue, 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 anyI 6 significant change inthe stringencyofthe 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 controlmaybe easy, they 12 arenot relevant in anyway inmeasuringenvironmental 13 damages. Therefore, you must use the damage cost 14 approach. 15 Youhave foundout firsthandthatthis 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 generatingfacilities intheunited 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

SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 89 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 ActAmendmentinternalizes 802 forelectricutilities. 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 qualitystandards, sobasicallyNOx damages againfrom 10 the residual emissions are insignificant. 11 When it comes toC02, 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 tobe a value of what the damages were, they 20 wouldbebasedonworldwide emissions. Andthe impact 21 of doing something in appliance efficiency standards 22 in the residential sector, which is a very small part 23 ofthe overall global C02 issuewouldhavevery 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 90 

### 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 Letme now gotothenextquestionyouhad 8 in the supplement which was the issue of marginal 9 cost. Again, thetheorybehindusingmarginal costis 10 

### accurate. It is probably appropriate to consider 11 marginal cost when you're looking at doing appliance 12 efficiency standards. The problemagain 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 consumerwould have no ideawhat 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 aretwo things that canhappen. They can go andbitch 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 

### SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 91 1 goingto come to you sayingyou don't knowwhat you're 2 doingbecauseyou're notbasingitonwhatwe 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 worthof 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 92 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 cameback and saidwell, ma'am, youhave $289.00 worth 6 of work that needs to be done to flush the air7 conditioning system out and recharge it with new 8 freon, and given the problem of the freon, and of 9 course this is a closed system andwe have to recycle 10 it andthere's a lot of cost associatedwiththat, 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'llbe gladto answer anyquestions, 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. SAG,CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 You

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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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 93 1 talked about closing the door on the issue and 2 referredto the previous speaker. Is that a desire to 3 delay the issue for future consideration or is that a 4 desire onyourpartto 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 saythat I thinkthat from ourperspectiveyou will 9 gettheinformationinourwrittendocument 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 itwouldprovide guidance to everyone in

(202) 797-2525 SAG,CORP 4218 LENORE LANE, N.w. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS94 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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 differentkinds -- 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 94 1 submitting their final comments even. 2 PRESIDING OFFICIAL BERLIN: Well, as I 3 said earlier, it's a simple-minded as tryingto get a 4 levelplayingfieldofinformationfordecision-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 Thisinformationispresentedtodecision11 makers alongwith a lot of cost andprice 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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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 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 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 95 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 lampballast inthat 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, thenumber is zero. Becauseon 8 the society-widebasisthere isn'tanything. Whatyou 9 have now is actuallybetter information than you will 10 if you then expand it out, tryingto be more accurate 11 usingeconomic theory, whenreallywhatyouhave is an 12 engineering technical discussion, not an economic 13 theory discussion. 14 PRESIDING OFFICIAL BERLIN: Thankyou. I 15 have no -- well, we've saidwe 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.)

SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 96 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.) 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

(202)797-2525 SAG,CORP 4218 LENORE LANE, NW. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS97 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 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 97 CERTIFICATE

This is to certify that the foregoing transcript in the matter of:

Before:

Date:

Place: Public Hearing: Energy Conservation ProgramforConsumerProducts, 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.

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