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75–808 PDF 2012

S. HRG. 112–528 

ENERGY EFFICIENT BUILDING RETROFITS 

HEARING 

BEFORE THE

COMMITTEE ON 

ENERGY AND NATURAL RESOURCES 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

TO

REVIEW INNOVATIVE NON-FEDERAL PROGRAMS FOR FINANCING 

ENERGY EFFICIENT BUILDING RETROFITS 

JUNE 28, 2012 

( 

Printed for the use of the 

Committee on Energy and Natural Resources 
(II) 

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

JEFF BINGAMAN, New Mexico, Chairman 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

MARIA CANTWELL, Washington 

BERNARD SANDERS, Vermont 

DEBBIE STABENOW, Michigan 

MARK UDALL, Colorado 

JEANNE SHAHEEN, New Hampshire 

AL FRANKEN, Minnesota 

JOE MANCHIN, III, West Virginia 

CHRISTOPHER A. COONS, Delaware 

LISA MURKOWSKI, Alaska 

JOHN BARRASSO, Wyoming 

JAMES E. RISCH, Idaho 

MIKE LEE, Utah 

RAND PAUL, Kentucky 

DANIEL COATS, Indiana 

ROB PORTMAN, Ohio 

JOHN HOEVEN, North Dakota 

DEAN HELLER, Nevada 

BOB CORKER, Tennessee 

ROBERT M. SIMON, Staff Director 

SAM E. FOWLER, Chief Counsel 

MCKIE CAMPBELL, Republican Staff Director 

KAREN K. BILLUPS, Republican Chief Counsel 
(III) 

C O N T E N T S 

STATEMENTS 

Page 

Bingaman, Hon. Jeff, U.S. Senator From New Mexico ........................................ 1 

Borrelli, Sheri, Senior Business Development Professional, The United Illuminating Company, Orange, CT ......................................................................... 15 

DeBoer, Jeffrey D., President and Chief Executive Officer, The Real Estate 

Roundtable ............................................................................................................ 24 

Franken, Hon. Al, U.S. Senator From Minnesota ................................................. 1 

Leeds, Susan, Chief Executive Officer, New York City Energy Efficiency Corporation, New York, NY ...................................................................................... 18 

Rodgers, William A., Jr., President and Chief Executive Officer, GoodCents 

Holdings, Inc., Atlanta, GA ................................................................................. 10 

Smith, Derek, Chief Executive Officer, Clean Energy Works Oregon, Portland, 

OR .......................................................................................................................... 7 

Sundstrom, David E., Auditor-Controller-Treasurer-Tax Collector, County of 

Sonoma, Santa Rosa, CA ..................................................................................... 3 

APPENDIXES 

APPENDIX I 

Responses to additional questions .......................................................................... 51 

APPENDIX II 

Additional material submitted for the record ........................................................ 71 

(1) 

ENERGY EFFICIENT BUILDING RETROFITS 

THURSDAY, JUNE 28, 2012 

U.S. SENATE, COMMITTEE ON ENERGY AND NATURAL RESOURCES, Washington, DC. 

The committee met, pursuant to notice, at 9:31 a.m. in room SD– 

366, Dirksen Senate Office Building, Hon. Jeff Bingaman, chairman, presiding. 

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR 

FROM NEW MEXICO 

The CHAIRMAN. OK, why don’t we go ahead and get started. Good 

morning. Today we’re going to have a panel of experts talk to us 

about a variety of programs used across the country to finance energy efficient building retrofits. This is particularly an important 

topic for commercial building owners, but also for residential building owners. That’s according to a recent survey from the Institute 

for Building Efficiency at Johnson Controls. They did a sixth annual global survey and concluded that more commercial building 

owners are turning to energy efficiency. They continue to seek tax 

credits, incentives, and rebates to assist with those efficiency improvements. 

More than half of the 3500 building owners and operators worldwide said that improving their public image and increasing the 

value of their buildings were important factors leading them to consider energy efficiency. 

We have 6 witnesses today to describe their programs for building efficiency retrofits and to discuss best practices for financing 

these retrofits. We hope to learn how best to ensure that private 

capital is available to finance projects through a variety of financing mechanisms. 

Before we start, Senator Franken has had a keen interest in this 

subject for some time and I know he wanted to make a statement. 

So let me defer to him. 

STATEMENT OF HON. AL FRANKEN, U.S. SENATOR 

FROM MINNESOTA 

Senator FRANKEN. Thank you, Mr. Chairman. Thank you for 

holding today’s hearing on financing energy efficient buildings, and 

thank you all to all the witnesses for sharing your expertise. 

There are so many reasons why energy efficiency in building retrofits makes sense. Retrofitting buildings can pay for itself by saving homeowners and businesses money on energy bills. Retrofits 
2 

create jobs in manufacturing and construction and engineering. 

They improve the work environment of the retrofitted building, attract and retain tenants, and can bring whole neighborhoods back 

to life. Of course, retrofits cut energy waste and carbon emissions. 

Basically, it’s win-win-win. 

That’s why last October I started an initiative promoting energy 

efficiency retrofits called ‘‘Back to Work Minnesota.’’ I’ve been 

partnering with leaders in my State, Governor Dayton, local chambers of commerce, businesses, utilities, and nonprofits. Together 

we’ve been spreading the word about the benefits of energy efficiency and connecting building owners to the resources that can 

help them retrofit their buildings. 

Interest in energy efficiency is spreading across Minnesota. In 

November the city of Edina, Minnesota, set up the first commercial 

Property Assessed Clean Energy program, or PACE program, outside of California. In December I attended the ribbon-cutting ceremony of Edina’s first PACE-funded solar panel installation project 

at the Edina Grandview Tire and Auto Shop. 

Likewise, cities and towns across the State are retrofitting public 

and private buildings with local revolving loan programs and utility rebates. Just this month, the Iron Range Resources Board created a pilot business retrofit program in Hibbing, Minnesota, and 

by the fall the Minnesota Department of Commerce will finalize a 

new program to provide standardized and guaranteed energy-saving performance contracts with energy service companies, or 

ESCO’s, like Johnson Controls, which the chair mentioned in his 

opening statement, making it easier for the State to retrofit its 

buildings, saving taxpayers money. 

Despite all this movement in Minnesota, there are still financing 

barriers, as you all know. I don’t think I’m telling the panel anything they don’t know, what we’ve been doing in Minnesota. There 

are still financing barriers holding many building owners back 

from retrofitting. So I’m eager to hear what today’s witnesses think 

we can do to further promote retrofits that both save money and 

create jobs. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you very much. 

I’d just point out that there’s a long tradition here in the Senate 

of inviting experts from around the country and then telling them 

what they already know. So we are good at that. 

Senator FRANKEN. I really revere the traditions of the Senate. 

[Laughter.] 

The CHAIRMAN. We know you do. We appreciate your carrying 

them on. 

Let me introduce our 6 panelists. Mr. David Sundstrom, CPA, is 

with SCEIP, the SCEIP program. Is that the right pronunciation? 

Mr. SUNDSTROM. ‘‘SKIPE.’’ 

The CHAIRMAN. ‘‘SKIPE’’ Program Administrator, in the County 

of Sonoma in Santa Rosa, California. 

Mr. Derek Smith is the CEO of the Clean Energy Works Oregon 

in Portland, Oregon. Thank you for being here. 

Mr. William Rodgers is President and CEO of GoodCents in Atlanta, Georgia. Thank you for being here. 
3 

Ms. Sheri Borrelli, Senior Business Development Professional 

with The United Illuminating Company in Orange, Connecticut. 

Thank you for being here. 

Ms. Susan Leeds is Chief Executive Officer with the New York 

City Efficiency Corporation in New York. 

Mr. Jeffrey DeBoer is the President and CEO of the Real Estate 

Roundtable and has testified here several times before. So we appreciate all of you being here. 

Why don’t we just take you in that order, and we will include 

your full statements in the record, but if you would take about 5 

minutes each and give us the main points you think we need to try 

to understand about this set of issues, we would be anxious to hear 

your thoughts. 

Mr. SUNDSTROM. 

STATEMENT OF DAVID E. SUNDSTROM, AUDITOR-CONTROLLER-TREASURER-TAX COLLECTOR, COUNTY OF 

SONOMA, SANTA ROSA, CA 

Mr. SUNDSTROM. Honorable Chairman Bingaman, members of 

the committee: Thank you so much for this opportunity to be here 

to share with you our experience with our SCEIP program, also 

known as Sonoma County Energy Independence Program. It is a 

PACE program, which stands for ‘‘Public Assessed Clean Energy.’’ 

It was the first in the Nation. I am pleased to have this opportunity to discuss our program, a model of multi-jurisdictional public-private partnership for financing energy efficient and renewable 

energy retrofits for the betterment of our communities. 

PACE is a local government initiative that allows property owners to finance energy efficiency, water conservation, and renewable 

energy projects for their homes and commercial buildings. Qualifying property owners finance those improvements through a property tax assessment which is repaid over a course of up to 20 years. 

PACE financing spreads the cost of the improvement, such as insulation, energy efficient boilers, new windows, or solar installations, 

over the expected life of the improvement. 

The method of financing is intended to allow the repayment obligation to ensure transfer—will automatically transfer to the next 

property owner when the property is sold. PACE programs have 

been authorized by the legislatures of the District of Columbia and 

28 States, including many States represented by members of your 

committee. 

Sonoma County, which has long been a progressive leader in the 

area of energy and environmental stewardship, immediately identified PACE as a tremendous strategic opportunity to help us reduce 

our greenhouse gases and promote energy economy improvements 

by local property owners, and to provide jobs, many jobs, in the 

local green construction industry. 

Sonoma County and the Sonoma County Water Agency have jointly pledged $60 million of local funds to launch the program, 

making it the largest PACE program in this Nation. SCEIP has 

proven itself to be very popular and effective. After 3 years of operation, SCEIP has received 2400 applications for financing. Those 

applications have seen more than $89 million in local energy improvements, of which more than $62 million have been approved 
4 

and nearly $57 million of projects have been already completed. 

Approximately $6.7 million of these assessments have been paid 

off, freeing up those funds for future projects. In addition, the $62 

million invested locally has energized the creation of an active energy efficiency community and has generated more than 145,000 

man-hours of construction work within the job market. 

SCEIP has coordinated with other State and local energy programs to provide our community with a one-stop approach for customers to come in and facilitate energy efficiency and renewable 

energy investments. 

Despite the impediments imposed by the Federal Housing Finance Agency, albeit we’re moving along, albeit at a much slower 

pace. We now have 1700 property owners participating in the program and in the last 3 years those property owners have completed 

more than 1600 energy retrofit projects and 1,000 solar installations. This has been producing about 7.7 megawatts of energy for 

these residents, making Sonoma County the highest kilowatt-hour 

per capita solar energy production in the country. 

The proposed rule by FHFA does allow us for submittal of alternatives. One alternative for the program, adding acceptable underwriting criteria to the program. It was our belief that H.R. 2599 is 

predicated on the very criteria being called for by FHFA. Programs 

established under 2599 guidelines should mitigate FHFA guidelines. We continue to hope that FHFA will revise its proposed rule 

to allow us to continue with the SCEIP program. We certainly 

would appreciate any assistance your committee could give us in 

pursuing H.R. 2599. 

In conclusion, through collaboration with government, business, 

and nonprofit partners, Sonoma County has been able to forge 

ahead with a financially sustainable program that furthers our 

community’s strategic priorities of environmental sustainability 

and local economic vibrancy. In doing so, the program has become 

a shining example of government innovation and collaboration. We 

look forward to continuing to expand our efforts in the commercial 

sector and within underserved communities, and to reaching a resolution with FHFA so that property owners can continue with 

PACE financing retrofits without the threat of foreclosure. 

Thank you. 

[The prepared statement of Mr. Sundstrom follows:] 

PREPARED STATEMENT OF DAVID E. SUNDSTROM, AUDITOR-CONTROLLER-TREASURERTAX COLLECTOR, COUNTY OF SONOMA, SANTA ROSA, CA 

Introduction 

Honorable Chairman Bingaman, Ranking Member Murkowski, and Members of 

the Committee, thank you for this opportunity to appear before you today as you 

examine ‘‘Innovative non-federal programs for financing energy efficient building 

retrofits.’’ My name is David Sundstrom, and I serve in the elected position of Auditor, Controller, Treasurer and Tax Collector of Sonoma County, California. I also 

serve as the administrator of the Sonoma County Energy Independence Program, 

known as SCEIP, which is the leading Property Assessed Clean Energy (PACE) program in the nation. I am pleased to have this opportunity to discuss the Sonoma 

County Energy Independence Program, a model of multi-jurisdictional and publicprivate partnership for financing energy efficient and renewable energy retrofits for 

the betterment of the community. 
5 

1 Announcement dated 5/7/2007, http://www.usgbc.org/News/ 

PressReleaseDetails.aspx?ID=3124. 

PACE Explained 

PACE is a local government initiative that allows property owners to finance energy efficiency, water conservation and renewable energy projects for their homes 

and commercial buildings. Qualifying property owners finance improvements 

through a property tax assessment which is repaid over the course of up to 20 years. 

PACE financing spreads the cost of improvements, such as insulation, energy efficient boilers, new windows, or solar installations, over the expected life of the improvement. The method of financing is intended to allow the repayment obligation 

to transfer automatically to the next property owner when the property is sold. 

PACE Programs have been authorized by the legislators of the District of Columbia 

and twenty-eight states, including many states represented by members of this 

Committee. 

Growth of the Sonoma County Energy Independence Program 

Sonoma County, which has long been a progressive leader in the area of green 

energy and environmental stewardship, immediately identified PACE as a tremendous strategic opportunity to help us reach our greenhouse gas reduction goals, promote energy efficient improvements by local property owners, and provide jobs in 

the local ‘‘green’’ construction industry. 

Sonoma County and the Sonoma County Water Agency jointly pledged $60 million 

of local funds to launch the program, making it the largest PACE program in the 

nation. SCEIP has proven itself to be very popular and effective: after three years 

of operation, SCEIP has received 2,400 applications for financing. Those applications 

have been for more than $89 million in local energy improvements, of which more 

than $62 million have been approved, and nearly $57 million have been disbursed 

to projects that are already completed. Approximately $6.7 million of these assessments have been paid off, freeing those funds for additional projects. In addition, 

the $62M invested locally has energized the creation of an active energy efficiency 

and renewable energy construction market and has generated more than 145,000 

man-hours of construction work within the local job market. 

SCEIP has coordinated with other local- and State-funded energy efficiency programs to provide our community with a one-stop-shop approach to pursue and facilitate energy efficiency and renewable energy investments. 

Despite impediments imposed by the Federal Housing Finance Agency, property 

owners continue to join the Program, which now has over 1700 participating property owners. In the past three years, those property owners have completed more 

than 1600 energy efficiency projects and 1000 solar installations which total more 

than 7.7 megawatts of clean, renewable solar photovoltaic energy. This has given 

Sonoma County one of the highest kilowatt-hour per capita solar energy production 

rates in the country. 

We continue to seek long-term financing through the bond market, securitization, 

and private placement, to enable SCEIP to grow, allowing the energy and water conservation improvements to continue as long as there is a demand. We have also attracted private capital for particular projects. In one such case, SCEIP facilitated 

funding for a $1.6 million solar installation on a major commercial complex through 

private capital provided by CleanFund, which recently also assisted in the financing 

of a commercial PACE project in Senator Franken’s home state of Minnesota. 

Partnership for Success 

The energy community continues to be an active partner in our efforts to promote 

sustainability. Energy audits help to ensure the best choice in technology and allow 

for measureable environmental results arising from the program. Currently, commercial properties are required to conduct an energy evaluation, and the program 

strongly encourages energy audits for residential participants as well - the cost of 

which can be included in the financing provided through the program. Our use of 

Department of Energy grants channeled through the California Energy Commission 

over the last year has allowed us to implement several major program improvements, all focused on making participation in SCEIP easier, faster and more valuable for the property owner. 

Bringing PACE to Scale 

The U.S. Green Building Council reports that the building sector accounts for almost half of the greenhouse gas emissions in the United States annually.1 The 

United States Environmental Protection Agency reports that this is spread approxi-
6 

2http://www.epa.gov/ttnchie1/ conference/ei17/session5/knowles.pdf 

3http://www.whitehouse.gov/assets/documents/ RecoverylThroughlRetrofitlFinallReport.pdf 4http://www.rockefellerfoundation.org/ uploads/files/791d15ac-90e1-4998-8932-5379bcd654c9- 

building.pdf 5There are only 16 reported mortgage defaults out of over 1600 properties in the County’s 

PACE program-under one percent, significantly below the County average. 

mately equally between residential buildings and commercial buildings.2 The White 

House Recovery Through Retrofit report found that home energy retrofits have the 

potential of reducing home energy bills by $21 billion annually, paying for the retrofits over time.3 A recent report by the Rockefeller Foundation estimated that $279 

billion could be invested annually across the residential, commercial, and institutional market segments, yielding more than $1 trillion of energy savings over 10 

years and creating more than 3.3 million cumulative job-years of employment.4 In 

short, energy retrofits have enormous potential. A concerted push toward sustainable energy investment will reduce greenhouse gas emissions, save energy, benefit 

American homeowners and businesses through cost savings, and create and sustain 

millions of jobs. 

Obstacles to Residential PACE 

The enthusiastic response we received from the community on the launch of our 

Program and the continued interest we receive from the community demonstrates 

the community’s desire for a retrofit program that offers a low up-front cost, transferable on sale option. However, the Federal Housing Finance Agency has challenged PACE programs because it believes PACE programs, which create a lien 

comparable to property taxes and other assessment liens, create risk for Fannie Mae 

and Freddie Mac due to the financing’s seniority over the property’s first mortgage. 

FHFA has recently proposed a rule on PACE programs essentially directing Fannie 

Mae and Freddie Mac to ensure that their mortgage documents permit immediate 

foreclosure on any property where the owner agrees to a PACE funded retrofitwhether or not the property owner is current on their mortgage and has a sterling 

payment history. 

Our own statistics demonstrate that the FHFA’s fears are groundless. In fact, 

PACE participants are significantly less likely to default on their mortgage payments5 and more likely to make their tax payments than property owners as a 

whole. The FHFA indicates that there is insufficient evidence to validate this result, 

yet firmly blocks new programs and prevents gathering the very evidence that 

would satisfy its concerns. In the House, HR 2599, setting out parameters to ensure 

PACE programs address the FHFA’s concerns, has been submitted by a bipartisan 

group of Congress Members, and we hope that your Committee would support a 

similar effort in the Senate. 

The proposed rule issued by the FHFA also allows for the submittal of alternatives. One alternative cited was having programs with acceptable underwriting 

criteria. It is our belief that HR 2599 is predicated on the very criteria being called 

for by the FHFA. Programs established under HR 2599 guidelines should mitigate 

FHFA concerns. We continue to hope that the FHFA will revise the proposed rule 

if presented with a program that meets the underwriting criteria they believe are 

needed to protect property owner and mortgage holder investments. We would 

greatly appreciate any assistance that you could provide in reaching a compromise 

with FHFA, such as incorporating the underwriting criteria cited in HR 2599. 

Conclusion 

Through collaboration with government, business, and non-profit partners, 

Sonoma County has been able to forge ahead with a financially sustainable program 

that furthers our community’s strategic priorities of environmental sustainability 

and local economic vibrancy. In doing so, the program has become a shining example of government innovation and collaboration. We look forward to continuing to 

expand our efforts in the commercial sector and within underserved communities, 

and to reaching a resolution with FHFA so that property owners can proceed with 

PACE funded retrofits without threat of foreclosure. 

Thank you again for the opportunity to appear before you today and describe our 

successful, and replicable, Program. I am happy to answer any questions from members of the Committee. 

The CHAIRMAN. Thank you very much. 
7 

STATEMENT OF DEREK SMITH, CHIEF EXECUTIVE OFFICER, 

CLEAN ENERGY WORKS OREGON, PORTLAND, OR 

Mr. SMITH. Mr. Chairman, members of the committee: My name 

is Derek Smith. I am CEO of Clean Energy Works Oregon, based 

in Portland, Oregon. I’d first like to acknowledge Senator Wyden 

for his leadership on energy and other issues, and especially for his 

support, and in fact the whole Oregon delegation has been very 

supportive of us, including your other colleague, Senator Merkley. 

I’d also like to acknowledge our board chair, Jeremy Hayes, 

who’s in the audience with me here today. 

Clean Energy Works Oregon is in the residential energy sector, 

which, as you know, represents about 20 percent of our Nation’s 

energy consumption. Clean Energy Works is a private nonprofit organization that accelerates the delivery of home energy remodels. 

We bring citizens together with private contractors and private 

lenders to help them get their home upgraded for energy efficiency. 

We then bundle the energy savings for the utility sector and we report the economic development outcomes for our public sector investors. 

Over the past 2 years, our results include: 1800 homes remodeled 

for energy efficiency; 800 workers receiving paychecks, including 

180 direct construction new hires, in a sector that in Oregon recently suffered a greater than 50 percent decline in employment; 

average wages of $21 an hour across multiple trades, from insulation installers to HVAC technicians to electricians to plumbers; 

market growth of 5X; 30 percent annual energy savings per home, 

generating over $500,000 annually into the pockets of participating 

citizens; $25 million in economic development; and 4 to one leverage on our Federal investment, primarily from private capital lenders. All of these numbers are rising on a daily basis. 

We’ve been able to accomplish this because of the support from 

the U.S. Department of Energy, the State of Oregon, Energy Trust 

of Oregon, city of Portland, local governments, and the Rockefeller 

Foundation, and because of the entrepreneurial spirit of our 50 

contractors and 4 lenders in rural and urban communities throughout Oregon. 

We’re proving a model where public sector investment delivered 

alongside private and utility capital into energy efficiency pays 

dividends toward important American values: energy independence 

from volatile fossil fuel markets, small business growth, revitalization of our housing market; and creation of local jobs that can’t be 

outsourced and that can pay family supporting wages to historically disadvantaged populations, including women, minorities, and 

veterans. 

Here’s what we’re learning and what we’d like to convey to you 

this morning. First, the utility sector, while a critical player, is in 

a limited position to value the full set of benefits that are derived 

from energy efficiency. for example, economic development. Therefore, current utility investment alone is not sufficient to get the 

gains we need. Restructuring of the sector and its business model 

should be explored. 

Two, private capital is widely available and does not appear to 

need ongoing credit enhancement, at least for the residential sector. What’s needed to unlock private capital is smart program de-
8 

sign, good quality control, and robust data that can inform capital 

markets. As you know, many financial institutions are sitting on 

cash and getting pressure from shareholders to earn returns. The 

government does not need to be and shouldn’t be the capital provider for this sector. Our experience is that local credit unions and 

regional banks are the pathway toward larger scale investment. 

Third, the housing appraisal industry is beginning to recognize 

the value of energy efficiency improvements. We are making a dent 

in the turnaround of our housing economy. 

Four, consumers respond to rebates. We believe rebates above 

utility incentive levels are extremely effective and needed to lift the 

industry and transform the market, at least until home valuations 

routinely recognize the value of energy efficiency improvements. 

Last, private businesses are aiming their resources toward this 

growing market. What these businesses need to continue investing 

is the predictability of knowing that the market will be supported 

and sustained. 

Looking forward, we expect this market to stabilize and reduce 

its dependence on public investment. We expect in Oregon that 

State-level investment will recognize the value of job creation by 

assuming the next position of key financial support for further 

market development. We have built a model that does not rely on 

Federal investment to survive. 

So how can the Federal Government help? Given that utilities 

are regulated locally, the Federal Government can promote industry standards that cut across State lines, like the measurement of 

non-energy benefits. 

The Federal Government can continue to engage the real estate 

community with development of tools like the Home Energy Score 

so there is transparency to consumers about energy costs of homes. 

Finally, the Federal Government can promote the value of energy 

efficiency. Imagine a national advertising campaign that links energy efficiency to patriotism, like the Victory Gardens campaign 

from World War II. 

In closing, I would like to thank you for your hard work in creating solutions for our energy challenges and for your support of 

energy efficiency as a key piece of the puzzle going forward. Thank 

you. 

[The prepared statement of Mr. Smith follows:] 

PREPARED STATEMENT OF DEREK SMITH, CEO, CLEAN ENERGY WORKS OREGON, 

PORTLAND, OR 

Thank you for the opportunity to present to the Committee on Energy and Natural Resources. I’d first like to acknowledge Senator Wyden for his leadership on 

energy and other issues, and especially for his support of Clean Energy Works Oregon. We are grateful for the support of the Oregon Delegation, including your other 

colleague, Senator Merkley. 

Clean Energy Works Oregon is in the residential energy sector, which, as you 

know, represents about 20% of our nation’s energy consumption. 

Clean Energy Works is a private, non-profit organization that accelerates the delivery of home energy remodels. We bring citizens together with private contractors 

and private lenders to help them get their home upgraded for energy efficiency, and 

we ensure quality control and service throughout their project. We bundle the energy savings for the utility sector and we report the economic development benefits 

to our public sector investors. 

Over the past two years, our results include: 
9 

• 1800 homes remodeled for energy efficiency 

• 800 workers receiving paychecks, including 180 direct construction newhiresthis is in a sector of our economy that, in Oregon, recently suffered a greater 

than 50% decline in employment 

• Average wages of $21/hour across multiple trades-from insulation installers to 

HVAC technicians to electricians to plumbers 

• Market growth of 5x 

• 30% average energy savings per home, generating over $500,000 annually into 

the pockets of participating citizens 

• $25 million in economic development 

• Four-to-one leverage on our Federal investment, primarily from private capital 

lenders 

All of these numbers are rising on a daily basis. 

We’ve been able to accomplish this because of the support from the US Dept. of 

Energy, State of Oregon, Energy Trust of Oregon, City of Portland, local governments and the Rockefeller Foundation. 

We’re proving a model where public sector investment delivered alongside private 

capital into energy efficiency pays dividends toward important American values: 

• Energy independence from reduced reliance on volatile fossil fuel markets 

• Small business growth 

• Revitalization of our housing market 

• Creation of local jobs that can’t be outsourced and that can pay family supporting wages to historically disadvantaged populations including women, minorities and veterans 

Here’s what we’re learning and what we’d like to convey to you: 

1. The utility sector, while a critical player in this market, is in a limited position to value the full set of benefits that are derived from energy efficiency. For 

example, economic development is not and cannot be fully valued by utility capital. Therefore, current utility investment alone is not sufficient to get us the 

gains in efficiency we need. Restructuring of the sector and its business models 

should be explored. 

2. Private capital can be unlocked, is widely available, and does not appear 

to need ongoing credit enhancement. What’s needed to attract private capital 

is smart program design, good quality control, robust data and ongoing financial 

support from the public sector. As you know, many financial institutions are sitting on cash and getting pressure from shareholders to earn returns. The government doesn’t need to be - and shouldn’t be-the capital provider for this sector. Incidentally, our experience is that local credit unions and regional banks 

are the pathway toward larger-scale investment. As demand and predictability 

grow, the Wall Street banks will join in, and a national market will emerge. 

3. The housing appraisal industry is beginning to recognize the value of energy efficiency improvements. We are making a dent in the turnaround of our 

housing economy. Once this starts to happen on a more predictable basis, demand will be steady. 

4. Consumers respond to rebates. We believe rebates above utility incentive 

levels are extremely effective and needed to lift the industry and transform the 

market, at least until home valuations routinely recognize the value of energy 

efficiency improvements (very similar to Cash for Clunkers). 

5. Private businesses are aiming their resources toward this growing market. 

Many of our contractors tell stories of reorienting their focus 3-4 years ago away 

from new home construction toward remodeling for energy efficiency. And they 

are seeing significant year-over-year growth. What these businesses need to 

continue investing is the predictability of knowing this market will be supported 

and sustained. 

Looking forward, we expect this market to stabilize and reduce its dependence on 

public investment. We expect, in Oregon, that State-level investment will begin to 

recognize the value of job creation in this sector by assuming the next position of 

key financial support for further market development. We have built a model that 

doesn’t rely on Federal investment to survive. However, it would be welcome, and 

it is clear that the combination of public sector capital alongside ratepayer dollars 

and private capital is a key to success of mobilizing a national energy efficiency industry. 

So how can the Federal government help? 
10 

• Given that utilities are regulated locally, the Federal government can promote 

industry standards that cut across state lines, like the measurement of non-energy benefits and universal data exchange protocols. • The Federal government can continue to engage the real estate community with 

development of tools like the Home Energy Score so there is transparency to 

consumers about energy costs of homes. • The Federal government could continue to invest financial resources in the 

emergence of the nascent energy efficiency industry, which holds tremendous 

promise as a valuable component of a 21st century energy policy that recognizes 

American job creation in balance with energy independence from the increasingly volatile commodity markets for fossil fuels. • And, finally, the Federal government can promote the value of energy efficiency. 

Imagine a national advertising campaign that links energy efficiency to patriotism, a la the Victory Gardens campaign from World War II. 

In closing, I would like to thank you for your hard work in creating solutions to 

our country’s energy needs, and for your support of energy efficiency as a key piece 

of the puzzle going forward. 

The CHAIRMAN. Thank you very much. 

Mr. Rodgers, go right ahead. 

STATEMENT OF WILLIAM A. RODGERS, JR., PRESIDENT AND 

CEO, GOODCENTS HOLDINGS, INC., ATLANTA, GA 

Mr. RODGERS. Mr. Chairman, members of the committee: My 

name is Bill Rodgers and I am the President and CEO of 

GoodCents Holdings. GoodCents is headquartered in Atlanta, Georgia, and has provided operations in over 20 States and in Canada 

just in the past year. I thank you for the opportunity to testify before you today on the very important topic of energy efficiency. 

Energy efficiency programs can and do exist independent of Federal financing and incentives. Our company has been in existence 

for over 30 years and our continued growth over that period is clear 

evidence of the role market forces can have in driving energy efficiency programs. 

During that time, we have provided multiple types of demand 

side management programs, such as energy efficiency, to over 150 

investor-owned utilities, cooperatives, and municipalities, as well 

as their customers. We have over 400 employees focused daily on 

assisting businesses and residents in conserving and better utilization of their energy requirements. 

Our involvement covers the full spectrum of services, from initial 

program design to the critical marketing services targeted at customer education and enrollment into the programs; to the field implementation and the ultimate measurement and verification of the 

actual savings achieved, which is used to report back to the respective regulatory bodies. 

With the focus of this hearing to review non-Federal programs 

for financing energy efficient building retrofits, I would like to review a few items. While there are several alternatives to replace 

or supplement Federal funding and support of various programs, 

such as performance contracting, equipment-based loans, on-bill financing, and the type, there is a key driver to the ultimate success 

of these programs. Essentially, where we have experienced the 

greatest level of achievement in terms of customer acceptance and 

collaboration is in States where clear standards have been established. 

In our experience, the most successful programs are those in 

which States establish energy efficiency resource standards and 
11 

then allow the marketplace to develop the best methods to achieve 

those goals. The collaboration comes through a strong alignment of 

interests of the State, regulators, utilities, commercial and industrial businesses, and the residents, along with the private sector 

service provision. 

Programs are developed that properly focus on maximizing the 

energy savings through targeting the effective rate of return on the 

investments made through these various retrofit projects. 

Energy efficiency remains America’s cheapest, cleanest, and 

readily deployable energy source when compared to any other supply side generation, where costs have continued to rise. We can reduce the costs for both the consumer and the utility, eliminate pollution, and create green jobs, all without Federal dollars. 

A current example of such an initiative is being delivered across 

the State of Indiana. In 2009, the State of Indiana joined many 

other States to establish long-term Energy Efficiency Resource 

Standards. These standards set forth energy savings targets with 

very specific timetables for achievement. Once the standards were 

established, Indiana undertook an exhaustive effort to review their 

options for that achievement. Their model evaluated the need for 

a true partnership of all stakeholders in order to achieve their ultimate goals. 

They established a Demand Side Management Coordination 

Committee of the Indiana Utility Regulatory Commission made up 

of representatives from each of the utilities, local municipalities, 

and consumer groups throughout the State. They went to the marketplace to bid and ultimately select an independent third party 

administrator for the statewide initiative. 

Our company GoodCents was selected to reduce energy use by 

more than 1.2 million megawatt hours over just the first 2 years 

of the contract period. Branded ‘‘Energizing Indiana,’’ the initiative 

is a united effort by the State, participating utilities, businesses, 

and consumer organizations to offer energy efficiency programs 

that will benefit communities across the State. 

This extensive, statewide suite of 5 core energy efficiency programs includes: commercial and industrial retrofits; residential 

home energy assessments; income-qualified weatherization services; lighting expansion through over 300 retail participating outlets across the State; and energy education programs and commercial building assessments for Indiana schools. 

The power of offering an integrated approach most definitely 

drives additional benefit and savings for the customers. The Energizing Indiana program has also created a significant number of 

new jobs for Indiana residents. The program will directly hire over 

150 positions directly out of the Indiana work force. In addition, 

when efficiency improvements are made as a result of the assessments that are done, the work is performed by local professionals, 

which means that the dollars stay in the local community. 

Similar to our efforts in Indiana, many other States have established their own energy efficiency resource standards. Once these 

goals and standards have been set, they then developed the proper 

alignment between all of the stakeholders to drive toward their aggressive goals. This allows for the best thinking to be put toward 

the market-based program requirements versus establishing Fed-
12 

eral prescriptive programs that become very difficult to effectively 

deliver. Costs of these programs go through the regulatory system 

for proper review and inclusion in the local rate structure. The 

market ultimately drives the programs, the participation, and the 

returns once those standards have been established. 

Thank you for your time. 

[The prepared statement of Mr. Rodgers follows:] 

PREPARED STATEMENT OF WILLIAM A. RODGERS, JR., PRESIDENT AND CEO, 

GOODCENTS HOLDINGS, INC., ATLANTA, GA 

GoodCents Overview 

Mr. Chairman and members of the Committee on Energy and Natural Resources, 

my name is Bill Rodgers and I am the President and CEO of GoodCents Holdings, 

Inc. GoodCents is headquartered in Atlanta, Georgia and has provided operations 

in 20 states and Canada over the past year. I thank you for the opportunity to testify before you today on the important topic of energy efficiency. 

Energy efficiency programs can and do exist independent of federal financing and 

incentives. Our company has been in existence for over 30 years and our continued 

growth over that period is clear evidence of the role market forces can have in driving EE programs. During that time we have provided multiple types of Demand 

Side Management programs such as energy efficiency to over 150 Utilities and their 

customers. Our Utility customers include Investor Owned, Co-operatives and Municipalities. We have over 400 employees located across our country and in Canada 

who wake up each and every morning focused on assisting businesses and residents 

in conserving, and better utilization of, their energy requirements. Our company 

partners with both electric and gas Utilities to deliver the most effective programs 

targeted at reducing their energy footprint. Just samplings of some of the programs 

we deliver are: 

• Facility Audits (both residential and commercial) 

• Income Qualified Weatherization 

• Equipment Efficiency Studies 

• Retrofit Programs for Commercial and Industrial 

Lighting 

H.V.A.C. 

Equipment (motors, drives, refrigeration etc.) 

• Trade Ally Network development and management 

• Energy End Use Studies 

Our involvement covers the full spectrum of services: From initial program design, 

focusing on the delivery of the required or targeted savings; to the critical marketing 

services, targeted at customer education and enrollment into the programs; to the 

field implementation and the ultimate measurement and verification of the actual 

savings achieved which is used to report back to the respective regulatory body. 

With the focus of this hearing to review non-federal programs for financing energy 

efficient building retrofits, I would like to review several items. While there are several alternatives to replace or supplement federal funding and support of various 

programs (such as performance contracting, equipment based loans, on-bill financing, etc.) there is a key driver to the ultimate success of these programs. Essentially, 

where we have experienced the greatest level of achievement in terms of customer 

acceptance and collaboration is in the states where clear and precise standards have 

been established. In our experience the most successful programs are those in which 

a state establishes Energy Efficiency Resource Standards (EERS) and then allows 

the marketplace to develop the best method to achieve those goals. 

To date, 26 states have established EERS. 

The collaboration comes through the strong alignment of interests of the state, 

regulators, Utilities, commercial and industrial businesses and residents, along with 

the private sector service provision. Programs and models are developed that properly focus on maximizing the energy savings through targeting the effective rate of 

return on the investments made through various retrofit projects.. Energy efficiency 

remains America’s cheapest, cleanest, and fastest energy source when compared to 

any other supply side generation where costs have continued to rise. We can reduce 

costs for both the consumer and utility, eliminate pollution and create green jobs 

all without federal dollars. A current example of a successful Initiative that doesn’t 

require any federal financing is being delivered across the State of Indiana. 
13 

Energizing Indiana Overview 

In 2009, the State of Indiana joined many other states, and since that time many 

others have followed, to establish long-term Energy Efficiency Resource Standards 

(EERS). Please see the map of the current State EERS on page 16 of this testimony. 

These standards set forth energy savings targets with specific timetables for 

achievement. Once the EERS were established, Indiana undertook an exhaustive review of their options for achievement. Their model evaluated the need for a true 

partnership of all stakeholders in order to achieve their ultimate goals. They established a Demand Side Management Coordination Committee (DSMCC) of the Indiana Utility Regulatory Commission (IURC) made up of representatives of each of 

the Utilities, municipalities and consumer groups in the state. They went to the 

marketplace to bid and ultimately select an Independent Third Party Administrator 

for their statewide initiative. GoodCents was selected and entered into a contract 

targeted to reduce energy use by more than 1.2 million MWh over the first two contract years of 2012 and 2013. Branded ‘‘Energizing Indiana,’’ the initiative is a 

united effort by the state, participating Utilities, businesses and consumer organizations to offer energy efficiency programs that will benefit communities across the 

state. 

This extensive, state-wide suite of five core energy efficiency programs includes: 

Commercial & Industrial Prescriptive program on the most energy consuming 

equipment and process improvements, Residential Home Energy Assessments, Income-Qualified Weatherization Services, Residential Lighting expansion through 

over 300 participating retail locations, and both Energy Educational Programs and 

Commercial Building Assessments for Indiana Schools. 

As administrator, GoodCents is coordinating, managing, implementing and reporting on this core suite of programs designed to meet the annual energy savings goals 

identified for each participating Utility. In addition, the Utilities also offer other 

‘‘Core Plus’’ programs directed toward expanding to an even greater suite of energy 

efficiency services that GoodCents works to educate the ultimate customers on the 

combined value. GoodCents has built a world-class team of experienced professionals from across the state and is managing the program from four Indiana offices 

in Indianapolis, Merrillville, Fort Wayne, and Evansville. 

GoodCents believes that by consolidating energy efficiency programs into one core 

initiative, Energizing Indiana has the power to benefit many Utility customers; from 

industry to businesses, and schools to homeowners. The power of offering an integrated, more tailored approach most definitely drives additional benefit and savings 

for the customers. We see other states following Indiana’s lead of program consolidation because of the efficiency and continuity gained by the scale of operations. One 

of the most important operational components of these Utility-sponsored programs 

is the focus on energy savings data-gathering, retention, and validation attributable 

to each Utility customer. 

The Energizing Indiana program has also created a significant number of new 

jobs for Indiana residents; the program has to date directly hired over 100 management, administrative, and technical positions from the Indiana workforce. In addition, when a business or home makes efficiency improvements as a result of assessment programs, the work is performed by local professionals; that means dollars 

spent stay in the community. 

Approach to Market 

Through years of experience, GoodCents has identified a variety of tools that are 

effective in engaging customers and changing their behavior resulting in optimal 

program enrollment. The key to a program’s success is establishing a strong marketing campaign that spans across multiple marketing channels and provides multiple touches to Utility customers to increase both awareness and activity. In addition, it is essential to develop an enrollment channel that is easy and convenient 

for customers to use. 

Effective marketing is the key to robust participation. GoodCents has a complete 

array of marketing capabilities including print collateral design and production, social marketing programs (community engagement programs, social media implementation, local enrichment programs, etc.), and electronic communications to include 

website development, landing pages, email campaigns, and online program administration. In many programs, incentives are used to drive higher response rates 

through both direct mail and community enrichment. 

GoodCents also works with Utilities to establish program awareness through social marketing platforms and pushes to engage local newspapers for additional support. In addition we use resources such as social media sites like Facebook, Twitter, 

and YouTube to raise awareness of the energy efficiency and demand response programs. GoodCents works with the Utility to build a program webpage that provides 
14 

program information and allows the customers to enroll. In addition, we piggy-back 

some program marketing approaches with any of the Utility’s current and future 

media campaigns or marketing efforts. 

When working within the energy efficiency business the key to gaining both commercial and residential customer acceptance is in educating them as to the benefits 

of the programs, allowing them to understand the financial impact and return on 

their investment as well as working to make the process participation simple. 

Types of Programs Delivered 

Demand Response Programs 

LOAD CONTROL PROGRAMS

For more than three decades, GoodCents has been a valued partner for Utilities 

implementing demand response programs. In addition to advanced and emerging 

smart grid technologies, the Company installs and commissions a wide array of demand response devices, including communicating thermostats, water heater and 

pool pump controllers, and internet gateways, across a range of protocols and communications mediums. Active programs being delivered in California, Georgia, Illinois, Indiana, Kentucky, North Carolina, Ohio, Oklahoma, South Carolina and Virginia. Recently completed programs were also in Nevada and Washington. 

HOME AREA NETWORKING

Home area networks connect all aspects of the home to best understand how and 

where and to what degree energy is being used. A home area network is a network 

of energy management devices, digital consumer electronics, signal-controlled or enabled appliances, and applications within a home environment on the home side of 

the electric meter. GoodCents utilizes its decades of experience in demand response 

and working inside the home to leverage the optimal solutions for our customers in 

establishing the most effective home area networks to allow for maximum understanding of usage. We work with our Utility clients to identify, enroll and implement the networks as well as analyze the data for meaningful future program 

usage. Current programs in Arizona and Texas. 

ADVANCED METERING INFRASTRUCTURE

GoodCents’ Advanced Metering Infrastructure offering combines smart meter deployment, infrastructure component installation, proprietary scheduling and routing 

applications, and customer call centers. The combined offering ensures the most efficient deployment of smart grid programs, and positions GoodCents as an important 

link between the Utility and its customers. 

Energy Efficiency Programs 

INCOME QUALIFIED WEATHERIZATION

GoodCents’ Income-Qualified Weatherization programs utilize a combination of a 

well-defined, standardized in-home measure installations process and a solid, longstanding analytic software tool. Our program delivery may include combustion safety testing, blower door guided air sealing, arranging for attic insulation, and providing conservation education and encouraging adoption of energy efficiency measures. Active programs are being delivered in Florida, Indiana, North Carolina and 

Virginia. 

RESIDENTIAL ENERGY ASSESSMENTS

GoodCents believes that on-site energy assessments provide the best opportunity 

to reshape the energy usage habits of all customers. Our highly trained and experienced technicians perform detailed site surveys and work closely with the customer 

to install energy efficiency measures as determined by the Utility and their customers. 

Along with installing measures, we are also capable and equipped to conduct inout testing for implementation-style assessments such as weatherization, duct repairs, ceiling insulation and more. GoodCents generally uses six common elements 

for on-site energy efficiency programs, pre-visit and authorization, home health and 

safety, installed measures, energy audit inputs, energy audit analytic engine, and 

homeowner’s energy report. Active programs are being delivered in Indiana, Ohio 

and West Virginia. 
15 

SIX COMMON ELEMENTS OF GOODCENTS ON-SITE ENERGY EFFICIENCY PROGRAMS

Commercial & Industrial Energy Assessments 

GoodCents’ Commercial and Industrial programs include prescriptive and custom 

incentive structures that reward participants with monetary incentives based on 

their installation of energy efficiency equipment upgrades. These upgrades include 

lighting, motors and pumps, HVAC, and potentially other equipment such as ENERGY STAR® transformers and efficient package refrigeration. Incentives will be 

provided for one-for-one replacements, retrofits and new installations of qualified 

equipment. 

The objectives of the C&I Prescriptive Program are to: 

• Lower electric energy consumption in the C&I market sector. 

• Help C&I customers decrease their overall energy costs. 

• Build market-based activity that captures near- and long-term energy and demand savings. 

• Encourage equipment vendors and contractors to actively promote and install 

energy efficient technologies for their C&I customers. 

To assist C&I customers in reducing their electric energy costs, the GoodCents 

team provides program participants with technical assistance accessible through Resource Managers working directly with their site as well as a toll-free customer 

service line. The technical assistance can include helping to understand the return 

on their potential investments, answering general questions regarding the program, 

evaluating available program incentives, verifying program eligibility, and/or connecting them with potential local installation contractors that are familiar with and 

participating in the program. Active Programs are being delivered in Indiana, Kentucky, North Carolina, Ohio, South Carolina, Virginia and West Virginia. 

REBATE PROGRAMS

The goals of the rebate program offered by GoodCents are to provide Utilities and 

their customers with an avenue to reduce energy and demand requirements, save 

money on electric bills, and meet reduction goals set forth by state legislatures and 

commissions. To accomplish these goals, the GoodCents rebate program offers a 

complete turn-key offering from the marketing aspect through rebate check processing. Our rebate offerings can either be fully customizable or a standard prescriptive based program. Similar active programs as listed in the commercial energy assessments. 

Conclusion 

Similar to our efforts in Indiana, many other states have established their own 

Energy Efficiency Resource Standards. Once these goals and standards have been 

set they then developed the proper alignment between the state, regulators, local 

communities, Utilities, industrial and commercial businesses and the residential 

customers to drive towards their aggressive goals. This allows for the best thinking 

to be put towards the market-based program requirements versus establishing federal prescriptive programs that become difficult to realize ultimate success. Costs 

of these programs go through the regulatory system for proper review and inclusion 

in the local rate structures. The market ultimately drives the programs, participation and returns once the standards are established. 

The CHAIRMAN. Thank you very much. 

Ms. Borelli, go right ahead. 

STATEMENT OF SHERI BORRELLI, SENIOR BUSINESS DEVELOPMENT PROFESSIONAL, THE UNITED ILLUMINATING COMPANY, ORANGE, CT 

Ms. BORRELLI. Thank you. Good morning, Mr. Chairman, Senator Murkowski, members of the committee. Thank you for the opportunity to appear before you today to discuss financing energy efficient building retrofits. My name is Sheri Borrelli and I represent 

The United Illuminating Company. UI is an investor-owned electric 

distribution company serving approximately 300,000 customers in 

southern Connecticut. UI also administers energy efficiency pro-
16 

grams funded by a 3 mil per kilowatt hour charge that is referred 

to as the Connecticut Energy Efficiency Fund. 

I am here today to familiarize you with the Small Business Energy Advantage Program. This is one of our many programs that 

we serve as administrator of the Efficiency Fund. This program has 

been designed to provide cost-effective turnkey energy services to 

various types of small businesses. 

This program features a network of vendor contractors provided 

by UI that provide energy efficiency proposals and services to our 

customers. These contractors provide a no-obligation energy evaluation identifying the potential energy-saving retrofit measures, the 

available incentives, and various financing options. These proposals 

will include dollars from the Efficiency Fund for a portion of the 

cost of the installation as it is determined by the energy savings 

that will be achieved. The greater level of comprehensive a project, 

the higher the incentive. 

The objective is to offer the customer a proposal where there is 

no or little out of pocket expense and create a positive cash-flow 

scenario, which results in lowering their electric bill. Another benefit is that once the loan is paid off, usually within 3 to 4 years, 

the customer will be—the customer’s bill will be less, reflecting the 

efficiency upgrades. 

Although the program itself is a critical delivery mechanism, the 

innovative part of the program is the financing with the convenience of on-bill financing. The loans to the customer are interestfree. Interest-free loans are possible since the interest expense of 

6.3 percent is bought down by the Efficiency Fund. Repayment of 

the loan is made as part of the customer’s electric bill. 

To quality for the loan, the customer must have a good utility bill 

repayment history for the most recent 6 months. The most unique 

feature about the loan payment is the source of capital. UI provides 

the funds that are loaned to the customer. The Efficiency Fund is 

used as a loan loss reserve fund, allowing UI to recover any losses 

from the defaulted loans pending quarterly review from the Public 

Utility Regulatory Authority. 

The interest paid to UI on the outstanding loans to UI’s aftertax cost of capital, a mix of debt and equity, is the same rate the 

utility would earn on investments on the distribution system equipment. 

Although we operate a very innovative financing program, we are 

not resting on our laurels. We are working with the Clean Energy 

Finance and Investment Authority in Connecticut, which is operating as a green bank to identify other sources of capital that 

might be beneficial to our customers. Among these opportunities is 

a commercial version of the Property Assessed Clean Energy. We 

are looking toward developing a portfolio approach to providing our 

customers with financing solutions for energy efficiency projects. 

UI has a strong tradition of offering successful energy efficiency 

programs and the long-proven success of our small business model 

has been replicated nationally and researched internationallyl. If 

replicated, this program can also result in job creation on a national scale. 

Thank you for inviting me here today to testify. 

[The prepared statement of Ms. Borrelli follows:] 
17 

PREPARED STATEMENT OF SHERI BORRELLI, SENIOR BUSINESS DEVELOPMENT

PROFESSIONAL, THE UNITED ILLUMINATING COMPANY, ORANGE, CT 

This testimony is being presented on behalf of The United Illuminating Company 

(UI), an investor owned electric distribution company in Connecticut. UI administers energy efficiency programs funded by a 3 mil per kilowatt hour charge that 

is referred to as the Connecticut Energy Efficiency Fund. The program being discussed is the Small Business Energy Advantage Program offered to customers since 

the year 2000. This program has been designed to provide cost effective, turn key 

energy services to various types of small businesses. The program features a network of vendors contracted by UI that provide energy efficiency proposals and services to the customers. These contractors provide a no obligation energy evaluation 

identifying the potential energy saving retrofit measures, the available incentives 

and various financing options. These proposals will include incentive dollars from 

the Efficiency Fund for a portion of the cost of the installation as determined by 

the energy savings achieved. The objective is to offer the customer a proposal where 

there is no or little out of pocket expense and create a ‘‘positive cash flow’’ scenario, 

which results in lowering their electric bill. 

Mr. Chairman, Senator Murkowski and Members of the Committee, thank you for 

the opportunity to appear before you today to discuss financing energy efficient 

building retrofits. My name is Sheri Borrelli, and I represent The United Illuminating Company. United Illuminating (UI) is an investor owned electric distribution company serving approximately 300,000 customers throughout seventeen (17) 

towns and cities in southern Connecticut. UI also administers energy efficiency programs funded by a 3 mil per kilowatt hour charge that is referred to as the Connecticut Energy Efficiency Fund. The Energy Efficiency Fund was created in 1998 

with the purpose of helping small and large businesses, homeowners and renters to 

promote, encourage, and facilitate the adoption of energy efficient technologies and 

behaviors. The programs are designed to help customers manage their energy usage 

and cost. These energy efficiency programs offered through the Energy Efficiency 

Fund play a vital economic role for Connecticut. 

I am here today to familiarize you with one of the programs we operate as part 

of our role of program administrator for the efficiency programs, the Small Business 

Energy Advantage program. Since its inception in 2000, this program has been designed to provide cost effective, turn key energy services to the various types of 

small businesses within UI’s service territory. Some examples of qualifying small 

business would be ‘‘various mom and pop’’ stores, houses of worship, retail spaces, 

convenience stores, gas stations, restaurants, apartment building common areas and 

non-profit organizations. 

Typically, these businesses will have an average monthly electric utility bill from 

$150.00 up to $25,000.00 if they are a small manufacturing company. The program 

features a network of vendors contracted by UI that provide turn key energy efficiency proposals and services to the customers. These contractors provide a no obligation energy evaluation identifying the potential energy saving retrofit measures, 

the available incentives and various financing options. These proposals will include 

incentive dollars from the Efficiency Fund for a portion of the cost of the installation 

as determined by the energy savings achieved. The more comprehensive a project, 

the higher the incentive, for example a lighting only project incentive may be approximately thirty (30%) and for a comprehensive lighting, refrigeration and Heating Ventilation and Air Conditioning (HVAC) project incentives may be forty (40%) 

to fifty (50%). In most cases, these comprehensive projects max out at the fifty (50%) 

incentive level for multiple technologies. Zero (0%) financing with on bill repayment 

is available to all qualified customers. 

The objective is to offer the customer a proposal where there is no or little out 

of pocket expense and create a ‘‘positive cash flow’’ scenario, which results in lowering their electric bill almost, if not, immediately and the energy savings achieved 

each month offsets the payment. Another benefit is that once the loan is paid off 

(usually in 3 or 4 years), the customer’s bill will be less reflecting the efficiency upgrades that were installed. The minimum loan amount offered to the customer is 

$500, and the maximum loan is $100,000. Another appealing feature of the Small 

Business Energy Advantage Program is the ability to offer a loan term up to forty 

eight (48) months. (an example of a recent project comparing pre and post installation consumption is included as part of this testimony). 

Although the program itself is a critical delivery mechanism, the innovative part 

of the program is the financing with the convenience of on-bill repayment. The loans 

to the customer are interest free (0%). Interest free loans are possible since the interest expense of 6.3% is bought down by the Efficiency Fund. Repayment of the 

loans is made as part of the customer’s electric bill. The loan qualification is a good 
18 

utility bill repayment history for the most recent six months. The loans are fully 

transferrable and assumable. This particular feature is noteworthy especially since 

eighty (80%) of our customers enrolled in this program are tenants. 

The most unique feature about the loan program is the source of the capital. The 

utility, UI, provides the funds that are loaned to the customer. The Efficiency Fund 

is used as a loan loss reserve fund, allowing the utility to recover any losses from 

defaulted loans pending quarterly review by Connecticut’s Public Utilities Regulatory Authority (PURA). 

The interest paid to the utility on the outstanding loans is UI’s after tax cost of 

capital (a mix of debt and equity) the same rate the utility would earn on investments on distribution system equipment. By making investments in energy efficiency appear similar to traditional utility investments, the utility is encouraged to 

invest in energy efficiency. 

Although we operate a very innovative financing program, available to our Municipal customers as well, we are not resting on our laurels. We are working with the 

Clean Energy Finance and Investment Authority in Connecticut, an innovative 

‘‘Green Bank’’ to identify other sources of capital that might be beneficial to customers. Among those opportunities is a commercial version of Property Assessed 

Clean Energy (PACE). The PACE model may prove to be beneficial in certain circumstances. We are looking toward developing a portfolio approach to providing customers with financing solutions for energy efficiency projects. 

UI has a strong tradition of offering energy efficiency programs, and the long term 

proven success of our Small Business Model has been replicated nationally and researched internationally, and our vendor network, if replicated could result in job 

creation on a national scale. 

The impact of financing for energy efficiency for small businesses can be shown 

through these statistics, approximately ninety-four (94%) of our customers qualify 

for the financing, and of this percentage, fifty (50%) decide to participate. In contrast, for those who do not qualify for the financing less than twenty (20%) participate. With the combination of incentives and 0% financing we have been able to empower the small business community to take the initiative to move to energy efficiency and in doing so we are able to utilize utility funds for the benefit of both 

the customers and the utility. 

Thank you for inviting me to testify today. I would be happy to answer any questions you may have. 

The CHAIRMAN. Thank you very much. 

Ms. LEEDS. 

STATEMENT OF SUSAN LEEDS, CHIEF EXECUTIVE OFFICER, 

NEW YORK CITY ENERGY EFFICIENCY CORPORATION, NEW 

YORK, NY 

Ms. LEEDS. Thank you for inviting me here today. 

The New York City Energy Efficiency Corporation’s mission is to 

help New York City achieve its energy and climate action goals by 

catalyzing an energy efficiency retrofit financing market for private 

building owners. We focus on financing commercial and multi-family retrofits in buildings of over 50,000 square feet. 

Energy efficiency retrofits require up-front capital investment 

and the payback happens over time. Although up-front costs and 

lack of financing are often cited as barriers, I must emphasize that 

the availability of financing is only one component of what is necessary to ensure retrofit growth. Demand is also critically necessary, as is information on building energy use and retrofit performance. 

Barriers to energy efficiency finance differ by building segment, 

but it is generally true that there must be a credible source of repayment. The flow of financing for commercial retrofit projects is 

hampered by the absence of collateral with significant value in the 

event of default and by borrowers who are not by their nature creditworthy entities with strong balance sheets. High transaction 
19 

costs, limited performance data, and preexisting liens on real property are complicating factors. 

What is NYCEEC’s strategy to address this challenge? We are a 

nonprofit public-private partnership. We are an example of the 

type of specialized organization that is necessary to develop effective energy efficiency financing programs, which we believe involves managing both energy efficiency technical risk and real estate finance risk and capturing data on the financial value of energy efficiency investments. 

We are partnering with private financial institutions to leverage our core capital of approximately $40 million, primarily from Federal stimulus funds, for greatest impact. We are piloting new financial products that we believe are replicable at scale. This work is 

generally not being undertaken by the private financial sector, primarily due to high transactions costs, unproven revenue streams, 

and a currently conservative credit culture. 

We are using two main strategies. We are providing credit enhancement in the form of loan loss reserves to mitigate risks that 

lenders currently won’t accept; and we are also offering loans 

where capital for retrofits is scarce, high cost, or unavailable. 

We are currently working with 3 specific financing products. Energy services agreements have historically been used by the ESCO 

industry, along with performance contracting, to finance retrofits. 

We are applying a modification of this approach to the commercial 

real estate sector, which we call ‘‘ESA Version 2.0,’’ in which a 

third party project sponsor invests in the energy savings potential 

in a building directly, although they do not own that building. This 

is a sophisticated approach that makes the most sense for capitalintensive projects. 

Unsecured lending for retrofits is not new and is primarily applicable to high credit quality borrowers, such as the MUSH sector. 

We believe this is an important tool, but not a solution for scaling 

retrofit financing for commercial buildings. 

Energy efficient mortgages allow building owners to borrow specifically for building retrofits on top of a conventional loan. This 

may be achieved by increasing the base loan amount at the time 

of refinancing or by providing a supplemental loan in conjunction 

with the first mortgage. 

Conventional mortgage lenders are not providing this form of finance today. By providing credit enhancement to mitigate savings 

risk and by bringing energy efficiency technical expertise to lenders, we are helping lenders systematically incorporate retrofits into 

the mortgage lending process. We believe this is a highly scalable 

solution. 

Programmatic approaches that we are not currently deploying 

but would like to in the future include PACE for commercial buildings and on-bill financing programs implemented through the regulated utilities. 

What have we learned so far? We commenced operations 1 year 

ago. We have closed transactions and are working on many more. 

There is demand for the financing products that we support. However, base demand for retrofit investment is an issue. This means 

that more information and education is required to propel building 

owners to act. Lenders generally require some form of credit en-
20 

1 Note that this analysis is based on an assumption of 30% energy savings in buildings built 

before 1980. Fulton, Mark and et al. ‘‘United States Buiding Energy Efficiency Retrofits: Market 

Sizing and Financing Models.’’ The Rockefeller Foundation and Deutsche Bank Climate Change 

Advisors, March 2012. 2Granade, Hannah Choi and et al. ‘‘Unlocking Energy Efficiency in the U.S. Economy.’’ 

McKinsey & Company, July 2009. http://www.mckinsey.com/clientlservice/ electriclpowerlandlnaturallgas/ latestlthinking/ 

unlockinglenergylefficiencylinlthelusleconomy. 

hancement to finance most commercial energy efficiency projects. 

Individual transactions costs are high. Thus it is critically important to promote programmatic approaches. 

The retrofit market is highly fragmented and no one financing 

product will suit the needs of all owners and major tenants. There 

is need for both modification of standard financial products and for 

new and innovative approaches. 

My observation is that most policy drivers for building retrofits 

are happening at the municipal and State level. That said, 

NYCEEC would not exist without Federal stimulus funding. 

What can the Federal Government do to help? Consider adjusting tax policy with the objective of driving demand for commercial 

retrofits through tax incentives. Encourage the GSE’s to develop 

energy efficiency lending strategies. Expand efforts to aggregate 

and provide public access to data on retrofits and building energy 

performance. Finally, provide continued financial support through 

Federal grant funding to emerging programs that are demonstrating success. 

Thank you. 

[The prepared statement of Ms. Leeds follows:] 

PREPARED STATEMENT OF SUSAN LEEDS, CHIEF EXECUTIVE OFFICER, NEW YORK CITY

ENERGY EFFICIENCY CORPORATION, NEW YORK, NY 

Introduction Thank you for inviting me to testify on innovative non-federal programs for financing energy efficient building retrofits. 

My name is Susan Leeds, and I am the Chief Executive Officer of the New York 

City Energy Efficiency Corporation. I have worked in energy efficiency financing for 

the past four years in various capacities including advocacy, consulting, financial 

transaction execution, and business management. My prior professional experience 

spans capital markets, municipal finance and financial guaranty insurance. 

The New York City Energy Efficiency Corporation - we call ourselves ‘‘NYCEEC’’ 

- was created as an independent non-profit corporation by New York City’s Office 

of Long-term Planning and Sustainability. Our mission is to help New York City 

achieve its energy and climate action goals by catalyzing energy efficiency retrofit 

financing markets for private building owners. We were created because our City 

leaders believe that New York City residents can reap economic and environmental 

benefits through greater investment in energy efficiency in existing buildings, and 

that insufficient financing is a barrier to such investment. 

What is the potential for energy efficiency investment? 

Retrofitting commercial buildings to make them more energy efficient is widely 

acknowledged to have multiple benefits to building owners, occupants and the community at large. Yet actual investment in energy efficiency measures remains well 

below potential. 

In March 2012, the Rockefeller Foundation and the Deutsche Bank Group published a report, titled, ‘‘United States Building Energy Efficiency Retrofits, Market 

Sizing and Financing Models.’’1 This report provides a ‘‘snapshot’’ of the current investment potential in building retrofits of $279 billion dollars or approximately 3 

trillion BTUs of annual energy savings, with $97 billion of this investment potential 

residing in the commercial and institutional building sectors. Studies vary in methodology, but in comparing these figures to the U.S. energy efficiency potential study 

published by McKinsey in 2009, we find reasonable consistency.2
21 

* All figures and tables have been retained in committee files. 

3Fulton 7. 

4 Hesser, Theodore Gates. ‘‘Is debt financing opening up for energy efficiency?’’ Energy Smart 

Technologies-Built Environment-Research Noe. Bloomberg New Energy Finance, 25 April 2012. 5 Hesser 2. 

6For the past six years, Johnson Controls has conducted an annual, global Energy Efficiency 

Indicator survey that tracks the energy priorities and investments by executives from the commercial, industrial and institutional sectors. The survey results have consistently cited limited 

capital availability as the most significant barrier to businesses undertaking energy efficiency 

investments. In 2012, there were 1,139 respondents in the U.S. and Canada. There were nearly 

3,500 respondents worldwide in 2012. ‘‘Energy Efficiency Indicator Survey: U.S./Canada Results.’’ Johnson Controls Institute for Building Efficiency, 2012. <http://www.institutebe.com/ 

InstituteBE/media/Library/Resources/Energy%20 Efficiency%20 Indicator/2012-EEI-UnitedStates-and-Canada-Fact-Sheet.pdf>. 7 Johnson Controls Institute for Building Efficiency 2012. 

** All charts have been retained in committee files. 

Figure 1.* What is the energy efficiency investment potential?3

However, actual investment is significantly lower. According to research published 

by Bloomberg New Energy Finance, approximately $18-20 billion was invested in 

energy efficiency projects in the U.S. in 2010.4 An estimated $3.5 to 5.5 billion of 

this amount is direct spending by homeowners, landlords, small business owners, 

real estate companies and corporations. Approximately 25% (or $4.5-5 billion) was 

funded through debt financing-primarily municipal debt associated with energy performance contracting. Innovative financing approaches, which comprise NYCEEC’s 

core mission, accounted for only 3% of non-owner equity funding sources. 

Figure 2. What is the actual level of energy efficiency investment? (2010)5

What is the role of financing? 

Energy efficiency retrofits require upfront capital investment, and the payback 

happens over time in the form of energy cost savings and improved property values. 

The ‘‘upfront cost’’ factor and lack of targeted financing options for building efficiency projects are consistently cited as barriers to the growth of energy efficiency 

retrofit markets.6

In Johnson Controls’ 2012 ‘‘Energy Efficiency Indicator Survey,’’ U.S. and Canadian executives cited a lack of funding as the most significant barrier to undertaking energy efficiency investments (37%), followed by insufficient payback/return 

on investment (21%). 7

As previously mentioned, in 2010, only 25% of the total U.S. energy efficiency expenditure was financed via debt, and this was concentrated among high credit quality institutions. In comparison, the $16 trillion U.S. housing market is financed 60% 

via debt through mortgages. We conclude that a paucity of financing is likely to prevent energy efficiency investment from reaching its full potential. 

That said, I must also emphasize that availability of financing options is only one 

component of what is necessary to ensure increasing throughput of retrofit activity 

across building sectors. Demand is also critically necessary, which in my experience 

must be supported by local policy drivers, a skilled workforce, including a robust energy audit profession, information on building energy use and retrofit performance, 

and effective service delivery business models for project implementation. 

Why is so little capital provided to this sector through financing today? 

Barriers to energy efficiency finance differ by building segment. However, it is 

generally true that there must be a credible source of repayment, either through a 

strong balance sheet or supported by assets with collateral value. The flow of financing for commercial retrofit projects is hampered by the absence of collateral with 

significant value in the event of default (in contrast to mortgage or auto lending), 

and by borrowers who are not creditworthy entities (these are often limited liability 

entities in the commercial real estate sector). Further, high transactions costs, limited performance data and pre-existing liens on real property are additional complicating factors. Split incentives, and in some regions, low energy prices reduce the 

economic feasibility of projects. 

The chart** below enumerates various barriers relevant to financing energy efficiency projects in large buildings: 

What is the strategy of New York City Energy Efficiency Corporation? 

NYCEEC is structured as a non-profit, public-private partnership, as reflected in 

our Board structure. We are an example of the type of specialized organization that 

is necessary to undertake the development of effective energy efficiency financing 

programs, which we believe involves managing both energy efficiency technical risk 

and real estate finance risk, and balancing policy objectives with the need to prove 

and capture data on demonstrable financial value of energy efficiency investments. 

Figure 3. What is NYCEEC? 
22 

8 Community Development Financial Institutions 

Our goal is to partner with private financial institutions to leverage our core capital for greatest impact. While there are many government sponsored programs that 

promote energy efficiency, NYCEEC is novel because we are operating as a nonprofit specialized financing entity-with an ethos that balances risk management 

with customer-service. 

We are filling gaps in the availability of capital, and piloting partnerships and financial products that we believe are replicable, eventually at scale. This work is 

generally not being undertaken by the private finance sector (with the exception of 

certain CDFIs8), primarily due to high transactions costs, unproven revenue streams 

and a current reticence on the part of many financial institutions to participate in 

innovative financing structures (within means of mitigating credit risk). We are generating a return on our capital, albeit calibrated to our non-profit, mission purpose. 

We seek to maximize energy efficiency investment within our community by attracting commercial lenders to the sector. 

NYCEEC is using two main strategies to improve the availability of financing for 

building retrofits. We are providing credit enhancement to mitigate risks that commercial and mortgage lenders are currently unwilling to accept, and incentivize 

lenders to attribute value to energy efficiency investments. We are also offering 

loans (often in partnership with commercial lenders) to innovative applications of 

energy services agreements and unsecured or partially secured transactions, in 

cases where capital for technically sound energy efficiency investments is scarce, 

high-cost or unavailable. 

Figure 4. NYCEEC’s strategy 

What are the innovative financing approaches? 

I am going to briefly discuss five financing approaches that have merit for supporting the development of retrofit markets. We are working with three of these 

products at present: energy services agreements, energy efficiency mortgages, and 

unsecured lending. This reflects what is feasible today in New York City (without 

additional regulatory or legislative action) and what we believe has the greatest applicability to the building stock we are targeting: primarily multifamily, commercial 

and to a lesser extent, institutional buildings in NYC. 

First, I want to share my observation that the energy efficiency retrofit market 

is highly fragmented. There is no one predominant or obvious approach to financing 

that will suit the needs of all owners and major tenants. Market segmentation is 

absolutely necessary and not well-defined at this moment. 

There is need and opportunity for both modifications of standard financial products that can responsibly accommodate the retrofit process, and for new and innovative approaches that are specifically designed to facilitate investment in energy efficiency retrofits. There is important transactional activity underway representing initial progress in both of these categories of activity. 

Energy Services Agreements—have historically been used by the ESCO industry, 

along with performance contracting, to finance retrofits. The innovation we are interested in developing is applying a modification of this approach to the commercial 

real estate sector, which we call ‘‘ESA Version 2.0’’. In the ESA 2.0, a third party 

project sponsor funds the cost of improvements. These companies (and their capital 

sources) effectively invest in the energy savings potential in buildings directly, although they do not own the buildings. To varying degrees, they may assume the 

risk that the energy efficiency retrofit project will perform as expected and benefit 

from some or all of the ‘‘savings upside’’. Often, ESA payments from building owners 

are considered to be operating expenses, as opposed to debt payments per se. This 

is a sophisticated approach that, generally speaking, seems to make the most sense 

for capital intensive projects, e.g., chillers, boilers, electrical and control systems, 

automated energy management systems, certain envelope measures and co-generation. 

Unsecured lending—for energy efficiency projects and equipment is not new, and 

is primarily applicable to high credit quality borrowers including MUSH sector entities and high-quality corporates. This category includes commercial loans that are 

either unsecured or are flexible with respect to collateral, accepting equipment or 

collateral arrangements other than first or second liens on real property, and equipment finance including leasing arrangements. We believe that this is an important 

tool in our toolbox, but not a solution for scaling retrofit financing across the full 

range of commercial buildings. 

Energy efficient mortgages—allow building owners to add borrowings specifically 

for building retrofits on top of a conventional mortgage. This may be achieved by 

increasing the base loan amount at the time of a refinancing to accommodate the 

cost of specific energy efficiency improvements, or by providing a supplemental first 
23 

9 Hesser 7. 

10 Hesser 11. 11 Hesser 3. 12 Hesser 4. 

or a second lien loan for this purpose in conjunction with the first mortgage. 

Bloomberg New Energy Finance espouses the high potential of energy efficient 

mortgages, ‘‘... .the potential market for energy efficiency debt derived through 

energy efficient mortgages is greater than any other financing mechanisms . . . , 

and could theoretically total up to $270bn in outstanding energy efficiency debt on 

top of the $13.5tn US mortgage market.9

Few if any conventional mortgage lenders are providing this form of finance 

today. By providing credit enhancement to mitigate the risk of that retrofit measures won’t achieve projected cost savings, and by bringing technical expertise with 

respect to best practices for energy efficiency implementation to lenders, NYCEEC’s 

goal is to help lenders systematically incorporate the value of energy efficiency-related operating savings (and additional value attributes) into the mortgage lending 

process. This is a potentially highly scalable solution in that it is based on a modification to standard lending practices that are commonly used to finance buildings 

across various building sectors. Furthermore, we believe that this approach has good 

applicability in low- to moderate-income communities. 

Programmatic approaches that we are not currently deploying (but may in the future) include PACE commercial and on-bill financing programs through the regulated utilities. 

Property assessed clean energy (PACE)—programs employ the ability of local governments to assess properties for improvements that have public benefit. Given appropriate state-enabling legislation, this assessment capability can provide a voluntary mechanism that permits property owners to finance clean energy improvements, including efficiency improvements, on individual properties. The assessment 

is attached to the property, not the owner, and is paid back through the property 

tax system. The assessment has the same status as property taxes, and therefore 

is empowered to attach a lien to the property in the event of nonpayment that is 

senior to any existing mortgage debt. Assuming adequate demand for retrofit investment, the biggest issue in relation to uptake of this model is likely the requirement 

for lender acknowledgement or consent. PACE commercial programs all require 

some form of it, and this creates a barrier that many owners may not care to deal 

with, and some mortgage lenders may reject. 

On-utility bill financing—takes advantage of the important relationship that a 

utility already has with its building owner customers, and utilities often seek to increase penetration of existing energy efficiency programs by offering to finance 

measures on the utility bill. In essence, the upfront cost of efficiency upgrades is 

financed through a repayment charge on the monthly utility bill. In tariffed programs, the charge is tied to the meter, so the tariff stays with the property when 

the customer moves; in loan programs, the repayment is tied to the customer, so 

must be repaid at property sale. 

According to Bloomberg New Energy Finance, ‘‘scaling on-bill lending.will require 

programmes to break away from rate-payer coffers, and tap into outside credit from 

the capital markets.’’10 Our research concludes that most existing on-bill programs 

are active primarily in the single-family residential building markets, although both 

New York State and California (and possibly others) are piloting effort to promote 

this financing mechanism for commercial properties. 

Figure 5. Innovative financing approaches for commercial retrofits in New York 

City (NYCEEC’s assessment) 

Figure 6. Bloomberg New Energy Finance’s assessment of innovative financing 

approaches11

Figure 7. Bloomberg New Energy Finance’s view of the highest potential financing 

solutions12

What is our experience so far? 

NYCEEC commenced operations one year ago. We have closed transactions and 

are in-discussions on many more. Highlights of our learning to date include: 

• We are seeing demand for the financing products we are offering across a range 

of building segments including commercial, multifamily, retail, hospitality and 

health care. 

• However, base demand for retrofit investments is an issue - this means that 

more information and education is required to propel building owners to act. We 

are also anticipating increased demand as the full effect of local regulation - pri-
24 

marily as the local laws and regulations implemented as part of New York 

City’s Greener, Greater Buildings Plan take effect. 

• Almost all lenders require some form of credit enhancement to finance energy 

efficiency projects for all but the most credit-worthy borrowers. 

• Individual transactions costs are high, and thus is it critically important to promote programmatic approaches. 

• Few financial institutions are willing to invest in developing and integrating the 

engineering expertise with the specialized finance expertise that is required to 

implement effective retrofit financing programs in the commercial sector. To 

take this step, institutions must perceive strong local demand drivers. 

• No one financing product is likely to dominate, particularly in the commercial 

sector. What federal support is appropriate and needed to ensure success? 

My observation is that most of the policy drivers for building retrofits are happening at the municipal and state level. Retrofit markets are primarily local-and to 

an extent regional-markets, and need to be supported at these levels. That said, 

NYCEEC could simply not exist without Federal stimulus funding. What can the 

federal government do to help promote the development of energy efficiency financing markets? 

• Provide continued financial support through federal grant funding to emerging 

programs such as NYCEEC that are demonstrating success; 

• Promulgate learning and promote the sharing of experience and best practices 

among local and regional energy efficiency financing programs; 

• Consider adjusting tax policy (by revising 179D so that it works better for existing buildings; by providing accelerated depreciation for retrofit capital equipment; by allowing efficiency improvements to qualify as real estate under REIT 

regulations; by including tenant-driven as well as owner-driven approaches) 

with the objective of driving demand for retrofits through tax incentives, and 

improving the balance of tax subsidy directed at renewables with that directed 

at energy efficiency, as such subsidy is currently more weighted towards renewables although there is a strong argument that energy efficiency is more cost 

effective; 

• Encourage the GSE’s to develop energy efficiency lending strategies. 

• Continue and expand efforts to aggregate and provide public access to data on 

building energy performance, energy efficiency retrofit activity and performance, 

tenant energy consumption, and municipal initiatives on benchmarking and disclosure. 

An area for future consideration may be developing pathways for the integration 

between building retrofit and energy markets by encouraging or incentivizing utilities to purchase aggregated energy efficiency in the form of ‘‘negawatts’’. 

The CHAIRMAN. Thank you very much. 

Mr. DeBoer. 

STATEMENT OF JEFFREY D. DEBOER, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, THE REAL ESTATE ROUNDTABLE 

Mr. DEBOER. Good morning, Mr. Chairman, Senators. Thank 

you for the opportunity to testify here this morning. As the last 

witness on the panel, I know I bear a heavy burden to be brief. I 

will try to be brief and direct you to see details in my written statement. 

Let me dive right in with a few facts that I think will underscore 

what Senator Franken said about this retrofit business being a 

win-win in terms of saving energy, saving money, and creating 

jobs. 

There are over 5 million commercial and industrial buildings in 

America. 85 percent of these buildings that exist today are going 

to be standing in America in 2030. Commercial buildings today account for about 20 percent of the Nation’s energy consumption. The 

combined average annual energy cost for U.S. commercial buildings 

and industrial facilities exceeds $200 billion. We estimate that you 
25 

can save $20 billion annually by simply improving energy efficiency 

in these buildings by a mere 10 percent. 

The basic tools—and Senator Franken referenced this. The basic 

tools for retrofitting buildings, like efficient furnaces, water heaters, spray foam insulators, and the like, are manufactured here in 

America and obviously are American jobs. 

One other point, and it’s been mentioned here, but I would underscore: It’s cheaper, obviously, to save energy than it is to 

produce energy, and there are studies out there that show that energy produced by offshore wind is about 8 times as expensive as 

the equivalent amount of energy saved through energy efficiency 

measures. Similar data exist for nuclear sources and solar sources. 

So the bottom line here is that government financing programs 

and the like get more bang for the buck by encouraging energy efficiency as opposed to creation of other energy, which obviously 

needs to be done as well. 

While there is no silver bullet to help these retrofits from a national point of view, I do want to draw your attention to a few 

items that could be done here in Congress, each of which has bipartisan support here in the Senate. First of all, Senator Bingaman, 

I know you and other members of the committee, Senator Snowe 

and others, are looking at section 179D, which would improve the 

existing tax deduction for making buildings more energy efficient. 

We applaud you for that, hope that it can be enacted some time 

soon. 

The DOE loan guarantee program which was put in place in 

2005, but to date has focused on high-risk and expensive programs 

like solar, wind energy. There is a bill, S. 1000 that Senators 

Shaheen and Portman have, which would allow DOE to get into 

less risky, less expensive building retrofit loan guarantees, capped 

at $10 million. We think that would go a long way. 

Senator Bennet and Isakson have a bill which would encourage 

greater information sharing and the use of appraisals to determine 

the value of energy improvements in buildings and we think that 

is something that should be done. 

There is also another bill that is here in Congress that Senator 

Bennet is developing, that would better align commercial owners, 

landlords if you will, with the tenants and their energy usage to 

make sure that there’s a good exchange of information here. That 

would go a long way to help building owners manage their properties more energy efficiently. 

Those steps would help directly on retrofitting. I would say, however, that to have successful retrofits at any level you have to have 

a more robust commercial real estate market in general. The commercial real estate market nationwide continues to have some difficulties in terms of overall macro financing. We would encourage 

you to take a look at a bill that Senator Menendez and Senator 

Enzi have that would encourage greater foreign investment in U.S. 

equity markets. We think that some of that equity that will come 

in, that will allow buildings to transition out of their sort of purgatory state today back into the marketplace, some of that capital 

will in fact be used to help retrofit buildings. 

Finally in this area, Senators Leahy and Grassley have a bill to 

extend this EB–5 program, that allows foreign capital to come in 
26 

1http://www.energystar.gov/ia/business/ challenge/learnlmore/FastFacts.pdf; http://yosemite.epa.gov/opa/admpress.nsf/ 8b770facf5edf6f185257359003fb69e/ 

1603327c9023eb8c852579dd005e3385. 2PlaNYC, ‘‘Greater Greener Buildings Plan’’; http://www.nyc.gov/html/gbee/dpwnloads/pdf/ 

greenerlgreaterlbuildingslplan.pdf 3http://green.blogs.nytimes.com/2010 /03/12/made-in-the-u-s-a-efficiency-materials/. 

to create development so long as jobs are created in return. That 

program expires in September. Senators Leahy and Grassley want 

to extend that. We think it would be a good positive thing to do. 

So I will end by saying these are some actions that could be done 

nationally that would help support some of these State programs 

and help the real estate markets and financing in general. 

So thank you again for the opportunity, Mr. Chairman. 

[The prepared statement of Mr. DeBoer follows:] 

PREPARED STATEMENT OF JEFFREY D. DEBOER, PRESIDENT AND CEO, THE REAL

ESTATE ROUNDTABLE

(I) INTRODUCTION

Chairman Bingaman, Ranking Member Murkowski, and Members of the Senate 

Energy and Natural Resources Committee, thank you for the opportunity to testify 

at this hearing on ‘‘Financing Efficient Buildings.’’ 

I am Jeffrey D. DeBoer, President and CEO of The Real Estate Roundtable 

(www.rer.org). The Roundtable represents the leadership of the nation’s top privately owned and publicly held real estate ownership, development, lending and 

management firms, as well as the elected leaders of the major national real estate 

industry trade associations. Collectively, Roundtable members hold portfolios containing over 5 billion square feet of developed property valued at over $1 trillion; 

over 1.5 million apartment units; and in excess of 1.3 million hotel rooms. Participating Roundtable trade associations represent more than 1.5 million people involved in virtually every aspect of the real estate business. 

Our nation faces significant economic, employment, and energy challenges. One 

way to address these challenges is by upgrading the nation’s commercial building 

infrastructure through energy efficiency ‘‘retrofits.’’ These projects will get Americans back to work with jobs that will stay in the United States, save businesses billions of dollars a year in utility bills, and help secure our country’s energy future. 

The following ‘‘fast facts’’1 from the Environmental Protection Agency, the Energy 

Information Administration, and other sources confirm that the Committee is correct to consider policies that will leverage private sector financing to retrofit our existing commercial building stock—and spur job growth in the process: 

• There are over 5 million commercial buildings and industrial facilities in the 

U.S. 

• As much as 85% of commercial buildings that exist today will still be standing 

in 2030.2

• Commercial buildings account for about 20% of the nation’s energy consumption, and as much as 80% of energy consumption in urban areas. 

• The combined average annual energy costs for U.S. commercial buildings and 

industrial facilities is $202.3 billion. 

• About $20 billion can be saved if the energy efficiency of commercial buildings 

and industrial facilities improves by 10%. 

• The basic tools to retrofit buildings - like efficient furnaces, water heaters, and 

spray foam insulation-are manufactured here in the United States and not in 

China, Germany, or elsewhere overseas.3

• Saving energy is cheaper than producing energy. Our country must pursue an 

‘‘all of the above’’ energy policy, but it is important to recognize that efficiency 

is the lowest-cost resource available to move our nation towards energy independence. Simply put, the cost of a kilowatt hour of energy saved is cheaper 

than the cost of an equivalent kilowatt hour of energy produced: 
27 

6 ‘‘Where America Goes to Work: The Contribution of Office Building Operations to the Economy’’ (2012), available at http://www.boma.org/Resources/news/ pressroom/Pages/pr062412.aspx. 7See http://www4.eere.energy.gov/challenge/; http://www.rer.org/2011/ PUBLIC-PRIVATElINVESTMENTSlINlENERGYlEFFICIENCYllDecemberl2,l2011lRoundtablelWeekly.aspx ?terms=better+buildings+challenge. 8See http://www.energystar.gov/ index.cfm?fuseaction=labeledlbuildings.locator; http:// 

www.energystar.gov/ index.cfm?fuseaction=ptlawards.showawardlist&year=2012. 

COSTS OF SAVING ENERGY vs. PRODUCING ENERGY 

Technology Costs (per kilowatt hour) 

Energy Efficiency 2-3 cents4

Wind 9 cents5

Geothermal 10 cents 

Advanced Coal 11 cents 

Advanced Nuclear 11 cents 

Solar PV 21 cents 

Offshore Wind 24 cents 

4 Costs of saved energy (‘‘CSE’’) per kilowatt hour (‘‘kWh’’) for energy efficiency programs 

range from 2 cents to 3 cents per kWh. See American Council for an Energy Efficient Economy, 11Saving Energy Cost-Effectively: A National Review of the Cost of Energy Saved 

Through Utility-Sector Energy Efficiency Programs’’ (Sept. 1, 2009), available at http:// 

www.aceee.org/research-report/u092. 5 Costs for all power generation sources in table provided by U.S. Energy Information Administration, ‘‘Levelized Cost of New Generation Resources,’’ Annual Energy Outlook 2011, available at.http://www.eia.gov/oiaf/ aeo/electricitylgeneration.html (provides ‘‘Total System 

Levelized Cost’’ for various ‘‘Plant Type(s)’’ in dollars per megawatt hour (‘‘mWh’’)). For purposes of table conversion: mWh/1000 = kWh. 

All of these technologies have their role in a comprehensive national energy policy, and will keep America globally competitive in the race for innovation, create 

jobs, and reduce dependence on foreign oil. But in allocating scare government resources, policy makers should consider that financing programs like tax incentives 

and loan guarantees get more ‘‘bang for the buck’’ when they are geared to encourage energy efficiency measures, as opposed to assisting new energy production 

through clean fossil fuel or renewable energy technologies. 

• According to a report6 released this past Monday by the Building Owners and 

Managers Association (BOMA) International, the expenditures that sustain office building operations-management, maintenance, repairs, building services 

and utilities-generate significant, continuous and growing expenditures that 

support local businesses, create job demand, and contribute significantly to U.S. 

gross domestic product (GDP): 

—For each dollar of office building expenditures, the U.S. economy gains $2.57. 

And for every one of those dollars, nearly 20 jobs not related to the building 

itself are supported. 

—$79.7 billion in office building operating expenditures contributed $205.1 billion to GDP in 2011 - equivalent to the State of California’s annual budget. 

—As a result of the $79.7 billion expenditures for office operations, 1.6 million 

indirect jobs were created across all sectors of the economy, about the same 

number employed by McDonald’s worldwide. This is in addition to the estimated 2.2 million jobs directly related to the on-site management and operations of buildings. 

The Real Estate Roundtable’s members are at the vanguard of innovation in making our built environment more energy efficient. For example, 14 companies represented through The Roundtable are ‘‘partners’’ and ‘‘allies’’ in the U.S. Department of Energy’s Better Buildings Challenge7 and have agreed to showcase projects 

that lead the way for successful retrofits throughout the real estate sector. Our 

members routinely distinguish their buildings as ‘‘top of class’’ performers by receiving the ‘‘ENERGY STAR’’ label and also garner ‘‘Partner of the Year’’ recognition 

from the U.S. Environmental Protection Agency.8 Among our many members who 
28 

9See http://www.esbnyc.com/ sustainabilitylenergylefficiency.asp; http:// 

apps1.eere.energy.gov/ news/newsldetail.cfm/ newslid=12387. 10See http://www.bizjournals.com/sanantonio/ news/2012/03/06/epa-to-honor-usaa-real-estateonce.html. 

have demonstrated sustained commitments to energy efficiency are Anthony E. 

Malkin, the Chair of our Sustainability Policy Advisory Committee and the President of Malkin Holdings, who is responsible for the groundbreaking retrofit of the 

Empire State Building9; and T. Patrick Duncan, the President and CEO of USAA 

Real Estate Company, which recently collected its eighth award from EPA for energy efficiency and has been ranked fifth in the Americas in the Global Real Estate 

Sustainability Benchmark.10 The Roundtable thus has considerable experience with 

retrofit projects and how to finance them, and we appreciate this opportunity to 

share our perspective. 

(II) SUMMARY—SIX STEPS FOR TO SPUR FINANCING FOR EFFICIENT 

BUILDINGS. 

There is no single ‘‘silver bullet’’ to encourage retrofit financing, much less a simple solution to inject more equity capital and encourage more debt financing in the 

real estate sector. But the Senate can and should take immediate action in this 

arena. The Roundtable suggests six steps Congress can take right now to further 

the goals of greater energy efficiency in commercial buildings, invigorate real estate 

activity in markets across the country-and most importantly, boost the optimism of 

American businesses and workers by making a serious dent in unemployment figures that have been too high, for too long. 

The Roundtable’s first ‘‘four steps’’ directly address policies to spur more activity 

in energy efficiency financing. Our last two suggestions will have major, positive impacts to improve the economic condition of U.S. real estate markets broadly, and 

will have a ripple effect to generate more capital to invest in building retrofits. 

(1) Extend and Reform the 179D Tax Deduction for Energy Efficient Commercial Buildings—Congress should extend and reform the tax deduction for energy 

efficient commercial buildings at Section 179D of the Internal Revenue Code. 

Chairman Jeff Bingaman (D-NM) and Senator Olympia Snowe (R-ME) have 

carefully studied this incentive for months, and have developed a thoughtful 

proposal to improve the deduction’s use to mobilize more existing building retrofits. When they introduce their bill to extend and modify the 179D deduction, 

it should be enacted swiftly. 

(2) Authorize DOE Retrofit Loan Guarantees—Congress should enact the loan 

guarantee provisions in S. 1000, the ‘‘Energy Savings and Industrial Competitiveness Act’’ co-sponsored by Senators Jeanne Shaheen (D-NH) and Rob 

Portman (R-OH). President Bush signed the Department of Energy’s loan guarantee program into law in 2005, but to date it has focused on high risk (and 

expensive) solar, wind, and nuclear projects. S. 1000 would specifically authorize DOE loan guarantees for less risky and less expensive building retrofits, 

with modest federal credit support projected to leverage far greater multiples 

of private sector funding. 

(3) Pass Legislation to Encourage Real Estate Appraisals that Value Energy 

Efficiency—The Roundtable’s members report that real estate owners, lenders, 

and appraisers need to be better coordinated when valuing properties to account 

for energy efficiency attributes. S. 1737, the ‘‘Sensible Accounting to Value Energy Act,’’ is sponsored by Senators Michael Bennet (D-CO) and Johnny Isakson 

(R-GA). This bill includes important provisions to encourage better information 

sharing among real estate professionals so that energy efficiency is more consistently, accurately, and fairly valued when appraising commercial and other 

real estate. 

(4) Pass Legislation to Align Commercial Landlords and Tenants on the Goals 

of Energy Efficiency—A building can be retrofitted with the latest efficiency 

technologies but still not perform as designed, or result in optimal energy savings as much as those technologies would otherwise allow. This is because 

leased spaces may be ‘‘over built’’ at the time of new fit-outs to provide more 

energy capacity than a tenant needs, or because building occupants may have 

behaviors that unnecessarily waste energy. Senator Bennet is working on important legislation to encourage non-regulatory standards—with no budgetary 

impact - to get commercial landlords and tenants on the same page when it 

comes to energy efficiency. Upon its introduction, the bill should be studied by 

the Committee and enacted as soon as possible. 

(5) Encourage More Foreign Investment in U.S. Real Estate-FIRPTA Reform 

and EB-5 Authorization—Foreign equity capital is a significant and largely un-
29 

11More detail on the current economic conditions of the U.S. real estate market is described 

in The Real Estate Roundtable’s 2012 Annual Report, ‘‘Managing Risks & Opportunities’’ (published June 2012), available at http://www.rer.org/Advocacy/ 2012lAnnuallReport.aspx. 

tapped source to help increase depressed property values in domestic real estate. Injecting greater foreign investment into U.S. real estate markets may be 

channeled to encourage retrofits, and help overcome the barrier of up-front capital costs that remains the biggest impediment to energy efficiency projects. 

Congress should thus pass S. 1616, the ‘‘Real Estate Investment and Jobs Act’’ 

introduced by Senators Robert Menendez (D-N.J.) and Mike Enzi (R-WY) which 

has also garnered the support of 25 co-sponsors. S. 1616 would reform the Foreign Investment in Real Property Tax Act (‘‘FIRPTA’’) and correct the discriminatory treatment of foreign investment in U.S. real property that presently exists under the tax code. In a similar vein, Congress should pass S. 3245, introduced by Senators Patrick Leahy (D-VT) and Charles Grassley (R-IA), to permanently authorize the EB-5 immigrant-investor regional center program. EB-5 

grants lawful permanent residence in the U.S. to foreign nationals who make 

investments of $1 million (or $500,000 in high unemployment areas) in domestic 

real estate and other business projects. These investments must be demonstrated to create jobs in the U.S. Permanent EB-5 authorization will allow 

the 225 regional centers across the country that manage this program to coordinate with the real estate community and efficiency advocates so that investment funds can be used to help finance retrofits. 

(6) Conduct Oversight to Curb the Recent Rise in GSA ‘‘Holdover’’ Leases— 

In light of the recent troubles and changes in leadership at the General Services 

Administration (GSA), Roundtable members are reporting a trend in federal 

lease ‘‘holdovers’’ whereby the GSA is simply extending leases on a month-tomonth basis after they expire. Congress should conduct oversight to ensure that 

GSA leasing practices operate efficiently so buildings with departing federal 

government tenants can be re-positioned in a manner that allows for long-term 

capital improvements like energy upgrades. 

Each of these six steps for immediate congressional action is discussed in more 

detail below. However, a properly functioning real estate financing market is a prerequisite to a functioning retrofit financing market. I appreciate this opportunity to 

provide the Committee with a short overview on the current economic state of affairs in the commercial real estate sector, which will add context for the immediate 

topic at hand regarding policies to finance efficient buildings. 

III. GENERAL ECONOMIC BACKGROUND ON REAL ESTATE CONDITIONS11

Since the start of the Great Recession in 2009, property values have declined to 

the extent that up to half of all commercial mortgages are estimated to be ‘‘underwater,’’ with outstanding mortgage debt exceeding asset values. Meanwhile, nearly 

$1.4 trillion in commercial real estate loans that were originated before the recession will come due in the next three years. As this outstanding debt matures, property owners will have difficulty refinancing in the current tight credit markets particularly in light of decreased property values, with the specter of default facing 

many properties. 

There is anxiety in the real estate and lending sectors as to where all of the debt 

financing and equity capital will come from to retire this maturing debt. (On-going 

Eurozone turmoil and its effect on skittish markets here at home aggravates the situation.) Moreover, simply satisfying the outstanding trillion-plus loans would only 

bring real estate markets to a relative place of normalcy and avoid waves of foreclosures. Vastly greater sums of additional capital are needed to grow the economy 

and create jobs. There is consensus that a tremendous amount of potential equity 

investment capital is in the hands of foreign investors. These funds must be brought 

into U.S. markets now, to staunch the threat of current loan defaults and then help 

sustain a more accelerated pace of economic growth. Infusions of equity and credit 

are necessary to re-set the real estate, lending, and capital markets so transactions 

can move forward to refinance struggling assets. 

Political uncertainty is compounding the commercial real estate sector’s wary economic outlook. The business community is concerned that the paralysis on Capitol 

Hill will continue for the rest of this year and beyond, and that Congress will not 

deliver certainty and progress to Wall Street and Main Street on tax, spending, 

budget, health care, and other significant policies. The Senate’s recent bipartisanship on infrastructure and agriculture legislation provides signs for optimism. We 

strongly encourage this Committee to continue down the path toward consensus energy and fiscal policies to jump-start the lackluster recovery once and for all. 
30 

12See http://www.rer.org/ContentDetails.aspx?id=12241. 

Not surprisingly, executives participating in The Real Estate Roundtable’s most 

recent, 2Q-2012 ‘‘Sentiment Survey’’12 reflect the industry’s economic and political 

circumspection. While signaling a general lack of confidence in the outlook for the 

rest of this year, the Sentiment Survey also portrays a bifurcated recovery for commercial properties. So-called ‘‘gateway’’ cities have come back strong while smaller, 

more mainstream markets still struggle. 

There is improved access to functioning liquidity and improving values (particularly for ‘‘Class A’’ assets) in cities like New York, Washington, D.C., Boston, San 

Francisco, and Chicago. Contrast this to still-weak capital formation and lackluster 

fundamentals elsewhere around the country. Smaller, more mainstream real estate 

markets across the U.S. continue to face big challenges. 

More directly on the topic of today’s hearing and issues surrounding capital investments in building improvements, the sustained financial pressure on property 

owners and lack of credit availability has led to deferral of maintenance and upgrades on existing properties. Meanwhile, development of new projects outside of 

urban growth centers has trickled to a standstill-all resulting in national jobless figures that preclude robust recovery. The potential for commercial real estate defaults 

to derail a fragile economic recovery, particularly in non-gateway markets, and lead 

to even further job losses, bank closures and business retraction, is very real. The 

need to address these matters is imperative. 

As part of the solution to get Americans back to work while also helping to generate real estate construction and transactional activity, The Roundtable appreciates this opportunity to offer our priorities to encourage financing for efficient 

buildings. 

IV. SIX STEPS FOR CONGRESS TO SPUR FINANCING FOR EFFICIENT 

BUILDINGS 

(1) Extend and Reform the 179D Tax Deduction for Energy Efficient Commercial Buildings. 

The tax deduction at Section 179D of the Internal Revenue Code encourages energy efficiency in building design, construction, and operations. 179D covers private 

sector commercial buildings that generate rents and income like offices, stores, hotels, warehouses, plants, and apartments. It also covers government buildings like 

schools, hospitals and military facilities. The 179D deduction is a technology-neutral 

incentive that does not pick ‘‘winners and losers.’’ It encourages retrofit projects and 

not specific products. It gives building owners the opportunity to select the best mix 

among a suite of measures to achieve optimal energy efficiency gains. 

Section 179D was first enacted in the 2005 Energy Policy Act, extended in 2008, 

and is scheduled to expire at the end of 2013. While the deduction has resulted in 

some success (especially to encourage lighting upgrades), 179D has not yet lived up 

to its full potential to encourage ‘‘deep’’ retrofits due to the costs and regulatory 

complexity associated with upgrading multiple building systems including heating 

and cooling, hot water, windows, and insulation. The Roundtable wholly supports 

the work of Chairman Jeff Bingaman (D-NM) and Olympia Snowe (R-ME) who have 

carefully studied the deduction to gain a better understanding of how it has worked 

in the marketplace, and how it can be improved. Their proposal to reform the Section 179D deduction would, among other things: 

—Measure energy savings for retrofits compared to the existing building’s baseline—For purposes of the tax deduction, the Bingaman-Snowe proposal measures savings by comparing how much energy a building consumed before a 

retrofit, and then comparing how much energy is consumed after a retrofit. 

This logical ‘‘before-and-after’’ comparison makes sense for existing buildings 

with a track record of energy use, where a retrofit plan may qualify for the 

deduction based on actual and verified reductions in energy usage intensity. 

—Award performance by linking the amount of the tax deduction to energy savings achieved—Under the Bingaman-Snowe proposal, the amount of the incentive would increase with greater energy savings. This ‘‘sliding scale’’ approach will encourage ambitious projects while also rewarding projects that 

achieve meaningful yet more moderate levels of energy savings. 

—Make the tax incentive useable for a broad range of building efficiency stakeholders and building types, including REITS—Many buildings cannot use the 

179D deduction because their ownership structures, like Real Estate Investment Trusts (REITS) and Limited Liability Partnerships (LLPs), cannot make 

use of conventional tax incentives. The full amount of the deduction that considers such entities’ special tax requirements should be available for REITS 
31 

13See stream of June 12 Senate Finance Committee hearing, ‘‘Tax Reform: Impact on U.S. 

Energy Policy,’’ oral testimony of The Hon. Don Nickles, available at: http:// 

www.finance.senate.gov/hearings/hearing /?id=990f1101-5056-a032-5202-6921d68e8769 (at the 

26:53, 75:50, and 102:01 marks). 14See Table 8, p. 12 at: http://c4bb.org/wp-content/ uploads/PeriFINALForRelease06-10-11.pdf 15 Companion legislation (H.R. 4017, the ‘‘mart Energy Ac’’) is pending in the House, introduced by Reps. Charles Bass (R-NH) and Jim Matheson (D-UT). 16The DOE loan guarantee program was created as Title XVII of the 2005 Energy Policy Act 

(H.R. 6, 109th Cong.). It passed the House on April 21, 2005 by a 249-183 vote, and the Senate 

on July 28, 2005 by an 85-12 vote. President Bush signed it into law on August 8, 2005. 

and other similar holding structures. Additionally, in order to make the incentive useable for more buildings, the building owner should be allowed to allocate the tax deduction to other parties responsible for the retrofit such as an 

architect, engineer, tenant, source of financing, or energy services company 

that may guarantee improved performance. 

Of course, extension and modification of Section 179D will get caught up in the 

broader discussions of tax reform, budget policy, and re-examination of tax incentives generally. As Congress deliberates these important matters, it should keep in 

mind two points that favor 179D’s extension and modification. First, Section 179D 

offers a tax deduction, and not a tax credit. As former Senator Don Nickles testified 

at hearing earlier this month to the Senate Finance Committee on energy tax policy, 

law makers must carefully distinguish between the need for tax credits which may 

operate as subsidies, compared to more favored tax deductions which are expensed 

as part of ordinary business operations.13 Second, 179D corrects a flaw in the tax 

code whereby businesses are allowed to immediately deduct utility bills as part of 

their ordinary operating expenses - but retrofits investments can only be depreciated over long periods of time as capital expenses. More inefficient structures with 

higher utility bills may thus benefit from a larger tax deduction compared to buildings that use less energy. 179D aligns the code so that it awards long-term capital 

investments to save energy, as opposed to the operating expenses deduction that can 

otherwise be claimed for wasted energy. 

The 179D tax deduction is a critical incentive not only because it will deploy innovation in energy efficient commercial buildings, but will also lower unemployment. 

An analysis14 commissioned jointly by the Natural Resources Defense Council, The 

Real Estate Roundtable, and the U.S. Green Building Council, estimates that over 

77,000 construction and related jobs will be created by the changes to 179D suggested by Senators Bingaman and Snowe. In keeping with their thoughtful reform 

proposal, The Roundtable strong encourages extension and modification of the 179D 

tax deduction. 

(2) Authorize Department of Energy Loan Guarantees for Building Retrofits 

Senators Jeanne Shaheen (D-NH) and Rob Portman (R-OH) are to be commended 

for their bipartisan work on S. 1000, the Energy Savings and Industrial Competitiveness (‘‘ESIC’’) Act, which this Committee passed by an 18-3 vote in July 2011. 

Section 202 of S. 1000 would authorize credit enhancement from the Department 

of Energy (‘‘DOE’’) to support and leverage private sector financing for building retrofit projects.15 The Roundtable has long-advocated that DOE’s current loan guarantee program should be used to assist lenders and building owners with the capital 

expenses associated with energy upgrades. Accordingly, we strongly encourage enactment of the ESIC Act’s financing title. 

The Roundtable recognizes the controversies associated with DOE’s loan guarantee program following the Solyndra investigation. We believe, however, that S. 

1000 gets the loan guarantee program back on track as it was initially envisioned 

and created by both Republicans and Democrats in 2005.16 Section 202 is carefully 

constructed so as to limit DOE’s exposure to financial risks in the event of a borrower’s default on a retrofit obligation, as follows: 

—S. 1000 does not pick technology ‘‘winners and losers’’ by favoring the manufacture of any particular product or technology—Rather, S. 1000 is technology 

neutral, and supports retrofit projects and not products. The bill lets building 

owners in the market decide what types of efficiency measures it should install as part of a retrofit project, as best suited to lower energy consumption 

in their buildings. 

—S. 1000 incorporates underwriting and due diligence requirements for retrofit 

financing—The bill directs DOE to develop guidelines that ‘‘shall 

include... measures to limit the exposure of the Secretary to financial 

risk in the event of default,’’ like the borrower’s ability to re-pay a retrofit 

debt and the value of the underlying collateral supporting the loan. To imple-
32 

17See notes 7-9. 18See Table 8 at http://c4bb.org/wp-content/ uploads/PeriFINALForRelease06-10-11.pdf. The 

American Council for an Energy Efficient Economy (‘‘ACEEE’’) estimates that the total impact 

of S. 1000 on employment (not just the loan guarantee title) would be 80,000 jobs created by 

2020, and 159,000 jobs by 2030. See http://aceee.org/white-paper/shaheen-portman. 

ment the loan guarantee program for retrofits, S. 1000 directs DOE to develop 

underwriting criteria that assess a borrower’s creditworthiness, the building’s 

loan to value ratio, and the building’s history and expectations in generating 

rental and other income, among other factors. 

—S. 1000 would provide credit support for successful retrofit projects guaranteed to result in energy savings—The bill directs DOE to consider private sector, third-party guarantees of energy savings after a retrofit is implemented, 

and whether those savings will pay for project costs over time. S. 1000 provides that DOE (and taxpayers) do not bear the ‘‘performance risk’’ of whether 

a project will succeed and result in energy savings. Rather, third-party contractors responsible for the retrofit like DOE-approved energy services companies-but not DOE itself-would bear risks that installed energy efficiency 

measures will perform as designed. In this way, the transaction can be structured so as to amortize retrofit financing through measured and verified energy savings accrued over time. 

—S. 1000 places an upper limit on the amount of federal credit support—The 

bill states that the maximum amount of financial risk that DOE can bear for 

any single retrofit project is $10 million. In contrast, the direct loan (not a 

loan guarantee) given to Solyndra left taxpayers on the line for $528 million 

after the solar company’s default. 

—S. 1000 provides financial support for retrofits through loan guarantees - not 

through loans, grants, subsidies, or hand-outs—Loan guarantees will provide 

an incentive to leverage far greater amounts of private sector investment in 

building retrofits, so real estate, lending, and energy services firms have their 

own ‘‘skin in the game.’’ It has been estimated that a $200 million federal 

loan guarantee investment in retrofits would leverage as much as $2 billion 

in private sector financing. 

—S. 1000 would provide credit support for proven building retrofit projects that 

already have a track record of success—We have case studies on the success 

of retrofits, such as the Empire State Building, showcase projects associated 

with the Better Buildings Challenge, and the experiences of EPA’s ‘‘Partner 

of the Year’’ winners, among others.17 Retrofits pose far lower risks for federal guarantee support compared to unproven manufacture of certain renewable products, where the market may be heavily influenced by subsidies provided by foreign competitors. 

Moreover, Congress should consider the impact of S. 1000 as a jobs creator. The 

Real Estate Roundtable, in conjunction with the U.S. Green Building Council and 

the Natural Resources Defense Council, estimates that a loan guarantee program 

like the one authorized by the ESIC Act can create up to 25,000 American jobs.18

In short, enactment of S. 1000’s bipartisan retrofit loan guarantee title will provide a transformative platform to finance efficient buildings, lower energy consumption, and get construction workers back on the payroll. We urge Congress to pass 

it. 

(3) Pass Legislation to Encourage Real Estate Appraisals that Value Energy 

Efficiency. 

The Roundtable has long advocated for better information sharing between appraisers, building owners, and lenders to ensure adequate and consistent assessment of energy efficiency’s effect on property values. S. 1737, the Sensible Accounting to Value Energy (‘‘SAVE’’) Act sponsored by Senators Michael Bennet (D-CO) 

and Johnny Isakson (R-GA), includes provisions that encourage parties to a real estate transaction to share energy efficiency information in the context of asset valuation. Discussions this spring among The Roundtable, the Appraisal Institute, and 

other organizations have built wider support for this concept. 

High-efficiency equipment and better building operations may increase the value 

of commercial real estate. Yet stakeholders from all perspectives—lenders, appraisers, building owners and managers, and energy efficiency advocates—suffer from the 

lack of data regarding the monetary benefits that energy efficiency components can 

bring to real estate values. Better information sharing will help monetize any added 

values from efficiency equipment and platforms deployed in buildings, which in turn 

can spur greater investments in retrofits. 
33 

19See note 9. 20See http://www.energystar.gov/ index.cfm?fuseaction=labeled—buildings.locator; http:// 

www.energystar.gov/ index.cfm?c=evaluatelperformance.buslportfoliomanagerlintro. 

The SAVE Act would establish rules so that appraisers, owners and lenders have 

timely access to information that may be relevant to the efficiency, conservation, 

and renewable energy features of real estate. These include: building labels or ratings; installed appliances; blueprints and construction costs regarding retrofit 

projects; utility bills; energy benchmarking data; third-party verifications of a property’s energy performance; and financial or other incentives regarding installed 

high-performing components and systems. If such information is consistently shared 

as an industry best practice, over time a greater number of comparable assets will 

be available for appraisers to evaluate energy efficiency features when determining 

market value. 

Banks may thereby assess the financing risks associated with projects that will 

save money through energy savings, and develop lending products specifically to underwrite retrofit investments. 

Accordingly, as another appropriate measure for Congress to spur financing for 

highly efficient buildings, it should enact the SAVE Act’s provisions to provide better information regarding energy efficiency attributes in the process real estate 

valuation. 

(4) Pass Legislation to Align Commercial Landlords and Tenants on the Goals 

of Energy Efficiency 

A commercial building can be retrofitted with the latest efficiency technologies but 

still not perform as it was designed to achieve optimal energy savings. This is because spaces leased by tenants may be ‘‘over built’’ at the time of new fit-outs to 

provide more energy capacity than a tenant needs, or because building occupants 

may have behaviors that unnecessarily waste energy. 

Legislation proposed to date has focused on how real estate owners and developers may lower energy consumption. But this is only part of the issue. Office tenants like data centers, law firms, trading floors, financial services firms, restaurants, and retail stores use a lot of energy. Based on the Empire State Building’s 

retrofit experience,19 tenants can consume between 50%-70% of their structures’ 

total energy. Choices made by office tenants in designing and operating within 

leased spaces thus have great impact on U.S. energy consumption. 

Accordingly, we encourage Congress to consider legislation that gets office landlords and tenants on the same page with regard to energy consumption in commercial buildings. We are pleased that Senator Michael Bennet (D-CO) is developing a 

bill that will take a market-driven, non-regulatory approach to align building owners and their lessees to cooperatively reduce demands on the grid. Among other 

ideas, Senator Bennet’s legislative concept is developing solutions to: 

—Overcome Energy Consumption Data Barriers—In many cases, commercial 

property owners are unable to get the data to tell them how much energy 

their entire building consumes. This is because tenants control access to the 

energy meters in the spaces they lease. The utility serving the Chicago area, 

Commonwealth Edison, has overcome this significant data obstacle. An 

amendment to existing law (Public Utility Regulatory Policies Act [PURPA]) 

could establish a non-binding standard favoring the ComEd model. Utilities 

would be encouraged to provide aggregated ‘‘whole building’’ energy consumption information in a manner that fully safeguards tenant privacy concerns 

in their energy data, without increasing prices on consumers. 

—Creates Opportunities for Voluntary ‘‘Tenant Star’’ Recognition—The Environmental Protection Agency’s ENERGY STAR program for commercial buildings has been operating for over a decade and is widely embraced by commercial building owners. It is a huge success, and certified buildings typically use 

35 percent less energy than average buildings and cost 50 cents less per 

square foot to operate.20 Many Roundtable members and other large commercial building owners and managers strive for the ENERGY STAR label to distinguish their assets as ‘‘top of class.’’ Senator Bennet’s bill concept would 

provide EPA with the tools necessary to bring the program to the next level 

with tenant oriented certification for leased spaces. Today’s ENERGY STAR 

is based on whole-building recognition. The imminent bill would deliver the 

data set needed to likewise recognize efficient tenant-leased spaces within a 

building. The synergy of ‘‘Tenant Star’’ spaces within ‘‘ENERGY STAR’’ buildings could transform—in a non-regulatory way—how commercial real estate 
34 

owners and their tenants think about energy efficiency and dramatically 

lower energy use throughout the built environment. 

—Develop Replicable Standards for New Tenant ‘‘Fit-Outs.’’—Commercial tenants are most likely to make structural investments in the areas they occupy 

when they enter into new leases, or renew leases for longer terms. We thus 

want to encourage high-performance design and construction of leased spaces 

at the point of new ‘‘fit-outs’’ that suit tenants’ needs, but are not ‘‘over-built’’ 

to encourage or allow wasted energy use. The imminent bill is developing a 

proposal for industry stakeholders to assist the Energy Department in studying and developing replicable standards for high performance new tenant fitouts. 

Sound energy policy must take a holistic approach by considering the consumption 

and behaviors of office tenants and other building occupants. The Roundtable applauds Senator Bennet for his leadership to educate and align commercial building 

landlords with their tenants, so they may cooperate to make even deeper cuts in 

energy consumption attributed to the commercial real estate sector as a whole. 

When his bill is introduced, we recommend that the Committee study it carefully 

and take the necessary steps to move it toward enactment. 

(5) Encourage More Foreign Investment in U.S. Real Estate: FIRPTA Reform 

and EB-5 Authorization 

The economic and political stability of the United States historically has attracted 

foreign investment capital to our real estate markets. The recent decline in the 

value of the dollar compared to other key currencies has made U.S. real estate even 

more attractive. Unfortunately, so far in the recovery, new equity investment from 

both foreign and U.S sources has been skewed to a handful of urban ‘‘gateway’’ markets and large trophy assets. This propensity has bifurcated property values, with 

large market, large asset values recovering, while overall asset values have remained depressed and distressed property values have generally continued to slip. 

Law makers must consider policies to attract new sources of equity capital from 

Europe, Asia, and the Americas, which in turn would help bridge the massive ‘‘equity gap’’ complicating the refinancing of hundreds of billions in commercial mortgages (and threatening a new wave of foreclosures). Injections of foreign investment 

capital in domestic real estate can, incidentally, also be used to finance energy efficient buildings. 

To stimulate more foreign investment in U.S. real estate, The Roundtable offers 

two areas where Congress should act immediately. First, it should enact pending 

legislation to reform the Foreign Investment in Real Property Tax Act. Second, it 

should enact legislation to permanently re-authorize the EB-5 program for immigrant investors. Both are discussed in further detail below. 

(a) FIRPTA Reform 

The commercial real estate industry is united in its view that the Foreign Investment in Real Property Tax Act of 1980 (‘‘FIRPTA’’) dramatically disrupts the rational allocation of foreign capital into the U.S. real estate sector. Commercial real property markets in the United States need an infusion of equity at this time, not a tax 

regime that deters foreign investment. 

FIRPTA is a significant barrier to non-U.S. investors. In contrast to the general 

U.S. tax law exempting foreign investors’ gains from U.S. stocks, bonds, and other 

securities, the United States imposes a high rate of taxation on foreign investment 

in U.S. real property. The U.S. tax rate on gains from such direct and indirect ownership of U.S. real property can exceed 50 percent, particularly when the branch 

profits tax regime applies to such transaction. Further, a non-U.S. investor who is 

subject to tax under the FIRPTA regime has a filing obligation with the Internal 

Revenue Service. Non-U.S. investors view the Internal Revenue Service as a highly 

intimidating force—much more so than the taxing authorities in most other jurisdictions. Thus, the filing obligation mandated by FIRPTA is a significant burden and 

deterrent to U.S investment from the perspective of foreign investors. Indeed, the 

U.S. commercial real estate market has slipped to third in the race for global funds 

behind the United Kingdom and now Germany. In the absence of FIRPTA reform, 

potential foreign investors in U.S. real estate may choose to invest elsewhere - either in real property in countries overseas that have less onerous tax regimes, or 

in other types of U.S. corporations. 

Our nation needs to compete more effectively for global capital, and the tax code 

should not be a barrier to foreign investment in U.S. real estate. Additional foreign 

equity investment would greatly assist community banks and other financial institutions now holding mortgages on U.S. properties, help address the ongoing residen-
35 

21 Companion legislation (H.R. 2989) is pending in the House, introduced by Reps. Kevin 

Brady (R-TX) and Joe Crowley (D-NY). 22See http://www.uscis.gov/portal/site/ uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/ 

?vgnextoid=d765ee0f4c014210VgnVCM100000082ca60aRCRD&vgnextchannel= 

facb83453d4a3210VgnVCM100000b92ca60aRCRD. 

tial housing foreclosure crisis, and directly lead to job creation and ultimately stimulate our economy’s overall recovery. 

FIRPTA is an idea whose time has come and gone, and, were it fiscally feasible, 

should be abandoned in its entirety. The Roundtable recognizes, however, that budgetary constraints may make it difficult to repeal FIRPTA at this time. Reasonable, 

cost-efficient reform is still possible, and The Roundtable strongly urges steps be 

taken to address the negative effects of FIRPTA. In particular, the ‘‘Real Estate Investment and Jobs Act’’ (S. 1616)21 has been introduced by Senators Robert Menendez (D-NJ), Mike Enzi (R-WY) and has support from 25 co-sponsors. It takes a 

measured approach to FIRPTA reform and would: 

—Withdraw IRS Notice 2007-55—S. 1616 would reinstate an IRS position to 

allow redemptions and liquidating distributions to be treated the same as 

sales of stock in the case of a domestically controlled Real Estate Investment 

Trusts (REITs). Before 2007, such distributions generally were treated as 

sales of REIT stock, and not subject to U.S. tax. In 2007, The IRS issued Notice 2007-55 which concluded that such distributions should be treated as 

sales of real estate and therefore subject to FIRPTA. Until the issuance of the 

Notice, there was no reason for foreign investors to believe that liquidating 

distributions by REITs, as with the liquidating distributions of any other corporation, should be treated as anything other than sales of stock. The IRS’s 

position has caused considerable consternation in the foreign investor community, has severely constrained continued foreign investment in U.S. real estate, and should be withdrawn. 

—Increase the amount of stock minority shareholders can hold without triggering FIRPTA tax—Presently, a foreign shareholder owning five percent or 

less of a publicly-traded U.S. real property company, including a REIT, is exempt from FIRPTA on a sale of the corporation’s stock. In addition, a foreign 

shareholder owning 5 percent or less of a publicly-traded REIT is exempt 

from FIRPTA on the receipt of a capital gain distribution attributable to the 

sale or exchange of a U.S. real property interest. There are numerous investors around the world who own just fewer than 5 percent of these companies’ 

stock, but despite their willingness to invest in U.S. companies, won’t dare 

to go over that threshold for fear of being ensnared by FIRPTA. S. 1616 would 

increase from 5 percent to 10 percent the exemption level threshold and apply 

it to investors in certain widely held investment vehicles. 

FIRPTA reform is not far afield from the topic of today’s hearing. Increased foreign equity investment in commercial real estate will provide real property owners 

with much-needed capital to successfully refinance maturing loans and engage in 

new projects to improve existing assets. The untapped availability of foreign investment capital would be used to invest in our nation’s building infrastructure, and 

provide a source of funding for innovative energy efficiency retrofits. In short, without a functioning real estate finance market we will not have a functioning retrofit 

financing market. FIRPTA reform and enactment of S. 1616 would help achieve 

both objectives. 

(b) EB-5 Authorization 

Another vehicle to encourage more foreign investment in domestic real estate is 

the EB-5 ‘‘immigrant-investor’’ program. It is scheduled to expire on September 30, 

2012. The Roundtable urges Congress to move on pending legislation that would 

permanently authorize this program. 

Established in 1992, the EB-5 program deploys foreign investment as a means to 

spur job growth while simultaneously affording eligible foreign investors the opportunity to become lawful permanent residents of the United States. Roundtable members have used EB-5 as an important source to assemble funds for development 

projects that create well-paying American jobs. The program has grown dramatically 

in recent years and has nationwide impact; the U.S. Citizenship and Immigration 

Service has approved 225 regional centers that distribute foreign investment capital 

in 45 states.22 In 2011, the EB-5 program was estimated to create and/or save 

25,000 American jobs and generated direct investment of over $1.25 billion. Furthermore, EB-5 is revenue neutral, as program costs are offset by the fees charged in 
36 

23 Companion legislation (H.R. 2972) is pending in the House. 

issuing permanent residency visas. Because there is no taxpayer impact, EB-5 has 

been extended with bipartisan support since its inception. 

The Roundtable sees potential in EB-5 as a means to aid retrofit financing. Foreign investments received through the program may be directed to assist with the 

up-front capital expenses to underwrite energy efficiency projects. In considering 

whether to extend and/or permanently authorize the program, Congress has the opportunity to encourage EB-5 regional centers to distribute investments to projects 

that do not simply spur economic development, but also make our nation’s building 

stock more energy efficient. 

S. 3245, introduced by Senator Patrick Leahy (D-VT) and co-sponsored by Senator 

Chuck Grassley (R-IA),23 would make the EB-5 regional center program permanent 

and thus ensure stability for investors, entrepreneurs, and stakeholders that develop and finance real estate. Congress should pass this bill, and we encourage the 

Committee to further consider how the EB-5 program may synergistically advance 

our national goal of energy independence. 

Congress Should Conduct Oversight to Curb the Recent Rise in GSA ‘‘Holdover’’ Leases 

Roundtable members report a growing issue with the largest commercial office 

tenant in the country—the federal government. The General Services Administration (‘‘GSA’’) is responsible for managing the federal buildings portfolio, which includes over 7,100 leased properties. GSA’s actions thus register a significant impact 

in commercial real estate markets across the country. 

When a tenant—in this instance the GSA—continues to occupy its leased premises after the term has ended, it is said to ‘‘hold over.’’ While holdovers often result 

in short term extensions for government convenience, they have a deleterious effect 

in the marketplace and create uncertainty about the future operations of a commercial building. GSA’s default position as a holdover freezes the ability of landlords 

to re-position their assets and market their properties to prospective new tenants. 

Federal leasing uncertainties also place building owners in precarious situations 

with their lenders, and unnecessarily shift the burden of cost and risk to the private 

sector. A vacant or severely underutilized building has a limited income stream and 

lenders may thus harshly assess the asset’s credit worthiness. Making matters 

worse is the backlog of congressional approval required for prospectus-level leases 

worth more than $2.7 million a year. 

Holdovers are not standard practice in the commercial real estate industry. In the 

private sector it is commonplace for tenants to provide several years advance notice 

of their intention to vacate or renew a lease prior to expiration. As a result of holding over, the GSA immediately pays the direct penalty of higher lease rates as 

short-term extensions are generally 25-50% above standard market rates. Not only 

does the GSA pay significantly higher rates for short-term tenancy, but by deviating 

from standard practices of advance notice of intention prior to lease expiration, it 

also deprives itself of the opportunities to pursue the full range of options available 

in the marketplace. 

For the immediate issue at hand, an unreliable federal leasing process impedes 

capital improvements in building efficiency upgrades. Commercial landlords dealing 

with federal holdover tenancies will lack access to predictable income and financing 

streams necessary to fund retrofit investments. Moreover, with spaces frozen to accommodate GSA holdovers, there is no chance to design or construct new fit-outs 

for state-of-the art tenant installations. 

Congress’s recent and ongoing investigations into the GSA should also consider 

solutions to break the holdover backlog. And, Capitol Hill should do its own part 

by approving prospectus leases as expeditiously as possible. More efficient and predictable federal leasing protocols in line with typical end-of-term notification practices will stabilize and correct commercial real estate markets—and establish the 

fundamental conditions that are necessary for private sector landlords and tenants 

to explore long term investments such as retrofit improvements. 

V. CONCLUSION 

To conclude, The Real Estate Roundtable recommends six actions Congress should 

take now to spur financing of efficient buildings: 

(1) Reform the 179D tax deduction for energy efficient commercial buildings 

specifically to encourage existing building retrofits. 

(2) Authorize a DOE loan guarantee program spur private sector retrofit financing. 
37 

(3) Enact legislation to establish information sharing practices so that building owners, appraisers, and lenders can more consistently consider energy efficiency attributes when valuing real estate. 

(4) Enact legislation that creates voluntary programs and recognition platforms to encourage commercial tenants to cooperate with their landlords and 

achieve lower energy consumption in buildings. 

(5) Lower barriers to foreign investment capital in U.S. real estate by reforming FIRPTA and permanently authorizing the EB-5 immigrant investor program—thereby making more funds available to finance building energy upgrades. 

(6) Conduct oversight of GSA commercial leasing practices to curtail ‘‘holdover’’ tenancies, so buildings can be re-positioned in the market when federal 

leases expire and attract financing that could be used for capital investments 

like retrofits. 

Thank you again for this opportunity to testify on behalf of The Real Estate 

Roundtable on the important topic of energy efficiency financing. I look forward to 

answering the Committee’s questions. 

The CHAIRMAN. Thank you. Thank you all for very, very good testimony. There’s a lot of innovative things that you’ve talked about 

that we need to understand better. 

Let me just start with a few questions. Ms. Leeds, you indicated 

that the effort you’re making there in New York is something you 

think is eminently scalable, I think you said. I gather it could be 

used to faciitate commercial retrofits throughout the country. Could 

you describe a little more how you think that could happen? Do you 

think the Federal Government needs to be doing something that 

it’s not doing to cause this to be, what you’re doing, to be replicated 

elsewhere? Or do you think that the private sector can get that 

done? 

Ms. LEEDS. In our experience, the Federal stimulus funding that 

we have as our core capital is essential to being able to do the work 

that we are doing. That said, I think the job rests primarily with 

private capital and that those who consider providing public funding into these programs need to carefully identify those sectors in 

which it is really necessary for credit enhancement. 

I spoke of the energy efficient mortgage as being a very scalable 

opportunity and I believe that is something that can be replicated 

nationwide. This is something that really leverages off of an existing financing tool, and with the right expertise and the right motivations many mortgage lenders can incorporate this into their general practices. 

The other mechanisms that—— 

The CHAIRMAN. This would be in the form of a supplemental 

mortgage in addition to the base mortgage that the property owner 

has, is that the idea? 

Ms. LEEDS. We are working on two versions of this. One is a refinancing. At the point of time of refinancing, the base loan is increased by an amount that is required to fund energy efficiency retrofit measures with a demonstrable savings stream. The second is 

to add a supplemental loan, which can be done either in the form 

of a supplemental first or a second lien loan, and that is an approach that is being used with lenders who hold the first mortgage 

in their current portfolio. 

So I think that this is something that could be done in the here 

and now, although I do believe that other approaches, other innovative approaches that we and others are working on, will eventually achieve scale. I think it will be a slower process. 
38 

The CHAIRMAN. Let me ask about rebates. I think one of you 

talked about—maybe, Mr. Smith, did you talk about rebates as an 

important part of the program? 

Mr. SMITH. I did. 

The CHAIRMAN. Could you describe how that works? I can understand the positive cash idea, where you basically persuade a residential homeowner to go ahead with retrofits and can see a benefit 

in their utility bills. How does the rebate thing work in your experience? 

Mr. SMITH. We in Oregon are doing deep retrofits of residential buildings that are averaging about a $12,000 investment per home. 

So these are multiple trade jobs, where we’re replacing hot water 

space heat and doing a full insulation wrap. So it’s a very involved 

project and a big cost for the consumer. 

We also have very low energy prices in Oregon, and there’s quite 

a variance across the country, as you know, in energy prices. So rebate levels need to be looked at based on what the utility sector 

is deploying in the current market and what the project cost is and 

where the customer is going to come out financially. 

With larger rebates, the general philosophy is—and we have 

many contractors who’ve been in the market and who really understand the consumer intimate transaction and decisionmaking process. For us in our market, it’s about $2500 at least that is needed 

to motivate consumers to get to the level of making a $12,000 investment. 

The utility sector—my point that I was making was that the utility sector in our market, in the projects that I’m describing, are deploying about $1,000, right around there. It’s not enough. It’s not 

enough to motivate consumers. So my message is, if we believe that 

there are other benefits beyond energy efficiency at this much demand to doing this work, and what I’m arguing is the economic developments are very real, we have very strong results, then it 

might be worth an investment from market actors, perhaps governments, who care about economic development, because we’re not 

going to get there exclusively with utility sector investment. Demand could go from this [indicating] to this [indicating] if we add 

a little more juice in the form of a rebate, and that might need to 

be sourced from capital that values the economic development returns. 

Over time, I think that the importance of rebates will go down 

as market adoption increases, as consumers value energy efficiency 

remodels just like they would a kitchen remodel or a bathroom remodel, and it becomes part of the conversation and the decisionmaking process of what you do in your home, and especially as the 

real estate markets value energy efficiency improvements and the 

sale price. But until then, I think it’s a promotional industry and 

I think we need to respond accordingly. 

The CHAIRMAN. Let me defer to Senator Murkowski. 

Senator MURKOWSKI. Thank you, Mr. Chairman. I appreciate the 

comments from all the witnesses this morning. 

I think we’ve all recognized, as several of you have said, that the 

cheapest energy source that we have out there is increased efficiency. I think we recognize that, despite all the talk and all that 

we have done up to this point in time, we’re probably the most 
39 

wasteful Nation when it comes to our energy consumption. We 

don’t really think about it. We keep this room too cool in my opinion. I’m from Alaska; it’s too cool. We keep the lights on too long. 

We’re in a Federal building. We should be setting the standard. I 

think generally we do a poor job. We try at the household level. 

But I think part of what we’re dealing with is just a lack of understanding or a lack of appreciation in terms of how much savings 

truly can be realized as individuals, as families, as small business 

people in our environment. 

So the question—and Mr. Smith, Mr. Rodgers, you both spoke to 

this a little bit: How do we do a better job of educating the consumer about the value of energy efficiency, so that we start to 

make a real pronounced difference? Mr. Rodgers, you’ve described 

the program in Indiana and what you’re doing there. I guess the 

question is can you take that Indiana example and spread that 

across the country? Is it important to have a national program? Is 

it better to allow the States and the local communities to focus on 

this? 

I’d like to hear some input there, and I’d like you to address a 

little bit about how we deal with it on the rural side. I know that 

in your experience there in Indiana you’ve got some big box stores, 

you can find some economies of scale. I’ve got a lot of little villages 

where residents are paying over 40 percent of their income for their 

energy costs, as compared to the national average, which is somewhere between 3 and 6. Can this be translated to rural America 

as well? So your comments, please? 

Mr. RODGERS. Great. Senator, I think when we—I’d address that 

in a couple of ways. First, I think, in regards to the educational 

component, in each and every program that we’re involved in probably the biggest challenge is in putting forth essentially a branding, marketing, and educational component of the programs to really meet, whether it’s a commercial facility or a resident, at their 

point of need and understanding how the energy that they are 

using is impacting them economically. 

So that educational—if you can make that linkage, like we are 

doing in Indiana in the case of Energize Indiana, starting out at 

a larger branding component and driving very specifically down to 

the individual resident—we are moving to try and educate them to 

understand how having your temperature at this setting or having 

the lights on at a certain level, how that directly translates into the 

money that it costs them at the end of the month, because when 

you think about it virtually everything we do in society is an immediate transaction. In the case of your energy bill, you don’t know 

about it until the end of the month, so it doesn’t go hand in hand 

with the activity that you’re performing. 

So that educational component becomes a very big element in 

getting people to understand and to participate much better. So I 

think that educational component can happen across every State, 

can be supported definitely from a Federal perspective of really 

working with the States and businesses to allow that understanding to be elevated much greater than it is today. 

When you spoke in regards to the rural part of our country, 

while sometimes that can be a challenge, I think the opportunities 

definitely exist to be able to work within those communities both 
40 

in the assessment of their properties and understanding how energy is being utilized there, as well as leveraging technology. So if 

they are not near a big box retail outlet, as an example, to be able 

to understand the impact of more efficient equipment or more efficient lighting or whatever the case may be, we can leverage and 

utilize technology to link them in for, one, that understanding, and 

two, the actual transaction can take place via technology as well. 

So we have had a lot of success in really pulling in rural America 

to feel like they are right in the middle of these programs much 

more than they have been in the past. 

Senator MURKOWSKI. Mr. Smith, did you have anything you 

wanted to add to that? 

Mr. SMITH. Yes, if I may. First, I very much appreciate your comment on waste. This is about waste and we can do a much better 

job, and we’re all proving that, I think. 

How do you motivate consumers? I think you have to meet the 

consumer where they are. Historically, energy efficiency has been 

sold as save kilowatts. That’s not what consumers respond to. 

What we try to do is take a very consumer-based marketing approach and sell this based on the benefits to the consumer, which 

is a more comfortable home or, as Senator Franken mentioned, a 

better work environment. That’s the way this has to be sold. 

In different communities, that message might be applied slightly 

differently. In Klamath Falls, a waste message plays much better 

than in Portland, where it might be reduce your environmental 

footprint, that goes along with the make your home more comfortable. 

As far as rural markets, what I would add there is that in our 

case the Bonneville Power Administration, the Federal agency, supplies energy to a lot of these small consumer-owned utilities and 

they rely on that. Yet each of these little utilities has their own approach to an energy efficiency program. We need to be better, much 

less fragmented. We need to have much better common standards. 

We’re proving we can deploy and serve in rural and urban markets and we can have a marketing approach that works, we can 

have a contractor development approach that works. If we had consistent incentive levels and program delivery standards, I don’t 

think it really matters if it’s rural or urban. There are some real 

fuel delivery challenges, but from a marketing standpoint I think 

we can do it. 

Senator MURKOWSKI. Thank you, Mr. Chairman. 

Mr. SMITH. Thank you. 

The CHAIRMAN. Senator Franken. 

Senator FRANKEN. Thank you, Mr. Chairman. Thank you for calling this hearing, and thank you, all the witnesses. 

I was especially struck with the testimony of a number of you 

who said this will not—this doesn’t require Federal dollars. I know 

you said that, Mr. Smith. Mr. Rodgers, you talked about that. 

When I first started this initiative in Minnesota, it was about 9 

or 10 months ago. I said to my staff: We’re not going to have any 

money to create jobs. It’s essentially looking like that, what’s going 

to happen in Congress. Let’s find a way to create jobs without 

spending any money, almost a perpetual motion machine. No one 

had ever heard of this. 
41 

What is it? It’s retrofitting, because the energy savings pays for 

the retrofit. In the mean time, you’re putting to work people in the 

construction business, who have been the hardest hit during this 

recession. You’re putting to work manufacturers. In Minnesota, we 

have manufacturers that make great geothermal pumps. We have 

manufacturers who make the most efficient HVAC. We have 

ESCO’s like Honeywell and Johnson Controls. We have others. 

We have—I at these conferences have had testimony from coun- ties that have done retrofits and are saving $900,000 a year in electricity. It pays for itself if you do it right. What I love about it is 

that we’re not talking about spending a dime of Federal money. 

You can do this without spending a dime of Federal money and yet 

create American jobs and lower our use of energy and our carbon 

footprint. As I said, it’s win-win-win, as Mr. DeBoer said. 

My question is—and many of you spoke to it, which is—I think, 

Mr. Sundstrom, in your written testimony you said that this has 

the potential to create 3.3 million jobs across the country. What can 

Congress do? You’ve all spoken to it, but let’s have a discussion 

about what kinds of things Congress can do to accelerate this to 

create these jobs and to create these great work environments, to 

create economic activity? Those people who are working will be 

spending money in America. The money stays here. 

What kinds of things? Some of you have talked to them, but I’d 

like to have a little bit of a discussion here, but not so long that 

I don’t get to ask another question, or you can talk. OK, Mr. 

Sundstrom? 

Mr. SUNDSTROM. If I could start very briefly—I realize this is not 

the Banking Committee, but we really need some help with FHFA. 

If FHFA continues with its rules and it passes that rule, which is 

due in about 30 days now—there’s about 15 days that have passed 

so far during the exposure period. 

Senator FRANKEN. This is about PACE? 

Mr. SUNDSTROM. This is about PACE, yes. 

Senator FRANKEN. This is about them not putting PACE in first 

position? 

Mr. SUNDSTROM. Right. 

Senator FRANKEN. OK. 

Mr. SUNDSTROM. PACE, of course, is not a loan. It’s an assessment. 

Senator FRANKEN. Right. 

Mr. SUNDSTROM. So under the laws of most States it belongs, 

along with other assessments—— 

Senator FRANKEN. So basically, for everyone listening—let me 

see if I’ve got this right. Basically—and we have this in Minnesota. 

So a PACE thing is basically, it’s almost like a property tax. In 

other words, the county government, the city government, can help 

a commercial building, say, make a retrofit and, instead of that 

building, the owner of that building, paying in front, it’s added on 

sort of as an assessment. 

Mr. SUNDSTROM. It’s an assessment. 

Senator FRANKEN. Right. So what you’re talking about is whether the Federal Government, the FHFA, will recognize that as what 

it is, which is that you pass that on. If you sell the building, you 

pass that on, that assessment on, to the next owner, and that basi-
42 

cally if there is a default somewhere along the line, that that gets 

paid off to the city before the mortgage. That’s the problem in light 

of the obvious big problem we had. 

Mr. SUNDSTROM. Yes, sir. Right now, as I mentioned, H.R. 2699 

has a lot of accommodations for PACE programs, which the FHFA 

we would hope would want to accept. They include a little bit more 

rigorous qualification for loan. I believe it’s 85 percent loan to 

value. They require established energy savings to be proved as the 

loans are being—as the assessments, excuse me, are being granted. 

Your help in pushing for 2699 or, even better, would be if we 

could somehow exert some level of influence over FHFA to accept 

the language in 2599 before implementation, would be most helpful 

to us. 

Senator FRANKEN. OK. Sorry that we got into this detail. I know 

that when we get in the weeds on these things this sounds very 

complicated. It sounds complicated, and I guess they are, but it’s 

doable. It’s all doable. It’s not rocket science. 

So I’m done. My time’s over. But we’ll come back to this, and excuse me for getting into this. But that’s the nature of these things, 

and you all know that. You all know that the nature of these 

things is you have to discuss it for more than a couple minutes. 

But the thing is, let me just say that for different kinds of buildings—and you talk about MUSH, which is municipals, universities, 

schools, and hospitals, and we all know that acronym who are interested in this subject. There are different models for different 

kinds of buildings and maybe different States, etcetera, etcetera. 

But this can be done and it should be done and it must be done. 

Mr. Chairman, thank you. 

The CHAIRMAN. Thank you very much. 

Senator SHAHEEN. 

Senator SHAHEEN. Thank you, Mr. Chairman. Thank you to you 

and Ranking Member Murkowski for calling the hearing today, and 

to all of you for testifying and for the really excellent work that 

you’re doing on the ground. 

My personal belief is that energy efficiency is not only all of the 

things that everybody’s testified to, but it’s also a way to bridge 

some of the differences on our energy strategy in this country, because it doesn’t matter whether you support oil and gas, fossil 

fuels, or whether you support wind and solar; energy efficiency 

benefits us all. It benefits every region of the country. 

So I think it’s from that perspective a very good place to start 

with an energy strategy for the country. Notwithstanding that 

we’re talking about non-Federal financing for energy efficiency programs, the fact is, as we have just talked and Mr. DeBoer pointed 

out very clearly, there are a number of things that we can be doing 

here in Congress that help promote energy efficiency in a way 

that’s I think very good for the country. 

I appreciate Mr. DeBoer’s raising S. 1000, which Senator 

Portman and I have been working on for over a year. I think it’s 

one of those pieces of legislation that could help promote energy efficiency around the country. I was pleased that the American Council for an Energy Efficient Economy analyzed the legislation and 

said that by 2020 it could save consumers $4 billion and create 
43 

about 80,000 jobs. So the jobs—this is, as everybody has said, a 

real win-win for everybody. 

Let me ask you, Mr. DeBoer, because I know that you have your 

fingers on what’s happening in the real estate industry. One of the 

challenges that has been alluded to by many of you is how we 

quantify savings from energy efficiency and how do we get lenders 

to look at that and be able to include that in calculations around 

lending on this issue. 

I wonder if you could talk about the challenge that is presented 

by that data issue and how we can address that. 

Mr. DEBOER. Thank you. There is a huge problem, I think, between utilities, between tenants in buildings and between owners 

on getting a comprehensive sort of holistic picture of the energy 

use, how it’s being used, what steps might be taken within an individual building to reduce energy consumption. 

To the point from Senator Murkowski about how can we get, for 

example, users of energy to be more responsive, one item that 

we’ve been working on separate from S. 1000 with Senator Bennet 

to approach a market-driven approach to a bill that would give— 

now there is an Energy Star award for buildings, for example, for 

building owners, and we know that buildings that have an Energy 

Star use about 35 percent less energy than one that doesn’t. 

We would like to take that to the next level and give sort of a 

tenant-based Energy Star, if you will, to incentivize tenants to save 

energy. We think that that would encourage people to do things. 

We also need to have better data sharing between the utilities and 

the owners on how much energy is being used, where it’s being 

used. Different tenants obviously use different levels of energy. A 

large trading floor in a tower in Manhattan is burning an awful lot 

more than an office building somewhere else around the country. 

So we need to share that data. 

It frequently surprises people when we say that there is a barrier 

between utilities, owners, and lessees on how this energy is being 

used. The Chicago area has a great example of where there’s been 

a sharing of information. We urge people to take a look at that. 

The one other item that I think we’d like to see are these general 

appraisal rules, and we think the appraisal industry is very willing 

to help in this area, to give credit for making energy efficiency improvements in buildings. We ought to have more credit. We ought 

to be working more together, and there’s legislation that would do 

this. 

Most of what I’m talking about again echoes Senator Franken. 

We’re not talking about spending Federal dollars here. We’re talking about breaking down barriers for communication, sharing information, allowing people to do things, and incentivizing them in this 

market-based approach. So just a couple of ideas, I guess. 

Senator SHAHEEN. Thank you. 

I don’t know if anyone has anything to add to that? Ms. Leeds? 

Ms. LEEDS. Thank you. I agree with you wholeheartedly that the 

need for data is critical, and I feel that our experience shows that, 

with respect to the lender process and how lenders are actually 

using information to adjust their practices, this field is really quite 

nascent. 
44 

There’s a considerable amount of lender education that needs to 

happen. There need to be concerted efforts to track data that shows 

the actual performance of retrofits, that helps people understand 

the financial benefits, both in terms of savings, but from a lender’s 

perspective in terms of risk mitigation, that retrofits can offer; and 

that there needs to be, I believe, some encouragement, pressure, 

and assistance in data gathering efforts. 

We are working with one study that was funded by philanthropy 

and a group associated with Deutsche Bank Foundation that 

tracked retrofit performance in affordable multi-family properties 

over several years based on an ACERTA program and the weatherization assistance program in New York. This information has provided a basis for us to work with two lending organizations, one 

local New York City lender and also a national lender, to develop 

energy efficiency retrofit financing programs. 

More of this type of information would be extremely helpful, I believe, to the lending community, coupled with some pressure to get 

them to act. 

Senator SHAHEEN. Thank you. My time is up, but I’m sure you’re 

all aware that there’s a DOE innovation hub in Philadelphia that’s 

trying to develop data on building efficiency, that hopefully will 

help add to this debate significantly. 

The CHAIRMAN. Senator Wyden. 

Senator WYDEN. Thank you very much, Mr. Chairman. 

To the witnesses, let me apologize. Suffice it to say, even by 

Washington, DC, standards, this has been something of a rollicking 

day here in the Nation’s capital. So I appreciate your patience. 

Mr. Smith, we’re particularly proud of you. I think the Clean Energy Works program and the trailblazing effort that you’ve led, 

which of course is part of our tradition, is really special because 

you have been able to accomplish what essentially folks in the Congress just dream of. You have brought the utilities together, small 

business folks together, the State public utility commission, our 

lending institutions, urban and rural folks together, for an effort to 

promote clean energy and particularly prime the energy efficiency 

pump. 

This is especially important right now, because I think it’s pretty 

obvious that the well for taxpayer-financed incentives for a variety 

of energy technologies is running dry really at every level of government. So if anything, it’s more important than ever to try to put 

the premium on innovation, to put the premium on innovation particularly as it relates to energy efficient investments. 

It’s of course easier said than done, but clearly to find a way to 

bring these investments to homes, buildings, and factories means 

that you’ve got to look at a variety of new approaches. That’s what 

we’ve done in our State. It really began with the bottle bill, and 

particularly relevant, just 10 years ago we started the Oregon Energy Trust and that brought a surcharge on utility bills to finance 

energy efficiency and it has saved Oregonians about $800 million 

so far. So it’s generating real savings as we chart the path to a 

cleaner and more energy efficient future. 

So I want to ask you specifically about how we really began that 

effort and particularly the role that on-bill financing plays in your 

program. With customers repaying energy efficient loans on their 
45 

monthly utility bills, the first question everybody asks is: How in 

the world did you get the utility companies to go along with this? 

Because I want to see if we can build, as we have often, on this 

Oregon model, bringing the players together. 

Tell us a little bit, first of all, how you were able to get the utility 

companies to go along, and how you built this coalition that has in 

effect grown and become widely accepted, where in most places you 

can’t get these folks to even talk to each other, let alone come together around a program you’re talking about. 

So start with utility companies and how you built this coalition? 

Mr. SMITH. Thank you, Senator. Thank you. I mentioned your 

leadership before you entered the room and we couldn’t be here 

without you. So we really appreciate that. 

I really appreciate the point of supporting innovation. I think 

that’s—to Senator Franken’s point or question, that is really what 

the government can do, I believe, is to support these innovations 

that are going on out there. 

On-bill started in Oregon over 3 years ago. We have progressive 

utilities by comparison to other parts of the country. We’re very 

lucky to have that. But the reality is that using their bill for repayment of loans is not what they’re in the business of doing. It presents some risks to them. 

So they were compelled to do so through State law that was 

sponsored by Representative Jules Bailey and others in the State 

legislature and passed by the State in 2009. That law as it was 

being developed was built with a broad stakeholder engagement 

process, where we had contractors, utilities, lenders, everybody involved, as you mentioned. That is sort of the Oregon way, which 

you of course champion. 

It’s through that broad stakeholder engagement that we’re going 

to get these solutions. That’s the only way we’re going to get to the 

real innovation that leads to ways that these things actually work. 

What we have experienced with on-bill is the utilities have been 

wonderful and supportive of really cataloguing the challenges with 

this on a day to day basis. There’s information-sharing challenges. 

There are challenges with trying to get payment of capital into the 

utility—not into the utility, but collected by the utility and then 

back to the lender. There’s a lot of intricacies with this type of approach, and it doesn’t also solve every solution that there is. Onbill is important and it’s one segment of the population that has 

a solution to this larger problem, but we really need to get a bunch 

of lenders involved. We need to have multiple loan products that 

serve multiple needs. 

Senator WYDEN. Let me, if I might, because my time—I’m just 

a few seconds over. Mr. Chairman, could I just ask one additional 

question? 

The CHAIRMAN. Go right ahead. 

Senator WYDEN. Even though you generated significant private 

sector support, you did get some government help at the beginning. 

Mr. SMITH. We did. 

Senator WYDEN. Why don’t you—and if any other panel member 

wants to get into this—get into the question of, based on your experience, how long do you thnk programs like Clean Energy Works 

are going to require a role for government? In other words, in a 
46 

time of dwindling resources—and I very much share Senator 

Franken’s view on this effort to spark innovation. I think that’s exactly where we want to be. We’re still going to find a lot of programs needing a bit of governmental support in order to get out of 

the gait. 

How long do you, and perhaps other witnesses want to chime in 

on this, how long do you see that taking in terms of getting to the 

point where you have critical mass and you don’t have Federal and 

State support, which is going to be hard to generate right now? 

How do you get there? 

Mr. SMITH. I do respect very much the budget decisions that you 

all need to make, very large decisions. I think what we’re trying 

to build here is a performance-based model, where we are showing 

that the investment, public investment, actually results in real returns, and we have the data to share that. So as you make decisions, you might consider looking at where you actually know 

you’re going to get proven returns in economic development, if it’s 

economic development that you want. 

If we want to support this industry and grow it because we believe in the returns that we’ve all said are win-win-win, then it 

does require some—or it can benefit—we can accelerate those outcomes through further investment. I believe more lies right now on 

the rebate side to get consumers involved, because until home valuations and property valuations recognize in real estate transactions 

the improvements made by energy efficiency I think we’re going to 

need further investment. 

I think it’s maybe—it’s really hard to guess. There’s a lot of 

markers that we need to watch. But 3 years I think is what we feel 

the real estate industry needs to turn around and really recognize 

these improvements. We need market adoption to grow such that 

people talk about doing energy efficiency remodels like they would 

a kitchen remodel or a bathroom remodel. 

Senator WYDEN. I’m way over my time. If any of you would even 

for the record furnish a written answer to the question of how long 

in your judgment—Mr. Smith thought maybe 3 years—how long 

you think it takes to get to critical mass so that the government 

support can go by the board. 

Mr. Chairman, thank you for the extra time. 

Mr. SMITH. Thank you, Senator. 

The CHAIRMAN. Senator Murkowski, did you have some additional questions? 

Senator MURKOWSKI. Let me just ask. On whole building retrofits, you’ve got the commercial side of it, you’ve got the residential 

or the private side. Assuming that from the financing perspective 

it’s different in how you approach the financing for the commercial—and Ms. Leeds, you spoke to that—what kind of incentives do 

we need, if any, for the whole building retrofit for private owners? 

I throw that out to the whole. Ms. Leeds, if you want to start. 

Ms. LEEDS. I will just briefly mention that I believe the most important driver we have the benefit of having in New York City is 

the city’s Greener Greater Buildings plan, which involves 

benchmarking and eventually mandatory audits and retro commissioning for buildings of over 50,000 square feet. This is not an incentive, but it is a set of local laws that promulgate information 
47 

about energy use and put in play competitive forces that we believe 

will drive more building owners, larger building owners, to adopt 

energy efficiency measures. 

Senator MURKOWSKI. So you’ve got a mandatory audit on all private buildings over a certain size? 

Ms. LEEDS. Private buildings over 50,000 square feet, there is a 

mandatory audit, ASHRAE Level 2 energy audit, and retro commissioning measures. This is being phased in over a period of 

years. Every building will need to do it once every 10 years. 

Mr. DEBOER. Senator, if I could. 

Senator MURKOWSKI. Mr. DeBoer. 

Mr. DEBOER. I think it’s important to recognize that building 

owners everywhere want to make their buildings more energy efficient. It’s better for their bottom lines. It’s better for their business. 

They want to do it. But what we’re talking about here is beyond 

simply putting in a light switch that goes off when people leave the 

room or changing out the lighting. 

In order to achieve deep energy efficiency, we need to have deep 

retrofits. These are very complicated, costly endeavors. So one 

thing that needs to be done if we’re going to have a tax deduction— 

and there is one in current law, 179D, as the chairman well 

knows—it should work, and mechanically it doesn’t work now, and 

there are some simple ways to make it work that would incentivize 

people to do these deeper retrofits. 

On the financing side of things, we’re not talking about direct 

loans. We’re talking about guaranteeing a small part of a loan that 

could then be levered to a larger loan that a private owner could 

then do a deep retrofit. So there’s a lot of relatively minor things 

that could go a long way to encourage these kinds of heavy benefits 

that could come out there. Many members of the committee have 

bills and we support them, we support them all. 

Thank you. 

Senator MURKOWSKI. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Franken, did you have some additional 

questions? 

Senator FRANKEN. I do. First of all, on the lighting here in this 

room. The reason it’s so bright—and I don’t know—I think the 

ranking member knows this—I used to be in show business, and 

they have this—these lights are for TV. Even though they—— 

Senator MURKOWSKI. We’re not here for TV. 

Senator FRANKEN. I know. I know that we’re not here for TV. 

But we do have C-SPAN sometimes. Evidently there are members 

of the Senate who have egos and they do like the TV. Even though 

we’re not on C-SPAN today, they just don’t want Senators to come 

in here and see the lights dimmer and say: Oh, well, it’s hardly 

worth it; I’m not on TV. So that’s why it’s so bright today. I just 

wanted to explain that. That’s from my experience in a different 

business. 

This is to anybody. Minnesota, like other States, has an energy 

efficiency resource standard requiring it to reduce energy use by 

1.5 percent a year, to be that much more efficient. To meet the 

standard, Minnesota utilities are offering rebates or low interest 

loans to help homeowners and businesses retrofit their buildings. 

From what I’ve seen in Minnesota, the standard has turned utili-
48 

ties into efficiency partners who support retrofits, and that’s why 

I’m looking for a Federal energy efficiency standard that is in part 

modeled after these State programs. There’s a lot of States that 

have this, I think a majority. 

A Federal energy efficiency standard can help incentivize energy 

efficiency savings and encourage the use of innovative financing 

mechanisms to achieve these savings. This is for Mr. Rodgers or for 

anyone. In your written testimony, Mr. Rodgers, you mentioned 

that you’ve seen the greatest level of efficiency achievement in 

States with energy efficiency standards. In fact, you highlight a 

success story in Indiana. Can you elaborate on that and explain 

how a Federal standard could expand those kinds of achievements? 

For the rest of the panel, could you comment on whether energy 

efficiency standards have helped encourage the use of innovative financing mechanisms? 

Mr. RODGERS. Yes, thank you, Senator. One of the things that we 

experience with these standards is it does bring out the best in who 

we are. When we have a challenge and a specific goal to put out 

there to meet, it does require all of the stakeholders that are involved to come to the table and have discussions so as to achieve 

that. So it’s the regulators, it is the utilities and business that all 

come together to bring out the best in our thinking, bring out the 

innovation that is necessary. 

There are over 25 States, as you have stated, Senator, who have 

established these standards and have made tremendous strides in 

the energy efficiency measures that they have put into place. 

So I think, with a lack of standards, there isn’t that motivating 

factor to really bring everyone together. So to the extent that there 

could be Federal involvement in helping to set a broader standard—— 

Senator FRANKEN. When I talk to utilities in Minnesota, they’re 

eager. They’re looking for these things. 

Mr. RODGERS. Absolutely. 

Senator FRANKEN. To help meet their standard. 

Mr. RODGERS. Absolutely. In the case of Indiana, we have 5 investor-owned utilities. All come to the table, working strongly together to achieve those standards. As you said, sometimes it’s difficult to get all the right folks around the table, but these standards are what it takes to make that happen. 

Senator FRANKEN. I hope we can consider a Federal standard. 

I’ll move to something that Mr. DeBoer was talking about, if others don’t mind not being able to ask a last question. You mentioned 

the 179D tax deduction for commercial building retrofits and how 

powerful they are as tools, helping building owners invest in energy efficiency. However, I’ve heard from religious groups and nonprofits, as well as real estate investment trusts, or REITs, in Minnesota that would like to retrofit their buildings, but don’t have tax 

equity and therefore can’t take advantage of these incentives. 

If the tax deduction were transferable to a third party, like a retrofit contractor, the contractor could reduce the price of the retrofit 

based on the benefit of the tax deduction. That could help people 

with little or no tax equity take advantage of the Federal incentive 

and therefore retrofit their buildings. 
49 

Would making Federal tax incentives transferable to third parties in your view open up more retrofitting opportunities? 

Mr. RODGERS. Consistent with my statement about being brief: 

Yes. It would very much help. 

Senator FRANKEN. Thank you. 

Mr. RODGERS. Because, as you said, there are a number of types 

of ownership structures that can’t take advantage or use, is probably a better word, not ‘‘take advantage,’’ but make use of the 

available deduction. Being able to allocate it, whether it’s to engineers or appraisers or to other entities that are in the refitting, retrofitting business, yes, it would be very, very powerful. 

Senator FRANKEN. I’ve got some other questions, but I’ve got like 

12 seconds. I am so happy that you called this. This is so important. This is really an opportunity for us to create jobs. A lot of the 

Federal help—and when I talk to this energy efficiency standard, 

the Federal help doesn’t have to be about us spending Federal dollars necessarily. Of course, tax being—opening a tax advantage 

there is. 

But so much of it can be about just making it possible to do these 

things, just actually encouraging and helping and getting out of the 

way in some cases, get out the way. So I want to thank this panel 

for doing the work that you’re doing, I really do. I want to thank 

the chair and the ranking member for facilitating this hearing. 

The CHAIRMAN. Thank you very much. 

Senator Murkowski, did you have anything else you’d want 

to—— 

Senator MURKOWSKI. No, I’d just thank all of you. 

The CHAIRMAN. Let me thank the panel as well. We will take 

your full statements and pore through them and try to find what 

action items we can that we can move ahead on here. I think this 

has been a very useful hearing. I thank Senator Franken for continuing to keep a focus on this. I think it’s a very important question. 

Senator FRANKEN. Mr. Chairman, would you like me to explain 

again about the TV lights and why? 

The CHAIRMAN. We would, we would. We’re very anxious to hear. 

Senator FRANKEN. Why Senators like being on TV? 

The CHAIRMAN. We would be very anxious to—— 

Senator MURKOWSKI. Will you explain the cold temperatures, 

too? 

Senator FRANKEN. Actually, when there are a lot of people in the 

room with the TV cameras, it warms up. 

Now, today we don’t have that. We don’t have that. But you don’t 

want the Senators walking in, it being dim and warm, and saying: 

There’s no TV today; I’m not going to show up. 

Senator MURKOWSKI. I’m going to keep that in mind. 

The CHAIRMAN. We’ll keep that in mind, and thank you very 

much. 

That’s the end of our hearing. 

[Whereupon, at 10:55 a.m., the hearing was adjourned.] 

(51) 

APPENDIXES 

APPENDIX I 

Responses to Additional Questions 

RESPONSES OF DEREK SMITH TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. How important are tax incentives to stimulating commercial building 

efficiency retrofits? Are there specific incentives we should enact? 

Answer. Our experience is more in the residential sector so I will defer to other 

witnesses on questions 1-4. 

Question 2. Government policy makers have been trying to stimulate large scale 

efficiency retrofit commercial building industry for more than three decades, but experts say that mandates may be required to stimulate the real estate industry to 

perform large scale energy efficiency retrofits in the commercial sector, other than 

a few high profile trophy buildings. Do you agree or disagree that mandates will 

be required for the commercial sector to do large scale retrofits? What are the alternatives? 

Question 3. How can utilities be encouraged to adopt the successful small commercial and industrial program that was described by Ms. Borrelli from United Illuminating? The combination of turnkey service, cost-effective incentives and zero -interest financing has been very effective in Connecticut and Massachusetts. These 

programs should be implemented across the country. How can we replicate these 

programs? 

Question 4. Ms. Leeds of NYCEEC cited a study published by the Rockefeller 

Foundation which estimated the potential for energy efficiency in institutional buildings at about $25 billion. However, NAESCO‘s testimony (for the record) states that 

this estimate is low by a factor of four, based on studies performed by the Lawrence 

Berkeley Labs. Do you agree that the potential market for energy efficiency in institutional buildings approaches $100 billion? If not, what do you see as the potential 

market and barriers to meeting the potential for energy efficiency in buildings? 

Question 5. You say in your testimony that, ‘‘We have built a model that doesn’t 

rely on Federal investment to survive’’. How does your model work? Is it replicable? 

Answer. We believe the residential energy efficiency sector requires more public 

investment before it can become self-sufficient. As I mentioned in my testimony, I 

would estimate further public investment on a three-year horizon. My intention 

with this statement was to say we are not reliant on Federal investment beyond 

ARRA. That said, we would welcome it and we believe we are demonstrating the 

economic development value of further public investment through data on job creation, small business growth, citizen energy savings, private capital leverage, housing value increases, etc. 

Our post-ARRA model is to transition from Federal investment to State investment. We are featured in Oregon Governor John Kitzhaber’s 10-Year Energy Action 

Plan as an example of an effective public-private partnership that is worthy of consideration for further State investment. Our operational focus is to continue to bring 

down transaction costs currently covered by subsidy and to use additional State investment for consumer rebates to buy down project costs. We have data that shows 

that rebate levels above utility incentive levels drive additional consumer demand, 

which leads to significant incremental economic development. We call this ‘‘performance-based economic development,’’ wherein public institutions know their investments will provide returns because they are founded on solid data. 

We believe our model is replicable. The thrust of a well-capitalized and sustained 

market over the next several years is a collaborative investment approach by the 
52 

utility, public and private sectors. Clean Energy Works Oregon serves as the intermediary and capital aggregator between these sectors. 

RESPONSES OF DEREK SMITH TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1. In your opinion, should the federal government be investing in efficiency? If so, what is the proper role of the federal government for these types of 

retrofits? 

Answer. Unequivocally, yes. The jobs can’t be outsourced, small businesses grow, 

citizens save money, the country reduces its reliance on volatile fossil fuel markets, 

and more. 

The Federal government can play several important roles, as noted in #2 below. 

Question 2. Within your testimony you list several opportunities for the Federal 

Government to pursue as it pertains to energy efficiency. What do you believe would 

be the option that would have the most return on improving energy efficiency and 

why? 

Answer. I honestly believe that the most important role the Federal government 

can play is as chief advocate for a collective commitment to energy efficiency—from 

setting common data standards (e.g., on energy and non-energy benefits) across 

state lines to catalyzing private sector engagement to encouraging citizen awareness 

to demonstrating leadership by reducing energy waste in public buildings (as you, 

Sen. Murkowski, pointed out in your remarks). 

Additionally, on citizen engagement, I suggested in my testimony a reference to 

the Victory Gardens rallying cry by the Federal government during WWII. We 

should link energy efficiency to patriotism. 

Question 3. Please further elaborate on the role that the State of Oregon is playing in incentivizing efficiency. 

Answer. The Oregon Dept. of Energy has invested in CEWO. Its contributions in 

consumer rebates, private lender credit enhancements and other areas are spelled 

out in the attached overview. 

Gov. Kitzhaber featured CEWO in his draft 10-Year Energy Action Plan (see attached). We are in discussions with the State about investing in further consumer 

rebates to generate ‘‘performance-based economic development’’ returns from the energy efficiency sector. 

The State also provides various tax incentives and promotes supporting legislative 

and statutory actions. 

Question 4. Is there a silver bullet to lower energy consumption? If not, what are 

options to put into the mix? 

Answer. Ongoing consumer education is critical and often overlooked by utility 

programs. Smart customer management should constantly offer new technologies 

(e.g., smart meter appliances) to participants in home weatherization programs, for 

example. Ensuring quality work—through contractor certification and worker training—is also an important element of ensuring permanence of energy savings. 

RESPONSE OF DEREK SMITH TO QUESTION FROM SENATOR WYDEN

Question 1. Even projects like Clean Energy Works, which use private financing, 

needed government financing to get started. Given the modest pace of the economic 

recovery, which limits the amount of secondary lending for things like energy efficiency, how long do you think programs like Clean Energy Works will require support? In other words, when do you think these sorts of programs will get to a critical 

mass, and where federal and state support are no longer needed? 

Answer. The key challenge for this sector is that utility capital can only value the 

energy savings returns from energy efficiency. It explicitly, by PUC charter, can not 

value all the non-energy benefits. Until this structural issue is addressed, we face 

a world where public capital must ‘‘fill the gap’’. 

As I mentioned in my testimony, I think the horizon might be roughly three 

years. The markers of transformation that will herald this transition include: 

• Steady, growing consumer demand wherein consumer consider energy remodels 

along with kitchen and bath remodels 

• The real estate community recognizing the value of energy efficiency in home 

valuations 

• Contractor capacity, including on sales and marketing, is sufficient to drive demand in a competitive market without rebates needed as a promotional hook 

CEWO has figured out how to engage private lenders without credit enhancement. We feel very strongly that Federal dollars may be most effectively targeted 

toward consumer demand and contractor capacity rather than support for lenders 
53 

RESPONSES OF DAVID E. SUNDSTROM TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. How important are tax incentives to stimulating commercial building 

efficiency retrofits? Are there specific incentives we should enact? 

Answer. Although in my role as Auditor Controller Treasurer Tax Collector of the 

County of Sonoma, and Administrator of our local Property Assessed Clean Energy 

(PACE) program we have no direct experience with federal tax incentives, we are 

aware of their importance in motivating property owners towards retrofitting their 

property. Informed tax professionals working with commercial building owners and 

building performance professionals can best define the return on investment impacts to a business. 

One particularly difficult segment of the market to stimulate to embrace energy 

efficiency upgrades is the multifamily housing sector. A large percentage of multifamily housing units are owned by real estate investment trusts, whose mission is 

to enhance the profits of the partners in the trust. Because the building owner does 

not pay the energy bill, there is no motivation, without proper incentives or mandates, to upgrade the property. An excellent analysis entitled ‘‘U.S. Multifamily Energy Efficiency Potential by 2020’’ can be found at: http:// 

www.benningfieldgroup.com/docs/ 

FinallMFllEElPotentiallReportlOctl2009lv2.pdf. That study on multifamily housing concludes on p. 5: ‘‘We estimate that the achievable potential (the 

economic potential further bounded by reasonable expectations of budgets and adoption rates) by the year 2020 is over 51,000 gigawatt-hours of electricity and over 

2,800 Million therms of natural gas (or the equivalent for those regions that use 

other fuels). That is roughly equal to the output of 20 average sized coal power 

plants and the entire non-power plant natural gas usage of California, Oregon, and 

Washington. The potential savings would have a value of nearly $9 Billion annually 

to property owners and tenants, compared to current energy costs of over $31 Billion.’’ 

We would urge the Committee to consider methods of stimulating this particularly 

difficult segment of commercial properties toward efficiency upgrades. 

Question 2. Government policy makers have been trying to stimulate large scale 

efficiency retrofit commercial building industry for more than three decades, but experts say that mandates may be required to stimulate the real estate industry to 

perform large scale energy efficiency retrofits in the commercial sector, other than 

a few high profile trophy buildings. Do you agree or disagree that mandates will 

be required for the commercial sector to do large scale retrofits? What are the alternatives? 

Answer. While this is not my particular area of expertise, because of my role as 

Administrator of our PACE program we believe a combination of mandates and incentives may be required to motivate efficiency upgrades. As explained in Response 

No. 1, some areas of the market, particularly multifamily housing, are very difficult 

to reach. Commercial property owners will consider upgrades if the upgrades financially benefit them, financing is available, and existing lenders support, or at least 

do not oppose, that decision. Some combination of rewards and mandates may be 

necessary to drive efficiency upgrades and motivate property owners that do not directly bear the energy costs of a building. 

Question 3. How can utilities be encouraged to adopt the successful small commercial and industrial program that was described by Ms. Borrelli from United Illuminating? The combination of turnkey service, cost-effective incentives and zero-interest financing has been very effective in Connecticut and Massachusetts. These 

programs should be implemented across the country. How can we replicate these 

programs? 

Answer. To the best of our knowledge, while both of these programs are very successful, they are also highly subsidized. Over time, we need to transition to programs that can operate with little or no subsidy and utilize private capital so that 

the scale is not limited to scarce government funds. PACE provides a vehicle for 

that approach, in both the commercial and residential sectors. 

In the experience of Sonoma County, program success has rested on the foundation of strong political will based on established county-wide community climate and 

local power generation goals. 

Sonoma supports the replication of a one-stop-shop local energy independence upgrade program model to: 

• Leverage existing and develop local relationships among local government agencies, business, education, non-profits, utilities, trade organizations, etc., engage 

in a collaborative operational mode;, 

• Minimize consumer confusion by leveraging branding opportunities; 
54 

• Focus local workforce balancing and development to stimulate the local economy; 

• Design and delivery quality assurance in the evolving building performance and 

renewable generation industry; 

• Maximize rebates and incentive;—Deliver unbiased extensive education and 

outreach from the perspective of a not for profit organization; and 

• Facilitate the pairing of fund sources through partnerships and the delivering 

of a financial clearing house to consumers. 

A model for replication could include operational funding of the local government/ 

not for profit agency by local public good utility charges, leverage rebates of utilities, 

maximize tax incentives from the federal government, to educate consumers, develop the clean energy workforce and facilitate the pairing of private funding 

sources with projects, including through the PACE model. We believe our model is 

replicable, as demonstrated by the establishment of a PACE program at a very reasonable cost, and completion of a PACE project in Encina, Minnesota, using documents and methodology developed by Sonoma County. 

Question 4. Ms. Leeds of NYCEEC cited a study published by the Rockefeller 

Foundation which estimated the potential for energy efficiency in institutional buildings at about $25 billion. However, NAESCO‘s testimony (for the record) states that 

this estimate is low by a factor of four, based on studies performed by the Lawrence 

Berkeley Labs. Do you agree that the potential market for energy efficiency in institutional buildings approaches $100 billion? If not, what do you see as the potential 

market and barriers to meeting the potential for energy efficiency in buildings? 

Answer. We do not have access to the utility use data, building square footage, 

and current efficiency information required to answer this question on a national 

level. 

In Sonoma County we completed implementation of a comprehensive energy retrofit program for our central campus in 2010 (institutional buildings only). This program included numerous building retrofits, water conservation measures, solar PV 

installation, and the installation of a 1.4megawatt fuel cell. The program had zero 

net cost to the county from day one and debt service of the upgrades is being paid 

through utility savings. The anticipated savings for the County over the 25 year life 

of the upgrades is estimated to exceed $35M. 

FINANCING PLAN 

Project Cost $22,272,029 

Incentives, Grants, and Rebates (3,941,226) 

Financed Amount $18,730,803 

Estimated Interest Rate* 4.98% 

Repayment Term 16 years 

Assumed Closing/Funding Date 1/1/09 

Assumed Annual Energy Cost Escalation* 5% 

First year of positive cash flow Year 12 

Total payments $31,794,615 

Total cumulative positive cash flow after 25 years (estimate life of equipment) $38,404,231 

RESPONSES OF DAVID E. SUNDSTROM TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1. In your opinion, should the federal government be investing in efficiency? If so, what is the proper role of the federal government for these types of 

retrofits? 

Answer. The federal government has a key role in creating standards and certification, such as Energy Star, as well as providing incentives to meet those standards. 
55 

In addition, the federal government can lead the way by retrofitting its own buildings and fleets to demonstrate the success and cost-savings in efficiency. 

The federal government should, however, exercise caution. Many components 

work together for a successful nationwide program. While the government can stimulate one segment, such as manufacturing or innovation, there must be a market 

at the end of the day. As discussed above, there may be tax incentives or mandates 

that stimulate the private market for upgrades. In the residential sector, there must 

also be financing available to property owners. The position of the Federal Housing 

Finance Agency (FHFA) on PACE programs has severely frustrated making funding 

available to residential property owners, and crippled the market for products and 

services. The federal government should ensure that its various components are 

working in unison to promote national policy. 

Question 2. Please describe how the first lien program works within the PACE 

Program. How is the PACE Community working with the lending community to address concerns about the lien priorities? 

Answer. PACE programs are authorized by state legislation enabling local governments to establish assessment- or tax-secured programs so that properties can be 

upgraded for energy efficiency or by installation of renewable energy improvements. 

Legislatures have found that there is a public purpose in having these improvements made. The local government provides the funding which is secured by assessments or taxes levied on the property. As with all other assessments that repay 

bondholders for projects benefitting particular properties (sewer, road, etc.), the repayment is secured by a priority lien on the property. There are some 37,000 assessment districts in the country: this is a well established, well accepted mechanism 

for funding local improvement projects that address a public need. 

A priority lien is essential in any sustainable and replicable PACE program. As 

part of the PACE model, should there be a mortgage default on a property with a 

PACE lien, only the amount in default (i.e., not the entire obligation) would need 

to be paid upon sale of the property. The lien would remain in place for all amounts 

not yet due. In contrast, if there were no priority lien and the PACE assessment 

followed the first mortgage in priority, the sale of the property by the mortgage 

holder would eliminate the PACE lien in its entirety. The public coffers can’t sustain 

this loss; nor could we attract bond investors in the Program at a reasonable interest rate. 

When we established our PACE program, we met with numerous local banks and 

worked with several national banks. For commercial properties, banks requested 

that the first lender be contacted and agree that the project made sense for the 

property. We have implemented that request and numerous commercial property 

owners have obtained their lender’s agreement to projects. The commercial lenders 

generally evaluate the cash flow: if it is positive, they have no objection to the 

project. Although we believe we do not need a lender’s consent to assess a property, 

we are willing to restrict eligibility for commercial properties to those that are able 

to work with their lender and receive consent. 

On the other hand, it is impossible for residential property owners to obtain lender consent to the priority lien. Mortgages are bundled, collateralized and sold. The 

local bank is only the servicer of the mortgage, without power to agree to a priority 

lien. Local governments contend that the priority lien does not violate any provision 

in mortgages, and consent is not required, since tax and assessment liens are anticipated in all mortgage documents. Although some banks agreed with this position 

before the Federal Housing Finance Agency challenged PACE programs, it has not 

been possible to resolve this issue or reach agreement with any banks since that 

time. PACE jurisdictions have expressed support for HR 2599, which balances the 

interest of lenders and local governments desirous of instituting PACE programs. 

We hope the Committee would consider sponsoring similar legislation in the Senate. 

Question 3. Is there value in one national program rather than each state implementing their program such as PACE? Or is PACE better suited for localities? Who 

would run such a program on the federal level? Could you broaden your program 

to a larger audience, and continue to maintain cost savings and efficiency improvements? 

Answer. It may be valuable to have some national standards, such as those established in HR2599, if doing so resolves issues with FHFA, Fannie Mae, Freddie Mac, 

and lenders regulated by FHFA. National standards may also assist if creating fungible, marketable bonds that could be bundled for sale to investors at more favorable interest rates. However, in our view, PACE programs should be implemented 

on a local level although there could be regional cooperation for efficiency. In 

Sonoma County, we have partnered with our nine cities to deliver a countywide program. 
56 

1 USAA recently collected its eighth award from EPA for energy efficiency and has been 

ranked fifth in the Americas in the Global Real Estae Sustainability Benchmark. See http:// 

www.bizjournals.com/sanantonio/news /2012/03/06/epa-to-honor-usaa-real-estate-once.html. 

Local implementation provides a framework to satisfy local goals and priorities in 

alignment with national standards. The building of a local partnership and collaboration model in this area benefits all areas of local government operation and provides flexible, responsive service to the public. Sonoma supports the replication of 

a one-stop-shop local energy independence upgrade program model to: 

• Leverage existing and develop other local relationships among local government 

agencies, business, education, non-profits, utilities, trade organizations, etc., to 

engage in a collaborative operational mode; 

• Focus local workforce balancing and development to stimulate the local economy; 

• Design and deliver quality assurance in the evolving building performance and 

renewable generation industry including reliance on local jurisdictions’ existing 

building inspection procedures; 

• Deliver unbiased extensive education and outreach from the perspective of a 

governmental or not for profit organization; and 

• Facilitate the pairing of fund sources through partnerships, and deliver a financial package to consumers. 

A model for replication could include operational funding of the local government/ 

not for profit agency by local public good utility charges, leveraging rebates of utilities, and maximizing tax incentives from the federal government. The local government or entity implementing the program can educate consumers, develop the clean 

energy workforce and facilitate the pairing of private funding sources with projects. 

RESPONSE OF DAVID E. SUNDSTROM TO QUESTION FROM SENATOR WYDEN

Question 1. Even projects like Clean Energy Works, which use private financing, 

needed government financing to get started. Given the modest pace of the economic 

recovery, which limits the amount of secondary lending for things like energy efficiency, how long do you think programs like Clean Energy Works will require support? In other words, when do you think these sorts of programs will get to a critical 

mass, and where federal and state support are no longer needed? 

Answer. I am not directly familiar with the Clean Energy Works program. Speaking from the experience of Sonoma PACE, the program started and continues to operate without requiring any state or federal funding. The barrier facing the potential of PACE financing is the opposition by the FHFA and the impact to the program in the long term financing market. Elimination of the opposition by the FHFA 

will open the door for the development of local PACE models leveraging the onestop-shop model and partnerships with funding providers. With a grant funded by 

the California Energy Commission, Sonoma prepared a ‘‘replication kit’’ which has 

already been used by other jurisdictions to establish PACE programs and fund efficiency projects. We hope we have provided valuable guidance to other local governments that will assist in minimizing startup costs for other programs. 

RESPONSES OF JEFFREY D. DEBOER TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. How important are tax incentives to stimulating commercial building 

efficiency retrofits? Are there specific incentives we should enact? 

Answer. Members of The Roundtable’s Sustainability Policy Advisory Committee 

(SPAC) have long reported that one of the best ways to stimulate retrofit projects 

would be a workable and usable federal tax incentive for energy efficient commercial 

buildings. In that regard, the existing tax deduction at Section 179D of the Internal 

Revenue Code should be extended and improved. 

Section 179D was first enacted in the 2005 Energy Policy Act, extended in 2008, 

and is scheduled to expire at the end of 2013. To date, this deduction has resulted 

in some limited success to encourage lighting upgrades. However, 179D has not 

lived up to its full potential to encourage ‘‘deep’’ whole-building retrofits because of 

the costs and regulatory complexity associated with upgrading multiple systems including heating and cooling, hot water, windows and roofing, and insulation. Brenna 

Walraven, Former Chair of the Building Owners and Managers Association (BOMA) 

International and past Vice Chair of the Roundtable’s SPAC, is the national managing director of property management for USAA Real Estate Co.1 She recently reported to the Wall Street Journal that: 
57 

2See http://online.wsj.com/article /SB10000872396390444025204577543060812237798.html. 

USAA . . . [has] tried ‘‘many, many times’’ to find renovation projects 

that could be supported by use of the [Section 179D] deduction... ‘‘In 

every case we modeled, [the benefit] was less than the $50,000 to $60,000 

[from building modeling and other administrative costs] . . . ’’2

Other SPAC members and industry leaders confirm Ms. Walraven’s experience. 

Even those real estate companies that have high levels of sophistication in energy 

efficiency design, construction, and building management typically find the 179D deduction—as presently structured—too complicated and beyond their reach. 

To improve and update the 179D deduction, The Roundtable wholly supports the 

179D reform proposal that Chairman Jeff Bingaman (D-NM) and Senator Olympia 

Snowe (R-ME) plan to introduce. They take a performance-based, technology-neutral 

approach to 179D reform that would, among other things: 

• Measure energy savings for retrofits compared to the existing building’s baseline. For purposes of the tax deduction, the Bingaman-Snowe proposal measures 

savings by benchmarking how much energy a building consumed before a retrofit, and then comparing how much energy has been saved after a retrofit. This 

logical ‘‘before-and-after’’ comparison makes sense for existing buildings with a 

track record of energy use, whereby a retrofit plan may qualify for the deduction based on actual and verified reductions in energy usage intensity. 

• Award performance by linking the amount of the tax deduction to energy savings achieved—Under the Bingaman-Snowe proposal, the amount of the incentive would increase with greater energy savings. This ‘‘sliding scale’’ approach 

will encourage ambitious projects while also rewarding projects that achieve 

meaningful yet more moderate levels of energy savings. At least 20% reduction 

in energy usage is the floor for qualification under the proposal. 

• Make the tax incentive useable for a broad range of building efficiency stakeholders and building types, including REITS—Many buildings cannot use the 

179D deduction because their ownership structures, like Real Estate Investment Trusts (REITS) and Limited Liability Partnerships (LLPs), cannot make 

use of conventional tax incentives. The full amount of the deduction should be 

available for REITS and other similar holding structures that cannot otherwise 

use the incentive because they have no tax liability at the corporate entity level. 

Additionally, in order to make the incentive useable for more buildings, the 

building owner should be allowed to allocate the tax deduction to other parties 

responsible for the retrofit such as an architect, engineer, contractor, tenant, 

source of financing, or energy services company that may guarantee improved 

performance. 

Question 2. Government policy makers have been trying to stimulate large scale 

efficiency retrofit projects for more than three decades, but experts say that mandates may be required to stimulate the real estate industry to perform large scale 

energy efficiency retrofits in the commercial sector, other than a few high profile 

trophy buildings. Do you agree or disagree that mandates will be required for the 

commercial sector to do large- scale retrofits? What are the alternatives? 

Answer. The Roundtable does not believe that regulatory mandates would be appropriate to stimulate energy retrofits. Congress has considered ideas like regulatory energy codes and building ‘‘labeling’’ mandates that would have been administered by the U.S. Department of Energy (‘‘DOE’’). From The Roundtable’s perspective, such ‘‘one size fits all’’ federal regulations would make little sense given the 

broad diversity of assets that span the U.S. real estate stock (office, retail, hospitals, 

restaurants, hotels, schools, single- and multi-family residential, etc.); the varying 

stability and prosperity of real estate markets and submarkets across the nation; 

and the widely heterogeneous nature of commercial building tenants and ‘‘plug load’’ 

uses that have a major impact on any given structure’s energy consumption. We are 

thus encouraged by the trend in recent congressional proposals that steer away from 

such ‘‘command-and-control’’ approaches. 

The Roundtable believes that the escalating success of voluntary energy efficiency 

platforms preclude any perceived need for regulations that target building and occupant energy consumption. As market-driven programs gain more acceptance and 

traction, America’s buildings are indeed making major strides in improved their energy efficiency without mandates. For example: 
58 

3See ‘‘A Decade of ENERGY STAR Buildings,’’ at pp. 7–8, available at http:// 

www.energystar.gov/ index.cfm?c=business.buslESlbldgs. 4http://www.energystar.gov/index.cfm ?fuseaction=labeledlbuildings.locator. 5http://www.energystar.gov/index.cfm?c=evaluatelperformance.buslportfoliomanagerlintro. 6http://www.energystar.gov/index.cfm?c=evaluatelperformance.buslportfoliomanager. 7https://www.energystar.gov/istar/has/index.cfm?fuseaction=absdemo.showDemoInfo. 

8http://www.energystar.gov/ia.business/buildingcontest/ downloads/ 

2011lNBClReport.pdf?d88f-f211. 9http://www.energystar.gov/ index.cfm?fuseaction=buildingcontest.index. 

10 2007 version of ASHRAE 90.1 more energy efficient than 2004 version: http:// 

www.energycodes.gov/status/ documents/Standardl901-2007lFinallDetermination.pdf. 2010 

version of SHRAE 90.1 more energy efficient than 2007 version: http://www.energycodes.gov/status/documents/ Standardl901-2010lFinallDetermination.pdf. 11 ‘‘Modeling a Sustainable World,’’ 2010 ASHRAE Annual report, available at http:// 

www.ashrae.org/home/search?k=annual%20report. 

• The ENERGY STAR program for buildings, administered by the U.S. Environmental Protection Agency (‘‘EPA’’), has been a great success since its inception 

in 1999.3

—As of today’s date, 18,608 facilities have earned the ENERGY STAR ‘‘top-performers’’ label covering nearly 2.9 billion of commercial, institutional, and industrial office space in the U.S.4 Buildings that receive voluntary ENERGY 

STAR certifications typically use 35 percent less energy than average buildings, and cost 50 cents less per square foot to operate. 5

—Also noteworthy is the widespread use of EPA’s ‘‘Portfolio Manager’’ program, 

‘‘an interactive energy management tool that allows [building owners] to track 

and assess energy and water consumption across [an] entire portfolio of buildings in a secure online environment.’’ This tool assists building owners and 

managers to ‘‘set investment priorities, identify under-performing buildings, 

verify efficiency improvements, and receive EPA recognition for superior energy performance.’’6 Over 40,000 users currently rely on ‘‘Portfolio Manager’’ 

to benchmark, track, and assess energy and water performance in over 

300,000 U.S. commercial buildings.7

—The ENERGY STAR program’s national competition, ‘‘The Battle of the Buildings,’’ has seen exponential growth in the past year alone. In 2011, 245 buildings across the U.S. participated in this ‘‘biggest loser’’ type competition,8

where EPA provides recognition to assets that shed the most ‘‘weight’’ in 

terms of energy usage consumption over a 1-year period, as measured and 

verified by before-and-after Portfolio Manager inputs. For the 2012 competition, over 3,300 buildings have registered to participate9—an increase of 

about 1250% in just a year. This year’s competition will also provide recognition to all registered buildings that reduce energy consumption by 20% during 

calendar year 2012. 

Congress should ‘‘do no harm’’ and avoid regulatory programs and instead foster 

ENERGY STAR and other voluntary platforms. Expanding the availability and application of the ENERGY STAR label to more building types (like retail malls) and 

subtypes (like large office buildings with data centers); creating a ‘‘Tenant Star’’ program to recognize energy efficiency in leased spaces within commercial buildings; 

and fostering even deeper market penetration of Portfolio Manager, are all better 

alternatives for Congress (and the agencies) to pursue instead of controversial and 

untested mandates on the real estate sector. 

• Consensus-driven design and construction standards are making our built environment more energy efficient—without any federal building energy code. 

Through quantitative and qualitative analyses, DOE has determined that successive iterations of the ASHRAE 90.1 energy standard covering commercial 

and larger multifamily buildings will achieve greater efficiency than predecessor 

versions.10 As ASHRAE’s 2010-2011 Annual report asserts: 

The latest 2010 version of 90.1 achieves more than 30 percent energy savings over the 2004 version of the standard. Extensive analysis work was 

performed by a team from Pacific Northwest National Laboratories in support of the DOE Building Energy Codes Program. Sixteen different building 

prototypes were modeled in 17 different climate zones for a total of 272 

building types and climate zone combinations. Without plug loads, site energy savings are 32.6 percent and energy cost savings 30.1 percent. Including plug loads, the site energy savings are estimated at 25.5 percent and 

energy cost savings 24 percent.11
59 

12See Sara Hayes, Steven Nadel, Chris Granda, and Kathryn Hottel, American Council for 

an Energy Efficient Economy, ‘‘What Have We Learned From Energy Efficiency Financing Programs?’’ Report Number U115 (September 2011), at p. 1, available at http:// 

www.cleanergyfinancecenter.org/wp-content /uploads/EE-Financing-report-ACEEE-Sept2011.pdf. 

Rather than creating a first-ever regulatory building energy code administered by 

a Washington, D.C. bureaucracy, The Roundtable believes that DOE’s participation 

in the consensus-based process of ASHRAE (and similar bodies) should become more 

open and transparent to all stakeholders. In that regard, the latest proposal offered 

by Senators Jeanne Shaheen (D-NH) and Rob Portman (R-OH) in S. 1000, the ‘‘Energy Savings and Industrial Competitiveness Act,’’ steps in the right direction. 

Among other things, S. 1000 would require DOE to conduct notice and comment 

procedures when it suggests building efficiency targets in the context of the IECC/ 

ASHRAE codes and standards development processes; assess the cost implications, 

including a return on investment analysis, of building efficiency targets; and consider the impacts of such targets on small businesses. These improvements to DOE’s 

participation in consensus-based processes can encourage more energy efficiency in 

buildings—with greater stakeholder support—rather than federal mandates. 

• The single biggest obstacle to jumpstart more retrofit projects—especially in the 

midst of the sluggish recovery from the Great Recession—remains a lack of 

available capital for the up-front costs to pay for building improvements. The 

American Council for an Energy Efficient Economy (‘‘ACEEE’’) recently explained: 

Without access to private capital there will be limited funding for efficiency retrofits-and the associated jobs, energy and cost savings, and environmental benefits will not be realized. Because capital is scarce for energy 

efficiency finance programs, most use either utility or government funding 

for the loans, or they rely on small banks and credit unions. While this approach has had some success, large scale implementation is not likely.12

Regulations that would purport to mandate improved energy efficiency in buildings (such as through federal codes or labeling) would not address the main impediment to retrofits - namely, a lack of access to capital and financing. A comprehensive national energy policy should therefore include tailored and modest incentives 

that will leverage far greater sums of private investment capital into retrofit 

projects. In particular, Congress should enact the carefully and thoughtfully crafted 

reforms of the 179D tax deduction developed by Senators Snowe and Bingaman in 

the Commercial Buildings Modernization Act, and the DOE loan guarantee program 

for building retrofits proposed by Senators Shaheen and Portman in the ESIC Act. 

Question 3. How can utilities be encouraged to adopt the successful small commercial and industrial program that was described by Ms. Borrelli from United Illuminating? The combination of turnkey service, cost-effective incentives, and zero-interest financing has been very effective in Connecticut and Massachusetts. These 

programs should be implemented across the country. How can we replicate these 

programs? 

Answer. Our members report that success of utility-based energy efficiency programs generally depend on how well they are capitalized. Building owners and other 

consumers will access these programs but they typically run out of money, quickly. 

The major barriers to more widespread adoption of efforts like the United Illuminating program in Connecticut and New England is the same that impedes retrofit projects generally—that is, lack of access to investment capital. 

Question 4. Ms. LEEDS of NYCEEC cited a study published by the Rockefeller 

Foundation which estimated the potential for energy efficiency in institutional buildings at about $25 billion. However, NAESCO’s testimony (for the record) states that 

this estimate is low by a factor of four, based on studies performed by the Lawrence 

Berkley Labs. Do you agree that the potential market for energy efficiency in institutional buildings approaches $100 billion? If not, what do you see as the potential 

market and barriers to meeting the potential for energy efficiency in buildings? 

Answer. Regardless of whether the NYCEEC or NAESCO figure is the correct 

one, the potential market for building efficiency is undeniably large and has not 

reached its potential. More retrofit projects will certainly ripple throughout the construction, building ownership, architecture and design, energy services, and real estate financing sectors of our economy. 

A sense of the economic potential that may be specifically attributed to building 

retrofits is provided by the contributions of the building operations industry generally to U.S. gross domestic product (GDP). According to a report released last 
60 

13 ‘‘Where America Goes to Work: The Contribution of Office Building Operations to the Economy’’ (2012), available at http://www.boma.org/Resources/ news/pressroom/Pages/pr062412.aspx. 14 By way of example: Taxpayer A and B are both in the 33% tax bracket and they both earn $100 in income. Without any incentives, they would each pay $33.00 in taxes. If Taxpayer A 

gets a $10 tax credit, his tax liability is now $23. If Taxpayer B gets a $10 tax deduction, her 

taxable income is lowered to $90 and her ultimate tax liability is thus $30. 15See streamof June 12 Senate Finance Committee hearing, ‘‘Tax Reform: Impact on U.S. Energy Policy,’’ oral testimony of The Hon. Don Nickles, available at: http:// 

www.finance.senate.gov/hearings/hearing/ ?id=990fl101-5056-a032-5202-6921d68e8769 (at the 

26:53, 75:50, and 102:01 marks). 

month by BOMA International,13 the expenditures that sustain office building operations-management, maintenance, repairs, building services and utilities-generate 

significant, continuous and growing expenditures that support local businesses, create job demand, and contribute significantly to GDP. As set forth in my written 

statement: 

• For each dollar of office building expenditures, the U.S. economy gains $2.57. 

And for every one of those dollars, nearly 20 jobs not related to the building 

itself are supported. • $79.7 billion in office building operating expenditures contributed $205.1 billion 

to GDP in 2011—equivalent to the State of California’s annual budget. • As a result of the $79.7 billion expenditures for office operations, 1.6 million indirect jobs were created across all sectors of the economy, about the same number employed by McDonald’s worldwide. This is in addition to the estimated 2.2 

million jobs directly related to the on-site management and operations of buildings. 

Regarding retrofit market barriers: As my written statement to the Committee explains (at pp. 5-6), a properly functioning real estate financing market is a prerequisite to a functioning retrofit financing market. The recession and the lackluster 

recovery, nagging unemployment figures that still hover around 8%, and falling U.S. 

property values have all dampened growth of the retrofit market. Sustained financial pressure on property owners and lack of credit availability has led to deferral 

of maintenance and upgrades on existing properties. Until our nation gets to a relative place of normalcy on these macroeconomic issues, the full potential of the retrofit market will not be unleashed. 

As explained above, the lack of up-front capital and debt financing opportunities 

is the largest barrier to getting more retrofit projects off the ground. From the federal policy perspective, The Roundtable believes that an improved 179D deduction 

and a DOE loan guarantee product-specifically geared to building retrofits—will 

have a significant impact to encourage building owners and their financiers to underwrite more efficiency upgrades. 

Finally, as my written statement maintains, improving information flow among 

owners, lenders, and appraisers (pp. 9-10), and encouraging utility ‘‘best practices’’ 

to provide energy consumption data to owners of multitenant buildings (p. 10), are 

other obstacles that can be overcome to spur more interest in retrofits. 

RESPONSES OF JEFFREY D. DEBOER TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1. Please explain why you would support tax incentives such as 179(D). 

How do credits and deductions differ within the tax code? Why do you feel that this 

incentive makes sense and why should it be a priority in the context of large-scale 

tax reform? 

Answer. Section 179D offers a tax deduction-not a tax credit. Tax deductions reduce the amount of income that is subject to taxation. The value of a tax deduction 

thus depends on the taxpayer’s marginal tax rate, which rises with income. In contrast, tax credits are a dollar-for-dollar direct reduction in a person’s tax liability 

and hence have the same value for all taxpayers regardless of marginal income 

rates. Both types of incentives can lower the amount of taxes paid by individuals 

and businesses, but each has different economic effects, budgetary ramifications, 

and policy implications. As former Senator Don Nickles testified at a Senate Finance Committee hearing last month on energy tax policy, law makers must carefully distinguish between energy tax credits (such as those available for wind and 

solar energy production) which operate as subsidies, compared to more favored energy tax deductions like 179D which are expensed as part of ordinary business operations.15

Furthermore, 179D is needed to make sure that investments in energy efficiency 

improvements are properly incentivized relative to the deduction allowed for energy 

use. Under the Internal Revenue Code, it has been long-established that businesses 
61 

16See http://www.irs.gov/publications/p535/ch01.html. 17See http://www.irs.gov/publications/p946/index.html; http://www.irs.gov/publications/p946/ 

ar02.html. 18See Table 8 at http://c4bb.org/wp-content/uploads/ PeriFINALForRelease06-10-11.pdf. 

are allowed to immediately certain ‘‘ordinary and necessary’’ operating expenses 

such as utility bills.16 However, building retrofit investments (through purchases of 

high-efficiency equipment and materials) otherwise qualify as ‘‘commercial income 

property’’ that can only be depreciated as ‘‘capital expenses’’ over long periods of 

time—up to 39 years using straight-line depreciation.17 More inefficient buildings 

with higher utility bills may thus immediately benefit from a larger operating expenses tax deduction compared to retrofitted buildings that use less energy. 179D 

thus has a critical role to play in the context of comprehensive tax reform: It aligns 

the tax code to properly award long-term capital investments that save energy (thus 

helping building owners bear the immediate up-front costs of retrofit projects), as 

opposed to the operating expenses deduction that can otherwise be claimed for wasted energy. 

Finally, the 179D reform proposal from Senators Bingaman and Snowe meets the 

hallmarks of tax reform insofar as it is technology-neutral, performance based, and 

a lever for significant private investment: 

• The 179D deduction is a technology-neutral incentive because it does not pick 

‘‘winners and losers.’’ It encourages retrofit projects and not specific products. 

It gives building owners the opportunity to select the best mix among a suite 

of measures to achieve optimal energy efficiency gains. • The 179D reform proposal is performance-based because it would link the 

amount of the deduction to energy savings achieved. The amount of the incentive would increase under a ‘‘sliding scale’’ that will encourage ambitious 

projects while also rewarding projects that achieve meaningful yet more moderate levels of energy savings. • The 179D deduction is expected to leverage three times as much private sector 

investment in retrofit projects.18 And, to ensure that building owners and lenders have their own ‘‘skin in the game,’’ the maximum tax incentive available 

under the Snowe-Bingaman proposal is 50% of the total cost of a retrofit plan. 

Question 2. How do you maximize tax incentives? Where do you get the biggest 

bang for the buck? Please describe how energy-efficiency tax credits can be administratively simple and transparent. 

Answer. In allocating scarce government resources, policy makers should consider 

that financing programs like tax incentives (and loan guarantees) get more ‘‘bang 

for the buck’’ when they are geared to encourage energy efficiency measures, as opposed to assisting new energy production through clean fossil fuel or renewable energy technologies. Renewable and clean energy production technologies certainly 

have their role in a comprehensive national energy policy. But simply put, the cost 

of a kilowatt hour of energy saved is cheaper than the cost of an equivalent kilowatt 

hour of energy produced. As portrayed in my written statement to the Committee: 

COSTS OF SAVING ENERGY vs. PRODUCING ENERGY 

Technology Costs (per kilowatt hour) 

Energy Efficiency 2-3 cents19

Wind 9 cents20

Geothermal 10 cents 

Advanced Coal 11 cents 

Advanced Nuclear 11 cents 

Solar PV 21 cents 

Offshore Wind 24 cents 

19 Costs of saved energy (‘‘CSE’’) perkilowatt hour (‘‘kWh’’) for energy efficiency programs 

range from 2 cents to 3 cents per kWh. See American Council for an Energy Efficient Economy, ‘‘Saving Energy Cost-Effectively: A National Review of the Cost of Energy Saved Through 

Utility-Sector Energy Efficiency Programs’’ (Sept. 1, 2009), available at http://www.aceee.org/research-report/u092. 
62 

21See https://lpo.energy.gov/?pagelid=58. 22See http://www.energystar.gov/ia/ business/challenge/learnlmore/ FastFacts.pdf; http://yosemite.epa.gov/opa/admpress.nsf/ 8b770facfedf6f185257359003fb69e/ 

1603327c9023eb8c852579dd005e3385; PlaNYC, ‘‘Greater Greener Buildings Plan’’: http:// 

www.nyc.gov/html/gbee/ downloads/pdf/ greenerlgreaterlbuildingslplan.pdf 23 H.R, 6213, ‘‘No More Solyndras Act’’ (findings (13) and (14), available at http://thomas.oc.gov/cgi-bin/bdquergy/ D?d112:6:./temp/ ̃

bdYBAB::/bss/. 

20 Costs for all power generation sources in table provided by U.S. Energy Information Administration, ‘‘Levelized Cost of New Generation Resources,’’ Annual Energy Outlook 2011, 

available at http://www.eia.gov/oiaf/ aeo/electricitylgeneration.html (provides ‘‘Total System 

Levelized Cost’’ for various ‘‘Plant Type(s)’’ in dollars per megawatt hour (‘‘mWh’’)). For purposes of table conversion: mWh/1000=kWh. 

Question 3. You are supportive of the loan guarantee program within S. 1000, the 

Shaheen/Portman bill. Please describe how the loan guarantees in S. 1000 are similar or different from the 1703 program from EPAct 2005 and 1705 programs from 

the stimulus bill. 

Answer. The Shaheen-Portman bill would authorize a DOE loan guarantee program specifically geared to building retrofit projects. Since this program was created 

in 2005, its focus has been on credit support for nuclear, renewable and other forms 

of energy production that have higher degrees of financial and performance risks as 

compared to building efficiency projects. Indeed, none of the ‘‘project solicitation’’ 

from DOE to date have covered building retrofits.21

Shaheen-Portman represents sound energy policy because it would allow the credit support program to take advantage of the untapped potential in the building retrofit market. As I provided in my written statement, there are over 5 million commercial buildings and industrial facilities in the U.S.; they account for about 20% 

of the nation’s energy consumption; and up to 85% of commercial buildings that 

exist today will still be standing in 2030; and about $20 billion can be saved if the 

energy efficiency of commercial buildings and industrial facilities improves by 

10%.22 Congress should enact S. 1000’s loan guarantee title because it will encourage more private sector transactional activity and liquidity to underwrite retrofitsthe primary barrier to efficiency upgrades. 

Moreover, Shaheen-Portman represents sound financing policy - and would correct 

errors that came to light through recent investigations into DOE’s loan guarantee 

program. Legislation pending in the House finds, among other things, that ‘‘the 

portfolio of projects the [DOE] included in the loan guarantee program were higher 

risk investments that private capital markets do not generally invest in,’’ and that 

‘‘most of the projects had little ‘skin in the game’ from private investors.’’23 S. 1000 

contains myriad provisions that address these very concerns such as: 

• S. 1000 incorporates underwriting and due diligence requirements for retrofit 

financing—The bill directs DOE to develop guidelines that ‘‘shall include... measures to limit the exposure of the Secretary to financial risk in the event 

of default,’’ like the borrower’s ability to re-pay a retrofit debt and the value of 

the underlying collateral supporting the loan. To implement the loan guarantee 

program for retrofits, S. 1000 directs DOE to develop underwriting criteria that 

assess a borrower’s creditworthiness, the building’s loan to value ratio, and the 

building’s history and expectations in generating rental and other income, 

among other factors. • S. 1000 would provide credit support for successful retrofit projects guaranteed 

to result in energy savings—The bill directs DOE to consider private sector, 

third-party guarantees of energy savings after a retrofit is implemented, and 

whether those savings will pay for project costs over time. S. 1000 provides that 

DOE (and taxpayers) do not bear the ‘‘performance risk’’ of whether a project 

will succeed and result in energy savings. Rather, third-party contractors responsible for the retrofit like DOE-approved energy services companies-but not 

DOE itself—would bear risks that installed energy efficiency measures will perform as designed. In this way, the transaction can be structured so as to amortize retrofit financing through measured and verified energy savings accrued 

over time. 

• S. 1000 places an upper limit on the amount of federal credit support. The bill 

states that the maximum amount of financial risk that DOE can bear for any 

single retrofit project is $10 million. In contrast, the direct loan (not a loan 

guarantee) given to Solyndra left taxpayers on the line for $528 million after 

the solar company’s default. 

• S. 1000 allows for proportionate recovery by taxpayers in the event of default— 

In the Solyndra situation, the taxpayers’ financial interest was completely subordinated to private investors. S. 1000 would address this problem through a 
63 

pari passu structure if, in the event of default, taxpayers and private investors 

would get repaid based on their proportionate share of collateral interests held 

as security in the property. For example: Assume a building owner owes $100, 

further, $90 of it is owed to a bank that holds a prior mortgage on the property 

and $10 is in the form of a retrofit obligation backed by DOE. If there is a default, for every ten dollars that is paid back by the owner, $9 would go to the 

first mortgagee and $1 would go to DOE (assuming it is called on the guarantee). In this manner, taxpayers and prior lien holders are treated fairly based 

on their respective shares of security interests in the property. 

• S. 1000 provides financial support for retrofits through loan guarantees—not 

through loans, grants, subsidies, or hand-outs—Loan guarantees will provide an 

incentive to leverage far greater amounts of private sector investment in building retrofits, so real estate, lending, and energy services firms have their own 

‘‘skin in the game.’’ It has been estimated that a $200 million federal loan guarantee investment in retrofits would leverage as much as $2 billion in private 

sector financing. 

• S. 1000 would provide credit support for proven building retrofit projects that 

already have a track record of success—We have case studies on the success of 

retrofits, such as the Empire State Building, showcase projects associated with 

the Better Buildings Challenge, and the experiences of EPA’s ‘‘Partner of the 

Year’’ winners, among others. Retrofits pose far lower risks for federal guarantee support compared to unproven manufacture of certain renewable products, where the market may be heavily influenced by subsidies provided by foreign competitors. 

RESPONSE OF JEFFREY D. DEBOER TO QUESTION FROM SENATOR WYDEN

Question 1. Even projects like Clean Energy Works, which use private financing, 

needed government financing to get started. Given the modest pace of the economic 

recovery, which limits the amount of secondary lending for things like energy efficiency, how long do you think programs like Clean Energy Works will require support? In other words, when do you think these sorts of programs will get to a critical 

mass, and where federal and state support are no longer needed? 

Answer. The Roundtable agrees that, assuming meaningful and usable 179D incentives and loan guarantees are enacted and deployed for some period of time, they 

can transform the retrofit market to the extent they are no longer necessary because 

of adequate sources of private sector financing. We think, however, that these policies need to be adopted and implemented for at least a 5-10 year period to build 

such a ‘‘critical mass’’ of retrofit projects. The Roundtable also suggests that federal 

agencies with responsibility for these programs must study and report on successes/ 

failures to Congress, so the legislature can best decide whether and how these incentives may ultimately be phased-out after a track record of implementation. 

RESPONSES OF WILLIAM A. RODGERS TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. How important are tax incentives to stimulating commercial building 

efficiency retrofits? Are there specific incentives we should enact? 

Answer. Incentives will clearly assist with the building owners return on investment to allow for a much higher propensity to invest. While the energy savings and 

corresponding reduction in utility bills are the most critical component, tax incentives can be an important element toward meeting the required financial hurdles. 

Question 2. Government policy makers have been trying to stimulate large scale 

efficiency retrofit commercial building industry for more than three decades, but experts say that mandates may be required to stimulate the real estate industry to 

perform large scale energy efficiency retrofits in the commercial sector, other than 

a few high profile trophy buildings. Do you agree or disagree that mandates will 

be required for the commercial sector to do large scale retrofits? What are the alternatives? 

Answer. Mandates can be effective if developed in conjunction with the industry 

and are tied into realistic energy savings initiatives. These mandates should deal 

with overall energy reduction and not strictly those areas that deal with retrofit 

projects. 

Question 3. How can utilities be encouraged to adopt the successful small commercial and industrial program that was described by Ms. Borrelli from United Illuminating? The combination of turnkey service, cost-effective incentives and zero -interest financing has been very effective in Connecticut and Massachusetts. These 
64 

programs should be implemented across the country. How can we replicate these 

programs? 

Answer. When energy efficiency measures are aligned through standard service 

offerings in conjunction with the utilities these type of programs will become more 

prevalent across the country. Currently most regulatory bodies view these as ‘‘standalone’’ programs versus identifying energy efficiency as an overall service that allows for more customized turn-key delivery to the customers. 

Question 4. Ms. Leeds of NYCEEC cited a study published by the Rockefeller 

Foundation which estimated the potential for energy efficiency in institutional buildings at about $25 billion. However, NAESCO‘s testimony (for the record) states that 

this estimate is low by a factor of four, based on studies performed by the Lawrence 

Berkeley Labs. Do you agree that the potential market for energy efficiency in institutional buildings approaches $100 billion? If not, what do you see as the potential 

market and barriers to meeting the potential for energy efficiency in buildings? 

Answer. We do not have statistics on institutional buildings to properly determine 

the market potential. However, when energy efficiency services are properly identified and education is developed to provide customers a basis to understand the savings potential I believe the market is very significant. Most likely closer to the 

NAESCO’s estimates. 

Question 5. Is the United Illuminating commercial and industrial program one 

that your company could implement in other states? 

Answer. Yes, programs like this would be adaptable to other markets. 

RESPONSES OF WILLIAM A. RODGERS TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1. In your opinion, should the federal government be investing in efficiency? If so, what is the proper role of the federal government for these types of 

retrofits? 

Answer. The investment made should center on the efficiency of federally owned 

properties. Beyond that it would be beneficial to work to establish the standards 

and policy necessary to encourage the inclusion of efficiency practices and programs 

in the marketplace. This would include working with the states and utilities to develop efficiency standards that will have a direct positive impact on the ability to 

increase the level of efficiency related projects to drive to a higher degree of energy 

savings across the country. 

Question 2. Please describe how your program in Indiana differs from the weatherization program. 

Answer. The Weatherization Assistance Program was focused on income qualified 

households and delivered through a number of community action agencies. It was 

prescriptive in who and how the work was to be performed and as such there was 

a significant challenge in the understanding and execution of the program to the 

houses. Some of the concerns of that program were that the utilities, which provide 

the energy services, were not in the loop and a majority of the key industry service 

providers were prevented from participating and delivering services. In our Indiana 

program one of the programs we do deliver is an Income Qualified Program that 

also qualifies customers based on household income level. The main difference is in 

the coordination with the utilities, the clarity of education and communication with 

the customers and ultimately the impact to the house based on the services provided. 

Question 3. How do you ensure success within your program (i.e. energy savings, 

reduced costs in weatherizing a home, etc.)? How do you measure success? 

Answer. Success in all of our programs that we deliver is based on the energy 

saved from the activity that is performed. Based on the type of program, the equipment involved and the actual services performed the energy saved is determined 

and consolidated to understand the overall impact in the market. We then provide 

an evaluation, measurement and verification process which statistically validates 

the actual savings achieved. 

Question 4. How would you characterize the key drivers of this program? 

Answer. The key drivers of the Indiana program center on a few critical areas. 

i. Open and clear communication with the utilities covering the parameters 

of the program as well as regular measurement studies 

ii. Strong branding and educational campaign to allow for the marketplace to 

understand and ultimately participate in the programs 

iii. Clarity of communication with the customer regarding the services to be 

provided, status of activity and closure of all work performed 

iv. Detailed reporting of all activities including the energy saved and services 

performed to allow for critical analytical work to be performed to predict future 

impact 
65 

RESPONSE OF WILLIAM A. RODGERS TO QUESTION FROM SENATOR WYDEN

Question 1. Even projects like Clean Energy Works, which use private financing, 

needed government financing to get started. Given the modest pace of the economic 

recovery, which limits the amount of secondary lending for things like energy efficiency, how long do you think programs like Clean Energy Works will require support? In other words, when do you think these sorts of programs will get to a critical 

mass, and where federal and state support is no longer needed? 

Answer. There are a number of organizations similar to Clean Energy Works 

across the country that do a tremendous job at developing relationships between 

stakeholders that advance the efforts of energy efficiency. Ultimately any type of 

Federal support should target education programs versus execution. The execution 

component must be supported by the marketplace and all of the stakeholders must 

understand the economic drivers and impact to lend their support. That type of support will ensure the longer term health of these types of organizations and their 

ability to be self-supported. 

RESPONSES OF SHERI BORRELLI TO QUESTIONS FROM SENATOR BINGAMAN

I am glad to be able to further address the Committee through my written responses to your questions submitted to me for the record and to elaborate on innovative non-federal programs for financing energy efficient building retrofits. My responses are highlighted in bold format below your question. 

Question 1a. How important are tax incentives to stimulating commercial building 

efficiency retrofits? Are there specific incentives we should enact? 

Answer. Tax incentives may be helpful if properly designed and implemented to 

stimulating a viable, sustainable commercial building efficiency retrofit market. Any 

tax incentives should be created in an equitable manner for all commercial property 

owners with a duration that extends beyond one to two years. The following describes one potential scenario. 

A structured energy tax incentive based on predicted cost savings from energy efficiency retrofits for commercial building improvements is only beneficial to the industry if it has long term sustainable effects. Tax incentives applied to energy 

projects should be maximized for longer periods of time so the investment in the 

retrofit benefits the customer. Targeted tax incentives may also be applied towards 

specific energy conservation projects. This type of tax incentive would be instrumental in stimulating commercial building efficiency retrofits. The level of tax incentive can be tiered relative to the level of energy reduction achieved. For example, 

a thirty percent (30%) energy reduction would achieve a higher tax incentive than 

a ten percent (10%) reduction, etc. These tax incentives can be issued as a tax credit 

following one year of energy tracking after efficiency upgrades are installed and 

based on the comparison to the twelve (12) month usage prior to installation of upgrades. This type of tax incentive will keep the customer in business, attract new 

businesses (market growth), create jobs, and boost the economy. 

Question 1b. Government policy makers have been trying to stimulate large scale 

efficiency retrofit commercial building industry for more than three decades, but experts say that mandates may be required to stimulate the real estate industry to 

perform large scale energy efficiency retrofits in the commercial sector, other than 

a few high profile trophy buildings. Do you agree or disagree that mandates will 

be required for the commercial sector to do large scale retrofits? What are the alternatives? 

Answer. Investing in energy efficiency commercial retrofits on a large scale could 

be one of the most cost effective measures new and existing buildings could participate in to reduce energy consumption. Reducing the amount of consumption and 

operational costs for building owners in these buildings are goals that can be set. 

Mandates for uniform adherence to an efficient building code could be a strategy. 

Other alternatives to such mandates are energy efficiency targeted tax incentives, 

innovative financing, performance contracting, and building labeling or rating. 

These mechanisms are already being practiced or are being developed. These mechanisms reduce payback periods, can increase incentives and create a supportive Energy State/Federal Bill. 

Question 2a. How can utilities be encouraged to adopt the successful small commercial and industrial program that was described by you from United Illuminating? 

Answer. The United Illuminating Company’s Small Business Energy Advantage 

(SBEA) Program model has served as a template for program design in other states, 

and has earned international recognition. The success of the program hinges on appropriate incentive levels, on bill financing, and contractor management and it expe-
66 

riences a low loan default rate. In order for other states to implement the SBEA 

program there has to be a commitment on all levels: from the utility to be able to 

reduce generation costs and retain the small business customer base; from the vendor infrastructure being in place to offer an incentive and the zero percent (0%) financing being backed by the utility company. In addition, there also has to be a 

commitment by the customer to undertake the no cost energy audit, complete the 

simple application, etc. When this has been completed, the customer realizes no upfront costs, a cash neutral or cash positive transaction and an energy efficient retrofit. 

Question 2b. The combination of turnkey service, cost-effective incentives and 

zero-interest financing has been very effective in Connecticut and Massachusetts. 

These programs should be implemented across the country. How can we replicate 

these programs? 

Answer. The United Illuminating Company can help other states with their efficiency goals and standards and program design and be used as a resource for other 

utilities who wish to adopt UI’s practices. We continually make ourselves available 

as a resource to other utilities, states and/or countries that seek assistance with designing their programs or establishing efficiency goals and standards. 

Recognizing that efficiency goals and standards will vary from one utility and 

state to another, efficiency goals and standards may be ambitious and/or costly to 

achieve and require going beyond ratepayer funds. Our financing model is a sensible 

means to help meet these goals. We have kept it simple. The financed incentive can 

cover 100 percent of the upfront cost, or it may make an efficiency investment cashflow neutral or cash-flow positive. It is paid to the customer immediately and typically there are no funds paid up-front. The zero percent (0%) interest rate and on 

bill financing is possible with utility shareholder funds. In addition, we have attractive terms for repayment of the loan. Financing is critical to getting energy efficiency projects done in the commercial sector. 

Another important aspect of our program that could easily be used as a template 

is the vendor structure. All vendors use standard software for savings calculation 

and determining incentive awards. If replicated, the utility should limit the number 

of contractors to those who are skill certified, background checked, trained and evaluated on a regular basis. We have the capability to enter a lead, qualify the customer for financing, perform the audit, approve the proposal and present documentation to the customer for signature in the same day. 

Question 2c. Ms. Leeds of NYCEEC cited a study published by the Rockefeller 

Foundation which estimated the potential for energy efficiency in institutional buildings at about $25 billion. However, NAESCO‘s testimony (for the record) states that 

this estimate is low by a factor of four, based on studies performed by the Lawrence 

Berkeley Labs. Do you agree that the potential market for energy efficiency in institutional buildings approaches $100 billion? 

Answer. Yes. 

If not, what do you see as the potential market and barriers to meeting the potential for energy efficiency in buildings? 

RESPONSES OF SHERI BORRELLI TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1a. In your opinion, should the federal government be investing in efficiency? 

Answer. Yes, it is the lowest hanging fruit to accomplish energy saving goals. 

Question 1b. If so, what is the proper role of the federal government for these 

types of retrofits? 

Answer. Increasing our nation’s energy efficiency creates jobs, saves businesses 

and consumers money, and increases economic productivity by providing appropriate 

targeted tax incentives and defined goals. 

Question 2a. Please describe how you measure performance within the programs 

you administer to ensure energy efficiency. 

Answer. In accordance with Connecticut General Statute §16-245m and §16-32f, 

UI submits its annual comprehensive Conservation and Load Management Plan 

(Plan) for the implementation of cost effective electric and natural gas energy efficiency programs. Along with this Plan, the energy savings are benchmarked through 

the Program Savings Document and by historical savings documentation. As a rule 

of thumb, a twenty percent (20%) average reduction can be achieved through a typical lighting retrofit from obsolete lighting to state of the art. The savings reduction 

increases as a project becomes more comprehensive. 

Question 2b. Please describe the best policies and programs that you have participated in that have motivated energy-efficiency investments. 
67 

Answer. In part our program succeeds because of the partnerships and alliances 

we form in the community to promote our programs. Our partners have strong ties 

to the community since they live there and work there. Some of the various associations we partner with to conduct outreach are the Spanish American Merchants Association, ( SAMA) and the Interreligious Eco Justice Network (IREJN) to reach out 

to houses of worship for the SBEA Program and the parishioners for the Residential 

Programs. These partnerships have substantial impact on our program performance. 

RESPONSE OF SHERI BORRELLI TO QUESTION FROM SENATOR WYDEN

Question 1. Even projects like Clean Energy Works, which use private financing, 

needed government financing to get started. Given the modest pace of the economic 

recovery, which limits the amount of secondary lending for things like energy efficiency, how long do you think programs like Clean Energy Works will require support? In other words, when do you think these sorts of programs will get to a critical 

mass, and where federal and state support are no longer needed? 

Answer. With advances in technology and energy efficiency strategies it would be 

hard to define the point at which critical mass is achieved. The advancement of 

technology may need programs to continue incenting energy efficiency. 

Currently, our shareholder funds capitalize the program loans, and we receive our 

weighted average cost of capital which is approximately two percent (2%) less than 

the allowable return on these funds. Ratepayer funds buy the consumer interest 

rate down to zero percent (0%) and provide loan loss coverage. However, if a reserve 

of money, for example, a guaranteed fund mechanism replenishes the ‘‘fund’’ when 

the participants repay the loan, such as state or public funds then there would be 

certainty of the fund availability. The federal government can continue to help by 

making businesses aware, rewarding these customers with recognition for participation, and through tax credits for energy savings achieved. 

RESPONSES OF SUSAN LEEDS TO QUESTIONS FROM SENATOR BINGAMAN

Question 1. How important are tax incentives to stimulating commercial building 

efficiency retrofits? Are there specific incentives we should enact? 

Answer. Tax incentives should help stimulate commercial building efficiency retrofits, as they will improve the economics of any given project. However, non-economic barriers also exist. Tax incentives are absolutely important and useful, but 

I do not believe that enacting tax incentives alone will significantly change the pace 

of retrofit activity, (unless they are very rich incentives). 

I strongly advocate for federal tax incentives for existing commercial and multifamily buildings as one step that the federal government can and should take that 

will have a positive impact on the pace of retrofits. Congress should extend and reform Section 179D of the Internal Revenue Code so that it is a more effective incentive for retrofitting commercial buildings. (There are detailed proposals and analysis 

that exist on this matter; the Real Estate Roundtable and the Natural Resources 

Defense Council (among others) have analyzed this matter and can supply details.) 

Further consideration should be given to providing accelerated depreciation for retrofit capital equipment, to allow efficiency improvements to qualify as real estate 

under REIT regulations, and to including tenant-focused incentives, as well as 

owner-focused incentives. The level of federal incentives directed towards energy efficiency implementation in buildings is far lower than those directed at wind and 

solar technologies; although there is a strong argument that energy efficiency investment in buildings is more cost-effective. At a minimum, the playing field between efficiency and renewables incentives should be leveled. 

Question 2. Government policy makers have been trying to stimulate large scale 

efficiency retrofit commercial building industry for more than three decades, but experts say that mandates may be required to stimulate the real estate industry to 

perform large scale energy efficiency retrofits in the commercial sector, other than 

a few high profile trophy buildings. Do you agree or disagree that mandates will 

be required for the commercial sector to do large scale retrofits? What are the alternatives? 

Answer. I agree that mandates will be required for the majority of the commercial 

sector to undertake comprehensive retrofits. 

I also believe that without mandates, short-term payback efficiency investments 

(12-24 months) will often be made in the Class A commercial sector and by financial 

strong institutional buildings. 

However, significant gains in more comprehensive energy efficiency investments 

across the majority of the commercial, multifamily and institutional sectors are very 

unlikely to occur without mandates. Without mandates, there will likely remain a 
68 

wide variance in building energy performance with energy ‘‘hogs’’ continuing to be 

found even in the Class A commercial sector. Furthermore, I believe that other sectors such as multifamily, Class B or C commercial and less credit-worthy institutions will definitely underinvest even in short-term payback efficiency measures 

without mandates. 

A range of mandates is possible, with varying stringency, including (1) mandatory 

benchmarking, (2) code upgrades and enforcement improvements, (3) required efficiency implementation for major or partial renovations, (4) clean fuel requirements, 

(5) mandatory auditing, (6) mandatory retro commissioning, and (7) required efficiency measure implementation, etc. 

The recent experience of New York City in implementing mandates in a dense 

urban environment should be studied when considering how to accomplish effective 

mandates. NYC chose to focus on the largest buildings (over 50,000 square feet) and 

to implement a suite of mandates with a range of compliance deadlines that the real 

estate sector in NYC was able to digest. See http://www.nyc.gov/html/planyc2030/ 

html/about/ggbp.shtml for details. 

One important feature of this suite of policies is mandatory benchmarking which 

requires buildings to report their energy consumption and makes this information 

publicly available. Although the cost of complying with this law is minor for building 

owners, it is likely to spur competition with regard to the energy performance of 

buildings. See http://www.nyc.gov/html/gbee/html/plan/ll84llscores.shtml for 

NYC’s recent report analyzing its first year of benchmarking data. 

Another important feature of NYC’s ‘‘greener greater buildings plan’’ is the establishment of the New York City Energy Efficiency Corporation with the goal of improving access to financing for retrofits projects for commercial building owners who 

need or want it. [See www.nyceec.com.] 

I strongly urge you to review the approach that NYC has taken and to follow the 

results that are produced. It goes without saying that these policies would need to 

be adjusted for smaller cities and communities, and for other parts of the country. 

I remain convinced that efficiency is best mandated at the local, or possibly state, 

level. This is due to variations in climate, energy market dynamics, energy prices 

and resources, utility regulation, real estate market conditions, prevalent building 

lease and ownership structures, and other local factors (including culture) around 

the country. Although I strongly believe that these local conditions suggest that 

mandates cannot be uniform around the country, I believe that there is much that 

the federal government can do to encourage or require such regulation. 

I am happy to provide you with names and contact information of the relevant 

policy makers in New York City who crafted the local mandates, if that is of use. 

The alternatives to mandates are incentives (such as tax, utility, and state incentives), well-designed utility programs, education, marketing and outreach initiatives, 

and efforts such as the federal Weatherization Assistance Program (which has provided economic assistance for many multifamily retrofit projects over the years). 

These approaches do stimulate specific energy efficiency projects; however, they 

have not had the effect of transforming our commercial building stock to realize its 

full efficiency potential. My research and experience leads me to believe that such 

alternatives have an important positive effect, but are not sufficient alone, and that 

well-crafted and well-enforced mandates are required. 

An alternative that has not been discussed extensively is the ‘‘negawatt’’ approach. In this model, utilities would pay for energy efficiency as a resource, as opposed to offering demand-side incentives for efficiency implementation. Efficiency 

aggregators would be responsible for developing efficiency projects in existing buildings (much like wind developers develop wind farms), and would sell this resource 

back to the grid. Over the years, a few utilities have experimented with variations 

on this approach, but there has been no major push to attempt to implement such 

a strategy. 

Question 3. How can utilities be encouraged to adopt the successful small commercial and industrial program that was described by Ms. Borrelli from United Illuminating? The combination of turnkey service, cost-effective incentives and zero-interest financing has been very effective in Connecticut and Massachusetts. These 

programs should be implemented across the country. How can we replicate these 

programs? 

Answer. Replicating successful utility programs that combine services, incentives 

and no-cost financing is a laudable goal. There are definitely examples of successful 

programs including these features, but they are not widespread across the country. 

One issue with widespread implementation of these utility programs is likely cost, 

as well as the leadership of state utility regulators. The fact that the business model 

of most investor-owned utilities is not conducive to energy efficiency is a barrier. 
69 

Zero-interest financing for efficiency projects has cost associated with it for utilities offering this type of program, and such cost must be supported and approved 

by utility regulators. Working with the Regulatory Assistance Project to educate and 

influence state utility regulators may be fruitful. I am not knowledgeable about the 

ways in which the federal government can organize and coordinate with state utility 

regulators, but this type of communication and coordination is probably necessary 

for more widespread implementation of the types of programs used in Connecticut 

and Massachusetts. 

Question 4. Ms. Leeds of NYCEEC cited a study published by the Rockefeller 

Foundation which estimated the potential for energy efficiency in institutional buildings at about $25 billion. However, NAESCO‘s testimony (for the record) states that 

this estimate is low by a factor of four, based on studies performed by the Lawrence 

Berkeley Labs. Do you agree that the potential market for energy efficiency in institutional buildings approaches $100 billion? If not, what do you see as the potential 

market and barriers to meeting the potential for energy efficiency in buildings? 

Answer. Energy efficiency potential studies can vary widely, based on the assumptions made and the objective of the study. Economically feasible potential can be different from technical or theoretical potential. In any case, it is true that the potential for efficiency in institutional buildings remains high, and will not be static. New 

technologies to improve building efficiency will continue to emerge. The built environment is dynamic as well. Construction projects are undertaken for a wide variety 

of reasons—but generally not for efficiency sake alone. 

Barriers to meeting potential are well-documented. Efficiency investment is not 

typically a priority for most organizations and institutions. Other barriers include 

(1) low awareness and attention, (2) limited organizational capacity / competing priorities for scare organizational resources, (3) lack of trust in savings projections and 

lack of relevant, sector-specific, reliable data on savings projections, (4) upfront cost, 

(5) lack of low-cost, long-term financing, (6) split incentives (although this generally 

does not apply to institutions), (7) disruption of ongoing operations, among others. 

Basically, in marketing energy efficiency implementation, you are asking organizations to undertake construction projects in their facilities that are not strictly necessary. 

Finding the right opportunities to introduce efficiency investment is critical. When 

equipment fails, when a moderate or extensive renovation is taking place, when another construction project is being considered, when refinancing is occurring-there 

are the points in time when efficiency must be introduced into the process. Our 

building stock will become significantly more efficient when efficiency investment is 

routinely ‘‘baked into’’ these other events and processes, and when the barriers to 

undertaking efficiency at the time of these events and during these routine processes are removed. 

Another important point in relation to understanding potential accurately is that 

measurement of the actual level of efficiency investment activity seems to me 

sparse. Not only should we be effectively measuring economically feasible potential—which we need to do on an ongoing basis and for specific building sectors-but 

we should also be attempting to measure the level of actual energy efficiency investment activity taking place. 

RESPONSES OF SUSAN LEEDS TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1. In your opinion, should the federal government be investing in efficiency? If so, what is the proper role of the federal government for these types of 

retrofits? 

Answer. Yes, the federal government should be investing in efficiency. It is costeffective, creates jobs, reduces our use of foreign-sourced fuels, and improves our environment. It generally pays for itself. 

First and foremost, comprehensive efficiency investment should be happening in 

all federal facilities, buildings and organizations. 

For non-federal facilities and entities, the federal government can incentivize efficiency investments by private building owners (through tax incentives and other 

mechanisms) and can provide both information and education to the market. Levers 

for driving the utility sector towards greater implementation of, and incentives for, 

energy efficiency investments should be explored. My personal belief is that mandates are necessary to ensure an efficient building stock, and that such mandates 

are best implemented by state and local governments. That said, the federal government could do a lot to assist states and municipalities in crafting the right suites 

of policies for increasing investment in the energy efficiency of existing buildings. 

Finally, many impactful energy efficiency programs around the country are 

strengthened and enabled by federal grant funds, and the approach of funding pro-
70 

gram implementation at the local level is sound. This type of funding is the type 

of federal investment that should continue. The New York City Energy Efficiency 

Corporation, which is establishing several highly effective energy efficiency financing programs enabling numerous commercial and multifamily retrofits, would not 

exist without this funding source. 

Question 2. Outside of funding from the Federal Government, what financing options have been most successful in funding energy efficiency within your program? 

Answer. Within our program, the most successful financing options are (1) the energy services agreement ‘‘version 2.0’’ or managed energy services agreement, (2) 

power purchase agreements used for cogeneration equipment, and (3) energy efficiency mortgage financing. 

Question 3. Please describe the amount of energy consumed in buildings. Please 

describe how retrofits differ between residential and commercial buildings. 

Answer. Buildings (and the ‘‘plug load’’ in them) consume approximately 40% of 

the world’s primary energy and are responsible for 40% of global carbon emissions. 

Energy efficiency retrofits are specific to each building, although in some building 

sectors, it is possible to characterize retrofit projects by ‘‘typical’’ measures. Singlefamily residential structures are typically smaller, and simpler from an energy systems perspective. Commercial buildings (including large multifamily) tend to have 

larger systems, often centralized energy systems, and require a higher degree of engineering expertise to design effective retrofit projects. 

For example, whereas many residential (single family) energy efficiency programs 

are prescriptive in design (directing homeowners to a list of efficiency measures they 

should implement), New York City’s ‘‘greener greater buildings plan’’ was designed 

to encourage smart and effective retrofit investment in large commercial, multifamily and institutional buildings (actually any buildings over 50,000 square feet). 

NYC’s suite of policies includes the requirement that buildings perform an ASHRAE 

Level II audit to determine the efficiency measures they should undertake. Aside 

from the simplest measures, it is necessary to take this step of conducting a proper 

energy audit in order to identify the specific opportunities for energy efficiency investment in a commercial facility, and to know how to implement such measures 

effectively. 

RESPONSE OF SUSAN LEEDS TO QUESTION FROM SENATOR WYDEN

Question 1. Even projects like Clean Energy Works, which use private financing, 

needed government financing to get started. Given the modest pace of the economic 

recovery, which limits the amount of secondary lending for things like energy efficiency, how long do you think programs like Clean Energy Works will require support? In other words, when do you think these sorts of programs will get to a critical 

mass, and where federal and state support are no longer needed? 

Answer. My organization, the New York City Energy Efficiency Corporation, is 

similar to Clean Energy Works, in that we needed government funding to get started. NYCEEC was started with 100% EECBG grant funding through the Department 

of Energy, and we are using both private grants and private financing to complement this government funding and to increase our organization’s operating budget and to supply additional capital to our energy efficiency financing programs. 

We are still in the process of deploying our federal capital, which we expect to 

have fully utilized by year-end 2013. It is unclear at this moment in time whether 

or not we will require additional government financing. I currently foresee the need 

for additional operating support for NYCEEC - which we expect to receive from the 

private philanthropic community, not government sources—for approximately 3-4 

years. Beyond this time (2016/2107) we plan to be financially self-sufficient, in other 

words, our program revenue will support our energy efficiency program operations. 

I wish to emphasize that these are approximate projections/expectations based on 

our experience so far, and we are a new organization that commenced operations 

less than 18 months ago. 

Although I believe that it is possible for NYCEEC to operate self-sufficiently without additional government financing in the timeframe indicated above, this does not 

mean that we will be optimizing our impact and reach. If we are to grow our energy 

efficiency financing program to meet the full market potential in New York City, 

we would do so most effectively if we had access to additional government financing. 
(71) 

APPENDIX II 

Additional Material Submitted for the Record 

STATEMENT OF THE AMERICAN INSTITUTE OF ARCHITECTS

The American Institute of Architects (AIA) appreciates the opportunity to submit 

this statement for the record and commends the Committee’s work on the critical 

issue of financing energy efficient buildings. 

Although there are numerous policies that impact financing an energy efficient 

built environment, our statement focuses on an energy efficiency tax provision, the 

Energy Efficient Commercial Building Deduction, which is contained in section 

179D of the Internal Revenue Code. Set to expire in 2013, the AIA highlights the 

179D deduction as an example of one provision in the energy tax family that has 

had a demonstrable effect on energy efficiency investment, domestic manufacturing, 

and design and construction industry jobs. 

The 179D deduction has leveraged billions of dollars in private capital, resulted 

in the energy-efficient construction or renovation of thousands of buildings, and created or preserved hundreds of thousands of jobs in the process. It is one of the best 

indicators of the positive impact extensions of energy tax incentives can have on financing energy efficient property. 

The AIA represents over 75,000 architects and emerging professionals nationwide 

and around the world. As a leader in the design and construction industry, the AIA 

supports incentivizing energy efficiency in a myriad of ways, but particularly 

through provisions like 179D, that have proven to be quite successful in the field. 

The AIA strongly supported this provision when it was enacted as part of the Energy Policy Act of 2005. The AIA also helped form a partnership with other concerned stakeholders and through this partnership, developed implementation recommendations for building owners to obtain this tax deduction. In 2008, the AIA 

helped pass legislation to extend the life of the deduction so that it covers property 

placed in service by December 31, 2013. That same year, at the AIA’s urging, the 

IRS issued guidance on how the deduction could be allocated to the designer. 

The AIA was pleased with the initial clarification that this IRS guidance provided, 

and many agencies on the federal, state and local levels followed suit by issuing 

policies on the allocation of this deduction. 

In recognition of the benefits of the section 179D deduction, there have been reform proposals offered in recent months aimed at further enhancing the important 

tax benefit. The AIA supports reform of the 179D deduction that makes it simpler 

and more accessible. As these discussions progress, the AIA also strongly urges Congress to consider enhancements to 179D that would provide an effective and efficient way to encourage investments in energy efficiency, stimulating construction 

activity and jobs during this fragile time in the nation’s economy. 

Background on Section 179D, the Energy Efficient Commercial Building Deduction 

The Energy Efficient Commercial Building Deduction was created by the Energy 

Policy Act of 2005 (Pub. L. No. 109-58), in recognition of the fact that a substantial 

portion of U.S. energy consumption is attributable to commercial buildings and to 

provide a tax incentive to help offset the costs associated with enhancing their energy efficiency. Section 179D provides a deduction for certain energy-efficient commercial building property expenditures. 

Eligible expenditures are for property which is: (1) installed on or in any building 

that is within the scope of Standard 90.1-2001 of the American Society of Heating, 

Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America (‘‘ASHRAE/IESNA’’); (2) installed as part of the (i) interior 

lighting systems, (ii) heating, cooling, ventilation, and hot water systems, or (iii) 

building envelope; and (3) certified as being installed as part of a plan designed to 

reduce total annual energy and power costs by 50 percent or more. The deduction 

is effective for property placed in service prior to January 1, 2014. 
72 

The maximum deduction is $1.80 per square foot. In the case that a building does 

not meet the 50 percent energy savings requirement, a partial deduction of $0.60 

per square foot is allowed for each separate building system that comprises energyefficient property and that is certified as meeting required savings targets. To encourage the public sector to utilize these same energy efficient enhancements, the 

179D deduction also provides a federal, state, or local government owner of a commercial building an election to allocate the tax deduction to the primary person responsible for designing the energy efficient enhancements installed in the building. 

Building owners who take advantage of 179D not only enjoy a deduction for qualifying levels of efficiency but also enjoy significantly lower energy costs down the 

road, the benefits of leading edge design and construction which enhances the building’s long term market value, and the benefits of a cleaner environment overall. 

Owners have utilized the deduction for both new construction projects and retrofits 

of existing buildings. 

Although a public entity cannot take advantage of the tax proceeds from the 179D 

deduction allocation, it will also receive other benefits in the form of energy savings 

and market value, often totaling more than the deduction proceeds received by the 

designer. 

The average 179D project (typically $0.60/sq. ft. for lighting upgrades) saves an 

agency an average of 20 percent on their energy expenses. However, even in cases 

where there are minimal upgrades that qualify for 179D, agencies have saved relatively large amounts. 

For example, when a middle school set out to retrofit its lighting system, an architect worked to find 12 percent energy savings just on that single lighting system. 

The system then qualified for the 179D partial lighting deduction. In return, the 

school saved $15,000 on its energy bill in that year alone. It saved even more the 

next year, and will continue to save each year. Over 10 years, that totals to over 

$150,000, for a single school. School districts that take advantage of 179D for 5, 10, 

or 20 schools can save millions of dollars over 10 years, at no additional cost to 

them, because they can utilize the 179D deduction to finance the additional energy 

savings. 

This example illustrates the impact of just 12 percent energy savings in a single 

school. There are hundreds of other examples of the deduction providing even greater benefits to school districts, army bases, civic structures, and other publicly owned 

buildings across the nation. 

Proposals to Improve the 179D Deduction 

There have been reform proposals offered in recent months aimed at further enhancing this important tax benefit. AIA supports commonsense efforts that make 

179D more usable, effective and simpler. As these discussions progress, the AIA, in 

particular, strongly urges Congress to consider three key improvements to 179D: (1) 

ensuring the ability of pass-through entities to capture the full value of an allocated 

deduction in the case of a public owner of a building; (2) enhancing the value of the 

179D deduction; and (3) allowing non-profit owners of buildings, similar to public 

owners of buildings, to allocate the deduction. 

Allocating the Section 179D Deduction to a Pass-Thru Entity 

The section 179D deduction provides a federal, state, or local government owner 

of a commercial building an election to allocate the tax deduction to the primary 

person responsible for designing the energy efficient enhancements. In December 

2010, the IRS released a memo that effectively prevents design firms organized as 

partnerships or S corporations from fully realizing the benefit of a section 179D allocated deduction. 

This problem is not merely theoretical-almost 80 percent of architectural firms 

have fewer than 10 employees and a significant number of these small businesses 

are organized as partnerships and S corporations. Moreover, it is often these small 

and mid-size firms that work on state and local government projects such as schools. 

By way of background, an allocated section 179D deduction is a tax deduction that 

does not reflect an economic cost to the recipient taxpayer, because similar to a tax 

credit, the deduction provides an incentive. The technical tax rules nonetheless treat 

an allocated deduction as reflecting an economic cost to the taxpayer and accordingly reduce partnership and S corporation taxable income and the partners’/shareholders’ basis in the partnership/S corporation (i.e., ‘‘outside basis’’) by the amount 

of the allocated deduction. The reduced outside basis may force partners and S corporation shareholders to recognize taxable gain on the distribution of economic earnings that were excluded from tax by the allocated section 179D deduction at the 

partnership and S corporation level. The IRS memo states that, in the absence of 

explicit statutory authority allowing for basis adjustments to preserve the benefit 
73 

of the deduction at the partner or shareholder level, the technical tax rules govern. 

The result will be that, in the case of many partnerships and S corporations, the 

benefit of the section 179D deduction will be lost or significantly diminished. This 

will harm not only these firms, but also the school districts and other public entities 

who own the buildings. 

In order for partnerships and S corporations to obtain the intended benefits, it 

is necessary for partners and S corporation shareholders to obtain a basis in their 

partnerships and S corporations that is not reduced by an allocated 179D deduction. 

This issue could be addressed by a simple modification to expressly require Treasury to issue regulations that properly determine partnership or S corporation outside basis in the case where the 179D deduction is allocated. Such a clarification 

would provide certainty and address a widespread concern among many small businesses that design energy efficient buildings. 

Enhancing the Section 179D Deduction 

The impact of the section 179D deduction has become muted over time. The maximum deduction of $1.80 per square foot has not been increased since the deduction 

was put in place in 2005 and, as a result, has not kept pace with inflation. Moreover, as the economy and financial markets continue their fragile recovery, the 

amount of capital available for building design, construction, and renovation continues to be limited. A recent AIA survey of architecture firms shows that nearly 

two-thirds report that a lack of financing has slowed or stopped construction 

projects that would create jobs. Owners are also less likely to invest the upfront capital costs associated with energy efficient systems, which often are somewhat more 

expensive to design, build, and install than their less efficient counterparts. 

In 2010, a coalition of more than 80 organizations and companies called on Congress to increase the 179D deduction from the current maximum allowable amount 

of $1.80 per square foot to $3.00 per square foot. In the case of individual subsystems, the maximum allowable deduction should be increased from $0.60 per 

square foot to $1.00 per square foot. Bipartisan legislation was introduced in both 

chambers in the 111th Congress to enhance the deduction in this way. 

Enhancing the 179D deduction would provide an important source of additional 

capital to stimulate building design, construction, and renovation, driving the creation of well-paying jobs. Studies have shown that every $1 million invested in design and construction yields 28.5 full-time jobs. Moreover, an enhanced section 179D 

deduction would further incentivize energy efficiency, improve the nation’s commercial building stock, and increase energy independence. 

Allocating the Section 179D Deduction in the Case of a Non-Profit Owner 

of a Building 

The 179D deduction allocation provision, which allows a federal, state, or local 

government owner of a building to allocate the deduction to the designer, has been 

used to great effect by design professionals to encourage their public sector clients 

to meet the energy targets of the deduction and then have the client assign them 

the tax deduction. The result has been more energy efficient public buildings, lower 

energy costs for the building owners, and tax relief for design professionals. 

In many cases, non-profit entities, such as hospitals, universities, private schools, 

charities, and foundations, conduct functions similar to state and local governments. 

Currently, non-profit entities own thousands of properties across the country. Although retrofits to these properties could result in significant energy savings, the 

non-profit entities do not pay taxes and, consequently, cannot benefit from the section 179D deduction. 

The section 179D allocation provision should be expanded to provide non-profit 

owners of buildings, similarly to public owners of buildings, with the ability to elect 

to allocate the deduction to the primary designer of the building. Such a provision 

would assist non-profits in financing energy efficiency upgrades and would reduce 

their energy costs in the longer-term. 

Conclusion 

The AIA appreciates the opportunity to submit this statement for the record. As 

Congress considers issues surrounding financing energy efficient property, it is important to recognize the impact the 179D deduction has had in leveraging private 

capital and increasing energy-efficient construction and renovation. Modest improvements to the section 179D deduction would increase the effectiveness and efficiency 

of this important tax policy. The AIA and its members are ready to serve as a resource to Congress and the Committee on these and other issues. 
74 

STATEMENT OF RICK BARNETT, CORVALLIS, OR 

Thank you for the opportunity to share my views on non-federal programs for financing energy efficient building retrofits. I have been a residential builder and efficiency advocate for 30 years. Since the 70’s, building contractors have engaged in 

efficiency retrofits, guided by consumer demand and the local building department. 

Based on their experience with installations, contractors continue to market insulation, efficient equipment, and reduced heat loss. The homeowner is assured of a 

proper job with the building official’s verification of meeting code standards. 

I appreciate your effort in gathering this cross section of efficiency expertise, and 

providing an excellent status report of the industry today. Mr. DeBoer (The Real 

Estate Roundtable) has succinctly cast the untapped potential of efficiency: ‘‘Our nation faces significant economic, employment and energy challenges. One way to address these challenges is by upgrading the nation’s commercial building infrastructure through energy efficiency ‘‘retrofits’’.’’ I believe that the same opportunity is 

available with residential efficiency. 

From this sampling of program models, I point to the United Illuminating Company’s ‘‘Small Business Energy Advantage Program’’ as the best example of efficiency being delivered without public sector involvement via ARRA/tax dollars, energy agencies or local tax departments. With in-house, on-bill financing, this utility 

program simply connects contractors to interested energy customers. As Ms. Borelli, 

United Illuminating Company’s representative, testified, ‘‘by making investments in 

energy efficiency appear similar to traditional utility investments, the utility is encouraged to invest in energy efficiency’’. If utilities use this model for residential 

programs, they will invariably improve the product being sold and their return on 

investment. 

The economic opportunity has been documented for many years: as referenced in 

Ms. Leeds’ (NYCEEC) testimony, the Rockefeller/Deutsche Bank (2012) and 

McKinsey (2009) Reports outline the conservation and employment potentials. Unfortunately, since residential retrofits were included in ARRA, my expectation for 

contractor jobs has not been met. Rather, I’ve seen the emergence of a new marketing and verification system, running parallel to the historical marketing role of 

contractors, and oversight role of Building Officials. Mr. Rogers (GoodCents Holdings, Inc.) graphically identifies some of the new administrative elements on page 

12 of his testimony: only one of his ‘‘Six Common Elements’’ is about installing insulation. 

The value of streamlining the new trend is not just about better delivery of efficiency: it’s also about improving the efficiency being delivered. In the current trend, 

most thermal retrofits bring very leaky homes into the range of code standards, 

which have caused the need to reduce residential demand. Fortunately, existing 

technology is able to produce ‘‘net zero’’, making higher standards available to capture the economic potential. 

Such a transition to high performance and lower energy bills will be facilitated 

by using ‘‘Home Performance Scoring’’, where a number is used to rate a building’s 

measured thermal performance. With evaluation based on a numerical score, the existing checklist-style energy code could be simplified. 

From my building experience, I believe that a better return on investment is 

available from higher performing retrofits. This occurs because thermal upgrades 

are labor intensive: using better materials doesn’t significantly increase the cost, but 

results in significantly better performance. With an elevated private sector role, I 

am confident that efficiency investments would continue improving, until we routinely optimize the performance of our buildings. Why should we expect anything 

less? 

Utilities have been increasing their commitment to efficiency, producing programs 

like United Illuminating Company. I agree with Ms. Borelli’s concluding statement, 

that utilities ‘‘are able to utilize utility funds for the benefit of both the customers 

and the utility’’. I am confident that more efficiency and construction jobs can be 

delivered at a lower cost by continuing to expand utility programs. Their private 

sector perspective motivates them to maximize the energy savings per dollar invested, and fully capture the economic potential of existing buildings. 

When I talk to people about the opportunity represented by our existing buildings, 

the question of capital is quickly raised. I believe that the key to attracting an adequate flow of capital is to get better at delivering really good efficiency. I ask the 

Energy and Natural Resources Committee to encourage a new commitment by the 

private sector, to unlock this residential energy asset. 
75 

STATEMENT OF THE NATIONAL ASSOCIATION OF COLLEGE AND UNIVERSITY

BUSINESS OFFICERS

This testimony is submitted today on behalf of the National Association of College 

and University Business Officers (NACUBO) which represents chief financial officers and their staff at more than 2,100 public and nonprofit colleges and universities. NACUBO’s mission is to promote sound administrative and financial management of institutions of higher education. 

In 2009, NACUBO, in collaboration with Second Nature, published ‘‘Financing 

Sustainability on Campus,’’ a resource detailing a range of financing strategies and 

options available to campuses responding to the challenges of financing sustainability efforts. The full range of financing options are examined in the publication, 

including internal resources, grants, bank loans, bonds, leases, energy performance 

contracts, tax incentives, power purchase agreements, energy hedges, renewable energy certificates, and carbon offsets. 

In a more recent report, ‘‘Higher Education: Leading the Nation to a Safe and Secure Energy Future,’’ published in June of 2012 by the National Association of College and University Business Officers, Second Nature, and the American College & 

University Presidents’ Climate Commitment, the organizations explore how the federal government can develop and enhance clean energy incentives and investments 

that are specific to the higher education sector and how these federal policy options 

could further stimulate deep energy-efficiency and renewable-energy investments at 

colleges and universities. 

This testimony reflects the five federal policy options presented in that report and 

explores how federal support, with state and local government initiatives as well as 

with institutional funds and private-sector investments can expand possibilities and 

mitigate or eliminate barriers to furthering energy efficiency goals at colleges and 

universities across the country. 

Building on a Solid Foundation 

Higher education institutions are on the forefront of advancing efficient and renewable energy production-from wind and solar generation, to natural gas cogeneration, to geothermal and biomass heating and cooling systems. Equally impressive 

are the dramatic measures taken to maximize the operating efficiency of campus infrastructure. During the past decade, institutions have systematically curtailed energy consumption through multiple rounds of lighting upgrades, weatherization initiatives, and energy audits and system controls, and have implemented institutionwide Energy Star procurement policies. Buildings that adhere to advanced levels of 

energy-efficient performance criteria are commonplace on many college and university campuses. The sector has also embraced aggressive programs for water conservation, waste minimization and recycling, alternative-fuel vehicle fleets, and local 

food production-each with direct and indirect impacts on campus energy demand. 

All these changes are spurred in part by a growing environmental consciousness 

among students, but they also represent higher education’s commitment to equip 

graduates to be future leaders and problem solvers within a starkly different energy 

economy than that of decades past. The pursuit of substantial energy savings and 

new energy sourcing also reflects a strong and growing commitment to energy efficiency among presidents and campus business administrators and a mounting consensus that such shifts in campus operations are necessary to contain costs. Ensuring long-term energy reliability and financial security of the academy are crucial in 

advancing the educational mission of America’s colleges and universities. According 

to the National Center of Education Statistics (NCES), colleges and universities annually expend more than $14 billion in operations and maintenance of buildings and 

grounds. They also expend between $6 billion and $7 billion each year on energy 

and utilities, about three quarters of which is directed toward electricity generation, 

transmission, and use. 

Estimates from APPA, the national association representing higher education facilities officers, suggest that America’s colleges and universities collectively own and 

manage more than 250,000 buildings and heat and cool more than five billion 

square feet of space on a daily basis-no insignificant expenditure. For every college 

and university, stewardship of energy resources bears a direct impact on the institution’s ability to be a good steward of its financial resources. 

In many ways, institutions of higher education represent the ideal partner to engage in advanced energy solutions. 

• Small-scale cities—Many higher education institutions are, in effect, small-scale 

cities. Through the built infrastructure of their campuses, colleges and universities operate as mini-municipalities of several hundred to tens of thousands of 

individuals. Many campuses have their own power plants in addition to aca-
76 

demic and research buildings, dormitories, cafeterias, athletic facilities, transportation fleets, and more. • Long-term investors—The higher education sector’s long-term perspective regarding investments, infrastructure, and buildings, combined with its willingness to adopt new ideas and technologies and to ‘‘go deep’’ with energy-efficiency 

retrofit projects underscore the fact that American colleges and universities can 

play a key role in leading the nation to energy independence, energy security, 

and energy innovation. • Cross section of the nation—Geographically diverse and serving nearly every 

population center across the country, U.S. higher education institutions are 

ideal places to test unique local and regional energy solutions and markets in 

the drive toward energy efficiency, energy independence, and energy security. • Learning laboratory—Higher education has a long tradition of equipping graduates with not only the technical skills and knowledge to meet current workforce requirements, but also the critical problem-solving abilities to discern 

emerging trends and to solve society’s greatest challenges. Modeling a variety 

of energy solutions on their campuses is one way colleges and universities are 

preparing future scientists and civic leaders to meet tomorrow’s energy challenges and opportunities. • Job trainer—From the responsiveness of community and technical colleges to 

quickly develop and introduce training programs to retool workers’ skill sets, to 

the systems thinking and complex problem solving offered through immersive 

learning opportunities that are a hallmark of so many residential liberal arts 

campuses, to the sophisticated and cutting-edge discovery that takes place at 

the nation’s research universities, the higher education sector collectively holds 

the capacity to train the next generation of energy managers, engineers, architects, scientists, and entrepreneurs. • Driver of market transformation—In addition to showcasing to society what is 

possible in the realm of deep energy efficiency, the higher education sector has 

the capacity to create new and better markets for goods and services. Consider 

that the U.S. higher education sector represents operational budgets totaling 

$350 billion annually-about 2.5 percent of U.S. gross domestic product (GDP). 

College and university campuses not only possess the purchasing power to encourage emerging and local energy markets, but they are also in a position to 

sustain these markets. 

Potential Savings in Energy Demand, Supply, and Distribution 

New opportunities exist for colleges and universities to dramatically improve their 

energy and fiscal stewardship by further reducing energy consumption (demand), altering and expanding their energy sourcing (supply), and maximizing infrastructure 

improvements that address energy storage (distribution). 

Demand—Opportunities for higher education to lower demand through deep energy retrofits fall into three primary categories. 

• Smart labs and high-performance buildings. As a nation, the United States 

takes pride in its status as a world leader in cutting-edge research. One reason 

that research-intensive institutions in particular have difficulty reducing overall 

energy consumption is because today’s highly sophisticated research typically 

requires advanced levels of heating and cooling, illumination, and information 

technology (IT) infrastructure to support the research mission. The costs to 

build highly efficient labs and retro-commission existing labs and other campus 

facilities to improve their energy efficiency are extensive, yet the potential energy savings through the introduction of advanced efficiency measures are as 

dramatic. When considering that for many research universities, two thirds of 

total energy costs for the campus’ core teaching and research buildings are directly associated with their laboratories, it makes sense to implement measures 

that safely manage ‘‘smart’’ energy use. The ability to dramatically curtail research-related energy consumption- particularly in the thousands of university 

research labs across the country-would not only lower the overall cost of research-related education but would help maximize the federal dollars flowing 

into the higher education sector for sponsored research, thereby providing a direct benefit to taxpayers. • Illumination—Every campus, large or small, can benefit operationally from 

broad incorporation of the latest developments in advanced lighting technologies 

to more efficiently illuminate everything from classrooms to parking lots. Today’s lighting retrofits go far beyond switching out fixtures. Total redesign of 

lighting systems can incorporate better spacing of fixtures and the introduction 

of task lighting as well as circuits zoned to maximize daylighting and influence 

occupancy behavior. This more sophisticated approach to determining lighting 
77 

requirements and efficiencies of laboratories, classrooms, office spaces, residential settings, and alongside roads, parking facilities, streets, and pathways suggests that the potential for savings is not only significant when extended across 

an individual campus, but is also highly scalable across the entire higher education sector and beyond. 

• IT/computers—While computing and information technologies do not account for 

the biggest share of campus energy consumption, they do represent the fastestgrowing energy strain on most campuses. Growing on average at a rate of 20 

percent per year, ITrelated energy costs could quickly eclipse those of illumination if left unchecked. For instance, computing clusters purchased with federal 

dollars create excessive energy demands when the equipment is not installed 

in an energy-efficient facility setting. 

Supply—Expanding energy-supply options is good not only for colleges, but for the 

country. Many higher education institutions are already pursuing a diverse energy 

strategy centered on enhanced efficiency and the transition to renewable and reliable clean energy sources as a way to stabilize long-term energy costs, provide 

hands-on educational opportunities for students, encourage local and regional economic growth through development of new energy markets, and reduce dependence 

on nondomestic energy supplies. Generating demand for renewable energy should 

encourage continued development of related technologies that can lower the costs of 

these energy sources. 

Distribution—As the nation moves to increase its share of renewable energy production, lingering challenges include the intermittency of renewable power and the 

lack of an adequate energy storage and distribution system. In many respects, colleges and universities are in the best position to lead the country in developing solutions to thermal energy storage and distribution because of efforts already under 

way on many campuses to incorporate smart metering and design microgrids that 

can transfer energy across campus infrastructure based on demand. 

While many colleges and universities have tackled the low-hanging fruit of quickpayback energy efficiency and conservation efforts on their campuses, deep energyefficiency measures represent a tremendous and as yet untapped opportunity for the 

higher education sector to further reduce operational costs. 

Herein lies a key role for the federal government: to assist institutions in meeting 

the initial costs of pursuing advanced energy-efficiency opportunities, infrastructure 

modifications, and alternate sourcing of energy. The right mix of incentives and investment could boost institutions over the hump of the current cost feasibility gap 

in order to invest in projects that over time would yield long-term savings dividends 

for taxpayers. 

Five Policy Options for Fostering Energy Efficiency and Renewable Energy at Colleges and Universities 

1. Allow tax-exempt revenue bond financing to prepay power purchase agreements. 

The transition to renewable energy is most expensive for the first 5 to 10 years 

until projects begin to pay off. Because large-scale power purchase agreements 

(PPAs) for these projects cost more initially, one solution would be to allow colleges 

and universities to pre-purchase a 20-year supply of power with low-cost capital 

bonds and with flexibility to shape the debt (e.g., interestonly payments during the 

early years). The opportunity to use tax-exempt revenue bond financing for prepayment of PPAs is currently not a qualified use for the nonprofit higher education sector, although it is available to municipal utilities. 

Many colleges and universities effectively constitute small municipalities, replete 

with infrastructures, municipal services like parking and security, and on-site energy utilities that serve an array of customers. Investing in an institution’s energy 

infrastructure will yield certain, long-term fiscal benefits to taxpayers through 

downward pressure on tuition and indirectly through lower federal and state financial aid dollars spent on utility bills. 

2. Develop new energy-efficiency and renewable-energy loan options for institutions of higher education. 

Colleges and universities use term loans to fund a wide variety of projects, including energy investments. There is wide variability in up-front and ongoing administrative costs as well as interest rates, debt term and structure, and market conditions on bank debt. A federal loan guarantee program and/or a federal revolving 

loan fund dedicated to higher education energyefficiency and renewable-energy efforts can take some of the variability and uncertainty off the table as institutions 

embark on a long-term energy strategy. 
78 

a. Establish a federal loan guarantee program for energy-efficiency or 

renewableenergy projects at institutions of higher education—One potential 

solution for financing advanced energy-efficiency and renewable-energy 

projects is to provide access to guaranteed loans. Federally backed loan 

guarantees are particularly beneficial to colleges and universities because 

these would prevent institutions from pushing beyond their debt capacity 

limits, which could jeopardize an institution’s credit rating and adversely 

impact its borrowing ability, its reputation, and its cash flow while also increasing the cost of all functions that depend on financing. Providing such 

an option for the higher education sector to finance energy projects would 

also provide real value for the government, since there are few entities that 

are less risky than public universities when it comes to offering loan guarantees, and since the outcome would return real savings to taxpayers. 

b. Develop a federal revolving loan fund for energy-efficiency initiatives— 

Revolving loan funds (RLFs) are increasingly common on college campuses 

and could be used as a model for federal investment. A revolving loan fund 

provides capital for projects that create some level of return or cost savings, 

such as energy-efficiency or renewable-power projects. Some portion of that 

return or savings is used to repay the fund until the full project cost has 

been paid off. Repayment can include an interest rate or be interest-free. 

As the fund is replenished it can finance more projects that meet the RLF’s 

investment criteria. According to a recent study by the Sustainable Endowments Institute, more than 50 higher education institutions have at least 

$66M invested in green revolving loan funds, with an average rate of return 

of 32 percent. Colleges and universities have generally found RLFs to be 

a flexible, relatively lowcost, high-return mechanism for funding energy-efficiency projects. Such a program on a national scale would result in tremendous efficiencies on campuses across the nation. 

3. Establish, alter, and fund federal grant programs. 

Section 471 of the Energy Independence and Security Act of 2007 authorized, for 

FY09-FY13, grants and loans to institutions of higher education to carry out projects 

to improve energy efficiency. Unfortunately, the program has never been funded. 

Congress should support the overall goals of Section 471 and consider reauthorizing 

and funding the program. The higher education sector recommends modifying the 

program to incent state-based matching grant programs, eliminating the $1 million 

limit on the maximum award, and enabling the federal grant to support up to 30 

percent of total project cost. 

Additionally, the American Recovery and Reinvestment Act of 2009 created a renewable-energy grant program that is administered by the U.S. Department of 

Treasury as Renewable Energy Grants, taken in lieu of the federal, business, energy 

investment tax credit (ITC). Only colleges and universities partnering with commercial developers can benefit from the program. Eligibility should be extended to taxexempt entities. 

4. Allow long-term charitable deductions and tax credits for biomass and biomethane contributions. 

Solar, wind, hydro, and geothermal energy are not viable options in all parts of 

the country. However, biomass and biomethane, especially in agriculturally dense 

communities, have proven to be practicable options and of growing interest within 

the higher education sector for combined heat-and-power applications. These systems hold great promise not only for college and university energy generation but 

for transforming the nation’s energy economy. Yet, construction of a bio-digester 

plant represents a huge capital investment-upwards of tens of millions to hundreds 

of millions of dollars to get up and running at scale. Likewise, assurance of a steady 

flow of the materials needed to power the system is essential for embarking on such 

a large-scale commitment. A change in the tax code to assign a charitable contribution to a supplier of organic material (e.g., farm, canning operation, cheese maker, 

etc.) and make it contingent on a length of time (e.g., 10 years) would give incentive 

to the provider to maintain the flow of materials and would provide reassurance regarding supply to institutions contemplating such a major investment. Gift tax benefits should be offered for the imputed value of source materials if donors are willing 

to make a 10-year commitment. 

Extending existing incentives and tax credits to biomass, biogas, biomethane, and 

geothermal production in addition to wind, solar, and hydro power solves a supplyside challenge and could make the difference for many institutions to take advantage of readily available renewableenergy sources in their region. Agricultural communities in particular offer great promise for institutions to partner on projects that 
79 

would reduce consumption of and dependence on foreign sources of energy and 

would open up new possibilities for domestic fuel markets. 

5. Extend eligibility of clean and renewable energy bonds. 

The U.S. higher education sector is a national leader in renewable-energy purchasing and development. Colleges and universities in many cases are exceeding 

state-mandated renewable portfolio standards as part of their total power supply, 

some with support from Clean and Renewable Energy Bonds. The CREB program 

allows entities to finance renewable-energy projects at lower costs than traditional 

financing mechanisms. Currently, private colleges and universities are not eligible 

to take advantage of this tax credit bond. Extending eligibility of this financing option to independent institutions could boost participation in renewable-energy markets. 

In conclusion, at a time when economic resurgence and job creation remain national priorities, incentivizing investment in infrastructure that can lead to economic productivity and markedly lower costs is not only logical, but necessary. For 

public institutions in particular, it is fiscally responsible for governments to take the 

steps necessary to make every investment in energy efficiency for the properties 

they own. Through bolstering incentives and investments in advanced energy efficiency and clean domestic-energy sourcing, both federal and state governments have 

the means to avoid waste and to pursue the wise use of taxpayer dollars applied 

to these efforts to ensure that precious resources are available for other critical 

needs. 

NAESCO, 

Washington, DC, July 10, 2012. 

Hon. JEFF BINGAMAN, 

Chairman, Committee on Energy and Natural Resources, U.S. Senate, 304 Dirksen 

Senate Building, Washington, DC. 

Hon. LISA MURKOWSKI, 

Ranking Member, Committee on Energy and Natural Resources, U.S. Senate, 304 

Dirksen Senate Building, Washington, DC. 

Re: June 28 Hearing on Energy Efficiency Financing 

DEAR SENATORS BINGAMAN AND MURKOWSKI: 

The National Association of Energy Service Companies (NAESCO) appreciates the 

opportunity to submit these comments for the record in the matter of the above-referenced hearing. 

NAESCO has had a chance to review the testimony offered by various parties at 

the June 28 hearing, and we concur with much of what the witnesses said. We 

would like to amplify some of the points that they made and offer several policy suggestions, based on the experience of our members that collectively provide approximately $4 billion in energy efficiency investment annually to public and private sector building owners. 

First, we agree that the potential for energy efficiency in the US is huge, and that 

the nation desperately needs the kind of leadership that your committee has demonstrated with its overwhelming bipartisan support of common-sense energy efficiency legislation. We believe, as several witnesses said, that energy efficiency 

should be the nation’s first energy resource. No other source of energy is as cheap 

and plentiful as energy efficiency. The high costs and technical issues involved with 

other energy sources—coal, nuclear, oil tar sands, shale gas, etc.—demand that we 

make the most efficient use of every unit of energy we have. We, therefore, urge 

you to press forward with consideration and enactment of your legislation in the 

Senate, and to work to convince your colleagues in the House to immediately move 

similar bi-partisan approaches. 

If we have any quarrel with the estimates of the potential for energy efficiency 

in the US, it is that the estimates are too modest. For example, Ms. Leeds from 

the New York City Energy Efficiency Corporation (NYCEEC) cited a study published by the Rockefeller Foundation and Deutsche Bank, which estimated the potential for energy efficiency in institutional buildings at about $25 billion. 

We believe this estimate is low by a factor of four. The federal government has 

estimated that its potential energy efficiency improvements in buildings is more 

than $8 billion, and federal buildings represent a small fraction of the total square 

footage of institutional buildings in the country. NAESCO, based on studies performed by the Lawrence Berkeley National Laboratory, estimates that the potential 

market in institutional buildings approaches $100 billion. 
80 

This potential, of course, equates to jobs—hundreds of thousands of jobs in the 

hardpressed construction industry—as well as billions of dollars of reductions in taxpayer expenditures for wasted energy. 

Second, we would like to provide some historical context for the status of energy 

efficiency in commercial buildings, and make a policy suggestion based on this history. NAESCO member companies, NAESCO staff, government policy makers at all 

levels and utility companies have been trying to stimulate large-scale energy efficiency retrofits in the commercial building industry for more than three decades. 

Our efforts have not yielded significant results, particularly in the Class A tenantoccupied buildings. We appreciate the fact, as Mr. DeBoer noted at the hearing, that 

the commercial real estate market is in a financial trough today, but during these 

three decades the real estate industry has gone through several full boom-and-bust 

cycles, and there was no noticeable uptick of energy efficiency retrofits during the 

boom cycles, such as the first part of the last decade. 

The problem is that the real estate industry does not believe that increasing energy efficiency is its business. Rather, the industry defines its business as buying 

and re-selling buildings. Moreover, many landlords don’t see the value of making 

their buildings energy efficient as they pass on the energy costs to their tenants. 

We, therefore, think that mandates are going to be required to stimulate the real 

estate industry to pursue energy efficiency outside of a few high profile trophy buildings. We know that government mandates are an unpleasant topic these days, but 

the history of the real estate industry is that they work. More than a decade ago, 

most jurisdictions mandated that commercial buildings be retrofitted with fire-suppression sprinkler systems. The real estate industry protested vigorously that the 

retrofits would be financially ruinous, but a decade later the job was done. And 

sprinkler systems do not pay for themselves from savings, as energy efficiency retrofits do. 

The near potential for mandates is massive. As Mr. deBoer noted in his testimony, more than $1.4 trillion in commercial mortgages will be refinanced in the 

next three years. A mandate that all new commercial mortgages be increased to finance all of the retrofits that are costeffective within the term of the mortgage (e.g., 

a five-year mortgage would be expanded to include all retrofits that have a payback 

of five years or less) would have no practical effect on the building owners (since 

the retrofits would repay their costs on a cash flow basis) but would significantly 

increase the value of the buildings over their remaining life. 

Third, the Committee should seek ways to encourage utilities to adopt the very 

successful small commercial and industrial program that was described by Ms. 

Borelli from United Illuminating, a Connecticut utility, at your hearing. The combination of turnkey service, substantial and cost-effective utility incentives and zerointerest financing has been very effective in Connecticut and Massachusetts. These 

programs should be implemented across the country. Utilities should also be encouraged to investigate expanding these programs into large buildings, many of which 

could be seen to be vertical aggregations of small customers that could be serviced 

with the same programs that today service horizontal (i.e., neighborhood stores and 

businesses) aggregations of small customers. 

In closing, NAESCO appreciates the opportunity to offer these comments for the 

record, and we are ready to answer questions from you or your staffs or to supply 

more information about our suggestions. 

Sincerely, 

DONALD GILLIGAN, 

President. 

STATEMENT OF MALCOLM WOOLF, DIRECTOR, MARYLAND ENERGY ADMINISTRATION, 

AND CHAIR, THE NATIONAL ASSOCIATION OF STATE ENERGY OFFICIALS

Chairperson Bingaman and members of the Committee, I am Malcolm Woolf, director of Maryland Energy Administration and Chair of the National Association of 

State Energy Officials (NASEO). NASEO represents all 56 of the State and Territory Energy Offices and helps to support and leverage the work of the energy offices 

throughout the nation. We are pleased to have this opportunity to discuss some of 

the successes and innovations in energy efficiency retrofit financing programs both 

in Maryland and other states. Prior to joining the Maryland Energy Administration, 

I served as Staff Director of the Natural Resources Committee of the National Governors Association, as counsel on the U.S. Senate Environment and Public Works 

Committee and at U.S. Environmental Protection Agency, and in private legal practice. My message today is to highlight that America has a rich resource of energy 

efficiency readily available and that States continue to be at the forefront of innova-
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tion by developing creative, new financing solutions to save money, enhance U.S. 

competitiveness, create opportunities for the private sector and preserve the environment. Well-established, long-running programs such as the Nebraska Dollar and 

Energy Savings Loan and Texas Loan STAR programs have proven how state programs can enable more energy efficiency retrofits by working with the private sector 

to increase access to financing and reduce market barriers. Two decades ago, these 

and other groundbreaking financing programs were created to open new energy-related economic development opportunities utilizing seed funds from the U.S. State 

Energy Program and other state and federal resources. Other more recent State Energy Office innovations, such as Maryland’s financing programs, the Kentucky 

Green Bank, Florida’s statewide property assessed clean energy (PACE) program, 

Alabama SAVES revolving loan fund, and New York’s on---bill repayment program 

are pushing the envelope and making great strides towards scaling up energy efficient retrofits, and leveraging funds through public-private partnerships with the financial community, even as consumer, commercial, and industrial demand and confidence continues to slowly bounce back after the most serious economic downturn 

in decades. 

In my home state of Maryland, Governor O’Malley led the passage of the EmPOWER Maryland Act in 2008 to move our state to the forefront of energy efficiency. Under his leadership, Maryland has achieved a 9.1% reduction in per capita 

peak demand, which has helped keep the lights on while avoiding the need to build 

a new fleet of fossil fuel peaking plants. In addition, over 430,000 Marylanders to 

date have implemented energy efficiency measures in their homes or businesses 

that will save $2.6 billion over the life of the measures and avoid 880,000 metric 

tons of CO2, which translates to about 180,000 cars taken off the road. 

Let me share two examples of how we are trying to overcome the barriers with 

respect to financing. First, using a longstanding revolving loan fund, Maryland has 

provided 70 loans worth about $20 million for energy efficiency improvements that 

are estimated to save nearly $60 million in project lifecycle costs. For example, we 

recently provided a $600,000 loan to improve a 26-story office building in downtown 

Baltimore that, when combined with a utility rebate, will save over $300,000 per 

year. Maryland has also helped local governments update parking garage and traffic 

lights, hospitals achieve significant improvements in indoor air quality, and private 

schools replace aging and wasteful heating and cooling systems. Typical projects include lighting, heating, and cooling upgrades, as well as building optimization technologies and controls. A sister revolving loan program focused on state buildings has 

achieved similar results. 

Maryland has also created a loan loss reserve fund to help leverage $15 million 

in private capital for unsecured residential energy efficiency loans. In partnership 

with the Maryland Clean Energy Center, we are providing affordable capital to 

homeowners with limited options for overcoming the upfront cost of an energy efficiency makeover-without relying on state tax funds. 

Other State Energy Efficiency Financing Examples 

The Nebraska Dollar and Energy Savings Loan program is a revolving loan fund 

that the State Energy Office established in 1990, and over the last 22 years, the 

program has financed over 27,000 projects (e.g., commercial, industry, small business, residential) totaling over $247 million, with less than $70,000 in defaults or 

less than a 0.03% default rate over the program life. Of that $247 million, more 

than $111 million came from the state revolving loan fund, and the rest was financed by Nebraska banks, credit unions, and building owners, amounting to a 1 

to 1 private sector leverage on program funds. The key to the program’s success has 

been the active participation of the state’s participating local banks and credit 

unions who view the program as a good service for their communities and customers, and therefore good business for them. Currently 290 Nebraska banks and 

credit unions offer the program at 914 locations statewide. This flexible program has 

supported retrofits in Nebraskan homes, businesses, and agriculture. 

Like the Nebraska program, the Texas Loan STAR program has operated for more 

than 20 years. Established in 1988, Texas Loan STAR targets retrofits in public 

buildings, including state agencies, school districts, higher education, local governments and hospitals. Over its program life, Texas Loan STAR has funded approximately 200 loans totaling over $280 million dollars. The program has achieved cumulative energy savings of over $212 million dollars for state and local public buildings. In 2001, the program was expanded to allow for the use of energy savings performance contracts (ESPCs), which enabled private energy services companies 

(ESCOs) to expand their work with public buildings and bring their technical expertise to bear to develop more projects on a larger scale and at lower costs. 
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In Kentucky, the high level of interest in the Kentucky Green Bank has shown 

a large area of unmet need and opportunity in the state. Founded in September 

2009 and capitalized at $14.17 million, this revolving loan fund completely disbursed all its funds in one and a half years. The program aims to lower operating 

costs and energy and water use without additional taxpayer burden, promote economic development, and create new construction and energy management jobs. 

Through this program, Kentucky has funded improvements at the Kentucky School 

for the Blind, the Kentucky School for the Deaf, the Future Farmers of America 

Leadership Training Center, and three nursing facilities in the Department of Veterans Affairs. Many of the larger projects were accomplished through ESPCs and 

working with ESCOs. 

Florida recently launched a statewide commercial property assessed clean energy 

or PACE program to support energy efficient upgrades for commercial buildings and 

industrial facilities, which will be expanded to residential properties in the future. 

This program approach addresses two primary barriers to implementing upgrades: 

high upfront costs and the owner-tenant split incentive. The voluntary statewide 

program addresses those barriers by providing the upfront capital for improvements 

and using assessments on the building’s annual property tax bill to serve as security 

and the repayment mechanism. Although this program is too new to report results, 

it is a great example of the kind of creative, practical solutions States devise. This 

program relies on a public-private approach and is a potential proving ground for 

PACE financing programs that other states-and federal programs-can learn from 

and adapt. 

In Alabama, the State Energy Office operates a hybrid revolving loan fund/loan 

loss reserve program called Alabama SAVES, which supports retrofits for private 

businesses. The $25 million fund is projected to leverage up to $120 million over 

its program life. Each deal is unique, which has proved essential to closing loans 

on larger commercial and industrial projects, and the program relies heavily on its 

private sector partners such as Philips Lighting, Metrus Energy, Bank of America, 

Efficiency Finance, First Commercial Bank of Huntsville, and a network of engaged 

engineers and contractors. Without these partners and their relationships with local 

businesses, the program would not have as many projects under development or as 

much private sector capital leverage. Although it only launched a year and a half 

ago, the program has already financed a number of projects that have improved the 

competitiveness of Alabama businesses and supported job creation. For instance, a 

$2.3 million loan for new high-efficiency equipment to the Dixie Group, a carpet 

yarn manufacturing plant in Roanoke, Alabama is expected to create 20 new jobs. 

Recently, Alaska passed new landmark legislation-Alaska’s Sustainable Strategy for Energy Transmission and Supply, or ASSETS. The legislation established a $125 

million into a Sustainable Energy Transmission and Supply Development Fund 

(SETS) to provide low-interest loans for energy infrastructure and energy efficiency 

projects in Alaska, including construction of power lines, new renewable energy generation projects, natural gas projects, bulk fuel tanks, and energy efficiency measures. Under ASSETS, the administering agency, the Alaska Industrial Development 

and Export Authority (AIDEA), cannot finance more than one-third of the cost of 

a project without additional approval from the Legislature. This provision shows 

that the state intends for the private sector to drive the development of energy 

projects and leverage their own resources for the majority of a project’s needed funding. This type of public---private partnership at the state level truly supports economic development and job creation. 

Another exciting and innovative program is New York’s statewide utility on-bill 

repayment program. Established by New York state legislation in 2011, the on-bill 

repayment program provides an easier way for homeowners to make loan payments 

on energy efficient upgrades to their homes and because the loan is tied to the 

meter, it is transferrable to new owners when the home is sold. Further, putting 

the loan repayment on the utility bill provides additional security for the loan and 

reduces risk and interest rates. These on-bill loans are offered as part of the overarching Green Jobs - Green New York program and benefits from the extensive network and infrastructure that New York has built over the last decade through its 

Home Performance with ENERGY STAR program. Since November 2011, New York 

has been closing more than 100 energy efficiency retrofit loans a month. 

Less well known is the scale and success of the State and local public facilities 

retrofit market, which exceeds $5 billion in retrofit investments annually. This investment is accomplished almost entirely with private sector financing linked to 

State Energy Office and other state agency programs. The stream of utility bill savings from upgrading facilities as diverse as office buildings, schools, correctional institutions, and wastewater treatment plants pays for the upgrade and returns additional savings. In Kansas, the U.S. State Energy Program-supported program re-
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sulted in the upgrade of 76 percent of the state-owned buildings. States piloted, refined, and delivered these programs in partnership with the energy services industry through energy savings performance contracting two decades ago, which was an 

approach later adopted by the Federal agencies and others. 

The above are just a few examples of the innovative financing programs operating 

in states across the country. Many of these programs are opening new opportunities 

for the private sector and helping to create new retrofit businesses, spurring innovation among financial institutions, and working with the market to motivate cost-effective energy efficiency retrofits. NASEO has catalogued State Energy Office-administered financing programs in an online database, which can be found at: http:// 

www.naseo.org/resources/selfs/. 

Recommendations to Support State Energy Efficient Building Retrofits 

To support and further state efforts in facilitating energy efficient building retrofits, NASEO recommends the following: 

1) Continue to support reauthorization and federal formula funding at $125 

million for the U.S. State Energy Program (SEP). Formula SEP funding is utilized by states to create innovative programs in a flexible manner that responds 

to each state’s needs. Many of the financing approaches I have touched on today 

are part of larger state strategies to support and stimulate market growth for 

energy efficiency. Financing on its own is just one tool. Past experience has 

shown us that programs are the most successful when access to financing is delivered as a part of a comprehensive and well-designed program that includes 

clear marketing, technical support, and streamlined program administration. 

SEP is the only program offered by the U.S. Department of Energy that allows 

states to allocate funding within the guidelines and goals of the program, in 

ways that are best suited to the opportunities and resources of each state. 

Furthermore, SEP is a highly successful program that has achieved tremendous 

results. In January 2003 (and updated in 2005), Oak Ridge National Laboratory 

(ORNL) completed a study finding that, ‘‘The impressive savings and emissions reductions numbers, ratios of savings to funding, and payback periods... indicate 

that the State Energy Program is operating effectively and is having a substantial 

positive impact on the nation’s energy situation’’ ORNL found that $1 in SEP funding yields: 1) $7.22 in annual energy cost savings; 2) $10.71 in leveraged funding 

from the states and private sector in 18 types of project areas; 3) annual energy savings of 47,593,409 million source BTUs; and 4) annual cost savings of $333,623,619. 

These cost saving and leveraging data are all non-stimulus results. Energy price volatility makes the program more essential as businesses and states work together 

to maintain our competitive edge. 

2) Continue to support the Weatherization Assistance Program (WAP), which 

employs workers in every state and county in America, and has weatherized 

more than 7.1 million homes over the past 35 years. Weatherization has proven 

its value and is a highly successful and effective investment in the American 

workforce. We support continued funding for the program in FY 2014 at the 

pre-Recovery Act level of $210 million. This level of funding is necessary to keep 

the Weatherization program operating in all of the states. We also strongly support the addition of innovative grants, which provide incentives for non-profit 

groups like Habitat for Humanity to get into the weatherization program. We 

and other state partner organizations have worked closely with Senator Coons 

of Delaware in developing consensus language on innovative grants as part of 

the reauthorization bill for the State Energy Program and the Weatherization 

Assistance Program. 

3) Continue to support the Shaheen-Portman bill. Several of the provisions 

in this bill, such as enabling on-bill repayment for rural electric co-operatives, 

would positively impact the energy efficient building retrofit market. 

4) Support the Sensible Accounting to Value Energy or SAVE Act (S.1737). 

This proposed legislation would improve the accuracy of mortgage underwriting 

used by Federal mortgage agencies by ensuring that energy costs are included 

in the underwriting process. Better valuation of energy costs and energy efficiency in property value would make the economic benefits of energy efficiency 

more obvious to consumers and financial institutions. This would increase market demand and aid the energy efficient building upgrade industry to scale up 

and mature, creating new jobs in construction and manufacturing. 

5) Provide incentives for residential energy efficient retrofits, otherwise 

known as home energy upgrades. These incentives should support deep energy 

savings using a whole-house approach and at the same time, allow for a prescriptive path that incents individual measures such as air sealing and furnace 
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replacement. All work should be delivered by qualified contractors and operate 

under a robust system of quality assurance and inspection to ensure that the 

energy efficient retrofits are executed to the highest quality and to protect 

homeowners. 

6) Finally, we recommend that the Internal Revenue Service provide clearer 

guidance on Qualified Energy Conservation Bonds (QECBs). QECBs provide a 

significant resource for state and local governments to fund energy efficient 

building retrofits, and while many state and local governments have taken advantage of this resource, about 80% of these bonds are still available for use. 

In NASEO’s discussions with state and local governments, frequently cited barriers include the lack of clarity around how projects should demonstrate the required 20% energy savings for a project, the definition of a ‘‘green community,’’ 

and recognized processes for local governments to waive unused allocations back 

to the state. If IRS were to issue guidance on these three issues, it would remove these barriers and allow for easier and greater use of these bonds. 

Conclusion 

In conclusion, energy efficient building retrofits present enormous potential to 

achieve energy savings, increase national security and our businesses’ competitiveness, and support economic growth in partnership with the private sector. States 

have been actively working in this area for decades, and despite the challenges of 

implementing energy efficiency retrofit financing programs during an economic 

downturn where consumer confidence hit historic lows, the states were still able to 

seize the opportunity to lay the groundwork for many innovative programs that will 

continue to pay dividends years into the future and help to scale and transform the 

energy efficient building retrofits market. With continued and expanded support and 

funding, the states and their private sector partners can further accelerate that 

transformation. 

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