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[Senate Hearing 110-85]
[From the U.S. Government Publishing Office]

                                                         S. Hrg. 110-85
 
                ENERGY EFFICIENCY PROMOTION ACT OF 2007

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                                   ON

                                S. 1115

  TO PROMOTE THE EFFICIENT USE OF OIL, NATURAL GAS, AND ELECTRICITY, 
 REDUCE OIL CONSUMPTION, AND HEIGHTEN ENERGY EFFICIENCY STANDARDS FOR 
   CONSUMER PRODUCTS AND INDUSTRIAL EQUIPMENT, AND FOR OTHER PURPOSES

                               __________

                             APRIL 23, 2007

                       Printed for the use of the
               Committee on Energy and Natural Resources

                     U.S. GOVERNMENT PRINTING OFFICE

36-640 PDF                 WASHINGTON DC:  2006
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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii              PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota        LARRY E. CRAIG, Idaho
RON WYDEN, Oregon                    CRAIG THOMAS, Wyoming
TIM JOHNSON, South Dakota            LISA MURKOWSKI, Alaska
MARY L. LANDRIEU, Louisiana          RICHARD BURR, North Carolina
MARIA CANTWELL, Washington           JIM DeMINT, South Carolina
KEN SALAZAR, Colorado                BOB CORKER, Tennessee
ROBERT MENENDEZ, New Jersey          JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas         GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
JON TESTER, Montana                  MEL MARTINEZ, Florida

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
              Frank Macchiarola, Republican Staff Director
             Judith K. Pensabene, Republican Chief Counsel
              Tara Billingsley, Professional Staff Member
           Kathryn Clay, Republican Professional Staff Member

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     1
Chavez, Martin J., U.S. Conference of Mayors, and Mayor, 
  Albuquerque, New Mexico........................................    18
Collier, Alicia, Director, Global Energy Policy, Honeywell 
  Building Solutions, Honeywell International, on behalf of 
  Federal Performance Contracting Coalition (FPCC)...............    32
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     2
Kerr, James Y., II, Commissioner, North Carolina Public Utilities 
  Commission, and President, National Association of Regulatory 
  Utility Commissioners (NARUC)..................................    23
Mizroch, John, Principal Deputy Assistant Secretary for Energy 
  Efficiency and Renewable Energy, Department of Energy..........     3
Pitsor, Kyle, Vice President, Government Relations, National 
  Electrical Manufacturers Association (NEMA)....................    53
Prindle, William, Acting Executive Director, American Council for 
  an Energy Efficient Economy (ACEEE)............................    39
Schjerven, Robert E., Chief Executive Officer Emeritus, Lennox 
  International, Inc., on behalf of the Gas Appliance 
  Manufacturers Association (GAMA), Arlington, Virginia..........    35

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    73

                              Appendix II

Additional material submitted for the record.....................    75

                    ENERGY EFFICIENCY PROMOTION ACT 
                                OF 2007

                              ----------                              

                         MONDAY, APRIL 23, 2007

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 3:04 p.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Jeff 
Bingaman, chairman, presiding.

           OPENING STATEMENT OF HON. JEFF BINGAMAN, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. All right, why don't we go ahead with the 
hearing? Good afternoon.
    The purpose of today's hearing is to receive comments on S. 
1115, the Energy Efficiency Promotion Act of 2007. Senator 
Domenici and I introduced this bill a week ago, along with 
cosponsors from both sides of the political aisle. I appreciate 
the efforts that today's witnesses have made to provide us with 
testimony, on rather short notice. I welcome all of those who 
have come to today's hearing.
    This Energy Efficiency Promotion Act that we've introduced 
will ultimately do two things. It'll save consumers money, and 
it will reduce our impact on the environment. We accomplish 
this by reducing the Nation's use of fossil fuels, and we do 
that by improving efficiency of vehicles and buildings and home 
appliances and industrial equipment. For example, the appliance 
standards that are contained in this bill, when fully 
implemented, will save at least 50 billion kilowatt hours of 
electricity per year. That's enough energy to power 4.8 million 
U.S. households.
    For those of us interested in addressing the serious issue 
of global warming, reducing electricity use by 50 billion 
kilowatt hours per year is a good and an important first step. 
Of course, if we're truly to make a dent in reducing use of 
fossil fuels, we need to use less gasoline. The Efficiency 
Promotion Act sets aggressive national goals for reducing 
gasoline usage by 20 percent by 2017, 35 percent by 2025, 45 
percent by 2030. And we propose to meet these goals in two 
ways. First, by improving efficiency in the transportation 
sector. Second, by using renewable fuels, as provided for in 
the committee's biofuels legislation, which is S. 987, which we 
also introduced on a bipartisan basis a couple of weeks ago.
    I'm very glad that we have the bipartisan support we do for 
these proposals in this current bill today. I look forward to 
hearing suggestions from the witnesses on how we can improve 
the legislation.
    Let me call on Senator Domenici for any comments he has.

   STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM NEW 
                             MEXICO

    Senator Domenici. Thank you very much, Mr. Chairman.
    Let me first note that we do have present, and we will have 
as a witness, a lead witness, the mayor of the city of 
Albuquerque. I think we both genuinely appreciate his personal 
representation of Albuquerque, but also his representation of 
the national mayors on this issue. We look forward to what he 
has to say.
    Second, Mr. Chairman, I have not yet been to the floor to 
support our very interesting bill that you and I worked on a 
long time--long and hard, bipartisan--that's on the floor, and 
I won't be able to stay for the whole of the witnesses, but 
I'll come back, as I'm needed.
    Once again, for those who are skeptics, you should know 
that this is a bipartisan bill. That's the third major one 
we've put out. The second one did not quite end up that way, 
but let's say it ended up being a good bill, and we started it 
bipartisan.
    So, I want to add my thanks to all the witnesses for being 
here today. We don't have everything sewed up yet. As we look 
at this and look at witnesses, we have some loose ends. But 
that may be because we're in a hurry, and when you hurry, 
frequently you go slow, because you have some loose ends that 
you wouldn't otherwise have. But we have a number of Senators 
from both sides of the aisle as sponsors, and that helps. I'd 
rather have a few loose ends and have a bipartisan seven 
Senators, and they're all willing to work to put these things 
together.
    As you all know, the Energy Policy Act of 2005 was adopted 
by the Congress, and we are still in the process of 
implementing it. With that landmark piece of legislation, we 
did a great deal on energy conservation and improved energy 
efficiency. Such measures included--and we all remember them, 
but we didn't get it all done yet--implementing new efficiency 
standards for 15 large commercial and residential appliances. 
These new standards alone will save 50,000 megawatts off-peak 
electricity by 2020 if the Department gets them done. I note 
the Department is present here, and they have some difficulty 
with the bill, but, overall, are hopeful that we can work 
together to get it done. I thank the Department for their 
optimism and for their desire to take off big bites like we 
have here. We appreciate that.
    The original bill continues, the Energy Start Program--this 
bill does--to educate consumers to buy more energy efficient 
appliances, provides tax incentives to consumers, provides tax 
incentives to appliance manufacturers. Still, there's no doubt 
that much can be done to improve the way in which we use 
energy. S. 1115 is intended to increase energy efficiency 
efforts within the Federal Government for buildings and Federal 
fleets. In my opinion, the Federal Government is the 
appropriate place to start. Indeed, we should be leading these 
efforts.
    This bill also establishes client standards for consumers 
and industrial products, seeks to assist States in energy 
efficiency. The bill before us today is a good starting point. 
As I indicated, it still needs work. I expect S. 1115 to evolve 
over time with input from those who will be tasked with 
implementing the policy and those who will be impacted by it. I 
hope we'll hear from both sides before we're through.
    I'm pleased that we're conducting this hearing today to 
hear from the stakeholders. I look forward to working with 
them, on both sides, until we get a bill.
    Senator Bingaman, thank you for yielding.
    The Chairman. Well, thank you very much.
    We have two panels today. The first panel is Secretary John 
Mizroch, who is the Principal Deputy Assistant Secretary for 
the Department of Energy. I'll just add my welcome and 
appreciation to him and to the Department for their efforts to 
review this legislation on short notice and give us feedback. 
We do hope that we can continue to work to resolve issues that 
you may have with some of the initial language. I think your 
expertise in this area is very much appreciated. Thank you for 
being here to testify.
    Go right ahead.

STATEMENT OF JOHN MIZROCH, PRINCIPAL DEPUTY ASSISTANT SECRETARY 
   FOR ENERGY EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF 
                             ENERGY

    Mr. Mizroch. Chairman Bingaman, Senator Domenici, and 
members of the committee, I want to thank you for the 
opportunity to appear before you today and offer some comments 
on S. 1115, the Energy Efficiency Promotion Act.
    I'd like to say, personally, what an honor it is to appear 
before you today. Seventeen years ago, I actually served as 
senior staff on the Joint Economic Committee of the Congress. 
Senator Bill Roth was ranking member, and asked me to come and 
work for the JEC on the issue of American industrial 
competitiveness. I know it's an issue that is a priority for 
both of you. And while I staffed several hearings, this is my 
first opportunity to appear before a Senate committee, and I 
appreciate that, although I must say that it's a little bit 
different sitting on this side of the table.
    I would also like to compliment the work that this 
committee is doing to promote energy efficiency. Energy is one 
of the most critical issues facing America and the world today, 
and energy efficiency is the quickest way to reduce energy 
intensity.
    As you mentioned, Mr. Chairman, although the administration 
has not had sufficient time to conduct its formal review or 
coordinate interagency views of the bill to form an official 
position, I'd like to offer some preliminary observations on 
the legislation.
    There are many elements of S. 1115 that appear consistent 
with the administration's energy policy objectives. There are 
some issues that raise practical, budgetary, or other concerns. 
S. 1115, in several instances, contains language that may be 
duplicative of authorizations previously enacted in the Energy 
Policy Act of 2005, and also would authorize several new 
financial assistance programs.
    While such programs might help boost energy efficiency in 
certain sectors, their potential benefits are unlikely to be 
sufficient to justify the budget costs. However, the bill, as a 
whole, represents an important contribution to the national 
discussion of how best to make our country more energy 
efficient. Several of the efficiency standards proposed in this 
legislation are absolutely consistent with the Department's 
activities and, I think, reflect consensus among efficiency 
advocates and manufacturers.
    The bill also provides some useful new authorities, such as 
authorization for regional efficiency standards that may 
provide additional energy savings if the potential Federal and 
State burdens related to monitoring and enforcement can be 
resolved.
    Secretary Bodman and Assistant Secretary Karsner have made 
efficiency standards a top priority. Since committing to a 
standards program schedule last January, the Department has met 
100 percent of its targets to be on time, and we absolutely 
intend to continue to do so.
    To shorten the time for a completed standard by nearly one-
third, Secretary Bodman recently requested authorization from 
Congress to streamline the rulemaking process and allow the 
Department to go to a direct final rule for certain products 
when a clear consensus for a standard exists among 
manufacturers, efficiency advocates, the Government and other 
stakeholders. So, we look forward to working with the committee 
to have the Department's language considered and hopefully 
included in this legislation.
    Title V of S. 1115 addresses the important issue of Federal 
energy management, and the Department supports the permanent 
authorization of the Energy Savings Performance Contracts. 
Under the leadership of Secretary Bodman, the Department is 
looking to lead by example and revolutionize its approach to 
energy efficiency in the Federal Government.
    Our goal is to be the first agency to meet all of the 
targets in President Bush's Executive Order 13423, and to 
exceed the requirements in key areas of reducing energy 
consumption, greenhouse gas emission, building efficiency, 
clean energy production, and use in fleet management.
    The Energy Savings Performance Contracts, together with the 
Utility Energy Services Contracts, we feel, are essential for 
project investment in the Federal sector. So, to strengthen 
these programs, we're working to transform our internal review 
process, simplify contracts, remove barriers and impediments 
that delay investments and serve as support, get more 
efficiency gains at accelerated rate, and create replicable 
models.
    The administration and the Department of Energy look 
forward to working with this committee and the Congress on the 
Energy Efficiency Promotion Act, as well as other related 
legislative proposals that move us toward a secure energy 
future.
    Mr. Chairman, that concludes my oral statement, and I would 
be pleased to answer any questions that the committee may have.
    [The prepared statement of Mr. Mizroch follows:]
    Prepared Statement of John Mizroch, Principal Deputy Assistant 
  Secretary for Energy Efficiency and Renewable Energy, Department of 
                                 Energy
    Mr. Chairman, Senator Domenici, and members of the Committee, thank 
you for the opportunity to appear today and offer comments on S. 1115, 
the Energy Efficiency Promotion Act of 2007. I will also present an 
overview of some of the larger efficiency efforts underway in the 
Office of Energy Efficiency and Renewable Energy (EERE).
                          comments on s. 1115
    The Administration has not had sufficient time to review or 
coordinate its interagency review of S. 1115, introduced just one week 
ago today, and therefore does not have a formal position on this 
legislation. There are many elements of the bill that appear consistent 
with the Administration's energy policy objectives, although a number 
of provisions raise practical, budgetary, or other concerns. S. 1115 
contains language that appears to duplicate authorizations previously 
included in the Energy Policy Act of 2005 (EPACT). It also would 
authorize several new financial assistance programs. While such 
programs might help boost energy efficiency in certain sectors, their 
potential benefits are unlikely to be sufficient to justify their high 
budget cost. However, the bill as a whole represents an important 
contribution to the national discussion of how best to make our country 
more energy efficient.
    Several of the efficiency standards proposed in this legislation 
are consistent with the Department's activities, and reflect consensus 
among efficiency advocates and manufacturers. The bill also provides 
some useful new authorities, such as the authorization for regional 
efficiency standards for space heating and cooling products, that may 
provide opportunities for additional energy savings if the potential 
Federal and State burdens related to monitoring and enforcement can be 
resolved. On the issue of appliance standards, the Department is 
working aggressively to address the backlog of rulemakings, and to that 
end, the Secretary sent proposed language to Congress in February to 
help us expedite rulemakings where there is consensus on a standard. 
EERE looks forward to working with this Committee to have that language 
included in this legislation.
    Title V of S. 1115 addresses the important issue of Federal energy 
management, and the Department supports the permanent authorization of 
Energy Savings Performance Contracts (ESPCs). ESPCs provide essential 
flexibility in leveraging limited Federal resources to achieve 
substantial efficiency gains. However, we believe there are some 
aspects of the technical language that require further review and 
discussion, and we look forward to continued discussion with you and 
your staff on these and other issues.
    I would now like to provide an update to the Committee on some of 
EERE's progress in the efficiency component of our portfolio. Our goal 
is to transform the built environment in a manner that maximizes 
efficiency gains and delivers meaningful benefits to consumers. Under 
the leadership of Secretary Bodman and Assistant Secretary Karsner, we 
are revolutionizing our efficiency activities, placing increased 
attention on Federal leadership in energy savings.
                       federal energy management
    As is commonly cited, the Federal Government is the single largest 
consumer of energy in the United States. Thus, as we look to putting 
our Federal house in order, the potential for making a substantial 
contribution to becoming a more efficient nation is real and 
considerable.
    President Bush recognized the significance of this opportunity when 
in January of this year he issued Executive Order 13423--Strengthening 
Federal Environmental, Energy, and Transportation Management. This 
Order targets both improving energy efficiency and reducing greenhouse 
gas emissions with a comprehensive approach for Federal facilities, 
alternative-fueled vehicles, product purchases, water consumption, and 
renewable power. Federal facility reduction goals are scheduled to 
increase by three percent each year through 2015, which, overall, is 10 
percent more than what was mandated in EPACT 2005. The President's 
Order mandates increased renewable energy consumption from new 
renewable sources and on-site renewable energy generation.
    As required by the Executive Order, each Federal agency must 
designate a senior official to take responsibility for implementing its 
provisions, and EERE's Assistant Secretary Alexander Karsner is that 
officer for the Department of Energy. We are taking the Executive Order 
as a challenge to transform the way that we at DOE contract and manage 
our energy use. And it is not as if DOE is starting at the top of the 
Federal heap. A recent study of energy intensity at 20 Federal 
departments and agencies looked at the reduction in Btus per square 
foot in 2006, compared to 2003, and DOE ranked 12 out of 20. Our goal, 
however, is to be the first agency to meet all of the President's 
targets, and to exceed the requirements in key areas of reduced energy 
consumption and greenhouse gas emissions, building efficiency, clean 
energy production and use, and fleet management. Secretary Bodman 
believes that we must lead by example, and he is challenging the 
Department to accelerate our energy efficiency efforts.
    A key vehicle for reducing our energy consumption is the ESPC. This 
performance-based contracting tool, together with the Utility Energy 
Services Contracts, is essential for project investment in the Federal 
sector. To strengthen these third-party financing and investment 
programs, we are working to transform the internal review process, 
simplify contracts, remove barriers and impediments that delay 
investments and service support, get more efficiency gains at an 
accelerated rate, and create replicable models across government.
                          efficiency standards
    Turning to a different area of DOE responsibility, I would like to 
give you an update on the Department's energy conservation standards 
program, a key vehicle for national energy savings. Established Federal 
standards for appliances and other equipment have made a significant 
contribution to energy efficiency. Federal residential energy 
efficiency standards that have gone into effect since 1988, or will 
take effect by 2007, will save a cumulative total of 34 quadrillion 
Btus (quads) of energy by the year 2020, and 54 quads by 2030. The 
estimated cumulative net present value of consumer benefits amounts to 
$93 billion by 2020 and grows to $125 billion by 2030.\1\
---------------------------------------------------------------------------
    \1\ Department of Energy, Report to Congress on Appliance Energy 
Efficiency Rulemakings, including Battery Chargers and External Power 
Supplies, January 31, 2006.
---------------------------------------------------------------------------
    However, as has been publicly stated, the Department has fallen 
behind in setting and updating required standards. This is a 
challenging area of great complexity, but the scale of potential energy 
savings for our Nation demands that we address it with renewed 
commitment. Since arriving at the Department of Energy last March, 
Assistant Secretary Karsner has made efficiency standards a top 
priority, as has Secretary Bodman, who has overseen significant 
progress during his tenure.
    The Department is committed to eliminating the backlog of 
rulemakings and meeting all of its statutory requirements. On January 
31, 2006, the Department submitted a report to Congress on its 
standards activities, but most importantly, with that report we 
submitted our action plan and schedule for rulemakings for the next 
five years. Since committing to this schedule for the standards 
program, the Department has met 100 percent of its targets. Including 
test procedure rulemakings and codification of prescribed standards, we 
have completed eight rulemakings since EPACT 2005 and made significant 
progress on others that were underway prior to EPACT 2005. In 2006, we 
began standards rulemakings for 12 products. These accomplishments 
represent a pace substantially more aggressive than at any prior time 
in our history. The final rules regarding energy conservation standards 
for electric distribution transformers and residential furnaces and 
boilers are on schedule and expected to be issued by September 30th of 
this year.
    Success is coming through a variety of measures, from bundling 
similar products together to move them collectively through the 
rulemaking process, to organizing staff and contractors into seven 
technology teams to focus on similar areas and requesting increased 
budgetary support for the standards program.
    Most recently, Secretary Bodman sent legislation to Congress 
requesting authorization that would significantly speed up the 
standards process and ultimately bring more efficient products to 
market sooner. This fast-track legislative proposal would streamline 
the rulemaking process and allow DOE to go to a Direct Final Rule for 
certain products when a clear consensus for a standard exists among 
manufacturers, efficiency advocates, the government, and other 
stakeholders. This process could shorten the time to a completed 
standard by nearly one-third. More than 30 products could be included 
if the legislation is enacted, from a variety of home appliances such 
as dishwashers to lighting, plumbing equipment, and industrial products 
like commercial refrigerators and freezers. We look forward to working 
with Congress on this proposal, along with other potential related 
legislative proposals.
    The Office of Energy Efficiency and Renewable Energy manages a host 
of other programs devoted to the research, development, and deployment 
of energy efficient products and practices, from solid state lighting 
to plans for zero energy buildings. Redesigning the energy fabric of 
our Nation will take the combined and dedicated efforts of both the 
private and public sectors, at the State, local, and Federal levels. 
This Administration, the Department of Energy, and most specifically, 
our office, EERE, is eager to join with Congress to find the most 
effective paths to a more secure energy future.
    This concludes my prepared statement. I would be happy to answer 
any questions the Committee members may have.

    The Chairman. Thank you very much.
    Let me ask about one of these standards, the furnace 
efficiency standards.
    Mr. Mizroch. Yes, sir.
    The Chairman. Since the passage of EPAct 2005, DOE's done a 
good job of beginning to move the approval of these rulemakings 
on appliance efficiency standards. One of the proposed 
standards relating to residential furnaces is controversial, 
because it would adopt an efficiency standard that many 
northern States believe is too low for their climates. Some 
commentators have urged you to set a separate efficiency 
standard for warm States, versus cold States. The Department 
has said that it lacks authority to do that, but has said, 
instead, that States could ask for waivers. And there is 
authority to give waivers----
    Mr. Mizroch. Yes, sir.
    The Chairman [continuing]. As I understand it. Now----
    Mr. Mizroch. Yes, sir.
    The Chairman [continuing]. We have testimony, on the second 
panel, from the Gas Appliance Manufacturing Association, 
strongly opposed to the idea of regional standards. We have a 
provision in S. 1115 authorizing DOE to set regional standards. 
What's your thought as to the appropriateness of us trying to 
legislate to give you authority to set regional standards? Is 
that something that's important to do, or do you think we 
should back away and just have you use your waiver authority?
    Mr. Mizroch. I think we are generally in favor of having 
the regional standards, but I think they need to be balanced 
very carefully with the ability to enforce those standards. We 
think that we need to work closely with the stakeholders--in 
particular, with the States--to make sure that, if there is 
such a standard, that it's enforceable. I think that's one of 
the big concerns that industry has expressed, that, in their 
view, at least from the statement that I read, that they don't 
think it's enforceable. So----
    The Chairman. Not enforceable, in what way? You mean 
someone might be selling something into a region that was not--
--
    Mr. Mizroch. Part of that State standard, yes, sir.
    The Chairman [continuing]. Part of that State standard? 
What harm is done by that?
    Mr. Mizroch. The purpose of doing this is to achieve the 
largest energy savings that are cost-effective in these States 
in the first place; the northern States, for example, that 
we're talking about.
    The Chairman. Right.
    Mr. Mizroch. Those regulations, one presumes, would need to 
be enforced to be effective, if you're going to achieve the 
savings that you want to achieve.
    The Chairman. So, you might not achieve as much with lax 
enforcement or----
    Mr. Mizroch. That's correct.
    The Chairman [continuing]. Or lack of enforcement as you 
would with enforcement.
    Mr. Mizroch. Yes, sir.
    The Chairman. But you still would achieve some.
    Mr. Mizroch. You certainly could achieve some, but I would 
just suggest that our position is that we generally like the 
authority, but we want to be able to discuss with you what 
would be sufficient to be able to enforce that authority; you 
know, working, in particular, with the States.
    The Chairman. Okay.
    Mr. Mizroch. And, I might add, on the specific example that 
you mentioned, the final rule on the furnaces will be ready by 
September 2007.
    The Chairman. Okay. Let me ask about another item. As you 
know, a number of EPAct 2005 provisions have not been funded. I 
understand that you plan to fund the State Utility Efficiency 
Pilot Programs that were authorized in section 140 of EPAct 
2005. Could you elaborate a little bit on that program, and 
tell us whether you seek to include a program that requires a 
utility to reduce its energy use by a certain percentage over 
10 years? As you know, we've been urged, here on this 
committee, to do something in the nature of an Energy 
Efficiency Resource Standard. Is this something that you're 
getting done as part of this section 140?
    Mr. Mizroch. We have suggested, in our spend plan for 2007, 
to spend $5 million on section 140 in 2007. I think the answer 
is that we think that this is a start, and that we hope that 
it'll be effective. We're going to try to collaborate very 
closely with the stakeholders in this area. This is one of 
several areas where we're going to be collaborating with States 
and stakeholders to promote energy efficiency.
    The Chairman. Okay. All right. My time is up. Let me go 
ahead and call on--Senator Thomas is next.
    Senator Thomas. Well, thank you, Mr. Chairman. I appreciate 
what you and the ranking member have done on this bill.
    I have some questions, but I'll submit some of those for 
the record.
    I'm a little concerned that apparently we're going to 
consider a bill that's been fairly hastily drafted, and I 
wonder--I'm going to ask when we're going to be able to see the 
bills, and how much time we're going to have for the 
opportunity to consider amendments and those kinds of things. 
We've talked about, over the last several months, environmental 
performance, and we've talked about efficiency and so on, but 
one of the things that I think we haven't talked about as much 
as we should is: how are we going to provide affordable energy 
for consumers as we move toward these things? All these things 
are going to happen over time, but, in the meantime, we're 
going to have to have energy and so on. So, I hope that we can 
focus on the opportunities to increase energy production and be 
able to do some of those things.
    So, I'll ask the chairman about bills, and so on, a little 
later. But Mr. Mizroch, section 503 allows for the Federal 
Government to sell power back to the grid.
    Mr. Mizroch. Yes, sir.
    Senator Thomas. I'm concerned about that scenario. What 
does it establish for the Government to be competing with the 
private sector? How does that work?
    Mr. Mizroch. I think the thought behind this is not that 
we're going to compete with the private sector, but we're going 
to promote the expanded use of green power. One of the 
important objectives is to enable the agencies to use the ESPC 
to expand a generation of renewable power on Federal lands. I 
don't think it's our intention at all to try to compete with 
the State-governed utilities or the private sector on this.
    Senator Thomas. So, you wouldn't be in the market, and you 
wouldn't be subject to State and local electric laws and rules.
    Mr. Mizroch. I think when we look at all of our power 
purchasing agreements now, we assume that we are subject to 
those rules, Senator. I would have to check with our Office of 
Electricity Delivery and Energy Reliability--and our general 
counsel--to get a broader answer, but I would say, right now, 
that it's not our intention to be outside of those rules, at 
least not ours.
    Senator Thomas. Does this provision, the way it's written, 
leave the door open for the Defense Department to operate a 
power generation facility on a military base?
    Mr. Mizroch. I think they have that authority already, 
Senator, if I'm not mistaken. I could be wrong, but I think 
they have different legislation. They have some sort of 
legislation that allows them to do that. I know that they're 
looking at assured sources of energy. Under what we're talking 
about, I don't know exactly how this would affect the 
Department of Defense.
    Senator Thomas. Is there guidance as to what can be paid 
from the proceeds and how these facilities can and should be 
regulated by the environment and other requirements?
    Mr. Mizroch. Well, the regulation would fall under existing 
regulation. Any sort of power facility would have to comply 
with all State, local, and Federal environmental regulations, 
to begin with. So, we're not talking about putting anything up 
that couldn't be, or wouldn't be, done commercially and under 
the same restrictions.
    Senator Thomas. Okay. Okay.
    Thank you, Mr. Chairman.
    The Chairman. Senator Sanders.
    Senator Sanders. Thank you very much, Mr. Chairman. Thank 
you and Mr. Domenici for your work in writing this bill. We 
appreciate working with you on some important provisions, and I 
intend to be a sponsor of the bill, and we think it's a very 
good start.
    Mr. Secretary, thank you very much for being with us today.
    Mr. Secretary, let me begin by asking you, as a 
representative of the administration, some kind of broad 
questions, and then I want to get to a little bit more 
specificity.
    Is it the administration's position that global warming is 
manmade?
    Mr. Mizroch. My understanding is, Senator, that we have 
acknowledged climate change as a problem, and we are working--
--
    Senator Sanders. You have acknowledged climate change as a 
problem.
    Mr. Mizroch. Yes, sir, and we're working----
    Senator Sanders. Well, I'm really glad to hear that, sir.
    Mr. Mizroch. We're working, in my view, to do something 
about it.
    Senator Sanders. Mr. Secretary, when you say that the 
administration has recognized climate change as a problem, we 
have heard testimony from scientists who say that there are 
major cataclysmic changes taking place right now, and that if 
we do not move forward within the next 10 years, there are 
going to be irreversible changes that will impact billions of 
people. I am glad that the administration understands that we 
have a problem. That's a good start.
    Let me ask you this. Wal-Mart, which is not generally noted 
as one of the more progressive corporations in America----
    Senator Domenici. Who is that, sir?
    Senator Sanders. Wal-Mart.
    Senator Domenici. You said they were----
    Senator Sanders. Are not usually regarded as one of the 
more progressive corporations in the country.
    Senator Domenici. Well, you know, Mr. Chairman, I just 
wanted to ask--you will tell me if it's inappropriate, but I 
just wonder if the questions could have been asked in what 
seems to be going forward now from Senators are relevant, have 
anything to do with the issues we've----
    Senator Sanders. I think they do.
    Senator Domenici. Do we want to get right down to this 
bill, or do we want to have a question-and-answer about global 
warming from a----
    Senator Sanders. Well, I think it's important to understand 
how strong the commitment of the administration will be, and 
I'm going to ask some specific questions, and I wanted to 
mention that Wal-Mart itself intends to increase fuel 
efficiency in their own truck fleet by 25 percent over a 3-year 
period, and doubling it within 10 years.
    Can you give us an idea, Mr. Secretary, what the 
administration plans on doing with our Federal truck fleet and 
car fleet? There is, many people believe, enormous potential to 
make our trucks and cars much more energy efficient. Again, 
Wal-Mart is looking at a 25 percent improvement over 3 years, 
and doubling that within 10 years. What is the administration's 
commitment, in terms of our Federal fleet?
    Mr. Mizroch. Well, Senator, before the executive order was 
issued by the President, January 24, there was already a 
significant commitment, which is even more significant now. In 
that executive order, I think many of the provisions are 
mirrored in the legislation that you have here. They're really 
quite extraordinary. We're proposing 3 percent a year, for a 
total of 30 percent in 10 years. It's quite----
    Senator Sanders. Well, is----
    Mr. Mizroch [continuing]. Breathtaking. In order to get 
there, Senator----
    Senator Sanders. Thirty percent in 10 years is, you think, 
breathtaking. That's for fuel efficiency in----
    Mr. Mizroch. It's not just efficiency, it includes 
renewable energy and includes our fleets. I would be, actually, 
more than happy to provide you with----
    Senator Sanders. I would like to see----
    Mr. Mizroch [continuing]. A number of areas, both on 
fleets, on vehicles--it's quite an extensive effort that we've 
undertaken for biofuels, batteries, lightweighting of vehicles, 
and things that I believe will have a major contribution, not 
just in this country, but----
    Senator Sanders. Some of us would like to see the Federal 
Government becoming a model for what our country should be 
doing.
    Mr. Mizroch. Yes, sir.
    Senator Sanders. It would be important, it seems to me, to 
move a lot more aggressively than what you are suggesting, 
because we're seeing many corporations already doing that. Can 
you tell me, for example, how many hybrids, what percentage of 
fuel efficient hybrids the Federal Government plans on 
purchasing or utilizing?
    Mr. Mizroch. I will send you the specific numbers.
    [The information follows:]

    In Fiscal Year (FY) 2006, the Federal fleet included 866 hybrid 
vehicles, which comprised less than 0.2 percent of the total Federal 
fleet inventory. The Federal fleet plans to acquire 379 hybrids in FY 
2007, 371 in FY 2008 and 408 in FY 2009. These acquisitions will 
comprise less than 1 percent of the acquisitions each year.

    Mr. Mizroch. They're actually quite extensive. It's a mix, 
not just of hybrids, Senator, but it'll be flex-fuel vehicles, 
hybrids, and we're actually moving, in some instances, to see 
if we can get approval for electric vehicles. There are actual 
electric vehicles that could replace some of the----
    Senator Sanders. That's right.
    Mr. Mizroch [continuing]. Conventional fuel vehicles that 
we have already. I'm not just saying this, but I think we're 
moving--it is the desire of the Secretary and of the Assistant 
Secretary to move very expeditiously and significantly in these 
areas, and----
    Senator Sanders. Well, I thank you. I think my time is 
expired. I would just suggest that some of us are not skeptics. 
Some of us believe that this planet and this country face a 
major crisis. Some of us want to see our Federal Government 
leading the country, and leading the world, in a new direction. 
So, we would hope that we would have your support for that 
effort.
    Thank you very much, Mr. Secretary.
    Mr. Mizroch. Thank you.
    The Chairman. Thank you very much.
    Senator Domenici. And then Senator Murkowski--why don't you 
go ahead?
    Senator Murkowski. All right, thank you, Mr. Chairman. 
Thank you, Senator Domenici.
    I think that this is important legislation, and I 
appreciate both of you gentlemen taking a leadership role in 
this. I want you to know that, after our press conference on 
this legislation last week, I went downstairs and found the guy 
who's in charge of all the light bulbs for this building, and 
my office is getting converted over. So, it can be done, a 
little bit at a time.
    I wanted to ask you, Mr. Secretary, a question about the 
pre-emption issue. There is a provision--this is under section 
205 of the legislation--that clarifies the intent, which is 
that the Federal pre-emption does not apply to products for 
which there are interim standards. I have heard that from folks 
who appear concerned about the effect of potentially allowing 
the States to take over the setting of efficiency standards, 
whether they're those that manufacture televisions or appliance 
manufacturers. They're concerned about different standards. You 
spoke to this very briefly in your first response to Senator 
Bingaman. Can you just speak a little bit more about this 
issue? Because I think this is one that we're really going to 
be focusing on, perhaps struggling with, as we try to reckon 
with regional standards and the whole pre-emption issue.
    Mr. Mizroch. This is a very important issue that you've 
brought up, and one that we welcome a continued dialog with the 
committee on.
    The Federal pre-emption of State standards was a key 
motivation for the establishment of the national standards 
program in the 1970's and the 1980's. Quite frankly, we think 
it remains vital for the future of the program. We welcome the 
bill's attempt to clarify the provision of the existing 
statute. We think it's essential that Federal pre-emption 
continue in those areas where national minimum standards are in 
place, or where the Department of Energy has concluded, based 
on the public rulemaking process, that no standard is 
warranted. So, I believe that we are having a dialog with the 
committee on that, and would certainly like to continue to do 
so as this bill goes through process.
    We do think Federal pre-emption, in most cases--perhaps not 
every one--is important and warranted.
    Senator Murkowski. But it sounds, at this point, that you 
would acknowledge this is one of these areas where we're going 
to have continuing discussion, as we try to work this through.
    Mr. Mizroch. Yes, ma'am.
    Senator Murkowski. Tell me whether or not we have any 
standards--modern standards or current standards in place to 
govern testing, whether we're talking about televisions here or 
computer screens. You know, when you think about all of the 
electronics that are out there today, and the ones that, 3 
years ago, we didn't even imagine were going to be out there--
I've got teenage boys, and I'm seeing everything new that's 
coming out on the market. How do we provide for these mandatory 
labels that we reference in section 206? How do we develop the 
standards on this emerging technology, so that we know that the 
standards are in place? We don't want to do anything that's 
going to hinder the development or advances in the technology. 
How do you make this work?
    Mr. Mizroch. Well, again, you've brought up another good 
point. We have test procedures, but they need updating, and 
they need updating across the board.
    Senator Murkowski [continuing]. How outdated are they 
currently?
    Mr. Mizroch. Well, the technology continues to race ahead 
of us. Plasma TVs are a great example, because they have been 
largely unrated for energy efficiency, and they are huge energy 
users. Now they've proliferated into the marketplace in a 
really short amount of time. So, I would just say they need 
updating, and we need to be constantly working on new 
technology as it comes onboard.
    Senator Murkowski. Well, let me ask you, then----
    Mr. Mizroch. Yes.
    Senator Murkowski [continuing]. Let's leave plasma-screen 
TVs aside for a moment. You take a refrigerator or an 
appliance, I guess, a regular TV--although it's tough to call a 
TV regular anymore; it's like calling a cup of coffee regular.
    [Laughter.]
    Senator Murkowski. Are there standards that are current?
    Mr. Mizroch. Yes, ma'am.
    Senator Murkowski. Okay.
    Mr. Mizroch. Refrigerators have actually been one of the 
huge success stories, because we've reduced energy consumption 
by two-thirds while improving the refrigerator itself. So, 
that's actually----
    Senator Murkowski. Right. I'm just wondering how difficult 
it's----
    Mr. Mizroch [continuing]. Been one of our great successes.
    Senator Murkowski [continuing]. Going to be for you to 
implement what we are suggesting here with the energy 
efficiency labels. We want to make sure that when a label goes 
on, it's a current label, and that it has some meaning to 
today.
    Mr. Mizroch. We are in favor of the labeling provision, 
generally, and I think that we just want to continue to talk 
with the committee about the length of time that it may take to 
do the proper work to make sure that the labeling that we're 
going to provide--that FTC's going to provide--is going to be 
effective.
    Senator Murkowski. Thanks.
    Thanks, Mr. Chairman.
    The Chairman. Thank you.
    Senator Domenici, did you have any questions of this 
witness?
    Senator Domenici. No, I don't. I just want to, maybe, ask 
this one.
    Since the passage of the Energy Policy Act, a year and a 
half ago----
    Mr. Mizroch. Yes, sir.
    Senator Domenici [continuing]. Which had a lot of--to be 
honest, had a lot of this in it, telling you all to get with it 
and do some of these things----
    Mr. Mizroch. Yes, sir.
    Senator Domenici [continuing]. I'm not here, complaining, 
although I would tell you that the fact that it has been so 
hard for you to get things done leads me to a question that 
just reeks for an answer, and that is: are we going to be able 
to enforce, in broadbased standards, what we are talking about 
here? What is your gut as to how that's going to work, or what 
we're going to need to do to make it work? To me, it seems to 
be an enormous management job, a huge job of cooperation, and 
many other qualifiers that I could think of in a few moments. 
How do you assess that?
    Mr. Mizroch. Well, Senator, the area of energy efficiency 
and the areas included in this bill are very broad. I mean, 
they include appliances and vehicles and Federal energy 
management through ESCOs. So, the topic itself is an enormous 
one.
    I would suggest to you that a leadership team is in place 
now that is going to work very hard to implement the provisions 
of the EPAct, and new legislation that may arise, as well. It 
is daunting, but it seems to me that the country--that 
Americans, in general, are acknowledging energy efficiency as 
something important, and I think if we work together, it'll 
happen. I don't think the Department of Energy, by itself, is 
going to make things happen, but I think if all of us work on 
this, it will happen.
    Senator Domenici. Well, that's exactly the way I feel. I 
think we've got to do it, but we have to have enough, not only 
gumption, but enthusiasm, behind it that we will get it done. 
It won't be you all, but it'll be you all, because the 
Department--because Congress wants it done and we aren't 
arguing and fighting, we're all trying to do something.
    So, I thank you very much for what you're doing, and hope 
that we can get some reports from you. The work you've already 
done is on the law that we passed. Is that not right? You're 
doing work on the year-and-a-half-old----
    Mr. Mizroch. Yes, sir, absolutely.
    Senator Domenici. Is there something you could give us to 
show that work is being done under that bill, that we might 
feel a little more comfortable that things are achievable and 
being done?
    Mr. Mizroch. Well, Senator, I think there actually are 
reports that we're required to deliver to you, but I will most 
certainly send you over, where we are in the process, and----
    Senator Domenici. Will you?
    Mr. Mizroch [continuing]. The things that are coming up. 
Yes, sir.
    [The information follows:]

    The Department is working aggressively to implement the Energy 
Policy Act of 2005 (EPACT). To date we have been working at a fast and 
serious pace to complete the 155 sections assigned to EERE and have 
completed over one-third of them as of May 27th, 2007. EERE also 
continues to expeditiously address the backlog of appliance standards, 
in addition to those established in EPACT. Some selected examples of 
EPACT authorized activities that EERE has requested initial or 
continued funding for in FY 2008 and merit mention are: the selection 
of six cost-shared cellulosic ethanol biorefinery demonstration 
projects to be funded up to $385 million as directed in Section 932; 
the establishment of new EnergyStar qualification levels for clothes 
washers as directed in EPACT Section 131; the issuance of grants to 
establish Advanced Energy Efficiency Technology Transfer Centers as 
directed in EPACT Section 917; reporting on the establishment of a 
program to inform the public on various aspects of energy efficiency as 
directed in Section 134; developing the next generation of low-
emission, high efficiency diesel engine technologies as directed in 
Section 754; providing financial assistance to states to carry out 
energy efficiency pilot programs; leading the Next Generation Lighting 
Initiative as directed in Section 912; and requests for the 
establishment of a loan guarantee office to allow the Department to 
issue loan guarantees for early commercial projects that employ 
advanced technologies such as those listed in Title XVII of EPACT 2005.

    Senator Domenici. We appreciate it. Thank you very much.
    Mr. Mizroch. Thank you.
    Senator Domenici. Thank you, Mr. Chairman.
    The Chairman. Well, thank you. Oh, Senator Lincoln, didn't 
see you come in. Go right ahead.
    Senator Lincoln. Thank you, Mr. Chairman. I'll be brief. I 
know the Secretary has a busy schedule, but we're pleased that 
you're here.
    As you know, in the 1992 energy bill, we established 
Federal and State fleet requirements to reduce our dependence 
on foreign oil. Of course, biodiesel can only be 50 percent of 
that Federal fleet requirement, despite the fact that most of 
our heavy-duty vehicles are diesel vehicles, which could easily 
run on biodiesel, probably more easily, until we get the 
technology for the design of a renewable diesel from other 
sources. Do you think it's still a good policy to allow 
biodiesel to account for only 50 percent of that requirement? 
How soon do you think that people might be running up against a 
wall on that?
    The second question would be: how much do you assist, from 
the Department of Energy, other agencies in this country, in 
trying to meet requirements, or to do a better job in setting 
an example, as the Federal Government should be, in terms of 
energy conservation?
    Mr. Mizroch. Senator, if I could answer the second question 
first, the executive order is actually quite sweeping, the one 
that the President issued on January 24, I believe it was, the 
day after the State of the Union, and our Federal Energy 
Management Program collaborated very closely with the CEQ and 
the White House on that. I think that it specifically requires 
the Federal agencies to pay very close attention to this. So, I 
think the answer is that we will be collaborating very closely 
with other Federal agencies in trying to promote all of these 
new ideas, both in energy efficiency, renewable energy 
purchase, and the other things that we're going to be doing, 
which includes fleets, as well.
    So, while we think that the FEMP program has been doing 
okay, perhaps not as well as it could, we expect considerably 
more activity through that program. I think some of the 
provisions in the legislation that you've proposed to 
reauthorize--to, sort of, permanently authorize that--will help 
us, as well.
    But I think the answer is that with this executive order, 
we're going to be doing considerably more. It's very, very 
ambitious. It's going to be quite a challenge to meet, but 
we're going to take it up.
    On your first question about biodiesel, I will answer that 
broadly, and probably have to get back to you on a more 
specific answer.
    But the Department itself is doing work, as I'm sure you're 
aware, principally on cellulosic ethanol development. Biodiesel 
is much more of a conventional product, the same way that 
ethanol produced from corn is a conventional product. The work 
that we're doing in biodiesel now is collaborating with ASTM 
and private-sector regulatory groups to develop codes and 
standards for the fuel itself.
    In terms of the requirement for the fleet, I think your 
question is more about a production--or is it about a 
production----
    Senator Lincoln. Well, unless we're prepared to replace a 
combustible diesel engine fleet immediately, my question is: is 
50 percent as a part of that requirement, enough to meet the 
needs that we're going to have, not only now, but in the 
future, with combustible diesel engines, which are the majority 
of our heavy-duty equipment?
    Mr. Mizroch. It would probably be better for me to get back 
to you with a specific answer on that question, so that I don't 
misspeak on it.
    [The information follows:]

    The Energy Conservation Reauthorization Act of 1998 (ECRA) amended 
the Energy Policy Act of 1992's (EPACT) requirements for Federal 
alternative fuel vehicle (AFV) purchases to allow Federal fleets to 
generate one AFV acquisition credit for every 450 gallons of pure 
biodiesel (B100, equivalent to 2,250 gallons of B20) purchased for use 
in diesel vehicles more than 8,500 lb gross vehicle weight rating 
(GVWR) (42 USC 13220). To receive credit for an AFV acquisition, the 
biodiesel must be neat (B100) or in blends that contain by volume at 
least 20 percent biodiesel (B20). Federal fleets are allowed to use 
these credits only to fulfill up to 50 percent of their EPACT AFV 
purchase requirements. These credits can be claimed only in the year in 
which the fuel is purchased for use, and they cannot be traded among 
fleets.
    Although biodiesel use is limited in terms of obtaining EPACT 
credits, its use was not limited under Executive Order (E.O.) 13149, 
``Greening the Government Through Federal Fleet and Transportation 
Efficiency,'' which required Federal fleets to meet the petroleum 
reduction goals. 65 FR 24607 (April 21, 2000). Nor is biodiesel limited 
under E.O. 13423, ``Strengthening Federal Environmental, Energy, and 
Transportation Management,'' for meeting either the petroleum reduction 
or alternative fuel use goals. 72 FR 3919 (January 24, 2007). 
Furthermore, this cap has not been a hindrance to biodiesel use as no 
individual agency as of Fiscal Year 2006 has used enough biodiesel to 
reach the 50 percent limit.

    Senator Lincoln. Great. Well, I'll look forward to visiting 
with you and certainly moving forward on that issue, because 
there's a----
    Mr. Mizroch. Okay.
    Senator Lincoln [continuing]. Tremendous need to be met. 
I'd just remind you that there were some directives, in the 
2002 farm bill, for energy conservation initiatives from the 
agencies, which--hopefully, the executive order will push 
people a little bit harder. But there were some directives 
there, which I don't think we got much results out of.
    Mr. Mizroch. Okay.
    Senator Lincoln [continuing]. But we'll keep pushing.
    Thank you, Mr. Secretary.
    Mr. Mizroch. Thank you, Senator.
    The Chairman. Thank you very much.
    We have a second panel. Unless members have any burning 
questions. Senator Sanders, did you have----
    Senator Sanders. A very brief question.
    The Chairman. Yes.
    Senator Sanders. Mr. Secretary, my understanding is that 
Australia, and, I believe, Ontario, intend to ban incandescent 
light bulbs. What do you think about that?
    Mr. Mizroch. I'm aware of discussions going on within the 
industry itself as to whether they, themselves, want to 
consider a ban on incandescent bulbs, or consider, in the 
alternative, making them extremely more efficient. I know that 
one of the manufacturers has done that already. So, there could 
be an efficiency standard, rather than an outright ban, on 
incandescents. We're moving ahead, both on the CFLs, to make 
the light spectrum better. They improve every year. That's one 
of the big consumer concerns, vis-a-vis incandescent, is how 
good the light is, the spectrum.
    Senator Sanders. What about LEDs?
    Mr. Mizroch. It's a transformational technology that the 
Department continues to work on. We see that as being one of 
the most significant technology developments in decades, or 
more. The Department's doing a lot of work in this area, and I 
would just suggest to you that it's a very dynamic area that 
the market, in part, is going to control, not just the Federal 
Government. But we're working very closely with industry on all 
three of the--particularly on the CFLs and LEDs, but I would 
just suggest to you that the Federal Government doesn't want to 
make a decision on banning incandescents right now. I don't 
think that's in our purview, just yet.
    Senator Sanders. Thank you.
    The Chairman. All right. If there are no other burning 
questions--Senator Thomas, did you have a burning question 
here?
    Senator Thomas. No, sir, I'm in the dark about that.
    [Laughter.]
    The Chairman. All right.
    Why don't we thank this----
    Senator Sanders. Thank you.
    The Chairman [continuing]. Witness and ask the second panel 
to please come forward. I'll introduce them as they're coming 
forward.
    As Senator Domenici said, our leadoff witness is Mayor 
Martin Chavez, from Albuquerque, who is here testifying on 
behalf of the U.S. Conference of Mayors. We very much 
appreciate him being here. He has been a leader in New Mexico 
on this whole set of issues of energy efficiency, and not just 
a leader in our State, but nationwide, as well.
    I am advised that the next witness is Mr. Jim Kerr, who is 
the commissioner with the North Carolina Utilities Commission, 
and is president of NARUC, the National Association of 
Regulatory Utility Commissioners. We appreciate him being here.
    Alicia Collier is next. She is the director of the Global 
Energy Policy for Honeywell Building Solutions--Honeywell 
International, and speaking on behalf of the Federal 
Performance Contracting Coalition.
    Mr. Schjerven, who is the chief executive officer emeritus 
with Lennox International, speaking on behalf of the Gas 
Appliance Manufacturers Association, thank you for being here.
    Bill Prindle is the acting executive director for the 
American Council for an Energy Efficient Economy. Thank you for 
being here.
    Kyle Pitsor is the vice president of government relations 
with the National Electrical Manufacturers Association.
    So, we have a very distinguished group of presenters here, 
and we look forward to each of you giving your testimony. We 
will include your full testimony in the record. If you would 
give us about 5 or 6 minutes of summary of your testimony, and 
then we'll have some questions.
    Why don't we start with Mayor Chavez. Thank you, again, for 
being here.
    Senator Domenici. Mr. Chairman.
    The Chairman. Yes.
    Senator Domenici. Mr. Chairman, before we start with the 
Mayor, I wonder if I might explain to the panel, and to him, 
that it is time to be on the floor for the competitiveness 
bill, and I'm going to go and see if I can finish, and come 
back and close up with you. But I do appreciate all of you. 
It's a terrific panel. If we can just get our work done in 
comparison to what you all stand for, we'll be in good shape.
    Mayor, we truly thank you for your special effort to help 
us today.
    Thank you all very much.
    The Chairman. Thanks.
    Mayor Chavez, go right ahead.

 STATEMENT OF MARTIN J. CHAVEZ, U.S. CONFERENCE OF MAYORS AND 
                     MAYOR, ALBUQUERQUE, NM

    Mr. Chavez. Thank you, Mr. Chairman and members of the 
committee, and Senator Domenici, as well. I'm fully cognizant 
of the obligation of voting. My best job in my entire life was 
running the elevators up here, in law school.
    [Laughter.]
    Mr. Chavez. And may end up, yet again, if you still had 
them, in that position.
    [Laughter.]
    Mr. Chavez. I'm speaking, today, on behalf of the United 
States Conference of Mayors. I want to applaud the committee 
for this initiative. It's a perfect fit with the 10-point plan 
of the National Conference of Mayors that we approved in our 
last meeting here in Washington, ``Strong cities, strong 
families, for a Strong America,'' and particularly endorsed by 
our national president, Trenton, New Jersey mayor, Douglas 
Palmer.
    I want to briefly talk about some of the broader 
perspectives on this, because, as you know, America's mayors 
have helped lead the fight, if you will, to combat climate 
change. In particular, the Energy and Environment Block Grant 
Initiative speaks to what we're trying to do. I do want to 
thank Senators Menendez--and I know the Senator is not here--
and Senator Sanders, for your assistance on this. Of course I 
have got to suck up to my--Senator Bingaman at every----
    [Laughter.]
    Mr. Chavez [continuing]. Every possible point through the 
testimony.
    Back in 2005, at our annual meeting, Mayor Greg Nickles, 
the mayor from Seattle, started the initiative to have 
America's mayors sign onto the Kyoto Protocol. We are close to 
500 mayors, now having signed on. Of course, that calls for a 
reduction in greenhouse emissions 7 percent below 1990 levels 
by the year 2012. I am pleased to report to you that 
Albuquerque's emissions are down 63 percent, substantially 
below the Kyoto Protocol, and we've done it through a number of 
initiatives that we've had the capacity to do, because we have 
essentially taxed ourselves, but that other communities don't 
have that benefit to do. That's why this particular portion of 
S. 1115 is so very, very important.
    In terms of new energy supply, we learned a long time ago--
and I think the Senate is cognizant of this--that the cheapest 
form of new product is conservation. It is certainly the most 
cost-effective. In Albuquerque, when I first took office a long 
time ago, we found out that we were facing a substantial 
shortage of water, and undertook a massive water conservation 
program, reducing our water use by one-third, while we added 
new accounts to our rapidly growing city by a full third. We 
were recently recognized, in London in November, by the World 
Leadership Forum, winning the World Leadership Awards on 
Utilities and Water Conservation. Energy is no different. 
Again, that is why this legislation is of critical importance 
to America's mayors.
    Whether it be LED light conversion--which in Albuquerque, 
we take 3 percent of all of our capital moneys--we set them 
aside specifically for energy programs, and that allowed us to 
invest in LED light conversion. It costs a little bit more up 
front, but you save, down the road. But, many, many 
communities, and particularly the smaller communities and the 
counties that would be the object of the energy--of this bill--
don't have the wherewithal to do that. This is a perfect fit 
for those communities.
    I want to share with you the preliminary survey results of 
the cities of the mayors that have signed on to the Kyoto 
Protocol. Whether it be Kyoto or anything else, we know these 
are just starting points. This is, I think, the most 
significant part of this legislation; it's a first step, and 
it's a dramatic first step. We won't get where we need to go 
unless we have legislation of this nature.
    So, here are what America's mayors have said they would use 
these funds for:
    One, formulate and enforce new building codes that 
encourage energy efficiency. We know the building codes are 
uniquely local in nature, but they are also very difficult to 
draft and do in a way that's business-friendly, that doesn't 
disrupt your economy, but also gives you the savings on carbon 
emissions.
    Retrofit existing buildings to improve the carbon 
footprint.
    Upgrade vehicle fleets.
    Increase use of hybrids and clean alternative fuels. 
Albuquerque today has--43 percent of our fleet is alternative. 
I listened, for 2 years, to my experts tell me why it couldn't 
be done, and why that couldn't be done. I finally did it by 
executive order, the first American city to do so. Lo and 
behold, 6 months later they've got all types of solutions to 
the challenge. I think that's really a good part of this 
legislation. It just says, ``Look, let's do this, let's get 
onboard and do the right thing.''
    Outreach to business communities to ramp up energy 
efficiency programs.
    Purchase and produce clean alternative energy.
    Improve public transportation infrastructure--critical to 
addressing climate change.
    Expansion of car-sharing into residential neighborhoods.
    Development of solar water and electric programs to provide 
lower-cost financing.
    Promotion and education to the public and developers.
    Development of climate action plans that undertake baseline 
greenhouse emissions assessments. This is something that's 
essential if you're going to have a thoughtful program. You 
have to have baselines as to what your carbon footprint is so 
that the initiatives are thoughtful.
    As I've said, many of America's cities have already 
undertaken this challenge, but we desperately need the Federal 
partnership. Some things are uniquely local, but the production 
of energy, for example, really begs of Federal regulation and 
involvement.
    So, on behalf of America's mayors, we strongly endorse the 
Energy and Environmental Block Grant set forth in section 605 
of this legislation. Then, I want to, on behalf of America's 
mayors, pledge our continued partnership with the Congress and 
with the Federal Government. We can only go so far on our own; 
but we can go all the way, with your assistance.
    In closing, I was honored to be the only American mayor 
invited to the International Conference on Climate Change 
hosted by President Jacques Chirac. It was fascinating to have 
these delegates from all over the world on this tremendous 
challenge. You may not be surprised to hear that we're not 
exactly the world darlings on this issue right now in the 
global community, but they are looking to the United States for 
the leadership in the development of the technology and the 
savings. Yet today, they are looking to us, from all over the 
world. So, we have not lost all opportunity. We have a 
tremendous opportunity to still lead the world on this issue.
    Again, Mr. Chairman, thank you for your leadership. Members 
of the committee, thanks so much. At the appropriate time, I'm 
happy to take questions.
    [The prepared statement of Mr. Chavez follows:]
Prepared Statement of Martin J. Chavez, U.S. Conference of Mayors, and 
                     Mayor, Albuquerque, New Mexico
    Mr. Chairman, Senator Domenici, and Members of the Committee, thank 
you for this opportunity to appear before you today on the critical 
issue of promoting greater energy efficiency in our nation, its states 
and local governments.
    I appear today on behalf of The United States Conference of Mayors. 
On behalf of the nation's mayors, I want to commend this Committee for 
moving forward with S. 1115, especially provisions of the legislation 
which seek to further empower the efforts of local government officials 
and state leaders through the establishment of a new Energy and 
Environment Block Grant initiative. Mr. Chairman and Members of the 
Committee, enactment of a block grant program to support local and 
state energy efficiency initiatives is mayors' top legislative 
priority, as set forth in the Mayors' 10-Point Plan: Strong Cities, 
Strong Families for a Strong America, as set forth by Conference 
President and Trenton Mayor Douglas Palmer. As such, this initiative is 
strongly supported by mayors throughout the nation.
    First, let me share some broader perspectives on the legislation 
before you today. We believe the legislation begins to chart a new 
direction for federal energy policy. It addresses the many challenges 
before us by embracing new policies and incentives for key energy 
sectors and governmental leaders at every level. We are especially 
supportive of the bill's emphasis on higher efficiency standards for a 
variety of important equipment and technologies, expanded research 
efforts, and new energy efficiency and reduction goals.
    And, the emphasis on state public utility commissions to ensure 
that they play a stronger role in advancing local and statewide energy 
efficiency efforts is important to our longer-term efforts to increase 
energy efficiency and reduce our nation's overall energy use. Finally, 
it is bipartisan, which is how we believe the nation will be successful 
in addressing the monumental challenges before us in this area.
                       record of action by mayors
    The nation's mayors have been on the forefront of promoting energy 
efficiency out of our desire, which we know this Committee shares, to 
become more energy independent and reduce harmful emissions from our 
communities and regions.
    In 2005, at our annual meeting in Chicago, IL, led by Mayor Greg 
Nickles of Seattle, The U.S. Conference of Mayors passed a 
comprehensive climate protection policy and encouraged mayors to sign 
the Mayors Climate Protection Agreement. At that meeting, 141 mayors 
pledged to begin the process of reducing greenhouse gas emissions and 
promoting green energy efficiency. Today, I am pleased to announce that 
more than 460 mayors have signed on to this Agreement, pledging local 
actions to reduce carbon dioxide emissions by seven percent below 1990 
levels by 2012. Some cities are on their way to achieving this goal, 
but most of them will need additional help in reaching this milestone.
    Also, at the Conference, we have adopted a goal with the American 
Institute of Architects to make all new buildings carbon neutral by 
2030. This 2030 Challenge is our way of trying to create momentum and 
policy consensus on where we must go with the nation's building sector 
over the next generation.
    Mr. Chairman, earlier this month, Newsweek recognized the important 
role mayors, cities and local governments play in responding to the 
challenges of addressing climate change, energy efficiency and energy 
independence (``Mayors Take the Lead'' 16 April 2007).
    Let me cite some of the efforts now underway in the City of 
Albuquerque. We are doing everything in our power to protect and 
preserve our natural environment, understanding we have a 
responsibility to make wise choices in determining the legacy that will 
be shared by future generations. Albuquerque has a history of 
demonstrating environmental responsibility and sustainability. It was 
an alarming discovery back in the early 1990's that our aquifer was not 
limitless, prompting one of the nation's most ambitious and successful 
water conservation programs as well as the biggest public works 
projects in the City's history--the San Juan Chama surface water 
diversion project. That forethought and innovative leadership has 
assured Albuquerque has a sustainable water supply now and for future 
generations.
    In terms of renewable energy and energy conservation, more than 15% 
of the power used by municipal government comes from wind. We use solar 
thermal and photovoltaic panels for heating and pumping water at City 
pools. Traffic signals have been converted to energy efficient LED's 
and an aggressive lighting retrofit program is reducing the energy used 
in our facilities. More than 40% of the City's fleet is run on 
alternative fuels and all new vehicle acquisitions will be fueled with 
renewable alternative fuels. We harvest landfill gas to fuel a micro 
turbine that generates electricity to support the gas collection system 
and for ground water remediation, excess power sold back to the grid.
    Other City initiatives include expanding the use of photovoltaic 
and thermal solar technology on city facilities; the application of 
Leadership in Energy and Environmental Design (LEED) and 2030 standards 
to building codes; expanding recycling, targeting zero landfill and 
expansion of our multi-modal transit system. These initiatives 
represent but a few of the steps on the way to a sustainable 
environment. As I talk to my constituents, they want action that 
provides them the opportunity to live the American life, with all its 
opportunity, while at the same time preserving our environment.
    There is no question that the first step is to address energy 
efficiency, establish national goals, and give state and local 
governments the resources to develop community based, grass roots 
programs that result in real energy savings.
                       preliminary survey results
    The Conference of Mayors is now surveying more than 400 Mayors who 
signed the U.S. Mayors Climate Protection Agreement. Specifically, we 
asked Mayors to indicate how they would use new federal resources 
provided through an Environment and Energy Block Grant. Based on very 
preliminary responses, here are some of the activities cities would 
undertake:

   Formulate and enforce new building codes that encourage 
        energy efficiency;
   Retrofit existing buildings to improve the carbon footprint;
   Upgrade vehicle fleets--increase use of hybrids and clean 
        alternative fuels;
   Outreach to business communities to ramp up energy 
        efficiency programs;
   Purchase or produce clean alternative energy;
   Improve public transportation infrastructure;
   Expansion of car sharing into residential neighborhoods;
   Develop solar water and electric programs that provide lower 
        cost financing;
   Promotion and education to the public and developers; and
   Develop Climate Action Plans and undertake baseline 
        greenhouse gas emissions assessments.
                   block grant proposal--section 605
    As I said before, many cities have already taken the first step in 
establishing very aggressive local goals of energy efficiency and 
carbon reduction. But, we need a partnership with the Federal 
government that requires the Energy Secretary to set higher efficiency 
standards and undertake other actions that appropriately rely on 
federal action.
    At the same time, as proposed in S. 1115, additional new resources 
will help local officials develop and expand local energy conservation 
programs, undertake a new generation of energy audits, revise building 
codes, increase incentives to adopt new technologies and initiatives 
and other efforts to promote alternative transportation systems and 
other changes, all aimed at saving energy and reducing our nation's 
energy dependency.
    Therefore, we strongly endorse the creation of an Energy and 
Environmental Block Grant at the Department of Energy, as set forth in 
Section 605, giving State and local governments new resources to 
establish implementation plans for adopting community energy efficiency 
programs and the resources to carry them out.
    Such programs will unleash a creative and innovative power of local 
communities to coalesce around national and community goals, yet 
provide concrete programs that they can participate in to meet them.
    Any successful national strategy must have this ``bottoms-up'' 
community approach that complements the top-down strategies of tougher 
energy efficiency standards and other necessary actions here at the 
federal level. Only by doing both will we get to where we need to be.
  enabling local leadership to change human behavior, local practices
    Let me offer some perspectives about the role of mayors in changing 
human behavior which is such a critical consideration in dealing with 
the myriad of energy issues before the nation. In the early 1990s, when 
our nation faced a landfill crisis, cities and counties rose to the 
challenge and launched over 5,000 curbside recycling programs, started 
local procurement programs to buy recycled-content materials, and 
helped to spearhead a green packaging movement that involved the 
American Consumers Products industry. For the first time, we made it 
inside the American home to change behavior of what was as common as 
separating recyclables from ordinary trash so that it could be 
recycled.
    People said this could not be done, that we could never get the 
citizenry to change its behavior in response to something as mundane as 
garbage. But we did. And most of those programs continue today with a 
national recycling rate of over 25 percent.
             local officials ready to meet these challenges
    In our opinion the people and their leaders--mayors and other local 
officials--are ready and poised again to rise to an even more important 
challenge of making ourselves more energy independent, while lessening 
our use of fossil fuels and harnessing the ingenuity that resides 
within our communities and neighborhoods.
    Mr. Chairman, it is at the local level that building codes get re-
written, that demonstration programs can be launched, that new 
technologies can be introduced to neighborhoods, that people can rally 
to car pool, switch their lights to compact fluorescent bulbs, where 
businesses can decide to retrofit their boilers, weatherize their 
commercial establishments, transportation facilities can be 
reengineered and made available for alternative vehicles and reduced 
auto dependency, where energy audits can be performed for the local 
museum, girls and boys clubs, local libraries, and the list goes on and 
on.
    We believe the Energy and Environment Block Grant will unleash a 
great deal of creativity that will help us get to the goals that you 
have espoused in S. 1115. Certainly, states and local governments can 
not do it on our own. We desperately need the Federal government as our 
partner. But we can, with your assistance and through more local 
innovation and creativity, provide an essential component to our 
national energy strategy.
    Just to demonstrate the challenge, a study that the U.S. Conference 
of Mayors commissioned by Global Insight Inc. forecasts that between 
now and 2030, our nation will build over 39 million new homes and over 
20 billion square feet of commercial space. If we are to absorb this 
kind of economic growth and meet our goals, we must begin now at all 
levels of government to promote a top down and bottoms approach, 
relying on the right balance of federal policy directives and 
incentives aligned with community-based strategies, to help us achieve 
greater energy efficiency and reduced energy dependence.
                            closing comments
    We believe, therefore, that the nation's cities and counties play a 
vital role in our national goal of energy efficiency, energy 
independence and climate protection. The nation's mayors support S. 
1115, especially its important provisions for an Energy and Environment 
Block Grant program, as a vital first step in meeting the challenges 
before the nation. The United States Conference of Mayors endorses it 
and urges its passage as soon as possible. Mr. Chairman and Members of 
the Committee, thank you for this opportunity to share our views on 
this important legislation.

    The Chairman. Thank you very much for being here and your 
testimony.
    Commissioner Kerr, go right ahead.

  STATEMENT OF JAMES Y. KERR II, COMMISSIONER, NORTH CAROLINA 
     PUBLIC UTILITIES COMMISSION, AND PRESIDENT, NATIONAL 
    ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS (NARUC)

    Mr. Kerr. Thank you, Mr. Chairman, Ranking Member Domenici, 
and members of the committee.
    Following the Mayor's lead, I would like to note the 
presence of our Senator Burr on this committee; and, although 
he is, I think, at home today, I want to thank him, on the 
record, for his service to our great State, his steadfast 
support of our Commission, and for his personal support and 
friendship.
    My name is Jim Kerr. I'm a member of the North Carolina 
Utilities Commission, and president of the National Association 
of Regulatory Utility Commissioners.
    NARUC appreciates the opportunity to appear before this 
committee today to work with this committee on this particular 
piece of legislation, as well as on the other important issues 
that this committee will be dealing with in this Congress.
    The issues which we are discussing today are important to 
NARUC. It's important to the States that represent the 
membership of NARUC, and to the citizens that we serve.
    Quite simply, energy efficiency is an important part of the 
formula of meeting the challenges that we face as States, as 
State regulators, as citizens of our States. NARUC as an 
organization, and the individual States that make up our 
membership have traditionally, and continue to be, very 
supportive of energy efficiency policies. We are supportive of 
this legislation, which has been introduced last week, with a 
few clarifications, which I will get to at the conclusion of my 
summary.
    Let me speak briefly to the challenges we face. Despite the 
progress that was made in--with the passage of EPAct05, we, at 
the State level, continue to face significant challenges. 
Energy demand is growing. The cost of generation, both the fuel 
component, as well as the capital component, is increasing. 
Natural-gas prices continue to be increasing, and are 
increasingly volatile. We continue to be challenged by 
reliability issues in certain parts of the country. We, as 
States, as a Nation, and, as the Mayor has mentioned, as the 
world, continue to be growingly concerned about the risk posed 
by carbon. We have many pending large transition and generation 
investments that are needed in an uncertain investment world.
    While not an answer to all of these problems, we, as State 
regulators, believe that energy efficiency offers many benefits 
in trying to meet these challenges. It offers environmental 
benefits, economic benefits, utility system benefits, and risk-
management benefits through the diversification of utility 
portfolios.
    As I mentioned, NARUC and the individual State members have 
actively supported energy efficiency policies. We are among the 
founding members of the leadership group of the National Action 
Plan on Energy Efficiency, which, in my written testimony, we 
speak more about. But this is a collaborative effort of State 
utility regulators, industry, other stakeholders, that has been 
facilitated by the Department of Energy and the Environmental 
Protection Agency, as an effort whose goal was to create a 
sustainable, aggressive, national commitment to energy 
efficiency. I would like to commend DOE and EPA for their 
support of the States through this collaborative--this has not 
been a top-down effort, where the Federal agencies have told 
the States what they thought they ought to do, but, rather, 
have provided a framework and resources to support a 
collaborative process, and it has been very successful. In 
fact, Assistant Secretary Karsner was in Raleigh last week at 
the North Carolina Summit on Energy Efficiency, and we 
appreciate his personal commitment to the Action Plan, and for 
the work that he's doing in support of States' efforts on 
energy efficiency.
    Last week, the North American Energy Standards Board met. 
NARUC was part of that process, working on the development of 
standardized business practices and measurements related to 
energy efficiency. NARUC, Edison Electric Institute, and 
Consumer Advocates are working on a collaborative process 
focusing on ratemaking and rate design issues related to 
efficiencies. NARUC has passed specific resolutions supporting 
the action plan, appliance efficiency standards in the last 
energy bill, innovative rate design to encourage energy 
efficiency, transformer efficiency standards, and advanced 
metering infrastructure.
    We have entered into a collaborative process with the FERC 
on demand response. We have participated in the drafting of 
DOE's section 139 report, which was issued last month, at the 
end of March, whose principal conclusion was that State and 
regional policies should capitalize on opportunities to use 
low-cost energy efficiency to meet growing demands and enhance 
system reliability.
    I was asked to, and I want to, briefly mention a few 
matters going on in my home State, principally because they're 
illustrative of many of the questions which you have answered--
or, which you have asked today from the podium.
    North Carolina was the first State to use a public benefit 
fund for the support of energy efficiency, and we have used 
these funds to support a nonprofit corporation, Advanced Energy 
Corporation, whose sole purpose is to work on energy efficiency 
issues, not just in North Carolina, but around the world. We, 
at the Commission, are currently reviewing our integrated 
resource planning process to better prioritize and integrate 
energy efficiency and demand-side management with our 
traditional supply side resources in the planning process.
    A month ago, we approved Duke Energy's request to build a 
single 800-megawatt super-critical pulverized coal unit in 
North Carolina. The original request was to build two units. We 
approved the building of one 800-megawatt unit. As part of that 
order, our Commission included the following two conditions: 
first, that Duke Energy is required to invest 1 percent of its 
retail revenues in energy efficiency in the demand-side 
management annually, and that they are required to retire older 
coal-fired units on a megawatt-for-megawatt basis to account 
for the actual load reductions achieved through those 
investments. We have, in the Piedmont Natural Gas last rate 
case, approved a decoupling ratemaking mechanism on a 3-year 
experimental basis. We have commissioned a study of a renewable 
portfolio standard which includes an element of energy 
efficiency. Just last month, it has been announced, in North 
Carolina, a very unique public/private partnership involving 
Duke Energy, Progress Energy, Environmental Defense, the Sierra 
Club, and a private foundation, exploring specifically how 
State government can lead the way on energy efficiency as the 
largest consumer of energy in the State and as a political 
leader.
    Finally, there is draft legislation pending in our 
legislature which would consider an REPS, which would be an RPS 
standard that would have a 2\1/2\ percent set-aside for energy 
efficiency, or megawatts, as part of the RPS, and it also 
addresses potential cost-recovery issues, including 
capitalization and the opportunity to earn on energy efficiency 
investments and possible incentives for those investments. 
Again, we are proud of the work that we are doing, and we 
appreciate, very much, the way that this legislation, which you 
have introduced, is supportive, principally, of those State 
efforts.
    We have filed testimony in which we articulate in greater 
detail our support for the legislation. I would raise three 
points that we believe need further clarification.
    First, section 205 in the energy efficiency standards, 
which have been the subject of some questions here this 
afternoon. We, as a group of State regulators, are of course 
concerned about any efforts at Federal pre-emption of State 
efforts which may go beyond what the Federal standards might 
be. We would prefer that any Federal standards be viewed as a 
floor, and that States be allowed to adopt more strict 
standards, if appropriate. We also would appreciate the 
opportunity to work with the committee to see--to assure that 
any existing State standards would be grandfathered if and when 
the DOE were to adopt its standards.
    Second, the section 503(d)(4), dealing with the sales of 
energy from Federal facilities--I believe Senator Thomas asked 
about that--I would say that we share the concern that I 
perceived in his question, and we believe that, at a minimum, 
it should be clarified that any such sales would have to be 
made consistent with, and subject to, State and Federal laws 
and regulations.
    Finally, section 603, having to do with integrated resource 
planning and rate design issues being added to the list of 
PURPA standards: again, as a representative of State 
organizations, I would clarify that these are matters purely of 
State jurisdiction and State law. We would prefer that they not 
be addressed at all. However, we do believe that the approach 
of including these standards in a PURPA-type State shall 
consider these issues in carrying our responsibilities is 
certainly the appropriate way to address these important 
issues.
    So, thank you, again, for the opportunity. I'll look 
forward to answering any questions.
    [The prepared statement of Mr. Kerr follows:]
 Prepared Statement of James Y. Kerr, II, Commissioner, North Carolina 
  Public Utilities Commission, and President, National Association of 
                    Regulatory Utility Commissioners
    Good Afternoon Mr. Chairman, Ranking Member Domenici, and Members 
of the Committee.
    My name is Jim Kerr. I am a Commissioner on the North Carolina 
Utilities Commission and I also serve as the President of the National 
Association of Regulatory Utility Commissioners (NARUC). I am 
testifying today on behalf of NARUC and I greatly appreciate the 
opportunity to appear before you today. The issues that you are 
addressing here are very important to NARUC's membership and my State, 
and I am grateful to have this opportunity to present our views on 
energy efficiency and, in particular, your legislation, Mr. Chairman.
    I would like to summarize my testimony and have my full statement 
entered into the record.
    NARUC is a quasi-governmental, non-profit organization founded in 
1889. Its membership includes the State public utility commissions 
serving all States and territories. Our mission is to serve the public 
interest by improving the quality and effectiveness of public utility 
regulation. Our members regulate the retail rates and services of 
electric, gas, water, and telephone utilities. Indeed, we are obligated 
by law to ensure that the establishment and maintenance of such utility 
services as may be required by the public convenience and necessity, 
and that such services are provided under rates--subject to terms and 
conditions of service--that are just, reasonable, and 
nondiscriminatory.
    I would like to discuss, in detail, efforts at the State level for 
implementing energy efficiency programs and, Mr. Chairman, the 
legislation you and Ranking Member Domenici introduced last week.
    Since 1973, energy use in the United States has increased by 33%, 
but we now use half as much energy per dollar of economic activity as 
we did then. To run today's economy without the energy efficiency 
improvements that have taken place since 1973, we would need 43 percent 
more energy supplies than we currently use--more energy than we 
currently generate from any single supply source like nuclear, gas, 
coal, or renewables.\1\
---------------------------------------------------------------------------
    \1\ Department of Energy, ``State and Regional Policies that 
Promote Energy Efficiency Programs Carried Out by Electric and Gas 
Utilities.''
---------------------------------------------------------------------------
    Clearly, energy efficiency is already playing a considerable role 
in meeting our country's growing demand, but the potential for an even 
greater savings remains.
    A 2000 study estimated that energy efficiency policies and programs 
could cost-effectively reduce U.S. demand for electricity by 24 percent 
and demand for natural gas by 12 percent by 2020.\2\ This is about half 
of the current projected increase in electricity and natural gas 
demand. In short, energy efficiency has grown in acceptance from being 
considered ``nice thing to do for society'' to becoming more recognized 
as a real resource; some even call it ``the fifth fuel.''
---------------------------------------------------------------------------
    \2\ Interlaboratory Working Group, ``Scenarios for a Clean Energy 
Future,'' Oak Ridge National Laboratory, Lawrence Berkeley National 
Laboratory.
---------------------------------------------------------------------------
    For the record, NARUC has consistently supported and encouraged 
State energy efficiency policies and it is our belief that energy 
efficiency programs can, in some instances, be the quickest, cheapest, 
and cleanest energy resource. If broadly adopted, energy efficiency 
programs can have many far-reaching societal benefits, including:

   Economic.--Reduced energy intensity provides competitive 
        advantages and frees financial resources for investment in non-
        energy goods and services;
   Environmental.--Saving energy reduces air pollution, the 
        degradation of natural resources, risks to public health, and 
        the threat of global climate change;
   Infrastructure.--Lower demand lessens constraints and 
        congestion on the electric transmission and distribution 
        systems; and,
   Security.--Energy efficiency can lessen our vulnerability to 
        events that cut off energy supplies.

    NARUC members have seen the benefits and are responding by 
exploring aggressive investments in energy efficiency as a resource. 
NARUC itself passed a resolution in 2005 encouraging States and other 
policymakers to review their existing rate designs to determine if they 
encourage energy conservation and energy efficiency so as to moderate 
natural gas demand and reduce upward pressure on natural gas prices.
    Additionally, NARUC was heavily involved in the drafting of the 
Energy Department's recent report on State and Regional Policies that 
Promote Energy Efficiency Programs Carried Out by Electric and Gas 
Utilities. The report, mandated by Section 139 of the Energy Policy Act 
of 2005, offers a list of recommendations for States, industry groups, 
and other stakeholders to consider when implementing energy efficiency 
programs. The report also summarized State energy efficiency 
activities.
    We have also been active in our efforts to promote Advanced 
Metering Infrastructure (AMI) throughout the country. AMI is a system 
that records customer consumption of electricity on an hourly or even 
more recurring basis and provides dynamic pricing that can afford 
consumers the opportunity to better manage their energy intake. The 
NARUC Board of Directors at our Winter Committee Meetings in February 
approved a resolution that offered recommendations for States that are 
facilitating cost-effective AMI technologies.
    My home State of North Carolina is actively engaged in pursuing 
energy efficiency programs. For instance, my fellow commissioner Jimmy 
Ervin and I participated in the recent North Carolina Summit on Energy 
Efficiency. The Summit served as a venue for North Carolina 
policymakers and stakeholders to share information and best practices 
for implementing energy efficiency programs, and also discuss 
initiatives for raising awareness and developing a broad coalition of 
support for related initiatives.
    Also, NARUC and many member States, along with federal regulators 
and a sizeable number of industry representatives, are participating in 
the National Action Plan for Energy Efficiency. This Action Plan is a 
multi-year, multi-sector effort aimed at creating a national commitment 
to energy efficiency. I will go into more details about the Action Plan 
later in my testimony.
    Coinciding with the National Action Plan's activities is an effort 
by the North American Energy Standards Board to establish a multi-year 
process that aims to measure savings from energy efficiency programs. 
NAESB held a meeting earlier this month on this issue and the National 
Action Plan will help facilitate this project.
    Before I go into more detail about the National Action Plan, I 
would like to discuss the important legislation you, Mr. Chairman, and 
Ranking Member Domenici introduced last week. NARUC would like to 
commend you both for your leadership in moving energy efficiency policy 
to the forefront of the nation's energy policy debate by introducing 
the bipartisan legislation, S. 1115, and holding this hearing.
    We believe that this bill is a generally positive step and there 
are many provisions in S. 1115 that NARUC can support. I will limit my 
comments today to address those provisions we believe are most 
pertinent to our member commissions.
          title ii--expediting new energy efficiency standards
    NARUC is supportive of the proposals and policies included in Title 
II, to the extent that they are intended to permit State action and 
standards that go beyond those contemplated in this Title. Cost-
effective and technically feasible energy efficiency standards are an 
important tool for achieving energy savings, improving environmental 
quality, and reducing energy bills and prices for consumers. NARUC has 
always supported meaningful energy efficiency standards at the national 
level and, during the debate over the Energy Policy Act of 2005, we 
urged Congress to enact cost-effective standards that would result in 
the greatest energy savings. Additionally, NARUC has supported the 
upgrading of National Efficiency Standards while encouraging and 
supporting State efforts on standards to maximize energy efficiency.
    While NARUC believes that appliance standards are indeed a highly 
effective way to improve end-user efficiency, we have also supported 
improvements in system efficiency for delivering electricity through 
transmission and distribution networks. By ensuring that fewer losses 
occur in the transmission and distribution of electricity to 
appliances, we have the opportunity to ensure that electricity is 
delivered and used in the most efficient manner possible. In fact, 
NARUC this past February passed a resolution supporting new 
distribution transformer efficiency standards that are being developed 
in concert with the electric power industry and the energy efficiency 
advocacy community.
               title iv--setting energy efficiency goals
    NARUC is highly supportive of the provisions found in sections 402 
and 403 of Title IV, as these goals coincide with NARUC's efforts as 
part of the above-referenced National Action Plan on Energy Efficiency. 
Again, I will go into more detail about this project later in my 
testimony.
    title v--promoting federal leadership in energy efficiency and 
                            renewable energy
    While NARUC agrees that the federal government must ``get its own 
house in order'' to play a leading and productive role in this 
endeavor, we do have a question regarding language in section 
503(d)(4)(C). Is it the intent of this language to permit federal 
government facilities, beyond the Power Marketing Administrations, to 
sell electricity in both wholesale and retail markets, without regard 
to federal and State regulations? If so, we would be rather troubled by 
this provision and we would suggest that the language be clarified by 
noting that the government sales would be subject to all applicable 
State and federal law and regulation.
  title vi--assisting state and local governments in energy efficiency
    NARUC strongly supports the provisions found in sections 601 and 
602, and has indeed benefited, as have many of our members, from the 
programs included in these sections.
    The U.S. Department of Energy's Weatherization Assistance Program 
has served more than 5.7 million low-income families and is one of the 
most effective energy efficiency programs in the United States. Low-
income families spend 16 percent of their annual income on energy, 
compared with 5 percent for other households, and the typical 
Weatherization recipient is a single mother with two children earning 
$8,000 per year. According to DOE, families who have their homes 
weatherized will generally save between $300 and $400 each year on 
energy bills allowing them a better opportunity to pay their future 
energy bills. Families who do not receive Weatherization services must 
make hard choices between heating and cooling their homes and other 
necessities, such as food, clothing and medicine.
    Additionally, NARUC has benefited from direct support from the 
State Energy Programs. In 2004, for example, we received funding and 
technical assistance from the DOE to develop Model Interconnection 
Standards & Procedures. These standards provide a clear and consistent 
process for interconnecting new generating units to the transmission 
grid. Moreover, NARUC members have benefited from interaction with 
State Energy Offices and Air Quality Agencies through projects 
undertaken between 2000 and 2003 that linked these key State government 
sectors on energy and air quality issues.
    NARUC is generally supportive of section 603 and technical 
assistance provided in section 604, though we note that the decoupling 
issue is retail by nature and is clearly under State jurisdiction. We 
recognize that the best approach toward promoting energy efficiency 
programs for any utility, State, or region may likely depend on local 
issues, preferences, and conditions. By placing decoupling language 
under the Public Utility Regulatory Policies Act of 1978, a State may 
move forward if it is in their best interest and the technical 
assistance will help where many commissions are currently overburdened 
with implementation of the Energy Policy Act of 2005.
    NARUC has begun exploring rate designs that align utility returns 
with the delivery of energy efficiency. In August 2006 NARUC began an 
ongoing dialogue with State agencies regarding design types and lessons 
learned from different approaches. NARUC is developing additional 
research on aligning rate designs with demand-side resources, and this 
summer will release a brief for Consumer Advocates on Decoupling, and 
participate in developing the National Action Plan Leadership Group's 
guidebook on the topic.
    I would now like to take this opportunity to discuss the National 
Action Plan for Energy Efficiency in some detail. As stated above, the 
National Action Plan aims to create a sustainable, aggressive national 
commitment to energy efficiency from all sectors, including gas and 
electric utilities, State and federal utility regulators, and partner 
organizations. We believe that this commitment could save Americans 
billions of dollars on energy bills over the next 10 to 15 years, 
contribute to energy security, and improve our environment.
    The Action Plan was developed by more than 50 leading organizations 
representing a very diverse set of perspectives. It is a multi-year 
collaborative and includes participation from the Department of Energy, 
the Environmental Protection Agency, State regulators, industry, and 
consumer groups. NARUC is one of two founding partners and our First 
Vice President, Commissioner Marsha Smith of Idaho, is the State Co-
Chair of the Action Plan Leadership Group. Jim Rogers of Duke Energy is 
the Industry Co-Chair. These organizations have pledged to take 
specific steps to make the Action Plan a reality.
    The Action Plan itself was released in July 2006 during the annual 
NARUC Summer Meetings. This document made five recommendations to 
energy policymakers:

          1. Recognize energy efficiency as high-priority resource;
          2. Make strong, long-term commitments to implement cost-
        effective energy efficiency as a resource;
          3. Broadly communicate benefits of, and opportunities for, 
        energy efficiency;
          4. Promote sufficient, timely, stable program funding where 
        cost-effective; and,
          5. Review, adopt policies to align utility incentives with 
        delivery of energy efficiency, and modify rate practices to 
        promote energy efficiency investments.

    NARUC members have made commitments to implementing the Action 
Plan's recommendations. For example, the State of Arkansas issued 
``Resource Planning Guidelines'' and ordered their jurisdictional 
utilities to begin implementing cost-effective energy efficiency 
programs. California, meanwhile, issued a Memorandum of Understanding 
demonstrating the State's commitment to develop, promote, and implement 
the Action Plan's recommendations. Nearly all of the State's energy 
stakeholders signed the MOU, including the Governor, the State's PUC, 
the California Energy Commission, and most of the State's investor-
owned and publicly-owned utilities. Also, Iowa's Utilities Board 
specifically endorsed the Action Plan's recommendations as well, as did 
State regulators in Connecticut, Florida, Hawaii, Kansas, Minnesota, 
New England, New Jersey, New York, Ohio, Oregon, Utah, Vermont, 
Washington, and the Southeast.
    This year, the National Action Plan Leadership Group is taking a 
grass-roots approach, working with regulators across the country to 
implement the recommendations. Currently, the Leadership Group is 
working on a number of projects, including communications plans, 
promotional strategies, regulatory solutions to reduce impediments, and 
ways to encourage utility participation. Also, the participants are 
developing guidances on how energy efficiency opportunities can be 
captured through energy resource planning and procurement processes, 
changes in building codes, as well as in rates, utility incentives, 
planning, and cost-benefit studies. In addition, the participants are 
also developing Evaluation Guides to account for energy and cost 
savings from energy efficiency.
    For the next year and beyond, the National Action Plan participants 
will study methods to align utility incentives with the best levels of 
cost-effective energy efficiency programs and will develop a set of 
metrics that can demonstrate the actual success of their commitments to 
energy efficiency.
    As you can see, Mr. Chairman and Ranking Member Domenici, State 
regulators are already embracing energy efficiency as a critical 
resource to meet growing demand. But we have only started to tap into 
the great potential energy efficiency holds and this hearing and 
legislation are both very timely and appropriate. We very much 
appreciate your attention and thank you for the opportunity to share 
our views on S. 1115. The NARUC membership is committed to working with 
you and this Committee as this legislation moves forward.
                                 ______
                                 
                              Attachments
resolution to remove regulatory barriers to the broad implementation of 
                    advanced metering infrastructure
    WHEREAS, The Energy Policy Act of 2005 amended the State ratemaking 
provisions of the Public Utilities Regulatory Policies Act of 1978 
(PURPA) to require every State regulatory commission to consider and 
determine whether to adopt a new standard with regard to advanced 
metering infrastructure (AMI); and
    WHEREAS, Advanced metering, as defined by Federal Energy Regulatory 
Commission (FERC), refers to a metering system that records customer 
consumption hourly or more frequently and that provides daily or more 
frequent transmittal of measurements over a communication network to a 
central collection point; and
    WHEREAS, The implementation of dynamic pricing, which is 
facilitated by AMI, can afford consumers the opportunity to better 
manage their energy consumption and electricity costs through the 
practice of demand response strategies; and
    WHEREAS, Effective price-responsive demand requires not only 
deployment of AMI to a material portion of a utility's load, but also 
implementation of dynamic price structures that reveal to consumers the 
value of controlling their consumption at specific times; and
    WHEREAS, AMI deployment offers numerous potential benefits to 
consumers, both participants and non-participants, including:

   greater customer control over consumption and electric 
        bills;
   improved metering accuracy and customer service;
   potential for reduced prices during peak periods for all 
        consumers;
   reduced price volatility;
   reduced outage duration; and,
   expedited service initiation and restoration; and

    WHEREAS, The use of AMI may afford significant utility operational 
cost savings and other benefits, including:

   automation of meter reading;
   outage detection;
   remote connection/disconnection;
   reduced energy theft;
   improved outage restoration;
   improved load research;
   more optimal transformer sizing;
   reduced demand during times of system stress;
   decreased T&D system congestion; and,
   reduced reliance on inefficient peaking generators; and

    WHEREAS, Sound AMI planning and deployment requires the 
identification and consideration of tangible and intangible costs and 
benefits to a utility system and its customers; and
    WHEREAS, Cost-effective AMI may be a critical component of the 
intelligent grid of the future that will provide many benefits to 
utilities and consumers; and
    WHEREAS, It is important that AMI allow the free and unimpeded flow 
and exchange of data and communications to empower the greatest range 
of technology and customer options to be deployed; and
    WHEREAS, The deployment of cost-effective AMI technology may 
require the removal and disposition of existing meters that are not 
fully depreciated and may require replacement of, or significant 
modification to, existing meter reading, communications, and customer 
billing and information infrastructure; and
    WHEREAS, Regulated utilities may be discouraged from pursuing 
demand response opportunities by the prospect of diminished sales and 
revenues; now, therefore, be it
    RESOLVED, That the Board of Directors of the National Association 
of Regulatory Utility Commissioners, convened at its February 2007 
Winter Meetings in Washington, D.C., recommends that commissions 
seeking to facilitate deployment of cost-effective AMI technologies 
consider the following regulatory options:

   pursue an AMI business case analysis, in conjunction with 
        each regulated utility, in order to identify an optimal, cost-
        effective strategy for deployment of AMI that takes into 
        account both tangible and intangible benefits;
   adopt ratemaking policies that provide utilities with 
        appropriate incentives for reliance upon demand-side resources;
   provide for timely cost recovery of prudently incurred AMI 
        expenditures, including accelerated recovery of investment in 
        existing metering infrastructure, in order to provide cash flow 
        to help finance new AMI deployment; and,
   provide depreciation lives for AMI that take into account 
        the speed and nature of change in metering technology; and be 
        it further

    RESOLVED, That the Federal tax code with regard to depreciable 
lives for AMI investments should be amended to reflect the speed and 
nature of change in metering technology; and be it further
    RESOLVED, That NARUC supports movement toward an appropriate level 
of open architecture and interoperability of AMI to enable cost-
effective investments, avoid obsolescence, and increase innovations in 
technology products.

 resolution on distribution transformers energy conservation standards
    WHEREAS, The investor-owned and public power utilities represented 
by the Edison Electric Institute (EEI) and the American Public Power 
Association (APPA), and the energy efficiency advocacy community, 
represented by Natural Resources Defense Council, the American Council 
for an Energy-Efficient Economy, the Alliance to Save Energy, Northeast 
Energy Efficiency Partnerships and the Appliance Standards Awareness 
Project have agreed to jointly recommend new national standards for 
distribution transformers; and
    WHEREAS, Cost-effective and technically feasible energy efficiency 
standards are an important tool for achieving energy savings, improving 
environmental quality, and reducing energy bills and prices for 
consumers; and
    WHEREAS, The recommended joint standards will ensure the highest 
technologically achievable energy savings that are economically 
justified; now, therefore, be it
    RESOLVED, That the Board of Directors of the National Association 
of Regulatory Utility Commissioners, convened at its February 2007 
Winter Meetings in Washington, D.C., endorses the tiered approach to 
the efficiency standards agreed to by the Edison Electric Institute 
(EEI) and the American Public Power Association (APPA), and the energy 
efficiency advocacy community, represented by Natural Resources Defense 
Council, the American Council for an Energy-Efficient Economy, the 
Alliance to Save Energy, Northeast Energy Efficiency Partnerships and 
the Appliance Standards Awareness Project.
       resolution on energy efficiency and innovative rate design
    WHEREAS, The National Association of Regulatory Utility 
Commissioners (NARUC), at its July 2003 Summer Meetings, adopted a 
Resolution on State Commission Responses to the Natural Gas Supply 
Situation that encouraged State and Federal regulatory commissions to 
review the incentives for existing gas and electric utility programs 
designed to promote and aggressively implement cost-effective 
conservation, energy efficiency, weatherization, and demand response; 
and
    WHEREAS, The NARUC at its November 2003 annual convention, adopted 
a Resolution Adopting Natural Gas Information ``Toolkit,'' which 
encouraged the NARUC Natural Gas Task Force to review the findings and 
recommendations of the September 23, 2003 report by the National 
Petroleum Council on Balancing Natural Gas Policy--Fueling the Demands 
of a Growing Economy and its recommendations for improving and 
promoting energy efficiency and conservation initiatives; and
    WHEREAS, The NARUC at its 2004 Summer Meetings, adopted a 
Resolution on Gas and Electric Energy Efficiency encouraging State 
commissions and other policy makers to support expansion of energy 
efficiency programs, including consumer education, weatherization, and 
energy efficiency and to address regulatory incentives to inefficient 
use of gas and electricity; and
    WHEREAS, These NARUC initiatives were prompted by the substantial 
increases in the price of natural gas in wholesale markets during the 
2000-2003 period when compared to the more moderate prices that 
prevailed throughout the 1990s; and
    WHEREAS, The wholesale natural gas prices of the last five years 
largely reflect the fact that the demand by consumers for natural gas 
has been growing steadily while, for a variety of reasons, the supply 
of natural gas has had difficulty keeping pace, leading to a situation 
where natural gas demand and supply are narrowly in balance and where 
even modest increases in demand produce sharp increases in price; and
    WHEREAS, Hurricanes Katrina and Rita, in addition to damaging the 
States of Alabama, Mississippi, Louisiana, and Texas, significantly 
damaged the nation's onshore and offshore energy infrastructure, 
resulting in significant interruption in the production and delivery of 
both oil and natural gas in the Gulf Coast area; and
    WHEREAS, The confluence of a tight balance of natural gas supply 
and demand and these natural disasters has driven natural gas prices in 
wholesale markets to unprecedented levels; and
    WHEREAS, The present high and unprecedented level of natural gas 
prices are imposing significant burdens on the nation's natural gas 
consumers, whether residential, commercial, or industrial, and will 
likely be injurious to the nation's economy as a whole; and
    WHEREAS, The recently enacted Energy Policy Act of 2005 contains a 
number of provisions aimed at encouraging further natural gas 
production in order to bring down prices for consumers, but these 
actions, together with any further action on energy issues by Congress, 
are unlikely to bring forth additional supplies of natural gas in the 
short term; and
    WHEREAS, Energy conservation and energy efficiency are, in the 
short term, the actions most likely to reduce upward pressure on 
natural gas prices and to assist in bringing energy prices down, to the 
benefit of all natural gas consumers; and
    WHEREAS, Innovative rate designs including ``energy efficient 
tariffs'' and ``decoupling tariffs'' (such as those employed by 
Northwest Natural Gas in Oregon, Baltimore Gas & Electric and 
Washington Gas in Maryland, Southwest Gas in California, and Piedmont 
Natural Gas in North Carolina), ``fixed-variable'' rates (such as that 
employed by Northern States Power in North Dakota, and Atlanta Gas 
Light in Georgia), other options (such as that approved in Oklahoma for 
Oklahoma Natural Gas), and other innovative proposals and programs may 
assist, especially in the short term, in promoting energy efficiency 
and energy conservation and slowing the rate of demand growth of 
natural gas; and
    WHEREAS, Current forms of rate design may tend to create a 
misalignment between the interests of natural gas utilities and their 
customers; now therefore be it
    RESOLVED, That the National Association of Regulatory Utility 
Commissioners (NARUC), convened in its November 2005 Annual Convention 
in Indian Wells, California, encourages State commissions and other 
policy makers to review the rate designs they have previously approved 
to determine whether they should be reconsidered in order to implement 
innovative rate designs that will encourage energy conservation and 
energy efficiency that will assist in moderating natural gas demand and 
reducing upward pressure on natural gas prices; and be it further
    RESOLVED, That NARUC recognizes that the best approach toward 
promoting energy efficiency programs for any utility, State, or region 
may likely depend on local issues, preferences, and conditions.

    The Chairman. Thank you very much.
    Ms. Collier, please go right ahead.

 STATEMENT OF ALICIA COLLIER, DIRECTOR, GLOBAL ENERGY POLICY, 
   HONEYWELL BUILDING SOLUTIONS, HONEYWELL INTERNATIONAL, ON 
   BEHALF OF FEDERAL PERFORMANCE CONTRACTING COALITION (FPCC)

    Ms. Collier. Good afternoon, and thank you, Mr. Chairman 
and the committee, for this opportunity to testify today.
    My name is Alicia Collier, and I am the director of global 
energy policy for Honeywell's Energy Services Group. But I'm 
here on behalf of the Federal Performance Contracting 
Coalition, and we're a group of energy services companies. 
We're responsible for over 90 percent of the energy savings 
performance contracts that are being performed on Federal 
installations today.
    I'd like to mention each of our members. They include: 
Ameresco, Chevron Energy Solutions, Constellation Energy 
Projects and Services Group, Honeywell, Johnson Controls, 
Noresco, and Siemens Building Technologies.
    Now, the FPCC is extremely supportive of S. 1115 and the 
Federal energy efficiency provisions contained. We're 
especially encouraged by the energy savings performance 
contracting provisions that will help to advance more of these 
sorts of projects within Federal installations, and, as a 
result, will reduce the energy used on these installations and 
increase the amount of renewables that are being used on 
Federal sites.
    I'd like to focus the comments today on section 503, which 
specifically addresses Energy Savings Performance Contracts. 
I'll highlight three of the provisions contained within that 
section.
    The first one has to do with financing flexibility. What 
this section allows agencies to do is to combine appropriated 
dollars with the financing dollars under ESPCs. What this is 
going to do is to add flexibility to these contracts, and it 
will make it possible for agencies to meet the more aggressive 
energy goals that have been put before them. Specifically, it 
will allow for the inclusion of renewables, which is important 
to all of us.
    Second, we strongly support the idea of eliminating the 
sunset provision for ESPCs. This was originally set up as a 
pilot project, but, for over 10 years, it's been successfully 
utilized by Federal agencies, and it's become, really, the 
primary way that Federal Government agencies are meeting their 
energy efficiency goals. So, it's time to make it a permanent 
program.
    Third, is a conversation that I'm sure we're going to have, 
and we've already had some discussion about, and that is making 
cogeneration and renewable energy allowable under the ESPC 
program. Now, there's an added ability that will allow agencies 
to sell excess power under this situation. What it does is, it 
gives the flexibility for an agency or an installation to build 
renewables on their site and not be concerned about 
fluctuations in consumption, in the ability to sell off that 
excess power. So, that's the way we perceive that particular 
section in that particular provision.
    In addition to supporting the provisions in S. 1115, the 
FPCC has some ideas of areas where we can see more, better, and 
faster ESPCs. We've been working with the Department of Energy 
in this area, and I'm very pleased with the support that 
they've provided, and their interest in increasing the pace, 
the size, and the scope of these contracts.
    We've got three specific suggestions for your 
consideration:
    The first is eliminating the congressional notification 
requirement for individual projects under ESPC. What we would 
suggest in lieu of that would be to require agencies to report, 
on an annual basis, the number of ESPC projects, their size, 
their scope, and their value.
    Second, we would suggest establishing a program fund that 
would help to pay specifically for renewables under ESPCs. 
This, again, would result in more renewables on Federal 
facilities.
    The third item would have to do with renewable energy 
credits. The EPAct encourages the agencies to not only build, 
but also use, renewables on their installations, and we think 
that there's some legislative language that could help clarify 
the sale of RECs and how that impacts the agency's ability to 
take renewable energy credits toward their goal.
    In conclusion, the FPCC is very pleased with the emphasis 
on Federal energy efficiency contained within S. 1115. We 
believe that the next step is to ensure that agencies start to 
use this contract vehicle as a matter of course. What we like 
to say in the FPCC is that we want the fear of inaction to be 
greater than the fear of action.
    We hope to have the continued support of this committee to 
urge oversight for the necessary committees to ensure the 
energy efficiency and the implementation of renewables becomes 
and remains a front-burner issue for the entire Federal 
Government.
    Thank you, again, for this opportunity.
    [The prepared statement of Ms. Collier follows:]
 Prepared Statement of Alicia Collier, Director, Global Energy Policy, 
 Honeywell Building Solutions, Honeywell Corporation, and on Behalf of 
               Federal Performance Contracting Coalition
    Thank you for the opportunity to testify today. My name is Alicia 
Collier and I am the Director of Global Energy Policy, National Energy 
Solutions for Honeywell. I appear before you today on behalf of the 
Federal Performance Contracting Coalition (FPCC), a group of Energy 
Service Companies that perform 90% of the Energy Savings Performance 
Contracting (ESPC) for the Federal government. Our members are 
Ameresco, Chevron Energy Solutions, Constellation Energy Projects and 
Services Group, Honeywell, Johnson Controls, Noresco and Siemens 
Building Technologies.
    We are very pleased with the Federal energy provisions of S. 1115 
and are encouraged to see the Committee's continued commitment to 
increasing the energy efficiency of our government's own facilities. We 
are particularly pleased with the Committee's interest in advancing 
Energy Savings Performance Contracts. We believe that this 
underutilized program is critical to meeting the Federal government's 
energy efficiency and renewable energy goals. Many of the provisions in 
S. 1115 will help generate more ESPC projects and increase energy 
efficiency in federal buildings.
    Most of the Committee members are likely aware of ESPCs because of 
the major effort in EPACT 2005 to reauthorize the program. The program 
works as follows: under ESPCs, the private sector installs new energy 
efficient equipment in federal facilities at no upfront cost to the 
government. (Examples of equipment include: new energy efficient 
lighting, building controls, boilers, chillers and renewable energy 
measures.)
    Federal agencies pay off this investment over time with the funds 
saved on utility costs. And, the private sector contractors guarantee 
the energy savings. By law, the government never pays more than they 
would have paid for utilities if it had not entered into the ESPC. In 
addition to generating energy, water and dollar savings, years of 
deferred maintenance at federal facilities are successfully addressed 
by the ESPC program.
    We are very supportive of the Federal energy efficiency provisions 
in S. 1115. In particular, we are encouraged by the following:

   Section 504, which increases energy efficiency goals by 
        requiring a 30 percent reduction in energy consumption at 
        Federal facilities by 2015, codifying the new executive order 
        13423. Federal agencies will have to increasingly rely on ESPCs 
        if they are expected to meet these new higher goals.
   Section 502, which increases the requirement for the 
        purchase of renewable energy for federal facilities. We 
        encourage you to clarify that the installation of on-site 
        generation of renewable energy should be the path forward, not 
        merely the purchase of green power off the grid. On site power 
        contributes to energy security and adds new renewable energy 
        assets to the national mix.
   Section 503 addresses ESPCs and is therefore of great 
        interest to us.

    --We support the retention of savings provisions that allow 
            facilities to retain 100% of the savings on energy 
            efficiency installation. Your elimination of old language 
            from the code will eliminate the confusion in the federal 
            government over the retention of savings.
    --Financing Flexibility, which would allow agencies to mix 
            appropriated and finance dollars under an ESPC, is critical 
            to meeting the new efficiency and renewable energy goals. 
            We support its inclusion because only with the ability to 
            mix appropriated and private sector dollars will we be able 
            to achieve the government's renewable energy goals. We 
            continue to be concerned about agency adoption of this 
            provision and encourage the Committee to reach out to other 
            authorizing committees to ensure adoption of financing 
            flexibility throughout all agencies of the Federal 
            government.
    --Eliminating the sunset provision is key. Thank you. This program 
            was initially set up as a pilot program. It has been used 
            very successfully by many of federal agencies for over 10 
            years. It has proven its value and should become a 
            permanent program because ESPC has become the means by 
            which most agencies are able to attain their efficiency 
            goals.
    --The addition of cogeneration and renewable energy as allowable 
            Energy Conservation Measures under ESPCs will be a great 
            benefit to the government. The ability to sell the power 
            generated is a significant new component that will allow 
            for more renewable energy generation on federal facilities, 
            thereby enhancing energy security, reducing energy use and 
            greenhouse gas emissions.
    --Clarification that water savings are included as allowable energy 
            conservation measures is also appreciated as this has been 
            a point of confusion among some energy managers.
    --We support the idea of ESPCs for non-building applications and 
            feel that the study and the ability to include secondary 
            savings is a good first step in identifying the potential 
            to reduce energy in mobile applications through ESPCs. 
            Secondary savings, such as worker productivity, could also 
            be included in traditional, buildings ESPCs and would 
            further encourage agencies to utilize the program by 
            showing greater benefit.

   Sec. 505 on Combined Heat and Power is helpful. CHP is an 
        energy conservation measure with a long term payback and 
        because of that, it lends itself well to being bundled with 
        shorter payback conservation measures to create a viable ESPC.
   Sec. 506 sets Federal Building Energy Efficiency Performance 
        Standards, which we support because they push all building 
        renovations to a higher energy efficiency level. Unless there 
        are significant new appropriated dollars made available, we 
        believe that ESPCs and other private financing will be the 
        major means through which agencies comply with this section.

    In addition to supporting these provisions of S. 1115, the FPCC 
feels that there are other areas where we can focus on ``more, better 
and faster'' when it comes to Energy Savings Performance Contracting. 
We have been working with the Department of Energy in this area and are 
very pleased with their willingness to focus agencies on increasing the 
pace, size and scope of these types of contracts.
    Below are some thoughts from the Federal Performance Contracting 
Coalition on potentially expanding S. 1115:

   We advocate eliminating the Congressional Notification 
        requirement for individual projects. This requirement was 
        originally included in legislation because the program was a 
        pilot project. Instead, we would like to see annual reporting 
        to Congress on the number, size, energy conservation measures, 
        and financial value on all ESPC contracts. Most of this 
        information is already gathered by the Department of Energy's 
        Federal Energy Management Program and would therefore not 
        require new reporting mandates for Federal agencies.
   We suggest language establishing a program fund to help 
        offset the high cost of renewable energy measures in 
        alternatively financed projects. Renewable Energy measures must 
        be bundled with traditional energy efficiency measures to 
        qualify under this proposed program. The effect would be to 
        leverage appropriated dollars for on-site renewable energy 
        projects, which could substantially increase the number of 
        projects. This program administered by the Department of 
        Energy's Office of Energy Efficiency and Renewable Energy. We 
        would be happy to provide further information on how such a 
        fund could be initiated and administered.
   EPACT set up the ability for Federal agencies to count 
        double their on-site renewable energy production towards their 
        renewable energy acquisition goals. In an effort to make 
        renewables cost effective, many Federal agencies that install 
        renewables on-site need to sell their commercial renewable 
        energy credits (RECs) to help pay for the project. There is 
        some confusion about whether selling those RECs means giving up 
        credit towards the Federal renewable energy goal. Legislative 
        language could clarify this ability.

    In conclusion, we are very pleased with the emphasis on Federal 
energy efficiency and the positive focus on ESPCs and other privately 
financed energy retrofit activities. Congress and the Administration 
have been working along side our industry to knock down barriers to 
doing ``more, better, and faster'' ESPCs. We believe that the next step 
is to ensure that the agency personnel start to adopt ESPCs as a matter 
of course. As the members of the FPCC like to say, we want to make the 
``fear of inaction greater than the fear of action''. It is our hope 
that the Members of this Committee will continue to play a leadership 
role in urging oversight from all relevant committees to ensure that 
energy efficiency and the implementation of renewable energy becomes 
and remains a front burner issue for all of the Federal government.
    Again, thank you for your continued support and the opportunity to 
testify today.

    The Chairman. Thank you very much.
    Mr. Schjerven, go right ahead.

   STATEMENT OF ROBERT E. SCHJERVEN, CHIEF EXECUTIVE OFFICER 
  EMERITUS, LENNOX INTERNATIONAL, INC., ON BEHALF OF THE GAS 
APPLIANCE MANUFACTURERS ASSOCIATION (GAMA), ARLINGTON, VIRGINIA

    Mr. Schjerven. Thank you, Mr. Chairman.
    Mr. Chairman, members of the committee, my name is Bob 
Schjerven. I'm the chief executive officer emeritus of Lennox 
International, Incorporated. I have over 40 years of experience 
in the heating, ventilation, air-conditioning, and 
refrigeration industry. I'm speaking today on behalf of the Gas 
Appliance Manufacturers Association, or GAMA.
    GAMA is the national trade association for manufacturers of 
residential and commercial furnaces, boilers, water heaters, 
other gas and electric appliances, and oil-fired, as well.
    GAMA's members employ more than 190,000 workers across the 
United States, and our members' facilities are found in 43 of 
the 50 States. Speaking for Lennox, alone, we have major 
manufacturing facilities in several States, including Arkansas, 
South Carolina, and Tennessee.
    GAMA has been a strong supporter of energy efficient 
products, and also an advocate for educating the public on the 
importance of energy conservation and energy-saving appliances. 
GAMA has worked with State and national organizations to 
develop and maintain Federal standards and a national 
certification and enforcement process for residential furnaces, 
boilers, water heaters, and space heaters.
    As a result of that broadbased support for national 
standards, our country has been able to conserve a significant 
amount of energy. Now, S. 1115 would amend the law to authorize 
the DOE to prescribe design requirements, consider new 
performance measurements, and open the door to regional 
standards, breaking the successful and productive agreement by 
environmentalists, the industry, and the States.
    Abandoning a single national uniform energy standard in 
favor of up to three regional standards is not a move with 
which our industry can agree. While the majority of my comments 
today will focus on section 202, GAMA has serious concerns with 
sections 201, 203, and 205, and I'll talk about these just 
briefly at the end of my comments.
    Today, enforcement of the national energy standards is 
directed at the manufacturing level. Through DOE-approved 
certification programs, we find that the standards are 
straightforward in order to enforce and to maintain. A product 
that's offered for sale in our country that does not meet the 
Federal standard is unlawful on its face, period. GAMA's 
certification programs assist the DOE by verifying products 
meet applicable Federal standards. If uniform national 
standards are replaced by regional standards, then standards 
enforcement would have to shift to the retail level of the 
distribution chain. It's difficult to imagine that the DOE 
would have the resources to enforce standards at this level, 
and GAMA certification programs would then be of little 
assistance to the DOE in enforcing regional standards, since 
neither GAMA nor the manufacturers would have control over 
where the products are installed.
    Faced with the potential for multiple regional standards, 
the challenges of certification and enforcement, we feel, would 
be enormous. Most of our products are sold to distributors, 
who, in turn, sell to contractors, who, in turn, sell to 
consumers.
    Once our products leave our warehouses, they are no longer 
within our exclusive control. A regional or local enforcement 
infrastructure would have to be created. What level of 
consistency could we expect if the enforcement effort were then 
forced to be mandated down to State building departments which 
receive no additional compensation or manpower for such an 
undertaking?
    The economic impact of regional standards to both the 
industry and to consumers, we feel, should be seriously 
considered. Regional standards will greatly increase the 
complexity of ongoing inventory control and distribution 
procedures for manufacturers and wholesalers, and, as stated 
previously, with no guarantee that a product certified for one 
region would not find its way being installed in another 
region.
    Unable to absorb these increased costs, manufacturers and 
wholesalers will be forced to increase the price of their 
products, ultimately hurting U.S. consumers and reducing the 
energy-savings opportunity.
    To that point, in the face of increased costs for new 
higher-efficiency equipment, it's becoming clear that many 
consumers will choose to simply repair older, much-less-
efficient appliances, rather than buy the new, more-costly, 
more efficient appliances. We can see evidence of this trend 
already under the new 13 SEER national standard for residential 
air-conditioning systems. The cooling segment of our industry 
has seen a significant decrease in the demand for new 13 SEER 
residential air-conditioning system coincide with exactly with, 
at exactly the same time, an increase in the demand for parts 
to repair the older, less-efficient systems that have been 
installed for a number of years. As a result, older equipment 
that uses more energy stays in use longer, rather than being 
replaced by newer, higher-efficiency equipment.
    Although, admittedly, it's still early in our tracking of 
this trend, what's happening on the cooling side of our 
business, we feel, will certainly occur for the heating side of 
our industry, as well.
    Now, GAMA has some additional concerns with S. 1115. 
section 201 authorizes the DOE to prescribe design requirements 
in addition to performance standards for the full range of 
NAECA-covered products. Section 203 directs the DOE to 
prescribe furnace fan efficiency standards. While we're 
confident that our engineering teams can certainly meet new 
efficiency performance standards, prescriptive requirements on 
design, or on specific components, we feel, would effectively 
limit their ingenuity and innovation in doing so, and at a time 
when meaningful technological innovation, we think, is a 
critical global competitive advantage.
    These proposed standards would also come at an added cost 
to industry and to consumers. We feel strongly that any 
additional authority that would be granted to the Department of 
Energy to prescribe product design requirements should be 
limited to the DOE's adoption of consensus standards such as 
the new boiler requirements that are contained in the bill.
    Finally, section 205 allows Federal pre-emption to lapse 
where the DOE has concluded that a national standard for 
subclass of a federally covered product is not justified or 
cannot be rationally determined. We feel this provision would 
unduly limit the DOE's discretion and undermine the entire 
Federal standard system. We strongly believe that the DOE 
should have exclusive authority to regulate products which are 
covered by Federal law.
    In conclusion, GAMA strongly supports the current system of 
uniform national standards administered by the DOE, and we urge 
Congress not to upset the delicate, balanced, and universally 
beneficial agreement, that was embodied in NAECA, by opening 
the door to regional standards.
    Mr. Chairman, thank you very much for the opportunity to 
present an executive summary of our views, and our full 
testimony, of course, is being read into the record.
    Thank you, sir.
    [The prepared statement of Mr. Schjerven follows:]
  Prepared Statement of Robert E. Schjerven, Chief Executive Officer 
  Emeritus, Lennox International Inc., on behalf of the Gas Appliance 
             Manufacturers Association, Arlington, Virginia
    Mr. Chairman, Members of the Committee, I'm Robert Schjerven, chief 
executive officer emeritus of Lennox International Inc. Through its 
subsidiaries, Lennox International is a leading provider of climate 
control solutions for the heating, air conditioning, and refrigeration 
markets around the world. I have over 40 years of experience in the 
heating, ventilation, air conditioning and refrigeration industry. My 
company and my industry have asked me to discuss with you the ``Energy 
Efficiency Promotion Act of 2007,'' S. 1115.
    I am speaking on behalf of the heating appliance industry 
represented by the Gas Appliance Manufacturers Association, or GAMA. 
GAMA is the national trade association for manufacturers of residential 
and commercial furnaces, boilers and water heaters, and other gas, oil-
fired and electric appliances. I had the pleasure of serving as the 
chairman of GAMA from 2000 to 2001. GAMA's members employ more than 
190,000 workers across the U.S., and our members' facilities are found 
in 43 of the 50 states. Speaking for Lennox alone, we have major 
manufacturing facilities in several states including Arkansas, South 
Carolina, and Tennessee.
    I'm confident you won't find an industry more supportive of energy 
efficiency than the U.S. heating appliance industry. GAMA, our 
industry's collective voice, has been a strong supporter of energy-
efficient products and an advocate for educating the public on the 
importance of energy conservation and energy-saving appliances. GAMA 
was one of the principal proponents of the National Appliance Energy 
Act of 1987 (NAECA). Over the following years to the present, GAMA has 
worked with state and national organizations to develop and maintain 
federal standards and a national certification and enforcement process 
for residential furnaces, boilers, water heaters and space heaters. As 
a result of that broad-based support for national standards, our 
country has been able to conserve a significant amount of energy. Now, 
S. 1115 would amend the law to authorize the DOE to prescribe design 
requirements, consider new performance measures, and open the door to 
regional standards--breaking a successful and productive agreement by 
environmentalists, the industry, and the states.
    It is our understanding S. 1115 was intended as a legislative 
package composed of consensus agreements on energy efficiency standards 
to demonstrate the concern for energy conservation we all support, and 
the progress that can be made when we all work together to arrive at an 
agreement that serves all our interests. I must emphasize in the 
strongest possible terms: S. 1115 is not a consensus agreement. Of 
particular concern is Section 202, allowing for regional energy 
efficiency standards. Abandoning a single national, uniform energy 
efficiency standard in favor of up to three regional standards is not a 
move with which our industry can agree. While the majority of my 
comments today will focus on Section 202, GAMA has also expressed 
serious concerns with Sections 201, 203 and 205, which I will address 
briefly near the end of my comments.
    Today, enforcement of the national standards is directed at the 
manufacturing level and, through DOE approved certification programs, 
standards are fairly simple to enforce. A product offered for sale in 
our country that does not meet the federal standard is unlawful on its 
face. GAMA's certification programs assist the DOE by verifying 
products meet applicable federal standards. If uniform national 
standards were replaced by regional standards, standards enforcement 
would have to shift to the retail level. It is difficult to imagine the 
DOE would have the resources to enforce standards at this level, and 
GAMA's certification programs would be of little assistance to the DOE 
in enforcing regional standards, since neither GAMA nor manufacturers 
have control over where products are installed.
    Faced with the potential for multiple regional standards, the 
challenges of certification and enforcement would be enormous. Most of 
our products are sold to distributors, who in turn sell to contractors, 
who in turn sell to consumers. Once our products leave our warehouses, 
they are no longer in our exclusive control--without any way for the 
manufacturer to guarantee a furnace certified for one region will not 
somehow find its way to another. A regional or local enforcement 
infrastructure would have to be created. Who would be the enforcers of 
multiple standards? How would those enforcers be established and 
maintained, and at what cost? What level of consistency could be 
expected if the enforcement effort were mandated down to State building 
departments, which receive no added compensation or manpower for such 
an undertaking?
    The economic impact to both the industry and consumers should also 
be seriously considered. Multiple standards will greatly increase the 
complexity of ongoing inventory control and distribution procedures for 
manufacturers and wholesalers--and, as stated previously, with no 
guarantee that a product certified for one region will not find its way 
to another. Unable to absorb these increased costs, manufacturers and 
wholesalers will be forced to increase the price of their products, 
ultimately hurting U.S. consumers and reducing the energy savings 
opportunity.
    In the face of increased costs for new higher-efficiency equipment, 
it is becoming clear many consumers will choose to simply repair older, 
less efficient appliances rather than buy new, more efficient ones. We 
can see evidence of this trend under the new 13 SEER national standard 
for residential air conditioning systems. As premium, higher efficiency 
products, 13 SEER systems mean a higher initial cost to the consumer. 
Despite heavy industry efforts to promote the long-term energy savings 
of installing a higher efficiency system, the cooling segment of our 
industry has seen a significant decrease in the demand for new 13 SEER 
residential air conditioning systems, coinciding with an increase in 
the demand for parts to repair older systems. As a result, older 
equipment that uses more energy stays in use longer, rather than being 
replaced by newer, higher-efficiency equipment. Although it is still 
early in our tracking of this trend, what is happening on the cooling 
side of our business will occur to the heating side of our industry as 
well.
    GAMA has additional concerns with S. 1115. Section 201 authorizes 
the DOE to prescribe design requirements, in addition to performance 
standards, for the full range of NAECA-covered products. Section 203 
directs the DOE to prescribe furnace fan efficiency standards. While we 
are confident our engineering teams can meet new efficiency performance 
standards, prescriptive requirements on design or on specific 
components would effectively limit their ingenuity and innovation in 
doing so--and at a time when meaningful technological innovation is a 
critical global competitive advantage. These proposed standards would 
also come at added cost to the industry and to consumers. We feel 
strongly that any additional authority granted to the DOE to prescribe 
product design requirements should be limited to DOE adoption of 
consensus standards, such as the new boiler requirements contained in 
the bill.
    Finally, Section 205 allows federal preemption to lapse where DOE 
has concluded that a national standard for a sub-class of a federally 
covered product is not justified or cannot be rationally determined. I 
have already addressed our concerns over allowing regional efficiency 
standards, and we have many similar concerns regarding Section 205. 
This provision would unduly limit the DOE's discretion and undermine 
the entire federal standards system. We strongly believe the DOE should 
have exclusive authority to regulate products covered by federal law.
    I state with a great deal of pride our industry's commitment to 
energy efficiency, and to a single certifiable and enforceable national 
energy efficiency standard, is second to none. Our industry works hard 
to produce products to suit every installation situation and consumer's 
desires for the lowest possible operating costs. Moreover, we feel it 
is of the highest importance to make energy efficiency more easily 
understandable and attractive to the public. We strongly support the 
current system of uniform national standards administered by DOE, and 
urge Congress not to upset the delicately balanced and universally 
beneficial agreement embodied in NAECA by opening the door to regional 
standards.
    Mr. Chairman, thank you for the opportunity to present the views of 
our industry on energy efficiency, specifically S. 1115. I'm pleased to 
answer any questions you or the Members might have, and of course the 
expertise of our industry through GAMA is at your service to help you 
arrive at the appropriate decisions in this important matter. Thank 
you.

    The Chairman. Thank you very much.
    Mr. Prindle.

   STATEMENT OF WILLIAM PRINDLE, ACTING EXECUTIVE DIRECTOR, 
    AMERICAN COUNCIL FOR AN ENERGY EFFICIENT ECONOMY (ACEEE)

    Mr. Prindle. Good afternoon, Mr. Chairman, members of the 
committee. Thank you for inviting me here today.
    My name is Bill Prindle, acting executive director of the 
American Council for an Energy Efficient Economy, more usually 
pronounced ``A-C-Triple E.'' We're a national nonprofit 
organization that focuses specifically on energy efficiency as 
a national energy policy priority.
    I also, parenthetically, want to thank Lennox for 
developing the Lennox pulse furnace in the 1980's. I've had one 
in my basement for 18 years, and it's going great guns. So, 
thank you for that.
    [Laughter.]
    Mr. Schjerven. You're welcome.
    Mr. Prindle. My theme for today is that energy efficiency 
is, more than ever, the first fuel in our race for clean and 
secure energy. Efficiency is the first fuel, not just because 
it's the fastest to deploy, or the least expensive, or the most 
abundant resource; it's the first fuel, because if we want to 
deploy clean and domestic energy sources, we first have to curb 
the growth in our energy demand, if we want to have a hope of 
bringing enough of those resources to market.
    Efficiency is already a major force in our economy. Some 
recent analysis we've done indicates that we, as Americans, 
currently spend somewhere in the neighborhood of $200 billion a 
year on energy-efficient products and services. That's a lot of 
money. In fact, it's more than the entire amount we spend in 
the same period of time on all our energy supply investments, 
everything from power plants to pipelines and refineries. So, 
the demand side of our energy economy is actually larger than 
the supply side; it's just invisible, because it's hidden 
inside of millions of appliances and building systems and 
vehicles and so on.
    Even though efficiency is a large economic force today, it 
could be a substantially larger contributor to our economy. We 
estimate as much as another $200 billion of annual spending 
could be generated with cost-effective investment. But, because 
we do have substantial market barriers that are large and 
persistent, and because we have regulatory obstacles, 
particularly in the utility sector, it's going to take 
substantial new policy commitments to mine this unique resource 
that we have in our country.
    We commend the committee for bringing forth the Energy 
Efficiency Promotion Act as among its first orders of business 
for this Congress. We support the Act's overall goals and 
provisions. Of course, we also have a few recommendations for 
some revisions and additions.
    Titles 1 and 2 focus primarily on lighting and appliance 
standards. This is one of our specialties. We support the 
several consensus-based standards for a number of products that 
are in the bill, continuing on the tradition that the committee 
started in the Energy Policy Act of 2005. Title 2 also contains 
some provisions we think are important for the committee to 
consider, to enhance the Department of Energy's ability to set 
the best possible energy efficiency standards for the country.
    Among these provisions are, in section 201, to allow more 
than one energy efficiency metric to be used in the setting of 
a standard. Experience has shown us that it makes sense to do 
this in many cases. In fact, one of the consensus agreements in 
the bill for residential boilers does include more than one 
energy efficiency metric. The Department of Energy told us they 
couldn't take it as written, because it didn't comport with 
their interpretation of the law, so it would help if the 
committee and Congress could clarify that.
    We do support regional standards for certain kinds of 
heating and cooling equipment. DOE has been unable, in its 
interpretation of the law, to do this in the past, even when it 
would like to do so. The recent notice of proposed rulemaking 
on furnaces contained essentially an open invitation from the 
Department for States to bring forward applications for waivers 
of pre-emption. DOE basically said, ``We understand that the 
cold States need high-efficiency furnaces, so please apply for 
waivers.'' However, we think that would be an undesirable 
situation. It would result in a patchwork of, ``This State has 
it, that State doesn't.'' We think it would be easier if 
Congress authorized DOE to predetermine which regions would get 
the higher-efficiency equipments. There is a precedent in 
Federal law for doing this. Currently, standards for 
manufactured housing are set nationally, but applied 
regionally, and enforced at the State and local level. So, we 
think this can be managed through labeling and other 
established methods.
    There's a provision to clarify the intent of the law 
regarding Federal pre-emption of State appliance efficiency 
standards. While I think we all agree that the preference is 
for one set of pre-emptive Federal standards, this section 
simply makes it crystal clear where the line can be drawn, so 
that States' rights in this matter are not infringed. The 
history of appliance standards in this country over the last 30 
years contained chapter after chapter in which State initiative 
was the key to getting Federal standards to occur. So, if the 
Federal Government wants appliance standards to continue to 
progress, it needs to leave States' rights intact.
    We also support section 206's requirement for labeling of 
consumer electronic equipment. In our analysis, this whole 
class of consumer electronics is the fastest-growing energy use 
in the average house. It doesn't take a genius to see that.
    One recent estimate is that if you connect the high-end TV 
and home entertainment system, you can easily generate the 
energy consumption of several refrigerators. So, this is an 
important issue.
    In title 4, the bill takes important steps to set national 
energy efficiency savings goals. We support those goals, 
particularly within the oil savings requirements in section 
401. We would recommend that fuel economy be specifically 
called out. In our estimate, it's quite possible, and cost-
effective, to save 12 billion gallons of fuel through fuel 
economy in 2017, 45 billion gallons of gasoline in 2025 through 
fuel economy, and 68 billion gallons in 2030.
    We also recommend, in the general context of title 4, that 
an energy efficiency resource standard be set for the United 
States. I know this issue has come up before this committee 
before. We simply reiterate this is an important issue if we 
want to make a dent in the many problems we face in the 
electricity sector. Several States have taken steps in this 
direction. But we need a national standard if we're going to 
really ramp up progress in this essential area.
    One way we would invite the committee to look at this is 
that an efficiency resource standard for the country can be 
Congress's best downpayment on carbon emissions in the utility 
sector, because a carbon cap-and-trade system, which may be 
under the purview of another committee, is not, by itself, 
going to generate energy efficiency investment.
    The appliance standards in this bill could save 50 billion 
kilowatt hours. A national efficiency resource standard could 
save more than 400 billion kilowatt hours, more than eight 
times what the standards are doing. So, it's important to look 
at.
    Finally, I just wanted to touch on the Federal leadership 
requirements in title 5. We support, in particular, section 
505, the analysis of mine heat and power sites, and we would 
urge Congress to start with the capital power plant, which 
currently generates no electricity. If the capital power plant 
were simply converted to a combined heat and power system, the 
net energy efficiency of Congress's energy supply could be more 
than doubled through that one project. So, we'd strongly urge 
you to take a look at that.
    I'll stop now, and turn the mike over to my colleague to 
the left.
    [The prepared statement of Mr. Prindle follows:]
   Prepared Statement of William Prindle, Acting Executive Director, 
        American Council for an Energy-Efficient Economy (ACEEE)
                                summary
Introduction
    Energy efficiency is the ``first fuel'' in America's race for a 
clean and secure energy future. Energy efficiency has saved consumers 
and businesses trillions of dollars in the past three decades, 
including more than half a trillion dollars in 2006 alone. These 
efforts should now be accelerated in order to:

   Save American consumers and businesses even more money;
   Change the energy supply and demand balance to reduce energy 
        prices;
   Decrease America's addiction to oil, particularly oil 
        imports;
   Strengthen our economy (since energy savings generate 
        American jobs and capital investment); and
   Reduce the risks of global warming by moderating carbon 
        dioxide emissions growth.

The Urgency and the Opportunity for Efficiency Policy
    America's greatest energy challenges--energy security and global 
warming--are converging to force historic changes in U.S. energy and 
environmental policy. Our growing dependence on imported oil and 
natural gas, combined with high and volatile fuel prices threaten both 
our economic health and our geopolitical strength. The recent IPCC 
Fourth Assessment reports on the growing evidence of climate change, 
coupled with the Supreme Court's recent decision that carbon dioxide is 
a pollutant regulated under the Clean Air Act, increase the urgency and 
clarify the legal basis for national policy action to reduce greenhouse 
gas emissions.
    Energy efficiency is the one resource that addresses both the 
energy security and climate challenges, while enhancing economic 
prosperity. Domestic energy supplies with low carbon content will take 
time to develop; but we can start now to accelerate efficiency 
investment, which will enable low-carbon domestic supplies to begin 
reducing energy imports and carbon emissions. If we do not use 
efficiency as the ``first fuel'' in the race for clean and secure 
energy, clean energy supply technologies may not be able to be deployed 
fast enough to meet runaway energy demand.
    ACEEE research shows that new energy efficiency policy initiatives 
could make a big difference on the energy security and global warming 
fronts. For example:

   A 2005 ACEEE analysis found that reducing natural gas use by 
        about 4% over five years could reduce natural gas prices by 
        over 20%. Reducing demand for oil and for refined petroleum 
        products is also likely to reduce prices.
   A 2006 ACEEE study finds that we can reduce U.S. oil use by 
        more than 5 million barrels per day by 2020. That's equivalent 
        to almost doubling current U.S. oil production--which no 
        serious petroleum expert views as possible. Improvements to 
        passenger vehicles account for more than 3 million barrels per 
        day of savings, but more than 2 million barrels per day of 
        savings are available in the residential, commercial, and 
        industrial sectors, and in heavy vehicles and airplanes.
    Another 2006 ACEEE study found that the Regional Greenhouse 
        Gas Initiative (RGGI) cap and trade system for power-sector 
        carbon dioxide emissions in the northeastern U.S. can have a 
        positive impact on the regional economy provided increased 
        energy-efficiency policy commitments are a key part of 
        implementation efforts.
Past Energy Policy Acts, and the ``Efficiency Gaps'' They Left Unfilled
    The Energy Policy Act of 2005 contained some useful efficiency 
provisions, particularly new equipment efficiency standards and energy 
efficiency tax incentives. Other provisions authorized in the Act may 
help as well, but virtually all of these lack funding or other critical 
follow-up actions. Overall, ACEEE now estimates that the efficiency 
provisions in this law will reduce energy use in 2020 by 1.8 
quadrillion Btu, which is 1.5% of projected national energy use. More 
than 75% of the savings are from equipment efficiency standards and 
efficiency tax incentives. Experience with the Energy Policy Act of 
1992 shows a similar pattern--most of the savings came from a few 
provisions, and the majority of provisions proved to be more show than 
substance.
    However, federal energy policy over the past twenty years has 
failed to address two of the core energy challenges in our economy: 
surging electricity demand and rapidly rising motor fuel usage. These 
two sectors are key elements to solving our energy security and climate 
problems. It is urgent that Congress take strong, prompt, unambiguous 
action in these areas. Had Congress adopted the major electricity and 
oil efficiency provisions that were deliberated in the development of 
EPAct 2005, ACEEE estimates that 2020 savings would have been up to 
four times higher.
The Energy Efficiency Promotion Act
    ACEEE commends the Committee for leading the way in the 110th 
Congress with an energy efficiency bill. It reflects the principle that 
efficiency needs to be the first fuel in our energy resource policy 
process. Our comments focus on the following parts of the bill:

          1. Title I: Lighting Technologies.--We support the reflector 
        lamp standard contained in Section 102, which is based on a 
        consensus agreement among ACEEE, manufacturers, and other 
        stakeholders. The other provisions are also useful, including 
        Sense of the Senate resolution in Section 104 that we hope will 
        soon lead to a consensus agreement on a national standard to 
        phase out the least efficient general service incandescent 
        light bulbs, of which more than a billion are sold each year 
        and pave the way for an eventual transition to dramatically 
        more efficient light sources. We also recommend a new section 
        calling for a study and plan for reaching a higher tier of 
        energy performance for general service lighting that will meet 
        or exceed the performance of today's compact fluorescent 
        products with no compromise in light quality and continued 
        consumer choice in the market.
          2. Title II: Efficiency Standards.--This title contains 
        consensus-based standards for residential boilers, industrial 
        electric motors, and residential appliances, developed 
        collaboratively among ACEEE, manufacturers, and other 
        stakeholders. It also contains important provisions we support 
        which enhance the Department of Energy's flexibility and 
        capacity to create efficiency standards which best meet the 
        statutory goals of ``maximum energy savings which . . . [are] 
        technically feasible and economically justified.'' These 
        provisions authorize regional standards for heating and cooling 
        equipment, clarify the intent of the law regarding federal pre-
        emption of state appliance efficiency standards, allow for 
        flexible application of more than one efficiency metric for a 
        given product if justified, and allow DOE to expedite 
        rulemakings based on consensus agreements. We also support 
        Section 206's requirement for FTC Energy Guide labeling of 
        consumer electronic equipment. In our analysis, this class of 
        products is the fastest-growing energy use in American homes, 
        and American consumers need energy use information to make 
        informed choices on these products.
          3. Title III: Efficient Vehicles.--ACEEE supports the 
        priorities identified in this title for vehicle efficiency 
        technology research and deployment. We support the 
        authorization of loan guarantees to facilities for the 
        manufacture of parts for fuel-efficient vehicles, as well as 
        incentives for manufacturers and suppliers to retool to produce 
        advanced technology vehicles. We note however that the 
        discussion of advanced lean bum technology should clarify that 
        fuel economy for diesels is to be compared with that of 
        gasoline vehicles on an energy-equivalent basis. This issue of 
        gasoline-equivalence of diesel was not properly resolved in the 
        EPAct 2005 tax credits, despite Senate intent; it has caused 
        confusion in the implementation of the credits and should be 
        clarified through this bill.
            We also support the allocation of resources to developing 
        domestic capability in energy storage for vehicles and to 
        advancing electric drive technologies. However, it should be 
        noted that DOE has spent hundreds of millions of dollars in the 
        past on technologies of this kind without accelerating domestic 
        manufacturers' production of vehicles that use them. Within the 
        scope of this bill, we suggest that part of the funding 
        proposed in this section be used for a competition to produce a 
        plug-in hybrid meeting certain performance and cost criteria. 
        This would help to ensure some real-world progress on vehicle 
        efficiency would follow from the proposed technology investment 
        of over $400 million per year.
          4. Title IV: National Energy Efficiency Goals.--While this 
        title contains non-binding goals, we want to emphasize the need 
        to set binding national targets for energy efficiency. While 
        competitive markets will ultimately deliver the technologies 
        and practices to reach these goals, markets do best when they 
        have clear and simple targets to meet. We applaud the Committee 
        for setting an energy productivity goal for the nation; the 
        2.5% annual improvement represents nearly a 50% improvement in 
        current productivity growth, and would sharply reduce energy 
        demand growth overall.
            We especially support the energy savings targets in section 
        401, though we recommend that the fuel economy aspects of this 
        section be more specific. We note that the President's Twenty 
        in Ten proposal, on which the 2017 target for the section 
        appears to be based, relies very heavily on a loosely-defined 
        set of alternative fuels, and only moderately accelerates fuel 
        economy improvement. While the feasibility of deploying 
        alternative fuels infrastructure is unproven, fuel economy 
        technologies and costs are well known, and therefore a greater 
        emphasis on fuel economy provides a better balance of risk for 
        the nation. Accordingly, ACEEE recommends that fuel economy 
        targets be set so as to save at least 12 billion gallons of 
        fuel in 2017, 45 billion gallons in 2025, and 68 billion 
        gallons in 2030.
            We also recommend that a new section be created that sets 
        electricity savings targets for distribution utilities, such 
        that covered utilities would be required to save 10% of 
        electricity sales by 2020. Many states have set such Energy 
        Energy Efficiency Resource Standards (EERS), often in 
        coordination with renewable energy standards. We believe that 
        setting efficiency standards is essential to the success of any 
        renewable energy policy, because moderating demand growth is 
        needed to allow clean supply sources to make a discernible 
        difference in fossil fuel energy use.
          5. Title V: Federal Leadership.--ACEEE supports the 
        provisions of this title, especially the permanent 
        authorization of the Energy Savings Performance Contracting 
        (ESPC) program, and the assessment of Combined Heat and Power 
        opportunities at federal facilities. We recommend that Congress 
        place a special priority on installing CHP technology at the 
        Capitol powerplant, which could be accomplished through an ESPC 
        or similar vehicle.
          6. Title VI: State and Local Initiatives.--ACEEE supports the 
        provisions of this title, especially section 603's requirements 
        for utilities and states to include energy efficiency in 
        resource planning, and to reform ratemaking policies to make 
        energy efficiency a better business proposition for utilities. 
        We recommend that the bill also include Regional Transmission 
        Organizations (RTOs) among the entities covered by this 
        section. This section should also be linked ultimately to a 
        federal Energy Efficiency Resource Standard (EERS) that sets 
        quantitative targets for energy savings for utilities, with the 
        goal of saving 10% of electricity sales by 2020. Sections 139 
        and 140 of EPAct 2005 called for a study and pilot program for 
        EERS. The study is complete, and shows that these policies are 
        gaining acceptance and enjoying success in a number of states. 
        Given the increased urgency to address carbon emissions from 
        electric utilities, this should be a high priority for Congress 
        in 2007.

Energy Savings
    ACEEE estimates that the appliance and equipment efficiency 
standard provisions in this bill together can produce savings as 
follows:

   Electricity.--At least 50 billion kilowatt hours per year, 
        or enough to power roughly 4.8 million typical U.S. households.
   Natural gas.--170 million therms per year, or enough to heat 
        about a quarter million typical U.S. homes.
   Water.--At least 560 million gallons per day, or about 1.3% 
        of total daily potable water usage.
   Dollars.--More than $12 billion in net benefits for 
        consumers.

    We also estimate that significant additional savings would result 
from the sections that improve DOE authority to set better standards.
Conclusion
    ACEEE supports the Energy Efficiency Promotion Act as a major 
additional step on the road to a sustainable energy future. We 
recommend a number of ways that this bill can be augmented, within its 
existing provisions, by adding new provisions, and through additional 
legislation.
                              Introduction
    ACEEE is a nonprofit organization dedicated to increasing energy 
efficiency as a means of promoting both economic prosperity and 
environmental protection. We were founded in 1980 and have contributed 
in key ways to energy legislation adopted during the past 25 years, 
including the Energy Policy Acts of 2005 and 1992 and the National 
Appliance Energy Conservation Act of 1987. I have testified before the 
Committee several times and appreciate the opportunity to do so again.
    Energy efficiency improvements have contributed a great deal to our 
nation's economic growth and increased standard of living over the past 
30 years. Energy efficiency improvements since 1970 accounted for 
approximately 75 quadrillion Btus of saved energy in 2005, which is 
about three-quarters of U.S. energy use and three times as much as 
total energy supply growth over the same period. In this sense, energy 
efficiency can rightfully be called our country's largest energy 
resource. If the United States had not dramatically reduced its energy 
intensity over the past 30 years, consumers and businesses would have 
spent about $700 billion more on energy purchases in 2005.*
---------------------------------------------------------------------------
    * Graphic has been retained in Committee files.
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    Energy efficiency has also become a major force in the economy in 
terms of infrastructure investment. ACEEE ongoing research indicates 
that total energy supply infrastructure investment in the United States 
in 2005 was approximately $100 billion. Energy efficient technology 
spending, from high-efficiency lighting to hybrid cars, was in the 
range of $200 billion in the same period. This means that America 
spends many times more money on energy-using technology than on energy 
supply technology. However, this remarkable truth is masked, by the 
fact that efficiency is typically hidden inside our buildings, 
vehicles, and factories in millions of products, components, and 
systems. Yet collectively, these efficiency investments support a much 
larger fraction of the economy than do all the energy supply sectors 
combined.
    Even though the United States is much more energy-efficient today 
than it was 30 years ago, there is still enormous potential for 
additional cost-effective energy savings. Some newer energy efficiency 
technologies have barely begun to be adopted. Other efficiency measures 
could be developed and commercialized rapidly in coming years, with 
policy and program support. For example, in a study from 2000, the 
Department of Energy's national laboratories estimate that increasing 
energy efficiency throughout the economy could cut national energy use 
by 10 percent or more in 2010 and about 20 percent in 2020, with net 
economic benefits for consumers and businesses.\1\ Studies for many 
regions of the country have found similar if not even greater 
opportunities for cost-effective energy savings.\2\ A recent analysis 
by McKinsey Global Institute found that U.S. energy demand growth 
through 2030 could be fully met through cost-effective energy 
efficiency improvements. Our ongoing research indicates that current 
estimates of $200 billion in annual spending on efficient technology 
could be doubled to $400 billion, with strong public policies and 
increase private investment.
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    \1\ Interlaboratory Working Group, 2000, Scenarios for a Clean 
Energy Future. Washington, DC: Interlaboratory Working Group on Energy-
Efficient and Clean-Energy Technologies, U.S. Department of Energy, 
Office of Energy Efficiency and Renewable Energy.
    \2\ For a summary of many of these studies, see Nadel, Shipley and 
Elliott, 2004, The Technical, Economic and Achievable Potential for 
Energy-Efficiency in the U.S.--A Meta Analysis of Recent Studies. 
Washington, DC: American Council for an Energy-Efficient Economy.
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    Unfortunately, a variety of market barriers keep energy efficiency 
investment from being accelerated. These barriers fall in two main 
categories: (1) principal-agent or ``split incentive'' barriers, in 
which, for example, home builders must invest added capital in 
efficient homes, but receive none of the energy savings benefits; and 
(2) transaction costs, which stem from inability of average consumers 
or businesses to make ``economically optimum'' decisions in time-and-
information-limited real world conditions. A recent ACEEE study for the 
International Energy Agency found that, in the major residential and 
commercial end-use markets in five countries, half or more of the 
energy used is affected by these kinds of market barriers.\3\ This 
finding suggests that public policies, beyond pricing policies, are 
needed to overcome such barriers.
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    \3\ Prindle et al. 2007. Quantifying Market Barriers in the End Use 
of Energy. Draft report to the International Energy Agency. American 
Council for an Energy-Efficient Economy.
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    In addition, basic forces in the economy work against the tendency 
of higher energy prices to moderate energy demand. This principle of 
``price elasticity of demand'', while economically correct, is 
countered by ``income elasticity of demand'', under which rising 
incomes cause consumers to be less affected by rising prices. A large 
segment of our population continues to buy low-mileage, high priced 
vehicles with little concern for fuel costs. For less-affluent 
consumers, ``cross-elasticities'' come into play that cause them to 
keep using energy as an essential service, but to cut back on other 
goods and services to balance their household budgets. Economists have 
documented the slowing of retail sales among low- and moderate-income 
people in response to rising energy prices. Both the income elasticity 
and cross-elasticity effects suggest that energy prices alone won't 
balance our energy markets, and we need stronger energy policies if we 
want to stabilize energy markets without wrecking our economy.
    Recent developments in our energy markets indicate that the U.S. 
needs to accelerate efforts to implement energy efficiency 
improvements:

   Oil, gasoline, natural gas and coal prices have risen 
        substantially in recent years. For example, residential natural 
        gas prices in 2005 averaged $13.83 per thousand cubic feet, up 
        61% from the average price three years earlier (prices averaged 
        $8.57 per thousand cubic feet in 2002).\4\ Likewise retail 
        gasoline prices are up 87% relative to three years ago ($2.917 
        per gallon 6/19/06 versus $1.558 per gallon 6/16/03).\5\ Even 
        more dramatically, Powder River Basin coal has more than 
        doubled in price since three years ago (spot prices of $13.80 
        per short ton in May, 2006, up from about $6 per short ton in 
        May, 2003).\6\ Energy efficiency can reduce demand for these 
        fuels, reducing upward price pressure and also reducing fuel-
        price volatility, making it easier for businesses to plan their 
        investments. Prices are determined by the interaction of supply 
        and demand--if we seek to address supply and not demand, it's 
        like entering a boxing match with one hand tied behind our 
        back.
---------------------------------------------------------------------------
    \4\ Energy Information Administration, 2006, Natural Gas Navigator: 
U.S. Natural Gas Residential Price. http://tonto.eia.doe.gov/dnav/ng/
ngpri_sum_dcu_nus_m.htm. Visited June 20. Washington, DC: U.S. Dept. of 
Energy.
    \5\ Energy Information Administration, 2006, Petroleum Navigator: 
U.S. All Grades All Formulations Retail Gasoline Prices. http://
tonto.eia.doe.gov/dnav/pet/hist/mg_tt_usw.htm. Visited June 20. 
Washington, DC: U.S. Dept. of Energy.
    \6\ Energy Information Administration, 2006, Coal News and Markets, 
Week of May 5, 2006. http://www.eia.doe.gov/cneaf/coal/page/coalnews/
coalmar.html#spot. Washington, DC: U.S. Dept. of Energy.
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   A recent ACEEE analysis found that gas markets are so tight 
        that if we could reduce gas demand by as little as 4% over the 
        next five years, we could reduce wholesale natural gas prices 
        by more than 20%.\7\ This analysis was conducted by Energy and 
        Environmental Analysis, Inc. using their North American Gas 
        Market Model, the same analysis firm and computer model that 
        was employed by DOE and the National Petroleum Council for 
        their 2003 study on U.S. natural gas markets.\8\ These savings 
        would put over $100 billion back into the U.S. economy. 
        Moreover, this investment would help bring back U.S. 
        manufacturing jobs that have been lost to high gas prices and 
        also help relieve the crushing burden of natural gas costs 
        experienced by many households, including low-income 
        households. Importantly, much of the gas savings in this 
        analysis comes from electricity efficiency measures, because 
        much of the marginal electric load is met by natural-gas fired 
        power plants.
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    \7\ Elliott and Shipley, 2005, Impacts of Energy Efficiency and 
Renewable Energy on Natural Gas Markets: Updated and Expanded Analysis. 
http://www.aceee.org/pubs/e052full.pdf. Washington, DC: American 
Council for an Energy-Efficient Economy.
    \8\ National Petroleum Commission. 2003, Balancing Natural Gas 
Policy--Fueling the Demands of a Growing Economy: Volume I Summary of 
Findings and Recommendations. Washington, DC: U.S. Department of 
Energy.
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   The U.S. is growing increasingly dependent on imported oil, 
        with imports accounting for more than 60% of U.S. oil 
        consumption in 2005, of which more than 40% came from OPEC 
        countries.\9\ The U.S. Energy Information Administration 
        estimates that imports will account for 68% of U.S. oil use in 
        2020.\10\ While moderate amounts of new oil are available in 
        hard-to-reach areas of the U.S., much greater amounts of oil 
        are available by increasing the efficiency with which we use 
        oil. A January 2006 report by ACEEE found that the U.S. can 
        reduce oil use by as much as 5.3 million barrels per day in 
        2020 through improved efficiency, including more than 2 million 
        barrels per day in industry, buildings, heavy duty vehicles and 
        airplanes.\11\ In other words, there are substantial energy 
        savings outside of the highly contentious area of light-duty 
        vehicle fuel economy. These 5.3 million barrels per day of oil 
        savings are nearly as much as we presently import from OPEC 
        (OPEC imports were 5.5 million barrels per day in 2005).\12\ 
        Energy efficiency can slow the growth in oil use, allowing a 
        larger portion of our needs to be met from sources in the U.S. 
        and friendly countries.
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    \9\ Energy Information Administration, 2006, Monthly Energy Review 
May 2006. Washington, DC: U.S. Dept. of Energy.
    \10\ Energy Information Administration, 2006, Annual Energy 
Outlook. Washington, DC: U.S. Department of Energy.
    \11\ Elliott, Langer and Nadel, 2006, Reducing Oil Use Through 
Energy Efficiency: Opportunities Beyond Cars and Light Trucks. 
Washington, DC: American Council for an Energy-Efficient Economy.
    \12\ See note #9.
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   Economists have increasingly raised concerns that the U.S. 
        economy is slowing and that robust growth rates we have 
        experienced in recent years will not be sustained. Energy 
        efficiency investments can help spur additional economic 
        growth; they often have financial returns of 30% or more, 
        helping to reduce operating costs and improve profitability. In 
        addition, by reducing operating costs, efficiency investments 
        free up funds to spend on other goods and services, creating 
        what economists call the ``multiplier effect'', and helping the 
        economy broadly. This stimulates new economic activity and job 
        growth in the U.S., whereas most of every dollar we spend on 
        oil flows overseas. A 1997 study found that due to this effect, 
        an aggressive set of efficiency policies could add about 
        770,000 jobs to the U.S. economy by 2010.\13\
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    \13\ Alliance to Save Energy et al., 1997, Energy Innovations: A 
Prosperous Path to a Clean Environment. Washington, DC: American 
Council for an Energy-Efficient Economy.
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   Overall, the U.S. has ample supplies of electricity at 
        present, but demand is growing and several regions (such as 
        southwest Connecticut, Texas, New York, and California) are 
        projecting a need for new capacity in the next few years in 
        order to maintain adequate reserve margins.\14\ \15\ Energy 
        efficiency resource policies can slow demand growth rates, 
        postponing the date that additional capacity will be needed.
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    \14\ North American Electric Reliability Council, 2005, 2005 Long-
Term Reliability Assessment: The Reliability of Bulk Electric Systems 
in North America. Princeton, NJ: North American Electric Reliability 
Council.
    \15\ New York Independent System Operator, 2005, ``The NYISO Issues 
Reliability Needs Assessment.'' Press release of December 21. 
Schenectady, NY: New York Independent System Operator.
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   Greenhouse gas emissions continue to increase. Early signs 
        of the impact of these changes are becoming apparent in Alaska 
        and other Artic regions.\16\ And several recent papers have 
        identified a link between warmer ocean temperatures and 
        increased hurricane intensity.\17\ \18\ Energy efficiency is 
        the most cost-effective way to reduce these emissions, as 
        efficiency investments generally pay for themselves with energy 
        savings, providing negative-cost emissions reductions. The term 
        ``negative-cost'' means that, because such efficiency 
        investments produce net economic benefits, they achieve 
        emission reductions at a net savings for the economy. This 
        important point has been missed in much of the climate policy 
        analysis modeling performed to date. Too many economic models 
        are incapable of characterizing the real economic effects of 
        efficiency investments, and so forecast inaccurate economic 
        costs from climate policies. Fortunately, this kind of flawed 
        policy analysis is beginning to be corrected. For example, a 
        May 2006 study just released by ACEEE found that the Regional 
        Greenhouse Gas Initiative (RGGI--the planned cap and trade 
        system for greenhouse gases in the northeastern U.S.) can have 
        a small but positive impact on the regional economy provided 
        increased energy-efficiency programs are a key part of 
        implementation efforts.\19\
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    \16\ Hassol, 2004, Impacts of a Warming Arctic: Arctic Climate 
Impact Assessment. http://www.acia.uaf.edu. Cambridge University Press.
    \17\ Webster, Holland, Curry and Chang, 2005, ``Changes in Tropical 
Cyclone Number, Duration, and Intensity in a Warming Environment.'' 
Science, 309, 16 September, 1844-1846.
    \18\ Emanuel, 2005, ``Increasing Destructiveness of Tropical 
Cyclones over the Past 30 Years.'' Nature, 436, 4 August, 686-688.
    \19\ Prindle, Shipley and Elliott, 2006, Energy Efficiency's Role 
in a Carbon Cap-and-Trade System: Modeling Results from the Regional 
Greenhouse Gas Initiative. Washington, DC: American Council for an 
Energy-Efficient Economy.

    Energy efficiency also draws broad popular support. For example, in 
a March 2005 Gallup Poll, 61% of respondents said the U.S. should 
emphasize ``more conservation'' versus only 28% who said we should 
emphasize production (an additional 6.5% volunteered ``both'').\20\ In 
an earlier May 2001 Gallup poll, when read a list of 11 actions to deal 
with the energy situation, the top four actions (supported by 85-91% of 
respondents) were ``invest in new sources of energy,'' ``mandate more 
energy-efficient appliances,'' ``mandate more energy-efficient new 
buildings,'' and ``mandate more energy-efficient cars.'' Options for 
increasing energy supply and delivery generally received significantly 
less support.\21\
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    \20\ Gallop, 2005, ``Gallop Poll Social Series--The Environment.'' 
Princeton, NJ: The Gallop Organization.
    \21\ Moore, David, 2001, ``Energy Crisis: Americans Lean toward 
Conservation over Production.'' Princeton, NJ: The Gallup Organization.
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    However, energy efficiency alone will not solve our energy 
problems. Even with aggressive actions to promote energy efficiency, 
U.S. energy consumption is likely to rise for more than a decade, and 
this growth, combined with retirements of some aging facilities, will 
mean that some new energy supplies and energy infrastructure will be 
needed. But aggressive steps to promote energy efficiency will 
substantially cut our energy supply and energy infrastructure problems, 
reducing the economic cost, political controversy, and environmental 
impact of energy supply enhancements.
                     the energy policy act of 2005
    The Energy Policy Act of 2005 (EPAct 2005) made some useful 
progress on energy efficiency. Particularly notable were sections that 
established new consensus federal efficiency standards on 16 products 
and that created energy efficiency tax incentives. Other useful 
provisions include extension of authority for Energy Saving Performance 
Contracts in federal facilities and a variety of reports that hopefully 
will help spur future policy action. For example, the EPAct 2005 
provision requiring DOE to submit a plan to Congress on steps it will 
take to catch-up on overdue efficiency standard rulemakings was timed 
just right and DOE has now prepared and begun to implement this plan. 
In addition, a variety of promising initiatives were authorized in 
EPAct 2005, but to have an impact, need to be followed by 
appropriations. Unfortunately, most of the new provisions requiring 
funding have not been included in the FY 2007 or 2008 budget requests 
nor in appropriations bills. Given recent developments, such as the 
lack of funding for many of the EPAct 2005 provisions, ACEEE now 
estimates that the energy efficiency sections of EPAct 2005 will reduce 
U.S. energy use by about 1.8 quadrillion Btu (``Quads'') in 2020, 
reducing projected U.S. energy use in 2020 by 1.5%. Of these savings, 
more than 75% will come from the two key provisions--equipment 
efficiency standards and energy-efficiency tax incentives.\22\
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    \22\ Nadel, Prindle and Brooks, 2006, ``The Energy Policy Act of 
2005: Energy Efficiency Provisions and Implications for Future Policy 
Efforts'' in Proceedings of the 2006 ACEEE Summer Study on Energy-
Efficiency in Buildings. Washington, DC: American Council for an 
Energy-Efficient Economy.
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    EPAct 2005 overlooked two critical policy issues: energy efficiency 
targets for the electricity sector and the oil sector. These two 
sectors are critical for energy security and global warming, and 
efficiency needs to be the first-priority policy in these areas. 
However, the final bill did not include any specific oil or electricity 
saving targets, even though the Senate version included an oil savings 
target and Senate deliberations discussed setting utility energy 
efficiency targets. If the United States is serious about addressing 
its energy security and global warming problems, it must set specific 
and strong policies to moderate demand growth for oil and electricity.
         key priorities for the energy efficiency promotion act
    ACEEE applauds the Committee for its timely and thorough approach 
in bringing an energy efficiency bill forward. Our specific comments 
focus in on those sections that we find to contain the greatest energy 
savings potential, and that are important to supporting effective 
policy implementation.
    Title I: Lighting technologies.--ACEEE supports the overall aims of 
this section, and also recommends certain additions.

   We support the reflector lamp standard contained in Section 
        102, which is based on a consensus agreement among ACEEE, 
        manufacturers, and other stakeholders. Reflector lamps, 
        increasingly common in recessed lighting fixtures in today's 
        homes, represent a growing portion of the residential lighting 
        market, and this standard will help moderate the impact of this 
        end use
   We also support the Sense of the Senate provision in Section 
        104, which we hope will soon lead to a consensus agreement on a 
        national standard to phase out the least efficient general 
        service light bulbs, of which more than a billion are sold each 
        year, and pave the way for an eventual transition to 
        dramatically more efficient light sources. ACEEE is working 
        with the Alliance to Save Energy, the Natural Resources Defense 
        Council, Philips Lighting, Osram Sylvania, General Electric, 
        the American Lighting Association, and others to develop this 
        agreement.
   We also recommend a new section calling for a study and plan 
        for reaching a higher tier of energy performance for general 
        service lighting that will meet or exceed the performance of 
        today's compact fluorescent products without compromise on 
        light quality and with continued consumer choice in the market.

    Title II: Efficiency Standards.--This title contains consensus-
based standards for residential boilers, industrial electric motors, 
and residential appliances, developed collaboratively among ACEEE, 
manufacturers, and other stakeholders. It also contains several 
provisions we support to improve the Department of Energy's ability to 
set standards that will save more energy and better balance the needs 
of states with federal authority.

   Section 201 is designed to allow DOE to set standards which 
        capture different aspects of a product's efficiency 
        performance. For example, DOE determined it lacked 
        administrative authority to adopt the consensus boiler standard 
        contained in S. 1115 because that proposal called for two 
        prescriptive requirements and a minimum efficiency rating. 
        Several other products are currently subject to multiple 
        standard requirements including commercial clothes washers, 
        ceiling fans and heat pumps. For some products, it makes better 
        engineering, economic and energy-efficiency sense to establish 
        a standard which may combine multiple performance and 
        prescriptive elements. Our analysis is that this added 
        flexibility in DOE's authority will save more energy and reduce 
        costs.
   Section 202 authorizes the Department of Energy to set 
        regional standards for residential heating and cooling 
        equipment. In our experience with rulemakings for central air 
        conditioners and furnaces, DOE's professed inability to set 
        regional standards has frustrated otherwise cost-effective 
        standards from being proposed. DOE recognized this problem in 
        its recent Notice of Proposed Rulemaking for residential 
        furnaces, in which it invited states that need higher-
        performance furnaces to apply for waivers of pre-emption under 
        the law. Several states have already moved in this direction. 
        This section simply enables DOE to set regional standards 
        directly, rather than relying on the cumbersome and uncertain 
        process of waiver applications. A state-by-state waiver process 
        will result in a patchwork of standards, whereas regional 
        standards as allowed for in S. 2111 would result in no more 
        than three large, contiguous regions. Since 1978 manufactured 
        housing has been subject to very successful regional efficiency 
        and other standards set by the Department of Housing and Urban 
        Development. A similar system which relies on manufacturer 
        labeling of products and state enforcement would work for 
        climate sensitive appliances like central air conditioners and 
        heating equipment. States routinely adopt federal minimum 
        standards into building codes, providing an already in-place 
        system of state-based enforcement.
   Section 203 requires DOE to conduct a rulemaking to 
        determine if standards for furnace fans are warranted. Congress 
        authorized DOE to consider furnace fan energy saving standards 
        in 2005, but the Department subsequently decided to not 
        schedule a rulemaking. Given the Department's history of 
        delays, we think it imperative that the Congress give DOE a 
        hard deadline for action. We estimate that this rulemaking 
        could offer very large energy and economic savings.
   Section 204 would allow an expedited DOE standard rulemaking 
        based on consensus agreements. While we agree with the 
        Department on the desirability of this provision, we prefer the 
        bill's language to an alternative version proposed by the 
        Department. We believe the bill's current language better 
        reflects due process and would expedite rules more effectively. 
        We also remind the Committee that the DOE language was rejected 
        by Congress in 2005.
   Section 205 clarifies the intent of the law regarding 
        federal pre-emption of state appliance efficiency standards. 
        Federal law has struck a balance over the years between federal 
        and state roles on appliance standards. While the general 
        consensus is that federal states are preferable to a patchwork 
        of state standards, states have also retained the right to 
        advance standards for products not covered by federal law, and 
        for covered products up to the effective date of the federal 
        standard. History shows that state initiative has led to many 
        of the advances in federal policy on appliance standards. In 
        fact, it was state action on standards following the 1982 DOE 
        ``no-standard standard'' rule that ultimately led to the 
        National Appliance Energy Conservation Act of 1987. Since then, 
        state initiatives have helped to spur consensus agreements for 
        federal standards on many other products. The language in this 
        section simply clarifies key aspects of this federal-state 
        relationship. We also recommend that the Committee consider 
        language that would ``sunset'' pre-emption if the federal 
        government fails to promulgate standards within 
        Congressionally-prescribed timeframes, and that would require 
        DOE to conduct new rulemakings on covered products within a 
        defined period following the effective date of a given 
        standard. We believe these additional provisions will keep U.S. 
        appliance efficiency standards policy moving forward, while 
        striking the right balance between federal and state roles. 
        Given the increasing urgency of accelerating the pace of energy 
        efficiency technology improvement, it is appropriate for 
        Congress to ensure that federal appliance efficiency standards 
        keep up with and support technology innovation.
   Section 206 sets requirement for FTC Energy Guide labeling 
        of consumer electronic equipment. We support this provision 
        because, in our analyses, this class of products is the 
        fastest-growing energy use American homes, and American 
        consumers need energy use information to make informed choices 
        on these products. A Natural Resources Defense Council report 
        indicates that the largest televisions on the market today can 
        use more energy than the average refrigerator.\23\ Coupled with 
        other components in high-performance home entertainment 
        systems, these products threaten to offset many of the energy 
        savings the U.S. has achieved through its standards programs. 
        Labeling these products, based on their full operating mode as 
        well as on standby mode, is an important first step in 
        addressing this problem.
---------------------------------------------------------------------------
    \23\ Horowitz, Noah et al. 2005. Televisions: Active Mode Energy 
Use and Opportunities for Energy Savings. Natural Resources Defense 
Council Issue Paper, 2005.
---------------------------------------------------------------------------
    Section 209 raises the minimum efficiency requirements for 
        electric motors covered by the Energy Policy Act of 1992 to the 
        highest NEMA Premium available in the marketplace. In addition, 
        the proposal expands the scope of motors covered to include 
        most of the industrial electric motors of 500 horsepower and 
        lower. ACEEE participated with NEMA in reaching consensus on 
        this proposal, and ACEEE feels that the provision provides a 
        balance between the interest of motor users and the need for 
        greater energy efficiency among a product that consumes over 
        two-thirds of the industrial electricity in the country.

    Title III: Efficient Vehicles.--ACEEE generally concurs with the 
priorities identified in this title for vehicle efficiency technology 
research and deployment. Despite the downward trend of DOE funding for 
research on lightweight materials for automotive applications in recent 
years, we believe there is substantial remaining potential to improve 
fuel economy through the use of such materials. Indeed, this is why we 
and others worked to ensure that DOT's CAFE reform for light trucks did 
not result in a system tying fuel economy requirements to vehicle 
weight, which would have eliminated auto manufacturers' incentive to 
incorporate lightweight materials into their products to raise 
corporate fuel economy.
    ACEEE supports the authorization of loan guarantees to facilities 
for the manufacture of parts for fuel-efficient vehicles, as well as 
incentives for manufacturers and suppliers to retool to produce 
advanced technology vehicles. We note however that the discussion of 
advanced lean bum technology should clarify that fuel economy for 
diesels is to be compared with that of gasoline vehicles on an energy-
equivalent basis. Otherwise, the requirement that the vehicle have fuel 
economy at least 125% of baseline fuel economy to qualify for the 
manufacturing incentive becomes much more lenient for diesels (11-14% 
less stringent) in terms of efficiency, due to the high Btu content of 
diesel fuel. While its high energy density does lead to an additional 
(non-efficiency) benefit for diesel in terms of petroleum reduction, 
carbon emissions produced by diesel combustion are higher per gallon, 
so that no climate benefits follow from high fuel density. It is 
important to take this opportunity to begin to establish the principle 
that petroleum reduction policies should support, not undermine, 
policies to address climate change. This issue of gasoline-equivalence 
of diesel was not properly resolved in the EPAct 2005 tax credits, 
despite Senate intent; it has caused confusion in the implementation of 
the credits and should be clarified through this bill.
    We also support the allocation of resources to developing domestic 
capability in energy storage for vehicles and to advancing electric 
drive technologies. However, it should be noted that DOE has spent 
hundreds of millions of dollars in the past (e.g. in the Partnership 
for a New Generation of Vehicles) on technologies of this kind without 
accelerating domestic manufacturers' production of vehicles that use 
them. That experience demonstrates the importance of using R&D dollars 
to support a policy of mandatory fuel economy increases, rather than as 
a substitute for such a policy. Within the scope of this bill, we 
suggest that part of the funding proposed in this section be used for a 
competition for parts/automaker teams to produce a prototype plug-in 
hybrid meeting certain performance and cost criteria (assuming large 
volume production). This would help to ensure some real-world progress 
on vehicle efficiency would follow from the proposed investment of over 
$400 million per year in battery/electric drive technologies.
    Title IV: National Energy Efficiency Goals.--While this title 
contains non-binding goals, which we support, we also want to emphasize 
the need to set binding national goals for energy efficiency. While 
competitive markets will ultimately deliver the technologies and 
practices to reach these goals, markets do best when they have clear 
and simple targets to meet. We applaud the Committee for setting an 
energy productivity goal for the nation; the 2.5% annual improvement 
represents nearly a 50% improvement in current productivity growth, and 
would sharply reduce energy demand growth overall.
    We especially support the energy savings targets in section 401, 
though we recommend that the fuel economy aspects of this section be 
more specific. We note that the President's Twenty in Ten proposal, on 
which the 2017 target for the section appears to be based, relies very 
heavily on a loosely-defined set of alternative fuels, and only 
moderately accelerates fuel economy improvement. While the feasibility 
of deploying alternative fuels infrastructure is unproven, fuel economy 
technologies and costs are well known, and therefore a greater emphasis 
on fuel economy provides a better balance of risk for the nation. ACEEE 
recommends that fuel economy targets be set so as to save at least 12 
billion gallons of fuel in 2017, 45 billion gallons in 2025, and 68 
billion gallons in 2030.
    We also recommend that a new section be created that sets 
electricity savings targets for distribution utilities, such that 
covered utilities would be required to save 10% of electricity sales by 
2020. Such Energy Efficiency Resource Standard (EERS) are simple, 
market-based mechanisms to encourage more efficient generation, 
transmission, and use of electricity and natural gas. EERS-type laws 
and regulations are now in operation in several states and countries. 
Texas's electricity restructuring law created a requirement for 
electric utilities to offset 10% of their demand growth through end-use 
energy efficiency. Utilities in Texas have already exceeded their 
targets there is discussion about raising them. Hawaii and Nevada 
recently expanded their renewable portfolio standards to include energy 
efficiency. Connecticut and California have both established energy 
savings targets for utility energy efficiency programs (Connecticut by 
law and California by regulation) while Vermont has specific savings 
goals in the performance contract with the nonprofit organization that 
runs statewide programs under a contract with the Public Service Board. 
Pennsylvania's new Advanced Energy Portfolio Standard includes end-use 
efficiency among other clean energy resources. Colorado's largest 
utility has energy savings goals as part of a settlement agreement 
approved by the Public Service Commission. And Illinois and New Jersey 
are planning to begin programs soon. EERS-like programs have been 
working well in the United Kingdom and the Flemish region of Belgium. 
Italy has recently started a program, and another is about to start in 
France. Details on each of these programs are provided in a March 2006 
ACEEE report.\24\
---------------------------------------------------------------------------
    \24\ Nadel, 2006, Energy Efficiency Resource Standards: Experience 
and Recommendations. Washington, DC: American Council for an Energy-
Efficient Economy.
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    While many EERS are separate from a renewable portfolio standard, 
another option would be to combine renewable energy and energy 
efficiency in a single portfolio standard. However, if this is done, 
the portfolio target should be significantly higher than if only 
renewable energy or if only energy efficiency were included. 
Specifically, a combined RPS-EERS should not reduce any previously-set 
targets for renewable energy generation. For example, a combined 
efficiency/renewables target might be 15-20% of 2020 sales, which is a 
higher target than the 10% of 2020 electricity sales that the Senate 
has previously passed as a renewable portfolio standard.
    Title V: Federal Leadership.--ACEEE supports the provisions of this 
title, especially the permanent authorization of the Energy Savings 
Performance Contracting (ESPC) program, and the assessment of Combined 
Heat and Power (CHP) opportunities at federal facilities. We recommend 
that Congress place a special priority on installing CHP technology at 
the Capitol powerplant, which could be accomplished through an ESPC or 
similar vehicle.
    Title VI: State and Local Initiatives.--ACEEE supports the 
provisions of this title, especially section 603's requirements for 
utilities and states to include energy efficiency in resource planning, 
and to reform ratemaking policies to make energy efficiency a better 
business proposition for utilities. We recommend that the bill also 
include Regional Transmission Organizations (RTOs) among the entities 
covered by this section. This section should also be linked ultimately 
to a federal Energy Efficiency Resource Standard (EERS) that sets 
quantitative targets for energy savings for utilities, with the goal of 
saving 10% of electricity sales by 2020. Sections 139 and 140 of EPAct 
2005 called for a study and pilot program for EERS. The study is 
complete, and shows that these policies are gaining acceptance and 
enjoying success in a number of states. Given the increased urgency to 
address carbon emissions from electric utilities, this should be a high 
priority for Congress in 2007.
                             energy savings
    ACEEE has estimated the energy and water savings from the appliance 
standards provisions of the bill.
    Consensus standards.--The following standards are included based on 
agreements between efficiency advocates and manufacturers. Annual 
savings summarized below (at the level achieved when all equipment in 
use complies).

   Residential boilers--170 million therms natural gas per 
        year, net present benefits of $2.5 billion.
   Incandescent reflector lamps--6 billion kilowatt hours per 
        year, net present benefits of $5 billion.
   Clothes washer, dishwashers and dehumidifiers--560 million 
        gallons of water per day; energy and dollar savings TBD.
   Motors--8 billion kilowatt hours per year, net present 
        benefits of $500 million.

    New rulemakings.--The legislation provides for DOE rulemakings to 
set standards for the following products. Potential energy savings from 
such rulemakings (assuming appropriately strong DOE rules) are as 
follows:

   Refrigerators--14 to 23 billion kilowatt hours per year, net 
        present benefits TBD.
   Residential furnace fans--13 billion kilowatt hours per 
        year; $4.1 billion net present benefits.
   Clothes washers and dishwashers--savings to be determined at 
        a later date.

    Provisions to strengthen the appliance standards program.--Various 
standards pending before U.S. DOE for rulemakings have the potential to 
reduce energy consumption by nearly 200 billion kilowatt hours per 
year, roughly the amount of power generated by 65 large power plants 
(500 megawatts each). The pending legislation does not directly affect 
most of these rulemakings, but will enhance significantly the ability 
of DOE to set appropriately strong standards. Provisions designed to 
provide the Secretary of Energy greater flexibility in setting 
standards include limited authority for regional standards for climate-
sensitive products, authority to use multiple efficiency metrics for a 
given product and authority for expedited rules.
Total potential savings
   Electricity.--At least 50 billion kilowatt hours per year, 
        or enough to power roughly 4.8 million typical U.S. households
   Natural gas.--170 million therms per year, or enough to heat 
        about a quarter million typical U.S. homes.
   Water.--At least 560 million gallons per day, or about 1.3% 
        of total daily potable water usage.
   Dollars.--More than $12 billion in net present benefits for 
        consumers.
                               conclusion
    Energy efficiency is the ``first fuel'' in America's race for a 
clean and secure energy future. Energy efficiency has saved consumers 
and businesses trillions of dollars in the past three decades, 
including more than half a trillion dollars in 2006 alone. These 
efforts should now be accelerated to meet America's greatest energy 
challenges--energy security and global warming. These twin problems are 
converging to force historic changes in U.S. energy and environmental 
policy. Energy efficiency is the one resource that addresses both the 
energy security and climate challenges in the near term, while 
enhancing economic prosperity. Domestic energy supplies with low carbon 
content will take time to develop; but we can start now to accelerate 
efficiency investment, which will enable low-carbon domestic supplies 
to begin reducing energy imports and carbon emissions. If we do not use 
efficiency as the ``first fuel'' in the race for clean and secure 
energy, clean energy supply technologies may not be able to be deployed 
fast enough to meet runaway demand.
    ACEEE supports the Energy Efficiency Promotion Act as a major 
additional step on the road to a sustainable energy future. We 
recommend a number of ways that this bill can be augmented, within its 
existing provisions, by adding new provisions, and through additional 
legislation.
    This concludes my testimony. Thank you for the opportunity to 
present these views. We look forward to responding to any questions or 
providing any additional information that the committee may require to 
complete this important legislation.

    The Chairman. Thank you very much.
    Mr. Pitsor.

STATEMENT OF KYLE PITSOR, VICE PRESIDENT, GOVERNMENT RELATIONS, 
      NATIONAL ELECTRICAL MANUFACTURERS ASSOCIATION (NEMA)

    Mr. Pitsor. Chairman Bingaman, members of the committee, 
good afternoon. I'm Kyle Pitsor, vice president for government 
relations with the National Electrical Manufacturers 
Association. I'm pleased to present our association's views on 
S. 1115, and our industry's continuing engagement in advancing 
energy efficiency in the residential, commercial, industrial, 
and government arenas.
    NEMA member companies manufacture the products and 
technologies used in the generation, transmission, 
distribution, control, and end use of electricity, and are at 
the heart of our national effort to reduce dependence on fossil 
fuels, cleaner environment, and a higher standard of living.
    Federal leadership at energy efficiency in government-owned 
and leased buildings is key, since the national government is 
the largest user of electricity in the country. We fully 
support the government procurement requirements and mandates of 
energy-efficient lighting products in section 102, the 
enactment Federal building codes and standards, and the 
expansion and permanency of the Energy Savings Performance 
Contracts contained in section 503 of the bill.
    State-of-the-art energy efficient products and technologies 
are widely available, yet their deployment and use are not at 
the level they should be. S. 1115 addresses this challenge in 
several respects, and I'd like to comment on those.
    First, the bill calls for a national education campaign to 
increase awareness and knowledge of today's products, in 
section 403. Consumer education at all levels must be a 
national priority, and NEMA stands ready to assist in that 
national effort.
    Second, new mandatory energy-efficiency efficient product 
standards are proposed. The standards are based on consensus 
agreements negotiated among manufacturers, environmental 
groups, and other stakeholders. For NEMA, these new standards 
include new standards for incandescent reflector lamps 
typically used in residential downlighting, contained in 
section 102 of the bill, and electric motors used in 
manufacturing and industrial processes, contained in section 
209 of the bill. We support these provisions.
    Third, while we support legislating these consensus 
standards agreements, we also note that it's not practical to 
require Congress to pass legislation each time a consensus 
agreement is reached or developed. That is why we support 
amending the Energy Policy and Conservation Act to provide a 
new route through an expedited rulemaking process, as suggested 
in section 204 of the bill. The benefits of an accelerated 
process for adopting consensus agreements by the Department of 
Energy are numerous, and will provide for greater flexibility 
and responsiveness to market and technology changes as they 
occur.
    Fourth, NEMA's presently engaged in negotiations on new 
lighting standards, which are discussed in the Sense of the 
Senate language in section 104 of the bill. Lighting represents 
20 to 22 percent of the Nation's electricity consumption. We 
would be making significant progress toward a comprehensive 
proposal, Mr. Chairman, aimed at eliminating the least 
efficient incandescent A-line lamps in the 40- to 100-watt 
range through the use of performance-based technology-neutral 
efficiency standards. We note the historic nature of such an 
undertaking by our industry, and that full market 
transformation will likely take a decade to complete. We hope 
to provide you and this committee with a negotiated proposal in 
the very near future.
    One aspect of the bill materially changes a significant and 
longstanding principle in Federal pre-emption for overseeing 
energy efficiency standards, and we believe provision 205 
conflicts with the policies contained in EPCA. Congress 
provided in EPCA, in the EPCA statute, for certain exceptions 
and exemptions to Federal pre-emption for federally covered 
products. We do not believe that the provisions of 205, as 
drafted, are appropriate, and, if enacted, would radically flip 
the carefully constructed comprehensive national policy 
underlying the Federal statute.
    Fifth, we particularly welcome the Bright Tomorrow Lighting 
Prize competition and provision, in section 103, to establish a 
competitive performance-based prize for new LED lighting and 
for the Federal Government to be early adopters of this 
technology through purchasing guidelines.
    Finally, Mr. Chairman and members of the committee, I'd 
like to close by noting that one of the barriers to wider 
deployment and use of energy efficient products and 
technologies are initial cost concerns. This applies both in 
the residential and the commercial industrial markets. Congress 
provided for certain tax incentives, like the commercial 
buildings tax deduction, in the Energy Policy Act of 2005, but 
most of those incentives expire at the end of 2008, and some in 
2007. Renovation and retrofitting existing homes and buildings 
with today's technologies, and building in energy efficiency in 
the initial construction of new homes and buildings, lock these 
energy savings in and provide performance, going forward. Tax 
incentives, such as credits, deductions, and accelerated 
depreciation, are powerful tools to make this happen, and go 
hand in hand with the significant energy efficiency promotion 
provisions contained in this bill.
    Mr. Chairman, thank you for your steadfast leadership and 
support on energy efficiency, and we'd welcome any comments.
    [The prepared statement of Mr. Pitsor follows:]
     Prepared Statement of Kyle Pitsor, Vice President, Government 
        Relations, National Electrical Manufacturers Association
    Chairman Bingaman, Ranking Member Domenici, and Members of the 
Committee, on behalf of the National Electrical Manufacturers 
Association (NEMA), I am Kyle Pitsor, NEMA vice president of government 
relations. NEMA is the trade association of choice for the electrical 
manufacturing industry. Founded in 1926 and headquartered near 
Washington, D.C., its approximately 450 member companies manufacture 
products used in the generation, transmission and distribution, 
control, and end-use of electricity. These products are used in 
utility, medical imaging, industrial, commercial, institutional, and 
residential applications. Domestic production of electrical products 
sold worldwide exceeds $120 billion. In addition to its headquarters in 
Rosslyn, Virginia, NEMA also has offices in Beijing, Sao Paulo, and 
Mexico City.
    I am pleased to be here today to present our Association's views on 
this important energy efficiency bill, and to offer our industry's 
continuing support in advancing energy efficiency in the marketplace.
    The electrical manufacturing community stands at the very heart of 
our national effort to achieve a reduced dependence on fossil fuels, a 
cleaner environment, and a higher standard of living across the globe. 
Energy efficient technologies exist, and NEMA companies are actively 
engaged in the research, development, manufacturing and promotion of 
them. What we all must strive for is wider recognition, deployment, and 
use of today's state-of-the-art products and technologies, and support 
for emerging technologies. It is for these reasons that NEMA is very 
pleased to testify today on S. 1115 and provisions which, we believe, 
will significantly improve efficiency in buildings, homes, and products 
while reducing our nation's use of fossil fuels and saving consumers 
money.
    We would like comment on several titles and provisions in the bill.
               promoting lighting technologies (title i)
    As the largest user of energy in the Nation, the federal government 
must set the example of energy efficiency in its facilities and 
buildings through procurement and building standards. The Energy Policy 
Act of 2005 calls for federal purchasing of Energy Star and Federal 
Energy Management Program (FEMP) designated products. Section 101 in 
the bill strengthens the procurement provision through the 
establishment of purchasing guidelines with a date certain for all 
general-purpose lighting. We fully endorse this Section.
    We are pleased that negotiated consensus standards for certain 
incandescent reflector lamps have been included in Section 102. These 
consensus standards are the result of our industry working with non-
governmental and stakeholder organizations to arrive at definitions and 
standards that will further strengthen the national energy conservation 
standards program. These certain lamps, typically used in residential 
downlights (recessed can fixtures), are presently not subject to 
federal energy efficiency standards initially established by the Energy 
Policy Act of 1992. Due to technology and market changes, the time has 
come to federally regulate the products described in Section 102.
    The Bright Tomorrow Lighting Prize (Section 103) offers a 
challenging and exciting opportunity for advancing the 
commercialization of new solid-state lighting products for the general 
market. We support the use of Section 1008 of EPACT 2005 for this 
competitive, technology-driven prize for new LED lights that can 
retrofit into existing medium-screw base sockets. Further, we endorse 
the proposal's direction that federal purchase guidelines are to be 
developed based on awards under the challenge. Again, federal 
government leadership in purchasing and using new lighting technologies 
is important to the marketplace. The Next Generation Lighting Industry 
Alliance (administered by NEMA) is the designated industry partner per 
EPACT Section 912 to the Department of Energy's Solid State Lighting 
R&D program. The Alliance views Section 103 as a complementary market 
deployment with respect to the DOE SSL program. The results of the past 
few years suggest that there are no fundamental reasons why solid-state 
lighting light sources cannot achieve efficiencies of 10-12 times that 
of today's inefficient incandescent lamp, and 2 times that of 
fluorescent technologies.
    The bill contains a Sense of the Senate provision (Section 104) 
concerning new energy efficiency standards for lighting products. 
Lighting use in the U.S. consumes some 20-22 percent of all electricity 
generated. Thirty percent of the energy consumed in an office building 
is used for lighting, and 5-10% of residential energy use is for 
lighting. There is an array of lamp (light bulb) technologies--
incandescent (including halogen), fluorescent, high intensity 
discharge, and solid state.
    I am pleased to report that on April 3, 2007, the member companies 
of the NEMA Lamp Section announced a joint industry commitment to 
support public policies that will transform the U.S. market to more 
energy-efficient lighting within a decade. This joint position came 
about in response to a growing number of proposals at the 
international, state and local levels that would eliminate the presence 
of certain general-service incandescent lamps in the marketplace.
    NEMA views such a market transformation as a matter of national 
importance that should come about through a federal solution in order 
to avoid confusion in the marketplace. Central to this commitment is 
the setting of standards that will eliminate the least efficient 
products from the market, based on the following six principles:

   The market transformation must be orderly and target as a 
        starting point the least efficient medium screw base A-line 
        incandescent lamps from 40 through 100 watts in widespread use 
        today.
   Performance standards must be used to accomplish the 
        transformation.
   Performance standards must be technology-neutral.
   The market transformation will take up to a decade.
   The set of A-line incandescent lamps to be addressed 
        includes clear, frost, soft white and enhanced spectrum. 
        Performance standards will be needed for each of these types.
   The market transformation should begin with strategies that 
        will save the most energy.

    We note that in the absence of a federal solution, states and 
localities should follow these principles when deliberating on this 
matter.
    Prior to the April 3 announcement and subsequent to it, NEMA lamp 
members have been engaged in a series of negotiations with non-
governmental organizations (NGOs), environmental advocacy groups, state 
government representatives, and industry organizations with an aim to 
develop a standards consensus proposal for submittal to this Committee 
and Congress. Those negotiations are on-going at the time of preparing 
this testimony, and we will report to the Committee on their status.
         expediting new energy efficiency standards (title ii)
    NEMA supports a robust national energy conservation standards 
program under the Energy Policy and Conservation Act (EPCA) as amended. 
We believe that a strong national program of standards, test procedures 
and labeling/information disclosure is the most effective means to 
maximize energy savings for the Nation and the consuming public. 
Products are manufactured and distributed on a national (and sometimes 
global) basis, and it is key that energy conservation product 
regulation occur at the federal level.
    The bill provides in the Section 204 amendment to EPCA to provide 
the Secretary of Energy the authority to conduct an expedited 
rulemaking based on an energy conservation standard or test procedure 
if submitted as a ``consensus proposal''. The benefits of accelerating 
adoption of consensus proposals benefit the Nation when more efficient, 
competitive products enter the marketplace at an earlier date than 
would otherwise be the case if handled in the regular DOE rulemaking 
proceedings. In addition, manufacturers benefit by improvement in their 
planning processes occasioned by the increased certainty of earlier 
finalization of consensus standards. Finally, federal regulators and 
all stakeholders would benefit from reduced burdens of paperwork, 
unnecessary rounds of otherwise mandated process and procedures, and 
legal costs. NEMA supports an ``expedited rulemaking'' authority and 
commends the Committee for including this meaningful modification to 
the statute. We do recommend changing the term from ``joint comment'' 
to ``joint petition'' to clarify that the consensus proposal does not 
have to be submitted only during the time period for which DOE has an 
open rulemaking for the product(s) addressed in the consensus proposal.
    The bill contains several important consensus proposals and 
technical corrections for legislative enactment. As the association 
that represents the manufacturers of lighting and motors products, NEMA 
is pleased to have worked with various stakeholders to develop these 
consensus standards proposals. As noted earlier, Section 102 would add 
certain incandescent reflector lamps to federal energy regulation. 
Technical corrections (Section 208) include one for the color rendering 
index (CRI) for certain fluorescent lamps, and we also have submitted a 
definitional clarification regarding mercury vapor ballasts which we 
hope the Committee will include in the bill as it proceeds to mark-up. 
Both of these are consensus proposals involving the manufacturers and 
NGOs.
    Mr. Chairman, I am very pleased to note that Section 209 provides 
for legislative enactment of new and expanded efficiency standards for 
industrial electric motors. Electric motors consume 65-70% of the 
electrical energy used in commercial and industrial motor-driven 
systems, like pumps, fans, and compressors. As a consequence, increases 
in motor efficiency translate to significant energy savings for 
industrial and manufacturing facilities. We estimate the savings 
attributable to these joint recommendations to be 8 billion kilowatt 
hours by 2030, with a net energy savings to consumers of almost $500 
million.
    NEMA developed the first standard and levels for an ``energy 
efficient'' electric motor in 1987, which were included in the Energy 
Policy Act of 1992. In 2003, NEMA established new ``premium 
efficiency'' motor levels and has undertaken a significant marketing 
and promotion effort for NEMA Premium. Section 209 includes important 
expansion of electric motors that will be subject to federal efficiency 
requirements, including adoption of premium efficiency for the bulk of 
the 1-200 horsepower general-purpose motors.
    One aspect of the bill (Section 205 ``Preemption Limitations'') as 
introduced, however, would materially change a significant and 
longstanding principle in federal preemption for overseeing energy 
efficiency standards, and we believe represents an open and 
irreconcilable conflict with other provisions and policies of the 
Energy Policy Conservation Act, as amended.
    As such, NEMA cannot support this provision as drafted, and we 
would like to work with the Committee and staff to address concerns 
that brought about this provision, and seek to find alternative 
solutions. If unchanged, the provision weakens rather then improves the 
``comprehensive national energy policy'' enacted by Congress in 1975 to 
implement EPCA (S. Conf. Rep. No. 94-516 at 116 (1975)).
    The twin cornerstones of this comprehensive national policy are (1) 
the establishment of national standards for energy efficiency, testing 
and information disclosure for ``covered products,'' and (2) express 
Federal preemption of State laws and regulations respecting energy 
efficiency standards, testing, and information disclosure for those 
covered products. The exceptions to Federal preemption were 
intentionally narrow: State petitions for waivers required that States 
show there were ``unusual and compelling State and local interests'' 
that were ``substantially different in nature and magnitude from those 
of the Nation generally, so that achieving the waiver would be 
difficult. State procurement standards would be permitted; and a 
narrowly drawn exception for State and local building codes must meet 
seven requirements.
    For many covered products, Federal standards have been established 
by Congress in the various acts; in the case of other covered products, 
Congress has delegated to the Department of Energy and the Federal 
Trade Commission the authority to determine uniform national standards 
and policy. In both cases, conscious decisions are made to exclude from 
regulation a subset of the covered products because the expected energy 
savings is small compared to the burden of achieving that savings. For 
example, in 1992, when Congress enacted energy efficiency standards for 
electric motors, it specifically excluded from regulation certain 
definite purpose and special purpose motors. At the same time, Congress 
excluded from regulation certain ``special applications'' of general 
service fluorescent lamps and general service incandescent lamps, and 
delegated to the Secretary of Energy the authority to further determine 
by rule that standards ``would not result in significant energy savings 
because such lamp is designed for special applications or has special 
characteristics not available in reasonably suitable lamp types.''
    Proposed Section 205 establishing certain limitations on preemption 
where the product is excluded or not directly affected by a Federal 
standard would radically flip the carefully constructed ``comprehensive 
national policy'' underlying the Energy Policy and Conservation Act and 
permit States to regulate, for example, where Congress or the Secretary 
of Energy have declared that there shall be no regulation because 
regulation will not result in significant energy savings or substitutes 
are not available. It would allow States to regulate after the 
Secretary of Energy, in the course of a rulemaking to prescribe 
standards for new covered products or in any amended standards, has 
evaluated the projected amount of energy savings, technical feasibility 
of a standard, economic impact on manufacturers, the decline in the 
performance of products, and any lessening of competition, and other 
factors has determined that a subset of a covered product should be 
excluded from regulation.
    When a State or an interested citizen believes that the exclusions 
from federal regulation should be revisited, Congress should insist, as 
it always has, that the interested parties bring the policy debate on 
this important Federal question to Congress or the Secretary of Energy. 
If enacted, Section 205 would open a wide door to the development of 
``a patchwork of numerous conflicting State requirements,'' H.R. Rep. 
No. 100-11 at 19 (1987), that Congress has always eschewed. Section 205 
is in direct conflict with the preemption provisions in the Energy 
Policy Conservation Act, as amended, at 42 U.S.C.  6297(d) relating to 
waiver because it allows States to regulate covered products without 
any consideration of the national interest. Section 205 conflicts with 
the central premise and purpose of the Act that energy efficiency is a 
national issue that requires a national solution.
               setting energy efficiency goals (title iv)
    The bill calls for the development of a strategic plan for national 
goals for energy savings in the transportation sector, particularly the 
reduction of gasoline usage. The deployment of intelligent 
transportation systems (ITS), technologies, and communication protocols 
on and by our Nation's highways and intersections offers a significant 
opportunity to reduce traffic congestion, idling, and delays for the 
commuting public and the delivery of goods and services.

    The Chairman. Well, thank you all very much for your 
testimony. I think it's been very useful. Let me ask just a few 
questions, and call on my colleagues to ask whatever questions 
they have.
    First, Mayor Chavez, again, thank you for being here, and 
for your leadership on this set of issues. On these grants that 
we are providing, or calling for, here in the legislation, 
what's your reaction to us considering putting some more 
specific criteria in for what the grant funds could be used 
for? Be a little more specific. It seems the language we've got 
in here now is pretty general. Do you have any thoughts on 
that?
    Mr. Chavez. Well, Mr. Chairman, there are some proven 
modalities, in terms of reducing greenhouse emissions. Methane 
capture is extraordinarily productive. That's one of the 
principle things that we did in Albuquerque that led us to such 
a low level of carbon emission, at least as a municipality. We 
now capture our methane. We used power generators, and we 
believe, shortly, we'll be selling electricity back into the 
grid. So, my recommendation would be that you look at the 
technologies and modalities that are most effective, and 
emphasize those, with some degree of specificity, leaving some 
room, as well, for creativity at the local level, because I 
think some new ideas may percolate up to the top.
    The Chairman. All right, good.
    Commissioner Kerr, let me ask you, on this energy 
efficiency resource standard which is being discussed, I know 
some States have adopted that, or some version of that. We have 
various people--Mr. Prindle and others--urging that the 
Congress step in and direct, essentially, that all utilities 
have to meet an energy efficiency resource standard, the 
concern being that if we don't do it at the national level, 
States will not get around to it, or will basically continue to 
talk about it, and for a very long period of time, when it 
could be implemented. What's your reaction to that? Is there a 
way that we can cause State utility regulatory commissions to 
do this, short of just doing it ourselves?
    Mr. Kerr. You didn't quite ask the question I thought you 
were going to ask, but I had an answer.
    [Laughter.]
    The Chairman. Well, you go ahead and answer the question 
you wanted me to ask, if you'd rather.
    [Laughter.]
    Mr. Kerr. I think it's very complicated, on both the 
renewable portfolio standard and an efficiency standard--a 
national approach is very difficult. There are unique aspects, 
not just regional, but system-specific aspects, and I think it 
is not the right idea for the Federal Government to become too 
prescriptive in that area.
    The characteristic of the local demand--and it is really a 
State-level responsibility and matter of engineering fact as to 
how that is best met. So, I think it would be problematic for 
the Federal Government to become too prescriptive.
    My suggestion would be something such as you have attempted 
to do in this bill with respect to integrated resource planning 
and with respect to rate design issues, two areas clearly and 
historically State areas, but to try to represent the policy, 
or to articulate the consideration of the policy goal in that 
area. I believe that there is momentum at the State level to 
look at these issues. I tried to highlight that in my 
testimony. I gave you one example, but we can certainly provide 
this information and give you some updated information what is 
going on in the various State levels.
    But I think it is very problematic for the Federal 
Government to weigh in, in such a prescriptive manner, for 
reasons of legal jurisdiction, to not having the ability to be 
as sensitive to the specific characteristics of the situation 
in any given----
    The Chairman [continuing]. Well, obviously, you're aware of 
the concern--the competing forces that we have on us. I mean, 
on the one side, we've got people saying, ``Greenhouse gases 
are about to ruin the planet,'' and, on the other hand, we've 
got State regulatory commissions saying, ``Now, this has 
traditionally been our job, so don't get involved. We don't 
want you being prescriptive.'' We don't want to be too 
prescriptive, but we do want to be prescriptive enough. So----
    Mr. Kerr. Well, and I think the answer to that, Senator, is 
that the proof is in the pudding. I mean, if we collectively, 
through our efforts and the Federal efforts, aren't making the 
progress we need to make, then perhaps we've lost the 
opportunity to complain about the Federal Government becoming 
too prescriptive. I think we all are playing catch-up, to some 
extent, with respect to climate policy. So, I think to go too 
far too fast--if we got down the road in 4 or 5 years, and 
efforts weren't being made--
    But I will give you an example, in terms of why I think it 
is troubling--very quickly. We, in North Carolina, have a 
unique load. We have a broad summer peak because of the 
characteristics of air-conditioning and our large manufacturing 
sector, and that is a load that is most cost-effectively 
serviced principally through baseload generation, and we don't 
have a real spiky peak that can be effectively managed through 
a lot of energy efficiency. It doesn't mean that it isn't an 
answer that we need to explore and work on, but our peak is, 
for instance, very different than Florida's peak, because of 
their use of strip heating. My point is, it is a technically 
difficult thing to do in a very broad sense. What I would like 
for us to do, and the challenge that I think you've put before 
us, is to assure you and the other members of Congress that we 
take as seriously as you do both the climate policy issue, as 
well as the importance of issues like efficiency. I hope I've 
demonstrated that through our testimony, and we certainly will 
accept that challenge if you'll allow us the opportunity to 
work on it ourselves.
    The Chairman. All right.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    I appreciate the testimony of all of you. It was very 
interesting.
    I want to go back to what I was discussing with the 
Secretary, and that's the issue of the Federal pre-emption and 
national standard versus regional standard. Coming from the 
State of Alaska, I have a very keen interest in making sure 
that the furnaces that we've got in our homes have an 
efficiency level and meet a standard that perhaps you don't 
have down there in Albuquerque, Mr. Mayor. So, I guess I'm 
looking at this from the perspective of--regional standards 
appear to make a fair amount of sense, for instance, in your 
northern States, your southern States. But we don't want to 
lose the cost efficiencies that are gained that you have in 
meeting one national standard as a manufacturer. So, I guess 
the question that I'd throw out--and I'll let anybody jump in 
here, and maybe we'll start with you, Mr. Schjerven--is it 
possible to have regional standards that still address 
northern-climate/southern-climate issues and maintain certain 
cost efficiencies? Or do you think that it is not physically 
possible once you leave a one-size-fits-all standard?
    Mr. Schjerven. Well, Senator, let me couch my answer in 
these terms. First of all, our industry has stepped up to the 
plate on every front that we have products, and we have very 
good technology, and we consistently push the envelop in high 
efficiency. Those products are certainly available today, and 
are being purchased today.
    When you think of the nuts-and-bolts issues that might 
drive cost with respect to regional standards, it comes in a 
couple of different places. First of all, you see the 
deployment of inventory then becomes a bit of an issue, 
particularly when you are in your peak season, where you've got 
perhaps less--throughout the entire industry, you've got less 
product in the overall pipeline. Restricting product for use in 
different categories or different regions certainly exacerbates 
that problem. It's not just a manufacturing problem, it would 
be a problem, for example, for many of the large wholesalers 
that are out there who serve contractors in multiple States. 
Those that would be close to the demarcation point between one 
region or another would be faced with a considerable issue, a 
considerable problem. There would be costs associated with 
that, and that's fairly clear. We see that modeled, in a small 
way, again, during peak seasons, when you see all manufacturers 
struggling to be sure that they've got enough of the product 
that they need in the locales that are needing it, because 
certain types of products are more in vogue in certain parts of 
the country than others.
    Senator Murkowski. So, is there any way to get around this? 
Any of the others? Commissioner, you mentioned that perhaps the 
Federal standard being the floor that is set, and then States 
can add on. Now, I'm trying to understand if we can still have 
the efficiencies--the cost efficiencies that you're speaking 
to, Mr. Schjerven, and yet still allow for some kind of 
regional standard. I think you said it, Mr. Mayor, you said 
that the standards there are very local.
    Mr. Schjerven. I think----
    Senator Murkowski. How do we bridge this?
    Mr. Schjerven. If I might add one more thing. What the 
industry has seen over the past several years is a steady 
increase in the percentage of higher-efficiency products--
again, you can look at air-conditioning, or you can look at 
furnaces, as well--as more and more education takes root and 
goes across the kitchen tables, we say, when the contractor is 
actually talking with the homeowner, who is making the decision 
about what products they're going to put in their home for 
replacement. We are seeing--and very noticeable--and 
percentage, in terms of double-digit, if you will, year-over-
year increase in the rate at which people are opting for the 
higher-efficiency product, higher than what the current 
standard would be. So, I think that bodes well, first of all, 
for two things: for the future, as well as the efficacy of the 
education program that the industry has undertaken, and 
continues to undertake, to educate consumers and you get the 
pull-through.
    Speaking specifically with respect to furnaces, one of the 
major cost issues that are associated with this for the 
consumer is the cost of installation of the higher-efficiency 
furnaces. Once you pass the point where you have what we call 
condensing furnaces, the installation costs are increased by 
quite a bit, as you need to dispose of condensate and do other 
things with venting of the combustion products. So, for that 
reason, the consumer, when they go to the higher-efficiency 
tier of products, it's not just the quality of the product 
themselves, which, because of those components, as well as 
materials, that are used, are higher in cost, somewhat. But the 
installation costs are significant, the delta----
    Senator Murkowski. But then, that gets to the concern that 
you raised in your testimony, that the higher cost of the new 
appliances will deter people from purchasing them in the first 
place, which cycles back to, we don't purchase, we don't move 
forward with the energy-efficient appliances.
    Mr. Schjerven. It's a very good point. In the case of the 
furnaces, I think what's really important to look at is, 
homeowners that are replacing furnaces are typically replacing 
furnaces that have been in their home for 15 or 20 years, 
perhaps longer. These furnaces, in terms of efficiency, are 
much lower than the furnaces that we currently see at the 7 
percent level, for example. So, even if they were to opt and 
make the decision, then, to go with the lower of the higher-
efficiency-category products, having that choice, make that 
economic choice would take out of service the vastly 
inefficient furnaces that were produced yesteryear, you know, 
20 more years ago.
    So, in fact, we do get what we want to get, I think, in 
terms of the society, as people upgraded to higher-efficiency 
furnaces, but, still, the market forces are allowed to work, at 
that point in time, and they can decide what they want to do.
    Senator Murkowski. Mr. Chairman, my time is out. I think 
we've still got some really difficult issues to work out 
between how we move to a regional standard, or if we can move 
to a regional standard. But if somebody else wants not pick 
that up, that would be great.
    The Chairman. Thank you very much.
    Senator Sanders.
    Senator Sanders. Thank you, Mr. Chairman.
    Again, thank you all very much for being with us today.
    Let me just begin with Mayor Chavez. Thank you very much 
for being here. Congratulations for all of the very exciting 
work that you're doing in Albuquerque. I am of the belief that 
we are on the cusp of some very radical changes in energy 
efficiency, that we can make some major breakthroughs. We're 
seeing cities and towns all over the State of Vermont taking 
some giant steps forward.
    I believe, as a former mayor, that, in fact, in our 
Federalist form of government, that cities and towns and States 
can play huge roles. That's why I've been very active in 
supporting the Energy Environmental Block Grant.
    Mr. Mayor, why don't you give us some ideas regarding what 
you think the impact of an Energy Environmental Block Grant 
will mean to the States, cities, and towns all over America, 
and moving forward in energy efficiency, sustainable energy, 
and so forth.
    Mr. Chavez. Well, Mr. Chairman, Senator, thank you for the 
question. Obviously, the goal is the containment of carbon 
emissions, and so you have to go to the source of those 
emissions. It certainly would be worthwhile to have a single 
farm in northern Iowa be energy efficient. But if you really 
want to maximize the initiative, you need to go, really, where 
the population centers are, and that's what I believe these 
block grants to do, is, they go to the populations at the right 
level, and then above.
    The development of baselines for each of these communities 
is extraordinarily important, as I said in my direct testimony, 
so that you can monitor, measure the progress made against 
carbon emissions, and then you can just--you can tick off the 
different modalities, whether it's fleet conversion--one of the 
most important of----
    Senator Sanders. Let me ask you a simple question. If 
Albuquerque had a few million dollars coming in from the 
Federal Government, what would that mean to your community? 
What would you be able to do?
    Mr. Chavez. Mr. Chairman, Senator, we would complete the 
capture of methane from our landfills. That's the single 
biggest thing that I think every urban----
    Senator Sanders. Now, in Vermont, what we're doing--we have 
a huge landfill near the Canadian border--we are providing 
electricity to 5,000 homes from the methane we're capturing. Is 
that what you're talking about?
    Mr. Chavez. Absolutely.
    Senator Sanders. Okay. You need some resources, to do that.
    Mr. Chavez. Absolutely. Many of these investments, we know 
that there's a tremendous business financial model for them, 
but it's the up-front--the investment that is very difficult 
for the local government.
    Senator Sanders. Now, I noticed in your remarks that 15 
percent of the power used by the municipal government comes 
from wind. Do you see potential for wind and for solar 
paneling? Do you, in New Mexico, perhaps, or in Albuquerque?
    Mr. Chavez. Mr. Chairman, Senator, we are blessed with a 
lot of sun in New Mexico, and, unfortunately, this time of 
year, a lot of wind. I would be remiss if I didn't mention, as 
well, at least speaking on behalf of the National Conference of 
Mayors, that we've taken the position that nuclear ought to be 
on the table. It's not my personal belief, but that is the 
position of the Conference of Mayors. In fact, Albuquerque's 
energy portfolio is about 30 percent alternative--15 percent 
wind, 15 percent nuclear.
    Senator Sanders. But do you see substantial possibilities 
for wind and solar?
    Mr. Chavez. Mr. Chairman, Senator, there's no doubt that 
coal is going to be with us for a long time, more efficient 
ways of extraction of energy from coal, but I don't see any 
reason why we can't set a goal, move toward it, and use the--
whether it's----
    Senator Sanders. I mean, California is talking about 
installing 1 million solar units in the next 10 years. Is that 
a model that you think that the rest of the country could look 
at?
    Mr. Chavez. Mr. Chairman, Senator, yes. Then, hydrogen 
absolutely needs to be in the conversation.
    Senator Sanders. Okay. Okay.
    Mr. Kerr, if I might ask you a question, there is always--
seemingly at least--a conflict, in terms of energy efficiency 
and a utility. Utilities make their money by selling a product, 
and we're saying, ``We want you to sell less of that product,'' 
which seems to be a bit of a contradiction. I know that in 
Vermont, what ended up happening, with the exception of the 
city where I used to be the mayor, where we're doing a very 
strong job in energy efficiency, the legislature ended up 
saying that we wanted another agency to be working on energy 
efficiency, because they thought there was just too much of a 
conflict between the utilities and the goal of energy 
efficiency. What do you think about that?
    Mr. Kerr. I think that it's a complicated question, because 
there are several different elements of it. First, under most 
State laws that franchise these electric utilities, there is 
some element of running an efficient operation. In other words, 
there is some inherent, in just your basic franchise, 
obligation to include efficiency, if it's a most reasonably 
cost resource. That said, traditional ratemaking has tended to 
be volumetric; in other words, the customers generally don't 
like fixed facility fees--your monthly $15 to cover some of the 
fixed cost of having the service available. Therefore, rates 
have been fairly volumetric; and so, a large part of the fixed 
cost and profit are tied to sales volumes. That's the 
disincentive that you see, or that is argued exists, and I 
think it's probably true, but there are other aspects of that. 
The utilities earn on their rate base; and so, they are often 
more incented in their earnings--from an earnings perspective, 
to invest in plants in the ground than negawatts----
    Senator Sanders. Let me just ask you this, and my time is 
expired. To your knowledge--you, obviously, are familiar with 
many utilities in North Carolina and around the country. How 
many of them are aggressively, for example, trying to replace 
incandescent light bulbs with compact fluorescents? Is this 
something that many utilities are doing?
    Mr. Kerr. I don't know the answer to that. I would say that 
Duke Energy, in North Carolina, its chairman/CEO, Jim Rogers, 
has been a national leader in trying to elevate the discussion 
on efficiency as a fifth fuel in the utility portfolio. So----
    Senator Sanders. But you're not aware of--I mean, see, we 
talk about low-hanging fruits.
    Mr. Kerr. Yes.
    Senator Sanders. This is pretty low-hanging.
    Mr. Kerr. I think that there are--I don't know of the 
specific programs. We certainly can try to get that information 
to you Senator.
    Senator Sanders. Okay. Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Lincoln.
    Senator Lincoln. Thank you, Mr. Chairman. Thank you so much 
for your leadership in this hearing today. I think it's been 
most helpful. We all seem to get excited about the 
opportunities and the possibilities of what we can do about 
taking care of this wonderful planet we've been blessed with, 
and the environment, and a whole host of things, but we also 
sometimes forget to realize that the most immediate impact we 
can make is the conservation.
    I'm reminded often, because I have twin boys that are 10 
years old, and trying to get them to turn the switch off--their 
light off in their room when they just leave the room seems 
monumental at this point. But we're getting there.
    So, I'm pleased that we're having this hearing, and 
certainly grateful to all of you all here at the panel.
    I just had three questions, Mr. Chairman. I hope I get to 
all of them.
    I've certainly been a long supporter of programs that 
increase energy efficiency of appliances, and have many of your 
members in my State--Whirlpool, as well as Emerson Electric and 
Baldor--a whole host of different manufacturing. One that we 
are particularly proud of is our Lennox facility, and it's 
located in Arkansas, and we have been so excited about some of 
the great work that they've been doing, particularly with 
another one of our corporate citizens in Arkansas, and that's 
Wal-Mart. I took a tour of the facility, where they were going 
beyond Federal standards on behalf of a customer that had 
requested that. I guess that I'd like to ask Mr. Schjerven, in 
terms of that, Wal-Mart, in seeking to achieve greater energy 
efficiency, came to Lennox for a product, and it was 
interesting to see the balance, in talking with both the 
workers and the plant folks, of putting on an additional line 
that would produce that product. There's a point, a balance, at 
which industry has to reach, in terms of making sure that it's 
going to be cost-effective for you, in the long run, to be able 
to create a new product, go beyond those standards, develop the 
technology, and yet everybody benefits from that, because as 
you develop that new technology it becomes apparent in other--
you know, other products that you produce for other people 
because you've developed that technology for one.
    I noticed, in your testimony, that you had some serious 
concerns--and this touches a little bit on what Senator 
Murkowski was talking about--the concerns in the bill as it 
relates to regional standards for efficiency. I was fortunate 
enough to see where the consumer actually drove industry, which 
I think is the appropriate way for that to happen. But if those 
regional standards exist, you, all of a sudden, may be required 
to produce certain products for areas where you may see peaks 
and valleys, in terms of demand, and what have you.
    But I'd just like to hear from you, and any others that 
would like to comment, about what you believe your industry 
can, or can't, really certify, in terms of compliance with 
regional standards, and why you think it is important to 
centralize those standards. I've seen it from touring your--the 
plants and realizing how important it is to meet the consumer's 
needs, and yet not producing something that, again, is going to 
cause people to use an old appliance, as opposed to a newer 
standard, which is really going to get us where we're going. 
But anything you want to comment there would be great.
    Mr. Schjerven. Well, thank you, Senator. Thank you for the 
kind comments about our operation, as well.
    The reality of what you saw, the investment that you make 
in manufacturing facilities is replicated--when you think of 
regional standards--throughout the distribution organization, 
whether it's owned by a factory or whether you're talking about 
the wholesale or distributor level, or even as far as the 
inventory and warehousing process that individual contractors 
go through. So, there is a replication of costs and concern as 
you look at that.
    I guess, from an industry standpoint--and I just really 
need to be clear on this, because this industry is more than 
willing, and more than moderately able, to do whatever it takes 
to go ahead and comply and to reduce the amount of energy 
that's consumed. When you look at the milestones that we've 
gone through as an industry, I think that is aptly borne out.
    So, it's not a matter of unwillingness, at all; it's a 
matter of failing to see how some of those aspects in this very 
complicated legislation really, when the rubber hits the road, 
can get done, you know, correctly, and done smoothly.
    As far as producing high-efficiency products, I think 
everyone in our industry, from a manufacturing standpoint, is 
delighted to produce a lot of high-efficiency products, because 
it represents, in some ways, the pinnacle of the technology, 
and we're just, you know, really proud to do that. But we also 
feel that what we've seen in the marketplace is that the 
consumer is, in most cases, quite able to make that economic 
decision about what is best for them. We have seen, through 
education, more and more of these consumers then opt for 
higher- and higher-efficiency products. In the case of the 
furnace, it's an interesting dilemma, because our products, 
unlike other appliances, are not plug-and-play, you might say; 
rather, the installation process is a significant part of the 
cost to the consumer, and also a significant part of--or a 
significant determinant about how well that system operates for 
the consumer. That being the case, when you look at the high-
efficiency--the highest-efficiency products on the furnace 
side, it drives much--additional complexity, in terms of the 
installation in the home, as well as it does drive increased 
cost, because of materials and some components that we use 
inside. So, it's a very complicated issue to deal with. It 
doesn't yield the simplistic answers.
    I guess just one concern that we, as an industry, have is, 
we want to see this legislation effected in a way that 
absolutely does what we want to do for the country, both in the 
short term and the long term. But, by the same token, we think 
that's important, on something that is this complex, that we 
take the appropriate amount of deliberate work with the people 
sitting around the table who are experts in all of their 
different areas to drive legislation that really will work, 
will really get the job done.
    Senator Lincoln. Absolutely.
    Mr. Schjerven. Just not seeing--in the case of the pre-
emption, if you will, it's just not clear to us how that thing 
can be effected smoothly. Yes, we are concerned about the 
consumers, at the end of that, retaining their choice and 
driving the market forces.
    Senator Lincoln. Well, I appreciate that. I also see it in 
terms of the effect it may have on your competitiveness, as 
well, if you're having to meet multiple regional standards, as 
opposed to a centralized standard. To me, it seems like it 
would put you at a disadvantage, competitively, 
internationally, as we see more and more of our technologies 
and our intellectual properties being lost in other countries, 
and we'd hate to see that happen.
    Mr. Chairman, I just have one more brief question. May I 
ask it? Great, thanks.
    Mr. Prindle, you mentioned electronics. I was sorry that 
Senator Murkowski left. She has two older boys, and she always 
prompts me on what I need to be aware of down the road, I 
guess. This week, however, in elementary school, it is Turn Off 
Electronics Week. It's not for the sake of conservation. It's 
their minds that we are asking them to use in different ways--
go outside and do some things, as well.
    But you mentioned that consumer electronics--we've been 
visited by a couple of electronics groups up here who are 
talking about the idea that there is a real opportunity there 
for conservation, and that perhaps putting competitiveness into 
their industry, or providing incentives for those electronics 
industry folks to actually compete with one another in order to 
be able to reach that. What do you feel like is the best way in 
the electronics industry, that you can see greater 
conservation?
    Mr. Prindle. We think competition would work very well in 
that circumstance, since what the section calls for is simply 
some consistent labeling, so the consumers can see, ``Oh, this 
TV is going to use 500 kilowatt hours, this TV will use 300 
kilowatt hours. Which one would I rather buy? How much more do 
I like that high-definition picture than this one compared to 
the energy cost?'' Because right now, you can't tell.
    Senator Lincoln. So, transparency is your----
    Mr. Prindle. Right. I mean, that was one of the first 
things Congress did in the 1970's, was simply give consumers 
labeling information so they can compare products. That's what 
enables competition to work, when you're competing based on 
consistent information. So, we need to complete the test 
procedures, and then we need to get some kind of labeling that 
allows consumers to make those simple comparisons while they're 
out shopping. Because what most consumers don't realize is that 
the biggest TVs out there today consume more energy than a 
refrigerator.
    Senator Lincoln. That's amazing.
    Mr. Prindle. They don't get that.
    Senator Lincoln. Yeah. That's great. Well, thanks so much.
    Just a compliment to Mayor Chavez. We have two of our 
larger communities in Arkansas that have been capturing, from 
landfills, methane gas, and it's been very productive, both in 
their ability to attract industry in their industrial park, 
where they can provide a consistent energy source at a lower 
price, sometimes. But also, just the enthusiasm. I was at one 
of the dedications, and the enthusiasm of the community to see 
that there's something productive coming out of that operation, 
and that there is such great potential there. It's wonderful. 
So, we appreciate you leading the way on that, and hope you'll 
keep it up.
    So, thanks, Mr. Chairman.
    Senator Sanders [presiding]. Thank you.
    Let me just throw out a question or two, and then we'll let 
you go.
    Mr. Schjerven, if I can begin with you, Lennox is in the 
business of manufacturing products for heating, air-
conditioning, and refrigeration markets.
    Mr. Schjerven. Yes, sir.
    Senator Sanders. Educate me, please. How close are we, in 
terms of what people are purchasing today and what you are 
producing, to the kind of optimum that we could reach in energy 
efficiency? Do we still have a long way to go, in your 
judgment? I gather we've made some progress in refrigeration.
    Mr. Schjerven. Well, in fact, we've made good progress, I 
think, not only on the heating side, but certainly on the air-
conditioning side--refrigeration, as well. You see--for 
example, in the case of refrigeration, you see that it's not 
just in the core technology, it's also in the utilization of 
control systems that make these devices much smarter and able 
to go ahead and drive much better efficiency because of it.
    In terms of, ``How far can you go?'' if you look at heating 
products, and you look at the highest-efficiency products that 
are marketed today, you're talking efficiencies in the 
neighborhood of about 94 percent, plus or minus. So, you know, 
you're very close. There is a gap between those high-efficiency 
and the other higher-efficiency products, which is the low 
side, which would be the 78 percent, which is the lowest 
standard that's out there today. Those are at least double the 
efficiency--at the low level, have doubled the efficiency of 
many of the products which are currently installed in people's 
homes, which have been running for 20, 25, 30 years. So, it's 
for that reason, and the point that I may have botched a little 
bit, but the point that I did try to make earlier was that I 
think the consumer having the choice, even if they're driven 
because of the economic decision that they think is best for 
them, in terms of payback, to the lower of the higher-
efficiency products, it still represents a quantum improvement, 
and they would be motivated to go ahead and do that; whereas, 
if you're looking at only a product offering that is at the 
highest level of efficiency, that might drive a different 
economic decision to go ahead and repair, in which case, they 
would continue to run that older, much lower----
    Senator Sanders. Let me ask you this.
    Mr. Schjerven. Sure.
    Senator Sanders. I assume that, in most cases, the higher-
efficiency product is more expensive. Is that a fair 
assumption?
    Mr. Schjerven. Yes, not only to purchase, but also to 
install----
    Senator Sanders. Right.
    Mr. Schjerven [continuing]. Correct.
    Senator Sanders. In your judgment, what role could Federal 
tax credits or Federal financial incentives provide--and help 
the consumer? Is that a significant----
    Mr. Schjerven. I think that's a very good question. I think 
it could be. In fact, if you look--not just on furnaces, but if 
you look over the spectrum of equipment over the last 20 years, 
we've certainly seen programs at different levels, whether it 
was with respect to tax provision or, in the case of utilities, 
driving, you know, the purchase of a higher-efficiency product 
through rebates of some sort. In all those cases, that creates 
much larger interest in the minds of the people. Of course, it 
reduces the number of years for payback, and makes what might 
have been an unthinkable decision----
    Senator Sanders. Well, I am impressed--I don't know if any 
of you are familiar with it--and if you are, you can jump right 
up--in California, as best as I can understand--which is 
leading the country in this way--if you put solar paneling on, 
you're going to get a rebate of about $10,000 to cover whatever 
it costs, maybe one-third of the whole product. I mean, that's 
a very significant rebate.
    Mr. Schjerven. Certainly would be.
    Senator Sanders. Do you think, if some of us--not 
everybody--thinks that global warming is a huge problem, and 
that this country has got to address it in a very bold way, and 
that it really is not acceptable that we continue to have huge 
amounts of inefficient products causing greenhouse gas 
emissions, do you think that the Federal Government should be 
active--more active, perhaps--in terms of incentives and tax 
credits to help people who don't have the money to purchase----
    Mr. Schjerven. Yeah, I certainly think that that could be a 
possibility. But, you know, there's other incentives, as well 
that work. I had mentioned education before, but one program 
that I think has been--not just only for our group of 
appliances in our particular industry, but for all appliances--
has been the ENERGY STAR program that EPS and DOE have put 
together. We've been a large proponent of that. In fact, our 
company has been an ENERGY STAR partner, 4 out of the last 5 
years.
    Senator Sanders. All right, but the beauty of the ENERGY 
STAR program is transparency, I gather. You know what you're 
buying, and you know what you can save, down the pike.
    Mr. Schjerven. Right. That's exactly right.
    Senator Sanders. Right.
    Mr. Schjerven. But I think those kind of programs, possibly 
in conjunction with other programs, such as the possibility 
that you had mentioned, could definitely drive that breakeven 
point down, and, you know, make other--still keeping the 
marketplace working as a marketplace, but driving the end 
result that we're all looking for.
    Senator Sanders. Well, I think it's interesting, because--I 
think it was Mr. Prindle who made the point, a moment ago, that 
people who are purchasing these new big televisions are 
probably not aware, in many cases, that that television is 
consuming more electricity than their fridge is, right?
    Mr. Prindle. That's right.
    Senator Sanders. All right, I asked Mr. Schjerven that 
question: how do other people feel about the potential to move 
forward, and the use of tax credits? We are seeing--we do that 
now. If want to buy an energy efficient car, a hybrid, you're 
going to get a tax credit. That's something that's going to be 
discussed in the Finance Committee. Is that important? Is that 
an important part of a program, do you think?
    Yes, Mr. Pitsor.
    Mr. Pitsor. Yes, Senator. NEMA has experience with 
commercial buildings tax deduction, which is a deduction that's 
available to commercial building owners for new construction, 
as well as for renovating and retrofitting existing buildings. 
We represent the lighting manufacturers. About 2 billion square 
feet of new construction is built each year, and about 2 
billion square feet is renovated each year. We have found that 
this commercial buildings tax deduction has been very helpful 
in providing a way for building owners to help offset the cost 
of doing renovation work, which is--the installed base is where 
we want to tackle. That's where the energy-inefficient product 
is still installed. Getting that out and putting in the new 
equipment and new technologies, is the hurdle, and we have 
found that deduction to be helpful. It was only for a short 
time period, and part of the concern is, it doesn't provide 
enough planning for building----
    Senator Sanders. So, you would be supportive of a longer--
--
    Mr. Pitsor. A longer time period. It's a performance-based 
standard, so you have to show that you actually are making the 
effort and that the building is going to meet the new 
requirements, to qualify for the decision.
    Senator Sanders. Wait, before I get to Mr. Prindle, Mr. 
Pitsor, you represent light manufacturers?
    Mr. Pitsor. Yes.
    Senator Sanders. Let me ask you this: not to put you on the 
spot here, but one issue that has concerned me as we move 
toward sustainability and energy efficiency. Some of us would 
like to see these new products manufactured in the United 
States of America, new jobs created here. When I look at light 
bulbs, the new ones especially, I don't see many of them 
manufactured in America. Could you tell me about that? Are we 
planning to manufacture the new energy-efficient light bulbs in 
America?
    Mr. Pitsor. Well, we have a broad range of--you have the 
incandescent bulb, the inefficient product; you have CFLs, you 
have the new LED----
    Senator Sanders. Are any CFLs manufactured in the United 
States----
    Mr. Pitsor. By and large, most of those are made overseas, 
because of the electronics involved in the base and the cost of 
producing the CFL.
    Senator Sanders. Can't we figure that out in this country?
    Mr. Pitsor. Well, we can figure it out. We did the research 
and engineering here. But in terms of getting the cost down to 
a price that the consumers are interested in to replace--
there's a cost-driven basis here.
    Senator Sanders. Well----
    Mr. Pitsor. But in the LED area, I think there's an area 
where we see a lot of U.S. production in LEDs today, and that's 
going to grow, and that is an area where we see a lot of 
promise.
    Senator Sanders. I spoke, a couple of weeks ago, to a 
gentleman from Philips. Could you give me an idea when you 
expect LEDs to be commercially available, you know, for homes 
and so forth?
    Mr. Pitsor. I wish I had that clear crystal ball for that. 
We've seen radical improvements in the technology. Cost is 
still a problem there, as well as perfecting a white LED, a 
white-emitting LED. The DOE has an R&D program that our members 
are very active with, trying to find those breakthroughs.
    Senator Sanders. Do you think 5 years or so?
    Mr. Pitsor. Five to 10 years.
    Senator Sanders. Well, that's a big difference--5 or 10 
years is a big difference.
    Mr. Pitsor. Right. Then----
    Senator Sanders. But these will be huge breakthroughs, in 
terms of energy efficiency, won't they?
    Mr. Pitsor. Absolutely. And we see niche areas today where 
these are starting to take place. But, in general lighting, 
like for lighting of this hearing room, that's down the road.
    Senator Sanders. Okay.
    Mr. Prindle, did you want to----
    Mr. Prindle. Yes, I wanted to reply to your question, 
Senator, on tax incentives. We certainly support tax 
incentives, and, with NEMA and others, have supported the 
EXTEND Act that's currently in the Senate, S. 822. However you 
have to understand that tax incentives are targeted at the high 
end of the energy performance market. The tax incentives for 
new homes, for example, are targeted for homes that are 50 
percent better than code. The data that we have, so far, 
indicates that maybe no more than 8- or 9,000 homes apply for 
that credit, in 2006, out of more than a million that we built 
in the United States. We think that's small--helpful, but 
small-impact. On the other hand, appliance standards cover the 
entire market. That's why they're important. On that point, 
most furnaces are specified, not by consumers, but by 
homebuilders for new homes. Homebuilders have no incentive to 
specify high-efficiency furnaces.
    Senator Sanders. They could just as soon put in the cheaper 
model and----
    Mr. Prindle. Absolutely.
    Senator Sanders [continuing]. Less efficient.
    Mr. Prindle. So, what you see is the lowest market share 
for high-efficiency furnaces is in the new construction market. 
That's why appliance standards and building codes, between 
them, somehow have to deal with that fundamental market-barrier 
problem.
    Senator Sanders. Okay.
    Yes, Ms. Collier.
    Ms. Collier. Senator, I would just like to answer that 
question from the perspective of the Federal Government, and 
that is that renewable tax incentives, as well as State 
renewable incentives, are absolutely critical to getting 
renewables and to ESPCs. So, it's critical that we see those 
continue so that we can more effectively----
    Senator Sanders. And long term so that there is----
    Ms. Collier. Yes.
    Senator Sanders [continuing]. Dependability, and all that. 
Okay.
    Mr. Kerr. Mr. Chairman, I was just going to add in----
    Senator Sanders. Please.
    Mr. Kerr [continuing]. Following up on our earlier 
discussion, where we talked about really eliminating the 
disincentive, the throughput issue, part of what NARUC is 
working on, and working with EEI and Consumer Advocates on is--
you can eliminate the disincentive, but then it is to create 
the right positive incentive to make the investments on 
efficiency, whether it be rebate programs, weatherization, and 
whatnot. We are working on--and these are complicated issues, 
but there is--to assure that those moneys are, first of all, 
recovered. Second, is to look at the appropriate ways to allow 
those expenditures to be capitalized and earned on, similar to 
a supply side option, a plant in the ground, try to bring 
efficiency investments on par with other supply side resources. 
Then, third, it is to explore appropriate incentives. I believe 
that section 603 of this bill, dealing with rate design-type 
issues, is the appropriate way. I mean, these are issues 
principally of State law. But the point is, to your fundamental 
point in your question, getting the economics right to 
incentivize folks to invest in efficiency, as opposed to the 
other options that might be out there. We're investing a 
tremendous----
    Senator Sanders. But I'd give you an example of what I 
mean. I don't know if it's true or not, but I have been told 
that if, tomorrow, we gave away--every person in America--
compact fluorescent light bulbs--we bought 'em, we gave 'em 
away--America would save money. We would save--obviously, 
there's a cost, in millions of light bulbs, and, on the other 
hand, the reduction in electrical use would, long term, save us 
money. I mean, I think, seated where you are seated today, in 
previous weeks have been people telling us that this planet 
faces some very, very dire circumstances if we do not act 
boldly. We have got to be thinking big-time outside of the box. 
What we thought about 5 years ago is no longer useful.
    So, I think I can speak for the whole committee and--or 
maybe not, I don't know, but I will----
    [Laughter.]
    Senator Sanders [continuing]. In thanking you for being 
here, for sure, and hoping that we can think boldly in trying 
to address one of the great crises facing our planet.
    Thank you very much for being here.
    [Whereupon, at 5:15 p.m., the hearing was adjourned.]
                               APPENDIXES

                              ----------                              

                               Appendix I

                   Responses to Additional Questions

                              ----------                              

    Responses of William Prindle to Questions From Senator Domenici
                           regional standards
    Question 1. ACEEE supports the imposition of regional standards for 
space heating and cooling products. Would you disagree that the more 
efficient products are already on the market? What benefits do you see 
from the use of regional standards? How would you address the issue of 
enforcement?
    Answer. ACEEE supports providing DOE authority to consider regional 
standards where such standards could result in improved energy and 
economic benefits. Yes, more efficient products are already on the 
market, providing a sound basis for stricter energy standards in large 
regions where they are most cost effective. For example, in northern 
states, high efficiency natural gas furnaces enjoy between about 30% 
and 70% market share, depending in part on the extent to which states 
and utilities have rebated or otherwise promoted the technology. But 
for large market segments, (e.g. rental housing, new construction) the 
purchaser remains focused on lowest possible first cost, even when more 
efficient equipment is very cost effective. Standards are the best way 
to assure a good level of minimum efficiency appropriate for each 
region.
    ACEEE has estimated that a regional standard for natural gas 
furnaces set at 90% annual fuel utilization efficiency (AFUE) applied 
in the northern half of the country would save 1.7 billion therms per 
year when fully implemented, enough to heat about 3.1 million typical 
homes. Consumers would save on net about $8 billion over about 20 
years.
    State building codes provide a ready enforcement mechanism for 
regional standards. Two indications of state interest: Three states 
have already adopted stricter-thannational standards for furnaces and 
the National Association of State Energy Offices supports the proposal 
for regional standards. Once DOE sets a regional standard, states can 
adopt it into their building codes and state appliance standards, 
taking on the task of enforcement. Manufacturers would assist in 
enforcement by marking products as appropriate for either the northern 
or southern region. Manufacturers would continue to certify product 
performance through their trade associations as they have historically.
                          expedited rulemaking
    Question 2. ACEEE supports S. 1115's provision to expedite 
rulemakings for consensus standards and does not support the 
Department's competing proposal. Please compare the two proposals and 
explain your position on this issue.
    Answer. We are concerned that the Department's proposed language 
violates precepts of good, open public process because it does not 
require the Secretary to respond on a public record to comments 
received in opposition to a purported ``consensus'' proposal. If the 
Secretary determines that a comment in opposition to a so-called 
``consensus proposal'' is not ``significant and legally relevant,'' the 
previously published final rule stands. We think a process that does 
not require the Department to explain its response to comments on a 
public record is bad public process.
    We have discussed with the Department these concerns and we believe 
they now understand this problem with their proposed approach. With 
respect to the approach in the Senate bill, we understand the 
Department would like to be able to extend the time periods allowed for 
each step of the expedited process provided for in the Senate bill. We 
are not opposed to providing the Department authority to grant itself 
limited one-time extensions at each step of the process.
                     standards for component parts
    Question 3. ACEEE supports the imposition of efficiency standards 
for component parts--in particular for furnace fans. How much energy 
savings do you expect from the furnace fan product? Is it appropriate 
to regulate both the product and the product's component?
    Answer. Section 223 of the bill reported by the committee (S. 
1321), ``Furnace fan rulemaking,'' carries a misleading title. The 
underlying law calls for an electricity efficiency performance 
standard, not a component standard. The bill section, as amended in 
committee, sets a deadline of 12/31/2014 for DOE to act on the 
provisions of 325(0(3)(d), ``the Secretary may consider and prescribe 
energy conservation standards or energy use standards for electricity 
used for purposes of circulating air through ductwork.''
    A better section title might be, ``Furnace electricity use 
rulemaking.'' Electricity use depends on a number of components, 
including the fan itself, the motor used to drive the fan and controls. 
Furnace electricity use is an aspect of furnace energy use not 
addressed by the existing national standard, which only addresses 
natural gas and oil use.
    ACEEE estimates that a national furnace electricity use standard 
could save more than 13 billion kilowatt hours per year and provide net 
present value savings to consumers of more than $4 billion.
                              ftc labeling
    Question 4. S. 1115 directs the FTC, in conjunction with other 
agencies such as DOE, to issue guidelines for Energy Star labeling for 
consumer electronic products such as televisions and computers. Do you 
believe there are products currently on the market that will qualify 
for Energy Star labels?
    Answer. We support Section 226 of S. 1321 which would provide for 
FTC labeling of energy performance of certain electronic products. 
Energy Star is a voluntary program which enable manufacturers to better 
market their most efficient products. The FTC labeling program is a 
mandatory label that provides consumer information on all products, 
regardless of their efficiency performance. There are currently Energy 
Star qualified televisions, computers and other electronic products. As 
a rule, Energy Star is designed to identify the top 25% or so energy 
efficient products, so, we expect that, when Energy Star qualification 
levels are revised, it will continue to demarcate existing efficient 
products.
                       energy efficient lighting
    Question 5. The bill contains a Sense of the Senate that Congress 
should establish performance targets for lighting products. I am 
interested in the lighting industry's recent commitment to support 
public policies to transform the U.S. lighting market within the 
decade. Where is the industry on this effort to phase-out the least 
efficient incandescent light bulbs?
    Answer. We understand the industry is developing and bringing to 
market incandescent light bulbs featuring efficiency performance better 
than today's conventional light bulbs, but not nearly as good as 
compact fluorescent light bulbs or next generation LED lighting. The 
potential energy and economic savings of this phase out will depend on 
its timing and making sure it is carefully designed to prevent 
loopholes for inefficient that might be exploited by low-cost Asian 
manufacturers.
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

               Statement of the American Gas Association
                           executive summary
The American Gas Association
    The American Gas Association represents 200 local energy utility 
companies that deliver natural gas to more than 64 million homes, 
businesses and industries throughout the United States. Natural gas 
meets one-fourth of the United States' energy needs and has 
historically been the fastest growing major energy source. Adequate 
supplies of competitively priced natural gas are of critical importance 
to AGA and its member companies. Similarly, ample supplies of 
reasonably priced natural gas are of critical importance to the more 
than sixty million customers that AGA members serve. AGA speaks here 
for those customers as well as its member companies.
America Should Use Its Cleanest Fuel In The Most Efficient Way Possible
    Natural gas is the cleanest fossil fuel. When combusted it produces 
less carbon than any other fuel. Importantly, almost all of the natural 
gas consumed in America is produced in North America. Thus, from the 
perspective of both its environmental benefits and its contribution to 
America's energy security, natural gas is nearly the perfect fuel. AGA 
believes that America should use its cleanest and most friendly fuel in 
the most efficient way possible.
Increased Natural Gas Prices Burden Consumers and the Economy
    Throughout the 1990's natural gas producers, for a variety of 
reasons, had significant excess production capacity. As a result, gas 
prices were consistently in the $23 range per million British Thermal 
Units (MMBtu). In the winter of 2000-2001 natural gas prices rose 
dramatically. Initially, the general belief was that this spike was an 
aberration and that new exploration and production efforts spurred by 
these higher prices would bring additional supply online, and prices 
would fall concomitantly. To the surprise of almost all involved, this 
did not occur, and, over time, it became clear that in fact the higher 
prices were the result of a more systemic underlying problem. New 
producing areas, which in fact hold prolific supplies of natural gas 
that could meet America's needs for many decades, were unavailable for 
exploration and production as a result of a number of federal policies. 
Accordingly, those in the exploration and production business (which 
AGA does not represent) have had no choice but to focus on mature 
areas, where even maintaining current levels of natural gas output 
requires increasing degrees of effort and financial investment.
    As this situation developed, it began to become clear that 
ameliorating high natural gas prices for consumers would require not 
only efforts aimed at encouraging more natural gas supply but also 
efforts aimed at increasing the nation's level of energy efficiency. 
With the supply-demand situation remaining so narrowly in balance, 
either modest increases in supply or modest decreases in consumption 
can have a dramatic effect on the prices consumers pay.
    Even prior to the dramatic price increases of 2000-2001, natural 
gas had achieved a remarkable level of efficiency. The average American 
home today uses 25% less natural gas than it did in 1980. Similar 
trends have occurred in the commercial and industrial sectors of the 
customers served by natural gas utilities. Moreover, data recently 
compiled by AGA reveal that, since the winter of 2000-2001, Americans 
have reduced their natural gas consumption at even a more accelerated 
rate.
Increased Energy Efficiency Will Reduce Prices, Promote Energy Self-
        Sufficiency, and Address Climate Change
    AGA applauds Senator Bingaman for his leadership in introducing S. 
1115. Strides in energy efficiency will produce many benefits for 
America's consumers. Energy efficiency will assist in taking the demand 
pressure off natural gas, helping to bring more reasonable energy 
prices to consumers. Increases in energy efficiency will also assist in 
moving America toward a goal of energy self-sufficiency. Moreover, a 
unit of energy not consumed produces zero carbon emissions. With the 
current interest in greenhouse gas emissions, climate change, and the 
possibility of limiting the nation's carbon emissions, energy 
efficiency is now more important than ever.
AGA Offers the Following Recommendations for Improving S. 1115
    Use Full Fuel-Cycle Analysis In Evaluating Efficiency. AGA believes 
that the federal government has for years overlooked one of the most 
productive energy efficiency steps that could be taken--to analyze 
energy efficiency issues on a ``full fuel-cycle'' or ``total-energy 
efficiency'' basis. In short, America should change its focus from 
efficiency improvements solely at the point of energy use to look 
instead at the consumption of energy through the whole energy 
production and consumption cycle. Such an analysis would ensure that 
the maximum productive benefit is received from all of our energy 
resources. A simple example is the water heater. Rather than focusing 
simply upon the efficiency level of water heaters at the point of 
energy consumption, the federal government should also consider the 
fact that an electric water heater uses far more energy than a natural 
gas water heater. In the case of the electric water heater, large 
amounts of energy disappear (as much as 70%) in the production and 
transmission process. In contrast, a natural gas water heater makes 
productive use of 90% of the energy extracted from the ground. Such 
energy-efficiency analyses that seek to make the most productive use of 
all of America's energy resources hold the potential to improve energy 
efficiency greatly. Moreover, they would also produce improvements in 
carbon emissions.
Section 111--Renewable Fuel Standard
    This section should be clarified to ensure that natural gas is not 
covered as boiler fuel.
Section 222--Regional Efficiency Standards
    This section should be clarified to ensure that adopting regional 
energy standards that promote certain kinds of furnaces does not have 
the unintended consequence of encouraging collateral appliances (such 
as electric water heaters) that are less efficient on a full-fuel cycle 
basis. This can occur as a result of installation issues with certain 
high-efficiency appliances.
Section 227--Residential Boiler Efficiency Standards
    This provision could prohibit the use of gas pilot lights on 
certain boilers that are not connected to electrical service (``gravity 
boilers''). These are relatively small in number, and they should not 
be subjected to a prohibition.
Section 273--Utility Energy Efficiency Programs
    AGA supports the provisions of Section 273 concerning gas rate 
decoupling. It takes no position with regard to the provisions 
concerning electric rate decoupling.
                               discussion
Natural Gas Prices Will Remain at Today's High Levels Into the Future
    Since the winter of 2000-2001, the natural gas industry has been at 
a critical crossroads. Natural gas prices were relatively low and very 
stable for most of the 1980s and 1990s. Wholesale natural gas prices 
during this period tended to fluctuate around $23 per MMBtu. Over the 
course of the past five years, however, natural gas markets have been 
supply constrained. Even small changes in weather, economic activity, 
or world energy trends result in significant wholesale natural gas 
price fluctuations. As a result, the natural gas industry walks a 
supply tightrope, bringing with it unpleasant and undesirable economic 
and political consequences--most importantly high prices and higher 
price volatility. These consequences strain natural gas customers--
residential, commercial, industrial, and electricity generators.
    As this committee well knows, energy is the lifeblood of our 
economy. Millions of Americans rely upon natural gas to heat their 
homes, and high prices are a serious drain on their pocketbooks. Small 
businesses depend on natural gas for space heating, hot water, cooking, 
clothes drying, cooling and dehumidification, small-scale electricity 
generation and other applications. The impacts of high, volatile 
natural gas prices on U.S. industries--including plant closings and 
unemployment--are well documented. The impacts on small businesses may 
be less obvious but they are no less significant. Directly or 
indirectly, natural gas is critical to every American.
    The consensus of forecasters is that natural gas demand will 
increase steadily over the next two decades. Furthermore, there is no 
question that, if the nation should embrace a carbon-control regime of 
any type, the demand for natural gas will increase even further. The 
electricity generation market will continue to drive this growth (even 
more so should we adopt a national climate change policy), as natural 
gas has been the fuel of choice for over 90 percent of the new 
generation units constructed over roughly the past decade. In part, the 
dominance of natural gas in this market is attributable to 
environmental regulations that promote the clean-burning 
characteristics of natural gas. The overall growth in gas usage will 
occur because natural gas is the most environmentally friendly fossil 
fuel and is an economic, reliable, and homegrown source of energy. 
Should a climate change program be adopted in the United States, 
increased demand pressure on natural gas will be unavoidable.
    The consensus of forecasters also is that we shall never return to 
the era of $2-3 natural gas. The more recent era of $6-7 natural gas 
will characterize the years ahead absent aggressive national policy 
changes to promote the production of large amounts of the prodigious 
natural gas resources that North America enjoys. In all likelihood 
adoption of a carbon-control regime will make today's $6-7 natural gas 
a thing of the past.
    Moreover, recent events show that our gas markets are particularly 
vulnerable to interruptions, with dire consequences for consumers. In 
September 2005 multiple hurricanes in the Gulf of Mexico eliminated 
nearly 25 percent of our total gas supply for a brief period. The 
hurricanes resulted in prices that fluctuated between $12.00 and $14.00 
per MMBtu, and a brief cold snap in December 2005 produced a price 
spike to roughly $15.00 per MMBtu. Only a substantially warmer than 
normal 2005-2006 winter heating season has dampened the impact of these 
price increases to consumers. Clearly, natural gas markets are higher 
and more volatile than at any point in history. Moreover, there is no 
sign that this market volatility will abate in the near future.
    It is harmful to small businesses, individual families and to the 
entire U.S. economy for natural gas prices to remain both high and 
volatile. Unless we make the proper public policy choices--and 
quickly--we will face many more difficult years with regard to natural 
gas prices.
    This Committee knows well AGA's position with regard to making more 
natural gas supply available for America's homes, businesses, and 
industry. The Committee has received AGA's views on this important 
topic on a number of occasions over the last five years. AGA will 
continue to pursue additional land access for the environmentally 
benign production of natural gas.
    The goal, of course, is to provide adequate supplies of reasonably 
priced energy to Americans. Increasing natural gas supply is only one 
half of that process. Energy efficiency measures is the other half of 
providing more reasonably priced natural gas.
Increased Enemy Efficiency Can Bring Down The Cost of Natural Gas
    The natural gas industry has been a national leader in energy 
efficiency. Today, the average American home uses about 25% less 
natural gas than it did a quarter century ago. That reduction in per-
capita natural gas use has been driven primarily by energy efficiency. 
Homeowners have conserved by adding storm windows, insulation, and 
weather stripping to their homes. Over the past twenty-five years gas 
appliances have become enormously more efficient. Moreover, new 
construction, although producing increasingly larger homes, has also 
produced increasingly energy-efficient homes. These trends have also 
been seen in both the commercial and industrial sectors of the 
industry.
    Information very recently compiled by AGA suggests that in fact 
natural gas consumers have increased their energy efficiency efforts 
since prices increased dramatically in 2000-2001. Over the past five 
years, homeowners have reduced their natural gas consumption more than 
the 1% per year that has been the trend over the last twenty-five 
years. It is uncertain at this point what the exact slope will be of 
this reduction curve in the years ahead.
    Energy efficiency brings gas consumers benefits in terms of 
lowering their energy bills as well as lowering their carbon emissions. 
What consumers do not understand, however, is the impact energy 
efficiency can have upon natural gas prices. An MMBtu of natural gas 
that is not consumed is no different from a new MMBtu that is produced. 
Either adds to the gap between productive capacity and demand. Most 
commentators recognize that increasing natural gas supply or decreasing 
natural gas demand by only several percent can bring natural gas prices 
down by 10%, 20%, or more. Thus, the customer that becomes more energy 
efficient not only saves on its energy bill. It also plays a major role 
in bringing natural gas prices down for all.
Achieving Real Energy Efficiency Requires Full-Fuel Cycle Analyses
    There are, of course, many ways that energy efficiency in the 
natural gas industry can be continued and indeed improved. But most 
significant would be to take a new approach to energy efficiency 
policy. Energy efficiency, at least so far as it addresses appliances, 
has focused only upon measuring the level of efficiency at the level of 
the appliance itself. This is an important measure, but it entirely 
overlooks the important goal of putting each of America's resources to 
its highest and best use. In a world where the nation is resource-
constrained and where it soon will become carbon-constrained, it is 
essential that each ounce of productive effort be extracted from the 
scarce resources that we have.
    Federal energy efficiency policies have been crafted with the 
implicit assumption that reducing energy use at the point of use 
automatically reduces total energy used as well as emissions. This 
approach fails to consider how primary energy and electricity are 
produced and the effects of moving energy over long distances. In 
truth, this approach runs counter to efforts to reduce greenhouse gases 
and other air pollutants.
    It has been the policy of the United States over the last several 
decades to support the most efficient use of our natural resources. In 
the current circumstances of a precarious supply and demand balance, it 
becomes increasingly imperative for policymakers to look at the full 
fuel cycle to determine whether the nation is using its natural 
resources in the most efficient manner possible. Doing so requires that 
we look at the full fuel cycle when measuring energy usage: determine 
total energy usage from the point of extraction--whether fossil fuels 
from the earth or otherwise--through to the ultimate point of usage.
    The nation's approach to energy efficiency measures the efficiency 
of consumer products such as appliances and homes based on examining 
products that run on different fuels independently from one another. 
Products powered by electricity are evaluated differently from natural 
gas-consuming products. It is almost as if we assume that the natural 
gas and electric appliances perform entirely different functions. No 
comparison is made as to the relative amounts of total fuel used by the 
competing products. Yet, if we are truly serious about achieving energy 
efficiency, the total energy consumption of the two products must be 
compared. It is not unreasonable in this context to consider that an 
electric water heater using electricity created with natural gas 
requires more total fuel than a natural gas water heater that heats the 
water directly with the fuel. (Similar comparisons apply to other 
industrial, commercial and residential applications.) If energy policy 
aims to optimize natural gas usage, and in fact, all natural resource 
usage--as well it should in today's circumstances--then energy policy 
must consider the full fuel cycle of all delivered energy.
    Changing the way America measures, uses, and accounts for energy 
will have significant, and positive, implications. These include:

          1) America will use its natural resources more efficiently. 
        The government should begin measuring the full fuel cycle of 
        energy, thereby considering all primary energy and other uses, 
        whether that energy is, at any point, turned into another 
        energy form.
          2) It will connect the use of energy with its environmental 
        consequences. Considering equipment separately from the 
        ``source-based'' energy that fuels it--as the government does 
        now--does not consider the environmental consequences of 
        operating that equipment. An electric water heater, for 
        example, causes almost two more tons of carbon dioxide to be 
        emitted per year than does a natural gas water heater.
          3) Resource-based energy efficiency will allow consumers to 
        evaluate energy use choices based on the cost, resource usage, 
        and emissions attached to those choices.
          4) Policies that encourage the best overall use of our 
        natural resources can assist utilities to address line losses 
        and grid congestion during peak demand for electrical energy, 
        particularly during the summer months.
          5) A resource-based accounting of energy efficiency will spur 
        investments in new technologies that are efficient on a full 
        fuel cycle basis. This runs counter to America's current 
        inclination to squeeze small amounts of efficiency out of 
        technologies as measured at the point of usage.

    In the context of this bill, this important step could be achieved 
by changing the beginning of Section 221 of the bill to state:

          Section 321 of the Energy Policy and Conservation Act (42 
        U.S.C. 6291) is amended by striking paragraphs (4) and (6) and 
        inserting in lieu thereof:

                  (4) The term ``energy use'' means:
                          (A) For the purpose of measuring energy use 
                        by a consumer product, the quantity of energy 
                        directly consumed by a consumer product at 
                        point of use, determined in accordance with 
                        test procedures under section 6293 of this 
                        title, and
                          (B) For all other purposes, including, but 
                        not limited to, determinations with respect to 
                        energy policy, priorities with respect to 
                        energy efficiency, efficiency regulations and 
                        guidelines, and conservation programs, the 
                        quantity of energy consumed by a consumer 
                        product, commercial or industrial product or 
                        process, or residential or commercial property 
                        at point of use and consumed in producing and 
                        in delivering energy to a site, including, but 
                        not limited to power generation, transmission 
                        and distribution losses.
Section 111--Renewable Fuel Standard
    The renewable fuel standard refers to ``boiler fuel'', which 
appears not to be defined. Arguably this could include natural gas, 
although AGA thinks that this makes no sense in the context of a 
renewable fuel standard. In all likelihood this term refers to heavier 
fuel oils such as No. 6 and Bunker C. This could be clarified by saying 
``boiler fuel oil.''
Section 222--Regional Efficiency Standards
    AGA is concerned that the adoption of regional energy efficiency 
standards can have unintended, adverse consequences. The case in point 
most specifically is that adoption of a regional furnace standard for a 
northern zone may make it unavoidable that consumers install condensing 
furnaces. These must be vented in a specific fashion. In new housing a 
builder, after having vented a condensing furnace, is unlikely to 
install the necessary chimney for a gas water heater. The result is 
that an energy efficiency standard that favors or compel a condensing 
furnace may have the unintended consequence of causing installation of 
an electric water heater, which uses more fuel through the full fuel 
cycle and emits more carbon dioxide than a gas water heater. This issue 
can be addressed by inserting, beginning at page 67, line 22, the 
following:

          (ii) are economically justified: and
          (iii) will not result in undesirable levels of source energy 
        consumption by other equipment, such as water heaters, located 
        at the site of furnaces, boilers, or central and commercial air 
        conditioning equipment. Source energy means the quantity of 
        energy consumed by a consumer product, commercial or industrial 
        product or process, or residential or commercial property at 
        point of use and consumed in producing and in delivering energy 
        to a site, including, but not limited to power generation, 
        transmission and distribution losses.

    Additionally, add the following at the end of page 68, line 9:

          The Secretary shall in addition consider whether 1 or more 
        regional standards will result in undesirable levels of source 
        energy consumption by other equipment, such as water heaters, 
        located at the site of furnaces, boilers, or central and 
        commercial air conditioning equipment. Source energy means the 
        quantity of energy consumed by a consumer product, commercial 
        or industrial product or process, or residential or commercial 
        property at point of use and consumed in producing and in 
        delivering energy to a site, including, but not limited to 
        power generation, transmission and distribution losses.
Section 227--Residential Boiler Efficiency Standards
    This provision could have the effect of prohibiting pilot lights 
for certain types of boilers. There are a relatively small number of 
boilers that are not connected to electrical service and where, 
therefore, a pilot light is essential to operation for the boiler. AGA 
recommends that this problem--as well as a box mysteriously missing an 
energy efficiency standard--be addressed by:

          Modify the table in Sec. 227(3) by adding ``98.5%'' to 
        ``Minimum Annual Fuel Utilization Efficiency'' for ``Electric 
        Hot Water'' and ``Electric Steam'' boilers.
          Modify Sec. 227(3) by adding a subsection (D):
          (D) EXCEPTION--Boilers that operate without the need for 
        electricity supply shall not be required to meet the 
        requirements of subsections 227(3)(B) and (C).

Section 274--Utility Energy Efficiency Programs
    Natural gas utilities are network industries. They typically 
deliver natural gas from the point where their facilities interconnect 
with long-line interstate natural gas pipelines to energy consumers--
whether they are residential, commercial or industrial. Natural gas 
utilities essentially provide two different services to their 
residential customers:
    First, natural gas utilities act as merchants in acquiring natural 
gas for their customers. They aggregate the requirements of all of 
their customers who desire to purchase natural gas, and they purchase 
these requirements in various wholesale markets. (In most states 
industrial customers purchase their own gas. In some states with 
``retail choice'' programs, residential customers also may purchase gas 
from an entity other than their local utility.) In their ``merchant'' 
function natural gas utilities purchase gas in markets that are not 
unlike markets for oil, corn, Wheat, or other commodities. The natural 
gas utility merchant function is thoroughly regulated by state public 
service commissions. Utilities are not permitted to mark up the cost of 
gas or to make a profit on it. Rather, in most states utilities pass 
these costs on to customers pursuant to state-regulated revolving 
accounts usually known as Purchased Gas Adjustments, Gas Cost Recovery 
factor, or something similar.
    Second, natural gas utilities deliver gas to their customers. They 
perform this service whether they have purchased the gas as merchant on 
behalf of the customer or the customer has purchased the gas itself. 
The charge for this delivery service is calculated in an entirely 
different fashion--and entirely separately from--the charge for 
purchased gas. It is usually calculated under traditional public 
utility cost-of-service ratemaking principles. As with the purchase of 
gas for customers, it is determined under the supervision and 
regulation of the state public service commission.
    The charge for natural gas delivery service has traditionally been 
determined under a form of ratemaking known as ``volumetric'' rates. 
Under this methodology, the costs of operating the natural gas delivery 
service are estimated for a year and then allocated to the projected 
volumes of gas that will be delivered over that year. Thus, for each 
unit of gas delivered by the utility the customer pays a small portion 
of the cost of operating the utility. Should a utility deliver more gas 
in a year than projected, it will (all other things being equal) earn 
more than its projected costs. Should a utility deliver less gas in a 
year than projected, then it will (all other things being equal) earn 
less than the projected costs of operating its system.
    A short example may make this situation more understandable. Assume 
that the costs of operating utility delivery service are $100 per year. 
This is composed of operations and maintenance expense of $65, 
depreciation of assets of $8, taxes of $12, and return on invested debt 
and equity capital of $15. Assume also that it is projected that the 
utility will deliver 100 units of gas per year. In this instance, the 
unit cost of delivering natural gas will be $1. Should consumers 
install new energy-efficient appliances during the year such that 
actual deliveries are 95 units, then the utility receives delivery 
revenue of $95. This is less than the actual cost of operating the 
service. The $5 shortfall drops straight to the bottom line and 
represents a diminution in the utility's return on equity.
    This example makes plain that, under a volumetric form of rate 
design, energy efficiency and energy conservation can be injurious to 
the shareholders of the natural gas utility, particularly if it turns 
out to be more significant than projected in the ratemaking process. 
The consumer has an interest in minimizing its energy bill. The utility 
has an interest in providing its expected return on capital to its 
shareholders (who all ultimately are energy consumers as well).
    A fundamental, and probably immutable, fact is that natural gas 
utilities are fixed-cost businesses. The costs of the distribution 
service that they provide do not vary much in relation to the amount of 
gas that the utilities' customers consume.
    As noted previously, natural gas consumers have, over the past 
twenty-five years, reduced their consumption by twenty-five percent, or 
approximately one percent per year. Over the past five years the most 
recent data indicate that this trend has accelerated dramatically. 
Although what the exact trend will be in the future is unclear, there 
is no indication that the trend of natural gas consumers to conserve 
will stop.
    This fact, that traditional utility rate design may discourage 
energy efficiency, has been recognized on a number of fronts over the 
past five or more years. Fortunately, it can be corrected relatively 
easily. The solution is to decouple (i.e., disconnect) a utility's 
revenue stream from the volume of gas actually delivered. This is not 
by any means a radical or unsound policy. Most of a utility's costs are 
fixed--that is, they do not vary with the volume of service delivered. 
Moreover, most utility's systems are sized to be able to meet 
deliveries on the peak cold day of the winter. From a ratemaking 
perspective, therefore, it is by no means irrational to suggest that 
the revenue should be recovered independent of the volume of gas 
delivered.
    This model has almost universally been adopted in the cable 
television industry. The customer pays the same amount per month 
regardless of how many different channels are watched or how many hours 
the cable box is on. Similarly local telephone service is largely 
recovered through a fixed monthly charge. Both of these industries are 
similar to natural gas distribution in that they have large capital 
costs, most of their costs are fixed, and the network system is sized 
to meet peak demand.
    Many states, as well as federal policy makers, now encourage energy 
efficiency and conservation. Consequently, several states have put in 
place rate mechanisms that ``decouple'' the recovery of distribution 
system delivery costs from the volume of gas delivered to customers. 
Doing so frees the utility to promote conservation and energy 
efficiency actively without a detriment to its shareholders.
    There are variety of ratemaking devices that can be implemented to 
achieve decoupling. One is ``straight fixed-variable'' rate design. 
Under that approach, all of the costs of operating the utility system 
are collected in twelve monthly charges. This is the system used by the 
Federal Energy Regulatory Commission for interstate natural gas 
pipelines.
    Another somewhat different method is weather normalization. This 
method takes the effects of differing weather (which is perhaps the 
largest determinant of volumes in the natural gas delivery business) 
out of the revenue stream. It does not, however, take into account the 
effects of energy efficiency or conservation. A related approach might 
be called ``efficiency normalization.'' Like weather normalization, it 
takes the effects of efficiency and conservation gains out of the 
utility's revenue stream. In Oregon, for example, the utility actually 
compares consumption over time on a customer-by-customer basis to make 
an adjustment to rates to make the utility whole for the effects of 
conservation and efficiency.
    The essence of revenue decoupling, however, effectuated, is to 
adjust the actual delivered volumes to the weather-normalized volumes 
underlying the last rate case of the natural gas utility. When 
delivered volumes deviate from the level forecasted in the rate case, 
the true-up mechanism adjusts the distribution charge.
    Decoupling is also a fair and efficient means to design utility 
rates from the customer's perspective. The symmetrical nature of 
decoupling prevents the utility from increasing its earnings by 
increasing its delivered volumes because any additional distribution 
charges collected by the utility in that event are, one way or another, 
refunded to customers. Moreover, decoupling does not shelter the 
utility from the impact of increased costs or provide a guarantee that 
the company will achieve its authorized return on equity. To be clear, 
decoupling is not ``incentive regulation'' because there is no reward 
or bonus for the utility.
    An independent evaluation of the Oregon decoupling tariff \1\ found 
the program to be worthwhile and in the public interest. The evaluators 
found that the mechanism is effective in reducing the variability of 
utility revenues; removes disincentives to promote energy efficiency; 
changes the company focus from sales advertising to conservation 
advertising; does not reduce the incentive for good customer service; 
and does not shift risk to customers.
---------------------------------------------------------------------------
    \1\ A Review of Distribution Margin Normalization as Approved by 
the Oregon Public Utility Commission for Northwest Natural, Christensen 
Associates Energy Consulting, LLC, March 2005.
---------------------------------------------------------------------------
    At present nine states have adopted some form of revenue 
decoupling, and a number more are considering it. Decoupling has taken 
a number of forms in these states, depending upon their individual 
needs, circumstances, and policies. In some of these states, decoupling 
is linked to public benefit funding that is aimed directly at energy 
efficiency.
    The beneficial nature of decoupling is not simply a view of AGA and 
the natural gas utility. AGA and the Natural Resources Defense Council 
have adopted a joint declaration concerning the value of decoupling. 
Furthermore, the National Association of Regulatory Utility 
Commissioners, the trade association of state public service 
commissioners, has adopted a resolution urging the states to review 
their practices to determine whether innovative rate designs of this 
sort can assist in bringing natural gas costs down.
    AGA endorses the provisions of Section 273 concerning natural gas 
and takes no position on the provisions concerning electricity.
                                 ______
                                 
                         Statement of ABB Inc.
                  energy efficiency in the power grid
    The U.S. Department of Energy estimates that increasing energy 
efficiency could reduce national energy use by 10% or more in 2010, and 
as much as 20% in 2020, with net economic benefits for consumers and 
businesses as a result.
    The concept of energy efficiency has moved in and out of favor with 
the public over the years, but recently has gained renewed broad-based 
support. The confluence of economic, environmental and geopolitical 
concerns around reducing America's exposure to disruptions in the 
supply of energy has moved efficiency to the fore. As a result, a 
number of initiatives are now underway to improve efficiency in a 
variety of areas, but much more can and should be done.
    The U.S. is not alone in these efforts. China presently has ten 
efficiency programs aimed at bringing the country's energy intensity--
the amount of energy used per unit of GDP--in line with rivals such as 
the U.S. and the European Union. The EU likewise has taken steps to 
improve energy efficiency in its member countries by 20% over the next 
fifteen years.
    Efficiency is a simple concept which can perhaps best be summed up 
with the cliche, ``doing more with less.'' Perhaps the best-known 
efficiency program among American consumers is the Energy Star program 
that helps them to identify appliances like dishwashers and 
refrigerators that use less energy than other similar models. Indeed, 
the term ``efficiency'' is typically associated with how energy is 
consumed at the point of end use, but the concept of efficiency can 
also be applied to how energy is produced and distributed.
    This paper will focus primarily on the electric power system, where 
most end-use applications outside of transportation and heating get 
their energy. We will first present a broadly inclusive definition of 
efficiency and then explore a variety of ways the grid can be made more 
efficient.
                               generation
    To gain an appreciation for the impact that improved efficiency can 
have, it is useful to examine the price we pay for inefficiency, and 
nowhere is this more apparent than in the generation of electric power. 
Typically, the process converts the latent energy in a fuel stock 
(coal, gas, uranium) into mechanical energy in a generator and 
ultimately electrical energy. However, other generation sources like 
wind and hydro power use the mechanical energy of moving masses of air 
or water to produce electric energy. Still other devices, such as fuel 
cells, use chemical reactions to generate electric energy. In all of 
these cases, though, some of the input energy is lost in the process.
    The efficiency of generation varies widely with the technology 
used. In a traditional coal plant, for example, only about 30-35% of 
the energy in the coal ends up as electricity on the other end of the 
generator. So-called ``supercritical'' coal plants can reach efficiency 
levels in the mid-40's, and the latest coal technology, known as 
integrated gasification combined cycle or IGCC, is capable of 
efficiency levels above 60%. The most efficient gas-fired generators 
achieve a similar level of efficiency.
    Obviously, though, even at 60% efficiency there is a tremendous 
amount of energy left behind in the generation process. That represents 
a higher cost of production for the generator, as well as a substantial 
waste of limited resources. There is, therefore, tremendous economic 
and ecological incentive to improve the efficiency of power generation 
so that more of the energy content of the input fuel is carried through 
to the output electricity. There are a variety of ways to improve 
generator efficiency, such as combustion optimization using modern 
control systems, but for the purposes of this paper we will focus on 
what happens after the generation process.
                     transmission and distribution
    Once electric energy is generated, it must be moved to areas where 
it will be used. This is known as transmission--moving large amounts of 
power over sometimes very long distances--and is separate from 
distribution, which refers to the process of delivering electric energy 
from the high voltage transmission grid to specific locations such as a 
residential street or commercial park. Distribution is usually 
considered to encompass the substations and feeder lines that take 
power from the high voltage grid and progressively step down the 
voltage, eventually to the 120v level at which power enters our homes.
    The transmission and distribution or ``T&D'' system, then, includes 
everything between a generation plant and an end-use site. Along the 
way, some of the energy supplied by the generator is lost due to the 
resistance of the wires and equipment that the electricity passes 
through. Most of this energy is converted to heat. Just how much energy 
is taken up as losses in the T&D system depends greatly on the physical 
characteristics of the system in question as well as how it is 
operated. Generally speaking, T&D losses between 6% and 8% are 
considered normal.
    It is possible to calculate what this means in dollar terms by 
looking at the difference between the amount of electric energy 
generated and the amount actually sold at the retail level. According 
to data from the Energy Information Administration, net generation in 
the U.S. came to over 3.9 billion megawatt hours (MWh) in 2005 while 
retail power sales during that year were about 3.6 billion MWh.* T&D 
losses amounted to 239 million MWh, or 6.1% of net generation. 
Multiplying that number by the national average retail price of 
electricity for 2005, we can estimate those losses came at a cost to 
the U.S. economy of just under $19.5 billion.
---------------------------------------------------------------------------
    * Graphics in this document have been retained in Committee files.
---------------------------------------------------------------------------
    Congestion charges represent another significant cost of 
inefficiency in the T&D system, but are only partially determined by 
the physical characteristics of the grid. Congestion occurs when the 
scheduled or actual flows of electricity are restricted either by 
physical capacity constraints on a particular device or by operational 
safety constraints designed to preserve grid reliability. In order to 
meet demand, the system operator must find an alternative source of 
power that avoids the bottleneck. That alternative generator will be 
less economical, and therefore less efficient from a market 
perspective. A more robust T&D system, then, can provide a level, 
congestion-free playing field on which generators can compete.
    Congestion is the result of a number of factors, notably a lack of 
adequate transmission investment and an increase in bulk power 
transactions in competitive energy markets. Recent figures on 
congestion at a national level are difficult to ascertain, however the 
experience of two of the nation's largest power markets will serve to 
illustrate the scope of the problem.
    The California Independent System Operator reported congestion 
costs of $1.1 billion in 2004, $670 million in 2005, and $476 million 
in 2006. It's worth noting that the ISO attributes much of the 
reduction in the '04-'05 period to critical expansions on the state's 
``Path 15'' north-south transmission corridor. Similarly, the PJM 
interconnection, which serves the largest territory of any regional 
transmission organization in the U.S., reported congestion costs of 
$750 million in 2004, $2 billion in 2005, and $1.6 billion in 2006. PJM 
notes that since 2002, congestion costs have come in at 7-10% of annual 
total billings.
    As these figures make clear, the cost of inefficiency in the T&D 
system is significant. However, the impact of congestion is not limited 
to the cost associated with dispatching less economical generation. 
Often the situation requires grid operators to curtail service to 
consumers in some areas to protect the integrity of the grid as a 
whole. These ``transmission loading relief'' actions (TLRs) have 
increased dramatically in recent years, up nearly 150% just in the 
2001-2005 period.
    Clearly too there is an inference to be drawn from these numbers 
about the relationship between efficiency in the T&D system and the 
reliability of that system. In every region of the U.S., for example, 
there are generation plants designated by the local grid operator as 
``reliability must-run'' or RMR. These units are run regardless of 
their economic merit because their output is needed to maintain voltage 
levels. RMR units are often older, dirtier and less efficient than 
modern plants, due to the fact that they tend to be located in urban 
areas where siting new plants is all but impossible. There are 
alternatives to RMR generators (i.e., FACTS devices, which are 
described in a later section), but our current reliance on them can be 
viewed as a byproduct of a less-than-optimal T&D system.
                     demand-side energy efficiency
    The average person would likely point to energy consumption as the 
point where ``efficiency'' measures can be applied, and while our focus 
here is mainly on the supply side, it's worth noting a few examples to 
illustrate the impact of demand-side efficiency efforts.
    Most people are probably familiar with the Energy Star program 
mentioned earlier, or with the increasing popularity of compact 
fluorescent light bulbs that use a fraction of the electricity used in 
conventional bulbs to produce the same amount of light. But the single 
largest consumer of electric power is the industrial motor, which is 
used to run everything from assembly lines to compressors to the fans 
that blow air into the combustion chamber of a coal-fired generator.
    It is estimated that fully 65% of industrial power is used in 
motors of various sizes, most of which run at full speed whenever they 
are turned on, even if they don't need to. This is because the vast 
majority of industrial motors are controlled by drives that cannot 
alter the speed of the motor. Variable speed drives, also known as 
variable frequency drives, ramp the motor's speed up or down to meet 
the requirements at a given moment in time. The resulting energy 
savings can be enormous. VSDs can reduce consumption by as much as 60%, 
which in energy-intensive facilities can equate to millions of dollars 
a year in energy costs.
    What's important to note here is the leverage that demand-side 
efficiency improvements can have when they a) greatly impact a small 
number of large energy consumers (e.g., VSDs), or b) have a more modest 
impact that is multiplied across many smaller energy consumers (compact 
fluorescent bulbs). Obviously, the former case is more easily realized 
than the latter, if only because there are relatively few people who 
need to be convinced of the value of the new approach. Consider, then, 
the potential of measures that enjoy the best of both worlds--a 
multiplicative effect combined with a small number of decision makers. 
That, in essence, is the main selling point for supply-side efficiency 
in the power system, and is where ABB has focused much of its 
technology and expertise. If a single utility implements a given 
technology across its entire system, thousands if not millions of 
customers come along for the ride.
                 improving efficiency in the t&d system
    One example of efficiency measures aimed primarily at the utilities 
that operate the T&D system is an initiative underway at the U.S. 
Department of Energy to implement new efficiency standards for 
distribution transformers. These are the grey cylinders you see perched 
atop utility poles in residential neighborhoods, and the metal-housed 
units placed on cement pads at ground level. There are over 40 million 
distribution transformers in service today in the U.S. They are among 
the most ubiquitous and the most standardized pieces of electrical 
equipment, and for that reason make a prime target for improvements 
that can then be propagated across large areas.
    The proposed standards will have a relatively modest impact on the 
efficiency of a given transformer, around 4% over current models. 
However, when this incremental gain is multiplied across the thousands 
of units operated by even a small utility, the result is impressive. 
DoE expects to issue a final rule on the new standard later this year 
with implementation set for 2010.
    There are other initiatives at the distribution level, but if we 
focus our attention on the measures that have the greatest potential 
for improving efficiency, we inevitably must look to transmission. 
There are numerous technologies that are already being applied to boost 
efficiency in transmission, and still more that have yet to reach full 
commercial implementation. In the following sections, we explore some 
of these technologies.
HVDC
    Most of the transmission lines that make up the North American 
transmission grid are high-voltage alternating current (HVAC) lines. 
Direct current (DC) transmission offers great advantages over AC, 
however: 25% lower line losses, two to five times the capacity of an AC 
line at similar voltage, plus the ability to precisely control the flow 
of power. Historically, the relatively high cost of HVDC terminal 
stations relegated the technology to being used only in long-haul 
applications like the Pacific DC Intertie, which connects the vast 
hydro power resources of the Columbia River with the population centers 
of Southern California.
    With the advent of a new type of HVDC, invented by ABB and dubbed 
HVDC Light, the benefits of DC transmission are now being realized on 
much shorter distances. The Cross-Sound Cable connecting Long Island 
and Connecticut is one example of this technology.
FACTS Devices
    A family of power electronics devices known as Flexible AC 
Transmission Systems, or FACTS, provides a variety of benefits for 
increasing transmission efficiency. Perhaps the most immediate is their 
ability to allow existing AC lines to be loaded more heavily without 
increasing the risk of disturbances on the system. Actual results vary 
with the characteristics of each installation, but industry experience 
has shown FACTS devices to enhance transmission capacity by 20-40%. 
FACTS devices stabilize voltage, and in so doing remove some of the 
operational safety constraints that prevent operators from loading a 
given line more heavily. In addition to the efficiency gains, these 
devices also deliver a clear reliability benefit.
Gas-Insulated Substations
    Most substations occupy large areas of land to accommodate the 
design requirements of the given facility. However, each time power 
flows through a substation to step down the voltage, more energy is 
lost as the power flows through the transformers, switches and other 
equipment. The efficiency of the lower-voltage lines coming out of the 
substation is also markedly lower than their high-voltage counterparts. 
If power can be transmitted at higher voltage to a substation that is 
closer to where the energy will be consumed, significant efficiency 
improvements are possible.
    Gas-insulated substations essentially take all of the equipment you 
would find in an outdoor substation and encapsulate it inside of a 
metal housing. The air inside is replaced with a special inert gas, 
which allows all of the components to be placed much closer together 
without the risk of a flashover. The result is that it is now possible 
to locate a substation in the basement of a building or other confined 
space so that the efficiency of high-voltage transmission can be 
exploited to the fullest extent.
Superconductors
    Superconducting materials at or near liquid nitrogen temperatures 
have the ability to conduct electricity with near-zero resistance. So-
called high temperature superconducting (HTS) cables now under 
development, which still require some refrigeration, can carry three to 
five times the power of conventional cables. The losses in HIS cables 
are also significantly lower than the losses in conventional lines, 
even when the refrigeration costs are included. A major vendor of 
superconducting conductors claims that the HTS cable losses are only 
half a percent (0.5%) of the transmitted power compared to 5-8% for 
traditional power cables. Superconducting materials can also be used to 
replace the copper windings of transformers to reduce losses by as much 
as 70% compared to current designs.
Wide Area Monitoring Systems
    Much of the transmission system could feasibly be operated at a 
higher loading, were it not for reliability concerns. However, if 
operators were given the ability to monitor grid conditions more 
precisely and in real time, some of these constraints would be removed. 
One example relates to the simple fact that when transmission lines 
heat up, the metal becomes pliable and the lines sag, which can cause a 
short circuit if they come into contact with a tree or other grounding 
object. Wide area monitoring systems (WAMS) have many promising 
capabilities, one of which is line thermal monitoring. With this 
functionality, transmission operators could conceivably change the 
loading of transmission lines more freely by virtue of having a very 
clear understanding of how close a given line really is to its thermal 
limits.
                   other paths to improved efficiency
    The technologies outlined above represent only a few of the many 
available options for improving energy efficiency in the T&D system. 
The Business Roundtable's Energy Task Force T&D working Group, which 
ABB chairs, recently published a list of efficiency-enhancing actions 
and technologies, some of which include:

   Distributed generation/Microgrids
   Underground distribution lines
   Intelligent grid design (smart grids via automation)
   Reduction of overall T&D transformer MVA
   Energy storage devices
   Three phase design for distribution
   Ground wire loss reduction techniques
   Higher transmission operating voltages
   Voltage optimization through reactive power compensation
   Asset replacement schedule optimization
   Distribution loss reduction via distribution automation
   Power factor improvement
    Load management (e.g., smart metering or price-sensitive 
        load control)
    Power electronic transformers

    These options vary in terms of expense and the changes they imply 
for equipment purchasing or operational practices. We list all of them 
here simply to illustrate the many ways in which greater energy 
efficiency in the power grid can be achieved.
                    benefits of improved efficiency
    The ``business case'' for energy efficiency is fairly 
straightforward: using less energy means paying less for energy. But a 
simple cost-benefit analysis might overlook some very important 
benefits that efficiency brings.
    At this point, there is little doubt that regulation of carbon 
dioxide is coming, with the power sector as a primary target. While 
there are technologies both available and in development to mitigate 
CO2 emissions from power plants, the fact remains that the 
easiest ton of CO2 to remove from the atmosphere is the one 
that is not emitted in the first place. Greater energy efficiency in 
the T&D system means lower emissions in generation to deliver the same 
amount of consumed energy.
    Fuel conservation and diversity is another strong selling point for 
efficiency, and here the benefits extend well beyond economic and even 
environmental considerations. Reducing U.S. dependence on foreign fuel 
supplies--be they oil, natural gas or even coal--pays obvious dividends 
from a security standpoint, and the less we use, the less we have to 
buy.
    Finally, within the context of the power system itself, it's 
important to recognize how interrelated energy efficiency is with grid 
reliability. In many areas of the U.S., transmission constraints have 
reached the point where they not only cost consumers billions of 
dollars in congestion charges, they threaten the integrity of the power 
system itself. Over the past twenty years, the situation has continued 
to deteriorate to the point where now the question of installing a new 
line is nearly moot in some locations. By the time it was completed, 
demand would long since have outstripped the ability of the local grid 
to meet it, so a short-term solution must be implemented in the 
interim.
    FACTS devices offer a good example of how efficiency and 
reliability improvements often go hand in hand. Unlike siting and 
building a new transmission line, FACTS devices can be implemented 
quickly (less than a year from purchase to completion in some cases). 
They immediately boost the transmission capacity of the given line 
while also providing voltage support and bolstering the local grid's 
ability to withstand disturbances.
    As the reliable supply of energy, especially electric energy, 
continues to grow in importance, the potential impact of energy 
efficiency cannot be overstated. With the array of technologies and 
methodologies now available, efficiency stands ready to play a much 
larger role in the energy equation.
                                 ______
                                 
    Statement of Stephen R. Yurek, President, Air-Conditioning and 
                        Refrigeration Institute
    Mr. Chairman, Members of the Committee, my name is Stephen Yurek 
and I am President of the Air-Conditioning and Refrigeration Institute 
(ARI). I appreciate this opportunity to present this written testimony 
to you about ``The Energy Efficiency Promotion Act,'' S. 1115, and ways 
that we believe that government can partner with industry to promote 
new and effective energy efficiency programs.
    Today, I am speaking on behalf of ARI, a trade association that 
represents the manufacturers of over 90 percent of American produced 
air conditioning and commercial refrigeration equipment. ARI represents 
a domestic industry of 180 HVACR manufacturing companies, employing 
approximately 130,000 men and women in the United States. Our shipments 
are approaching $50 billion annually. This industry is a domestic 
manufacturing industry, contributing a positive $23 billion to the U.S. 
balance of trade and employing over 150,000 Americans.
    We also have a long history of support for energy efficiency. ARI 
was a principal supporter of the National Appliance Energy Conservation 
Act of 1987 (NAECA). By joining forces with the Natural Resources 
Defense Council, various environmental groups, and a number of states, 
we negotiated the initial national minimum standards and standards 
review schedule for a wide range of residential products. Five years 
later, we negotiated the national minimum standards for commercial 
products that were enacted in the Energy Policy Act of 1992.
    These acts are a mere sample of key energy efficiency and 
environmental initiatives ARI has helped to pass. As of late, our 
efforts led to agreements on national standards for commercial 
refrigeration products, large packaged air-conditioning units, and 
commercial ice makers. These standards were included in the 2005 Energy 
Policy Act. We have also completed an agreement to set standards for 
walk-in refrigerators and freezers that we are currently looking for a 
legislative home.
    Over the years, ARI has worked tirelessly to support energy 
efficiency. The American HVACR manufacturers that ARI represents are 
committed to continuing to build an industry that maintains a dual 
focus: To remain steadfast in supporting energy efficiency policies 
while manufacturing the best product possible for the American people.
    While ARI is in general supportive of initiatives that promote 
energy efficiency, we believe that the bill being considered has a 
number of deficiencies that, if not corrected, could negatively impact 
the HVACR industry. In particular, ARI is strongly opposed to the 
following sections of the Act:
      section 201: definition of ``energy conservation standard''
    ARI opposes the Act's revised definition of ``energy conservation 
standard'' and requests that Section 201 be deleted in its entirety. By 
expanding its meaning to include one or more energy performance 
standards and one or more design requirements, the new definition will 
authorize DOE to regulate more than one energy efficiency descriptor as 
well as more than one design requirement. Thus, government agencies or 
regulating authorities would have the ability to set multiple 
performance standards and to interfere with product design. The air 
conditioning industry is already heavily regulated and has to comply 
with a myriad of test and certification requirements to ensure that 
products meet federal minimum energy efficiency standards established 
under NAECA and EPACT. Section 201 gives DOE the authority to 
significantly expand the testing burden on manufacturers by requiring 
more than just one performance standard. However, there is absolutely 
no evidence that multiple performance standards will ultimately result 
in additional energy savings. In addition, ARI believes that the role 
of the Federal government should not be to prescribe design standards. 
Prescriptive design requirements are contrary to technological 
innovations and should not be encouraged by Congress. Equipment design 
is better handled by manufacturers. Furthermore, the DOE does not have 
the expertise, time, or resources to accurately and effectively 
redesign the plethora of heating and cooling appliances that the IIVACR 
industry manufactures.
    section 202: regional standards for heating and cooling products
    ARI strongly opposes regional standards. The proposed legislation 
contradicts the language of NAECA, legislation that stakeholders--
industry, environmental groups and states--labored so hard to achieve. 
We oppose Section 202 for the same reasons we negotiated NAECA in the 
first place. Regional standards would complicate product distribution, 
create additional bureaucratic red tape, and be very difficult to 
enforce. Today, enforcement of national standards is directed at the 
manufacturing level and is fairly simple. A product offered for sale in 
this country that does not meet the applicable federal standard is 
unlawful on its face. ARI's efficiency certification programs assist 
DOE standards enforcement by verifying that products covered by those 
programs satisfy applicable federal standards.
    If uniform national standards were replaced by regional standards, 
standards enforcement would have to shift to the retail level. This 
would prove to be much more difficult and certainly beyond the 
resources of DOE. Difficulties would especially arise in the states 
that border an adjacent standards region. Ineffective or inconsistent 
standards enforcement would result in market uncertainty for 
manufacturers, which would make rational product planning and 
distribution much more challenging.
                  section 203: furnace fan efficiency
    ARI opposes the provisions of this section for a number of reasons. 
First, a provision giving DOE the authority to review furnace fan 
efficiency was included in EPACT 2005 as permissive not mandatory. The 
change proposed in Section 203 would change this to a mandatory 
requirement on DOE. Therefore, DOE can at any time initiate a 
rulemaking if there is enough justification to do it. Second, we see no 
compelling arguments to mandate that DOE complete a rule on furnace fan 
efficiency by December 31, 2012, while there is little evidence that 
such a rule will save any significant amount of energy. During the 
heating season, the heat generated by the furnace fan is not wasted. 
Rather, it is delivered to the conditioned space. During the cooling 
season, the same furnace fan is used to move the cold air in the 
conditioned space. However, the fan energy consumption is accounted for 
and captured in the determination of the energy efficiency rating of 
residential central air conditioners. Therefore, establishing an 
efficiency standard for the furnace fan would not produce significant 
energy savings in the heating season and would constitute double 
regulation of central air conditioners. We request that section 203 be 
deleted in its entirety.
                   section 205: preemption limitation
    ARI also opposes a policy that promotes the dissolution of federal 
preemption when the DOE fails to set efficiency standards for a covered 
product, or when the DOE deliberately decides not to set an efficiency 
standard for a covered product because it was deemed not technically 
feasible or economically justified. Concern about whether DOE is 
fulfilling its statutory responsibilities in this area should be 
addressed through Congressional oversight of the agency rather than by 
automatic abdication of federal authority to the states. This would 
result in significant unpredictability for manufacturers and confusion 
in the market.
    ARI firmly believes in voluntary self regulation, but there are 
certain issues that require government assistance in order to ensure 
fair competition to protect consumers. However, when the federal 
government fails to actively manage these issues, special interest 
groups begin advocating for state or regional appliance standards. ARI 
strongly supports federal programs that provide preemption provisions 
for regulatory programs. Federal preemption promotes predictability and 
consistency in regulations particularly regarding energy performance 
standards, labeling requirements, information disclosure, and 
marketing--therefore, avoiding duplicitous or inconsistent state 
regulations.
    In order for the HVACR industry to produce efficient, reliable 
products, preemption and energy conservation regulations must be 
streamlined to fit one national standard. This will provide our 
industry with consistent policies that will not disrupt the heating and 
cooling appliance marketplace. ARI strongly supports the current system 
administered by DOE and urges Congress not to undercut a program that 
has worked and continues to work by providing significant actual energy 
savings.
             effective alternative energy efficiency policy
    If it is the purpose of this legislation to save energy as soon as 
possible, the proposed legislation as drafted will not accomplish this 
goal. However, we are willing to enter into discussions with you, 
members of the Committee, your staffs, and other interested parties to 
develop policies that will attain this goal. Some of the policies that 
could be pursued focus on a combination of effective minimum efficiency 
standards, federal efficiency programs, consumer incentives, research 
programs, and worker training and certification. Specifically:

   Residential Energy Efficiency Initiatives.--Incentives, 
        rebates and other voluntary programs to encourage the purchase 
        of higher efficiency residential products.
   Commercial Energy Efficiency Tax Policy.--Pass the ``Cool 
        and Efficient Buildings Act'' to accelerate the current 39-year 
        depreciation schedule for HVACR equipment to encourage the 
        purchase of newer, energy efficient, more environmentally 
        friendly, commercial cooling equipment in buildings and reflect 
        the actual useful life of the equipment.
   Worker Education and Certification.--Enhanced education and 
        training through worker training programs, shifting general 
        education funding to applied technology programs, stronger 
        state licensing, and technician certification--In the HVACR 
        industry, the Industry Competency Exams (ICE) and the North 
        American Technician Excellence (NATE), provide the benchmarks 
        to ensure that equipment is installed and repaired correctly to 
        reach optimum performance.
   Federal Efficiency Programs.--Continued federal funding and 
        use of innovative financing mechanisms, to help increase the 
        energy efficiency of government owned housing and buildings. We 
        also call on federal and state governments to institute 
        aggressive programs to expedite the replacement of all CFC 
        chillers, saving energy and protecting the environment.
   Research and Development.--Comprehensive energy policy must 
        include significant funding for research and development of 
        energy efficient technologies including research for the next 
        generation of air conditioning and commercial refrigeration 
        equipment.

    It is our hope that we can work with the committee to fully develop 
these and similar policies to encourage, promote and achieve actual 
energy savings.
    In order for the HVACR industry to produce efficient, reliable 
products, preemption and energy conservation regulations must be 
streamlined to fit one national standard. This will provide our 
industry with consistent policies that will not disrupt the heating and 
cooling appliance marketplace. ARI strongly supports the current system 
administered by DOE and urges Congress not to undercut a program that 
has worked and continues to work by providing significant actual energy 
savings.
    Mr. Chairman, thank you for the opportunity to present the views of 
the HVACR industry on the Energy Efficiency Promotion Act of 2007. I 
would be pleased to answer any questions you or the Members might have, 
and I should add that the expertise of our industry is at your service 
to aid you in arriving at the appropriate decisions in this important 
matter.
                                 ______
                                 
     Statement of ELCON, the Electricity Consumers Resource Council
    revenue decoupling: a policy brief of the electricity consumers 
                            resource council
          Every complex problem has a simple solution too good to be 
        true, and it usually is.--Attributed to H.L. Mencken.
                              introduction
    For over two decades advocates of ratepayer-funded energy 
efficiency and load reduction programs have recommended that the 
``link'' between utility's revenues and its sales be ``decoupled'' to 
eliminate a utility's disincentive to sponsor such programs. The 
argument is that the combination of the utility management's fiduciary 
duty to shareholders and the use of rates based on a revenue 
requirement, that includes sales in its calculation, discourages 
utilities from being competent vendors of energy efficiency and load 
reduction services.
    Revenue decoupling (RD) is generally defined as a ratemaking 
mechanism designed to eliminate or reduce the dependence of a utility's 
revenues on sales. It is adopted with the intent of removing the 
disincentive a utility has to administer and promote customer efforts 
to reduce energy consumption and demand or to install distributed 
generation to displace electricity delivered by the utility's T&D 
system. In regulatory parlance, RD takes the form of a tracker or 
attrition allowance in which authorized per customer margins are 
subject to a true-up mechanism to maintain or cap a given level of 
revenues or revenues per customer. Variations from the targeted sales 
or revenues are subsequently recaptured from ratepayers through a 
surcharge or credit.
    In a significant departure from traditional cost-of-service 
principles, which historically provides utilities with only the 
opportunity to earn a fair return, RD guarantees actual earnings at the 
level of authorized earnings. Under RD, a utility is indifferent to the 
impact of sales levels or when the sales occur because of changing 
economic conditions, weather, or new technologies.
    ELCON members are strong supporters of energy efficiency and are 
world-class practitioners of innovative technologies that reduce their 
energy costs to improve their competitiveness. But ELCON strongly 
opposes decoupling because it disrupts and distorts the utility core 
business functions and is not a particularly effective way of promoting 
energy efficiency or anything of benefit to customers. Time and time 
again decoupling has been tried in several states, only to be suspended 
because it unduly interferes with the overall regulatory process. ELCON 
believes that there are other ways to promote energy efficiency and 
load reduction services that have proven to be more effective. This 
paper describes the simple mechanics of decoupling, why decoupling has 
historically failed and is not likely to be any more effective in 
future applications, and proposes alternative regulatory policies that 
more effectively focus on market transformation and the effective 
delivery of demand-side services.

    THE MECHANICS OF REVENUE DECOUPLING: AN ILLUSTRATED EXAMPLE OF AN
                       ANNUALIZED RD MECHANISM \1\
------------------------------------------------------------------------
                                       Year One            Year Two
------------------------------------------------------------------------
      Base Year Assumptions

Utility's Operating Costs (A)...  $4 billion........  $4 billion
Utility's Rate Base (B).........  $5 billion........  $5 billion
Authorized Return to Equity       10%...............  10%
 Owners (ROE).
Authorized Earnings to Equity     $500 million......  $500 million (10%
 Owners (C).                                           of $5 billion)
Utility's Authorized Revenue (A   $4.5 billion......  $4.5 billion
 + C).
RD Balance Account (D)..........  0.................  $45 million
Baseline Sales (E)..............  45,000 GWh........  45,000 GWh
Base Rate per KWh (A + C)/E.....  $0.10.............  $0.10
Effective Rate per KWh (F) (A +   $0.10.............  $0.101
 C + D)/E.

        Actual Sales YearActual Sales (G) (1% diviation    44,550 GWh 1%       45,450 GWh 1%
 from baseline forecast).          Below Baseline.     Above Baseline
Actual Revenues Collected (H) (F  $4,455 million....  $4,590 million
 x G).
Unadjusted Earnings to Equity     $455 million......  $590 million
 Owners (I) (H minus A).
Reported (`Authorized') Earnings  $500 million......  $500 million
 (C).
Actual ROE (I/B)................  9.1% Reduction of   11.8% Increase of
                                   90 basis points.    180 basis points
Reported (`Authorized') ROE.....  10%...............  10%
End-of-Year Balance Account (D)   $45 million.......  ($90 million)
 (A + C) minus H.
------------------------------------------------------------------------
\1\ This is a simplified example of revenue decoupling that assumes no
  variable T&D costs or change in the number of customers. Also, tax
  implications and accounting for price elasticity are ignored.

                          how decoupling works
    RD mechanisms can take several forms but all accomplish the same 
thing: customer rates are automatically adjusted to immunize utility 
earnings from sales fluctuations.
    The first example is illustrated on the spreadsheet on page 2. It 
provides a simplified form of mechanism in which true-ups are done on 
an annual or multi-year basis. The process usually starts with a 
baseline determination of a utility's revenues that may include the 
anticipated consequences of a DSM program. This is the `base case' in 
the illustration.
    The illustration holds this baseline constant over a two-year 
period. In the first year, actual sales are 1% below the baseline 
amount; in the second year actual sales are 1% above the baseline. The 
result is a revenue shortfall in the first year of $45 million. Absent 
any other offsetting revenue recovery mechanism, this shortfall reduces 
earnings to equity owners and the expected ROE. This illustrates a main 
argument of proponents of RD that any small reduction in sales can 
produce a significant reduction in the utility's allowed earnings. In 
the example, the actual ROE is 9.1%, a reduction of 90 basis points 
from the allowed ROE of 10%.
    Applying the RD mechanism in the second year, revenues are adjusted 
by increasing the customer rate upwards to ensure that sufficient 
revenues are collected to achieve the allowed ROE. However, actual 
sales are 1% above the baseline amount and the utility over collects 
$90 million. The actual ROE is 11.8% or 180 basis points above the 
allowed ROE. This simple example highlights the potential year-to-year 
volatility of the RD mechanism.
    With compounding economic events (e.g., recessions), the accrual 
account can grow quite large unless more frequent rate cases or true-
ups are ordered. RD mechanisms tried in the past tended to generate 
substantial accruals that quickly became a dilemma for regulators and a 
burden for ratepayers.
    The second example (on page 4) illustrates decoupling on a revenue-
per-customer (RPC) basis. The base year revenue collected per customer 
(RPC) on an average customer class basis is fixed, and the annual 
charge is then typically allocated on a monthly, normalized basis over 
a reference year. Each month the actual revenues collected per 
ratepayer are compared to the allowed monthly RPC and the difference is 
either credited or debited to a balancing account. Customers would 
still be billed on a per-unit consumption basis, but the rate would be 
trued-up based on actual revenues collected per customer. This prevents 
the utility from earning additional profit from unexpected sales but 
also ensures that the utility recovers its costs resulting from 
unexpected customer growth. For unexpected declines in sales per 
customer and/or declines in the number of customers, the mechanism 
works the same way. Under- or over-recoveries in any month are 
automatically trued-up the following month or at the end of the year.
    The RPC mechanism highlights the `blunt instrument' nature of 
decoupling. The utility is made whole for earnings losses that go 
beyond the limited losses caused solely by energy efficiency and load 
reduction programs. The net effect of the true-up mechanism is to put 
the utility's revenue stream on autopilot. This isolates utility 
management and equity owners from the normal business risk inherent to 
the utility industry, notwithstanding that the existence of a ROE is to 
reward equity owners with a return on their investment that includes a 
sizeable risk premium commensurate with the business risk. In short, an 
RD mechanism makes retail electric distribution service virtually risk 
free for utilities.

 THE MECHANICS OF REVENUE DECOUPLING: AN ILLUSTRATED EXAMPLE OF REVENUE-
         PER-CUSTOMER (RPC) MECHANISM WITH MONTHLY TRUE-UPS \1\
------------------------------------------------------------------------
                                                       Amount
------------------------------------------------------------------------
   Base Year Allowed RPC For a Base Year
                   MonthBase Year Rate per kWh (A)................  $0.10
Base Year (Month) Sales in kWh (B)........  1 billion
Base Year (Month) Revenue (A x B).........  $100 million
Base Year Number of Customers (C).........  1,000,000
Allowed RPC (A x B)/C.....................  $100  Calculation of Revenue Adjustment For A
               Single MonthBase Year Rate per kWh (A)................  $0.10
Actual Sales for the Month (D) 5%           0.95 billion
 Reduction from Baseline (B).
Actual Revenues for the Month (E) (A x D).  $95 million
Actual Number of Customers (F)............  1,010,000
Allowed RPC...............................  $100
Allowed Revenues (G) (F x E)..............  $101 million
Revenue Adjustment (H) (G-E)..............  $6 million
Forecasted Next Month Sales (I)...........  1.0 billion
Rate Adjustment (True-Up) (H/I)...........  $0.006
------------------------------------------------------------------------
This adjustment is added to rates for sales the following month, or at
  the end the year.
\1\ This example assumes that sales per customer decline but the number
  of customers grows.

                    elcon position & recommendations
A. Decoupling Promotes Mediocrity in the Management of a Utility.
    The primary function of a regulated electric utility is and will 
always be to efficiently sell and deliver electric energy to customers. 
For investor-owned utilities, the profit-motive is a legitimate and 
practical means to incent utility managers to operate their business in 
a competent and efficient manner. There also need not be any conflict 
with `unselling' the business' primary product by offering energy 
efficiency and load reduction services.
    Firms in many industries meet the competition by selling a range of 
products competing for different segments of the market share. But in 
regulated industries, such as electric utilities, rate structures and 
regulatory policies may have to be aligned to make this work. The 
attractiveness of revenue decoupling to many utility executives is that 
it will immunize the company's earnings or revenues from sales 
fluctuations. This can only promote mediocrity and indifference to the 
utility's core business, a situation that should not be in the best 
interests of either advocates of selling or unselling the energy 
product.
B. Decoupling Shifts Significant Business Risk From Shareholders to 
        Consumers With Only Dubious Opportunities for Net Increases in 
        Consumer Benefits.
    Decoupling does not create an economic incentive promoting greater 
energy efficiency or load reduction. It establishes, at best, utility 
indifference to these objectives. At the same time, it undermines 
customer efficiency efforts and muddles price signals to consumers. For 
example, conservation efforts are rewarded with higher future rates, 
while excessive consumption paradoxically produces bill credits. This 
is a cynical way to induce energy conservation that is not likely to be 
effective. Decoupling only removes an alleged disincentive while at the 
same time creating real disincentives for competent management of the 
business. The Maine Public Utilities Commission stated in 2004:

          Revenue decoupling does not . . . provide any positive 
        incentive for utilities to promote or support energy efficiency 
        or conservation programs; it only makes them financially 
        neutral to such activities.

    There is growing national concern that utilities are under-
investing in infrastructure and not adequately planning for the future 
needs of their customers. Why this situation has been allowed to happen 
is troublesome given that for many utilities their allowed return is 
already above their actual cost of capital. Regulatory policies need to 
refocus utility management on its core responsibilities to efficiently 
sell and deliver electric energy and to make prudent long-term 
investments. Regulators must not bargain with their utilities from a 
weak position that assumes that financial incentives in excess of a 
reasonable return is necessary for ordinary business behavior. For all 
practical purposes RD mechanisms put utility management on autopilot 
and this will only further encourage them to ignore their core 
business, the value of economic development in their franchise area, 
and the broader needs of the utility's customers. These objectives are 
at least as important as any attempt to only eliminate a disincentive 
to energy efficiency.
    An important feature of the financial structure of investor-owned 
utilities is that the utility's shareholders assume normal business 
risk. This is the risk-reward model that pervades private businesses in 
the US and global economies. Shareholders are best able to diversify 
business risk and market-based economies strive on this basis. Utility 
ratepayers are least able to do so; yet it is the expressed intent of 
RD mechanisms to shift risk from shareholders to consumers, a radical 
departure from standard regulatory policy intended to balance the 
interests of equity owners and ratepayers.
    Proponents of RD mechanisms almost always support preserving the 
utility's allowed return on equity at a level that assumes the 
shareholders retain such risk. Getting utility management to buy into 
the scheme would be difficult otherwise. Hence RD mechanisms are an 
attempt to force energy efficiency and load reduction programs at any 
cost and with no regard for the economic welfare of the impacted 
ratepayers.
    Using RD mechanisms in conjunction with general rate cases also can 
have a ratchet effect on revenues and rates to the extent the RD 
adjustments in between rate cases are memorialized in the next rate 
case. For these and other reasons there is ample justification for 
dismissing the alleged value of RD mechanisms in ratemaking.
C. Decoupling Eliminates a Utility's Financial Incentive To Support 
        Economic Development Within Its Franchise Area. This Includes 
        the Incentive To Support the Well Being of Manufacturers and 
        Their Workforce.
    Promoting growth in sales through the addition and expansion of 
business enterprises is a key area where utility financial incentives 
and local public interests are precisely aligned. Revenue decoupling 
breaks that alignment. While its sole purpose is the elimination of the 
alleged disincentive to a utility's active support for energy 
efficiency and load reduction programs, it also eliminates the 
financial incentive to actively promote the economic development of the 
utility's franchise area. More specifically, it neutralizes the 
financial incentive to attract new commercial and industrial 
businesses--and new job opportunities--to the utility's franchise area, 
and to support the well being of its existing commercial and industrial 
customers, unless those customer classes are specifically exempt from 
the RD mechanism. ELCON believes that regulatory policies should 
promote greater customer focus, not less.
D. Revenue Decoupling Mechanisms Tend To Address `Lost Revenues' and 
        not the Real Issue, Which Is Lost Profits.
    To the extent that rates based on sales create a disincentive for 
utility efforts to promote energy efficiency and load reduction, the 
problem is in the rate design and the failure to abide by longstanding 
cost-of-service ratemaking principles. RD mechanisms have the effect of 
shifting the recovery of the utility's fixed costs into the customer 
(or demand) charge of base rates where they belonged in the first 
place. Thus, from one perspective, RD can be viewed as a stopgap 
ratemaking mechanism to overcome rate designs that have been used and 
abused for other misguided policy objectives such as the imposition of 
cross-class subsidies and stranded cost recovery. The complexity of RD 
mechanisms also makes them very expensive to administer and regulate. 
This greatly reduces the transparency of the ratemaking process and, 
even more so in the public mind, reduces the logic of cost causation.
    The ability of a utility to have the opportunity to earn a fair 
return on assets that are prudently incurred and that remain used and 
useful is a grand compromise of regulation that has withstood the test 
of over a hundred years of practice. Any increased opportunity for a 
utility to earn its authorized rate of return must be commensurate with 
an increase in business risk, not the reverse!
    There is no inherent inconsistency that a utility would both sell 
and `unsell' electric energy if rates are appropriately designed for 
the different services. Selling competing products and services is a 
common business choice and need not be a moral dilemma only for utility 
executives. There are examples of state ratemaking practices such as 
shareholder performance incentives that create more explicit economic 
inducements for promoting energy efficiency and load reduction. These 
practices avoid the collateral damage created by the `blunt instrument' 
nature of RD mechanisms.
E. The First and Most Important Step Regulators Can Take To Promote 
        Energy Efficiency Is To Send the Proper Price Signals to Each 
        Customer Class.
    In the short term, seasonal weather variations are the predominant 
cause of variations from sales forecasts. For example, unseasonably 
mild winters can lead to below forecast sales. In the longer term, 
economic growth in the form of increased customer accounts and usage 
drive electric sales and revenue growth. Ratepayer investments in 
energy efficiency gradually moderate energy sales growth. Load shifting 
efforts from peak to off-peak periods may not reduce overall kWh sales, 
but should lower the cost of supplying that energy.
    Thus the first and most important step regulators can take to 
ensure that ratepayers themselves are induced to make energy efficient 
investments and behavioral changes is to implement retail rates that 
send the proper price signals to each customer class. This includes 
allocation of fixed costs to customer (or `demand') charges and time-
variant energy charges. The Energy Policy Act of 2005 directs the 
states to consider expanded deployment of time-based pricing and 
advanced metering, and ELCON strongly encourages states to pursue this 
path to more efficient pricing rather than the futile pursuit of 
decoupling mechanisms.
    Large industrial customers are almost always on some form of time-
of-use rate, with a demand charge, and this rate structure is extremely 
valuable to the customer for evaluating the cost-effectiveness of 
energy efficiency improvements in their manufacturing facilities. Large 
industrial customers do not look for guidance from utilities on how to 
co-optimize their energy consumption and manufacturing activities, and 
`decoupling' does not make utilities experts in these matters. By 
further blunting price signals to ratepayers, RD mechanisms actually 
undermine incentives for customers to invest in more efficient 
appliances and equipment because the reward for reducing consumption is 
higher rates in the future. ELCON members believe that a utility's 
fundamental responsibility is to efficiently sell and deliver energy at 
the lowest possible cost, and appropriate price signals are an 
essential component of that objective.
F. Several States Have Successfully Used Alternative Entities--
        Including Government Agencies--For Unselling Energy. This 
        Creates an Entity Whose Sole Mission Is To Promote Energy 
        Efficiency, and Retains a Separate Entity Whose Responsibility 
        Is To Efficiently Sell and Deliver Energy.
    Some states believe that simultaneously selling and unselling 
electric energy is a real conflict of interest and have assigned the 
administration of the unselling function to an independent entity or 
agency whose mission is dedicated to promoting energy efficiency and 
load reduction. This policy recognizes that another entity--the 
utility--must be responsible for efficiently selling and delivering 
electric energy. States that have taken this path are Wisconsin, Maine, 
New Jersey, Ohio, Vermont, Oregon, New York, and Connecticut.
    In New York, for example, the New York State Energy and Research 
Development Authority (NYSERDA) is charged with the responsibility for 
demand-side programs, and is funded by a systems benefit charge that is 
collected by the utilities. Wisconsin established Focus On Energy as a 
public-private partnership offering energy information and services to 
residential, business, and industrial customers throughout the state. 
There services are delivered by a group of firms contracted by the 
Wisconsin Department of Administration's Division of Energy.
                                 ______
                                 
GAMA--An Association of Appliance & Equipment Manufacturers
                                     Arlington, VA, April 24, 2007.
Hon. Jeff Bingaman
Chairman, Senate Committee on Energy and Natural Resources, SD-304 
        Dirksen Senate Office Building, Washington, DC.
    Dear Mr. Chairman Bingaman: The Gas Appliance Manufacturers 
Association (GAMA) and our witness, Mr. Robert Schjerven, CEO Emeritus 
of Lennox International Inc., were pleased to have the opportunity to 
present the views of our industries on S. 1115 during the hearing 
conducted by the Senate Committee on Energy and Natural Resources 
yesterday afternoon. We stand ready to assist the Committee and its 
staff in moving this legislation forward with appropriate modifications 
to resolve several serious concerns raised during the hearing.
    GAMA continues to support the consensus efficiency standards for 
residential boilers contained in the bill, but we wish to re-emphasize 
that certain other provisions of the bill do not have consensus 
support, but in fact are highly controversial. These provisions, 
specifically sections 201, 202, 203 and 205, would make fundamental 
changes to existing law and they would have very significant market 
impacts. GAMA and the industries we represent are very concerned that 
these provisions could be passed in haste without an understanding of 
their potential for harm.
    The proposal (section 201) to authorize the U.S. Department of 
Energy (DOE) to establish regional standards for heating and cooling 
equipment was, as you know, a major issue at yesterday's hearing. As 
Mr. Schjerven explained in his testimony, compliance with regional 
standards would impose substantial cost burdens on manufacturers and 
distributors, and the likelihood that regional standards would be 
difficult if not impossible, to enforce would exacerbate marketplace 
disruption and economic losses. Deputy Assistant Secretary John 
Mizroch, testifying on behalf of the Department of Energy (DOE), 
observed that enforcement of regional standards would create additional 
burdens on government that require further consideration. In responding 
to your follow-up questions, Mr. Mizroch was unable to say how the 
Department would enforce regional standards other than that the 
Department would ``work with the states.''
    Mr. Chairman, you posed the question to Mr. Mizroch whether, 
regardless of the effectiveness of enforcement, a more stringent 
regional gas furnace efficiency standard for northern states might get 
some higher efficiency furnaces installed that might not otherwise be 
the case. I hope it was clear from Mr. Schjerven's testimony that 
market forces are responding very well to the demand for very high 
efficiency furnaces (i.e. condensing furnaces having an efficiency 
rating of at least 90%) in northern states.
    Nevertheless, according to recent DOE analysis cited by Mr. 
Schjerven in his testimony, 20-24% of households in northern states 
would suffer a net economic loss if installation of a condensing 
furnace were their only choice.
    In any event, I want to be sure the Committee understands that 
today enforcement of federal furnace efficiency standards, assisted by 
GAMA's own furnace efficiency certification program, is very effective 
and essential to a fair and competitive marketplace. GAMA would not be 
able to assist DOE in enforcing regional standards because we have no 
way of knowing where products get installed. Regional standards, the 
enforcement of which would be much less certain, would create market 
instability. Companies that earnestly tried to comply with the law 
would face the risk of loss of sales to cheaters. The market disruption 
and economic losses that would result from regional standards, 
especially because standards enforcement would be uneven and more 
complicated, would far outweigh any benefits of a regional standard, 
especially considering the evident success of market forces in 
producing energy savings.
    Thank you again for considering our views on this important 
legislation. I request that this letter be made part of the hearing 
record.
            Respectfully submitted,
                                             Jack W. Klimp,
                                                         President.

                                    

      
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