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36–640 PDF 2007

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 
(II)

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

MARIA CANTWELL, Washington 

KEN SALAZAR, Colorado 

ROBERT MENENDEZ, New Jersey 

BLANCHE L. LINCOLN, Arkansas 

BERNARD SANDERS, Vermont 

JON TESTER, Montana 

PETE V. DOMENICI, New Mexico 

LARRY E. CRAIG, Idaho 

CRAIG THOMAS, Wyoming 

LISA MURKOWSKI, Alaska 

RICHARD BURR, North Carolina 

JIM DEMINT, South Carolina 

BOB CORKER, Tennessee 

JEFF SESSIONS, Alabama 

GORDON H. SMITH, Oregon 

JIM BUNNING, Kentucky 

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 
(III)

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

(1)

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 
2

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 
3

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 
4

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 onethird, 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 
5

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 
6

1Department of Energy, Report to Congress on Appliance Energy Efficiency Rulemakings, including Battery Chargers and External Power Supplies, January 31, 2006. 

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 thirdparty 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

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.
7

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, 
8

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 genera-
9

tion 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 
10

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 WalMart 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. 
11

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 preemption 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 
12

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. 
13

Senator MURKOWSKI. Okay. 

Mr. MIZROCH. Refrigerators have actually been one of the huge 

success stories, because we’ve reduced energy consumption by twothirds 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, 
14

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? 
15

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. 
16

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, visa-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? 
17

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. 
18

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 
19

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 
20

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). 
21

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. 
22

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. 
23

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, aggres-
24

sive, 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-formegawatt 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 En-
25

ergy, 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 21⁄2 percent set-aside for energy efficiency, or 

megawatts, as part of the RPS, and it also addresses potential costrecovery 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 
26

1Department of Energy, ‘‘State and Regional Policies that Promote Energy Efficiency Programs Carried Out by Electric and Gas Utilities.’’ 2 Interlaboratory Working Group, ‘‘Scenarios for a Clean Energy Future,’’ Oak Ridge National 

Laboratory, Lawrence Berkeley National Laboratory. 

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

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 costeffectively 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.’’

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 
27

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. 
28

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-ef-
29

fective 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; 
30

• 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. 
31

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 
32

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. 
33

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.) 
34

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:
35

• 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 
36

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 
37

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 experi-
38

ence 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 pre-
39

mium, 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 en-
40

ergy. 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 
41

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 com-
42

bined 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. Experi-
43

ence 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 nonbinding 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 
44

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 adopt-
45

* Graphic has been retained in Committee files. 

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. 2For 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. 3Prindle 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. 

ed 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.* 

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. 

Unfortunately, a variety of market barriers keep energy efficiency investment 

from being accelerated. These barriers fall in two main categories: (1) principalagent 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. 

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-elas-
46

4 Energy Information Administration, 2006, Natural Gas Navigator: U.S. Natural Gas Residential Price. http://tonto.eia.doe.gov/dnav/ng/ngprilsumldculnuslm.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/mglttlusw.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. 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. 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. 12See note #9. 

ticity 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. 

• 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. 

• 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, allow-
47

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. 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. 16 Hassol, 2004, Impacts of a Warming Arctic: Arctic Climate Impact Assessment. http://

www.acia.uaf.edu. Cambridge University Press. 17Webster, 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. 19Prindle, 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. 20Gallop, 2005, ‘‘Gallop Poll Social Series—The Environment.’’ Princeton, NJ: The Gallop Organization. 21Moore, David, 2001, ‘‘Energy Crisis: Americans Lean toward Conservation over Production.’’ 

Princeton, NJ: The Gallup Organization. 

ing a larger portion of our needs to be met from sources in the U.S. and friendly 

countries. • 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

• 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. • 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 costeffective 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

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 energyefficient 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

However, energy efficiency alone will not solve our energy problems. Even with 

aggressive actions to promote energy efficiency, U.S. energy consumption is likely 
48

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. 

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

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.
49

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 statebased 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 
50

23 Horowitz, Noah et al. 2005. Televisions: Active Mode Energy Use and Opportunities for Energy Savings. Natural Resources Defense Council Issue Paper, 2005. 

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. • 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 
51

24 Nadel, 2006, Energy Efficiency Resource Standards: Experience and Recommendations.

Washington, DC: American Council for an Energy-Efficient Economy. 

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

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. 
52

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. 
53

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 
54

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 
55

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. 
56

• 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 pro-
57

vision, 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 reac-
58

tion 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 Statelevel 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 juris-
59

diction, 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 airconditioning 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 
60

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, yearover-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 
61

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 cer-
62

tainly 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, 
63

‘‘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 
64

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 
65

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. 
66

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 highdefinition 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. 
67

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—
68

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 onethird 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 own-
69

ers to help offset the cost of doing renovation work, which is—the 

installed base is where we want to tackle. That’s where the energyinefficient 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——
70

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 effi-
71

ciency 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.] 

(73)

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 stricterthannational 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 socalled ‘‘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 
74

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. 
(75)

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. 
76

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 fuelcycle’’ 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 energyefficiency 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 
77

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 energyefficient 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 
78

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.
79

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. 
80

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 energyefficient 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 
81

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. 

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. 

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. 
82

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 
83

* Graphics in this document have been retained in Committee files. 

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. 

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 
84

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 
85

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 
86

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 walkin 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: 
87

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 ab-
88

dication 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. 
89

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 Owners (ROE).10% ............................ 10%

Authorized Earnings to Equity 

Owners (C).

$500 million .............. $500 million (10% of 

$5 billion) 

Utility’s Authorized Revenue (A + 

C).

$4.5 billion ................ $4.5 billion 

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 + C + 

D)/E.

$0.10 .......................... $0.101
90

THE MECHANICS OF REVENUE DECOUPLING: AN ILLUSTRATED EXAMPLE 

OF AN ANNUALIZED RD MECHANISM 1—Continued

Year One Year Two 

Actual Sales Year

Actual Sales (G) (1% diviation from 

baseline forecast).

44,550 GWh 1% 

Below Baseline.

45,450 GWh 1% 

Above Baseline 

Actual Revenues Collected (H) (F x 

G).

$4,455 million ........... $4,590 million 

Unadjusted Earnings to Equity 

Owners (I) (H minus A).

$455 million .............. $590 million 

Reported (‘Authorized’) Earnings (C) $500 million .............. $500 million 

Actual ROE (I/B) ............................... 9.1% Reduction of 90 

basis points.

11.8% Increase of 180 

basis points 

Reported (‘Authorized’) ROE ............ 10% ............................ 10%

End-of-Year Balance Account (D) (A 

+ C) minus H.

$45 million ................ ($90 million) 

1This 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 yearto-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 trueup mechanism is to put the utility’s revenue stream on autopilot. This isolates util-
91

ity 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 TRUEUPS 1

Amount 

Base Year Allowed RPC For a Base Year Month

Base 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 Month

Base Year Rate per kWh (A) .............................................................. $0.10

Actual Sales for the Month (D) 5% Reduction from Baseline (B) ... 0.95 billion 

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. 

1This 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 
92

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 prac-
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tices 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. 
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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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