```

[Senate Hearing 110-38]
[From the U.S. Government Publishing Office]

                                                         S. Hrg. 110-38
 
                     ENERGY EFFICIENCY OF BUILDINGS

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON ENERGY

                                 of the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                                   TO

RECEIVE RECOMMENDATIONS ON POLICIES AND PROGRAMS TO IMPROVE THE ENERGY 
  EFFICIENCY OF BUILDINGS AND TO EXPAND THE ROLE OF ELECTRIC AND GAS 
                UTILITIES IN ENERGY EFFICIENCY PROGRAMS

                               __________

                           FEBRUARY 12, 2007

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

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
35-766                      WASHINGTON : 2007
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800  
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

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

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
              Frank Macchiarola, Republican Staff Director
             Judith K. Pensabene, Republican Chief Counsel
                         Deborah Estes, Counsel
                  Kellie Donnelly, Republican Counsel
                                 ------                                

                         Subcommittee on Energy

                BYRON L. DORGAN, North Dakota, Chairman

DANIEL K. AKAKA, Hawaii              LISA MURKOWSKI, Alaska
RON WYDEN, Oregon                    LARRY E. CRAIG, Idaho
TIM JOHNSON, South Dakota            RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana          JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           BOB CORKER, Tennessee
ROBERT MENENDEZ, New Jersey          JEFF SESSIONS, Alabama
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
JON TESTER, Montana                  MEL MARTINEZ, Florida

   Jeff Bingaman  and Pete V. Domenici are Ex Officio Members of the 
                              Subcommittee

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     2
Callahan, Kateri, President, The Alliance to Save Energy.........    36
Christianson, Kim, Manager, Office of Renewable Energy and Energy 
  Efficiency, North Dakota Department of Commerce, and also on 
  behalf of the National Association of State Energy Officials...     4
Dorgan, Hon. Byron L., U.S. Senator from North Dakota............     1
Hebert, Jack, President and CEO, Cold Climate Housing Research 
  Center, Fairbanks, AK..........................................    20
Murkowski, Hon. Lisa, U.S. Senator from Alaska...................     2
Rogers, James E., Chairman, CEO, and President, Duke Energy 
  Corporation, Charlotte, NC and Chairman, Edison Electric 
  Institute......................................................    31
Sanders, Hon. Bernard, U.S. Senator from Vermont.................     3
Stewart, R.K., President, American Institute of Architects.......    11
Zimmerman, Charles R., P.E., Vice President, Prototype and New 
  Format Development, Wal-Mart Stores, Inc.......................    16

                                APPENDIX

Additional material submitted for the record.....................    57

                     ENERGY EFFICIENCY OF BUILDINGS

                              ----------                              

                       MONDAY, FEBRUARY 12, 2007

                               U.S. Senate,
                            Subcommittee on Energy,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:30 p.m. in 
room SD-366, Dirksen Senate Office Building, Hon. Byron L. 
Dorgan presiding.

 OPENING STATEMENT OF HON. BYRON L. DORGAN, U.S. SENATOR FROM 
                          NORTH DAKOTA

    Senator Dorgan. We'll call the hearing to order. I'm 
Senator Dorgan, chairman of the subcommittee. We're joined by 
the chairman of the full Energy and Natural Resources 
Committee, Senator Bingaman and we expect others to join us 
soon.
    We welcome all of you to the first Energy Subcommittee 
hearing of the 110th Congress and today the topic is energy 
efficiency. We have some excellent witnesses on this subject 
and we're anxious to hear them. This is an issue that I've been 
involved with for some long while. I was honored to serve as 
co-chairman of the Alliance to Save Energy. In fact, I 
succeeded in that position the Senator from New Mexico, who 
served in that same position for some long while.
    Both of us are very interested in this issue of energy 
efficiency, but we all recognize we have serious energy 
problems and a significant challenge ahead of us with respect 
to energy. We import over 60 percent of our oil, much from 
troubled parts of the world. We also have substantial 
challenges with respect to the production of electricity and 
the use of coal, and a whole range of issues in this new age of 
interest in energy and climate change and global warming. One 
of the evident solutions to dealing with all of these issues is 
the area of efficiency. We understand that you have to be 
involved in the question of production of energy, conservation 
of energy, and the development of renewable energy. We also 
understand that a significant part of this issue of energy use 
and how we become more efficient is the issue of efficiency 
itself, in which we discuss the things that sound like a 
foreign language--SEER-13 for air conditioners--and those kinds 
of debates which we have been involved with on this committee 
for some long while.
    Today we're going to focus on two related topics with 
respect to efficiency: efficiency in the building sector in 
this country, and also the electric and gas utility energy 
efficiency programs. The United States Federal Government has 
an interest in this issue of efficiency aside from the policy 
standpoint. We, in the Federal Government, own and lease about 
475 thousand buildings, or about 3.2 billion square feet 
throughout the world. GSA, I'm told, spent $380 million dollars 
on energy costs in their Federal buildings in FY 2006. 
Presidents Clinton and Bush, as well as the Congress through 
EPAct 2005, called for the Federal Government to lead by 
example in building efficiency, so we know that we have 
responsibilities in this area. We know that there's a 
substantial amount of energy savings to be achieved by 
thoughtful efficiency policy and programs, and that is the 
purpose of this hearing. I'm pleased that all the witnesses 
have joined us, and let me call on my colleague Senator 
Bingaman for any opening statement.

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

    The Chairman. Mr. Chairman, I congratulate you on having 
the hearing. It's obviously the first issue we need to be 
addressing, as we try to improve our energy security, and I'm 
glad we could get this distinguished group of witnesses. I'm 
looking forward to hearing them. Thank you.
    Senator Dorgan. Senator Bingaman, thank you very much. We 
are joined by the ranking member of this subcommittee, Senator 
Murkowski.
    Senator, I have just made a few brief comments as an 
opening statement, then I called on Senator Bingaman, and I'd 
be happy to have you make any statements you wish to make at 
this point.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. I appreciate that a great deal; now you 
get to get to hear twice how much I appreciate you calling this 
hearing on this very, very important topic.
    I don't want to take too much time this afternoon, but I 
think it is important to repeat and remind folks that when we 
consider that about 40 percent of total U.S. energy consumption 
goes to heating, cooling, and lighting our buildings and homes, 
it is clear that for us to make progress in improving energy 
efficiency, we must improve both the design of our commercial 
buildings and our homes, as well as the energy efficiency of 
their electrical and mechanical systems--the appliances that go 
inside of them. We made some good steps with the Energy Policy 
Act of 2005, did some good concrete things, but we recognize 
and appreciate that we have more to go. We have more to do in 
terms of the authorization of certain programs that we saw 
through EPAct.
    I've been disappointed myself with some of the actions that 
we have seen; the weatherization program is one of those. If we 
did better at our home weatherization programs, we probably 
wouldn't be looking at as much funding as the LIHEAP. I know 
that many of the witnesses this afternoon will discuss these 
programs and the importance of actually starting to put more 
money toward saving energy through appliance and greater 
building efficiencies.
    I would like to personally welcome one of our witnesses 
here this afternoon, Jack Hebert. Jack is from Fairbanks, and I 
had the opportunity to visit him at the Cold Climate Housing 
Research Center that is located on the University of Alaska, 
Fairbanks campus and to go through the model homes that they 
have developed using the research. I know most of you don't 
like to think that Alaska can be utilizing our solar assets, 
but in fact in a place like Fairbanks, where we can have 40 
below periods, we've got some research that has demonstrated 
incredible advances in our energy efficiency. So Jack, I 
appreciate you being here. I know you're trying to get on a 
plane to get back North before the snow comes, so we hope that 
we're successful in that.
    I do want to also note: I was reading through the testimony 
and Mr. Stewart, you note that buildings are responsible for 71 
percent of the electricity consumed in America and account for 
nearly 10 percent of all carbon dioxide emissions. It's 
information like that, that I think gets people's attention 
here, and again the reason why this hearing this afternoon is 
so important. So with that, Mr. Chairman, again I thank you and 
look forward to some great suggestions from our panelists this 
afternoon.
    [The prepared statement of Senator Sanders follows:]

 Prepared Statement of Hon. Bernard Sanders, U.S. Senator From Vermont

    Chairman Dorgan, Ranking Member Murkowski, thank you for convening 
this very vital hearing on one of the best ways to address the problems 
of global warming: energy efficiency.
    Energy efficiency is so important. In fact, it is one of those win-
win things: you reduce consumers' bills and you reduce the amount of 
global warming pollutants released to our atmosphere. So, why is it 
that we aren't funding the excellent energy efficiency programs that 
are already on the books, including weatherization? Additionally, when 
it comes to energy efficiency, we need to make sure that the federal 
government leads by example. One simple way to do this is to utilize 
energy performance contracts, which do not require any up-front capital 
from the agency. We also need to authorize additional energy efficiency 
programs, including some mentioned by the witnesses at today's hearing. 
I am particularly intrigued by the notion of allowing utilities to make 
a profit, perhaps even a greater profit than they would otherwise, by 
promoting energy efficiency over generation. I look forward to 
exploring this issue more.
    I look forward to working with my colleagues and member of the 
community to determine the best ways to move forward because I know 
that we all share the desire to ensure a better energy future for our 
country so that good jobs and a good economy will peacefully co-exist 
with a healthy environment.

    Senator Dorgan. Senator Murkowski, thank you very much. We 
have six excellent witnesses. I appreciate very much all of you 
coming to be with us today. I would like to call on all six for 
their statements, and after which we will ask some questions. I 
also invited someone from North Dakota to be on the panel, so 
we have North Dakota and Alaska represented, along with the 
four other distinguished witnesses.
    Kim Christianson runs the Energy Program in North Dakota, 
in the North Dakota Department of Commerce. I was with him 
earlier today and did not brag about him, and I should have. He 
does an outstanding job. I'm really impressed with the work 
that he has done. I've worked with him on a good many issues 
but he, and I expect Mr. Hebert, and others, will bring their 
perspective to this issue. I think Kim Christianson has a 
unique perspective. We're very pleased that you're with us. Mr. 
Christianson you may proceed.

  STATEMENT OF KIM CHRISTIANSON, MANAGER, OFFICE OF RENEWABLE 
   ENERGY AND ENERGY EFFICIENCY, NORTH DAKOTA DEPARTMENT OF 
  COMMERCE, AND ALSO ON BEHALF OF THE NATIONAL ASSOCIATION OF 
                     STATE ENERGY OFFICIALS

    Mr. Christianson. Thank you, Senator Dorgan and Senators 
Bingaman and Murkowski. In addition to being with the 
Department of Commerce in North Dakota, I also chair the 
Agriculture and Rural Development task force of the National 
Association of State Energy Officials for NASEO. I greatly 
appreciate the opportunity to be here today. My testimony today 
will serve a dual purpose: to highlight energy efficiency 
activities and policy in North Dakota, and to present NASEO 
policy positions on energy efficiency and to describe other 
State efforts. My written testimony is far longer than what I 
am able to cover in 7 minutes so I will very briefly summarize 
the testimony content and ask that the full written testimony 
be placed into the hearing record.
    Senator Dorgan. Without objection.
    Mr. Christianson. There's a tremendous amount of energy 
development activity taking place in North Dakota today, 
especially in the areas of wind energy, ethanol, bio-diesel and 
biomass. At the same time, North Dakota has abundant fossil 
fuel resources--including lignite, coal, oil, and natural gas--
and a very significant electricity generation industry, which 
exports approximately 70 percent of the electricity produced 
mostly to the east. North Dakota Governor John Hoeven has 
encouraged the existing energy industry and the developing 
renewable energy industry to work together where possible. A 
good example of this synergy is the announced combined heat and 
power plant near my hometown of Jamestown, North Dakota. The 
project involves the existing Cargill malting facility, a 
proposed 100 million gallon per year ethanol production plant, 
and a new Great River Energy 40 megawatt power plant which is 
coal-fired. By co-locating facilities and utilizing steam from 
the power plant and waste water from the malting facility, 
tremendous cost efficiencies will be realized by all of the 
parties.
    With all the attention on renewable energy developments and 
the substantial economic activity generated, it's very easy to 
overlook the good work and benefits of energy efficiency 
efforts. Our office has been actively involved with efficiency 
efforts in North Dakota since the late 1970's, and we continue 
to administer the Weatherization Assistance Program and the 
State Energy Program. My written testimony highlights the best 
practices initiative that our State Weatherization Program has 
implemented over the past couple of years. This is a 
comprehensive effort to implement state-of-the-art approaches 
to residential energy efficiencies flowing from around the 
country and to develop an instructional manual that is applied 
consistently throughout the State. It includes intensive 
training and the use of sophisticated diagnostic equipment, so 
that all crews are equipped to do the best job possible to help 
low-income households get a handle on their energy consumption 
and costs. North Dakota's Best Practices'' initiative has been 
recognized around the country as an innovative, comprehensive, 
and cost-effective approach to providing energy efficiency 
assistance to low-income residents.
    I also highlight the energy efficiency work we have done in 
North Dakota with State-owned buildings. Over the years we have 
provided technical and financial assistance for energy 
efficiency projects in 412 buildings, amounting to $24 million 
in projects, which have resulted in over $3 million of annual 
cost savings. We have combined a unique working partnership 
with the North Dakota Association of Physical Plant 
Administrators and technical and financial assistance for 
energy analyses and efficiency improvements, to greatly reduce 
energy consumption and cost. A current example is a $2.3 
million project at the University of North Dakota in Grand 
Forks, which includes upgrades to 75 buildings. This project is 
expected to result in energy cost savings of over $330,000 per 
year.
    Finally, we are more and more involved in the initial 
planning and design stages of proposed new facilities. We have 
successfully obtained the Energy Star designation for a number 
of new State facilities, including the one in which our agency 
is housed, and we continue to expand our efforts in this area. 
While we are proud of the energy efficiency efforts in North 
Dakota, we are a small agency with limited resources and know 
that we have only scratched the surface of what could be 
accomplished. I'm very impressed with the innovative programs 
and tremendous successes that my colleagues and other State 
energy offices have achieved. On behalf of our agency and other 
State energy offices, I thank you, Senator Dorgan and other 
committee members, for your continuing support of the 
Weatherization Assistance Program and State Energy Program. In 
our case, and I'm sure with most other States, these two 
programs have served as a foundation of our energy efficiency 
efforts.
    In my written testimony I have included brief summaries of 
innovative and successful efficiency programs from a number of 
States. I also have a NASEO publication that highlights State 
success stories with efficiency and renewable programs, and I 
ask that that be included in the record.
    Senator Dorgan. Without objection.
    Mr. Christianson. Also included in my written testimony are 
a number of policy positions put forth by the National 
Association of State Energy Officials. I do not have time to 
adequately cover these this afternoon, but I would like to 
focus on a few key items. Robust energy efficiency expansion 
requires both significant research and development, but also 
deployment and demonstration programs. It doesn't make sense to 
put priority on R&D for future energy-saving opportunities at 
the expense of programs which are producing those savings 
today. As you consider funding at the Department of Energy, 
USDA, and EPA, please consider the value of both sides of the 
equation. NASEO recognizes that you have a limited budgets, but 
the Energy Policy Act of 2005 authorized and reauthorized a 
number of energy programs that are significantly underfunded. 
Both the State Energy Program and the Weatherization Assistance 
Program are facing budget cuts that we believe are unwarranted. 
These are successful programs that help real citizens and real 
businesses in all sectors of the economy. There were a number 
of programs included in EPAct that were not sufficiently 
funded, if at all. These include efforts to target appliance 
efficiency standards, the Energy Star program, upgrading 
building codes, upgrading public buildings, and others.
    I'll just mention one other thing. A number of energy 
efficiency provisions in the Farm Bill, especially section 
9006, are increasingly important to the States and we would 
urge your support of expanding those provisions. Again, there 
is a more complete summarization of NASEO's policy positions in 
my written testimony. On behalf of my colleagues and other 
State energy offices, I thank you for your attention and your 
continued support. Thank you.
    [The prepared statement of Mr. Christianson follows:]

 Prepared Statement of Kim Christianson, Manager, Office of Renewable 
Energy and Energy Efficiency, North Dakota Department of Commerce, and 
  also on behalf of the National Association of State Energy Officials

                              INTRODUCTION

    Good afternoon Senator Dorgan, and subcommittee members. My name is 
Kim Christianson, I am the Manager of the Office of Renewable Energy & 
Energy Efficiency within the North Dakota Dept. of Commerce and the 
Chair of the Agriculture and Rural Development Task Force of the 
National Association of State Energy Officials (NASEO). I greatly 
appreciate the opportunity to appear before you today. My testimony 
today will serve a dual purpose: 1) to highlight energy efficiency 
activities and policy in North Dakota; and 2) to present NASEO policy 
positions on energy efficiency and to describe other state efforts.

                        NORTH DAKOTA ACTIVITIES

    These are exciting times for energy development and the energy 
industry in North Dakota, particularly in the areas of wind energy, 
ethanol, biodiesel and other renewable energy developments. In the past 
few years, ten wind energy projects have been installed or announced, 
including 383 utility-scale wind turbines with a total rated capacity 
of 578 MW. Five ethanol production plants and another four biodiesel 
production facilities are under construction or soon to begin 
construction. Various groups are exploring the potential for biomass 
energy development in the state, particularly the use of cellulosic 
feedstock for ethanol production.
    North Dakota has abundant fossil fuel resources, including lignite 
coal, oil, and natural gas, and a significant electric generation 
industry that exports nearly 70 percent of the electricity produced to 
neighboring states, mainly to Minnesota. Governor John Hoeven has 
encouraged the existing fossil fuel industry and the developing 
renewable energy industry to work together when feasible. An excellent 
example of the synergy potential between the two energy sectors is the 
recently announced Spiritwood project, near my hometown of Jamestown, 
North Dakota. The project involves the existing Cargill malting plant 
outside of Spiritwood, a proposed 100 million gallons per year ethanol 
production plant, and a new coal-fired 40 MW generation facility to be 
built by Great River Energy. Steam heat from the power plant will be 
used at both the ethanol and malting facilities. Waste water from the 
malting plant will be utilized by the ethanol facility for their needs. 
The electricity generated by this project will be placed on the 
transmission grid and sent to Great River's customers in Minnesota. 
Because the Cargill malting plant can replace their expensive and often 
interrupted supply of natural gas with inexpensive steam from the power 
plant, they have recently expanded their operation, making it the 
largest of its kind in North America.
    With all the attention on renewable energy development and the 
substantial economic activity generated, it is easy to overlook the 
good work and benefits of energy efficiency efforts. Our office has 
been actively involved with energy efficiency efforts in North Dakota 
since the late 1970's, and we continue to administer the Weatherization 
Assistance Program and the State Energy Program. My testimony will 
highlight three particularly successful energy efficiency activities in 
North Dakota--the Weatherization program, the State Energy Program and 
our efforts to improve the energy efficiency of state-owned buildings.
    As you know, the Weatherization Assistance Program provides low-
income households with energy efficiency improvements to their homes. 
In North Dakota, our program assists approximately 1,300 households 
annually, benefiting over 2,700 low-income persons, 55 percent of whom 
are elderly or children. Weatherization services in North Dakota are 
delivered by seven regional Community Action Agencies.
    Over the last couple of years, our state has implemented what we 
call a ``Best Practices'' initiative. This is a comprehensive effort 
involving all levels of the state's Weatherization program--from state 
administrators, to Community Action Agency energy coordinators, to the 
weatherization crews themselves--to implement state-of-the-art 
approaches to residential energy efficiency from around the country and 
to develop an instructional manual that is applied consistently 
throughout the state. The ``Best Practices'' initiative includes 
intensive training and the use of sophisticated diagnostic equipment so 
that all crews are equipped to do the best job possible to help low-
income households get a handle on energy consumption and costs. 
Continuing education is provided to Weatherization crew members to 
ensure early adoption of improved methodologies.
    In addition to reducing energy costs and improving comfort, the 
Weatherization crews have expanded their efforts to include emergency 
repair and replacement of furnaces, which in a number of instances has 
resulted in the identification and elimination of life-threatening 
safety issues. For example, the Community Action Program Region VII, 
Inc., in Bismarck reported one particular case in which a woman had 
chronic headaches and complained of feeling ill whenever she was in her 
mobile home for any length of time. It turned out that the level of 
carbon monoxide in her home was elevated well beyond safe levels. She 
very easily could have died from carbon monoxide poisoning and was 
fortunate that the weatherization crew discovered and corrected the 
problem.
    North Dakota's ``Best Practices'' initiative has been recognized 
around the country as an innovative, comprehensive, and cost-effective 
approach to providing energy efficiency assistance to low-income 
residents. I'm proud to tell you that my friend and colleague, Cal 
Steiner, who along with state manager Howard Sage administers the 
program for North Dakota, will be receiving the prestigious James 
Gardner National Weatherization Award from the National Association of 
State Community Services Programs; their top award for excellence.
    In addition to North Dakota's Weatherization program, I want to 
discuss our energy efficiency efforts for state-owned buildings. Over 
the years, we have provided technical and financial assistance for 
energy efficiency projects in 412 buildings, amounting to $24 million 
in projects, resulting in over $3 million in annual cost savings.
    For many years, our office has had a close working partnership with 
the North Dakota Association of Physical Plant Administrators. They 
represent all the major state facilities, including the buildings owned 
by the state university system, and the group has now expanded to 
include major school district facility managers and others. Through the 
State Energy Program, we annually provide funds for training programs 
implementing a variety of energy efficiency measures. Recent examples 
include sessions on direct digital control systems and steam trap 
maintenance and replacement programs.
    We've done much to encourage reduced energy consumption and costs 
in state and local buildings. As I mentioned, we have provided 
technical and financial assistance for detailed energy analyses, and 
for energy efficiency improvements. In recent years we have encouraged 
and assisted state facility managers with two mechanisms to implement 
efficiency improvements--a state ``bonding'' program and energy 
performance contracting. Many of these activities are supported by the 
State Energy Program.
    The state facility energy improvement program has provided bond 
funds for larger-scale efficiency improvements, based on detailed 
energy audits that indicate favorable returns on investment. The 
savings on utility costs are then used to pay back the state bonds. A 
current example is a $2.3 million project at the University of North 
Dakota in Grand Forks, which includes upgrades to seventy-five 
buildings. This project is expected to result in energy cost savings of 
over $330,000 per year.
    A second mechanism for efficiency projects at state facilities is 
performance contracting. This allows a third-party vendor to work with 
the institution to identify potential energy-saving improvements and to 
arrange for the financing for those improvements. Under this program, 
the vendor guarantees that the facility will realize sufficient energy 
cost and operational savings to pay back the financing within a 
prescribed period; usually within ten to fifteen years. Our office 
includes a registered and certified energy engineer who works closely 
with state facility managers to review proposals and contractual 
documents to make sure projected utility savings are realistic and 
achievable.
    Finally, we are more and more involved in the initial planning and 
design stages of proposed new facilities. Our agency is housed in a 
very modern and energy efficient office building called the Century 
Center, which is owned by the state's Workers Safety and Insurance 
agency. Our engineer worked with the building design team to suggest a 
geothermal (or ground-source) heating and cooling system and a number 
of other efficiency features. The Century Center, along with a nearby 
Job Service North Dakota office building, received the Energy Star 
designation from the Department of Energy/Environmental Protection 
Agency program. We are also working with the Bank of North Dakota (our 
state-owned bank) on their new building, currently under construction, 
to hopefully also achieve the Energy Star designation.
    While we are proud of our energy efficiency efforts in North 
Dakota, we are a small agency with limited resources and know that we 
have only scratched the surface of what could be accomplished. I'm very 
impressed with the innovative programs and tremendous successes that my 
colleagues in other state energy offices have achieved. On behalf of 
our agency and other state energy offices, I thank you, Senator Dorgan, 
and other committee members for your continuing support of the 
Weatherization Assistance Program and State Energy Program. In our 
case, and I'm sure with most other states, these two programs have 
served as the foundation of our energy efficiency efforts. We very much 
appreciate it.

              STATE ENERGY EFFORTS/FEDERAL APPROPRIATIONS

    I also want to highlight the efficiency policy positions of our 
national organization, the National Association of State Energy 
Officials (NASEO).
    On behalf of NASEO, I want to point out that the state energy 
offices have been working hard to implement energy efficiency programs 
throughout the United States. The state energy offices directly 
implement projects, work to develop projects and programs with the 
private sector and work with all levels of government to develop 
innovative solutions to our energy problems. State energy offices 
advise our Governors on energy policy and work cooperatively with the 
state public service commissions. We look forward to working with 
Andrew Karsner, the relatively new DOE Assistant Secretary for Energy 
Efficiency and Renewable Energy, as he attempts to refocus DOE efforts 
in creative ways.
    The Energy Policy Act of 2005 (EPACT) is a good starting point for 
a number of positive programs. EPACT reauthorized the State Energy 
Program (SEP)(Section 123), the Weatherization Assistance Program 
(Section 122) and the Low-Income Home Energy Assistance Program 
(LIHEAP)(Section 121). The authorization levels for FY'07 in EPACT for 
these critical programs are: 1) SEP--$100 million; 2) Weatherization--
$600 million; and 3) LIHEAP--$5.1 billion. While we do not know what 
the ultimate appropriations will be for FY'07, the FY'08 Administration 
request is: 1) SEP--$45.5 million, of which $10.5 million would be for 
a new competitive program and $3 5 million for the base grant, which is 
well below the $49.5 million in the FY'07 budget request for the base 
program; 2) Weatherization--$144 million, which is a cut of almost $100 
million from the FY'06 appropriated levels; and 3) LIHEAP--$1.782 
billion, of which $1.5 billion would be the regular grant and $278 
million would be contingency funds, down from $2.161 billion in FY'07, 
plus $1 billion in emergency funds last year. These three programs are 
the existing core of the federal-state relationship in the energy area.
    In addition to the base Weatherization funds, approximately 10% of 
the LIHEAP funds are transferred to Weatherization activities on a 
yearly basis. We also ask this Subcommittee to reauthorize these 
programs this year.
    We urge the Congress to encourage the Administration to support 
federal funding in FY'07 of at least $49.5 million for SEP, $242 
million for Weatherization and $2.161 billion for LIHEAP, with 
supplemental funds equal to the $1 billion level provided last year. 
For FY'08, we would encourage Congress to move towards the authorized 
levels contained in EPACT, but, at a minimum, to provide $80 million 
for SEP, $300 million for Weatherization and the $3.1 billion funding 
level for LIHEAP.
    Numerous studies of the effectiveness of state energy programs have 
been prepared over the past few years by individual states that show 
the successes, enormous leverage of private and other public resources 
and dramatic delivered energy savings. In addition, a study prepared by 
Oak Ridge National Laboratory a few years ago (in an era of lower 
energy prices) showed that for every federal dollar invested in the 
State Energy Program over $7 in energy savings was realized and over 
$10 in leverage of other resources was achieved. This study did not 
even account for the critical efforts in energy emergency preparedness 
or promotion of alternative fuels and alternative-fueled vehicles.
    We are also very concerned with under-funding of DOE's industrial 
energy efficiency program. This program received well over $100 million 
five years ago and has dropped to $55 million in FY'06, with a further 
proposed decrease to $46 million in FY'08. The industrial sector 
requires more funding.
    In addition to these core programs, a number of other critical 
programs were authorized in EPACT, that have not been funded or have 
not been sufficiently funded:

          1) Energy Efficient Appliance Rebate Program (Section 124)--
        $50 million authorization. This is a new program that was 
        originally proposed by Senator Schumer based upon a successful 
        model implemented by the New York State Energy Research and 
        Development Authority (NYSERDA), which helped transform the 
        market by getting individuals to purchase energy efficient 
        products. No funds were requested in the FY'08 Budget.
          2) Energy Star Program (Section 131)--This joint EPA/DOE 
        program is an essential component to many state energy 
        efficiency activities. The Energy Star label is ubiquitous now 
        and we utilize it to encourage homeowners and businesses to 
        purchase energy efficient products. Large retailers are also 
        helping to encourage the use of these products. The EPA program 
        was proposed for a cut to $43.5 million in FY'08 from $50 
        million in FY'06. We would recommend that this program be 
        doubled. NASEO members have developed a number of partnerships 
        with EPA, and they have delivered real, measurable savings to 
        help American consumers. The DOE Energy Star Program received a 
        $1 million increase from the FY'07 request to $6.776 million. 
        This is insufficient.
          3) State Building Energy Efficiency Codes Incentives (Section 
        128)--$34 million authorization. The Administration requested 
        $3.75 million in FY'08. The FY'06 funding was $5.575 million. 
        This program matches state and local efforts to both upgrade 
        the energy efficiency of building codes and train local code 
        officials to enforce such codes. This is a key component of any 
        major energy efficiency effort in buildings in this country. 
        Without training of local code officials, builders and 
        architects, a higher building energy code is inadequate.
          4) Energy Efficiency Pilot Program (Section 140)--$5 million 
        authorization. This new program would help encourage best 
        practices in states. The state energy officials are committed 
        to working with their brethren in the other states to implement 
        programs that are road-tested in other jurisdictions. No 
        funding was requested in FY'08 for this program.
          5) Energy Efficient Public Buildings Program (Section 125)--
        $30 million authorization. This new initiative was based upon 
        legislation introduced by Representative Mark Udall (D-CO) and 
        former Representative Sherwood Boehiert (D-NY), focused on 
        upgrades to school buildings. In negotiations on a bi-partisan 
        basis, this program was expanded to all public buildings. No 
        funds have been requested in FY'08 for this program. Energy 
        efficiency in public buildings could be greatly improved 
        throughout the United States. This program would leverage 
        significant state and local resources, and would leave more 
        funds for high priority activities such as education and health 
        care.
          6) Appliance Energy Efficiency Standards (Sections 135 and 
        136)--NASEO supports funding for an accelerated and expanded 
        appliance standards program. This is an extremely successful 
        program which requires increased attention by DOE.

    In the tax area, we strongly urge Congress to go beyond last year's 
tax extenders bill and to extend the energy efficient commercial 
buildings deduction, credit for construction of new energy efficient 
homes, credit for certain non-business energy property, credit for 
energy efficient appliances and the credit for residential energy 
efficient property. The proposed tax benefits for combined heat and 
power should be included in any new energy tax provision. We support 
extension of the production tax credit for wind and other technologies, 
as well as the solar investment tax credit, credit for qualified fuel 
cells and microturbines and the Clean Renewable Energy Bonds.
    In the alternative fuels and transportation area, we support the 
recommendations of the Governors Ethanol Coalition and the 25x25 group, 
as well as efforts to encourage the further expansion of hybrid 
electric and plug-in hybrid vehicles. The proposals advanced during the 
Senate Energy and Natural Resources Committee's recent hearing to 
encourage the use of biofuels, ethanol with existing feed stocks and 
the expanded use of cellulosic ethanol are all strongly supported by 
the state energy offices.
    Title IX of the 2002 Farm Bill is a good starting point for more 
aggressive action in the energy area for the agriculture sector. 
Section 9006, providing for energy efficiency and renewable energy for 
farmers, ranchers and rural small businesses, has been especially 
effective, though under-funded. Mister Chairman, your proposals, 
Senator Harkin's ``REAP'' legislation and the President's recent 
suggestions are a good starting point for this expansion.
    A few issues and trends are worth bringing to the Subcommittee's 
attention as you deliberate on new energy legislation and responses to 
environmental challenges. First of all, we are seeing the states 
working together on a regional basis to a far greater extent than 
previously. The resolution and reports prepared by the Western 
Governors Association in the summer of 2006, known as the Clean and 
Diversified Energy Initiative, is a balanced approach to addressing our 
energy needs. The northeast and mid-Atlantic states are moving forward 
with their Regional Greenhouse Gas Initiative (RGGI). California and 
the west coast states are joining together on comparable programs. New 
York and California have established a number of innovative energy 
efficiency and renewable energy programs. The state energy offices are 
working closely with all these efforts.
    A wide variety of states have instituted new statewide energy plans 
and programs. A number of jurisdictions are pushing for and 
implementing renewable portfolio standards. The Governor of Oregon has 
just announced a planned 25% RPS by 2025, expanded use of biodiesel and 
ethanol, as well as certain climate change proposals. Georgia issued a 
new energy plan in late 2006. The Governor of Connecticut has just 
announced a new, expanded energy agency. The Governor of Wisconsin has 
also called for a new energy agency. A number of states are expanding 
public benefit programs and energy efficiency and renewable energy 
programs.
    There is broad national recognition among energy professionals that 
energy security is an ever-increasing problem. Our state energy offices 
are responsible for energy emergency preparedness, but we recognize 
that emergency preparedness and response is not sufficient. One of the 
critical issues that we are facing is the increasing volatility of 
energy supplies. This impacts the electric utility sector, consumers of 
all types and especially the agricultural and industrial/manufacturing 
sectors of the economy. Our energy efficiency programs must refocus on 
reducing peak demands for natural gas in order to moderate this 
volatility. The National Action Plan for Energy Efficiency, developed 
with state energy office input, through a joint EPA/DOE task force, is 
a very positive step. We are working in the individual states and on a 
regional basis to implement many of the recommendations of that effort. 
It builds on successful ``best practices'' that we have initiated in 
each state.
    In addition, as you consider both energy policy and funding 
decisions, we urge you to consider the key role for both energy R&D and 
deployment programs. R&D, without the use of the technology developed, 
is a waste.
    In addition to our efforts in North Dakota, there are a myriad of 
examples of successful state energy programs throughout the United 
States. I will be supplying a state-by-state set of examples for the 
record.
    Some selected examples:
    Alabama.--The state energy office has implemented projects in 
energy efficient buildings (saving $5 million per year), rural water 
leak prevention programs (savings of $1.7 million per year in energy 
costs), biomass energy projects (36 projects saving over $10 million 
annually so far) and a recycling program (saving $5 million in energy 
costs, and recycling 9 million gallons of oil and diverting 1,000 tons 
of materials from landfills).
    Florida.--The energy office has focused on energy efficiency in 
schools. The state is also promoting solar technology, ethanol, 
biodiesel and solar water heating for low-income homeowners.
    Hawaii.--The Governor proposed, and the legislature enacted, four 
new major energy bills in 2006. This effort will expand energy 
efficiency in buildings (including promotion of Energy Star products), 
expanded biofuels, a 20% RPS by 2020, expansion of energy performance 
contracting, and promulgation of a tropical energy efficiency building 
code.
    Idaho.--The state has been focusing on getting homeowners to 
purchase and construct energy efficient manufactured and modular homes 
(with a certification program) and new Energy Star high performance 
site-built homes. The energy office has also funded alternative energy 
demonstration projects, promotion of geothermal projects and a variety 
of agricultural energy programs.
    Kentucky.--This state has been in the forefront of promoting Energy 
Star products. The energy office is focusing on schools and energy 
service performance contracts, as well as biofuels.
    Louisiana.--The state has been focused on Hurricane Katrina 
response and reconstruction. The energy building code was upgraded last 
year. The state is educating consumers and building construction 
professionals in energy efficient design.
    Montana.--The state has focused on improving statewide building 
codes and training of local code officials and builders to actually 
implement improvements. In addition, the state has issued bonds to 
improve energy efficiency in buildings, with 67 projects completed and 
21 additional projects in the pipeline. The state is also addressing 
the residential sector with a state tax credit of $500 for new and 
existing homes. In 2005 alone, $5.6 million was provided to homeowners 
for this energy efficiency credit with homes built to Energy Star 
standards.
    New Jersey.--The Clean Energy Program has expended $124 million for 
a variety of energy efficiency and renewable energy projects. In 
addition to project implementation, the state has developed a new 
wireless energy management demonstration project, a bioheat rebate 
program and an alternative fuel vehicle rebate program.
    New Mexico.--Expanded programs for energy efficiency utilizing 
advanced motors, appliances and new energy codes has been a major new 
effort in New Mexico. In the renewable energy area, there has been an 
expanded focus on clean fuels, geothermal resources, wind resources and 
new incentives for photovoltaic systems and solar water heating.
    North Carolina.--In the industrial energy efficiency area, the 
state has promoted energy savings improvements that have led to more 
than $170 million in projects. In the residential energy efficiency 
area, the state is implementing a ``Healthy Built Homes'' program, 
focusing on furnaces and energy efficient heat pumps. A utility savings 
program for state facilities has saved $30 million since 2002. In 
addition the state energy office manages an energy service performance 
contracting program that has $40 million in projects underway.
    Oregon.--In Oregon, as noted above, the Governor has been promoting 
a range of new energy efficiency and renewable energy initiatives. The 
35% business energy tax credit for energy efficiency, renewable energy, 
recycling and transportation programs, the residential energy tax 
credit and the statewide energy loan program have produced $2.1 billion 
in energy efficiency project investment and have saved 53.1 trillion 
Btu's through 2005. Significant initiatives to promote energy 
efficiency in schools and for manufactured homes are key.
    South Carolina.--The schools and government buildings energy 
efficiency program has provided 29 loans, generating $30 million in 
energy savings over the lifetime of the projects. The state has also 
certified energy efficient manufactured homes. A unique truck stop 
electrification program has been implemented in conjunction with 
Georgia and North Carolina. This program has displaced over 220,000 
gallons of diesel fuel each year. The energy office has also focused on 
developing landfill gas projects.
    South Dakota.--The state implemented an energy efficiency grant 
program requiring a 50% match. The recent focus has been on heating and 
controls upgrades, lighting and energy recovery systems. The energy 
office also operates an energy loan program, which recently developed a 
$3.3 million project on steam tunnel improvements, as well as 
construction of biomass and wood-chip boilers
    Tennessee.--The state's small business energy efficiency loan 
program has provided $10 million for a variety of energy projects. The 
local government energy efficiency loan program has provided over $17 
million in loans, producing savings of over $4 million.
    Washington.--The state has been focusing on improving building 
energy efficiency techniques. The state has focused on net metering, 
tax credits and biofuels development. The state energy office has been 
working with the Northwest Energy Efficiency Alliance to implement $20 
million per year for market transformation efforts and resource 
acquisition programs for energy efficiency.

                               CONCLUSION

    Thank you for the opportunity to testify. I would be happy to 
answer any questions.

    Senator Dorgan. Mr. Christianson, thank you very much for 
your testimony. Next we will hear from RK Stewart, who's 
president of the American Institute of Architects here in 
Washington, DC. Mr. Stewart, you may proceed.

   STATEMENT OF RK STEWART, PRESIDENT, AMERICAN INSTITUTE OF 
                           ARCHITECTS

    Mr. Stewart. Mr. Chairman, members of the subcommittee, 
good afternoon.
    I am RK Stewart, the president of the American Institute of 
Architects. On behalf of our 80,000 members and the 280,000 
Americans who work for architecture firms nationwide, I'd like 
to thank you for the opportunity to appear today. I'd like to 
share the thoughts of our Nation's architects on energy 
consumption and how it relates to the most overlooked sector in 
the greenhouse gas debate: buildings, the buildings in which 
our people live, work and play. I've submitted written 
testimony to the subcommittee and would like to stress those 
points the AIA feels is most important.
    The AIA feels strongly that now is the time to act to 
address climate change by tackling energy use in buildings. Our 
Nation needs to begin making significant reductions in the 
amount of fossil-fuel-generated energy our buildings consume. 
According to the Department of Energy, buildings and their 
construction are responsible for nearly half of all greenhouse 
gas emissions in the U.S. every year. The building sector--as 
the Senator noted--alone, accounts for 39 percent of U.S. total 
energy consumption, more than either the transportation or 
industrial sectors. Buildings consume 71 percent of U.S. 
electricity production and buildings in the United States 
account for 9.8 percent of carbon dioxide emissions worldwide. 
Put another way, U.S. buildings account for nearly the same 
amount of carbon emissions as the economies of Japan, France, 
and the United Kingdom combined. If we want to be serious about 
energy use reductions, buildings must become a significant part 
of the discussion. The AIA believes that architects must 
advocate for this sustainable use of our earth's resources. We 
have adopted an official position establishing energy reduction 
targets for all buildings. Architects across the country have 
embraced this position and are expanding the use of design 
practices that enhance design quality as they increase the 
environmental performance of buildings.
    To truly revolutionize the way our Nation designs and uses 
buildings, a combination of regulations and incentives must be 
used to greatly reduce fossil fuel energy and improve energy 
efficiency nationwide. The AIA strongly urges Congress to take 
the lead in the fight against global warming by establishing 
new energy consumption standards for Federal buildings. As 
Congress has jurisdiction over all Federal buildings, Congress 
can literally show the way for the private sector to attain 
energy consumption reductions by the built environment. The AIA 
recommends that Federal agencies be required to immediately 
ensure that new buildings and buildings undergoing major 
renovations consume no more than half the fossil fuel energy 
that a similar Federal building consumed in 2003. Beginning in 
2010, agencies should be required to meet a declining cap on 
energy consumption such that they meet minimum energy 
reductions when compared to the 2003 baseline. We propose that 
by 2010 new and significantly renovated Federal buildings be 
required to reduce fossil-fuel-generated energy by 60 percent. 
By 2015, the cap should be lowered to a 70 percent reduction 
continuing until 2030 when we should achieve a 100 percent 
reduction in fossil-fuel-generated energy in all Federal 
buildings. Setting declining caps on energy usage is not a new 
idea. In the past, Congress has adopted similar legislation, 
and recently Governor Bill Richardson of New Mexico established 
energy reduction targets in his State. These are important 
first steps.
    Energy reduction requirements have shown a record of 
success, as referenced in my written testimony. It demonstrates 
that the AIA-recommended energy reduction targets are readily 
achievable. In my experience, the primary concern at your 
compliance about building green, is first: cost. It is true 
that some energy-efficient building systems may cost slightly 
more than their traditional counterparts. However, the 
buildings, once in operation, the saving and expenditures alone 
often far outweigh the initial cost of installing green 
systems. There is increasing evidence confirming this, and the 
AIA is currently working with economists to research the 
economic benefits of energy efficiency in Federal buildings. 
The study will analyze estimated energy in dollar savings that 
the Federal Government will realize by implementing our energy 
reduction goals. We expect to complete this study by this 
summer and would be happy to submit it for the record.
    Polls show that the American public believes the time is 
now to reduce energy usage and reduce the risks of climate 
change. They increasingly believe it is important to the 
national interest and the planet to reduce our reliance on 
fossil-fuel-generated energy and move toward a sustainable 
future. Reducing energy use in Federal buildings would be a 
major step in redesigning our future. We encourage Congress to 
consider our proposal, and I welcome your questions. Thank you, 
Mr. Chairman and members of the subcommittee.
    [The prepared statement of Mr. Stewart follows:]

  Prepared Statement of RK Stewart, President, American Institute of 
                            Architects (AIA)

                              INTRODUCTION

    Mr. Chairman, Members of the Subcommittee--good afternoon. I am RK 
Stewart, the President of the American Institute of Architects.
    On behalf of our 80,000 members and the 281,000 Americans who work 
for architecture firms nationwide, I would like to thank you for the 
opportunity to appear today to share some of our nation's architects' 
thoughts on energy consumption, energy efficiency and how these 
important topics relate to the most overlooked sector in the greenhouse 
gas debate, buildings: the buildings in which our people live, work, 
and play.
    According to the Department of Energy's Energy Information 
Administration, buildings and their construction are responsible for 
nearly half of all greenhouse gas emissions produced in the U.S. every 
year. DOE's recently released Building Energy Data Book reveals that 
the building sector accounts for 39 percent of total U.S. energy 
consumption, more than both the transportation and industry sectors.\1\ 
The same study found that buildings are responsible for 71 percent of 
U.S. electricity consumption and that buildings in the United States 
alone account for 9.8 percent of carbon dioxide emissions worldwide.\2\
---------------------------------------------------------------------------
    \1\ http://buildingsdatabook.eere.energy.gov/docs/1.1.3.pdf.
    \2\ http://buildingsdatabook.eere.energy.gov/docs/3.1.1.pdf.
---------------------------------------------------------------------------
    In fact, according to the Department of Energy, U.S. buildings 
account for nearly the same amount of carbon emissions as all sectors 
of the economies of Japan, France, and the United Kingdom combined.\3\
---------------------------------------------------------------------------
    \3\ http://buildingsdatabook.eere.energy.gov/docs/3.1.1.pdf.
---------------------------------------------------------------------------
    Therefore, if we in the United States want to be serious about 
energy efficiency and energy reductions, buildings must become a 
significant part of the discussion.*
---------------------------------------------------------------------------
    * Graphic has been retained in committee files.
---------------------------------------------------------------------------
    The data shows that the building sector is only going to become 
more critical to the discussion. Annual U.S. energy consumption is 
projected to increase by 32 percent over the next twenty five years.\4\ 
The AIA believes strongly that now is the time to act to reverse this 
course and start making significant reductions in the amount of fossil-
fuel generated energy our nation consumes through its buildings.
---------------------------------------------------------------------------
    \4\ http://www.eia.doe.gov/oiaf/ieo/pdf/ieoreftab_l.pdf.
---------------------------------------------------------------------------
    Over the next 30 years, the character of the built environment will 
change dramatically. Currently, U.S. building stock sits at 300 billion 
square feet. Experts predict that between now and 2035, 52 billion 
square feet will be demolished, 150 billion square feet will be 
remodeled, and another 150 billion square feet will be newly 
constructed./5/ Because buildings are such a major producer of 
greenhouse gases, the AIA believes that if Congress and our nation want 
to reduce greenhouse gas emissions, addressing energy consumption in 
the next generation of buildings is a vital endeavor. We believe that 
the federal government can and must take the lead to change the way our 
buildings use energy.
---------------------------------------------------------------------------
    \5\ http://www.architecture2030.com.
---------------------------------------------------------------------------
                 SHOWING THE PROMISE OF GREEN BUILDING

The Genzyme Center, Cambridge, MA
    The design team, the developer, the client and the construction 
team worked together to create a 21st Century center for biotechnology 
that employs technology and design to reduce energy costs. The building 
uses steam from an adjacent power plant to run its heating and cooling 
systems, a ``smart'' ventilation system that shuts off when it senses 
that doors and windows are open, and solar panels on the roof, which 
help to reduce estimated energy costs by almost half. Occupancy sensing 
dimmers and natural daylighting expect to reduce lighting energy by 45 
percent. These and other energy saving strategies earned this building 
a LEED Platinum rating, the highest LEED rating available.*
---------------------------------------------------------------------------
    * Graphic has been retained in committee files.
---------------------------------------------------------------------------
    To reduce energy consumption in the building sector, the AIA 
believes that architects must advocate for the sustainable use of our 
earth's resources through their work for clients. To support this 
principle, in December 2005, the AIA Board of Directors approved an 
official Institute position stating that all new buildings and major 
renovations to existing buildings be designed to meet an immediate 50 
percent reduction in fossil fuel-generated energy (compared to a 2003 
baseline) and that at five year intervals, that reduction target be 
increased by at least 10 percent until new and renovated buildings 
achieve carbon neutrality in 2030. Architects across the country have 
embraced this principle and are currently utilizing design practices 
that integrate built and natural systems that enhance both the design 
quality and environmental performance of the built environment. But in 
order to truly revolutionize the way our nation designs buildings, the 
public sector, especially the federal government, must also play a 
role. The federal government alone has jurisdiction over a significant 
portion of all buildings in the U.S.\6\ Through a combination of both 
regulation and incentives, we can achieve the goals of greatly reducing 
fossil fuel generated energy and improving energy efficiency 
nationwide.
---------------------------------------------------------------------------
    \6\ http://www.eia.doe.gov/emeulcbecs/cbecs2003/introduction.html.
---------------------------------------------------------------------------
    It is important for the federal government to show that energy 
efficient buildings are both realistic and cost-efficient. Requiring 
significant energy reduction targets in new and renovated federal 
buildings will demonstrate to the private sector that the federal 
government is leading by example. It would help spur the development of 
new materials, construction techniques, and technologies to make 
buildings more energy efficient. And it will help show that significant 
energy reductions are both practical and cost-effective.
    The AIA strongly urges Congress to take the lead in the fight 
against global warming by establishing new energy consumption standards 
for federal buildings. As Congress has jurisdiction over all federal 
buildings, Congress can literally show the way for the private sector 
to attain energy consumption reductions by the built environment.

                   FEDERAL BUILDING ENERGY EFFICIENCY

    The AIA proposes that federal agencies be required to ensure that 
new buildings and buildings undergoing major renovations today consume 
no more than half the fossil fuel generated energy that a similar 
federal building consumed in 2003.

                 SHOWING THE PROMISE OF GREEN BUILDING

Alberici Corporate Headquarters, Overland, MO
    One of St. Louis' oldest construction companies converted this 
manufacturing plant into a productive and environmentally friendly 
office space. The designers used a ``saw-tooth'' wall pattern to re-
orient the building's facade from southwest to south, reducing heating 
levels, and developed an open plan that provides natural light to 75 
percent of building occupants. A 65 kilowatt wind turbine provides 20 
percent of the building's energy needs, while an underfloor air 
distribution system focuses heating and cooling at the occupant's 
level. The combination of design and technology allows the building to 
exceed ASHRAE 90.1-1999 minimum energy efficiency requirements by 60% 
and won it an AIA Committee on the Environment 2006 Top Ten award.
    Beginning in 2010, the agencies should then follow a declining cap 
on energy consumption such that they meet a minimum energy performance 
reduction when compared to the 2003 baseline. We propose that by 2010, 
new and significantly renovated federal buildings be required to reduce 
fossil fuel generated energy by 60 percent. By 2015, the cap would 
lower to a 70 percent reduction, continuing until 2030 when we would 
achieve a 100 percent reduction in fossil fuel generated energy in all 
new federal buildings.
    Setting declining caps on energy usage is not a new idea. In 1999, 
President Clinton issued an executive order requiring energy 
consumption reductions in all federal buildings; The Energy Policy Act 
of 2005 extended and deepened these reduction goals, and last year, 
Governor Bill Richardson of New Mexico signed an executive order 
calling for a 50 percent reduction in energy consumption for new and 
renovated public buildings in the state. And just last month, President 
Bush issued an executive order requiring federal agencies to reduce 
energy use by almost a third over a 2003 baseline by 2015. These are 
important first steps, but we need an aggressive commitment to long 
term energy reductions for new buildings and major renovations, well 
into the future.
    Energy reduction requirements like these have shown a record of 
success, as demonstrated by DOE's recently submitted annual report to 
Congress on Energy Management and Conservation programs. DOE's report 
found that in 2005, federal agencies responding to President Clinton's 
1999 Executive Order had reduced their consumption levels by 29.6 
percent, narrowly missing the goal established by President Clinton's 
Executive Order by only 0.4 percent [see graph below].* This makes it 
clear that when they are required to do so, federal agencies have the 
ability to meet reduced energy consumption targets.
---------------------------------------------------------------------------
    * Graphic has been retained in committee files.
---------------------------------------------------------------------------
    We encourage Congress to build upon these sound policy steps by 
taking an even more aggressive stance. A number of Senators have 
recently introduced legislation that sets new energy reduction goals in 
existing federal buildings. In most cases, these proposals would 
require federal agencies to retrofit their facilities to meet the 
energy savings targets. While the AIA is happy to see Congress address 
the issue, we recommend that instead of mandating retrofits, Congress 
should also focus energy reduction goals on new construction and 
buildings undergoing significant renovations as it is easier and more 
cost-effective to address energy usage issues beginning with the design 
stage of the building process.
    Requiring all new and significantly renovated federal buildings to 
consume significantly less fossil-fuel generated energy is a bold idea, 
but one whose time has come. It would show the world and the private 
sector that the United States government believes that climate change 
is real and that aggressive action is needed in order to reverse its 
course. It demonstrates that the AIA-recommended energy reduction 
targets are achievable in new and significantly renovated buildings, 
often through little or no additional life cycle costs.

                 SHOWING THE PROMISE OF GREEN BUILDING

Rinker Hall, University of Florida, Gainesville, FL
    A LEED Gold building, Rinker Hall's designers faced a challenge: in 
Florida's humid environment, metal and glass best release heat. But the 
University's prevailing architectural style is brick and masonry, which 
traps heat. So the architects designed a metal and glass structure with 
a free-standing masonry shade wall on the west and south facades, thus 
making it fit in and reduce heating loads. The building is anticipated 
to use 57 percent less energy than a building meeting ASHRAE 90.1-1999, 
and is expected to reduce annual utility bills by more than $20,000.
    Architects across the country are designing high performance or 
``Green Buildings'' that are environmentally responsible, healthy 
places to work, and economically practical. We are doing this through 
the use of better planning, technological tools and smarter material 
selection that incorporate natural heating, cooling, ventilation, and 
day-lighting strategies. The AIA's Committee on the Environment (COTE) 
annually recognizes such accomplishments in its Top 10 Awards for 
Sustainable Design. Federal buildings can and should be built in ways 
that reduce energy consumption and decrease the amount of greenhouse 
gases they produce, as demonstrated through COTE's Top 10 Awards.

                       THE COST OF BUILDING GREEN

    In my professional experience, the primary concern I hear from 
clients about building ``green'' is cost. It is true that some energy 
efficient building systems may cost slightly more than their 
traditional counterparts. However once the building is in operation, 
the savings in energy expenditures alone often far outweigh the initial 
costs of installing ``green'' systems. While there have been some 
studies to date that show this, the AIA is currently working with a 
team of economists to research the economic benefits of energy 
efficient federal buildings. This study will analyze the estimated 
energy and dollar savings that federal government would realize by 
implementing our energy reduction goals for federal buildings over the 
lifespan of the building. We expect to have the study complete by this 
summer and we would be happy to submit it for the record. Other 
sources, most importantly the noted cost consultant Davis Langdon, 
argue that the cost of sustainability is statistically insignificant to 
a project's total cost.\7\
---------------------------------------------------------------------------
    \7\ Matthissen, Lisa and Morris, Peter. ``Costing Green: A 
Comprehensive Cost Database and Budgeting Methodology''. June, 2004; 
Davis Landon.
---------------------------------------------------------------------------
    The economic value of energy reductions from federal buildings can 
be seen by looking at previous energy reduction mandates in federal 
buildings. Because of federal legislation and President Clinton's 1999 
Executive Order, federal agencies consumed nearly 30 percent less 
energy per square foot in 2005 compared to 1985. As a result of this 
improved energy efficiency, the federal government saved approximately 
$2.2 billion on energy costs in standard federal buildings in 2005 when 
compared to 1985. While there are clearly other factors aside from 
federal energy management activities that go into this reduced 
spending, improved energy efficiency and energy reduction clearly 
played a large role.

                            AMERICA IS READY

    Finally, the American public believes the time is now to reduce 
energy usage and reduce the impacts of climate change. The Tarrance 
Group and Lake Research Partners recently conducted a nationwide poll 
of voters and found that 74 percent of those polled agreed that ``the 
government should take the lead in promoting real estate development 
that conserves our natural resources.'' In addition, 71 percent of 
voters agreed that ``the government should immediately put into effect 
new energy policies that drastically reduce greenhouse gas emissions.'' 
The American public supports conserving our precious resources, and 
believes that it is in the best interests of our nation and the world 
to reduce our reliance on fossil fuel produced energy and move towards 
a sustainable future. Reducing energy use in federal buildings would be 
a major step towards that goal.
    We encourage Congress to consider our proposal, and I welcome any 
questions from the subcommittee. Thank you Mr. Chairman and members of 
the subcommittee.

    Senator Dorgan. Mr. Stewart, thank you very much for your 
testimony. Next, we'll hear from Mr. Charles Zimmerman, vice 
president, Prototype and New Format Development for the Wal-
Mart Stores at Bentonville, Arkansas. Mr. Zimmerman, thank you 
for being with us.

   STATEMENT OF CHARLES R. ZIMMERMAN, P.E., VICE PRESIDENT, 
  PROTOTYPE AND NEW FORMAT DEVELOPMENT, WAL-MART STORES, INC.

    Mr. Zimmerman. Chairman Dorgan, Chairman Bingaman and 
Ranking Member Murkowski, my name is Charles Zimmerman and I'm 
vice president of Prototype and New Format Development for Wal-
Mart Stores, Inc.
    In my current role, I'm responsible for the architectural 
and engineering systems design for all of our retail 
facilities. On behalf of Wal-Mart and our 1.8 million 
associates around the world, I'd like to thank the subcommittee 
for its work on this important issue and for holding this 
hearing today. Wal-Mart appreciates the opportunity to 
participate in this critical discussion.
    Our company holds a unique position in the world of energy. 
While there are no firm statistics, it is widely understood 
that Wal-Mart is the largest private purchaser of electricity 
in the world. In fact the only entity thought to purchase more 
electricity than Wal-Mart is the U.S. Government. Since energy 
is also Wal-Mart's second largest operating expense, it should 
be no surprise that we have been focused on energy efficiency 
practically since the day we were founded. Fortunately, our 
global presence gives us a great opportunity for energy 
comparisons. As Wal-Mart has continued to expand into other 
countries, our primary mode of expansion has been to acquire 
existing stores in those countries. Therefore it is interesting 
to note that the stores that we have built in the United States 
are actually more efficient on an energy-per-square-foot basis 
then those we've acquired in any other country. This is even 
true for stores in countries with much more stringent energy 
regulations and much higher utility rates then the United 
States, such as the U.K. and Japan.
    Nearly one-third of Wal-Mart's energy is consumed in the 
form of lighting; therefore, we have developed over the last 
decade what we feel is one of the most efficient lighting 
systems in the world. In fact, the installed lighting mode in 
one of our newer stores is more than 40 percent less than the 
baseline requirements established in the Energy Policy Act of 
2005. This truly innovative system results in the fact that 
during the day our sales floor lighting in stores built in the 
last decade is either off or at the very least significantly 
dimmed. This is possible thanks to a sophisticated daylight 
harvesting system comprised of hundreds of skylights per store 
that are connected to sensors and state-of-the-art control 
technology. This allows our sales floor lighting system to 
continually modulate the amount of energy needed based on the 
natural light available. This system is so dynamic that it even 
gradually ramps the lighting levels up and down as clouds pass 
over the store. In our non-sales floor areas, such as offices, 
breakrooms and restrooms, lighting is controlled by occupancy 
sensors that turn off the lights when no one is in the space.
    Even our freezer-case lighting has now evolved into an 
amazing display of advanced technology, as it is now comprised 
of motion activated LEDs or Light Emitting Diodes. These lights 
turn themselves on as the customer approaches and turn 
themselves off as the customer leaves. The result is a building 
where virtually all the lighting is dynamic and only on to the 
degree the conditions warrant--and this is just our lighting 
system.
    As efficient and forward thinking as our energy practices 
already are, we have very aggressive goals in our 
sustainability and energy efficiency efforts for the future. In 
October 2005, we announced plans to reduce the energy 
consumption of our already energy-efficient existing buildings 
by another 20 percent over the next 7 years. We also announced 
plans to develop a new store prototype that will increase 
energy efficiency 25 to 30 percent over the next 4 years. So 
how are we doing in achieving these goals? With regards to our 
existing stores, we are in the midst of efforts this year to 
retrofit over 400 of our refrigeration systems and 400 of our 
HVAC systems with technologies that will reduce our energy 
consumption by 8 percent and 6 percent, respectively. Both of 
these initiatives have paybacks of somewhere between 18 and 24 
months. Additionally, just last Thursday we approved a proposal 
to retrofit 500 of our existing stores with our new motion-
activated LED lighting technology. Currently we have over a 
dozen similar retrofit initiatives that are in some phase of 
development or implementation, all averaging approximately 2- 
to 3-year paybacks.
    With regards to our new store program, we opened the first 
of our newly developed higher efficiency prototypes 3 weeks ago 
in Kansas City, Missouri. These stores are predicted to be 20 
percent more efficient than our earlier prototypes. By this 
time next year, we plan to be opening stores that are 27 
percent more efficient, thus reaching our new store prototype 
goal mentioned earlier.
    As proud as we are of these accomplishments and 
innovations, we are more proud to be sharing what we are 
learning with everyone, including our competitors. We have 
recently shared the details on our energy initiatives and their 
related paybacks with the Pentagon, the Defense Science Board, 
the Office of Management and Budget, and even with our retail 
competitors, Office Depot and Best Buy. We've also taken the 
likes of Food Lion, Target, Publix, Costco and many, many other 
of our competitors on tours of our recent stores that featured 
some of our newer energy-efficient technologies.
    The best thing about the information we're sharing is that 
it is not theory. It is proven--real initiatives with proven 
real paybacks. I'm often told by others that until there are 
new technologies, or until there is additional legislation, 
energy efficiency will never achieve mainstream attractiveness. 
Believe me, the technology exists. We're proof of that, and 
while Wal-Mart is not waiting for legislation to cause us to 
act proactively in the area of energy efficiency, we would 
encourage Congress to continue to look at new incentives that 
would help others to act proactively as well.
    In conclusion, I'm very proud to work for a company that is 
committed to invest to up to $500 million per year to move 
toward our goal of eventually being supplied by 100 percent 
renewable energy, but I'm even more proud that they encourage 
me to proactively share our innovations with the world. We at 
Wal-Mart applaud Congress on its efforts to communicate the 
necessity and the benefits of energy efficiency.
    Thank you for your time, and allowing me to speak on behalf 
of Wal-Mart on this very important topic. We look forward to 
working with you to effectively and constructively address 
these issues. Thank you.
    [The prepared statement of Mr. Zimmerman follows:]

   Prepared Statement of Charles R. Zimmerman, P.E., Vice President, 
      Prototype and New Format Development, Wal-Mart Stores, Inc.

    Chairman Dorgan, Ranking Member Murkowski and distinguished Members 
of the Committee, Wal-Mart Stores, Inc., thanks the Subcommittee for 
its work on this important issue and for holding this hearing today. 
Wal-Mart appreciates the opportunity to participate in this critical 
discussion.

                               BACKGROUND

    Wal-Mart is based in Bentonville, Arkansas. Our company employs 
approximately 1.3 million Associates from all 50 states and 
approximately 1.8 million Associates worldwide. Each week over 176 
million customers worldwide choose to shop at Wal-Mart, which we feel 
reflects the success of our dedication to providing Every Day Low 
Prices to our customers. Wal-Mart does not just operate stores, clubs, 
and distribution centers in communities; we take a proactive stance in 
community involvement on a number of issues.

                 PURPOSE OF HEARING AND WAL-MART'S ROLE

    The purpose of this hearing is to receive recommendations on 
policies and programs to improve the energy efficiency of buildings and 
to expand the role of electric gas utilities in energy efficiency 
programs. Wal-Mart is eager to share its information and experiences.

                   WAL-MART'S POLICIES AND PROCEDURES

    Wal-Mart is pleased to be a part of this process. As part of Wal-
Mart's industry-leading sustainability commitment, CEO Lee Scott has 
set aggressive goals for Wal-Mart to significantly reduce our energy 
consumption and greenhouse gas emissions. In pursuit of those goals we 
intend to be the most energy efficient retailer in the world and we are 
working hard to achieve this commitment.
    While there are no firm statistics, it is widely understood that 
Wal-Mart is the largest ``private'' purchaser of electricity in the 
world. In fact, Wal-Mart is widely considered to be the second largest 
purchaser in total energy, second only to the U.S. government. Energy 
is also Wal-Mart's second largest operating expense. Therefore, it 
should be no surprise that Wal-Mart has been focused on energy 
efficiency practically since it was founded.
    As Wal-Mart has continued to expand into other countries, our 
primary mode of expansion has been to acquire existing stores in those 
countries. The stores we have built in the U.S. are more efficient on 
an ``energy per square foot basis'' than those we have acquired in any 
other country. This is even true for stores in countries with much more 
stringent energy regulation than current U.S. regulations and much 
higher utility rate, such as the U.K. and Japan.
    Nearly one-third of Wal-Mart's energy is consumed in the form of 
lighting. Recognizing this as an opportunity for responsible business 
practice, we have developed over the last decade, what we feel, is one 
of the most efficient lighting systems in the world. Our installed 
lighting load is more than 40% less than the baseline requirements 
established in the Energy Policy Act of 2005.
    During the day, sales floor lighting, in stores built in the last 
decade, is off or significantly dimmed. This is possible thanks to a 
sophisticated daylight harvesting system comprised of hundreds of 
skylights per store that are connected to state of the art sensors and 
control technology. This allows our sales floor lighting system to 
continually modulate the amount of energy needed, based on the natural 
light available. This system is so dynamic that it gradually ramps up 
and down as clouds pass over the store. In our non-sales floor areas 
such as offices, break rooms and restrooms, lighting is controlled by 
occupancy sensors that turn off the lights when no one is in the space. 
Beginning in January, even our freezer case lighting has evolved into 
an amazing display of advanced technology when it became comprised of 
``motion-activated LEDs''. The lights turn themselves on as a customer 
approaches, and turn themselves off as the customer leaves. The result 
is a 200,000 square-foot building where virtually all of the lighting 
is dynamic and only ``on'' to the degree that conditions warrant.
    From an HVAC and refrigeration standpoint, Wal-Mart has always 
``reclaimed'' or ``recycled'' the waste heat from our refrigeration 
equipment to generate our domestic hot water. We are beginning to take 
this a step further in new stores, testing the concept of heating the 
entire store with the ``waste heat'' generated by this equipment. Wal-
Mart views the ``waste heat'' as a source of energy and we are 
expanding the use of this ``free'' energy source.
    Wal-Mart recognizes the influence and implications of responsible 
energy policy by a large retailer. We strive to continue to decrease 
our footprint on the environment. As efficient and forward-thinking as 
our energy policies already are, we have very aggressive goals in our 
sustainability and energy efficiency efforts for the future.
    In October of 2005, we announced plans to reduce energy consumption 
in our existing energy-efficient buildings by 20% over the next 7 
years. We also plan to develop a new store prototype that will increase 
efficiency 25%--30% over the next 4 years.
    We also plan to retrofit over 400 of our refrigeration systems and 
HVAC systems this year with technologies that will reduce our energy 
consumption by 8% and 6% respectively and have a payback of less than 
two years. Additionally, a proposal is currently being reviewed to 
retrofit hundreds of stores with new LED lighting technology to reduce 
energy consumption by 3% and have a payback of 2 years. Wal-Mart plans 
to continue using energy retrofit efforts to reduce energy consumption; 
currently over a dozen similar initiatives are in some phase of 
development or implementation.
    In regards to new store prototypes, we opened the first of our 
newly developed ``higher efficiency'' prototypes three weeks ago in 
Kansas City, MO. These stores are predicted to be 20% more efficient 
than our earlier prototypes. By this time next year we plan to have met 
our goal and be opening stores that are 27% more efficient. Plans are 
already in development for stores that approach and possibly exceed 50% 
efficiency in certain climate zones.
    As proud as we are of these accomplishments and innovations, we are 
more proud to share what we are learning with everyone, even our 
competitors.
    Wal-Mart recently opened a new facility in Savannah, GA, which 
included the first low-temperature CO2 secondary loop 
refrigeration system ever installed in the United States. At the grand 
opening, we conducted tours of the facility providing detailed 
descriptions of the systems to Target, Food Lion, Publix, Costco, and 
many others since.
    We have recently shared these details on our initiatives and their 
related paybacks at the Pentagon, Defense Science Board, Office of 
Management and Budget and even with our retail competitors, Office 
Depot and Best Buy. We will also be sharing this information on 
February 14, 2007, at a Department of Energy sponsored event at the 
National Building Museum here in Washington, DC, and again on February 
15, 2007, at the National Academy of Sciences. Furthermore, the 
following week we will also be sharing our story of energy efficiency 
in Mexico City at a meeting of the Commission on Environmental 
Cooperation. The information we are sharing is not theory; it is real 
initiatives and real paybacks.
    I am often told by others that there needs to be new technologies 
or there is a need for new legislation before energy efficiency becomes 
something with mainstream attractiveness. While Wal-Mart is not waiting 
for legislation to act proactively in the area of energy efficiency, we 
would encourage Congress to continue to look at new incentives that 
will help others to act proactively like Wal-Mart.
    I'm very proud to work for a company that has committed to invest 
up to $500 million dollars per year in innovative, energy saving and 
climate-friendly technologies, but I am even more proud they encourage 
me to pro-actively share our innovations with the world.

                               CONCLUSION

    Wal-Mart seeks excellence and responsibility in everything we do. 
We constantly strive to improve our business processes and to enrich 
the communities in which we are located. We at Wal-Mart applaud 
Congress in its efforts to communicate the necessity and the benefits 
of energy efficiency.
    Thank you for your time in allowing me to speak on behalf of Wal-
Mart on this very important topic. We look forward to working with you 
to effectively and constructively address these issues.

    Senator Dorgan. Mr. Zimmerman, thank you very much for your 
testimony. Next we will hear from Jack Hebert from the State of 
Alaska. He's president and CEO of Cold Climate Housing Research 
Center in Fairbanks, Alaska. Mr. Hebert, thank you for being 
with us.

   STATEMENT OF JACK HEBERT, PRESIDENT AND CEO, COLD CLIMATE 
             HOUSING RESEARCH CENTER, FAIRBANKS, AK

    Mr. Hebert. Thank you, Mr. Chairman. Senator Bingaman and 
Senator Murkowski, I am humbled and thank you for inviting me. 
I am Jack Hebert, president and CEO of the Cold Climate Housing 
Research Center. I'm also a 30-year builder from Alaska, 
designer and builder, and represent the National Association of 
Homebuilders as their State rep from Alaska, so a rather broad 
background. As we all know, Alaska has some big issues. I left 
written testimony that formally outlines some of the programs 
that we're doing. I'd like to make sure that you look it over 
and that's it's entered on the record.
    Senator Dorgan. Without objection.
    Mr. Hebert. All the things that are affecting this Nation 
are exacerbated in our climate up there. It needs to be 
understood that if your air conditioning isn't working, you'll 
survive--other than Arizona--but in Alaska if the heating isn't 
working, you don't survive. Our isolated communities are at a 
crisis point on all their infrastructure on their built 
environment, but also what supports it. In some of those 
communities electricity is running over $1 a kilowatt hour. 
Fuel oil is over $6 a gallon, and there's no economy, so that's 
a challenge. It's a beautiful State but things are changing. We 
also have the issue up there--as I'm sure you're all aware--of 
climatic changes. For one reason or another, it is happening 
and it's happening very strongly in Alaska. Whole communities 
that have been settled for 10,000 years are now threatened in 
their very existence. So whatever we do must be done right, and 
that first step is knowing what is right.
    Toward that end, the Alaska State Homebuilding 
Association--working builders in the State--established the 
Cold Climate Housing Research Center because locally, in our 
community of Alaska and our family of Alaska, we were borrowing 
from everywhere else, with no strong research supporting what 
was working and what wasn't working. Out of that frustration, 
those of us who swung a hammer created a 501(c)(3) so that we 
could do the research that addressed what we saw as real 
problems. We brought in partnerships. We knew we couldn't do 
this research alone, so we brought in Federal, State and 
industry partners to address this problem, and there's been a 
lot of success. We were able to build a $6 million research and 
testing facility in Fairbanks. This is an amazing facility and 
I thank you for mentioning it, Senator. We're doing everything 
in that building from creating energy from renewable sources, 
through wood-fired co-generation, and work that we're doing 
with that to produce both heat and electricity on a residential 
scale. We're partnering with BP Solar to do a solar 
demonstration project for rural villages that can show that 
solar, combined with other systems, can address in a renewable 
form energy for small communities.
    There's many things that I think the Nation can learn from 
our isolation and the extremes that we have in Alaska, and 
maybe the biggest one is working together. Alaska Housing 
Finance Corporation is one of our major partners. It's a State-
owned loaning institution that basically is taking the money 
from their loans and putting it back in improving shelter--a 
very nice program. Our local utilities are our partners. They 
have green energy programs. We're working with geothermal with 
them. We're looking at using bio-waste for generation. Again 
the partnerships are a critical thing. Part of that partnership 
is the Federal Government, a big part of that partnership. We 
have to have money for programs that promote and move us ahead 
to deal with this crisis, and there have been some very good 
ones: Building America, the DOE program that involved 
production builders, and builders like myself, to introduce 
energy-efficient technologies at or below the same cost as 
conventional technologies in the built environment, are very 
important, as well as the PATH program, Department of Energy's 
PATH program--Partnership for the Advancement and Technology in 
Housing. These are very much applied research programs. They 
need to be funded if we're going to find these answers. We may 
want to build the most energy-efficient building in the world, 
but if we don't know how or if we're doing it wrong, do we 
really have the time or the resources to do it over? I also 
think that this is a real opportunity, a real moment for the 
Nation, to come together. If we can agree and not bicker about 
the problems that we have with energy, with housing, with 
sheltering our people and turning on the lights at night, and 
realize that we can't continue to go in the direction we're 
going. As a Nation, as individuals, if we can agree on them, we 
can accomplish so much. We're proud to be Americans because we 
addressed challenges and we found solutions--but only when we 
work together, only when we collectively decide this is what 
we're going to do. Again, thank you for having me and this will 
be a lifetime experience. Thanks.
    [The prepared statement of Mr. Hebert follows:]

  Prepared Statement of Jack Hebert, President and CEO, Cold Climate 
                 Housing Research Center, Fairbanks, AK

                              INTRODUCTION

    Although there is not a firm consensus on the exact figures, there 
is agreement between builders and researchers that buildings account 
for a significant amount of the United States energy consumption. The 
energy usage is divided almost equally between residential buildings 
and commercial buildings (Source: Annual Energy Review 2003. DOE/EIA-
0384 (2003). Energy Information Administration, U.S. Department of 
Energy. September 2003.)
    With proper planning, most developments and buildings today can be 
designed to use much less energy at little additional cost. Attention 
to siting, building form, glass properties and location, material 
selection and the incorporation of natural heating, cooling, 
ventilation, and day-lighting are among the strategies available to 
achieve this end. Through the application of the most current research, 
the energy needed by a building, a development or a community, can be 
supplied or supplemented by renewable sources such as solar, 
photovoltaic, wind, biomass, and other viable sources. All of these 
strategies incorporate energy efficiency and conservation to produce 
the most effectively-sustainable buildings and homes for the nation and 
beyond.
    In Alaska, energy efficiency is important for our very economic 
viability and survival, especially in our homes and buildings. To that 
end, the Cold Climate Housing Research Center (CCHRC) is currently 
engaged in research, demonstration projects, and in product testing and 
development to provide healthy, durable housing that is affordable and 
energy efficient--in a word, sustainable. Our research has made clear 
those areas where the federal government can help support the research 
in the development of building technologies that use much less energy 
in the near term, with the goal of our nation's building stock being 
more efficient in construction and operation. It should also be noted 
that Alaska's needs are indicative of the needs for energy systems in 
many under-developed regions of the world. Systems deployed 
successfully in Alaska will have applications in many parts of the 
world, opening new markets for innovative American businesses. 
Additionally, experience with new technologies in remote Alaska 
settings will be applicable for growing the use of distributed-
generation technologies in the lower 48 states power grid.
    If U.S. building energy usage is halved or even approaches zero in 
the foreseeable future, this will have a major impact on national 
energy security and the sustainability of our communities--not to 
mention the fuel bills of home and business owners! In this effort, 
CCHRC is leading by example. Our new Building and Infrastructure 
Research and Testing Facility (RTF) is designed to use 60% less energy 
than a conventional building of comparable size and function in 
Fairbanks, Alaska. CCHRC is also working to reduce fossil fuel use even 
further by using bio-fuels and solar energy systems.
    Included here are six aspects of work that CCHRC is doing to reduce 
energy usage in Alaska: and recommendations for how the federal 
government can further that work.

              PRIVATE SECTOR COLLABORATION--CCHRC EXAMPLES

    In 1999, the Alaska State Home Building Association, representing 
over 1000 building industry members, and itself a member of the 
National Association of Home Builders, recognized the need to conduct 
research, test, and develop materials and technologies appropriate to 
northern climates. To this end, the members committed to the creation 
of the Cold Climate Housing Research Center, a 501(c)(3) nonprofit 
entity, whose mission is: promoting and advancing the development of 
healthy, durable and sustainable shelter for Alaskans and circumpolar 
people through applied research. Four years after its start, the CCHRC 
Board of Directors authorized construction of a facility to house the 
testing and product development labs needed to accomplish its mission. 
The charge is clear: research, test, and develop, if necessary, the 
materials and technologies to provide healthy, durable, and 
economically sound housing for the people of Alaska and other northern 
locales.
    CCHRC's nonprofit status allows it to establish collaborations with 
both private and public sector partners. CCHRC is located on the campus 
of America's only Arctic university, the University of Alaska 
Fairbanks. (UAF) where the newly-constructed Research and Testing 
Facility (RTF) is housed. CCHRC works with UAF faculty and staff to 
develop joint research proposals. Major funding comes from state and 
federal agencies that collaborate with many private sector donors who 
contribute materials, products, labor, and funds to support the goals 
of the RTF. CCHRC is also developing relationships with industry 
partners to help further guide and support the product testing and 
development programs at the RTF.
    Some examples of the collaboration with private sector partners in 
product testing include:

   HVAC digital control systems--Siemens Building Technologies;
   Insulation--DuPont, Johns Manville, Thermo-Kool, Western 
        Insulfoam, Vertex;
   Ventilation--Venmar, Lifebreath, Fantech, Solutions to 
        Healthy Breathing;
   Heating--Weil-McLain, Viesmann, Monitor, Stone Castle 
        Masonry;
   Windows--Capitol Glass/Northerm Window;
   Building materials--Spenard Builders Supply, Mannington 
        Commercial, Rivers Wood Products; and,
   Data collection and display--GW Scientific, Campbell 
        Scientific;

    CCHRC also has cooperative agreements with such other nonprofit 
agencies as:

   Golden Valley Electric Cooperative--demonstration of 
        alternative energy systems and conservation strategies and 
        technologies;
   Interior Alaska Building Association--outreach and 
        continuing education;
   Alaska Building Science Network--outreach, education, and 
        training;
   Cooperative Extension Service, UAF--outreach, education, and 
        sustainability; and,
   Audubon International--outreach and community 
        sustainability.
CCHRC Recommends
    Cooperative programs involving private sector partners need 
increased funding by the federal government. Programs such as the 
Partnership for Advancing Technology in Housing (PATH), Partnerships 
for Home Energy Efficiency (PHEE), The Small Business Innovation 
Research (SBIR) and the National Science Foundation's Partnerships for 
Innovation (PFI), Building America, Healthy Homes, Weatherization, and 
others, benefit from private sector partnerships because they have the 
ability to leverage government funding into grounded projects that 
address real private sector needs.

     NATIONAL SECURITY, GLOBAL WARMING, SUSTAINABILITY, AND ENERGY

    To meet growing energy needs, the U.S. imports an ever-increasing 
percentage of its energy supply, in the form of gas and oil, each year. 
This creates an unsustainable and unstable situation for national 
security, environmental concerns, and economic needs. It places U.S. 
energy security in the hands of other nations, fuels concerns over 
climate change, and may contribute to the increase in dramatic weather 
events with significant costs in terms of human life and public and 
private funds. The U.S. does not have enough reserves of its own to 
reverse the nation's supply shortages by simply increasing domestic 
production. Development of economically and environmentally sustainable 
energy efficiency programs and alternative sources of energy is 
critical and will require a significant investment. One way to reduce 
energy consumption in the built environment is through efficiency and 
conservation, which takes committing large amounts of both public and 
private resources.
    CCHRC has undertaken several initiatives to address this situation:

   CCHRC Research and Testing Facility is designed to lead by 
        example using 60% less energy than a comparable building and 
        showcasing several strategies for energy efficiency, 
        conservation, and alternatives.
   Audubon International has designated CCHRC as the Alaska 
        Center for Sustainable Community Development.
   With the North-North Network and UAF, CCHRC is working on a 
        Sustainability Initiative to increase the sustainability of the 
        UAF campus and to begin an interdisciplinary curriculum in 
        northern sustainable design at UAF.
   With partners at the Alaska Housing Finance Corporation 
        (AHFC) and the Canadian Mortgage & Housing Corporation (CMHC), 
        CCHRC is planning a Forum on Sustainable Northern Shelter to be 
        held in Fairbanks this October.
   With the Cooperative Extension Service at UAF, CCHRC is 
        committed to finding solutions to community sustainability in 
        rural Alaska, especially housing and related systems.

    With the Alaska Housing Finance Corporation and the Alaska State 
Home Builders Association, CCHRC has begun the process of recasting the 
Alaska Building Energy Efficiency Standard in terms of the 
International Energy Conservation Code with the intent that it might be 
addressed by a statewide building code review.
CCHRC Recommends
    The federal government, through programs at U.S. Department of 
Energy, the U.S. Environmental Protection Agency, the National Science 
Foundation, and the U.S. Department of Housing and Urban Development 
must initiate programs aimed at energy independence. Part of this 
effort must: (a) target energy use reduction through increased 
efficiency and conservation in homes and other buildings, and (b) 
develop environmentally-sound energy sources for buildings and 
communities. Partnerships that involve the private sector, along with 
universities and state agencies, are particularly well-suited to 
contribute real solutions. National support for transformative 
processes already underway by groups such as the National Association 
of Home Builders (NAHB) and the many state and local groups focused on 
green building will be essential.

                DEMONSTRATION PROJECTS--THE RTF EXAMPLE

    The CCHRC Building and Infrastructure Research and Testing Facility 
(RTF) on the University of Alaska Fairbanks campus is designed with 
transparency in mind. CCHRC encourages public tours of the building and 
visits to its website to demonstrate how it operates. CCHRC wants to 
show:

   how much energy from each source is being utilized,
   how efficiently and cleanly the energy is consumed,
   the different ways to heat and cool the building,
   the better ways to filter indoor air,
   how wall and window systems are performing,
   that the lighting strategy is providing maximum daylight and 
        using minimum electricity,
   that the water system is collecting rainwater, recycling 
        grey water and storing storm water on our green roof; and
   how the building is interacting with the permafrost and 
        ground water beneath it.

    Over 400 sensors are embedded in and beneath the building to 
monitor its operation and performance. In addition to housing research, 
testing and product development, the building itself is a multitude of 
research and testing projects.
    Demonstration projects such as this are important to lay the 
foundation for change. The public needs to see that efficient 
strategies exist and that they work. Essentially, people need to be 
able to ``kick the tires'' before they will ``buy'' new ways to design 
communities, get to work and play, and build and live in homes and 
office buildings that consume much less energy.
    CCHRC has an agreement with Golden Valley Electric Cooperative to 
demonstrate alternative energy systems, such as solar, wind, bio-fuel, 
and hybrid systems, at the RTF. The Fairbanks North Star Borough is 
also funding a project in the facility to demonstrate the use of 
several clean-burning, wood-fired heating appliances with the goal of 
making the building produce more energy than it uses.
    The success of the RTF as a demonstration project is remarkable. 
CCHRC has had so many requests for public tours that it has had to set 
up a regular public tour schedules on Thursday afternoons. CCHRC has 
had a steady interest from UAF faculty and students in proposing joint 
research projects. CCHRC has also had many requests to test products, 
even though it is not yet set up to do so. Finally, CCHRC fields 
frequent calls from future homeowners seeking advice about a piece of 
equipment or a certain approach to building. Obviously, there is 
substantial public interest in building better shelter.
CCHRC Recommends
    Demonstration projects are important elements to facilitate change 
for efficiency in the building community. Even if the technology is 
well proven to scientists and engineers, it is still crucial to educate 
builders and owners about better ways to design and construct 
buildings. The federal government must vigorously fund and support 
state and local efforts to demonstrate products and technologies that 
can make this change happen.

                  ALTERNATIVE ENERGY PROJECTS AT CCHRC

    One of CCHRC's important goals is to test, develop, and demonstrate 
alternative energy solutions. Some of the technologies are built into 
the RTF and some await future funding to be implemented. However, some 
alternative energy projects are already underway or are on the thawing 
board and they include:
    Masonry Heater Project.--The first thing one sees when entering the 
RTF is a beautiful, natural rock fireplace called a masonry heater. It 
has an enclosed firebox, like a woodstove with a glass door, and a 
massive rock edifice like an old-fashioned fireplace. The flue does 
not, however, go straight up the chimney as it would in a stove or 
fireplace; rather, it is convoluted throughout the masonry so that the 
heat of the fire can be transferred to the rock and brick. In this way, 
one hot fire per day can provide enough constant radiant heat to warm 
an average house throughout the cold Fairbanks winter. This technology 
was first developed in China and Greece long ago and was widely used in 
15th century northern Europe. Because the fire is so hot (reaching 2000 
degrees F) it burns very cleanly compared to a conventional wood stove 
or fireplace. The RTF heater is instrumented so that CCHRC can document 
its efficiency and emissions levels. The heater's massive size and 
associated cost are drawbacks to widespread use of masonry heaters in 
homes, yet CCHRC plans to work toward developing lower cost versions as 
options for people who want to burn wood in the most efficient and 
environmentally sound manner.
    Wood Energy Project.--The wild land fires in the interior of Alaska 
pose both a challenge and an opportunity. A primary way to reduce the 
risk to settlements in and adjacent to these vast forested regions is 
to reduce the fire fuel-load by clearing fire breaks around individual 
structures as well as along entire ridge lines. This presents an 
opportunity to develop local economic enterprises utilizing the bio-
fuel that otherwise would be wasted. If a sufficiently robust industry 
can be developed using this ``waste wood,'' it could help fund the 
continued creation of firebreaks around the vulnerable areas of the 
Fairbanks North Star Borough.
    The Fairbanks North Star Borough has funded a project to research, 
develop and test a variety of wood-burning technologies and products 
that could be the basis for local enterprises. These technologies range 
over a wide scale of complexity and size from ordinary wood stoves and 
pellet stoves to masonry heaters and village-scale combined heat and 
power units. Perhaps the most compelling need is to develop the 
technology for building combined heat and power (CHP) generators in 
villages in rural Alaska where the price of fuel oil and electricity is 
threatening their very existence. This project will evaluate the 
technological options for providing the fuel source, processing it, and 
feeding it into a CHP boiler. CCHRC will provide some of these critical 
evaluations, testing and demonstration links in establishing new and 
sustainable local enterprises. In addition the project will develop and 
test the cleanest wood burning technologies available so as to minimize 
the impact on the urban air shed in Fairbanks.
    Solar-Thermal Demonstration Project.--Utilizing the sun to heat 
domestic hot water is practical in Fairbanks, Alaska for about 8 months 
out of the year. Solar-heated domestic water systems have reasonable 
payback periods even though they are only usable for part of the year. 
They also may allow oil-fired boilers to be shut down for several 
months, thereby eliminating the worst period of standby losses. These 
systems are particularly well suited for visitor industry facilities 
that only operate seasonally.
    CCHRC plans to purchase an evacuated-tube solar hot water collector 
and the associated parts to integrate this system into its Viesmann 
Boiler domestic hot water system. CCHRC is also working with the Golden 
Valley Electric Association and the Cooperative Extension Service to 
offer a technical training class in the installation of solar hot water 
collection systems which will feature hands-on training actually 
installing this system in the RTF. The system will be instrumented so 
that performance and cost-effectiveness can be demonstrated in an on-
going manner to a broader audience via the internet.
    Solar Photovoltaic Hybrid Demonstration Project.--The Cold Climate 
Housing Research Center has proposed to partner with British Petroleum 
(BP) and Alaska Native corporations on a project to develop a 
sustainable solar power system that works in circumpolar regions. The 
project will be based at CCHRC's Research and Testing Facility. The 
``Beyond Petroleum''--Integrating Solar Energy in Rural Alaskan 
Communities Research Project will benefit many communities in the 
circumpolar regions. Many rural circumpolar communities face ever-
increasing energy costs due to being off the grid and the rising costs 
of fuel transport. The RTF is a perfect site for testing northern solar 
power systems and developing Alaskan expertise in solar system design, 
installation and maintenance to benefit Alaskan villages. The Fairbanks 
climate offers the full range of weather conditions for cold climate 
testing and performance evaluation of products, systems and techniques.
    The purpose of this project is to design, install, and operate a 
micro-hybrid power system. It will consist of 15 KW of PV solar panels, 
battery banks, AC and DC coupled inverters with capability to tie into 
the GVEA grid, and a back-up generator. A web-based data acquisition 
component will be incorporated allowing researchers to share results. 
The system will feature: (a) testing of several different solar/micro-
grid configurations, (b) the potential to incorporate other energy 
technologies (bio-diesel, fuel cells, bio-mass etc.), (c) robust data 
collection, and (d) education, research and outreach components, 
including an interactive ``Solar on the Web'' feature.
CCHRC Recommends
    These critical research, development, and demonstration projects 
usually involve, in one way or another, the donation of equipment, 
materials, and labor from private sector partners. This important 
private sector contribution should be encouraged by offering tax 
incentives. Congress should consider tax incentives that would 
encourage more investment by private sector partners that work on 
projects to shift away from fossil fuels to alternative, 
environmentally sound energy sources. By utilizing private sector 
partners in this way, the burden of developing and expanding critical 
research in efficiency programs is not shouldered solely by industry or 
government alone.
    A strong federal and state partnership to develop and demonstrate 
new energy-saving, energy-generation and transmission technologies is 
clearly warranted. Such an investment would not only serve Alaska's 
residents, but also help to develop a market for American technologies 
by inviting the developing world to see how America is solving its 
energy needs for its rural and remote regions. Alaska could easily 
become America's showcase for distributed power generating 
technologies.

                     DOE BUILDING AMERICA IN ALASKA

    CCHRC was funded by two grants under the Department of Energy's 
Building America program. Some of CCHRC's work began with funding from 
the second grant and has been. carried forward with funds from Alaska 
Housing Finance Corporation. These grants have led to important 
advances in basic envelope design in Alaskan residential construction, 
which is called the Residential Exterior Membrane Outside-insulation 
Technique (REMOTE), or REMOTE technique.
    Building America in Alaska I.--CCHRC, the U.S. Department of 
Energy, and Alaska Housing Finance Corporation (AHFC) formed a federal/
state/industry partnership to implement the Building America program in 
Alaska. A Building America in Alaska (BAA) team of building industry 
professionals from across the state worked with cold climate experts 
from the Building Science Consortium. The primary goal of this project 
was to develop plans for energy efficient, durable, healthy, and cost 
effective homes that are affordable to moderate-income Alaskans. The 
team designed a single-family residential home with modifications for 
each of three major climatic regions/environments found in Alaska. 
Building America home, using the CCHRC design or Building America 
technology, were constructed by Bee Construction in North Pole 
(Interior) and blu-Spruce Construction in Juneau (Southeast) and sold 
shortly at or near completion. The performance target for these homes 
is Five Star Plus, or the highest level of efficiency.
    A Final Report was delivered to AHFC October 30, 2001, and included 
the building design, material list, construction costs, and performance 
testing and energy modeling of the finished homes. CCHRC staff worked 
with the Fairbanks Chapter of Habitat for Humanity to utilize the 
Building America design and technology in other projects. The Builders 
Guide: Cold Climates, developed through the Building America program, 
was reviewed by the Alaska team and CCHRC staff and updates were 
recommended, compiled, and delivered to the Building Science 
Consortium.
    Building America in Alaska II.--CCHRC's second grant from the 
Department of Energy was awarded for a State Energy,Program Special 
Project to continue work on the Building America in Alaska program. The 
goals were: (1) to develop builder's education courses on BAA 
approaches to residential construction and to continue education and 
promotion of Building America techniques to the Alaskan home building 
industry; (2) to test and monitor the Building America houses 
constructed in Alaska in 2001 and assess their performance; and (3) to 
develop a Building America strategy to address the cold, wet climate of 
Southeast Alaska which includes construction of a test module for 
checking wall panels for moisture, durability and energy efficiency. 
Within this project, the CCHRC Mobile Test Lab (MTL) was constructed in 
North Pole and shipped to Juneau in January 2003. Students of 
Construction Technology at the University of Alaska SE built and 
monitored various wall systems in the test module for a year. The wall 
built with the REMOTE technique out performed other wall sections in 
terms of drying. The MTL was later re-fitted with new wall panels, new 
equipment, and continues to be monitored under funding from AHFC.
    REMOTE Wall.--The REMOTE technique combines an outside insulation 
wall envelope system with more conventional roof and foundation 
envelopes to maximize the benefits of both systems. An impermeable 
membrane is attached to the exterior of the wall's sheathing with foam 
insulation exterior to that. This membrane is then tied to an interior 
vapor barrier for the roof and foundation of the structure. The benefit 
of this system is that condensation within the building envelope is 
eliminated along with all the associated moisture problems. Nine wall 
systems were tested in Juneau utilizing the Mobile Test Lab. Of the 
nine walls tested, the best performing wall was the REMOTE wall. The 
REMOTE wall offered the most reliable results to the drying of built-in 
moisture and had the lowest recorded moisture content in the sheathing, 
framing and bottom plate at the conclusion of the testing. During 
intentional wetting experiments in which moisture was introduced to the 
wall cavity, the empty cavities dried in days, the fiberglass filled 
cavities dried in weeks, and the foam-filled cavities did not dry 
during the experiment. This shows that the fundamental design where all 
of the insulation is on the outside of the wall is the most robust for 
eliminating moisture problems.
    In September 2005, the Tlingit-Haida Regional Housing Authority 
(THRHA) received an award in recognition for its development and 
application of innovative approaches and best practices in housing and 
community development at the U.S. Department of Housing and Urban 
Development's (HUD) National Indian Housing Summit. The work involved 
an application of the REMOTE wall. THRHA was one of six housing 
organizations from around the country to receive one of the prestigious 
awards. In addition, THRHA was recognized for its partnerships with 
CCHRC, the University of Alaska Southeast Construction Technology 
Department, and Southeast Alaska Building Industry Association for 
exploring new building techniques and materials suitable to Southeast 
Alaska's climate.
CCHRC Recommends
    The U.S. Department of Energy's Building America program has been 
very important for developing and demonstrating improved building 
techniques. Greater focus should be given to energy efficiency and 
conservation in buildings within this program. The program should also 
be expanded with funding to ensure its availability in all of the 
states with a regional structure, primarily so that applications can be 
considered in the context of the local region. Building America has 
been very successful nationwide and has been embraced by NAHB and the 
homebuilding industry.

                HUD HEALTHY HOMES AND DOE WEATHERIZATION

    CCHRC, the Alaska Housing Finance Corporation, University of Alaska 
Fairbanks and Anchorage, and state of Alaska Weatherization agencies in 
Fairbanks and Anchorage partnered on the Healthy Homes in Alaska 
Project which studied the connection between indoor air quality (IAQ) 
and asthma in children. CCHRC has also done several other projects on 
IAQ and ventilation issues, including the mold survey and wildfire 
smoke remediation studies described below. All of these studies are 
more fully reported at http://www.cchrc.org/completed.html. There is an 
essential connection between the development of energy efficient 
buildings and ventilation: as we insulate and tighten up buildings to 
prevent heat loss or entry, it becomes increasingly important to 
provide intentional, mechanical ventilation to supply fresh air and to 
control the build up of moisture in the buildings. The ventilation 
system must be optimized to use the minimum amount of energy and 
materials consistent with the air exchange requirements. Finally, 
outdoor air is not necessarily ``fresh,'' so it is often important to 
filter the incoming and re-circulated air to obtain the best, healthy 
indoor air quality.
    The Healthy Homes in Alaska Project.--This project was designed to 
test whether or not improving the indoor environmental quality of homes 
for children with asthma might improve their health. Only children who 
lived in low-income homes were eligible, and the parent or guardian of 
the child was required to own the home. Another goal of this project 
was to increase the capacity of the Low-income Weatherization Program 
to remove possible respiratory hazards in the homes of low-income 
people who have children with asthma or other upper respiratory 
diseases. The Healthy Homes in Alaska project was conducted in two 
areas in the state. Fairbanks is Alaska's second largest city and is 
located in the Interior. Hooper Bay is a larger bush community of 1014 
residents on the Bering Sea coastline. These communities were selected 
because they have residents with diagnosed asthma, have an involved 
health provider in the region, and are generally representative of 
conditions and housing stock throughout the state. The project provided 
indoor air quality assessment, health screenings of affected children, 
and housing remediation to selected homes. We identified and studied a 
total of 36 homes: 10 eligible participants in the Fairbanks area, 9 
participants in Hooper Bay, and 8 and 9 control homes in Fairbanks and 
Hooper Bay, respectively. The remediation in the control homes 
consisted of the standard weatherization items such as improving 
insulation, replacing windows and doors, sealing air leaks, as well as 
providing some safety items such as smoke and CO detectors. In the 
participants houses the weatherization protocol was augmented by items 
designed to remove possible asthma triggers such as moldy window sills, 
bedding, or furniture. Some changes in the home were made to prevent 
the moisture and temperature conditions that lead to the growth of mold 
such as adding clothes dryers, installing shelving and bed frames to 
improve air circulation by the walls and floors, and installing quiet 
bath and kitchen fans to remove moist air from the house. 
Qualitatively, the clients in the healthy homes reported improved 
comfort and health as well as reduced energy bills. While the 
quantitative results of this study were based on a small number of 
research subjects, and asthma is a disease with multiple causes, there 
are some interesting suggestive results: (1) It is possible that the 
homes of children with asthma have higher levels of indoor air 
pollution than the homes of similar people without asthma; and (2) The 
remediation may have helped to improve the pulmonary function tests and 
the IgE levels of asthmatic children, although the numbers from this 
small a study were not sufficient to reach statistical significance.
    Mold and Mildew Survey.--The prevalence of mold in Alaska Native 
housing is a significant health issue. CCHRC documented over 1,700 
residences with mold problems in a survey funded by HUD. See http://
www.cchrc.org/completed.html#mold. These instances varied from mild 
mildew around windows, in kitchens, or in bathrooms to severe mold 
development requiring the destruction of the building. CCHRC has been 
funded by the Alaska Housing Finance Corporation to provide consulting 
services to Alaska Native housing authorities on these and other issues 
including the development of low-cost ventilation systems as adequate 
ventilation is one of the keys to maintaining a healthy, mold-free 
home.
    Remediation of Wildfire Smoke in Fairbanks Homes.--For over two 
weeks in the summer of 2004, fires around interior Alaska raised the 
outdoor particulate level significantly over EPA's fine particle 
standard for PM 2.5 of 65mg/m3. The actual figure exceeded 
1,000m/m3 during part of that period. This study 
demonstrated a 76-92% improvement of indoor air quality, depending on 
method of remediation. See http://www.cchrc.org/FANTECH.pdf. Indoor air 
was tested in houses pressurized with filtered outdoor air, as well as 
in non-pressurized houses in which the air was re-circulated and 
filtered. Although residents of all houses rated the improvements from 
``better'' to ``very significant,'' the percentage reduction in fine 
particulates was greatest in pressurized houses. This study has 
implications for builders in areas in which air quality can be 
hazardous to health, no matter the cause.
CCHRC Recommends
    The DOE Weatherization programs provide a significant improvement 
in the older housing stock, reducing the annual gas heating bills by an 
average of 32% (see http://www1.eere.energy.gov/office_eere/pdfs/
wap_fs.pdf). As CCHRC develops more strategies for retrofitting older 
houses, the lessons learned by the weatherization agencies across the 
nation will be increasingly important to incorporate. Improvements in 
the health of children and adults with asthma and other respiratory 
conditions can also be made with the development and application of 
appropriate ventilation and filtration standards.
    In addition to the work of CCHRC, we are acutely aware of the 
national focus on energy consumption of buildings, green building and 
the need for incentives to promote sustainable building practices. 
These issues have gained significant prominence in national public 
policy forums.

                   ENERGY CONSUMPTION AND EFFICIENCY

    Energy efficiency is the primary focus for many builders and home 
buyers. While many figures are being thrown around these days, the 
Energy Information Administration (EIA) estimates that buildings 
accounted for 39.4% of total U.S. energy consumption in 2002. 
Residential buildings accounted for 54.6% of that total, while 
commercial buildings accounted for the other 45.4% (Annual Energy 
Review 2003, DOE/EIA-0384 (2003))--for heating, cooling and electric 
appliances. Builders know that building with energy conservation in 
mind is both practical and profitable.
    Recently, a number of groups, including the U.S. Conference of 
Mayors, have joined with the American Institute of Architects (AIA) to 
support the Architecture 2030 Challenge, which suggests that buildings 
are the major source of demand for energy and materials and, 
incidentally, produce greenhouse gases. The Challenge includes the 
goals of:

   All new buildings must be designed to use 50% less fossil 
        fuels;
   An equal amount of existing building area must be renovated 
        annually to use 50% of the amount of fossil fuel they are 
        currently consuming; and,
   All new buildings must be carbon-neutral by 2030 (i.e., uses 
        no fossil fuels and emits no greenhouse gases in operation).

    A more detailed look at data provided by the EIA reveals that the 
2030 challenge has arbitrarily derived the number of ``half'' of energy 
consumption and greenhouse gases by combining two categories for which 
the EIA reports and creating a new ``buildings'' category. Based on 
EIA's 2000 Annual Energy Review, adding the categories of 
``Commercial,'' ``Residential,'' and a portion of the ``Industry'' 
categories, the 2030 challenge arrives at a number of 48%. This 
estimate reflects a portion of the industrial sector that is attributed 
to buildings because of heating, cooling, etc., but how the AIA arrive 
at the actual percentage is open to question.
    Older homes, for which present day builders and architects bear 
little responsibility, account for a very large share of residential 
energy consumption. Single family and multifamily units built in the 
decade before the Residential Energy Consumption Survey (RECS) of 2001 
account for only 2.5 percent of total energy consumption in the U.S. 
Even if each of the new homes built over the 1991-2001 period consumed 
zero energy, it would only have reduced total consumption in the U.S. 
by 2.5 percent. Finally, more than half of total residential energy 
consumption consists of energy lost between generation and 
consumption--that is, energy lost in the process of producing and 
transmitting electricity, rather than energy actually used in 
residential structures. This fact illustrates the importance of 
developing energy producing systems in the structures themselves.

                     ENERGY STAR AND GREEN BUILDING

    Energy Star is the most prominent of the many voluntary programs 
builders utilize and was the very first program endorsed by the 
National Association of Home Builders (NAHB). Energy Star homes meet 
specific energy efficiency guidelines established by the U.S. 
Environmental Protection Agency that achieve notable energy savings 
above the current energy standards. To date, more than a half-million 
above-code Energy Star homes have been built.
    Energy Star also serves as a resource and efficiency benchmark and 
as an integration point for NAHB's own Model Green Home Building 
Guidelines. Since the 1990s, NAHB has been preparing for the evolution 
of green building into the main stream. Green building means energy 
efficiency, water and resource conservation, sustainable or recycled 
products, and indoor air quality all incorporated into the everyday 
process of home building.
    Published in 2005, NAHB's Model Green Home Building Guidelines 
(Guidelines) were developed through an extensive year-long review of 
existing programs and industry best practices within an open, 
consensus-based process involving more than 60 industry stakeholders--
including builders, researchers, manufacturers, environmentalists, and 
government agencies. The NAHB Research Center, an American National 
Standards Institute (ANSI)-accredited standards developing 
organization, co-developed the Guidelines with NAHB. Due to broad 
acceptance by local home builder associations, the Guidelines will 
undergo formal consideration procedures to become the ANSI-accredited 
standard and serve as an official ``industry standard practice.''
    The Guidelines embody the flexibility that builders need to achieve 
efficiency and conservation goals without meeting costly national or 
state-wide mandates. Local adoption of the Guidelines allows builders 
to more appropriately address regional and local environmental 
concerns, properly assess life-cycle costs based on local building 
codes and climate zones, and encourage innovation to meet higher and 
broader energy efficiency objectives. Simply, there is no one size-
fits-all green building standard. Alaska, North Dakota, Florida, and 
Maine all have different efficiency needs and requirements based on 
their climate and builders need the flexibility of a program like the 
Guidelines to reach those goals.
    One popular green building standard that is being considered as a 
requirement throughout the country, particularly at the state and local 
level, is the Leadership in Energy Efficient Design (LEED), sponsored 
by the U.S. Green Building Council (USGBC). Due to its success at 
mandating LEED-NC programs for many government facilities, USGBC is 
currently offering a pilot program, LEED-H for homes, to further 
encourage the penetration of the LEED brand into the private sector.
    While many state and local governing bodies have mandated the use 
of LEED, some local leaders, e.g., in Boston, have recognized an 
important fact that many builders also recognize: the LEED-H program is 
costly, requires many mandatory provisions, offers little flexibility, 
and contains extensive implementation fees that could cost a builder, 
and ultimately the public, from $12,000 to $15,000 extra per home. A 
close analysis of NAHB's Model Green Home Guidelines and USGBC's LEED-H 
for homes is attached.
    Overall, at a time when housing needs the most innovation and most 
resources spent on achieving resource and energy efficiency, builders 
should not be forced to use those resources for certification and 
implementation fees just to comply with costly mandates for programs 
like LEED-H. Builders need many options and methods for achieving 
strides in energy efficiency and will be sidelined with requirements, 
for LEED or otherwise, by any government--state, local, or federal.

              TAX INCENTIVES FOR ENERGY EFFICIENT HOUSING

    Finally, another crucial way to encourage energy efficiency in 
housing is by extending and expanding tax incentives that passed as 
part of the Energy Policy Act of 2005. Unlike spending programs or one-
size-fits-all rules, tax provisions allow market participants--
builders, homeowners, and homebuyers--to marry the energy incentives 
with market-determined supply and demand.
    For example, the newly established New Energy Efficient Home Credit 
(Section 45L of the Internal Revenue Code) provides a $2,000 tax credit 
for the construction and sale of a new home which reduces energy use by 
50% or more. This program provides benefits to home buyers and 
communities by facilitating the construction of new property that takes 
advantage of the latest technology--and in a manner that will work in 
the marketplace. Rules that simply eliminate the market for new homes 
or other property through unreasonable restrictions do not encourage 
the adoption of energy efficient property. In fact, they do the 
opposite. They encourage retention of older, less efficient property.
    Other examples of new energy tax incentives are the energy 
efficient commercial building deduction (Section 179D), the existing 
homes tax credit (Section 25C), and the solar credit for residential 
property (Section 25D).
    Congress could improve the efficiency of these programs by making 
them permanent. Presently, these tax incentives are scheduled to expire 
over the 2007 and 2008 period. This limited duration reduces the 
effectiveness of these programs as home building in many cases takes 
months or even a year or more to complete.

                               CONCLUSION

    A directed national effort must be initiated immediately to address 
the global issue of unsustainable energy consumption and its many 
effects. Buildings, land development and related infrastructure, 
including electrical generation, transportation, water and wastewater 
systems are major factors to consider. Applied research and 
demonstration projects are very necessary components for identifying 
and developing technologies and strategies that will move toward 
effective solutions. The direction the nation takes is dependent on the 
quality and application of that research. Through a collaborative 
approach involving industry and the marketplace, financial incentives, 
federal and state regulatory agencies, and most importantly each 
individual's commitment, we can make a positive change. The United 
States must lead this effort by example to the rest of the world. This 
is an opportunity for the nation to come together. For the first time 
there is general agreement about the impacts of unrestrained energy use 
and a real concern for the future. This issue can galvanize us as a 
nation around a common goal for the common good. CCHRC and the building 
and research communities of Alaska are prepared to embrace that 
movement. It is our hope that we can be a valuable part of that 
solution.

    Senator Dorgan. Mr. Hebert, thank you very much. You've 
traveled a long distance to be with us today and we deeply 
appreciate that, appreciate the unique message you bring. Mr. 
James Rogers is chairman of the Edison Electric Institute. He's 
also chairman, president and CEO of Duke Energy Corporation in 
Charlotte, North Carolina. Mr. Rogers, it's nice to see you 
again, welcome.

  STATEMENT OF JAMES E. ROGERS, CHAIRMAN, CEO, AND PRESIDENT, 
  DUKE ENERGY CORPORATION, CHARLOTTE, NC AND CHAIRMAN, EDISON 
                       ELECTRIC INSTITUTE

    Mr. Rogers. Thank you. Chairman Dorgan, Chairman Bingaman, 
Senator Murkowski, good afternoon. I want to thank you all for 
inviting me to testify today on behalf of Duke Energy and the 
Edison Electric Institute, the Association of Shareholder Owned 
Electric Utilities. I believe that energy efficiency is central 
to achieving this country's environmental goals meeting the 
growing demand for electricity as well as achieving our energy 
security goals. It is also a critical component in advancing 
our technology future.
    Duke serves approximately 3.9 million customers in North 
and South Carolina, Ohio, Indiana and Kentucky. Leading a large 
energy company means that I have a duty to both our customers 
and shareholders to understand what the future holds, in terms 
of economic and environmental pressures. Even though prices for 
electricity have been declining in real terms for a decade and 
a half, prices have started to rise driven by escalated fuel 
costs, greater environmental expenditures, and America's 
insatiable appetite for all things electronic, stimulating the 
need to build new plants and make other infrastructure 
improvements. These forces pressure consumers with higher 
electric bills. Consequently, we recognize the need for our 
industry to mitigate these pressures.
    I also believe that many of our energy efficiency programs 
of the past were in need of an extreme makeover. My co-
chairmanship of the National Action Plan on Energy Efficiency--
which was supported by the EPA and DOE--played a great role in 
understanding the potential for the makeover. The results of 
phase 1 of this process are eye-opening; the National Action 
Plan report envisioned taking effective efficiency programs 
currently underway in this country, and expanding them to all 
50 States. Such an ideal model could result in savings that top 
$20 billion annually, along with a deferral of as many as 40 
new 500 megawatt power plants over the next 10 to 15 years. 
Even though historically utilities have offered a variety of 
low-saving programs to customers, collectively if you added it 
all up you could power 74,000,000 average-sized homes for each 
year. It is clearly not enough; however, I believe that even 
with the recognition that we need to do more, a genuine 
paradigm shift must occur if we're to realize the full and 
total potential of this resource. This shift must occur on 
three fronts. First: in the way State regulators treat the 
business of energy efficiency. Second: in the way utilities 
develop and deliver efficiency programs. Third: in the way 
consumers learn to manage their energy use.
    Energy efficiency is an actual source of supply. I call it 
the fifth fuel. It is as important as any power plant generated 
by coal, nuclear, natural gas or renewables. Wise energy use 
programs can deliver at a cost below that of a nuclear power 
plant and in less time. Energy efficiency is also the basic 
building block to cost-effectively help utilities meet their 
greenhouse gas reduction goals, but treating efficiency as a 
generation resource means that we also need to treat it as a 
business resource. I recently challenged the Duke team to add 
600 megawatts of energy savings in the Carolinas on top of the 
700 megawatts already committed. These savings will help us 
shut down the older coal units. If we can put saving energy on 
the same level playing field as generating energy, then we will 
witness a significant growth in this sustainable resource.
    EEI is already examining ways of making energy-saving 
business models for consumers and investors. We expect to issue 
a report later this year evaluating several business and 
regulatory models. There is no one method appropriate for all 
utilities or all States. We believe this report will form what 
we hope is a beginning of a robust dialog with utility 
regulators. Duke is investigating its own ``Sav-A-Watt'' model 
to address energy and environmental savings in one efficiency 
package. We believe that this prototype coupled with new 
technology deployment carries the potential of transforming our 
business so we can provide--and this is an important point--
customers with universal access to energy efficiency, and with 
that the paradigm shift begins to occur. Utilities can increase 
their offers of sustainable energy savings and consumers will 
broaden their knowledge of how to ``Sav-A-Watt.''
    Congress can help us meet these objectives and assure that 
energy efficiency produces a meaningful imprint on our society. 
Already begun from programs authorized by the Energy Policy Act 
of 2005, it is imperative that Congress fund all energy 
efficiency initiatives. In addition, tax incentives should be 
re- examined and reauthorized. Congress must address building 
codes because buildings consume--and my number's a little 
different than the gentleman before--approximately 68 percent 
of the electricity produced in the United States, and that's 
according to DOE.
    Finally Congress can help to further technology advances. 
Modernization of the electric grid from advanced distribution 
transformers to advance meters must be deployed to help us 
achieve energy use reductions. These meters and grid 
technologies reduce energy losses. Incentives to advance the 
application of these technologies can further the goal of 
avoiding new power plants. I believe that through the proper 
architecture the potential for energy savings will bring with 
it a transformation of how we meet the needs of an increasingly 
electrified economy. In closing, I ask you to consider what I 
think should be an expanded mission for electric utilities, and 
that is the ability to offer all of our customers universal 
access to a broad range of energy savings programs and 
services. Getting the regulatory framework right means that we 
can help customers make wise choices. Utilities can deliver 
those wise energy choices from solar panels to advanced heating 
and cooling equipment to examining advanced lighting 
techniques. As utilities we're in the best position to help 
consumers ``Sav-A-Watt'', and only then can we adequately 
provide this fifth fuel to all. Thank you all very much, and I 
welcome your questions.
    [The prepared statement of Mr. Rogers follows:]

  Prepared Statement of James E. Rogers, Chairman, CEO and President, 
 Duke Energy Corporation, Charlotte, NC and Chairman, Edison Electric 
                               Institute

    Good afternoon. My name is Jim Rogers and I am Chairman, CEO and 
President of Duke Energy. Duke serves approximately 3.9 million 
customers in five states: North Carolina, South Carolina, Ohio, Indiana 
and Kentucky. We have 37,000 megawatts of generation, which is supplied 
by coal, nuclear, natural gas and hydropower.
    I am here on behalf of Duke Energy as well as the Edison Electric 
Institute (EEO, where I currently serve as Chairman. EEI is the 
association of U.S. shareholder-owned electric utilities and industry 
affiliates and associates worldwide.
    I want to thank you for inviting me to speak today on a topic which 
I believe is central to achieving this country's environmental, energy 
security and technology goals--energy efficiency.
    As the leader of a large power company, I believe it is my duty to 
both shareholders and customers to understand not only the basics of 
meeting energy demand but also to delve into the future and understand 
all of the pressures that will lead me to make the right economic 
decisions today. Expectations for electricity growth and impending 
environmental trends all play a fundamental role in the delivery of 
electricity to our customers.
    Despite the fact that electricity remains a value compared to other 
essentials, electricity bills are rising. Fuel costs and purchased 
power have driven a large part of those incremental price increases--
accounting for roughly 95 percent of total operations and maintenance 
expenditures on an industry-wide basis. But those are not the only cost 
pressures facing the industry. Environmental controls, particularly in 
coal-centric regions of the country, are driving up costs. At the same 
time, America's appetite for electricity is growing. A recent Consumer 
Electronics Association study revealed that the number of electronics 
products per household has doubled since 1997. We might love plasma 
televisions, but we need to recognize that they also love electricity! 
Growing demand brings with it an essential need for new power plants 
and transmission lines.
    As part of my own effort to examine, understand and help customers 
manage all of these trends, I agreed to co-chair the National Action 
Plan on Energy Efficiency--supported by the Environmental Protection 
Agency (EPA) and the Department of Energy (DOE).
    As co-chair with Diane Munns, then a Member of the Iowa Utilities 
Commission and President of the National Association of Regulatory 
Utility Commissioners, we worked with a Leadership Group representing 
over fifty utilities, utility commissions, state energy offices, 
consumer and environmental advocates. The resulting National Action 
Plan outlines benefits and opportunities for energy efficiency as well 
as the barriers to overcome if we are to make energy efficiency a top 
priority.
    The first phase of this multi-year effort identified numerous 
examples of successful energy efficiency programs as well as the 
potential for energy savings across the U.S. In addition, more than 80 
organizations announced public commitments to advance their own energy 
efficiency activities.
    The NAPEE report suggested, for instance, that if the dollars spent 
and the megawatts saved in some areas of the country were broadened to 
the country as a whole, savings could top $20 billion annually while 
deferring 20,000 MW--the equivalent of 40 new 500 MW power plants over 
the next 10 to 15 years.
    These figures are illustrative, of course, and are not to suggest 
that every utility and every state can achieve the same level of energy 
savings. But let me provide you with just a few interesting examples of 
successful programs in various parts of the country.
    Black Hills Power, serving customers in South Dakota, Montana and 
Wyoming, offers homeowners a program that helps them monitor and 
control major electric appliances during periods of peak demand.
    Puget Sound Energy's programs, which include cash rebates for the 
purchase of Energy Star appliances, are on track to save 279 MW between 
2006 and 2015. That is more than the company saved between 1980 and 
2004.
    Southern California Edison's comprehensive portfolio of energy 
efficiency programs for 2006 through 2008 will produce a 3 percent 
average bill reduction by 2010 and 888 MW of demand savings, as well as 
the commensurate environmental benefits. This will occur for a cost of 
less than 4.1 cents per kWh.
    Historically, utilities have offered a variety of programs to help 
customers manage their electric bills. According to DOE and the Energy 
Information Administration (EIA), electric utilities collectively spent 
over $30 billion on demand-side management or efficiency programs 
between 1989 and 2005, resulting in a savings of more than 796 billion 
kWh. Those savings alone could power nearly 74 million average size 
U.S. homes for one year.

                        DEVELOPING A NEW VISION

    While those numbers are impressive, the industry recognizes that we 
can achieve much more. But, I believe that a genuine paradigm shift is 
necessary if we are to realize the full potential of this resource. 
That shift must occur in the way regulators treat the business of 
energy efficiency, in the way utilities develop and deliver programs, 
and in the way in which we appeal to consumers to manage their energy 
use.
    Another huge accomplishment emanating from the NAPEE process was 
the recognition by this broad group of utility commissioners, customers 
and consumer groups that sound business practices can remove barriers 
for enhancing utility investments in energy efficiency.
    Energy efficiency should be considered a fuel choice--the ``fifth 
fuel'' if you will in addition to traditional generation resources of 
coal, nuclear, natural gas and renewables.
    Efficiency programs can deliver at a lower cost than new power 
plants, we can deploy them faster than new power plants and they can 
provide savings over relatively short periods of one to three years, as 
well as over the longer term.
    From an environmental perspective, we should view energy efficiency 
as a basic building block in reducing the industry's emissions profile. 
In 2004 alone, efficiency programs in place saved more than 29 million 
metric tons of carbon equivalent greenhouse gas emissions.
    From a state's perspective, energy efficiency can be a key to 
economic development activities. Greater efficiency investments can 
build jobs and improve state economies. These programs can also create 
long lasting infrastructure changes to buildings, and property 
improvement delivering long-term economic value.
    And finally, energy efficiency brings with it its own energy 
security benefits. Again, according to the NAPEE report, by reducing 
the level of U.S. per capita energy consumption, we also decrease the 
vulnerability to the economy and individual consumers from potential 
energy price disruptions erupting from natural disasters or escalating 
prices of imported fuel. The less electricity used, the less impacted 
consumers are by fuel cost increases. And despite the fact that natural 
gas for the most part is a domestic resource, it increasingly is tied 
to the cost of foreign oil and will be supplemented in the future by 
imports of liquefied natural gas.
    But if we are to treat efficiency as a resource, we must consider 
it a resource from a business perspective as well.
    For instance, I recently directed my staff to expand Duke Energy's 
efficiency program in the Carolinas to reach a goal of saving an 
additional 600 MW of energy beyond the 700 MW already committed.
    However, that action is not without its own concerns. These energy 
savings will enable Duke to shut down several older coal plants in our 
region, resulting in significant environmental benefits. But, under our 
current regulatory model, the program also will result in significant 
lost revenue.
    Eliminating power plants, while adding new ways of saving energy, 
without a plan for placing energy efficiency into the traditional 
utility business model can make expanding programs a tough sell. 
However, we can change the utility regulatory paradigm to put saving 
energy on the same level playing field as generating energy.
    I believe that there are energy saving business models that work 
for customers and for utility investors. Edison Electric Institute is 
in the final stages of a study analyzing various ways of ensuring that 
energy efficiency can stand alone as a business. These models would 
work for utilities in both regulated and unregulated states. While no 
one version may work for every utility and every state, a variety of 
models exist that can and must be explored if we are going to achieve 
energy efficiency goals that will make meaningful imprints on our 
society. Once completed, this document will be a useful tool for 
exploring enhanced efficiency programs with our state public service 
commissions.
    Some of these prototypes include methods of sharing energy savings 
with consumers and shareholders; others simply treat energy efficiency 
like any other expenditure such as power plants or other infrastructure 
improvements. Duke, in fact, is exploring its own ``Sav-A-Watt'' model, 
which addresses the energy and environmental savings achieved via 
efficiency programs in one package.
    Customers win because new plants are avoided, environmental 
benefits are expanded and creative methods of providing sustainable 
efficiency programs mean savings on monthly bills. We believe this 
model, coupled with new technology deployment, has the potential to 
transform our business and enable us to give our customers universal 
access to energy efficiency.
    This paradigm shift at the regulatory level will open up a host of 
opportunities to reshape how utilities offer efficiency to consumers. 
Without the threat of a lost revenue stream, utilities can develop 
programs that they take to consumers, instead of waiting for consumers 
to sign up to generic offerings. That in itself can go a long way in 
broadening wise energy use patterns.
    I do not believe that Congress can or should dictate a specific 
model to states. However, speaking for Duke, I think that Congress can 
examine methods of ensuring that states consider these new regulatory 
frameworks to ensure that efficiency measures are sustainable over the 
long term. I am certain that there are other options of encouraging 
this transformation, but I must again emphasize that making efficiency 
a business is critical if we are to realize its true potential.

                          THE ROLE OF CONGRESS

    Congress did make huge strides in advancing energy efficiency when 
it passed the Energy Policy Act of 2005 (EPAct). We encourage the 
Committee to review the progress of EPAct 2005 and ensure funding for 
all energy efficiency provisions.
    Congress can also play an essential role in furthering efficiency 
through a variety of additional mechanisms.
    Strict building codes, utilizing energy efficiency models, alone 
can go a long way toward achieving real energy savings in the same way 
that appliance efficiency standards have broadened the reach and 
potential for savings to consumers. According to the Department of 
Energy, buildings consume approximately 37% of the energy and 68% of 
the electricity produced in the U.S. annually.
    SC Johnson recently designed its new headquarters building in 
Racine, Wisconsin, and studies project that its gross annual energy 
consumption will be approximately 60% less then the average for 
similarly sized buildings. This reduced energy consumption will save 
the company nearly $100,000 per year. Imagine translating similar 
savings to every new building in the country.
    Congress can address that potential through building code 
requirements and essential tax incentives for buildings and appliances.
    Additionally, many other tax incentives provided for in EPAct 2005 
are set to expire at the end of this year. Yet, incentives for 
commercial buildings are still awaiting final rules. And, while some 
EPAct 2005 incentives are set too low to effectively influence consumer 
buying decisions, others are too high. The industry would like to work 
with this Committee and its Members who also sit on the Finance 
Committee to review the variety of tax incentives earmarked for 
efficiency programs and suggest methods to adjust and expand them 
appropriately.
    Congress can also play a role in furthering technology advances. 
Modernization of the electric grid is a significant element of the 
efficiency picture. From advancing more efficient distribution 
transformers to accelerating the development of advanced metering 
technologies, the electric industry has identified these and other 
technology advances as essential tools in the efficiency kit. These new 
meters in many ways are more similar to computers than the electro-
mechanical machines utilities historically deployed.
    Smart grids can expand information exchange between customers and 
their utility while also supporting demand-side measures such as real 
time pricing. Imagine a day when smart technologies and appliances will 
be able to make decisions about when to operate and could even 
``learn'' how to combine efficiency, cost, comfort and convenience for 
customers. Duke likes to refer to these new technology advances as the 
``Utility of the Future.''
    Yet the depreciation rates for smart meters are 20 years--the same 
rate for distribution property. Reducing that rate to 5 years, while 
also exploring additional methods of funding this important 
technological transformation will hasten the transition to an efficient 
future.
    The technology revolution is no longer limited to traditional 
utility delivery systems. Our industry is supporting additional 
Congressional funding to research and bring closer to deployment 
technology to make plug-in hybrid vehicles a reality. Plug-ins not only 
enhance energy security options, they offer the potential to utilities 
as a way of evening out demand. Imagine a future when these vehicles 
can charge at night while demand is lower, and send electricity back to 
the grid during the day when demand is high, offering yet another 
source of offsetting the need for new power plants.
    And those overseeing the budget process can ensure that programs 
such as Energy Star, which help provide the tools for increased 
efficiency, and a consumer efficiency education campaign authorized in 
the Energy Policy Act receive the funds to make them work.
    I believe that through the proper architecture, the potential for 
energy savings will bring with it a transformation in how we continue 
to meet the needs of an increasingly electrified economy. The industry 
has embarked on this journey to build the utility of the future and 
with your help, we can achieve this goal sooner rather than later. I 
don't believe we can wait. The combination of environmental pressures, 
new technologies on the horizon and rising electric prices are each 
chapters in a story describing how we can harness the power of a watt 
that is saved. I hope that Congress will take this opportunity to 
expand on the work begun in EPAct 2005 to find valuable mechanisms that 
encourage and expand energy efficiency for decades to come.
    In closing, I believe that electric utilities should have an 
expanded mission. We should be able to provide our customers with 
universal access to a broad range of energy efficiency services and 
technologies. As we work to get the regulatory framework ``right'', we 
will be in the best position to cost effectively Sav-A-Watt. Only then 
will utilities adequately be able to provide this fifth fuel to all.

    Senator Dorgan. Mr. Rogers, thank you very much for being 
with us today. Our final witness today is Kateri Callahan, and 
Kateri is president of the Alliance to Save Energy. As I 
indicated earlier, that's an organization of which all of us 
are very familiar, and we appreciate your being here. We 
appreciate the work the Alliance has done over all these years. 
You may proceed.

 STATEMENT OF KATERI CALLAHAN, PRESIDENT, THE ALLIANCE TO SAVE 
                             ENERGY

    Ms. Callahan. Well thank you, Mr. Chairman, and I would 
like to start by thanking you and Senator Bingaman for all your 
years of service--not just as board members which you currently 
serve on for the Alliance, but also your past chairmanship. I'd 
also like to note that the gentleman to my right, Jim Rogers, 
is the current industry co-chair of the Alliance to Save 
Energy, and we appreciate his leadership as well.
    As we've heard today buildings are a major factor in the 
linked problems of energy prices, national security, and global 
warming, and we've made very great strides in the last 30 years 
in making that built environment more efficient. But there's a 
study that's been done by the National Labs that suggest that 
we still have an opportunity to reduce U.S. energy use in 
residences and in commercial buildings by about 20 percent over 
the next 20-year time span. This is important because what that 
means is, we could essentially reverse the growth and demand 
for energy from that sector of our economy. We believe there 
are several important areas where the Congress and Federal 
Government can help to ensure we meet this very important goal, 
but in the interest of time I'm going to summarize my 20-plus 
pages of testimony and recommendations and just highlight a few 
of those in three areas. First, recommendations for building 
codes; second, utility efficiency programs--and Jim did a good 
job of covering that, so I don't have a lot to add there; and 
finally, the appliance standards. One of the most important 
opportunities for reducing energy use and cost is to design and 
construct the buildings the right way to begin with, and that's 
something Mr. Stewart alluded to earlier.
    As we've heard today there are key decisionmakers in that 
sector that are making bold commitments to energy efficiency in 
buildings. We think that the Congress can support and encourage 
those initiatives with a few specific actions. First, we would 
like Congress to direct DOE to establish a national goal for 
continuous improvement in model-building codes. We're 
suggesting something that's not as aggressive as AIA has in 
place, but a target of 30 percent improvement in efficiency 
within 10 years, and another further 50 percent improvement 
within a 10- to 15-year horizon for both homes and commercial 
buildings.
    Second, while maybe not in the jurisdiction of this 
committee, we would ask Congress to require HUD to immediately 
strengthen the energy-efficiency standards for manufactured 
housing, which is largely bought by those that can least afford 
to pay high energy bills. The HUD code is so antiquated that a 
manufactured home in North Dakota or Minnesota or Alaska only 
has to meet the insulation requirements for a home built in 
Miami, Florida.
    Third, the Federal Government is embarking on a military 
housing program that going to result in construction of about 
185,000 homes for military servicemen and women and there are 
currently no uniform energy standards for those homes. We would 
like Congress to require that such privatized housing units be 
built to be Energy Star home criteria.
    Finally, the Federal Government we believe needs to 
substantially increase its financial commitment to creating the 
technologies and the knowledge that will allow us to get to net 
zero energy buildings in the future. If we invested just the 
equivalent of 12 hours of commercial building energy cost in 
this country, we would generate $135 million, and we think we 
could meet a goal with that of getting to carbon neutral 
buildings in the near future, which is what every one of us is 
striving for here today.
    In the utility industry arena, they have proven to be a 
very important key, as you know, to driving energy efficiency. 
Many utilities, as Jim alluded to, have found that it's 
actually more cost-effective to help their customers to save a 
kilowatt hour than it is to actually generate and deliver that 
kilowatt hour to their customers. A very important mechanism is 
demand-side management program or DSM programs. Over the last 
two decades we've saved the equivalent of 100 power plants by 
putting in place DSM programs. The bad news is that the 
investment in demand-side management programs waned when they 
deregulated--or began to deregulate--the utility industry, and 
still today we have a recovered investment up to the level of 
the mid-1990's.
    To help drive greater utility investment in these programs, 
we would ask that this committee work with the appropriators to 
fund the $25 million program authorized in EPAct to create 
utility State pilot programs that have attached to them an 
annual reduction in electricity and natural gas use. We also 
urge this committee to explore establishment of a Federal 
energy efficiency resource standard or an EERS, which would 
require electric and natural gas utilities to implement energy 
efficiency programs to achieve a specified amount of reduction 
in electricity or natural gas. We want these to be flexible to 
reward utilities in meeting standards. Programs have been set 
up in some of the States that achieve these energy efficiency 
reform and performance standards, most notably in Texas. 
Finally, in the area of appliance standards, these have proven 
to be one of our country's most effective tools in delivering 
energy efficiency, yet they're not fully tapped.
    Right now, thanks to the standards that you all have put in 
place, by 2010 we will save $234 billion in avoided energy 
costs. We have a couple of specific requests for the Congress 
in this area. One is to make sure that you monitor carefully 
DOE's rulemaking process on the overdue standards that are in 
the hopper now, and future products, to ensure that they issue 
the strongest standards that are cost-effective and that they 
do so in a timely manner. Second, we would like you to look at 
adequately funding and updating the Federal appliance standards 
and testing program. Finally, as we work with manufacturers to 
develop consensus standards, we hope that as we bring those 
forward to you later in the year, that you will be able to 
expeditiously enact those into law so we can get to the energy 
savings that they promise as soon as possible.
    So, in conclusion, we've made important strides in the 
building sector, but much more is required, and we believe with 
the policies and tools that we've recommended in our testimony, 
and are highlighted today, that working with you we can get to 
a point where we can essentially reverse the growth in energy 
demand in the built environment in the years ahead. Thank you.
    [The prepared statement of Ms. Callahan follows:]

Prepared Statement of Kateri Callahan, President, The Alliance to Save 
                                 Energy

   BUILDING ENERGY EFFICIENCY AND UTILITY ENERGY-EFFICIENCY PROGRAMS

                              INTRODUCTION

    The Alliance to Save Energy is a bipartisan, nonprofit coalition of 
more than 100 business, government, environmental and consumer leaders. 
The Alliance's mission is to promote energy efficiency worldwide to 
achieve a healthier economy, a cleaner environment, and greater energy 
security. The Alliance, founded in 1977 by Senators Charles Percy and 
Hubert Humphrey, currently enjoys the leadership of Senator Mark Pryor 
as Chairman; Duke Energy CEO Jim Rogers as Co-Chairman; and Senators 
Jeff Bingaman, Byron Dorgan, and Susan Collins along with 
Representatives Ralph Hall, Zach Wamp and Ed Markey, as its Vice-
Chairs. Attached to this testimony are lists of the Alliance's Board of 
Directors and its Associate members.
    The Alliance is pleased to testify at a hearing on policies and 
programs to improve the energy efficiency of buildings, in particular 
by encouraging utility energy-efficiency programs.

         THE POTENTIAL IMPACT OF ENERGY EFFICIENCY IN BUILDINGS

    Natural gas prices have doubled in the last few years, and 
electricity prices also reached all-time highs. Including gasoline as 
well, recent energy price increases cost American families and 
businesses over $300 billion each year. The president recognized energy 
security as a major issue in the State of the Union message. And the 
world's scientists just reaffirmed the urgent need to reduce global 
warming. These problems are not going to go away--electricity use in 
the United States is projected to grow by half by 2030. Such growth 
will lead to higher prices, greater volatility, and increasing 
dependence on foreign natural gas as well as foreign oil.
    Building energy use is a major factor in these linked problems of 
energy prices, energy security, and global warming, and must be a major 
part of their solution. More than one-third of all energy used in the 
United States, and more than two-thirds of electricity, goes to heat, 
cool, and power buildings. Just over half of that is for homes, the 
rest for a wide variety of commercial buildings.
    Great strides have been made in improving the efficiency of 
appliances, heating and cooling systems, equipment, and the building 
envelope (walls, windows, doors, and roofs). At the same time the 
growing size of homes and appliances, and the growth in electronic 
equipment have overwhelmed the efficiency savings. An even greater 
savings potential remains--a 2000 study by several national labs 
estimated that energy-efficiency policies and programs could cost-
effectively reduce U.S. energy use in residential buildings by 20 
percent and in commercial buildings by 18 percent over a 20-year span, 
essentially reversing the growth they projected in building energy use.
    A combination of several policies and programs have made a real 
impact on saving energy in buildings, including appliance standards, 
building energy codes, labeling programs, tax incentives, and research 
and development of new technologies--I will talk about some of these 
later in the testimony. But one of the most effective approaches has 
been utility energy-efficiency programs, and I will start with these.

                   UTILITY ENERGY-EFFICIENCY PROGRAMS

    Why should utilities reduce their sales by helping their customers 
reduce energy consumption? Many utilities have found that helping their 
customers to save a kilowatt-hour of electricity is cheaper and easier 
than generating and delivering that kilowatt-hour. Energy efficiency is 
a key energy resource.
    As California found out in 2001, a slight excess of demand for 
electricity over available supply can cause blackouts, massive price 
spikes, and economic turmoil. Small increases in demand have doubled 
retail natural gas prices nationwide over the last few years, resulting 
in plant shutdowns and home foreclosures. Energy-efficiency programs 
are the cheapest, quickest, and cleanest way to respond to these 
challenges. In California an aggressive campaign reduced peak 
electricity demand by 10% in less than one year, and thus helped avoid 
further shortages.
    These demand-side management (DSM) programs use measures such as 
rebates for efficient appliances, commercial lighting retrofits, and 
energy audits to help their customers use less energy. The cost to the 
utility for the energy savings is often around 2-4 cents per kilowatt-
hour (kWh), much less than the cost of generating and delivering 
electricity. Such efficiency investments save consumers money, increase 
consumer comfort, reduce air pollution and global warming, enhance 
economic competitiveness, and promote energy reliability and security.
    Over the last two decades, states worked with regulated utilities 
to avoid the need for about one hundred 300-Megawatt (MW) power plants. 
However, utility spending on DSM programs nationwide was cut almost in 
half as the electricity industry was partially deregulated in the late 
1990's. In the last couple years there has been a resurgence of 
interest in electricity and natural gas energy-efficiency programs, 
with new programs in states such as Georgia and Arkansas, and added 
funding in leaders like California and Vermont. Some states have also 
chosen to run similar demand reduction programs themselves.*
---------------------------------------------------------------------------
    * Graphic has been retained in committee files.
---------------------------------------------------------------------------
               UTILITY SECTOR ENERGY-EFFICIENCY POLICIES

    Recommendation.--Fund the Energy Efficiency Pilot Program 
authorized in Section 140 of the Energy Policy Act of 2005, and require 
states to consider adopting policies to promote utility energy-
efficiency programs.
    Several major new reports have focused in part on the need for new 
policies to promote utility energy-efficiency programs, including:

   The National Action Plan for Energy Efficiency brought 
        together more than 50 organizations, co-led by Jim Rogers, who 
        joins me on this panel. They seek ``to create a sustainable, 
        aggressive national commitment to energy efficiency through gas 
        and electric utilities, utility regulators, and partner 
        organizations.''
   The Western Governors' Association Clean and Diversified 
        Energy Initiative set an ambitious goal of a 20 percent 
        increase in energy efficiency by 2020 in the West; the Energy 
        Efficiency Task Force Report examines how to achieve it.
   The U.S. Environmental Protection Agency's Clean Energy-
        Environment Guide to Action details many policies and practices 
        states are adopting to manage their energy needs and air 
        quality.
   The Department of Energy, under section 139 of the Energy 
        Policy Act of 2005, was supposed to issue a report last August 
        on state and regional policies that promote utility energy-
        efficiency programs, in consultation with the National 
        Association of Regulatory Utility Commissioners and the 
        National Association of State Energy Officials.

    Together these reports set forth policies needed to help utilities 
create effective energy-efficiency programs. These policies include:
    Adopt energy efficiency goals, requirements, or commitments, with 
reporting on progress and oversight. For example, California conducted 
a study of the potential savings from cost-effective energy-efficiency 
programs in the state, set targets for each of its regulated electric 
and natural gas utilities, required each utility to submit plans to 
meet those targets, and approved $2 billion in funding for the planned 
programs over three years.
    Use energy efficiency as a priority resource when planning to meet 
customer needs. As utilities in some regions plan to build the first 
new generating plants and transmission lines in years, they are showing 
more interest in alternatives. For example, Georgia Power in its most 
recent Integrated Resource Planning (IRP) process agreed to initiate 
the first energy-efficiency programs in a decade.
    Provide robust and stable program funding. Funds can be provided as 
part of utility rates or through a small surcharge on utility bills (a 
public benefits fund or system benefits charge). For example, Wisconsin 
recently increased its public benefit fund and protected it from raids 
to pay for state deficits.
    Set rates to incentivize utilities and customers. Typically 
utilities earn more by selling more energy. It is important to 
``decouple'' utility revenues from sales, or to provide utilities with 
performance incentives for effective energy-efficiency programs, in 
order to align utility benefits with customer benefits. For example, 
Northwest Natural, a natural gas utility in Oregon, has a 
``conservation tariff' that helps it promote energy savings rather than 
sales.
    Carefully evaluate energy-efficiency programs, with measurement and 
verification of energy savings and appropriate cost-effectiveness 
tests, so all stakeholders can rely on the energy savings. For example, 
in Texas savings estimates used to meet the state peak load reduction 
requirements are verified by a contractor to the Public Utility 
Commission of Texas.
    These policies are typically set at a state level, by public 
utility commissions or sometimes by state legislatures. However, as 
there are compelling national interests that cannot easily be addressed 
by individual states, federal action is needed. While most individual 
states are not large enough to affect the shortage of natural gas that 
has driven up prices, concerted federal action could have an impact. In 
addition, the grid failures that blackened much of the Midwest and 
Northeast in 2003 showed that reliability issues are not confined 
within state lines.
    As a focus for federal policy, the energy efficiency resource has 
several advantages:

   It is readily available in all parts of the nation,
   It is available for direct natural gas use as well as for 
        electricity,
   It is cost-effective today, and
   The potential savings are enormous.

    The Senate recognized the potential of utility energy-efficiency 
programs, and the need for a federal role, in its 2005 energy bill. In 
addition to the required report in Section 139, Section 140 authorized 
$5 million a year for five years to create state pilot programs 
designed to achieve 0.75% annual reductions in electricity and natural 
gas use. In the Senate version of the bill, Section 141 would have 
required state public utility commissions to consider policies to 
promote utility energy-efficiency programs. The Alliance urges 
appropriation of funds to implement Section 140, which was enacted, and 
thanks the Senate for including funds in its appropriations bill last 
year. We also strongly support enactment of Section 141. But we believe 
more concerted federal action is needed.

                  ENERGY EFFICIENCY RESOURCE STANDARD

    Recommendation.--Enact a federal energy efficiency resource 
standard for electric and natural gas utility energy-efficiency 
programs, coordinated with any renewable electricity standard.
    Several states are already developing innovative policies to set 
performance standards for utility energy-efficiency programs alongside 
standards for generation from renewable sources.
    Like a renewable portfolio standard (RPS), an energy efficiency 
resource standard (EERS) is a flexible performance-based and market-
based regulatory mechanism to promote use of cost-effective energy 
efficiency as an energy resource. An EERS requires utilities to 
implement energy-efficiency programs sufficient to save a specified 
amount of electricity or natural gas, such as 0.75 percent of the 
previous year's sales. Note that an EERS is not a requirement that the 
utility's sales decrease in absolute terms or a limit on its sales at 
all; it is a performance requirement for the utility's energy-
efficiency programs.
    An EERS gives utilities broad flexibility about how and where to 
achieve the energy savings. Utilities can meet an EERS through the 
kinds of effective demand reduction programs that have been conducted 
in many states for years. They can implement their own programs, hire 
energy service companies or other contractors, or pay other utilities 
to achieve the savings by buying credits. The program savings are 
independently verified. Usually, the costs of the energy-efficiency 
programs must be recovered from energy customers through utility rates, 
but the savings from avoided energy supply are greater than the 
efficiency cost.
    According to the American Council for an Energy-Efficient Economy, 
a national 0.75% EERS would by 2020:

   Save 386 billion kWh of electricity (8 percent of total use) 
        and 3600 billion cubic feet of natural gas (14%) each year,
   Reduce peak electric demand by 124,000 MW (avoiding about 
        400 power plants),
   Save consumers $64 billion (net after investments), and
   Prevent 320 million metric tons of carbon dioxide greenhouse 
        gas emissions each year.

    An EERS and an RPS may be used in combination. Renewable and 
efficiency requirements reinforce each other in several ways in the 
states:

   Texas has separate renewable and efficiency requirements. 
        The efficiency targets focus on peak demand--utilities are 
        required to avoid 10% of the expected increase in electric peak 
        demand through efficiency programs. They have easily exceeded 
        these targets.
   Connecticut added to its RPS a separate tier under which 
        utilities are to save 1 percent of electricity use each year 
        through residential and commercial programs and combined heat 
        and power. Pennsylvania includes energy efficiency with certain 
        other resources in one tier of its alternative energy portfolio 
        standards.
   Hawaii and Nevada added efficiency resources as options in 
        their portfolio standards--with higher overall targets--after 
        utilities claimed to have difficulty meeting renewable targets 
        (Nevada caps the amount efficiency can contribute).
   California has a ``loading order'' that sets efficiency as 
        the preferred resource; once cost-effective efficiency measures 
        have been exhausted, utilities are to use renewable sources, 
        and only then traditional sources. The PUC sets targets for 
        utility energy-efficiency programs based on a study of their 
        potential savings.

    While there are many ways to structure an EERS, here is one 
approach. The EERS would apply to utilities that distribute either 
electricity or natural gas. Distribution utilities are regulated even 
in restructured markets. A size cutoff excludes very small utilities.
    The EERS would have savings targets that ramp up to require new 
electricity savings each year equivalent to 0.75% of utility sales, and 
natural gas savings equivalent to 0.5% of sales. The best state energy-
efficiency programs currently meet these targets.
    Utilities would be allowed to achieve the required savings through 
a combination of customer energy-efficiency programs, customer combined 
heat and power, and reducing energy losses in the distribution system. 
Utilities also could be allowed to buy credits from other utilities, 
other companies with similar energy-efficiency programs, or the 
government. Any funds the government collects could then be reserved 
for state energy-efficiency programs.
    The Department of Energy (DOE) would be required to issue 
regulations on eligible measures and on how to count the savings. 
States would be given the option to verify and enforce compliance or to 
have DOE assure compliance. Funding for the required programs would be 
generated from a small surcharge on utility bills, under state 
regulation. Under this proposed approach, it will be most important for 
states to set rates in a way that utilities are not financially 
penalized for reduced sales due to effective energy-efficiency 
programs.

                 APPLIANCE ENERGY-EFFICIENCY STANDARDS

    Recommendations for appliance efficiency standards.--Strengthen 
appliance efficiency standards by:

          (1) adopting additional standards based on negotiated 
        agreements,
          (2) directing DOE regularly to review and update both test 
        methods and standards to keep pace with rapidly changing 
        technology, with accelerated consideration of the products with 
        the greatest energy savings,
          (3) clarifying DOE's authority to set standards that best 
        serve the public interest, including multiple specifications 
        for a single product, and regional standards,
          (4) clarifying that federal preemption does not apply to 
        products for which there is no federal standard, and
          (5) providing adequate and stable funding for the DOE 
        program.

    Appliance standards have been one of the most effective energy-
efficiency programs. Standards in place today are expected to save 7 
percent of U.S. electricity use and reduce greenhouse gas emissions by 
65 million metric tons by 2010, and are expected to save consumers $234 
billion (this is net savings--after repaying any increased first-cost 
for more efficient appliances). Energy efficiency advocates and states 
have identified at least 15 appliance types with significant energy 
savings opportunities but no federal efficiency standards at present. 
Adopting efficiency standards for these 15 products alone could save 52 
TWh of electricity and 340 billion cubic feet of natural gas annually 
by 2020, and save consumers $54 billion in energy costs between now and 
2030. Even more could be saved by updating existing federal standards.
    In recent years the Alliance and other energy-efficiency advocates 
have focused much of our attention on lengthy delays and lack of 
progress at DOE in setting required appliance standards. Due to a 
provision in EPAct 2005--and a lawsuit--last year DOE set an explicit 
schedule for appliance standard rulemakings, which was later adopted in 
a court order. So far, they have met that schedule. However, the two 
new DOE-proposed standards (on distribution transformers and 
residential furnaces) were far weaker than we and many others believe 
is required by federal law, justified by DOE's own data and analysis, 
and needed in order to meet the energy needs of our nation.
    We urge you to monitor carefully both DOE's adherence to its 
regulatory schedule and the actual outcome of the rulemaking process. 
In addition, Congress should take additional steps to strengthen the 
federal appliance standards and testing program and assure that it is 
adequately funded.
    First, since EPAct 2005 we have reached additional consensus 
agreements with product manufacturers on new and updated standards. DOE 
believes it does not have the authority to adopt one of them, for 
residential boilers. In addition, efficiency advocates and industry 
groups are currently in negotiations on several other products. We urge 
Congress to act promptly to enact into law all negotiated agreements 
that are reached.
    Second, at present, there is no requirement for DOE regularly to 
review and update all existing standards and test procedures. The 
existing law does require a limited number of reviews for some 
products, but subsequent reviews are discretionary. In addition, 
Congress should establish a general requirement for periodic review of 
all standards and test procedures every 5 to 7 years, updating them if 
justified, and should provide funding for DOE to maintain this 
schedule. In particular, DOE test methods for a number of products are 
seriously lagging the pace of technology development, thus preventing 
effective standards for those products (examples include tankless water 
heaters, products that use standby power even when turned ``off,'' and 
many appliances with advanced electronic controls). If DOE fails to 
keep its standards up-to-date, Congress should consider allowing states 
to act to limit the demands on their energy systems from those 
products.
    In addition, DOE has limited its schedule for setting appliance 
standards to congressionally mandated rulemakings with a date certain. 
This narrow approach has delayed consideration of some standards with 
the greatest potential energy savings. For example, DOE has identified 
furnace fans and residential refrigerators as two product standards 
that offer the potential for very large energy savings, but the agency 
has yet to even schedule these rulemakings. Congress should direct DOE 
to begin these two important rulemakings as soon as possible and to 
complete them no later than 2011.
    Third, Congress should allow DOE to consider alternative approaches 
in setting appliance standards where these better serve the intent of 
the law: to maximize cost-effective energy savings. We offer several 
examples:

   DOE has taken a very narrow view of the statutory language 
        regarding standards it can set. Congress should clarify that 
        DOE may include two or more specifications for different 
        features of the product that all contribute to energy 
        efficiency. One example is the authority for DOE to set 
        standards for air conditioners in terms of both average 
        efficiency, which reduces consumer bills, and performance 
        during the hottest summer days, which provides added benefit by 
        easing the strain on electric utility systems during peak 
        demand periods. A second example is the ability to set 
        efficiency requirements for both direct electricity use and 
        consumption of (heated) water in the case of a dishwasher or 
        clothes washer.
   Congress should explicitly authorize DOE to set regionally-
        appropriate appliance standards for climate-sensitive products 
        such as furnaces, boilers, air conditioners, and heat pumps, 
        since regional weather conditions can significantly affect the 
        feasibility or cost-effectiveness of a given technology or 
        efficiency measure. In addition, in northern states colder 
        inlet water temperatures can greatly reduce the capacity (but 
        not the efficiency) of certain classes of water heaters, and 
        also affect the cost-effectiveness of some efficiency measures. 
        The implications of these regional factors for truly comparable 
        water heater ratings should be studied by DOE.
   In addition, expedited procedures for consideration of 
        consensus standards proposed to DOE may speed up adoption of 
        non-controversial standards.

    Finally, Congress should make it clear that federal law does not 
preempt states from setting their own appliance standards, in the 
absence of a federal standard in place. This principle has generally 
been upheld in interpretation of the federal appliance standards laws, 
but in some cases it has been argued that the mere authority for DOE to 
set standards should preempt the states, even if DOE fails to exercise 
that authority. If DOE fails to act, or if it establishes a ``no 
standard'' federal standard, a state should be able to adopt its own 
energy-saving standards for that product.

                         BUILDING ENERGY CODES

    One of the most important opportunities for reducing energy use and 
costs is by designing and constructing a new building to be energy-
efficient from the start. Every new building that is not efficient 
represents a lost opportunity--one that will likely be with us for 
another 30-50 years or longer, a time frame that will almost certainly 
see much higher prices and much more intense concern over energy 
supplies, air pollution, and greenhouse gas emissions.
    There is cause for optimism in the growing interest shown by 
builders and developers in green buildings and rating systems such as 
the U.S. Green Building Council's LEED; the bold new policy commitments 
to energy efficiency targets by the American Society of Heating, 
Refrigerating and Air-Conditioning Engineers (ASHRAE), the American 
Institute of Architects, and the U.S. Conference of Mayors; and the 
federal government's own commitment (in EPAct 2005) to design new 
federal buildings to be 30% more efficient than current practice. But a 
great deal of work remains to be done. Congress can support and 
encourage these broader initiatives with specific actions that take 
best advantage of federal leverage in building codes and federal 
financing for home mortgages.
    Recommendations for assisting state energy-efficient building 
codes.--

          (1) Congress should direct DOE to support a process of 
        continuous improvement in the model energy codes for both 
        residential and commercial buildings, targeting a 30 percent 
        reduction in new building energy use beginning in 5 years and 
        50 percent savings within 10-15 years.
          (2) To make sure that energy codes are not just a paper 
        exercise, Congress should fully fund the programs for state 
        code compliance and training authorized in Section 128 of the 
        Energy Policy Act of 2005.

    Present law requires that DOE review any updates in residential or 
commercial model building codes, to determine if the revision improves 
energy efficiency. Following that determination, each state is required 
to review and, for commercial buildings, update its own building code 
to meet or exceed the model code. However, there is no penalty for a 
state that fails to comply.
    Two changes are needed. First, DOE should set a goal for continuous 
improvement of the model building codes. Rather than wait passively for 
action by others, DOE should instead take the initiative to engage with 
organizations such as ASHRAE and the International Code Council to 
advance the model codes steadily toward specific targets: 30 percent 
efficiency improvement beginning in 5 years, for both residential and 
commercial model codes, and at least 50 percent improvement in 10-15 
years or less. ASHRAE has already adopted a similar goal, but there is 
no similar urgency for residential buildings, and it is hard to move 
diverse, consensus-based organizations to take ambitious action. DOE 
support is needed both for technical underpinnings and to represent the 
national interest in reduced energy use and greenhouse gas emissions.
    Second, the federal government should adopt stronger incentives to 
assure state action in updating and achieving full compliance with the 
energy codes. States should be required to adopt strong codes for 
residential as well as commercial buildings. And in a recent review of 
residential energy code compliance studies from a dozen states, 
compliance rates were found to vary widely, but the average was far 
below 100 percent, and typically closer to 40 to 60 percent. A number 
of studies have pointed to the constraints, including staff time and 
expertise, facing many local code enforcement agencies in making sure 
that energy code requirements are met, both at the design and permit 
stage, and in verifying actual construction and installation practices 
on-site.
    The code compliance program authorized under Section 128 of EPAct 
2005 is a small but important step toward providing an incentive for 
states to adopt and enforce up-to-date energy codes; it should be fully 
funded. In addition, DOE has not made the required determination of 
energy savings on any recent code updates: the 2003, 2004, or 2006 
residential IECC or the 2001 or 2004 ASHRAE commercial standard. 
Congressional oversight is needed to ensure DOE meets its important 
duty.
    Recommendations for federal standards for manufactured homes and 
buildings funded by the federal government.--

          (1) Congress should require HUD to strengthen the national 
        energy efficiency standards for manufactured housing to the 
        same levels required by the model building code for site-built 
        homes.
          (2) Congress should require that federally insured mortgages 
        be available only for homes that meet or exceed model energy 
        efficiency codes.
          (3) Congress should require that all DoD Privatized Military 
        Housing not yet constructed be designed to meet or exceed the 
        current efficiency levels for an Energy Star home.

    About one in 12 new homes in the United States is a manufactured 
housing unit (147 million in 2005). Because these homes are factory-
produced with many standardized components, manufactured housing units 
should be inherently more energy-efficient than their site-built 
counterparts. For example, it is much easier and more cost-effective to 
achieve an air-tight duct system in the factory than on a construction 
site. Instead, manufactured homes are generally much less efficient 
than site-built homes, due to poorly insulated walls and roof, single-
pane windows, and inefficient heating and cooling systems. A 2004 
Pacific Northwest National Laboratory report found that improving the 
energy efficiency of a manufactured home, not even to the current IECC, 
would save an average of $150-$180 per year. The initial cost would be 
about $1,000 to $1,500.
    Congress directed that the manufactured housing efficiency 
standards be based on life-cycle cost analysis, but HUD, which is 
responsible for adopting the Manufactured Housing Construction and 
Safety Standards (MHCSS), has not updated these standards to keep up 
with changing energy prices and advances in energy-saving materials and 
equipment. As a result, the ``HUD-code'' standards are now well below 
the comparable energy efficiency code requirements for new site-built 
homes. For example, a new manufactured home built for Minnesota today 
is required to have only as much wall insulation as a site-built home 
in Miami--and the ceiling and floor insulation levels required by HUD 
code for that Minnesota manufactured home wouldn't even meet the site-
built model code requirements for Miami.
    Many of these manufactured units are sold to low and moderate 
income families--those who can least afford to pay the rising utility 
bills for gas, electricity, and in some cases propane heating. And 
often taxpayers end up subsidizing the ongoing costs to operate these 
inefficient housing units through the Low-Income Home Energy Assistance 
Program (LIHEAP) or through the Low-Income Weatherization Assistance 
Program, which helps pay for energy-saving retrofits. It is far easier 
and cheaper to make these manufactured homes more efficient in the 
first place.
    To qualify for a federally insured mortgage, a new home should be 
required to meet or exceed the efficiency levels of the model energy 
code (currently the 2006 IECC). This will assure that federal taxpayer 
funds are not used to underwrite inefficient new homes with higher 
utility bills--a different kind of hidden, long-term ``mortgage.'' 
Updated standards would affect a lot of housing: a 2003 U.S. Census 
Bureau survey found, for homes constructed in the previous four years, 
486,000 FHA mortgages, 225,000 VA mortgages, 29,000 USDA mortgages, and 
38,000 public housing units.
    Current law requires HUD and the Department of Agriculture (USDA) 
to set energy-efficiency standards for:

   Public and assisted housing,
   New homes (other than manufactured homes) with mortgages 
        insured by the Veterans Administration and Federal Housing 
        Administration, and
   New single-family homes with mortgages insured, guaranteed 
        or made by USDA.

    However, the agencies have never changed the standard from the 
legislated backstop of the 1992 Model Energy Code (the predecessor to 
the IECC) and ASHRAE Standard 90.1-1989. EPAct 2005 only required 
public and assisted housing with HOPE VI grants to meet the 2003 IECC.
    In order to move military service members and their families out of 
outdated housing units, Congress authorized the Department of Defense 
(DoD) to enter financial partnerships with builders to construct an 
estimated 185,000 homes using joint funding. DoD is leasing the homes 
for up to 50 years, and will pay the energy bills through utility 
allowances to the military personnel. DoD imposes many standards on 
these units, and energy efficiency criteria are established for some 
projects, but there are no uniform energy standards applied to all 
Privatized Housing projects.
    If these homes are built to ENERGY STAR Homes criteria, each 
military family--and ultimately the federal taxpayers--will save an 
average of $300 a year in energy bills. The added initial cost of 
Energy Star homes is about $1,500 to $3,000.
                    energy efficiency tax incentives
    Recommendation for energy-efficiency tax incentives.--Provide long-
term extensions, with improvements, of tax incentives for highly 
efficient new homes, home improvements, commercial buildings, and 
appliances.
    Other important measures to save electricity and natural gas are 
outside the jurisdiction of this committee. But the Alliance will not 
let an opportunity go by to emphasize the importance of extending and 
building on the tax incentives for energy-efficient new homes, home 
improvements and heating and cooling equipment, commercial buildings, 
and appliances that were in EPAct 2005. These incentives have great 
potential to transform markets for energy-efficient technologies, but 
they are in effect for too short a time. A large commercial building 
initiated when the bill was signed last August will not be finished 
before the commercial buildings deduction was set to expire in 
December, 2007. While it was extended late last year, a building 
initiated now could not be finished before the new expiration date in 
2008. The Alliance strongly supports long-term extensions of the tax 
incentives, with some improvements that have been worked out with other 
stakeholders--notably a performance-based incentive for whole-home 
energy-efficiency retrofits that picks up where the current home 
improvements credit leaves off.

           INCREASING ENERGY EFFICIENCY IN FEDERAL FACILITIES

    When working to address inefficient energy use, the federal 
government needs to look no further than its own buildings to start 
reducing wasteful energy consumption. The Alliance to Save Energy 
estimates that the federal government wastes one billion dollars a year 
in its buildings alone through inefficient energy use. This occurs 
despite long-standing executive orders and federal legislation. The 
problem is three-fold:

   The federal agencies do not have sufficient appropriations 
        to make the necessary upgrades to reduce building energy use. 
        Because of this historical problem, the unique Energy Savings 
        Performance Contracts (ESPC) were created. With an ESPC, a 
        federal agency can contract with a private energy service 
        company to have the facility efficiency improved without any 
        up-front cost to the federal taxpayer because the contractor 
        pays the initial cost and is repaid out of guaranteed energy 
        savings provided by the improvements. Unfortunately, this 
        program authority lapsed in 2003-2004, and, while now 
        reinstated, agencies are not taking full advantage of these 
        contracts, leaving needed improvements lingering.
   The federal agencies do not have adequate oversight and 
        pressure to meet their statutory energy saving goals. While the 
        federal agencies are required by law to reduce their energy 
        use, they are not held to task by the White House or by 
        Congress. The missions of the agency are always paramount; 
        however, a concerted commitment from the President and his 
        cabinet is needed so that the agencies will place enough focus 
        and priority on achieving energy savings in their facilities.
   The Department of Energy's Federal Energy Management Program 
        (FEMP) is the primary resource for federal agencies to turn to 
        for technical guidance and assistance with energy improvements. 
        Unfortunately, the FEMP program continues to receive funding 
        cuts although its mission and responsibilities were increased 
        in EPAct 2005. Congress and the administration need to 
        recognize the benefits of FEMP and provide the much needed 
        funding increases.

 TECHNOLOGIES AND INTEGRATED SYSTEMS FOR LOW-ENERGY, HIGH-PERFORMANCE 
                               BUILDINGS

    Recommendation for a buildings RD&D program.--Establish and fund a 
program to develop and establish in the market net-zero energy 
buildings, with an emphasis on commercial buildings.
    To create the technology and knowledge base needed to achieve the 
long-term goal of net-zero energy (``carbon-neutral'') buildings, the 
federal government needs to make a substantially greater commitment--in 
close partnership with states, utilities, and the private sector--to a 
comprehensive, multi-year program to transform building technologies 
and practices. This transformation must go well beyond individual 
technical measures to include a design process that integrates 
sustainability from the start, and effective means of managing 
construction and building operation to assure continued high 
performance over the lifetime of the building and systems.
    The need is especially acute in the commercial buildings sector, 
where the challenge of maintaining performance, comfort, occupant 
health, and amenities while radically reducing energy consumption or 
significantly increasing costs is even greater than for smaller 
residential buildings. Yet it is ``net-zero energy homes'' rather than 
commercial buildings which have received the lion's share of funding 
and program attention to date by DOE, utility and state programs, and 
private partnerships.
    Investing 1/10 of one percent of the $135 billion in annual energy 
costs for all U.S. commercial buildings would represent a substantial 
increase over the current federal efforts by DOE and all other 
agencies. But this is the equivalent of less than a half-day (12 hours) 
of energy costs for the nation's commercial building stock--a 
reasonable price to assure that we really have the technology to cut 
energy use by more than half over the next two decades. To be 
effective, these funds would need to be directed toward a well-
orchestrated plan to address innovation in technology and practices, 
strategic and well-monitored demonstrations of these new methods, and 
paths to effective large-scale deployment in new and existing 
commercial buildings.
    Such an integrated strategy requires careful preparation and broad 
engagement of the building industry, the design professions, financial 
institutions, government policy-makers, and private owners and 
developers. There is growing interest in sustainable design but the 
industry is fragmented, risk averse, and driven largely by short term 
economic interests. By itself the federal government cannot create the 
needed technologies, nor force the market to accept them. But it can 
and should be the catalyst in partnering with industry, states, and 
utilities for these essential steps.

                               CONCLUSION

    The Energy Policy Act of 2005 included some important measures to 
reduce building energy use, including new appliance standards and tax 
incentives. But, while helpful, they were not aggressive enough to 
address the critical energy issues facing our nation. In the last year 
and a half, concern about the linked issues of energy prices, energy 
security, and global warming has only grown. There are measures we 
could and should take, such as consumer education, that would have an 
immediate impact. But polls also show that a large majority of 
Americans are rightly more concerned that Congress find long-term 
energy solutions than that Congress quickly address current prices. 
There is an opportunity now to enact significant energy-efficiency 
measures that will benefit the economy, the environment, and energy 
security for years to come. The buildings being designed and 
constructed today will determine our energy use for decades to come. 
The Alliance urges you to seize the opportunity to reduce energy waste, 
supply shortages, price volatility, pollution, and global warming, to 
transform energy crises into economic opportunities.

    Senator Dorgan. Ms. Callahan, thank you very much. I know 
that the Chairman of the full committee, Senator Bingaman, has 
to leave so I want to call on him for questions first, so that 
he's able to ask them prior to his departure.
    The Chairman. Thank you very much, Mr. Chairman. I thank 
all the witnesses for the excellent testimony.
    Let me ask Jim Rogers if I could, just about something that 
Kateri has in her testimony here. You say in your written 
testimony that we should set rates to incentivize utilities and 
customers, and then you go on to say typically utilities earn 
more by selling more energy. It's important to decouple utility 
revenues from sales or to provide utilities with performance 
incentives for effective energy efficiency programs, in order 
to align utility benefits with customer benefits. For example 
Northwest Natural, a natural gas utility in Oregon, has a 
conservation tariff that helps it promote energy savings rather 
than sales.
    It seems to me that utilities are in the best position to 
encourage and help consumers to save energy, and one of our big 
problems is this exact one here, which is that for utilities to 
do that under the current rates that are in place in most 
States, it's a way of cutting their revenue. We have got to 
figure out a way to deal with that. I wonder what you think 
Congress or the Federal Government or any of us could do, to 
encourage these rates to be rewritten, so that there's a 
coincidence of interest between the utility and the consumer in 
saving energy.
    Mr. Rogers. Thank you, Senator. There are several ways to 
approach this. First of all, California's the only State that's 
actually decoupled earnings from sales on the electric side. 
There's been a movement across the country with gas 
distribution companies to do the decoupling. I think that has 
occurred in seven to eight States. In fact, in Ohio and North 
Carolina for the gas distribution companies they have 
considered that, so decoupling is one way. I think there are 
many ways for this to happen and from a congressional 
standpoint, I think it would be very important to encourage the 
States--specifically the State utilities who have the primary 
jurisdiction over this--to address the regulatory model and ask 
them to report back to Congress after a specified period of 
time and report on how they are addressing the issue. It's 
primarily tied up and related to the charter of electric 
utility within the State.
    I firmly believe, as I said in my testimony, that utilities 
have a relationship with the customer. They have a lower cost 
of capital than most of their customers. They're used to 
payback periods of 15, 20 and 30 years--most businesses require 
paybacks of 3 to 5 years--and most importantly, they're in a 
position to be able to provide universal access to energy 
efficiency whether you're rich or poor, or on fixed income, low 
income, whether you are a big business or a small business. I 
think it's critical that utilities provide that universal 
access in the same way they provide access to electricity 
today. The way I think about it is that we get paid for 
producing megawatts, so we should also get paid for creating 
``Sav-A Watts''. I think that we can get that done, but it's in 
the State utility commissions where it has to get done, and I 
think that would lead to a significant increase in energy 
efficiency.
    The last thing I would say, and I think is important, I 
just learned the other night having dinner with my energy 
efficiency team. They said that mainly energy prices, when they 
survey customers, are in back of mind, not top of mind. To get 
customers to make choices about energy efficiency, you often 
have to move it to top of mind, and because cell phone bills 
and cable bills are usually much higher than electric bills, 
it's hard to move it to top of mind, but one of my team said 
something that was really eye-opening to me. He said maybe what 
we ought to do is push it further to back of mind, and the 
thought here is to change our concept of standard service. 
Today to go to a green tariff, or use energy efficiency 
programs, customers have to elect into it. Maybe to change the 
paradigm is that our standard service becomes the green service 
and the one with the devices to control their energy and they 
have to default out of that standard service into what today is 
our standard service, so just that change could translate into 
dramatic change in the utilization of new technology in the 
energy efficiency area.
    The Chairman. Since I've got 1 second left, right, or I did 
when I started to talk: let me just ask what's your reaction to 
this energy efficiency resource standard idea? Should we be 
adopting a Federal energy efficiency resource standard as 
Kateri recommends?
    Mr. Rogers. I think it's a good idea but it wouldn't be the 
first thing I would focus on. I think within the concept of 
renewable portfolio standards because different parts of the 
country have different generation mixes, I think an energy 
efficiency requirement, not so much a requirement, because a 
requirement said in itself are difficult. Some parts of the 
country are growing 6 percent; other parts are growing at 1 
percent; some are having decline in demand. I think the 
important thing is to get it right at the State level and then 
make sure at any national portfolio standard, we include 
conservation as something that you could do to hit your goals. 
Then over time Kateri's idea ought to be reviewed and analyzed 
and looked at closer, but I think it's a series of things that 
need to get done, and my only difference with Kateri's is the 
order.
    Ms. Callahan. Senator, can I take 1 second of your time to 
add something? It was too difficult to try and summarize in the 
statements, but we were asking that you explore energy 
efficiency resource performance standards. I also just want to 
say that to be something you look at, renewable portfolios 
standards, as Jim mentioned. We'd like to see energy efficiency 
to be considered as one of those resources that allow you to 
comply. That is an approach that has been taken by a number of 
different States--probably most notably Pennsylvania and 
Nevada--but that is something that we would like you to 
consider as you may move forward with an RPS.
    The Chairman. Thank you.
    Senator Dorgan. Senator Bingaman, thank you and thank you 
for joining us today.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. I appreciate 
the testimony of all of you here today. I think it's been very, 
very helpful and very interesting.
    You mentioned, Mr. Rogers, in order to bring it to front of 
mind, you have to pull it back up. Well, I can say in Alaska, 
we're paying $4 a gallon. Actually, I was talking to a 
constituent this afternoon and I've got some villages up north 
that weren't able to get the diesel into their communities this 
winter because of low rivers, and they're paying $8-plus. It's 
a tough winter for them out there, so it's definitely front and 
center in their minds, but it brings me to the issue of cost. 
We all want to think we are being more efficient but boy, that 
expensive hot water heater or the technology I have to put in, 
it doesn't make any difference if it's in a commercial building 
or into a residential building, it really does come down to the 
cost aspect.
    Mr. Stewart, I want to start off with you. You had some 
very interesting statistics, and I think some very ambitious 
goals as to how we get there, but you do acknowledge that we've 
got an impediment to energy efficiency based on the perceived 
cost. How do we let people know that you might be paying up 
front but your savings overall--as we saw with Wal-Mart--can be 
recouped, and in relatively short order? How much counseling, 
if you will, do you give to those in both the private and 
public sector to encourage the right move?
    Mr. Stewart. Thank you, Senator. That really is one of the 
biggest impediments we do have. What we find is that most 
clients for the policies--and it's prevalent in the private 
sector, as it's typical mandated in the governmental sectors--
differentiate between capital expenditures and operations and 
maintenance budgets. So while we're working with the design 
team to initially build the building, the first cost issues and 
then the long-term tail of 30-, 
40-, 50-year life of the building and its energy use doesn't 
come into play. The folks who are overseeing the production to 
the building up front aren't really paying attention and often 
times the folks who will be running the building aren't at the 
table with us as we're doing the design work. So, I think that 
one of the educational things that we all need to undertake is 
to understand it's that long-term life of the building, not the 
little part that we do up front and the design exercise, that 
has the biggest impact.
    Senator Murkowski. Mr. Zimmerman, from Wal-Mart's 
perspective, you've looked at that long-term picture, and as a 
company you've made a decision that you're going to invest up 
front to save later. You mention that you were giving tours to 
some of the other companies in the business. Is it you being a 
leader that's making a difference, or are we still going to be 
struggling with the reality that the capital construction costs 
just don't allow for this new technology to come into play?
    Mr. Zimmerman. You know I'd like to say that the message is 
getting out there, but I'm not quite sure it is. A lot of the 
people, as Mr. Stewart mentioned, involved in the core 
business, the facility managers, the energy managers, they know 
that these investments result in immediate positive cash-flow. 
I've actually had them come to me, like from some of our retail 
competitors, and say, ``Would you share your message with our 
CEO, because we can't convince them.'' So the message is 
getting to one level of the organizations, but not necessarily 
to the other. But these paybacks are so phenomenal, it's just 
mind-boggling that it isn't catching on quicker than it should.
    Senator Murkowski. And how do we do it at the residential 
level? Mr. Hebert and Mr. Christianson, from two different 
States--here both northern States--where are you struggling 
with this? How do we convince the consumer who's either 
building a new home or looking to do some remodeling that 
they're going to be saving money here, Jack?
    Mr. Hebert. We have a little different situation in Alaska 
because as I believe we're different than the rest of the 
Nation. Most of our electric companies are cooperatives owned 
by the members, so in our case the electric cooperative--rather 
than build a new power plant because of increased consumption--
it's a better investment for them to have incentives to the 
builders and the homeowners to use less energy. For instance, 
Golden Valley Electric in Fairbanks has a program called 
Builder Sense''. You get a credit; your customer will get a 
credit off of their future electric bills for any electric 
fixture that's put in that is highly energy efficient, as 
simple as a fluorescent rather than an incandescent light. It's 
$25 dollars a fixture. So in the end when you sell that home to 
your customer, they don't have an electric bill for a couple of 
years.
    The other piece that Golden Valley Electric is doing is 
they have a program that we call SNAP. It was developed by a 
green power group of citizens--sustainable, natural alternative 
power--and we're trying to embed these systems into the house 
so that the house is actually producing electricity when it 
can. For example, on the photovoltaic side, even though there's 
3 months of the year where our photovoltaic energy isn't high, 
if you embed photovoltaic systems in the house, you can sell 
back the energy for a credit to the electric cooperatives, so 
that in the months that you don't produce electricity you get 
that credited back. It's this cooperation thing.
    Senator Murkowski. My time is up, but Mr. Christianson, did 
you want to add anything?
    Mr. Christianson. Just very briefly, I mentioned that that 
obviously is a key issue, especially with new housing 
construction. I have friends actually building a house right 
now, and they did decide to put a ground source heat pump 
system into their home, even though the capital cost was 
significantly higher than a regular high efficiency gas system. 
They plan on staying in that house for a length of time, and 
they'll see the payback on that over the time that they're in 
the home. What we are doing is trying to work closely with the 
utility companies in the State to provide an educational 
program to prospective homeowners.
    Senator Murkowski. Thank you. Mr. Chairman.
    Senator Dorgan. Senator Murkowski, thank you very much. 
First of all, let me thank all of you. I think you've all 
contributed to an interesting discussion about the issue of 
efficiency. Efficiency is always regulated, or generally 
speaking ``regulated'' is something of lesser importance than 
production and some of the other enterprises, but I think 
you've brought an interesting perspective to us.
    A couple of things, Mr. Zimmerman. Your testimony is very 
interesting, and what your testimony seemed to say is that it 
made good business sense to do what you're doing. You talked 
about a payback of less than 2 years. If that is the experience 
of your business, why is that not the experience of all 
business who might look at these issues--to say it's a very 
quick payback in our business with respect to energy efficiency 
methodology?
    Mr. Zimmerman. Well, as I talked to a lot of our 
competitors, they know within the facilities group, the 
engineering groups, that those paybacks are achievable; they 
just have a very hard time freeing up the first cost capital 
from their senior executives. It's just the fact that most 
building enterprises are so focused on first cost the paybacks 
just really don't enter into the discussion, unfortunately.
    Senator Dorgan. You're showing them how but you're not 
loaning them the money.
    [Laughter.]
    Mr. Zimmerman. But we are sharing with them the vendors 
we're using, and the real-life experiences, to hopefully convey 
that this isn't just theory.
    Senator Dorgan. But I think the point you've made today is 
a very important point. If in fact there is a relatively short-
term payback for these efficiency strategies and technologies, 
there ought to be ways for us to tip the balance, even with 
just some minor incentives. A number of us have disagreements 
with the marketing strategies of Wal-Mart--you're familiar with 
all that national debate--but there's no question that Wal-Mart 
is an unbelievable merchandiser and a very savvy business 
competitor. If you, with that savvy judgment, can take a look 
at efficiency and say, ``This makes good business sense for us. 
This not only justifies the investment. This compels the 
investment because of the short-term payback,'' it ought to be 
a lesson for others in terms of what they can do and what they 
should do, looking at efficiency. So your message today is very 
helpful.
    Mr. Zimmerman. Well, Mr. Rogers and Edison Electric 
Institute had me as their speaker to their major customer 
forum, I think it was called, where the La Quinta's, the 
Marriott's, the Walgreen's--all of those major users were 
there. That's where I was approached by so many of them saying 
if only our CEO's could hear this message.
    Senator Dorgan. Let me ask Mr. Rogers a question, because 
in some ways it's counterintuitive. I think you've already 
answered the question, but I want you to answer it again. 
Here's a company that makes money presumably with every 
kilowatt hour of electricity you sell. Why is it in your 
interest to suggest people use less or purchase less from you?
    Mr. Rogers. Well, I think there are a couple of reasons 
that make sense. When we look at the growth and demand in this 
country, the demand for electricity is going to be up 50 
percent--some are projecting by 2030. When we look at this 
tremendous growth and demand, you have to have the mindset that 
energy efficiency is a fifth fuel. You need to use it, and when 
we do our planning to meet that demand, we use it as a fifth 
fuel. But I think this discussion that I've been listening to 
really makes the point that that is the business we should be 
in. For instance, if you have 3 million customers, then you 
have the capability to put a device in a refrigerator and turn 
it off for 2 hours for the peak time or to recycle an air 
conditioner for 2, 3 hours, and you can do that across your 
system. It would have a dramatic impact on the amount of power 
you would need during that peak period. That's an example of 
getting major buy-in by all the residential customers, because 
the peakiest part of our load is residential. You talk about 
making investments, it's a natural thing. Our company has a 
capital program where we'll spend over $10 billion in the next 
3 years.
    For us to invest that money in energy efficiency 
investments, in homes and in businesses, is an extension of 
what we do today. I think that if we get the rules right and we 
go down that road, when somebody has discretionary income of 
$300--will they go put a device in their refrigerator or will 
they put a device to recycle their air conditioning? Probably 
not, but if we as a supplier are prepared to spend that $300 
and put those devices in, I think that's where our role with 
our customer can make a difference.
    I also have found in our customer surveys that our 
customers are happier and more satisfied with us when we're 
also delivering ways for them to reduce their usage. So to stay 
in business, you need customers that are satisfied with what 
you're doing. This natural extension of what we do today will 
translate into more satisfied consumers in the future, and will 
help us achieve national goals, both energy and environmental 
goals.
    Senator Dorgan. So there's actually--and I don't say this 
in a pejorative way--but there's actually a commercial side to 
efficiency from your standpoint. There are technologies that 
you can market to customers.
    Let me ask you a question about the future. Is there a 
future in which at some point a customer, any customer of 
yours, perhaps can take a look at what is the temperature in 
these three rooms? I left the lights on in these two rooms and 
using a computer, turn the temperature down in those areas of 
the home, those zones and turn the lights off? There was a 
little company in Fargo, North Dakota called Beathome.com--and 
they were so successful, of course, they were purchased by 
another company--but the point of it was, that they use sensors 
in a home in a very sophisticated way to maintain the electric 
usage and the HVAC system. I was really impressed. I have no 
idea what it costs, but my guess is that at some point in the 
future virtually every home will give every homeowner an 
opportunity to go to a computer anywhere and turn down the 
temperature in their home. Is that something that you see?
    Mr. Rogers. That technology is available, actually. There's 
a little company in California called DUS that is developing 
the sensors that can be used to help pick up and send the 
signal. The other thing that's going on, in addition to this 
development technology: we've changed how we think about our 
meters. We view our meters as really computers, and in a sense 
they have the ability to do two-way communication--whether it's 
through the internet or through the broadband over the power 
line. So the sooner we can create these communication channels, 
the better able you would be able to control your energy use.
    Senator Dorgan. Thank you. Mr. Christianson, the President 
has recommended some budget cuts in the programs you talked 
about, especially in your State Energy Program--the SEP--and 
the weatherization program. You're involved in both of those. 
Also there are budget cuts in LIHEAP, which is a different 
program to help low income folks. I assume that your 
organization for whom you testify today is not supportive of 
those budget cuts in weatherization and the State Energy 
Programs. Is that a correct assumption?
    Mr. Christianson. That would be correct, yes.
    Senator Dorgan. And why do you not support the budget cuts?
    Mr. Christianson. Well, we feel that with both programs 
again we've used those programs as kind of the foundation of 
our efficiency efforts in our State. We leverage a great deal 
of other money through those programs and we've done a variety 
of very innovative and successful efficiency efforts with 
those. The weatherization program: we weatherized about 1,300 
homes per year in North Dakota, and obviously with our climate 
there for those low-income residents that's extremely 
important.
    Senator Dorgan. But it is a contribution to efficiency. I 
mean I've been to the sites where weatherization is taking 
place. It seems to me to be an enormous contribution to 
efficiency.
    Mr. Christianson. Absolutely.
    Senator Dorgan. And finally, Mr. Stewart, help me 
understand something. Carbon neutrality by 2030: how would we 
achieve carbon neutrality as long as we--and this is a very 
fundamental question, you probably think why on earth would he 
ask it--have to heat all these buildings?
    Mr. Stewart. We begin to look at the sources of energy, 
Senator, and start to utilize not only what we can do with the 
design of a building, its placement, its orientation, the way 
its constructed, but also we have some of our members who are 
beginning to work at designing into the building energy sources 
that don't rely on fossil fuels, designing new photovoltaic 
systems. Technologies now exist where rather than panels, 
vision glass can be used. We're also at the point where we're 
integrating wind turbines and other things like that, so the 
opportunities exist with emerging technologies.
    Senator Dorgan. It sounds like we have to rehabilitate our 
buzzers here.
    [Laughter.]
    Senator Dorgan. Thank you again for your testimony, Mr. 
Stewart. I think the perspective from the architects of our 
country is a very important perspective, and you offer those 
who are producing buildings expertise on technology on how to 
reduce the cost of heating and cooling and providing 
electricity to those buildings. We appreciate that perspective. 
Senator Murkowski.
    Senator Murkowski. Just a follow up on that. I had a 
meeting with several Alaskan architects last week and they were 
talking about some of the things we can do with construction, 
but they also reminded me of just the little day-to-day things. 
I keep my Blackberry charger plugged into the wall, and then 
when I want to charge my Blackberry I plug it in. But while 
it's sitting there in the wall, it's sucking juice. It's the 
little things we don't even think about. So we all need to 
further our education efforts.
    Jeff, I wanted to give you an opportunity to just brag a 
little bit on the cold climate housing facility that we have up 
north, because we do have those sensors built in that will tell 
you--well, you tell them--what goes in within the individual 
rooms. It's pretty amazing.
    Mr. Hebert. Well we're working with a small company called 
Siemens----
    [Laughter.]
    Mr. Hebert [continuing]. And they're a partner in this 
building. We are doing everything from measuring the occupant 
load by the amount of respiration to measuring the outside air 
quality. We have a lot of outdoor air quality issues related to 
smoke and wild fires: one hundred times what is considered 
healthy air, we had 2 years ago, outside in our natural 
environment. So in any case, this system is measuring 
everything from outside air to inside air to the ambient light, 
as was explained before, so that when the room isn't occupied 
or the ambient light is high enough, it goes down.
    We also want to develop nanosensors that can be embedded in 
the building itself to tell what's going on. Where we'd like to 
go eventually--as we all know cars are complicated: we used to 
all work on them, but now you basically have a computer that 
plugs in to see what's wrong. In a home there's a lot of issues 
with not just indoor air quality but the efficiency of your 
boiler, if you're building up any kind of moisture in the 
walls, these kinds of things. Nanosensors can go to a central 
computer--again, expensive now, but on a mass scale wouldn't 
be--so you would basically sign up for a service. This computer 
would dial the service company when your boiler needed to be 
tuned so it was at maximum efficiency. If the systems weren't 
working in the house, you'd know those kinds of things. These 
are the kinds of things that are possible with research that 
will have huge impacts. So if you're using too much energy and 
there's nobody in the house, the house doesn't have to be 
operating all its systems. We all know that, and it could 
automatically shut down. These are just some of the things that 
we're doing.
    Senator Murkowski. It's pretty amazing. I just wanted to 
give you an opportunity to speak to that. I have one last 
question and I'll just deliver it to all of you. There's been a 
repeated reference to the Energy Policy Act of 2005 and all the 
good things that were contained in it, but I think that we 
recognize that there are many aspects of it that either have 
not been funded or perhaps been underfunded.
    The question is: do we need to be providing more incentives 
in other areas, or do we just need to adequately and 
appropriately fund those things that we have authorized under 
EPAct?
    Ms. Callahan. I'll take a stab at that. First, I want to 
invite Senator Dorgan over to our new offices, because we can 
control the lighting from all of our individual computers tops. 
So you can come see how it works, if you like. I think that the 
threshold industry issue, funding the programs authorized, 
there's a critical need there. The funding for the Department 
of Energy's energy efficiency programs has seen a real fall of 
over one-third since 2002. The authorities would create new 
programs and make existing programs more robust, so for our 
part that is an essential first ingredient.
    Also extending the tax incentives that are there for 
homeowners to improve their homes--new home construction, new 
commercial building construction--those are just imperative. 
You mentioned getting to consumers. There is a $450 million 
program for education and outreach to consumers that is 
authorized in the Energy Policy Act and not one dime been 
appropriated, so that's--starting there is a very, very good 
first start.
    Senator Murkowski. Anybody else?
    Mr. Stewart. I would just add support for the tax credit 
extension and increase. Both of those options are things we're 
talking about with various Members of Congress now.
    Senator Murkowski. Good, I appreciate it, thank you.
    Senator Dorgan. Senator Murkowski, thank you. One last 
question to Ms. Callahan. The alliance has been at the 
forefront for pushing efficiency standards for appliances for a 
long, long time. I know some looked at that with raised 
eyebrows, thinking, ``This is sort of the edgy extreme--why on 
earth should we impose regulations on those that are producing 
air conditioners?'' and all the sort of things that we expect, 
when these proposals are made. Tell us if you would, at this 
point since a substantial amount of progress has been made in 
respect to refrigerators and HVACs, and a lot of appliances 
have dramatically improved standards: is there any other low-
hanging fruit with respect to appliance efficiency?
    Ms. Callahan. That's the beauty, we think, of energy 
efficiency. It's the gift that keeps on giving. The advocates 
have identified about 15 products that if we were to put in 
place standards on those, or update standards that are just 
old, we could save the equivalent of $54 billion by, I think, 
the year is 2030, in avoided energy costs. So there is a lot 
that can be done. We are working with the other energy 
advocates right now and appliance manufacturers to try to 
negotiate standards. Then we can deliver appliance standards to 
the Congress and say, ``Look, the manufacturers have agreed--
they can meet these standards if imposed by `X' date,'' and 
have those modified so we can shorten the regulatory process to 
get them in place. So the simple answer is yes. There are a lot 
of products and we keep inventing new products, large-screen 
plasma TVs, things like that, where we're going to have to 
continue to update and invent new standards.
    Senator Dorgan. But some consider that government 
interference, right? I mean, I remember the SEER 13 debate on 
air conditioners.
    Ms. Callahan. I think that's true. My hope is that we're 
gaining a growing awareness that these can be done in a way 
that manufacturers can accept them. One of the things on which 
we're working with the manufacturers right now, Senator, is to 
try and look at a package. That is not only just standards, but 
it's early tax incentives, to help them make the changes that 
they need in their product line-up and their manufacturing to 
actually get us those. So we are really trying to work 
collaboratively. These are the basics, in a sense; we're not 
going to do any worse then this. There are a lot of programs to 
try to get above the standard level, whether it's Energy Star 
or tax incentives, and we advocate those as well. It seems to 
make manufacturers more receptive to allowing efficiency 
standards to be put in place.
    Senator Dorgan. And so the technology exists in many cases 
to improve efficiency but the balancing act is between 
technology and cost in some cases, correct?
    Ms. Callahan. That's absolutely right, Senator.
    Senator Dorgan. Let me ask you, if you would--just as a 
last point of this committee--describe for all those who may 
not know the Energy Star program.
    Ms. Callahan. Well the Energy Star program is a voluntary 
program. It's managed by EPA and DOE and certifies products as 
being more energy-efficient than the standard models on the 
marketplace. It's available on a number of different products. 
Actually there are Energy Star labels now for new construction 
of new homes. There are Energy Star performance guidelines for 
existing homes. So it really is a program that is a voluntary 
labeling program that lets consumers, if you will, know through 
a label that they're buying the most efficient energy product 
available on the marketplace in that category.
    Senator Dorgan. Thank you very much, and I think it's a 
very successful model. Let me thank all of you. Often the issue 
of efficiency becomes an orphan in the debate on energy. 
There's so many other things that are the sexy items of 
discussion on energy policy, that efficiency is often ignored, 
but it should not be. Mr. Rogers you describe it as a fifth 
fuel, which is probably an appropriate description today. I 
think all of you have brought really interesting information to 
the committee, and as we work through these issues, that 
information will be a part of our progress in trying to 
approach how to better achieve a greater energy efficiency in 
this country. Thank you very much. This hearing is adjourned.
    [Whereupon, at 3:50 p.m., the hearing was adjourned.]

                                APPENDIX

              Additional Material Submitted for the Record

                              ----------                              

    Statement of Stephen R. Yurek, President, Air-Conditioning and 
                     Refrigeration Institute (ARI)

    Thank you for the opportunity to testify before the Committee 
regarding efforts to improve the energy efficiency of buildings. My 
name is Stephen R. Yurek, and I am the President of the Air-
Conditioning and Refrigeration Institute, or ARI. ARI is the trade 
association representing manufacturers of more than 90 percent of North 
American produced central air conditioning, and commercial air 
conditioning and refrigeration equipment. Today, I am speaking on 
behalf of the U.S. air conditioning and refrigeration industry to 
express our support for federal tax policy that will accelerate the 
changeout of older, inefficient commercial heating and cooling 
equipment with newer more efficient products that employ the latest 
energy efficiency technology.
    Currently, the federal tax code for the depreciation-holding period 
for commercial heating, ventilation, air conditioning, and 
refrigeration (HVACR) equipment is 39 years. ARI would appreciate the 
committee's support for a legislative proposal to modify the federal 
tax code for HVACR equipment to reduce the depreciation period to 20 
years as a meaningful way to improve the energy efficiency of 
buildings. This change would contribute significantly to the 
improvement of the environment by reducing energy demand and 
eliminating the use of CFC refrigerants, while at the same time 
reducing energy costs for building owners. Specifically:

   Accelerated replacement of HVACR equipment is projected to 
        save 137 trillion Btus per year, enough to power 1.4 million 
        houses in America. It would also reduce carbon dioxide 
        emissions by 95 million metric tons by 2015, approximately the 
        equivalent of the CO2 emissions released by 
        approximately 16.5 million passenger vehicles.
   Reducing the depreciation period for HVACR systems would 
        provide an incentive for building owners to upgrade to more 
        efficient equipment by allowing them to expense more of the 
        cost of the system each year. By replacing the building's 
        existing HVACR units, building owners and managers could lower 
        energy costs and reduce energy demand. For example, today's 
        chillers are 35 to 40 percent more efficient than chillers 
        installed 20 years ago.
   Accelerated depreciation would provide an incentive for the 
        replacement of over 35,000 CFC-based chillers still in use as 
        of January 1, 2004. New uses of CFC refrigerants have been 
        banned in the United States due to their impact on the 
        stratospheric ozone layer.
   The U.S. air conditioning and refrigeration industry employs 
        more than 150,000 workers and contributes $17 billion annually 
        to the U.S. economy. The HVACR industry exports $4.7 billion in 
        products annually, providing an industry trade surplus of more 
        than $2.1 billion. Lowering the depreciation period would 
        encourage building owners to invest in new systems, thereby 
        creating business for American manufacturers and contractors.

    Representative Peter Hoekstra has introduced legislation H.R. 345 
in the United States House of Representatives, H.R. 1241 that would 
modify the tax code for this equipment. This legislation has received 
significant bi-partisan support, with members of both parties 
applauding the environmental benefits of removing CFC refrigerants, 
increasing efficiency, and reducing electricity demand. The 200 member 
companies of ARI urge the Senate to consider supporting similar 
legislation to promote protection of the environment while improving 
the overall energy efficiency of buildings.
    Thank you for the opportunity to provide testimony. I would welcome 
any questions the Committee might have regarding the impact of this 
legislative proposal.
                                 ______
                                 
    Statement of Peter A. Darbee, Chairman, CEO and President, PG&E 
                              Corporation

    Chairman Dorgan, Senator Murkowski, and Members of the Committee, I 
am pleased and honored to submit this testimony representing my 
company, PG&E Corporation.
    PG&E Corporation is an energy holding company headquartered in San 
Francisco, California and is the parent company of Pacific Gas and 
Electric Company. Pacific Gas and Electric Company is California's 
largest utility, providing electric and natural gas service to more 
than 15 million people throughout northern and central California. PG&E 
is a recognized leader in energy efficiency and has among the cleanest 
electric delivery mix of any utility in the country.
    PG&E Corporation is a member of the U.S. Climate Action 
Partnership, also known as U.S. CAP, which is a coalition of leading 
businesses and environmental nongovernmental organizations (NGOs), 
including Alcoa, BP America, Inc., Caterpillar Inc., Duke Energy, 
DuPont, Environmental Defense, FPL Group, General Electric, Lehman 
Brothers, Natural Resources Defense Council, Pew Center on Global 
Climate Change, PG&E Corporation, PNM Resources, and World Resources 
Institute. U. S. CAP has come together based on a shared understanding 
that climate change is an urgent issue, and that the United States both 
has a responsibility and opportunity to act now, act aggressively, and 
enact policies to stabilize and reduce greenhouse gas emissions, 
enhance energy security, and create economic opportunity by developing 
and deploying new technologies.
    U.S. CAP has recommended a set of public policy principles and a 
legislative framework for Congress and the Administration, which will 
accomplish these goals. We developed this framework and these 
recommendations by putting the tough issues on the table. We challenged 
each other with hard questions. We debated. And we came together to 
move forward in those areas of common ground. This is difficult to do. 
It takes tenacity. And most of all, it takes mutual respect, humility, 
patience, compromise and a willingness to take the long-term view.
    The members of U.S. CAP are committed to working with Congress and 
the Administration to do the same. I believe that this dialogue will 
help to forge the kind of understanding needed to tackle these 
challenging issues.

                             THE CHALLENGE

    As the head of a major energy company--and also as an American and 
a great believer in our nation's unique place in the world--I believe 
the United States has a responsibility to be at the forefront of 
addressing global climate change.
    If you look at U.S. greenhouse gas emissions compared with other 
nations, the level of emissions from sources in the U.S. is vastly 
disproportionate to our population. Our emissions are higher than those 
of China and India combined, where the population is more than 2.5 
billion people.
    If you look at our wealth and prosperity relative to other nations, 
it's clear that we can afford to make a difference.
    And, if you look at our tremendous capacity for innovation, it's 
clear that we have the human capital to develop the solutions. By 
signaling to the market that we're serious about making progress on 
clean energy, we can stimulate investment and engage our best and 
brightest minds in this effort.
    The longer we wait, the costlier the solutions will likely become. 
On the other hand, by acting now, we preserve valuable response 
options. We narrow the uncertainties. And we avoid the economic and 
social dislocation of drastic changes later.

                         DEVELOPING A RESPONSE

    So, in the face of this challenge, where do we start? U.S. CAP has 
provided a roadmap for developing the kind of comprehensive approach 
that will be necessary to address global warming. At the core of the 
recommendations is a national, mandatory, market-based approach to 
reducing greenhouse gas emissions--a so-called ``cap and trade'' 
program--that establishes clear short-, medium-, and long-term goals 
and unleashes the power of the market to get the job done. In addition, 
U.S. CAP identifies action that should be pursued aggressively in 
advance of the implementation of a national cap-and-trade program, 
including a full court press on energy efficiency.
    Taking this approach will create clarity for business; create 
consistency, by avoiding a state-by-state patchwork of emissions 
trading markets; create focus for a comprehensive national energy 
strategy; and allow us to begin to change the U.S. emission trajectory 
today.

                  OVERVIEW OF U.S. CAP RECOMMENDATIONS

    U.S. CAP provides recommendations on all the major components of 
legislation that could be developed to address this challenge, and many 
of these recommendations are focused on making the U.S. economy more 
energy efficient than it is today. In brief, these recommendations 
include the following:

   Policies and measures to facilitate the development and 
        deployment of advanced transportation, power generation, and 
        energy efficient technologies;
   Cost control measures, including the use of greenhouse gas 
        emissions offsets, banking, borrowing, a strategic allowance 
        reserve, and preferred allowance allocations;
   Inventory and registry so that we can identify both the most 
        energy-intensive parts of our economy and where the most cost-
        effective reductions can be achieved;
   Credit for early action, to both recognize actions already 
        taken and encourage others to step up today; and
   Sector-specific policies and measures, to complement an 
        economically sound cap-and-trade system to create additional 
        incentives to invest in low-GHG approaches in key sectors, 
        including energy efficiency. These measures will be 
        particularly necessary where near-term price signals are 
        insufficient to deploy existing energy-efficient technologies 
        or other market and regulatory barriers exist that impede their 
        introduction or utilization.

    In addition to outlining these major recommendations from U.S. CAP, 
I would also like to spend a little time addressing three key elements 
that provide the foundation for many of the recommendations--the 
importance of improving energy efficiency, the need to develop a 
``smart grid'' for delivery of electric power to consumers, and the 
important role that decisions on electric power generation and fuel 
diversity play in the climate change equation.

                           ENERGY EFFICIENCY

    A recent McKinsey study said that, through energy-efficiency, we 
could reduce the growth rate of worldwide energy consumption by more 
than 50 percent over the next 15 years. And McKinsey said we can do 
this using the technology we have available today.
    A major step toward unleashing this opportunity in the U.S. would 
be federal action making it easier for utilities to actively advocate 
energy efficiency. PG&E has been doing this for three decades. Our 
energy efficiency programs, both electric and natural gas, have already 
prevented 125 million tons of greenhouse gas emissions. These programs 
also helped California escape the need to build 24 additional large 
power plants, and they've saved customers more than $9 billion.
    And we are doing even more. Between 2006 and the end of 2008, we 
will invest an additional $1 billion in energy efficiency, avoid the 
need for another 600 megawatts (MW) of electric power, and save 
customers another $1 billion. In fact, in 2006, we exceeded our targets 
and saved more than 160 MW of power and 10 million therms of natural 
gas.
    The reason we can do this is that, under state law, our revenues 
are set at a fixed level by regulators. We collect what we need to run 
the business and provide a fair return to investors. Any overruns go 
back to customers. Any shortfalls are recovered later. This is known as 
``decoupling'' and it means our financial health doesn't depend on 
selling more energy. So it eliminates the financial disincentives that 
otherwise stand in the way of encouraging customers to use less of our 
products. Experience shows that this empowers utilities to become some 
of the most effective advocates for energy efficiency. This is 
especially true when you package this policy with incentives for 
utilities. Utilities should be provided an opportunity to earn a return 
on investments that save energy, just as they do when they invest in a 
new power plant, and that earnings opportunity should be tied directly 
to how well utilities help customers reduce their bills.
    A number of states are already moving in this direction. U.S. CAP 
recommends that Congress bring all 50 states on board by either 
incorporating this policy into federal law or taking steps to strongly 
encourage states to do so. We also need stronger energy efficiency 
codes for whole buildings, equipment and appliances. PG&E has worked 
for decades to help both state and federal authorities set better 
energy efficiency standards. Progress at the federal level has lagged 
recently, however, and we urgently need to reinvigorate it. And 
finally, it may be necessary to provide incentives for entities to go 
even further to seek energy savings.
    Aggressive standards and incentive programs are a big reason that 
per capita energy usage in California has remained flat over the past 
30 years, while the rest of the nation has increased its per capita 
usage by 50 percent. During this time, California was the epicenter of 
the hi-tech and bio-tech revolutions--with many of the market leaders 
being energy efficiency pioneers themselves. Raising the bar at the 
national level will lead to new investment in next-generation energy 
efficient technologies and spark growth opportunities in other sectors.
    For example, recognizing the intense and persistent energy use of 
computing equipment, airflow management, and power conditioning systems 
in data centers, PG&E worked with Sun Microsystems to develop an 
incentive program for energy-efficient servers, garnering attention 
from a growing number of other major computing equipment manufacturers, 
who are also qualifying their premium performance equipment for 
incentive programs.
    PG&E also announced the first-ever utility financial incentive 
program to support virtualization projects in data centers. 
Virtualization technology enables customers to consolidate their data 
centers and thereby significantly reduce their energy use. One major 
software firm, for example, was able to consolidate workloads from 230 
servers onto just 13, representing an energy cost savings of more than 
$100,000 per year. This same company is now creating a new product 
based on this approach.
    Many regions across the U.S. are experiencing new demands for 
electric infrastructure as data center operators construct new 
facilities. Data centers can use up to 100 times the energy per square 
foot of typical office space, so efficiency opportunities are 
significant. We are now working to expand the gains we've made, by 
leading a coalition of U.S. utilities to capture energy efficiency in 
data centers. Participants include the Northwest Energy Efficiency 
Alliance, TXU Energy, the New York State Energy Research and 
Development Authority, and NSTAR.
    Our efforts do not stop in the U.S. We recognize that climate 
change is a global problem requiring a global solution. And, while we 
do not believe that U.S. action should be contingent upon global 
action, we do recognize that in order to make progress, all major 
emitting economies will need to contribute equitably. That is why PG&E 
is working cooperatively with the Natural Resources Defense Council, 
the State of California, and others as part of the U.S.-China Energy 
Efficiency Alliance. The Alliance works to exchange information and 
facilitate technology deployment, ultimately helping China reduce the 
energy intensity of its economy and providing economic opportunity and 
advantage to those that supply these energy efficient technologies and 
facilitate best-practice programs. A climate program therefore must 
build off of efforts like this and the Asia-Pacific Partnership in the 
near term, and create additional international linkages going forward.
    And, finally, we are supporting the development and deployment of 
new energy efficient technologies and call on Congress to do the same. 
We implemented several emerging technologies projects in 2006, 
including integrated daylighting in schools and automated demand 
response controls. These projects set the stage for significant energy 
savings in the future and for creating economic opportunities for 
manufacturers and vendors.
    In our state and for our company, energy efficiency is the ``first 
energy resource.'' That is, before we look to add generation, we see 
what we can do to reduce demand. I believe the U.S. should make energy 
efficiency the nation's first resource as well, and U.S. CAP's 
recommendations will go a long way toward achieving that.

                               SMART GRID

    Maximizing the potential for energy efficiency, as well as 
distributed generation and some advanced transportation technologies, 
will require a ``smarter'' energy grid, one that provides for two-way 
communication between energy consumers and energy providers. PG&E is 
installing 10 million Smart MetersTM throughout our service 
area to provide the infrastructure that will eventually support these 
technologies and offer new capabilities. Tax incentives and reform 
measures will be needed to advance these efforts nationally.
    One example of a technology which would benefit from a ``smart'' 
grid is plug-in hybrid vehicles (PHEVs). Vehicle-to-grid technologies 
have the benefit of reducing oil use, enhancing the power grid, and 
reducing greenhouse gas emissions. For example, when the cars are not 
in use, energy from the batteries could be uploaded back to the system, 
reducing the need for peak power generation. This is important, because 
peak power often comes from the least efficient and least clean 
resources on the grid. And, PHEVs facilitate more efficient use of the 
electric grid, as these vehicles will mainly charge at night, when 
demand is otherwise low. And, in our state, this is also when some of 
our lowest emitting resources are powering the electric system.

                  POWER GENERATION AND FUEL DIVERSITY

    In addition to using energy more efficiently and reducing demand, 
and implementing ``smart grid'' strategies, a significant emphasis and 
focus of any greenhouse gas reduction program must be on ensuring an 
affordable, reliable, and diverse supply of electricity from low-
greenhouse gas (GHG) emitting sources. As with energy efficiency, the 
latest research suggests we can be doing a lot more with what we have 
available today.
    For example, currently, the U.S. is getting about 9 percent of its 
electricity from renewable sources. Excluding hydroelectricity, that 
figure is a little more than 2 percent. A number of states have set 
targets for increasing the supply of renewable energy. In California, 
our target is to deliver 20 percent of our energy from renewable 
sources by the year 2010, excluding large hydroelectric sources. PG&E 
is on track to meet this goal.
    But the federal government can make a tremendous contribution here. 
One major positive step would be the extension of production and 
investment tax incentives for renewable energy sources for more than 
one year at a time. This would provide much-needed certainty for 
investors, reduce the cost of technology development, and encourage 
fuller deployment.
    Washington can also play a leading role in researching and 
developing next-generation renewable power sources. I'm particularly 
intrigued by solar thermal technology. PG&E is also exploring the 
possibility of tidal and wave power off the coast of California. And, 
the sooner we can develop a good understanding of their viability, and 
their relative costs and benefits, the sooner we will be in a position 
to move forward.
    It's also critical that we implement policies and initiatives to 
facilitate the development and deployment of lower GHG-emitting 
conventional power sources. A strong place to start would be increasing 
the efficiency of natural gas fired turbines. And, I personally believe 
we need to facilitate development of both new supplies and new 
infrastructure. For example, biogas from methane digesters is an 
opportunity we are pursuing to supplement natural gas supplies for our 
customers. Again, federal investment and policies that support efforts 
in these areas would be very positive.
    We are also hearing the beginnings of a national conversation about 
the future of nuclear power in our country. The advantages of nuclear 
power in a carbon-constrained world are considerable and must be 
acknowledged. But nuclear power also faces considerable challenges that 
must be addressed. It is an option that should be on the table.
    Finally, we must address the issues surrounding the use of coal. 
About 40 states rely heavily on coal for their electric power and, 
nationally, the electricity mix is currently more than 50 percent coal. 
So it is critical that we accelerate efforts to deploy advanced coal 
technologies that have the capability to cost-effectively capture and 
store carbon dioxide. Right now, carbon capture and storage technology 
is expensive and questions remain. I am cautiously optimistic that the 
challenges facing this important fuel source can be addressed. And the 
federal government can help us get the answers we need more quickly and 
help drive down cost. Policy makers should fund at least three large-
scale development and demonstration programs, to account for a 
diversity of locations, coal types, and storage formations. The U.S. 
should also establish the rules as soon as possible for how carbon 
dioxide must be captured, transported, and stored. Without these rules, 
it will be difficult for investments to be made on the scale necessary 
to achieve our GHG reduction targets.

                            THE TIME IS NOW

    Our country has a historic opportunity to change the way we produce 
and use energy in ways that will lower the treat of climate change and 
improve our environment. The optimist in me is certain that we're going 
to achieve this goal over the course of the next generation. But the 
realist in me knows that we can't take this outcome for granted. 
Achieving it will be a very substantial challenge. And that is why we 
have to come together as pragmatic, responsible participants in this 
effort.
    On behalf of PG&E, I want to thank you for the opportunity to 
submit this testimony. I appreciate the commitment of this Committee to 
addressing these critical issues and I pledge my cooperation and 
support as this Committee and Congress moves forward.
    Thank you.


```