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50–178 PDF 2009

S. HRG. 111–28 

ENERGY EFFICIENCY RESOURCE STANDARDS 

HEARING 

BEFORE THE

COMMITTEE ON 

ENERGY AND NATURAL RESOURCES 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

TO

RECEIVE TESTIMONY ON ENERGY EFFICIENCY RESOURCE STANDARDS, 

INCLUDING BILL S. 548, A BILL TO AMEND THE PUBLIC UTILITY REGULATORY POLICIES ACT OF 1978 TO ESTABLISH A FEDERAL ENERGY 

EFFICIENCY RESOURCE STANDARD FOR RETAIL ELECTRICITY AND 

NATURAL GAS DISTRIBUTORS, AND FOR OTHER PURPOSES 

APRIL 22, 2009 

( 

Printed for the use of the 

Committee on Energy and Natural Resources 
(II) 

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

JEFF BINGAMAN, New Mexico, Chairman 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

MARIA CANTWELL, Washington 

ROBERT MENENDEZ, New Jersey 

BLANCHE L. LINCOLN, Arkansas 

BERNARD SANDERS, Vermont 

EVAN BAYH, Indiana 

DEBBIE STABENOW, Michigan 

MARK UDALL, Colorado 

JEANNE SHAHEEN, New Hampshire 

LISA MURKOWSKI, Alaska 

RICHARD BURR, North Carolina 

JOHN BARRASSO, Wyoming 

SAM BROWNBACK, Kansas 

JAMES E. RISCH, Idaho 

JOHN MCCAIN, Arizona 

ROBERT F. BENNETT, Utah 

JIM BUNNING, Kentucky 

JEFF SESSIONS, Alabama 

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 

Centolella, Paul A., Commissioner, Public Utilities Commission of Ohio, Columbus, OH ........................................................................................................... 9 

Hoffman, Patricia, Acting Deputy Assistant Secretary, Office of Electricity 

Delivery and Energy Reliability, Department of Energy .................................. 5 

Manning, David J., Executive Vice President, External Affairs, National Grid, 

Brooklyn, NY ........................................................................................................ 16 

Nadel, Steven, Executive Director, ACEEE .......................................................... 28 

Schumer, Hon. Charles E., U.S. Senator From New York ................................... 2 

Skains, Thomas E., Chairman, Chief Executive Officer and President, Piedmont Natural Gas Company, Charlotte, NC ..................................................... 21 

Wells, Rich, Vice President, Energy, The Dow Chemical Company, Midland, 

MI .......................................................................................................................... 43

APPENDIX 

Responses to additional questions .......................................................................... 57 

(1) 

ENERGY EFFICIENCY RESOURCE STANDARDS 

WEDNESDAY, APRIL 22, 2009 

U.S. SENATE, 

COMMITTEE ON ENERGY AND NATURAL RESOURCES, 

Washington, DC. 

The committee met, pursuant to notice, at 10:00 a.m. in room 

SD–366, Dirksen Senate Building, Hon. Jeff Bingaman, chairman, 

presiding. 

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

SENATOR FROM NEW MEXICO 

The CHAIRMAN. Before we go ahead and get started here, I am 

told that Senator Murkowski may not be able to be here or if she 

is, she will have to be late, so let me give a short statement and 

then call on Senator Schumer for his statement. 

The purpose of this hearing is to discuss proposals for establishing Federal Energy Efficiency Resource Standard for retail electricity and natural gas distributors and related issues, which Senator Schumer has introduced as S. 548, The Save America Energy 

Act sponsored by him here in the House and in the Senate, by Congressman Markey in the House. 

Both bills would create a Federal energy efficiency resource 

standard that would be independent of the Renewable Electricity 

Standard. 

A special draft of this renewable electricity standard will be considered by our committee and when we have our next business 

meeting, we hope, this next week, and it will allow any States that 

the renewable electricity standard which I am referring to, will 

allow the States to meet 20 percent of that requirement through 

energy efficiency measures. 

The committee has invited witnesses who represent diverse interests and opinions on a Federal EERS. We hope to learn more 

about the current efforts at the State level, where the EERS provisions have been enacted, and how a Federal EERS would work or 

whether efficiency standards will be combined with or linked to a 

Federal renewable electricity standard. 

So the other topics that we hope to cover include energy savings 

that we can hope to achieve through these programs, whether an 

EERS will reduce the cost of wholesale electric prices under a carbon cap, whether retail gas and electric distributors would have 

difficulties meeting the EERS, and what impact a Federal EERS 

would have on the level of efficiency investments across the board. 
2 

So I will start with Senator Schumer and we are glad to have 

him and hear his remarks about the bill that he has introduced, 

and then following that, we will go through the other witnesses. 

Senator SCHUMER. 

STATEMENT OF HON. CHARLES E. SCHUMER, U.S. SENATOR 

FROM NEW YORK 

Senator SCHUMER. Thank you, Mr. Chairman. It’s very good to 

be here. I want to first thank you, and Ranking Member Murkowski, Senator Menendez, all of the members of the committee of 

the very good work you are doing on such a vital topic in our country today, which is how do we both clean and reduce our energy 

consumption. 

The bill I have introduced with Senator Sanders would set a national goal for energy savings for retail electricity and natural gas 

distributors between 2012 and 2020. This goal, the energy efficiency resource standard is similar in structure to the Renewal Energy Standard that you folks will deal with later this week. 

The legislation I introduced, has been introduced on the House 

side by Congressman Markey and Waxman, and it included in 

their discussion draft of their energy bill released last month. 

Specifically it would require a 15 percent retail electricity savings and a 10 percent natural gas savings through the adoption of 

simple, currently available energy efficiency measures for a total 8 

year savings to consumers of $170 billion and an estimated job creation of 222,000. 

An easy way of thinking about this approach is while Renewal 

Energy Standard (RES)focuses on what you burn, the Save America Energy Act is concerned with how much you burn. Until we address the demand side of the energy equation in a meaningful way, 

we are not going to be able to put our Nation on the right path 

toward a new energy economy. 

America is at a critical juncture in its history. We all know that 

we face an economic crisis like none we have experienced since the 

Depression, and at the same time we have tremendous opportunity 

to generate innovative energy industries to replenish job loss, as 

well as putting America on the path toward independence from foreign oil. 

A lot of talk in Washington is focused on the RES, the Renewable 

Energy Technology and Jobs, and we need to put similar focus on 

developing technologies and jobs that can be put into energy efficiency. 

Mr. Chairman, you will be one of the first to recognize all of 

these conservation measures in the legislation we voted on last 

year, and subsequently I applaud the committee for your efforts. 

So about the EERS proposal. Energy efficiency is easy. It is 

cheap. It is clean and may be just as important for our body, it’s 

non-ideological. You don’t get into any of the ideological fights. 

Energy efficiency is indeed, a low hanging fruit of energy policy. 

The Save America Energy Act would be implemented and enforced 

at the State level. It would compliment 19 existing State standards. My State of New York has one, which are already saving energy—and sparing consumer pocketbooks—across the country. 
3 

It would allow States to tailor their programs to their specific 

needs, because the bill leaves it to the States to determine specific 

efficiency programs and rate structures of utilities to pursue, to 

achieve a National Standard, and thereby allow States to attain 

equal or higher efficiency standards should they so wish, and the 

ability of flexibility for utilities, too. They can comply with the bill 

through a variety of mechanisms. Among them, not exclusively, but 

just a sample: building codes, offering discounts and rebates for energy star appliances, installing programmable thermostats, energy 

efficiency lighting, better installation, and retrofitting and 

weatherizing homes. 

So the policy is not a ‘‘one-size-fits-all.’’ The Federal Government 

sets the minimum goals and lets the State decide how to reach 

them. 

Second, the EERS is cheap. It’s going to save consumers, as I 

mentioned, 170 billion over 8 years on their energy bills, freeing up 

dollars that can be spent elsewhere in the economy. 

According to a study by the American Council for Energy-Efficient Economy, the bill will create 220,000 jobs by 2020, and reduce 

the cost of comprehensive cap-and-trade policy, which I know this 

committee is concerned about, by removing the need to build new 

power plants, shrinking the number of existing facilities that need 

to be upgraded, and driving consumer electricity prices lower as demand falls. 

So the bill is a down payment on the type of major global warming legislation that Congress plans to proceed down the road. It 

compliments it, it doesn’t replace it, I would add that. 

Third, EERS is clean. The legislation would lead to an overall reduction of greenhouse gas emissions, resulting in carbon dioxide reductions totaling about 260 metric million tons in 2020. That’s the 

same as taking 43 million automobiles off the road for a year. 

Finally it’s practical, non-ideological and could be implemented 

quickly. 

So Mr. Chairman, we know that the climate change debate has 

been contentious one that is going to take some time. But we also 

know that in these challenging times we can’t afford politics as 

usual. This is something that in circumstance may bridge politics, 

hopefully even transcendent it a little bit, and move forward. 

It is technology neutral. It’s not about coal or natural gas or electricity, hydro, solar, wind or any other type of energy. Whichever 

type of energy the utility uses, they have to use it more efficiently 

and distribute it more efficiently. The bill is about implementing an 

energy standard that will benefit States. 

By the way, we know this approach works. It has worked in 

many States: California, New York, Texas, Connecticut, Vermont 

and Nevada are very successful. 

So I hope that the committee will include this proposal, S. 548, 

in comprehensive energy legislation in your plans because of its advantages. 

I want to thank you for the opportunity to testify. 

[The prepared statement of Senator Schumer follows:] 
4 

PREPARED STATEMENT OF HON. CHARLES E. SCHUMER, U.S. SENATOR

FROM NEW YORK

Good morning, Mr. Chairman, Senator Murkowski and distinguished members of 

the Committee. I appreciate the opportunity to appear before you today to discuss 

S. 548, The Save American Energy Act. 

This bill, which I have introduced with Senator Sanders, would set a national goal 

for energy savings from retail electricity and natural gas distributors between 2012 

through 2020. This goal, the energy efficiency resource standard (EERS), is similar 

in structure to the Renewable Energy Standard (RES). The legislation has been introduced on the House side by Congressmen Markey and Waxman, who have included it in the discussion draft of their energy bill released last month. 

Specifically, it would require 15% retail electricity savings and 10% natural gas 

savings through the adoption of simple, currently available energy efficiency measures, for a total 8-year savings to consumers of $170 billion and estimated job creation of 222,000. 

An easy way of thinking about this approach is—while a renewable energy standard focuses on what you burn, the Save America Energy Act is concerned with how 

much you burn. And until we address the demand side of the energy equation in 

a meaningful way, we will be unable to put our nation on the right path towards 

a new energy economy. 

America is at a critical juncture in its history. We face an economic crisis not experienced since the Great Depression—a crisis that is resulting in the loss of hundreds of thousands of American jobs a month. 

At the same time, we have a tremendous opportunity to generate new innovative 

energy industries to replenish these job losses while putting America on the path 

towards independence from foreign oil. 

A lot of talk in Washington has focused on renewable energy technologies and 

jobs. We need to put just as much focus on developing technologies and jobs to implement energy efficiency. 

Mr. Chairman, you have recognized the potential for a new energy policy in America to turn our economic ship around—and I applaud your efforts. 

Today, I am here to talk about an approach that I firmly believe deserves this 

panel’s consideration as part of a comprehensive overall energy policy. Energy efficiency is easy. It is cheap. It is clean. And importantly, it is non-ideological. 

First, it is easy. Energy efficiency is indeed the ‘‘low-hanging fruit’’ of energy policy. 

The Save American Energy Act would be implemented and enforced at the state 

level and would complement 19 existing state standards, including New York’s, 

which are already saving energy—and sparing consumers’ pocket books—across the 

country. 

This legislation would allow states to tailor their programs to their specific needs. 

The bill leaves it to states to determine the specific efficiency programs and rate 

structure that utilities could pursue to achieve the national standard, and allows 

the states to set or retain equal or higher efficiency standards. 

And the bill leaves flexibility for utilities, too. They can comply with the bill 

through a variety of mechanisms, including building codes, offering discounts and 

rebates for energy star appliances, installing programmable thermostats, energy efficient lighting, installing better installation, and retrofitting and weatherizing 

homes. 

This policy is not ‘‘one-size-fits-all.’’ The federal government sets the minimum 

goals and lets the states decide how to reach them. 

Second, the EERS is cheap. The energy savings under The Save American Energy 

Act will save consumers $170 billion over the course of 8 years on their energy bills, 

freeing up dollars that can be spent elsewhere in the economy, giving consumer 

spending a much needed shot in the arm and creating a demand for green jobs, such 

as energy auditors, engineers, and installers of energy efficient equipment. 

According to a study by the American Council for an Energy-Efficient Economy, 

the bill would create an estimated 222,000 American jobs by 2020. 

The bill would also reduce the cost of a comprehensive cap-and-trade policy by removing the need to build new power plants, shrinking the number of existing facilities that need to be upgraded, and driving consumer electricity prices lower as demand falls. This bill is a down payment on the type of major global warming legislation that Congress plans to pursue down the road. 

Third, it is clean. My legislation would lead to an overall reduction in greenhouse 

gas emissions, resulting in carbon dioxide emissions reductions totaling approximately 260 million metric tons in 2020—equivalent to taking 43 million automobiles 

off the road for a year. 
5 

Finally, it is a practical, non-ideological policy that could be implemented quickly. 

We all know that the climate change debate has been a contentious one, and will 

take some time to work out a cap and trade policy that will accommodate the diverse range of energy sources across our nation. 

But we also know, in these challenging times, this country cannot afford politics 

as usual. The Save America Energy Act is a non-ideological, common sense way to 

prepare the nation for the potential benefits of a climate change policy while creating new jobs. 

This bill is technology neutral. It is not about coal, natural gas, electricity, hydro, 

solar, wind or any other type of energy, be it renewable or otherwise. This bill is 

about implementing an energy standard that will benefit all states by saving them 

energy, money, and creating jobs. 

And most importantly, we know this approach works. We’ve seen successful energy efficiency resource standards already implemented in states like California, 

New York, Texas, Connecticut, Vermont, and Nevada. 

In conclusion, I urge the Committee to include The Save America Energy Act in 

the comprehensive energy legislation that you are planning. It is an easy, cheap, 

clean and non-ideological way of fast-tracking a new energy economy at a time when 

we need it most. 

Thank you again for the opportunity to testify today. 

The CHAIRMAN. Thank you very much. Thanks for your leadership in putting this bill forward. 

Senator Menendez, do you have any questions of our colleague? 

Senator MENENDEZ. No. I just want to compliment Senator Schumer for putting forth a very good idea and one that I hope we will 

move forward with. 

The CHAIRMAN. Thank you very much. We appreciate it. 

Senator SCHUMER. I very much appreciate the opportunity to testify. 

The CHAIRMAN. No problem. Let me call Panel Two forward and 

I will introduce folks as they come to take their chairs at the table. 

Ms. Patricia Hoffman is the Acting Deputy Assistant Secretary 

for the Office of Electricity Delivery and Energy Reliability in the 

Department of Energy, and we are glad to have her here. 

Mr. David Manning is Executive Vice President for External Affairs for the National Grid in Brooklyn, New York. 

Mr. Centolella is Commissioner with the Utility Commission of 

Ohio, in Columbus. We thank you for being here. 

Mr. Thomas Skains is the Chairman of the American Gas Association, and we thank you for being here. 

Mr. Steve Nadel is Executive Director of the ACEEE, here in 

Washington. He’s a frequent testifier before our committee. 

Mr. Rich Wells is the Vice President for Energy with Dow Chemical Company in Michigan. 

Why don’t we just ask each of you to take 5 or 6 minutes and 

summarize the main points you would like us to understand. We 

will hear from all 6 of you, and then we will ask some questions. 

So Ms. Hoffman, why don’t you start off? 

STATEMENT OF MS. PATRICIA HOFFMAN, ACTING DEPUTY ASSISTANT SECRETARY, OFFICE OF ELECTRICITY DELIVERY 

AND ENERGY RELIABILITY, DEPARTMENT OF ENERGY 

Ms. HOFFMAN. Mr. Chairman and members of the committee, 

thank you for this opportunity to testify before you on S. 548, 

which seeks to amend the Policy Utilities Regulatory Policy Act of 

1978 and establish a Federal Energy Efficiency Resource Standard 

for the retail electric and natural gas distributors. 
6 

President Obama is committed to a comprehensive energy plan 

that reduces our greenhouse gas emissions and increases our energy security. 

We are already putting Americans to work making homes and 

buildings more energy efficient through the significant investment 

of the American Recovery and Reinvestment Act, which will grow 

our economy while cutting energy bills for American families. 

Over the last several decades the experiences of leading electric 

and gas utilities, third party program administrators and State 

agencies administering energy efficiency programs have shown that 

it can be a more reliable way to deliver energy services to electric 

and gas ratepayers. 

Electric and gas utilities are increasingly addressing energy efficiency in their resource planning and investment decisions. For example, the Department of Energy funded a 2008 analysis by Lawrence Berkeley National Laboratory for the Western Interstate Energy Board, which found that 16 utilities in the western United 

States are planning on meeting 31 percent of their projected customer load growth by improvements in energy efficiency. 

The bill would set a national requirement for energy savings between 2012 and 2020 for retail distributors of both electricity and 

natural gas. These utilities would then be required to use cost effective energy efficiency measures in their resource and planning 

decisions. 

The saving requirement would begin in 2012 and then increase 

as energy efficiency investments accumulate over the next decade. 

In addition to the contribution of utility energy efficiency programs to the achievement of these requirements, there is also flexibility in the provisions that would count gains from more stringent 

building codes and equipment standards, as well as combined heat 

and power. 

Electric utility efficiency savings on their distribution networks 

are also included. Further, non-utility efficiency providers, including States, that instead administer efficiency programs using utility ratepayers funds, can participate through bilateral contracts. 

Cumulative rather than annual reduction targets are used, presumably since efficiency measures installed in the early years continue to save energy during the compliance period. 

A cumulative savings approach also encourages utilities to install 

energy efficiency measures with long economic lifetimes as they 

will continue to contribute to the savings requirements for many 

years. 

The administration has not completed its analysis of S. 548, and 

therefore the administration does not have a position on it at this 

time. The Department does have some technical comments to make 

on the bill, particularly on its role in implementing the legislation 

if enacted. 

First, reliably delivering energy efficiency is not without its challenges. Experience with efficiency programs at the State level indicate that good evaluation, measurement and verification (EM&V) 

protocols are required to assure that savings from energy efficiency 

measures and programs are verified and actually achieved and 

maintained. 
7 

EM&V is particularly important when energy efficiency is relied 

upon by electric and gas utilities as a resource. 

The bill requires the Department of Energy to set a national 

EM&V protocol within 1 year. Such a timeframe for the Department appears ambitious, especially given the extensive public review such a protocol will require. However the Department does 

have considerable expertise on the subject, including assistance to 

States on the design of their own EM&V protocols. 

Currently the Department with its partner agency, United States 

Environmental Protection Agency, is supporting a group of State 

and utility companies under the National Action Plan For Energy 

Efficiency to identify common practices and emerging issues on 

EM&V that would need to be addressed as part of any voluntary 

national or regional EM&V protocol. 

Second, the bill requires the Department to administer the national Energy Efficiency Resource Standard, or EERS. The Department notes that while the proposal will likely impose sizeable demands on the Department initially, this work load may decline 

over time since it’s quite possible that many States, particularly 

those with existing efficiency requirements will choose to ask the 

Department for permission to administer the Federal standards for 

their State. 

Finally, the lack of any provisions to recognize the savings that 

have already achieved by ‘‘early action’’ States and utilities may 

warrant further analysis and considerations. 

This concludes my statement, Mr. Chairman, and I look forward 

to answering any questions that you and your colleagues may have. 

[The prepared statement of Ms. Hoffman follows:] 

PREPARED STATEMENT OF PATRICIA HOFFMAN, ACTING DEPUTY ASSISTANT SECRETARY, OFFICE OF ELECTRICITY DELIVERY AND ENERGY RELIABILITY, DEPARTMENT

OF ENERGY

Mr. Chairman and Members of the Committee, thank you for this opportunity to 

testify before you on S. 548, which seeks to amend the Public Utilities Regulatory 

Policy Act of 1978 to establish a Federal energy efficiency resource standard for retail electricity and natural gas distributors, and for other purposes. 

President Obama is committed to a comprehensive energy plan that creates jobs, 

reduces our greenhouse gas emissions, and increases our energy security. An important part of that plan is to deploy the cheapest, cleanest, fastest energy source— 

energy efficiency. 

We are already putting Americans to work making homes and buildings more energy efficient through the significant investments of the American Recovery and Reinvestment Act, which will grow our economy while cutting energy bills for American families. 

But we need to do more. 

We also need to continue to develop more energy efficient technologies and find 

new ways of accelerating their adoption, to take the investments that leading States 

and electric and gas utilities are also making on energy efficiency, and to make all 

of these steps permanently part of the way we live and do business. 

Over the last several decades, the experiences of leading electric and gas utilities, 

third party program administrators, and state agencies administering energy efficiency show that it can be a reliable way to deliver energy services to electric and 

gas ratepayer. Electric and gas utilities increasingly address energy efficiency in 

their resource planning and investment decisions. For example, a DOE-funded 2008 

analysis by the Lawrence Berkeley National Laboratory for the Western Interstate 

Energy Board found that 16 utilities in the western United States (representing 65 

percent of the load in the 12 western states) are planning on meeting 31 percent 

of their projected customer load growth by improvements in energy efficiency; savings from individual utilities’ proposed efficiency activities ranged from 12 percent 

to over 70 percent of load growth after ten years. 
8 

As a strategy for delivering energy services by electric and gas utilities, energy 

efficiency offers the advantages of low cost (typical cost of an energy efficiency portfolio is 3 cents/kwh for saved energy); zero emissions including carbon; no siting and 

permitting challenges endemic for generation, transmission, or pipelines; and quick, 

incremental implementation. However, measuring the effectiveness of energy efficiency improvements has its challenges, such as in the selection of the baselines 

from which reductions are taken. 

S. 548 appears to build on state experience in establishing efficiency goals for utilities and other measures to accelerate energy efficiency. It would set national requirements for energy savings between 2012 and 2020 for retail distributors of both 

electricity and natural gas. These utilities would thus be required to use cost-effective energy efficiency in their resource procurement and planning decisions. 

Retail electric and natural gas distribution utilities, limited to those that exceed 

a certain level of retail sales, would need to achieve a total of 15 percent cumulative 

electricity savings and 10 percent cumulative natural gas savings by 2020. The savings requirements begin in 2012 and then increase as efficiency investments accumulate over the next decade. In addition to counting the contribution of utility energy efficiency programs to the achievement of these requirements, there are also 

flexibility provisions that would count the gains from more stringent building codes 

and equipment standards, as well as combined heat and power. Electric utility efficiency savings in their distribution networks are included. Further, non-utility efficiency providers, including states that instead administer efficiency programs using 

utility ratepayer funds, can participate through bilateral contracts. 

Cumulative rather than annual reduction targets are used, presumably since efficiency measures installed in early years continue to save energy during the compliance period. A cumulative savings approach also encourages utilities to install energy efficiency measures with long economic lifetimes as they will continue to contribute to the savings requirements for many years. 

S. 548 includes provisions for the Department to set implementing regulations, accept and review compliance reports, establish evaluation, measurement and 

verification (EM&V) protocols, and periodically revisit the standards if needed, 

among others. Alternative compliance payments and penalties for non-compliance 

are included. 

The Administration has not completed its analysis of S. 548 and thus the Administration does not have a position on it at this time. 

The Department has some technical comments to make on the bill, particularly 

on its role in implementing S. 548, if enacted. These include: 

First, reliably delivering energy efficiency is not without its challenges, just as 

any energy resource has its specific challenges. Experience with efficiency programs 

at the state level indicates that good evaluation measurement and verification 

(EM&V) protocols are required to assure that savings from energy efficiency measures and programs are verified, and are actually achieved and maintained. EM&V 

is particularly important when energy efficiency is relied upon by electric and gas 

utilities as a resource (that is deferring or avoiding supply-side resources), which 

can affect system reliability. 

The bill requires the Department to set a national EM&V protocol within one 

year. Such a timeframe for the Department appears ambitious, especially given the 

extensive public review such a protocol will require. However, the Department and 

its national labs do have considerable expertise on the subject, including the provision of assistance to states on design of their own EM&V protocols. Currently the 

Department, with its partner agency the U.S. Environmental Protection Agency 

(EPA), is supporting a group of state and utility members of their National Action 

Plan for Energy Efficiency to identify current practices and emerging issues in 

EM&V that would need to be addressed as part of voluntary national or regional 

EM&V protocol. 

Second, S. 548 requires the Department to administer the national EERS. The 

Department notes that while the proposal would likely impose sizable demands on 

the Department initially, this workload may decline over time since it is quite possible that many states, particularly those with existing efficiency requirements, will 

chose to ask the Department for permission to administer the Federal standard for 

their state. 

Finally, the lack of any provisions to recognize the savings already achieved by 

‘‘early action’’ states and utilities may warrant further analysis and consideration. 

This concludes my statement, Mr. Chairman. I look forward to answering any 

questions you and your colleagues may have. 

The CHAIRMAN. Thank you very much. 
9 

Mr. Centolella, go right ahead. 

STATEMENT OF PAUL A. CENTOLELLA, COMMISSIONER, 

PUBLIC UTILITIES COMMISSION OF OHIO, COLUMBUS, OH 

Mr. CENTOLELLA. Thank you. Mr. Chairman and members of the 

committee, on behalf of the Ohio Public Utilities Commission, 

thank you for this opportunity on Earth Day to address how to best 

improve United States energy efficiency. 

Ohio has passed bipartisan legislations requiring electric users to 

achieve energy-savings in excess of 22 percent of use by 2025. 

Today I will briefly describe the foundations of regulatory policy on 

energy efficiency, Ohio Standard and modifications to S. 548 to develop an effective State-Federal partnership, turning first to policy 

foundations. 

Policies that promote cost-effective efficiency improvements lower 

cost for consumers, reduce environmental impact, and promote national security. 

Studies have documented the large, unrealized potential to make 

cost-effective efficiency improvements. This is a case in which markets have not produced the economically efficient result. Most consumer decisions which impact energy occur within a context where 

energy efficiency is not the center consideration. Consumers are 

seeking a warmer house, light by which to read a book, or a new 

production line to expand production. For the consumer, natural 

gas and electricity use are often incidental to obtain these services. 

Building codes, appliance standards and utility programs have realized, and future Smart Grid applications could reduce significant 

savings. 

Ohio Standard is aggressive. By 2025, the standard to reduce annual electricity use to a level that is 13.8 million megawatt hours 

below 2007 consumption. The total energy savings could exceed 

that produced by any other States’ efficiency standard. 

Our commission’s rules allow aggressive program implementation by allowing utilities to bank early surplus energy savings. 

Ohio Standard is grounded in the review process covering assessment of potential program design and compliance. 

This public process is at least as important as the standards 

themselves. Successful programs require the support of stakeholders, trade allies, such as contractors and retailers and consumers. 

The commissions has flexibility to address conditions. A utility 

may file an application to amend a benchmark that is unable to 

meet due to the fact that it is beyond its control after exhausting 

all reasonable compliance options. 

Ohio Standard is also part of the broader set of policies. Energy 

savings in excess of efficiency benchmarks can be applied to Ohio’s 

advanced energy standard, however, energy savings do not count in 

the State’s renewable energy standard and can not be double 

counted in meeting multiple requirements. 

Turning to S. 548. A national standard will lead each utilities, 

which would not otherwise have done so, to implement cost effective energy efficiency programs. Given the benefits of energy efficiency, including energy efficiency only as a component of a renew-
10 

1This testimony reflects my views regarding general policy issues and does not reflect an opinion regarding any case currently pending before the Public Utilities Commission of Ohio. 2Section 4928.66, Ohio Revised Code. 

3 A description of different state standards is contained in: L. Furrey, S. Nadel, and J. Laitner. 

2009. Laying the Foundation for Implementing a Federal Energy Efficiency Resource Standard. 

Appendix B. Washington, D.C.: American Council for an Energy Efficient Economy. 

able standard is not unlike asking LeBron James to play while on 

the bench in a championship game. 

S. 548 will fundamentally change the role of the Federal Government. What is needed is an expanded State-Federal partnership, 

which will require more than State implementation and the administration of a Federal standard. 

The States regulate gas and electric distribution rates and the 

recovery of energy efficiency program costs, accrued utility energyefficiency and integrated resource plans, balance the expense expenditures and costs to consumers with the development of the 

Smart Grid, States will be laboratories for innovative approaches 

that could transform how consumers use energy. 

So I would encourage the committee to modify S. 548, to first exempt States from the Federal standards when the State has clearly 

defined energy efficiency benchmarks. 

Utilities or the State periodically access the maximum achievable 

cost-effective level of energy efficiency, and that assessment is subject to a public review. 

The State certifies that it has implemented energy-efficiency 

standards and the policies designed to achieve all such energy-efficiency improvements and the State periodically reports its 

progress. The Federal statue may define ways that are cost-effective based on a total resource cost or societal test. 

Second, authorize States administering the Federal standard to 

modify benchmarks that cannot lead to factors beyond its control 

after exhausting all reasonable compliance options. 

Third, authorize banking of surplus energy savings. 

Finally, clarify that the State may consider energy-efficiency 

would be a resource or a reduction to forecast load. The resource 

metaphor has become a barrier to appropriate recognition of crisis 

response on demand, an RPO advocacy requirement. 

With these modifications, S. 548 could provide a catalyst for 

State and utility action, while preserving the essential role of the 

States in regulating the delivery and retail sale of electricity and 

natural gas. These are the modifications which will engage States 

and utilities in achieving the maximum benefit from this legislation. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Centolella follows:] 

PREPARED STATEMENT OF PAUL A. CENTOLELLA, COMMISSIONER, PUBLIC UTILITIES

COMMISSION OF OHIO, COLUMBUS, OH 

Mr. Chairman and Members of the Committee, thank you for the opportunity to 

speak with you on this Earth Day about how best to improve U.S. energy efficiency.1

Last year, the Ohio General Assembly passed bipartisan legislation establishing 

efficiency standards that will require Ohio electric utility energy efficiency programs 

to achieve energy savings in excess of 22% of annual energy consumption by 20252

and produce more megawatt-hours of energy savings than are required under any 

other State’s energy efficiency standard.3 Last week, the Ohio Commission adopted 

final rules implementing the efficiency standard, as well as a separate peak demand 
11 

4 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Opinion and Order (April 15, 2009). Under Section 4903.10, Ohio Revised Code, parties 

have thirty days to file applications for rehearing. Final rules are subject to review by the General Assembly’s Joint Committee on Agency Rules. 5 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Opinion and Order (April 15, 2009) at 6. 6For a more detailed discussion, see: In the Matter of the Application of Vectren Energy Delivery of Ohio, Inc., Public Utilities Commission of Ohio Case No. 05-1444-GA-UNC, Supplemental Opinion and Order, Concurring Opinion of Commissioners Centolella and Lemmie, (June 

27, 2007). 

reduction standard, renewable and advanced energy standards, and greenhouse gas 

reporting and planning requirements.4

I was appointed by Governor Strickland to the Ohio Commission in April 2007. 

During the twenty-five years preceding my appointment, I was a consultant advising utilities and regional transmission organizations on operational and regulatory 

issues and in the development of regional electricity markets, served as one of the 

principal policy consultants to the U.S. Department of Energy during the early 

years of electric industry restructuring, and worked as a Senior Attorney and the 

Senior Energy Policy Advisor for Ohio’s residential utility consumer advocate. 

Today, I will briefly address the foundations of economic and regulatory policy related to energy efficiency, describe Ohio’s energy efficiency standard, and address 

how to develop an effective State—Federal partnership, in which Federal efficiency 

legislation could provide a catalyst for needed efficiency improvements, while preserving the essential role of the States in regulating the delivery and retail sale of 

electricity and natural gas. 

I. ENERGY EFFICIENCY: A POLICY FRAMEWORK

In the last few years, markets for natural gas and for the skills, materials, and 

fuel needed by our electric power system have become global. In the next few decades, demand will increase significantly for the services—light, heat, and drive 

power—that energy provides, at a time when we will need greater infrastructure investment and may be making sharp reductions in greenhouse gas emissions. These 

changes present major challenges to our ability to provide American consumers and 

businesses reliable and affordable energy services. 

Our power system will need to become both more efficient and more resilient, 

with an overlay of information and communications systems that are both secure 

and open, to foster third party innovation. This ‘‘smart grid’’ will become the platform for more efficient pricing, applications that manage and reduce energy consumption, reliability improvements, distributed generation and storage, and plug-in 

vehicles. The electric utility of the future may look very different from today’s power 

companies. 

Policies will need to both address key challenges and adapt to major changes in 

the utility industry. 

Policies that promote cost-effective energy efficiency improvements are an essential means of lowering energy costs for consumers, reducing environmental impacts, 

and protecting our national security. The Ohio Commission has long recognized that 

improving energy efficiency is an integral part of natural gas policy. Ohio’s electric 

efficiency standard represents the minimum efficiency savings required by statute. 

The Commission’s rules are designed to require electric utilities to deploy all costeffective energy efficiency measures.5

Many studies have documented a large, unrealized potential to make additional 

cost-effective efficiency improvements. This potential represents a case in which 

markets by themselves have not produced the economically efficient result. Most 

consumer decisions which impact energy use occur in a context where energy efficiency is not the central consideration. Consumers are seeking a warm house, light 

by which to read a book, or a new assembly line to expand production. Natural gas 

and electricity are used only as a means to obtain these services. Well designed utility energy efficiency programs can address market failures.6

Historically, building codes and appliance efficiency standards, which set a floor 

for efficient energy use, and utility programs that pull more efficient technologies 

into the market have been among the most effective means to encourage improvements in energy efficiency. In the future, near real time feedback to consumers regarding their energy use and other non-utility applications, which may ride on a 

smart grid platform, could transform the efficiency with which consumers use energy. Our policies should be sufficiently flexible to adapt to such change, as it occurs 

on a state-by-state basis. 
12 

7Gov. Ted Strickland, Press Release (April 22, 2008). 

8Section 4905.70, Ohio Revised Code. 

9Sections 4928.02(D) and 4928.06(A), Ohio Revised Code. 

10Section 4928.66(A)(1)(a), Ohio Revised Code. 11 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Final Rules at Chapter 4901:1-39. 12Section 4928.66(A)(1)(b), Ohio Revised Code. 13Given that these customer initiated investments are outside of planned utility programs, 

our rules do not attempt to quantify savings from what might be claimed to be acceleration in 

the purchase of new equipment, prior to the end of the useful life of existing equipment. 14 Additionally, behind-the-meter generation is not counted towards meeting Ohio’s peak demand reduction or energy efficiency standards. 

II. OHIO’S ENERGY EFFICIENCY STANDARD

On May 1, 2008, Ohio Governor Ted Strickland signed into law Senate Bill 221 

to maintain ‘‘predictable and affordable electricity rates’’ and ‘‘aggressively attract 

renewable and advanced energy investment in Ohio in order to create jobs and recognize the influence of global climate change.’’7 Ohio’s new electricity law contains 

an energy efficiency standard and a separate peak demand reduction standard that 

significantly alter the trajectory of changes in annual electricity consumption, measured in megawatt-hours per year, and peak demand, the highest quantity of 

megawatts delivered at any point during the year. 

Ohio law requires the Commission to promote and encourage energy conservation.8 Our new electricity law also makes it state policy to ‘‘encourage 

innovation... demand-side management, time-differentiated pricing, and implementation of advanced metering infrastructure’’ and requires the Commission to effectuate this policy.9

Ohio’s efficiency standard requires each electric utility to implement energy efficiency programs that achieve energy savings that meet or exceed annual benchmarks. Beginning in 2009, each utility is required to implement energy efficiency 

programs that achieve energy savings equal to three-tenths of one percent of energy 

delivered during a rolling three year baseline. The savings requirement is an additional five-tenths of a percent in 2010, seven-tenths of one per cent in 2011, eighttenths of one per cent in 2012, nine-tenths of one per cent in 2013, one per cent 

from 2014 to 2018, and two per cent each year thereafter, achieving a cumulative, 

annual energy savings in excess of twenty-two per cent by the end of 2025.10 The 

baseline is the rolling average of total, annual, and normalized kilowatt-hour sales 

of distribution service during the three calendar years preceding the compliance 

year.11

Based on the Commission’s 2008 forecast of expected load growth and assuming 

no further improvements in appliance standards or building codes, meeting these efficiency standards could reduce Ohio’s total annual electricity use by 2025 to a level 

that is below 2007 electricity consumption by more than 13.8 million megawatthours. 

In addition to the energy efficiency standard, each utility must implement peak 

demand reduction programs designed to achieve a one per cent reduction in peak 

demand in 2009 and an additional seventy-five hundredths of one per cent reduction 

each year through 2018.12

In addition to traditional utility efficiency programs, such as information, financing, and rebate programs, utilities may meet these standards based on energy savings (or in the case of the peak demand reduction standard, demand reductions) 

from: 

• The commitment of mercantile customer energy savings to utility programs: 

Large commercial and industrial customers can enter into arrangements with 

a utility allowing the utility to count savings in excess of what could have been 

achieved by adopting industry standard new equipment or practices.13

• Transmission and distribution investments that reduce line losses: The utility 

may count the net impact on losses of such improvements. 

• Demand response programs: Demand response involves a change in customer 

demand as a result of price signals or other incentives. 

An electric utility may not count toward meeting its benchmarks measures that 

must be adopted to comply with appliance or equipment standards or an applicable 

building code.14

The Commission’s rules allow utilities to bank surplus energy savings and apply 

those savings toward meeting a subsequent year’s energy efficiency benchmark. 

Banking encourages aggressive implementation of efficiency programs and elimi-
13 

15 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Final Rules at Section 4901:1-39-05(E). 16Section 4928.66(A)(2)(b), Ohio Revised Code. 17 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Final Rules at Section 4901:1-39-05(F). 18Section 4928.66(A)(2)(a), Ohio Revised Code. 19 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Opinion and Order (April 15, 2009) at 18. 20 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Final Rules at Sections 4901:1-39-03 and 39-04. 21For a complete definition, see: In the Matter of the Adoption of Rules for Alternative and 

Renewable Energy Technology, Resources, and Climate Regulations, Public Utilities Commission 

of Ohio Case No. 08-888-EL-ORD, Final Rules at Section 4901:1-39-01 (W). 22 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Final Rules at Sections 4901:1-39-04(B) and 39-01 (O). 23 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Final Rules at Section 4901:1-39-05. 24 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Final Rules at Section 4901:1-39-06. 

nates any incentive for utilities to interrupt programs when annual benchmarks 

have been met or to pursue only minimal compliance.15

Ohio law gives the Commission flexibility to address changing and unanticipated 

conditions that may emerge during the implementation of the standard. For example, a utility may file an application to amend its benchmark, if it is unable to meet 

the benchmark due to regulatory, economic, or technological reasons beyond its reasonable control.16 In any such application, the utility must demonstrate that it has 

exhausted all reasonable compliance options.17 The law allows the Commission to 

reduce a utility’s baseline to account for new economic growth.18 However, the Commission has said that, ‘‘We expect that any baseline adjustments made to account 

for economic growth typically will be temporary, and will address circumstances in 

which unanticipated increases in the overall rate of growth have made full compliance infeasible. We also expect that any adjustments will account not only for positive economic growth, but also negative economic growth.’’19 Additionally, baseline 

sales will be normalized for weather and for other impacts on numbers of customers, 

sales, and peak demand that are outside of the utility’s control. 

The standards are embedded within a public process that provides for Commission review of utility program planning and compliance. This review process is as 

important as the standards themselves. The success of efficiency programs is measured by their ability to influence consumer behavior. Successful utility programs require the support of stakeholders, trade allies such as building contractors and retailers, and the public. Commission review provides an opportunity for public input 

and a transparent process for assessing what works in a specific local environment. 

Utilities must complete an assessment of the technical, economic, and achievable 

potential for reducing energy usage and peak demand through cost-effective measures and programs. Every three years, each utility must file a comprehensive program portfolio which meets or exceeds its efficiency benchmarks and includes programs for all customer classes that encourage innovation and market access for all 

cost-effective energy efficiency.20 The Commission will hold hearings to review these 

assessments and program portfolio plans. 

Cost-effectiveness is measured under a ‘‘total resource cost test’’ which compares 

avoided supply costs to demand-side measure and program costs borne by the utility 

and participants.21 And, the utility may propose additional programs that provide 

substantial non-energy benefits, including low income customer participation, emission reductions not fully reflected in cost savings, or enhanced system reliability.22

Each utility is required to file an annual status report that includes a measurement and verification report by an independent program evaluator.23 The public 

may comment on these reports. The Commission’s Staff will review the status reports and comments and publish its findings and recommendations regarding program implementation and compliance. The Commission may hold public hearings on 

a utility’s status report. And, the Commission will file an annual verification report 

regarding benchmark compliance as required by statute.24

To summarize, Ohio’s energy efficiency standard requires a comparable or greater 

annual percentage of electric efficiency savings and more total megawatt-hours of 
14 

251A In certain circumstances, S. 548 permits limited bilateral transfers of savings among 

utilities in a single state or electric utilities in a single power pool. The Oho Commission has 

considered authorizing a more flexible trading system using energy efficiency credits. However, 

we are not aware of an available and suitable energy efficiency credit tracking program. We will 

reconsider the issue should such a program be created. In the Matter of the Adoption of Rules 

for Alternative and Renewable Energy Technology, Resources, and Climate Regulations, Public 

Utilities Commission of Ohio Case No. 08-888-EL-ORD, Opinion and Order (April 15, 2009) at 

23. 26Section 4928.01(34)(g), Ohio Revised Code. 27 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Final Rules at Sections 4901:1-40-01(M) and 4901:1-40-04(D)(4) 28 In the Matter of the Application of Duke Energy Ohio, Inc., for Approval of an Electric Security Plan, Public Utilities Commission of Ohio Case No. 08-920-EL-SSO, Opinion and Order (December 17, 2008); In the Matter of the Applications of Columbus Southern Power Company and 

Ohio Power Company for Approval of an Electric Security Plan, Public Utilities Commission of 

Ohio Cases No. 08-917-EL-SSo and 08-918-EL-SSO, Opinion and Order and Concurring Opinion 

of Chairman Alan R. Schriber and Commissioner Paul A. Centolella (March 18, 2009). 29For a detailed discussion of these reforms, see: P. Centolella and A. Ott. March 9, 2009. 

The Integration of Price Responsive Demand into PJM Wholesale Power Markets and System 

Operations. (Available at: http://www.hks.harvard.edu/hepg/). See also: P. Centolella. November 

13, 2008. Tariff Proposal on Price Responsive Demand. (Available at: http://www.midwestiso.org/ 

publish/Document/45e84cl11cdc615aa1l-7ad10a48324a?rev=1). 

energy savings than any other State efficiency standard. The maximum additional 

annual savings under the Ohio standard is two-percent per year. Although it considers improvements in the compliance year attributable to appliance and building 

standards, S. 548 requires at least two-and-one-half percent savings in years 2018 

through 2020. Unlike Ohio’s rules, S. 548 does not appear to authorize banking of 

surplus energy savings.25 And, S. 548 covers gas as well as electric utilities. 

Ohio’s efficiency standard is grounded in a public review process at the Commission covering the assessment of efficiency potential, program planning, and compliance. Our statute gives the Commission flexibility to respond to unforeseen and 

changing local conditions. 

Finally, Ohio’s energy efficiency standard is part of a broader set of State and 

Commission policies. It complements standards for peak demand reduction, renewable and advanced energy resources. Demand-side management and energy efficiency improvements in excess of what are required to meet Ohio’s efficiency standard can be applied to Ohio’s advanced energy requirement.26 However, energy savings are not counted toward meeting the renewable energy standard and cannot be 

double counted to meet multiple requirements.27

The Commission has approved smart grid proposals and utility scale Advanced 

Metering Infrastructure (AMI) deployments for Duke Energy Ohio and American 

Electric Power.28 These investments will provide capabilities needed to implement 

efficient retail pricing and support applications giving consumers real-time feedback 

regarding their energy use. The challenges we face require us to pursue a range of 

policies in different regulatory and policy frameworks. 

Our Commission has avoided treating energy efficiency only ‘‘as a resource in utility planning.’’ Treating energy efficiency as a resource provided a useful way of talking about utility efficiency programs in the context of Integrated Resource Planning, 

as it was widely practiced in the 1980s and continues to be used in more limited 

contexts today. However, the metaphor that demand-side measures are resources, 

just like generation, has been a barrier to the recognition of price responsive demand in Regional Transmission Organization (RTO) resource adequacy rules and 

could threaten investments in AMI and smart grid. ‘‘Price responsive demand’’ is 

the predictable response of consumers on dynamic retail rates that reflect increases 

in wholesale prices. While the demand of these consumers falls when spot prices increase, these predictable demand reductions are not dispatched by an RTO system 

operator and may not qualify as an RTO ‘‘resource.‘‘ The Ohio Commission is working closely with the PJM Interconnection, L.L.C., and the Midwest Independent 

Transmission System Operator to reform RTO tariffs to treat price responsive demand as a component of the demand forecast, rather than as a resource.29

III. PRINCIPLES FOR EVALUATING FEDERAL ENERGY EFFICIENCY RESOURCE STANDARDS

A national standard for utility energy efficiency program savings will lead utilities, which might not otherwise have done so, to implement cost-effective energy efficiency programs. Many utilities do not see running significant efficiency programs 

for their customers as part of their core business. And, utilities with generation affiliates selling power at market-based prices have an additional disincentive to undertaking efficiency programs. Efficiency improvements, at least in the short run, 
15 

30While the initial standards are fixed, the bill would require the Secretary to review and 

the maximum achievable level in 2014, 2018, and at subsequent ten year intervals. S. 548 at 

Sections 610 (c)(3)(C) and 610 (c)(4)(A). 31S. 548 at Section 610 (e)(1)(A). 32S. 548 at Section 610 (e)(1)(I). 

will tend to place downward pressure on generation prices. Ratemaking reforms 

that decouple retail distribution rates from sales volumes do nothing to address this 

disincentive. 

I strongly support expanding utility energy efficiency programs. Any energy efficiency standard should be separate from Renewable Energy Portfolio Standards. 

However, the Committee must consider whether S. 548 will advance energy efficiency in a cost-effective and administratively efficient manner. The uniform Federal 

standard created by S. 548 fundamentally changes the role of the Federal government with respect to the distribution and retail sale of electricity and natural gas. 

This results in three fundamental inconsistencies that could limit the proposal’s effectiveness and lead to delays and unnecessary litigation. 

First, the bill would set a single uniform standard for programs at all utilities. 

This standard will ‘‘reflect the maximum achievable level of cost-effective energy efficiency potential.’’30 The bill effectively requires the Secretary to set the floor for 

the minimum savings that utility programs must achieve, at his best estimate of 

the maximum achievable cost-effective savings. Prices, resource requirements, load 

growth, climate, the utilities’ customer bases, consumer attitudes, existing equipment and buildings, building codes, the rate of adoption of new technology, and current levels of efficiency vary significantly from utility to utility. A uniform standard 

set at maximum achievable levels is likely to mean that many utilities will be unable to comply. 

Second, the fundamental objective is to improve energy efficiency. However, the 

proposed standard is based on only efficiency improvements resulting from utility 

programs, codes, and standards. If an efficiency improvement is not among the specified ‘‘types of energy efficiency and energy conservation measures that can be 

counted’’31 or, except in the case of codes and standards, the utility cannot demonstrate that it ‘‘played a significant role in achieving the savings,’’32 savings would 

not be counted toward meeting the standard. This could have the perverse effect of 

discouraging continuing efficiency improvements without the direct involvement of 

the utility. 

Third, the bill would set a high standard for savings yet any flexibility in compliance is limited to opportunities for bilateral transactions and alternative compliance 

payments in jurisdictions where State administration has been approved. Experience with similar approaches in environmental regulation suggests the result could 

be delay and extended litigation. This risk could be minimized with state regulatory 

oversight and expanded opportunities for banking and trading surplus savings. 

These inconsistencies can be resolved through an expanded State—Federal energy 

efficiency partnership. The states are committed to building such a relationship. 

The involvement and support of state regulators is essential to the success of utility efficiency programs. States regulate gas and electric distribution rates and the 

recovery of energy efficiency program costs; determine rate design and mitigate utility disincentives to achieving energy savings; review and approve utility energy efficiency and integrated resource plans; and balance utility expenditures with their 

impact on the costs paid by consumers and businesses. State commission proceedings foster public involvement and stakeholder support for efficiency programs. 

And, state commissions are in a position to act on their unique knowledge of local 

and utility-specific conditions. 

Moreover, the electric power industry is beginning a period in which significant 

changes are likely to occur. With the development of a smart grid, there will be new 

opportunities to enhance energy efficiency. And, the prospect of greenhouse gas regulation will focus significant attention on improving energy efficiency. This is a time 

to encourage innovative approaches to efficiency improvement. States are the natural laboratory for such experimentation. 

An expanded State—Federal efficiency partnership requires more than delegation 

to the states of the administration of a Federal standard. Decisions regarding what 

is maximum achievable cost-effective potential and how to pursue it, if at all possible, should be made first at the State level. 

Specifically, I would encourage the Committee to modify to S. 548 to: 

• Exempt states from the Federal standard and authorize them to implement 

state requirements where: 

—The State has set, in any form, clearly defined energy efficiency benchmarks; 
16 

—Utilities or the State periodically assess the maximum achievable cost-effective level of energy efficiency improvements and that assessment is subject 

to public review; 

—The State certifies to the Secretary of Energy that the State has implemented 

energy efficiency standards and policies designed to achieve maximum achievable cost effective energy efficiency improvements; and 

—The state periodically reports progress toward achieving its benchmarks. 

For purposes of the exemption, cost effective measures and programs may be defined by Federal statute as based on a total resource cost or societal test. 

• To the extent that a State does not develop its own benchmarks, but adopts and 

administers the proposed Federal standard, authorize the State commission to 

modify a utility’s benchmarks where the utility is unable to meet the benchmark due to regulatory, economic, or technological reasons beyond its reasonable control and has exhausted all reasonable compliance options. • Authorize banking of surplus energy savings for use in meeting any subsequent 

year’s benchmark. • Clarify that States may consider energy efficiency to be a resource or a reduction to forecast load for purposes of utility planning and procurement. 

Modified in this manner, a national standard could provide a catalyst for state 

and utility actions to expand cost-effective energy efficiency programs, while preserving the essential role of the states in regulating the delivery and retail sale of 

electricity and natural gas. 

The CHAIRMAN. Thank you very much. 

Mr. Manning, go right ahead, please. 

STATEMENT OF DAVID J. MANNING, EXECUTIVE VICE PRESIDENT, EXTERNAL AFFAIRS, NATIONAL GRID, BROOKLYN, NY 

Mr. MANNING. Mr. Chairman and members of the committee, 

thank you very much for including us in this very important panel 

on Earth Day. I want to point out that the National Grid is a large 

supplier of electric and gas in the Northeast. We serve approximately 15 million people, with customers everywhere from New 

York to New Hampshire. So we’re very focused on these issues. We 

also have about a 30-year track record in doing energy-efficiency 

programming. Also Governor Shaheen was helpful in her Governorship in terms of advancing that cause, so I want to thank her 

through the committee. 

We also want to thank our own Senator Schumer for shedding 

the light and putting a spotlight on the energy-efficiency issue. 

There has been a lot great deal said about renewals. There is a 

great discussion about climate change, about cap-and-trade, and we 

appreciate the opportunity to focus on energy efficiency. It is those 

two things which provide the most cost effective and immediate opportunity. 

That said, we do believe, sir, that all options must be on the 

table. We need a more expansive, robust energy-efficiency program, 

coupled with renewable energy, including wind, solar, biomass and 

thermal, but most importantly the American public has been captured by a great term, Smart Grid. It is not always understood, but 

my hat is off to whoever came up with that name because it has 

captured the attention of the public. 

Smart Grid is necessary to connect renewables, which will not always be near the load center and to facilitate the type of technologies we talk about today in terms of energy-efficiency. 

So we need a more robust transmission system which is smarter, 

self diagnosis, power goes both ways. We need energy-efficiency 

technology, and that of course, is the essence of our conversation 
17 

today. We also need clean, or low-emitting base-load power generation, such as nuclear, hydroelectric, natural gas and emerging clean 

coal technologies will lower emissions, lower bills, and of course, reduce our dependency on foreign sources of energy. 

Today climate change has captured the attention. We think energy-efficiency is, for us, most effective because it is cost-effective, 

it avoids new power plants, it lowers greenhouse gases and it insures consumers longer term savings in our energy policy. 

To that end, a number of years ago, in an economic forum, this 

debate was raging in terms of whether or not you could do that 

with efficiency without bankrupting the country, and we didn’t 

have this standard data at that time. So we partnered with DTE, 

PG&E from California, we partnered with the Environment Case 

Fund. We partnered with NRDC, Honeywell, Shell; companies with 

real expertise, and retained McKinsey & Co, who spent over a year 

doing a thorough study of energy-efficiency which was released in 

2007, and you’ll find what I call the Mackenzie Curve, at the back 

of my testimony. 

This is a very important report because it was vetted by academics at Texas A&M, California Davis, MIT, Princeton. So I want 

to just draw your attention for a moment. What it does, was it 

demonstrated that we can take—it was focused on abatement. The 

focus of the study was focused on energy-efficiency technology, 

demonstrated we could take a tremendous amount of energy consumption and CO2 emissions out of the economy without changing 

our lifestyle. There was not significant change of lifestyle. What 

you can see on the left is computers, commercial electronics, lighting, those have an immediate payback, which is substantial. 

So that lower curve showed that they have a negative cost. They 

saved themselves immediately. Over 40 percent of the technologies 

listed pay for themselves in their life time. 

On the right side are the more aggressive or more difficult, 

where we actually have to spend some money. But almost half of 

the technologies enumerated are cost-effective and pay for themselves. 

What we’ve been able to do ourselves is take approximately 

48,000 cars off the road through energy-efficiency program, both 

gas and electric, that we’ve been engaged in over the last 30 years 

as a company. 

Now admittedly, there are more needs because the entire energy 

prices that belong in the pipe. The market is aware of that, but 

we’ve also had the opportunity with good programs, and of course, 

that brings us to the utility. 

Decoupling is a rate program which is helpful in getting the utilities not only on the way to these kinds of improvements, but supportive of energy-efficiency improvement. So that kind of rate 

structure work is important to make sure everybody is focused on 

getting this done. 

We also want to point out that there is an opportunity to submit 

an expansion, and again, my friend to my left from the AGA will 

address this, I am sure, that there is a great opportunity for natural gas in terms of energy-efficiency through technologies, including generation and provides power technology, distributive generation, providing power. 
18 

Also in terms of fuel searching, I raise that because National 

Grid, we are the power and energy company of the Northeast. We 

still have a lot of oil heat. Of course, in the Northeast, that oil is 

almost entirely sourced from the Middle East, and we, last year 

alone, converted over 60,000 homes and businesses from oil to gas. 

Each time that happens, there is a 40 percent reduction in nox-ox 

and SO2. 

So that’s an important issue. We shouldn’t lose that opportunity, 

but I am going to leave that to the AGA. 

So Mr. Chairman, thank you very much for your attention. We 

are anxious to answer your questions and we appreciate this opportunity. 

[The prepared statement of Mr. Manning follows:] 

PREPARED STATEMENT OF DAVID J. MANNING, EXECUTIVE VICE PRESIDENT, 

EXTERNAL AFFAIRS, NATIONAL GRID, BROOKLYN NY 

Chairman Bingaman, Ranking Member Murkowski, and Members of the Committee, thank you for including National Grid in this very important hearing on energy efficiency resource standards. 

National Grid is an international energy delivery company. In the U.S., National 

Grid delivers electricity to approximately 3.3 million customers in Massachusetts, 

New Hampshire, New York and Rhode Island, and operates the electricity transmission and distribution network on Long Island, serving an additional 1.1 million 

customers. We are the largest distributor of natural gas in the northeastern U.S., 

serving approximately 3.4 million customers in Massachusetts, New Hampshire, 

New York and Rhode Island. National Grid also owns and operates over 4,000 

megawatts of electricity generation under contract with the Long Island Power Authority. 

May I first congratulate you and your Congressional colleagues for your focus and 

success with important initiatives on energy efficiency, renewable energy, infrastructure such as smart grid, and other critical energy support in the American Recovery and Reinvestment Act (ARRA). The $3.1 billion in state matching grants for 

energy efficiency, the funding for weatherization assistance, and the funding for efficiency improvements at affordable housing units are critical steps towards moving 

energy efficiency to the forefront of a comprehensive national energy policy. 

Over $1 billion of efficiency funding is available to the four states we serve 

through the ARRA. Senator Shaheen was especially helpful in shaping the ARRA 

weatherization and state energy program provisions. Just a few weeks ago, Senator 

Shaheen announced that New Hampshire will receive $23 million for weatherization 

assistance and $26 million for its state energy program. We at National Grid are 

proud to be working with New Hampshire state and local officials as well as their 

counterparts in New York, Massachusetts and Rhode Island on this vital effort to 

create jobs and help residents and businesses save money through energy efficiency. 

Mr. Chairman, we also appreciate the directional approach outlined in your draft 

Renewable Electricity Standard (RES) bill, which creates incentives for energy efficiency and renewable energy. We have always said that we need a balanced approach to energy overall—all options must be on the table. We need more expansive, 

robust energy efficiency programs. We need significant new sources of renewable energy: wind, solar, biomass and geothermal. We need a comprehensive strategy to address our transmission infrastructure, including policies that will enable us to bring 

renewable energy resources, which are often isolated, to dense urban areas and 

other load centers. We need smart grid technology and smart meters to maximize 

the potential of current and future energy efficiency technologies to automate the 

most efficient use of energy and to remotely turn demand off during peak use and 

pricing periods. These actions, combined with clean, no-or low-emitting base-load 

power generation such as nuclear, hydroelectric, natural gas and emerging clean 

coal technologies, will lower emissions, lower customers’ bills and play an important 

role in an effective national energy policy. 

While a national energy strategy must be multifaceted, my comments today will 

focus on energy efficiency. National Grid stands with many other energy providers, 

particularly those who belong to the Clean Energy Group, and the environmental 

community in recognizing that energy efficiency uniquely addresses many of our nation’s core energy issues—it is more cost-effective than building new power plants, 
19 

* Graphic has been retained in committee files. 

has the potential to dramatically lower greenhouse gas emissions and provides consumers with long-term savings on their energy bills. 

We thank this panel and the efforts of Senator Schumer with his introduction of 

S. 548 to shine the spotlight directly on energy efficiency. While renewable energy 

and an RES have rightly captured the attention and expectation of the American 

public, energy efficiency also deserves our focused attention. The American Council 

for an Energy Efficient Economy (ACEEE) estimates that Senator Schumer’s EERS 

bill would save Americans $168 billion, create over 220,000 jobs, and reduce global 

warming pollution by the equivalent of removing 48 million cars from the road. In 

National Grid’s service area alone, ACEEE projects that customers would save an 

additional $5.3 billion and create nearly 7,000 jobs by 2020. 

National Grid’s experience throughout the Northeast demonstrates that cost-effective energy efficiency measures are ready to be deployed today with the right mix 

of policies and incentives. We have decades of experience in delivering low-cost energy savings, which we believe can be replicated throughout the country. The certainty available from federal legislation, a state regulatory compact that encourages 

energy efficiency, the ability to rate base energy efficiency technologies in order to 

expedite and expand their market penetration and a tax and grant structure designed to stimulate investment will all assure the success of a concerted effort to 

use energy more efficiently. 

Let me begin with the simple facts on the cost-effectiveness of energy efficiency. 

Energy efficiency can cost as little as 3 cents per kWh saved, while electricity costs 

6 to 12 cents per kilowatt hour. Thus, energy efficiency measures are often the most 

effective way to avoid unnecessary energy supply investments and lower customers’ 

energy bills on a sustainable basis. Despite the obvious advantages of energy efficiency, we spend about $215 billion annually in the United States on the production 

of electricity, but invest only $3.2 billion in securing electricity savings through efficiency programs. The savings are similar for natural gas, where efficiency measures 

cost $1 to $2 per thousand cubic feet (Mcf), compared to a typical market cost ranging from $6 to $8 per Mcf. Yet we spend approximately $91 billion annually on natural gas supplies and only $530 million annually on natural gas efficiency. 

A recent study by the Electric Power and Research Institute shows the potential 

for realizing energy efficiency savings. By analyzing the impact of codes and standards, as well as market driven efficiency, the study shows measurable reductions 

in energy consumption. Opportunities in the EPRI study range from commercial 

lighting to massive reductions in consumption through residential appliances and 

standby wattage. The full EPRI study can be found at http://my.epri.com/portal/server.pt?Abstractlid=000000000001016987. 

Energy efficiency is also a critical tool for addressing climate change. National 

Grid, in partnership with other leading energy companies such as PG&E, DTE, 

Honeywell and Shell, and environmental groups such as the Natural Resources Defense Council and Environmental Defense, worked with McKinsey & Co to evaluate 

the potential for energy efficiency in the U.S. The landmark study ‘‘Reducing U.S. 

Greenhouse Gases: How Much, At What Cost?’’ found that the U.S. can make substantial emission reductions by 2030 without damaging the economy with the help 

of energy efficiency. A chart* summarizing the study is attached, and the report 

itself is available via www.mckinsey.com/mgi/publications/CurbinglGloballEnergy/executivelsummary.asp. 

National Grid knows first hand that the benefits of energy efficiency are real. For 

example, National Grid has efficiency programs in place that are saving customers 

over $300 million annually, after an expenditure of more than $1.5 billion on efficiency technologies—an excellent investment with a rapid 5-year payback. As a result of these programs, more than 4.7 million National Grid customer projects have 

been completed to date, often with a payback period of five years or less, and saving 

more than $3.6 billion in energy costs. This includes converting almost all of Boston’s public schools from oil to natural gas, helping cash strapped schools focus their 

limited resources on education, and residential boiler conversions that reduce CO2

and other emissions by up to 40%. In 2007 alone, our gas programs saved 4.6 million therms and avoided 27,000 tons of CO2 and our electricity program saved 

380,000 megawatt-hours, avoiding 218,000 tons of CO2. The total carbon emissions 

equate to 48,000 cars off the road for a year. 

We expect National Grid’s efficiency programs to enjoy significant growth during 

the next several years as we expand our New England and downstate New York 

programs and develop new programs in Upstate New York. Our spending on efficiency is forecast to more than double over the next five years, reaching approximately $700 million in 2014. This increase reflects our commitment to energy effi-
20 

ciency, as well as the supportive regulatory environment in the states we serve. The 

Regional Greenhouse Gas Initiative signals the commitment of the northeastern 

states to address climate change and pursuing energy efficiency is a major component of meeting the new requirements. State legislation is also driving energy efficiency investment, with New York, Rhode Island, and Massachusetts all adopting 

groundbreaking energy efficiency policies and programs over the last few years, and 

New Hampshire continuing to build upon the efficiency goals of its comprehensive 

energy plan. These changes have enabled us to pursue new approaches, such as 

partnering in solar initiatives and offering efficiency programs which integrate the 

delivery of electric and gas efficiency for the first time. 

While spending on energy efficiency is increasing, it remains but a small fraction 

of what the total country spends on energy requirements, effectively leaving billions 

of dollars in potential savings on the table. This country must take better advantage 

of this opportunity and prioritize energy efficiency. National Grid supports the concept of federal energy efficiency resource standard legislation as one of the strategies that will pave the way towards a more energy efficient future. 

All four states in which National Grid operates have adopted energy efficiency 

standards or requirements and our experience to date has been positive. For example, New York adopted its Energy Efficiency Portfolio Standard (EEPS) in June 

2008. The EEPS will reduce electricity consumption 15 percent below projected levels by 2015, equivalent to a 7.5 percent reduction from current levels. National Grid 

has responded by launching a new electricity efficiency program in Upstate New 

York. Based on our extremely successful Upstate gas programs, we expect our electricity programs to be similarly effective in helping New York achieve the EEPS requirements. 

Rhode Island has adopted a least cost procurement requirement that requires investment in energy efficiency before investing in higher-cost supply increases. These 

requirements, which may effectively reduce energy use by up to 20%, push 

costeffective energy efficiency investment to the forefront and drive additional investment. In Rhode Island National Grid has saved over 12 billion kilowatt-hours 

of electricity and 2.2 million therms of natural gas, saving consumers over $1.3 billion and we look forward to increasing our energy efficiency programs in the state. 

In New Hampshire our energy efficiency efforts have benefited enormously from 

Senator Shaheen’s work as governor to create programs that have saved New 

Hampshire families and businesses over $400 million and we look forward to significantly increasing our energy efficiency investments in the state. 

As you consider EERS approaches, we would like to share some of the lessons 

that we have learned and some of the potential issues we see in moving to a national program. First, creating the right baseline for measuring energy savings can 

often raise difficult design issues. Certainty over the baseline used in calculating a 

company’s energy savings is critical to planning and the overall success of the program. ‘‘Business as usual’’ (BAU) forecasts can be difficult to define when you are 

projecting into an uncertain future. EERS legislation should contain a careful and 

clear definition of BAU, including what factors are to be included, the data that will 

be used, the period of time for the projection and scope of coverage (e.g. national, 

state, or utility). 

A national policy should recognize that many utilities, like National Grid, have 

already invested heavily in energy efficiency and no longer have the low-hanging 

fruit available in other parts of the country. A one-size fits all approach could unfairly penalize early actors and we urge you to consider ways to equitably credit 

early actors. 

An EERS should also be combined with appropriate rate-setting mechanisms, 

such as decoupling, to address the inherent tension between utility companies’ financial interest in encouraging their customers to use more energy and those customers’ own interest in lowering their utility bills through energy efficiency actions. 

Decoupling benefits customers by alleviating this tension and it works in combination with energy efficiency programs to help consumers lower their monthly utility 

bills. 

Finally, we want to make sure that the benefits of natural gas are fairly perceived 

within the efficiency debate. While it is a carbon fuel, natural gas has a substantially lower emission intensity than either coal or oil and is broadly available domestically. A significant expansion of combined heat and power technology utilizing natural gas would offer a leading opportunity to generate electricity more efficiently 

and reduce our carbon footprint. Similarly, climate change policy will push the country away from petroleum transportation fuels and towards electricity, resulting in 

growing demand for electric vehicles. Shifts towards combined heat and power, electric vehicles and other beneficial switches should be consistently encouraged in our 

nation’s energy policy, including an EERS. 
21 

Mr. Chairman and Members of the Committee, we do not believe that any of these 

issues are insurmountable and we look forward to working with the committee to 

address them. We believe the current economic downturn provides a real opportunity to respond to a multitude of challenges in our economy. Driving economic activity in the energy sector can create significant employment, all here at home, 

while reducing our dependence on foreign fuels and the release of harmful emissions 

into our atmosphere. Energy efficiency should act as a foundation of our national 

energy policy as we take other key steps to develop and implement innovative investments to ensure a reliable low carbon and efficient energy strategy for America. 

Importantly, these programs can be quickly expanded to provide much needed jobs 

and energy savings in the near term. The existing programs are not nearly sufficient and we look forward to working with you on developing an EERS and other 

energy efficiency policies that will help us to reorder our economy for a greener future. 

We commend your work and we thank you for the opportunity to answer your 

questions. 

The CHAIRMAN. Thank you very much. 

Mr. Skains, go right ahead. 

STATEMENT OF THOMAS E. SKAINS, CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT, PIEDMONT NATURAL GAS 

COMPANY, CHARLOTTE, NC 

Mr. SKAINS. Thank you to the committee for this opportunity to 

participate in your hearing. I am Thomas Skains, CEO of Piedmont 

Natural Gas, a Natural Gas distribution company serving approximately one million customers in the Carolinas and Tennessee. 

I am here today on behalf of Piedmont and more than 202 local 

utility company members of the American Gas Association (AGA), 

which I currently serve as chairman. We deliver natural gas to 170 

million Americans, who rely on it for their heat, hot water and 

cooking, all essential human needs. 

AGA members strongly support energy-efficiency and carbon reduction measures. In fact, natural gas utilities and their customers 

are leaders in this area. With that said, we are troubled by aspects 

of this legislation. 

Any legislation that seeks to mandate energy-efficiency, we believe should be based on in-put from all affected parties, including 

natural gas utilities. It should be done in concert with our climate 

change goals, be clear and predictable and rely on carrots and program funding, rather than sticks and penalties. Importantly, it 

must focus on the results of the program and not force a tremendous expenditure of resources in trying to determine precisely how 

the results were achieved. 

Natural gas utilities have two great resources to draw on: our 

fuel and our customers. Our fuel is a clean, efficient, abundant and 

domestic energy source. 

Our customers lead the Nation in energy-efficiency. 

Since 1970, the number of residential natural gas customers has 

increased from 38 million to more than 65 million, a 70 percent increase; their energy consumption and carbon emissions have remained flat. This results from a trend of declining use per customer, 30 percent since 1980. This dramatic reduction is attributable primarily to tighter homes, more efficient appliances and energy-efficiency measures, many of which were implemented by natural gas utilities. 

Natural gas utilities have been leaders in working with regulators across the country to implement rate designs that allow utili-
22 

ties to promote efficiency by breaking the link between utility revenues and the natural gas consumed, commonly referred to as decoupling. 

Spending on natural gas efficiency programs reached a half a billion dollars in 2007. So let me be clear. We support reducing the 

Nation’s energy and carbon intensity, but what is not clear is how 

the legislation before you will support that goal. 

Here are some of the problems that we see. First, the focus is on 

huge, after the fact penalties rather than incentives. It is tied to 

consumer behavior and the utility can neither control nor dictate. 

Utilities have limited control or knowledge of what goes on behind 

the meter. This is especially true for industrial customers. 

In addition, utilities can only engage in energy-efficiency activities with the approval and regulating oversight of their State regulatory commissions. 

Second, the imposition of the penalties could be a barrier to economic growth and development by raising the cost of energy to 

both new and existing customers. 

Third, the legislation could have the unintended consequence of 

increasing the Nation’s carbon intensity, as my good friend, Mr. 

Manning said, increasing the direct use of natural gas in more 

homes and businesses across America can help reduce overall energy consumption and greenhouse gas emissions. This can be done 

in the near term with existing technology and at a relatively lowcost. 

The carbon footprint of the typical natural gas home is 40 percent smaller than an electric home. It appears that this legislation 

could discourage an increase in consumption of natural gas relative 

to electricity or other higher carbon emitting energy sources, such 

as fuel oil. 

Finally, we are still not sure as to what reductions our customers 

would have to achieve and what actions utilities would have to 

take in order to avoid the penalties in this bill. 

It is not clear what is mean by the terms, ‘‘business as usual’’ 

or ‘‘significant role’’ when forecasting implementing and measuring 

energy saving. 

Certainty is absolutely essential to proper planning and measuring results. We believe it would be unnecessary and wasteful for 

us to spend tremendous resources in trying to prepare the required 

annual submissions and to set up Federal and State bureaucracies 

to validate our efforts. 

In conclusion, natural gas utilities are committed to partner with 

consumers and policymakers to develop and implement viable energy-efficient programs. 

We are also committed to making the investments needed to continue to increase the efficiency of energy use by America’s homes 

and businesses. 

We see a legislative and regulatory construct that would provide 

investment incentives and economic certainty, rather than potential civil penalties and regulatory confusion. 

We appreciate the opportunity to share our experience with you 

today, and look forward to working with you and your staffs to 

achieve our common goals. 

Thank you, sir. 
23 

[The prepared of Mr. Skains follows:] 

TESTIMONY OF THOMAS E. SKAINS, CHAIRMAN, CHIEF EXECUTIVE OFFICER AND

PRESIDENT, PIEDMONT NATURAL GAS COMPANY, CHARLOTTE, NC 

EXECUTIVE SUMMARY

• Natural gas is America’s clean, secure, efficient, and abundant fossil fuel • Residential natural gas consumers, who use the fuel for essential human needs, 

have a 30-year record of reducing consumption and greenhouse gas emissions • History demonstrates that programmatic measures, such as appliance efficiency 

standards and building codes and standards, will lead to more certain emissions 

reductions than a cap-and-trade system • Natural gas, because it has the smallest carbon footprint of any fossil fuel is 

part of the energy efficiency and climate change solution • EERS seeks to reach a laudable goal, but the mechanism is less than perfect 

Utilities do not control their customers’ consumption • EERS does not take into account economic growth • EERS does not take into account carbon-driven fuel switching • The mechanism of EERS is potentially troublesome 

INTRODUCTION

Thank you for the opportunity to testify before the committee. My name is Thomas E. Skains, and I am the Chairman, Chief Executive Officer, and President of 

Piedmont Natural Gas Company, located in Charlotte, North Carolina. Piedmont 

provides natural gas service to more than 1 million residential, commercial, industrial, and power generation customers as well as municipalities in North Carolina, 

South Carolina, and Tennessee. 

I am testifying today on behalf of the American Gas Association (AGA), which represents 202 local energy utility companies that deliver natural gas to more than 65 

million homes, small businesses, and industries throughout the United States. AGA 

member companies deliver gas to approximately 170 million Americans in all fifty 

states. Natural gas meets one-fourth of the United States’ energy needs. I am the 

2009 Chairman of AGA. 

I am pleased to provide the views of AGA on the Energy Efficiency Resource 

Standard (EERS) concept. This concept is included in S. 548 offered by Senator 

Schumer, H.R. 889 offered by Chairman Markey, and the March 30, 2009 House Energy and Commerce Committee discussion draft offered by Chairmen Waxman and 

Markey. 

In order for the committee to understand our views on the EERS we would like 

to provide a bit of background about natural gas, energy efficiency, and climate 

change. These provide the predicate for our views on EERS at the moment. It appears that the EERS concept may yet be in its infancy, and AGA’s views will undoubtedly change as the concept matures. Moreover, the EERS concept seems to be 

interwoven with the issue of carbon-regulation policy. 

NATURAL GAS IS AMERICA’S CLEAN, SECURE, EFFICIENT, AND ABUNDANT FOSSIL FUEL

Natural gas is America’s cleanest and most secure fossil fuel. Natural gas is essentially methane, a naturally-occurring substance that contains only one carbon 

atom. When burned, natural gas is the most environmentally-friendly fossil fuel because it produces low levels of unwanted byproducts (SOX, particulate matter, and 

NOX) and less carbon dioxide (CO2) than other fuels. Upon combustion natural gas 

produces 43% less CO2 than coal and 28% less than fuel oil. Moreover, almost all 

of the natural gas that is consumed in America is produced in North America, either 

in the United States or Canada, with the vast majority of that being produced in 

the United States. Only a small portion—1 to 2%—is imported from abroad as liquefied natural gas. 

Natural gas is also the most efficient of the fossil fuels. Approximately 90% of the 

energy value of natural gas is delivered to consumers. In contrast less than 30% of 

the primary energy involved in producing electricity reaches the consumer. Additionally, natural gas is an abundant fuel. Recent prodigious discoveries of shale gas 

have significantly added to this abundant resource base. Changes in economics and 

technology will continue to increase our resource base estimates in the future, as 

they have consistently done in the past. 

Natural gas is used to meet essential human needs for small-volume customers. 

The majority of the homes in this country use natural gas, and in this sector 98% 

of all gas is used for space heating, water heating and cooking, while the remaining 
24 

* Graph has been retained in committee files. 

2% is used for clothes drying and other purposes. This fuel is, therefore, used for 

essential human needs rather than for luxuries. Natural gas is, therefore, an essential fuel for America. 

There are two important facts about natural gas that are either little known or 

often overlooked: 

• America’s residential natural gas customers have led the nation in reducing 

their consumption of natural gas over the last 30 years and can continue, with 

appropriate policies, to reduce consumption further. It takes less natural gas to 

serve 65 million homes today than it took to serve 38 million homes in 1970. • Natural gas is not part of the climate change problem; rather, it is part of the 

climate change solution because it offers an immediate answer with existing 

technology and has the smallest carbon footprint of all fossil fuels. 

RESIDENTIAL GAS CONSUMERS HAVE AN UNRIVALED RECORD IN REDUCING

CONSUMPTION LEVELS AND GREENHOUSE GAS EMISSIONS

Residential natural gas customers have consistently reduced their per-household 

consumption of this fuel—and the carbon emissions resulting from its use—for more 

than 30 years. On a national basis, residential customers have reduced their average natural gas consumption by approximately 30% since 1980. The success of residential and commercial natural gas consumers is illustrated by the fact that they 

have reduced their per-household consumption so dramatically that there has been 

virtually no growth in sectoral emissions in nearly four decades despite an increase 

in natural gas households of over 70%. Stated another way, total annual residential 

natural gas consumption is lower today than it was in the 1970s, despite the fact 

that the number of natural gas households has increased more than 70% from 38 

million to 65 million. Consumption of natural gas in the residential sector, on a national average basis, is shown in the following graph:* 

Unlike electricity, where there are a number of options for reducing consumption 

in the relatively near term, almost all natural gas in the home is consumed by furnaces, water heaters, and stoves—durable appliances with relatively long lives. 

While ‘‘dialing down’’ is certainly an option, it has its limits, and consumers have 

already dialed down dramatically with the natural gas price increases of this decade. 

AGA and its members believe, of course, that both natural gas utilities and their 

customers should contribute to improving the nation’s energy efficiency in order to 

meet the nation’s goals of optimizing our resources, maximizing our energy independence, and reducing carbon emissions.. Our collective experience with energy efficiency, however, informs our view that natural gas residential and commercial customers can improve their performance through an array of programmatic measures. 

The reductions in consumption per household experienced over the past three decades are largely attributable to tighter homes and more efficient natural gas appliances. These factors will undoubtedly provide the foundation for continued future 

reductions in consumption. Moreover, natural gas utilities are aggressively promoting decoupled rate structures that allow them to promote conservation and efficiency consistent with shareholder interests. Nearly 40% of all residential natural 

gas customers are served by gas utilities that have decoupled rates or that are engaged in state proceedings that are presently considering decoupled rates. Rate decoupling is important to energy efficiency because it breaks the link between utility 

revenue recovery and customers’ energy consumption. 

USING NATURAL GAS IN HOMES AND BUSINESSES IS PART OF THE ENERGY EFFICIENCY

AND CLIMATE CHANGE SOLUTION

Many misguidedly believe that because natural gas is a fossil fuel it is one of the 

causes of greenhouse gas emissions and, as result, a contributing factor to climate 

change. In fact, however, natural gas is part of the climate change solution. As mentioned previously, natural gas is a fuel that emits low levels of traditional pollutants 

such as NOx and SOx. With regard to greenhouse gas emissions, natural gas, because it has only one carbon atom, emits less carbon when consumed than any other 

fossil fuel. As a result, natural gas has the potential to be a vehicle to move the 

nation toward its greenhouse gas reduction goals. For the same reasons, natural gas 

is an essential element in the push for optimizing our natural resources and increasing our energy efficiency. 

There are significant differences in efficiency between natural gas and electricity. 

Approximately 90 percent of the energy value in natural gas is delivered to the 
25 

home. With electricity less than 30 percent of the primary energy value reaches the 

customer. The largest difference in efficiency for electricity is lost as waste heat at 

the generating station, as well as line losses in transmission and distribution. These 

radically different efficiencies produce the significant differences in both efficiency 

and carbon emissions between electric and natural gas appliances. 

The full potential for natural gas efficiencies is demonstrated most dramatically 

by the carbon footprint of the natural gas water heater. The average natural gas 

water heater emits approximately 1.7 tons of CO2 per year. In contrast, the average 

electric water heater results in more than twice as much—3.8 tons per year. The 

difference between the two could not be more dramatic, and it becomes a multiple 

of three when the comparison is made between a high-efficiency natural gas water 

heater and a high-efficiency electric water heater. These numbers are based on national averages, and, as a result, actual differences will vary from area to area. 

The same differences in efficiency and emissions follow when comparing an allelectric home with a natural gas home. A typical all-electric home on average produces 10.8 tons of CO2 per year, while an all-natural-gas home produces 7.2 tons 

of CO2 per year. Again, these numbers reflect national averages, and actual experience will necessarily differ, but the order of magnitude of difference remains. 

The plain consequence is that the nation can improve its overall energy efficiency 

as well as reduce its carbon footprint by opting for appliances that use natural gas 

in direct applications (i.e., where the natural gas is used to heat air, water, or food). 

There is the opportunity, on a national basis, to improve efficiency dramatically and 

reduce carbon emissions by millions upon millions of tons if we utilize more natural 

gas directly in homes and businesses as the fuel for the future. 

Converting small-volume customers to high-efficiency natural gas applications is 

one of the best ways available today to leap forward in efficiency and reduce greenhouse gas emissions. As the example above demonstrates, converting electric resistance water heaters to natural gas can increase efficiency and reduce greenhouse gas 

emissions by one-half to two-thirds. Doing so would have the benefit of reducing 

overall energy consumption, costs, and the need to construct new electricity generating plants—a critical problem in a carbon-constrained environment—and electric 

transmission lines. 

THE ENERGY EFFICIENCY RESOURCE STANDARD PROVISION SEEKS TO REACH A

LAUDABLE GOAL BUT BY A VERY IMPERFECT ROUTE

These two critical facts—the record of increasing efficiency and the inherent efficiency of natural gas—provide the prism through we must necessarily view a proposal such as EERS. 

AGA and its member companies are committed to continuing to press for energy 

efficiency, in order to save our customers money, to maximize the utility of our natural resources, and to reduce the carbon emissions of our nation. As noted above, 

there is a growing, and accelerating, trend toward decoupled natural gas utility 

rates. Such approaches, by breaking the link between customer energy consumption 

and utility revenues, help utilities become full partners in the quest for energy efficiency. Moreover, most natural gas utilities today participate in, or even operate, energy efficiency programs. On a national scale they collectively deployed $500 million 

in 2007 for this purpose—an amount that we expect to double in the next several 

years. 

Furthermore, as discussed above, natural gas residential and commercial customers have led the way in efficiency and carbon-reduction over the last thirty 

years. These customers have reduced their annual consumption by 1% or more annually from 1980 to 2000 and about 2% annually since 2000. AGA member companies will continue to work with their customers to ensure a continuation of this 

trend, although it will become increasingly difficult to do so as the least costly measures have, in many cases, already been taken. We believe that the goals of a program such as EERS would be best met through universally applied building codes 

and appliance standards, supplemented by a variety of education and incentive programs. 

In contrast to the preferred programmatic approach discussed, the EERS proposals would establish an ‘‘energy efficiency resource standard’’ for both electric utilities and natural gas utilities. As it would apply to natural gas utilities, the EERS 

would, in the most basic terms, require the customers of a natural gas utility to reduce their consumption of natural gas by 10% between 2012 and 2020 or the utility 

will be required to pay a penalty (of either $5 or $10 per MMBtu) for each MMBtu 

by which they fall short of the target. 

While the energy efficiency goal is laudable, the construct of the proposed EERS 

is fraught with problems. Unfortunately the conversation on this topic has, to this 
26 

point, largely occurred among proponents of the idea. A serious and thorough vetting of such a dramatic proposal will be necessary by all parties interested in advancing energy efficiency. Such a program can only be workable, if at all, with significant input from the natural gas utilities involved. If adequate federal and state 

funding is available, local gas utilities are positioned to work with the states and 

their customers to develop and implement effective energy saving programs. However, for this approach to be successful, utilities must be allowed to earn a return 

for their contributions, not merely be subject to penalties. 

AGA suggests that the proposed means (as outlined in the current EERS proposals) to the desired end is a minefield for both utilities and their customers. While 

we will not enumerate all the difficulties, we will outline below a few that should 

suffice to illustrate that this concept still needs further in-depth analysis before becoming a policy pillar that can be relied upon in the quest to increase energy efficiency and reduce carbon emissions. Additionally, the discussion above should make 

clear that, from 30 years of experience, we have a wealth of knowledge as to the 

programmatic measures that can be employed to reach the desired end of increased 

energy efficiency. 

UTILITIES CAN INFLUENCE, BUT DO NOT CONTROL, THE CONSUMPTION LEVELS OF

THEIR CUSTOMERS

The fundamental scheme of the EERS is that customers must reduce their consumption, and natural gas utilities must pay the penalty if they do not. Without 

question there are many actions that natural gas utilities can take—and do take— 

to encourage energy efficiency. But they cannot adjust customers’ thermostats, close 

open windows, or unilaterally install additional insulation or new appliances in 

their homes. While utilities can influence the conduct of their customers through 

education and publicity campaigns, appliance rebate and weatherization programs, 

incentives for efficient appliances, and the like (all of which is subject to approval 

or oversight by the state public utility commissions having jurisdiction over the utilities), they cannot control the actions of their customers, which is what is ultimately 

measured by the EERS mechanism. AGA believes that sound policy argues instead 

for a program that provides carrots, not sticks, for the entities whose behavior is 

to be influenced. If the goal is to reduce energy consumption, the policy mechanisms 

to be employed should focus on the efficiency drivers that have proven successful 

in the past and are likely to be so in the future. This lack of control is further exacerbated in the industrial market, where most customers are sophisticated energy 

consumers who do not purchase their gas supplies from the utility and are thus 

transport-only customers. 

THE EERS FAILS TO ACCOUNT FOR THE NEEDS OF ECONOMIC GROWTH

AND DEVELOPMENT

One of our national goals is certainly to facilitate a growing and vibrant economy 

and the jobs that necessarily follow from that. A growing economy requires that 

America’s energy industries expand to meet the needs of that growing economy— 

both businesses and citizens. Moreover, as a matter of national policy we should be 

seeking to attract new industry to the United States, both for the jobs it provides 

as well as the stimulative effect on the economy as a whole. The concept of the 

EERS, as well as the construct used for it here, runs contrary to these overarching 

national goals. Energy efficiency standards should ensure that each consumer uses 

energy wisely but should not restrict economic development and growth in our country. Any EERS should accommodate energy demand by new homes, businesses and 

manufacturers. 

As drafted, the EERS provision calls for a 10% decrease in consumption by natural gas utility customers by the year 2020 that is above business as usual and that 

has a causal relationship to the utility’s actions. The reduction is to be achieved by 

all customers taken as a group (although excluding electric generation customers). 

In a number of areas of the United States, population is growing and the economy 

has been expanding over the last decade or so. As now framed the EERS provision 

would appear to place these utilities in a very difficult position in terms of achieving 

the goal of the 10% reduction. 

AGA recognizes that the EERS mechanism attempts to utilize some sort of comparative mechanism, analyzing a base case against actual experience. This is troublesome in its own right, but even if it were to be employed, the practical difficulty 

is that a utility will be faced with ensuring the accuracy of its base case as to projected customer growth or face else an ex post facto penalty. This hardly seems fair, 

and it does not appear to be a wise grounding for what will ultimately be an important efficiency policy. 
27 

THE EERS FAILS TO ACCOUNT FOR CARBON-DRIVEN FUEL SWITCHING

Some proposals, such as that by Chairmen Waxman and Markey in the House, 

would overlay EERS on a cap-and-trade scheme. This is something of a two-fisted 

approach with a definite potential for conflict and unintended consequences. AGA 

urges the Congress to give careful thought to whether an EERS together with a capand-trade scheme will result in conflicting goals. 

One particular instance greatly concerns AGA. If we assume that the nation 

adopts a cap-and-trade (or some other) carbon regulation system in the near future, 

the result, when implemented, will be to place a price on carbon. When carbon markets are functioning efficiently, at least in the relatively near term, residential customers will begin to recognize that by shifting their water heating, space heating, 

and cooking to natural gas (where such service is available) they will save money 

and reduce CO2 emissions. This will result from the fact that natural gas will have 

a lower carbon output and price than electricity in most areas. Moreover, we expect 

that states, for a variety of reasons (state carbon footprint, the job development aspects of reasonable energy prices, and the need to minimize new, expensive electric 

capacity), will encourage customers to migrate toward direct natural gas appliances. 

In any event, for whatever reason undertaken, we believe that these trends are likely and that the result will be a good one: lower overall energy consumption, energy 

costs, and carbon emissions for the United States. 

Under the EERS, however, the natural gas utility would pay the financial penalty 

because its customers will have increased their usage of natural gas instead of reducing it, all in order to achieve greater overall energy efficiency, lower energy bills, 

and reduced carbon emissions. This hardly seems like the outcome we should be 

seeking to achieve. It is, moreover, plausible—indeed likely—that where the goals 

of a cap-and-trade system and EERS overlap they will produce conflicting results. 

Given the complexity of the two regulatory schemes, we do not think that this is 

the only scenario in which the two systems may collide. 

THE MECHANICS OF THE EERS ARE PROBLEMATIC

The EERS seems to be grounded, to one extent or another, in a concept of energy 

savings that are the ‘‘result’’ of, or ‘‘caused’’ by, specific actions of one kind or another. This approach is problematic in that it is unduly vague and susceptible to 

widely differing interpretation and application. For example, assume a home owner 

reduces consumption of natural gas. Was this caused by a utility program for weatherization or the fact that children grew up and left home for school? These types 

of imponderables are numerous within the scheme of these provisions. It must be 

understood and appreciated that natural gas utilities have limited knowledge about 

what goes on ‘‘behind the meter’’—we do not have the ability or the right to obtain 

perfect information inside the home or business. 

Some of the EERS constructs involve a comparison between a ‘‘business-as-usual’’ 

projection and measures implemented after the bill becomes law that ‘‘cause’’ natural gas savings. Projecting a ‘‘business-as-usual’’ scenario into the future (especially 

if a new scheme of carbon regulation has been implemented) could be dicey to say 

the least. Will DOE issue regulations providing detailed guidance as to how this 

should be done? How will projections of economic growth and development be 

factored into this ‘‘business-as-usual’’ scenario? How will natural gas utilities predict 

the degree of fuel switching to natural gas resulting from pricing the externality of 

carbon? What will be the factors to determine whether ‘‘savings’’ resulted from utility actions? 

At its core, these aspects of this proposed mechanism are troublesome and, frankly, strike fear in the hearts of AGA member companies when the risk of error, misjudgment, or interpretation is a penalty (or stick) of a per-MMBtu penalty. In the 

end, predictions can only be correct as a matter of accident. Given this truism, it 

is fundamentally unfair to have the Damocles sword of this penalty provision hanging overhead, perhaps with the penalty determination ultimately made, long after 

the fact, by an individual in the depths of a federal agency. Again, we think sounder 

policy is to identify the goal and provide incentives to reach it rather than ex post 

facto penalties for failing to achieve it. 

For years after 2020 DOE may set future years standards that turn on ‘‘cost-effective energy efficiency potential.’’ Yet ‘‘cost-effective’’ is defined so broadly as to be 

nearly meaningless. 

We could go on in enumerating concerns with the EERS methodology employed 

in the bills that we have reviewed. The examples given above, however, amply demonstrate that this is a thicket into which we should not wander. As AGA has stated 

in many forums, if the ultimate goal is to increase energy efficiency and achieve 
28 

greenhouse gas reductions—and surely it is—then we have an ample record on how 

to reach that end. 

The goals of the EERS provisions are laudable ones; with the correct complementary market incentive policies, they are in all likelihood achievable without the need 

to resort to punitive penalties. AGA commits to work with Congress to develop a 

suite of policies that can achieve this result. 

AGA and its members appreciate the opportunity to present their views on these 

important subjects. We look forward to working with the committee and its staff to 

be a constructive voice in this important national conversation. 

The CHAIRMAN. Thank you very much. 

Mr. Nadel, go right ahead. 

STATEMENT OF STEVEN NADEL, EXECUTIVE DIRECTOR, 

AMERICAN COUNCIL FOR AN ENERGY-EFFICIENT ECONOMY 

Mr. NADEL. Thank you, Chairman Bingaman, and the other Senators. I appreciate the opportunity to talk here today. 

A Federal Energy Efficient Resource Standard, often called an 

EERS, would set energy saving targets for electric and natural gas 

distribution utilities throughout the United States. As detailed in 

my written testimony, currently 19 States have an EERS in some 

form. These standards have worked well in practice in those States 

that have been implemented for multiple years. The Federal EERS 

would extend these standards to the remaining 31 States, but also 

increase States that currently have an EERS. However, States with 

a strong EERS can continue to enforce their savings targets. There 

are several States that already have savings targets, more aggressive, such as Ohio, than this bill. 

These States would also benefit from the fact that local power 

pools, prices would come down, also emissions would come down. 

So even if they have a strong State standard already, by having 

neighboring States participate in this Federal EERS, they would 

benefit. 

My organization, ACEEE, supports S. 548 and we thank Senator 

Schumer for introducing the bill. One thing I wanted to make clear 

is that this bill does not require absolute reductions in energy use 

relative to current demand. So instead, it uses a 2-year rolling 

baseline, so that economic growth can be accommodated. So in rapidly growing States, electricity use, natural gas use will continue 

to go up. It will just go up at a slower rate. It’s not a fixed baseline, 

it’s a rolling baseline. 

Savings would be documented from evaluations of energy-efficiency program prepared by an evaluation expert, and ideally, we 

talked about the number of evaluation experts that they have 

under contract with National Labs and elsewhere, and we can really build upon that expertise upon the evaluation protocols that 

States have already adopted to help set these national guidelines. 

S. 548 provides that States can have primary responsibility for 

administering the EERS if the States so request. We do expect the 

majority of the States to take on this role, since they know that our 

States and their utilities went on it. They will track regulations 

and provide oversight, permitting TAV to administer this program 

and in our view that is not a large bureaucracy. Yes, they need 

staff and consultant help, but they don’t need a large bureaucracy. 

For many months this Senate Energy Committee has been considering a Renewal Energy Standard, often called an RES, that 
29 

would allow States to count up to 5 percent energy efficiency savings toward the RES target. ACEEE estimates that the existing 

State EERS will save about 5 percent of electric sales by 2020, 

therefore, it’s already going to happen anyway, I will just give credit in the RES, just giving credit for ‘‘business as usual’’ and won’t 

result in any additional efficiency savings. 

Studies in many States demonstrate that cost-effective electric 

and natural gas energy-efficiency savings of 20 percent or more are 

available around the country. 

This bill would set targets at 15 percent for electric, 10 percent 

for natural gas, so there is much more cost-effective savings available. This bill makes a major progress toward that target and then 

lets States go further, if they want. 

The savings targets are accumulative, meaning that targets each 

year can be met with measures installed in back years as well as 

installed in early years that are still in place. So in 2020, you will 

have many measures in place that were installed, then in 2019 and 

all the way back to 2010 or even 2009. 

Savings from new building codes and equipment efficiency standards count toward these targets, as do energy savings by combined 

power plants and recycled energy. 

So I know Mr. Skains was talking about opportunities to reduce 

carbon emissions through the use of natural gas, use of combined 

heat and power is one of those that may get credit for electrical 

savings under this. 

Many of the existing State programs do not include savings from 

codes, standards or combining power plants. So roughly speaking, 

the 15 percent Federal program may fulfill many of the 10 percent 

State targets, targets in States such as Michigan and New Mexico 

that were adopted just last year. 

Based on the targets that the States have set, based on analysis 

of more than 20 States on cost-effective potential, based on the 

achievements of many of these States, we find that the savings levels is S. 548 are very reasonable and should be achievable at all 

States. It’s not like renewable energy, there is a debate, ‘‘Gee, is 

there enough in all States?’’ We don’t hear anybody arguing that, 

gee, there is not enough efficiency in their State to meet these targets. 

I would point out that these savings will not happen without an 

EERS. Just yesterday, EPA released an analysis on the WaxmanMarkey discussion draft. At the most, efficiency savings that would 

generated as a result of cap-and-trade, it was one of the many 

things they looked at, it concluded that the efficiency savings would 

total about 6 percent in 2020, 9 percent by 2030, and 13 percent 

by 2050. While these are significant, they are far less than what 

is contained in the targets in S. 548. 

We need an EERS to go much farther than just the affects of 

cap-and-trade alone. 

As Senator Schumer noted earlier, ACEEE, just last month, released an analysis on the S. 548. We concluded that it would save 

enough power to power 48 million households for a year, an annual 

savings that would save the consumers about $170 billion in net 

savings, generate over 220,000 jobs, and displace the need for 390 

new medium-sized power plants. 
30 

As Senator Schumer noted, and we discussed in detail in the 

written testimony, this EERS would also be a critical cost-containment strategy for future Federal climate legislations. We’ve done 

detailed modeling and with cap-and-trade and an EERS, electricity 

prices are lower than with cap-and-trade alone. EERS helped reduce our electricity prices. 

Now some may complain that the cumulative impact of cap-andtrade and RES and EERS. But our analysis finds that this threepronged approach actually is less expensive than just doing capand-trade alone. 

ACEEE has been working on energy policy for many years. We’ve 

done detailed analysis of all of past major energy bills, including 

the 2005 and 2007 bills that this committee and ultimately this 

Congress, or previous Congress have passed. What we find is just 

as S. 548 alone will save more energy in 2020 than all of the efficiency provisions in the Energy Policy Act of 2005, and will save 

as much energy as all of the efficiency provisions in EISA 2009, 

that includes the corporate average fuel economy standards. 

The Energy Efficiency Resource Data recalled the 800 pound gorilla, the Energy Efficiency Policy. This is a really big deal. These 

benefits will not occur if energy-efficiency is just a safety valve for 

renewable energy standard. We think efficiency is important 

enough in its own right, that it deserves its own separate provision, 

the savings targets in S. 548. 

I would recommend that this committee include this bill as part 

of comprehensive energy legislation. 

Thank you very much for your attention and I look forward to 

your questions. 

[The prepared statement of Mr. Nadel follows:] 

PREPARED STATEMENT OF STEVEN NADEL, EXECUTIVE DIRECTOR, AMERICAN COUNCIL

FOR AN ENERGY-EFFICIENT ECONOMY

Summary 

A federal Energy Efficiency Resource Standard (EERS) would set energy savings 

targets for electric and natural gas distribution utilities throughout the United 

States. Currently, 19 states have an EERS in some form. These standards have 

worked well in practice. A federal EERS would extend these standards to the remaining 31 states, and would also increase efficiency savings in states where the 

state EERS is not as strong as the federal EERS. States with a strong state EERS 

could continue to enforce savings targets that exceed the federal targets, and would 

also benefit from emissions reductions caused by the EERS in neighboring states, 

and from the fact that decreased energy demand will modestly reduce electric and 

natural gas prices in all states (since prices are affected by the supply-demand balance, when demand goes down, prices generally also go down). 

Under S. 548, the Save American Energy Act, energy savings would be documented from evaluations of energy efficiency programs prepared by evaluation experts and following evaluation guidelines to be set by DOE. There are many statelevel evaluation guidelines that DOE can draw from to establish these national 

guidelines. S. 548 provides that states can have primary responsibility for administering the EERS if the state requests and the Secretary approves such request. 

We expect most states to take on this role, since they know their states and utilities 

well. DOE’s role would be to draft regulations and provide oversight, permitting 

DOE to administer this program without a large federal bureaucracy. 

For many months the Senate Energy Committee has been considering a Renewable Energy Standard (RES) that would allow states to count up to 5% energy efficiency savings towards the 2020 RES target. ACEEE estimates that existing state 

EERS’s will save 5% of electric sales by 2020 and thus the proposal for 5% savings 

as part of an RES will have little impact. Studies in many states demonstrate that 

cost-effective electric and natural gas energy efficiency savings of 20% or more are 
31 

1Several of these are listed in the references section at the end of this testimony. 

available throughout the country. S. 548 would set savings targets of 15% electric 

savings and 10% natural gas savings by 2020. Savings from new building codes and 

equipment efficiency standards count towards these targets as do energy savings 

from combined heat and power (CHP) plants and recycled energy. Many state targets do not include codes, standards and CHP savings, and thus a 15% federal electricity saving target is roughly equivalent to state targets of under 10% savings by 

2020. Based on state targets and recent state-level accomplishments, we find that 

the savings levels in S. 548 are reasonable. 

According to ACEEE’s recent analysis, the energy saved through S. 548 could 

power almost 48 million households in 2020, accounting for about 36% of the households in the United States. Moreover, this level of energy savings will save American consumers and businesses almost $170 billion, create over 220,000 jobs and reduce carbon dioxide emissions by 262 million metric tons while eliminating the need 

to build 390 power plants. These impacts are all over and above savings from state 

EERS’s that have already been adopted—our calculations include current EERS’s as 

part of the base case. 

We also see an EERS as a critical cost-containment strategy for future federal climate change legislation. Modeling done by ACEEE, and discussed in the body of my 

testimony, shows that a national EERS would reduce electricity prices, substantially 

dampening the upward pressure on prices caused by climate change legislation. 

ACEEE has been estimating the energy savings from potential energy legislation 

since the 1980s. We have conducted detailed analyses on the energy savings from 

the Energy Policy Act of 2005 (EPAct) and from the Energy Independence and Security Act of 2007 (EISA). The EERS in S. 548 will save more energy in 2020 than 

all of the efficiency provisions in EPAct combined and nearly as much in 2020 as 

all of the efficiency provisions in EISA combined, including EISA’s Corporate Average Fuel Economy Standard. The EERS is the ‘‘800 pound gorilla’’ of energy efficiency policy. 

These benefits will not occur if energy efficiency is just a safety valve to a renewable energy standard. Energy efficiency is important enough in its own right that 

the U.S. deserves and needs an EERS with savings targets like those in S. 548. 

ACEEE strongly recommends that such an EERS be included as a centerpiece in 

the next federal energy bill. 

Introduction 

My name is Steven Nadel and I am the Executive Director of the American Council for an Energy-Efficient Economy (ACEEE), a nonprofit organization dedicated to 

increasing energy efficiency to promote both economic prosperity and environmental 

protection. I have worked actively on utility energy efficiency programs for more 

than 20 years and have been working on energy efficiency resource standards since 

2000. I have written several reports and papers on the subject1 and have also 

worked with multiple states helping them to establish and implement such policies 

including Maryland, New York, Ohio, Pennsylvania, Vermont and Virginia. 

ACEEE worked with Senator Schumer’s office in the development of S. 548, the 

Saving American Energy Act and we strongly support this bill. We urge this Committee to incorporate this bill into upcoming energy legislation. From our research, 

an Energy Efficiency Resource Standard (EERS) along the lines of S. 548 will have 

more impact on promoting energy efficiency than any other provision now pending 

before this Committee. We thank Senator Schumer for introducing S. 548 and thank 

Senators Bingaman and Murkowski for scheduling this hearing to discuss this important subject. 

In the sections below I: 

• describe what an EERS is and how it works; 

• discuss how the required energy savings are measured and documented; 

• discuss EERS adoption and experience at the state level, including information 

on the 19 states that have adopted an EERS to date; 

• present the results of an ACEEE analysis on the impacts of S. 548; 

• discuss the relationship between an EERS and an RES, as well as with potential climate change legislation; 

• respond to some questions and concerns I have heard expressed about a federal 

EERS. 

EERS Description 

An EERS is a law requiring distribution utilities to meet energy saving targets, 

generally specifying how much energy needs to be saved each year. A federal EERS 
32 

2S. 548 lists thresholds of 1.5 million MWh and 5 billion cubic feet of gas, but these apply 

to sales over two years. The 750,000 MWh and 2.5 billion cubic feet of gas thresholds are annual 

averages. 

* All figures have been retained in committee files. 

as proposed in S. 548 would set a national goal for energy savings, requiring retail 

electricity and natural gas distributors to cumulatively reduce their electricity sales 

by 15% and natural gas sales by 10% by 2020. The proposed savings targets build 

on various studies that demonstrate significant available cost-effective savings at 

the state level and on actual savings targets being achieved in states with experience implementing an EERS. 

An EERS is similar in concept to a renewable electricity standard (RES). An RES 

requires utilities to obtain a certain amount of energy from renewable resources 

(wind, solar, biomass, etc.) while an EERS requires electric utilities and natural gas 

distributors to attain a required level of energy savings through energy efficiency. 

Failure to comply with an EERS law results in penalties, which are based on the 

level of under-or non-compliance. 

The EERS in S. 548 would apply to electric distribution utilities who sell at least 

750,000 MWh annually and to natural gas distribution utilities who sell at least 2.5 

billion cubic feet of natural gas annually.2 Based on a review of annual utility energy sales compiled by the Energy Information Administration (EIA), the EERS 

would apply to about 440 electric utilities out of the more than 3200 listed by EIA, 

and to about 240 natural gas distribution companies out of about 2000 listed by 

EIA. These covered utilities represent about 89% of U.S. electricity sales and about 

96% of U.S. retail natural gas sales (and a lower proportion of total natural gas 

sales as many large industrial customers purchase natural gas at the wholesale 

level and not from distribution utilities). 

EERS Mechanics 

Under the legislation, utilities get credit for savings from building codes and appliance standards (including federal standards) and from energy efficiency programs 

and combined heat and power installations where they ‘‘played a significant role in 

achieving the savings’’ (i.e. if the utility, the state, and a retailer all play a significant role, the utility gets credit, without having to figure out the size of their role 

relative to the role of others). In the end, it is a matter of counting kilowatt-hour 

savings and making a determination that the target has or has not been met. The 

target for a given year is relative to the average total sales in the prior two years 

(i.e., the base quantity is rolling to reflect increases or decreases in sales from year 

to year). 

On average, based on state-specific analyses in six states, ACEEE estimates that 

codes and standards will reduce 2020 electricity use by 4.5% and natural gas use 

by 1.6%. S. 548 and companion bills in the House (H.R. 889 and the Waxman-Markey ‘‘Discussion Draft’’ call for 15% electric and 10% natural gas savings by 2020, 

leaving 10.5% electric savings and 8.4% natural gas savings to be achieved by utility 

programs. If standards and codes achieve more savings, the utility targets will be 

adjusted downward by a corresponding amount, and vice versa. 

If a utility’s sales go down due to the recession, that decline does not count as 

efficiency savings. Conversely, if a utility’s sales go up, the savings target only increases by a little bit using the percentage savings targets in the legislation (e.g. 

1% of the sales increase in 2012). As illustrated in the two tables and two figures* 

below, the energy savings required will vary slightly with growth rates as a function 

of utility sales. 
33 

S. 548 Impacts with 1% per Year Growth Rate 

(illustration using a utility selling 100 kWh per year) 

Year 

Expected 

Sales 

(kWh) 

Annual Growth 

(kWh) 

Sales (adjusted 

for growth and 

prior year’s savings) 

Rolling Average 

(of prior 2 years’ 

sales) 

Cumulative Target 

(%) 

Cumulative Energy Savings 

(kWh) 

Incremental 

(Annual) Energy Savings 

(kWh) 

2010 99.5 99 .5 2011 100.5 1.00 100 .5 2012 101.5 1.01 100 .5 100 .00 1.0% 1 .00 1.00 2013 102.5 1.02 100 .5 100 .50 2.0% 2 .01 1.01 2014 103.5 1.03 100 .3 100 .51 3.25% 3 .27 1.26 2015 104.6 1.04 100 .1 100 .39 4.50% 4 .52 1.25 2016 105.6 1.05 99 .6 100 .17 6.0% 6 .01 1.49 2017 106.7 1.06 99 .2 99 .84 7.50% 7 .49 1/48 2018 107.7 1.07 97 .8 99 .41 10.0% 9 .94 2.45 2019 108.8 1.08 96 .5 98 .50 12.50% 12 .31 2.37 2020 109.9 1.09 95 .3 97 .16 15.0% 14 .57 2.26 
34 

S. 548 Impacts with 3% per Year Growth Rate 

(illustration using a utility selling 100 kWh per year) 

Year 

Expected 

Sales 

(kWh) 

Annual Growth 

(kWh) 

Sales (adjusted 

for growth and 

prior year’s savings) 

Rolling Average 

(of prior 2 years’ 

sales) 

Cumulative Target 

(%) 

Cumulative Energy Savings 

(kWh) 

Incremental 

(Annual) Energy Savings 

(kWh) 

2010 99.0 99 2011 102.0 2.97 102 .0 2012 105.0 3.06 104 .0 100 .49 1.0% 1 .00 1.00 2013 108.2 3.15 106 .1 103 .00 2.0% 2 .06 1.06 2014 111.4 3.25 108 .0 105 .07 3.25% 3 .41 1.35 2015 114.8 3.34 110 .0 107 .07 4.50% 4 .82 1.40 2016 118.2 3.44 111 .7 108 .98 6.0% 6 .54 1.72 2017 121.8 3.55 113 .4 110 .81 7.50% 8 .31 1.77 2018 125.4 3.65 114 .2 112 .56 10.0% 11 .26 2.95 2019 129.2 3.76 114 .9 113 .80 12.50% 14 .23 2.37 2020 133.0 3.88 115 .9 114 .55 15.0% 17 .18 2.96 
35 

The standard is expressed in cumulative terms because efficiency measures installed in early years will continue to save energy for many years. In 2020, the 15% 

electricity savings is relative to the average sales from 2018 and 2019 because those 

sales take into account all of the energy savings up to that point. Cumulative savings are the savings achieved in a particular year from measures installed in that 

year, as well as from measures installed in earlier years that are still in place. For 

example, an energy-efficient dishwasher installed in 2012 might achieve savings of 

100 kWh in 2012. That same dishwasher will save 100 kWh per year for its useful 

life. These savings achieved post-2012 may also be claimed by the utility, until the 

dishwasher is taken out of service. Although the savings are cumulative, because 

the targets increase slowly over the compliance period, additional measures will be 

needed each year to meet the growing annual targets. However, each year’s target 

only increases by an incremental amount, eventually reaching a maximum of 2.5% 

additional savings required per year. 

Measurement and Documentation 

The EERS specifies the amount of energy savings utilities need to achieve. A utility will need to document achieved savings through evaluation reports. What kind 

of savings count towards the goal and how those savings are counted will be detailed in evaluation, measurement and verification regulations promulgated by the 

DOE. However, it is anticipated that the federal procedures will reflect procedures 

currently implemented in states with an EERS. 

Estimated savings should be adjusted for changes in weather, production levels 

and changes in building floor area to ensure that savings are attributable to energy 

efficiency measures. For combined heat and power savings, for example, the energy 

usage can be read from a meter on the system. Based on data from the power pool 

a formula can be used to determine the annual energy savings relative to buying 

power from the local utility. For programs aimed at commercial and residential customers, savings can be estimated by taking a sampling of participants, determining 

the energy savings that are attributed to a certain program through billing analysis, 

extrapolating those estimated savings to all participants and then comparing the energy use of participants versus non-participants (which provide the business-asusual baseline). 
36 

* Maps have been retained in committee files. 

Savings should be documented on a program-by-program basis. Energy savings 

are reported to the state Public Utilities Commission, or other governing body, 

which reviews the reported savings and makes revisions if deemed necessary. 

EERS Adoption and Implementation 

EERS’s have been adopted in 19 states, to date, as shown on the map below.* 

Texas was the first state to adopt an EERS, with their EERS adopted in a 1999 

restructuring law signed by then-Governor George W. Bush. Iowa is the most recent 

state, with targets for their largest utility set in a final decision earlier this year 

by the Iowa Utilities Board. State EERS adoption dates are summarized in the figure below. 

The 19 states that are implementing an EERS are positioned to achieve a little 

over 5% electricity savings by 2020. California, Connecticut, Hawaii, Nevada, Texas 

and Vermont have had the most experience with implementation of an EERS and, 

as such, are considered some of the most successful states in operating energy efficiency programs. Many of these states have consistently increased their annual energy savings goals over time and all of these states have been achieving or are on 

track to achieving their stated energy savings goals. The savings targets for states 

with an EERS in place are detailed on the next page. As noted previously, many 

of these state targets do not include savings from building codes, equipment efficiency standards, or combined heat and power plants. Adding these mechanisms to 

state targets should increase the 2020 electric savings by at least 5% and the 2020 

natural gas savings by at least 2%. 
37 

Efficiency Vermont is the nation’s first statewide provider of energy efficiency 

services. Efficiency Vermont is operated by an independent, non-profit organization 

under contract with the Vermont Public Service Board and funded by an energy efficiency charge on customers’ electric bills. Technical assistance and financial incentives are provided to Vermont households and businesses, helping reduce their energy costs with energy-efficient equipment and lighting and with energy-efficient approaches to construction and renovation. The array of markets served by programs 

offered in Vermont is summarized in the figure below. 

Since its inception in 2000, Efficiency Vermont has helped Vermonters reduce annual energy costs in their businesses and homes by more than $31 million, which 

is more than Efficiency Vermont’s annual budget. Between 2000 and 2008, Vermont 

businesses and homeowners who worked with Efficiency Vermont have saved more 

than 550 million kilowatt hours (kWh) in annual electric energy. Households and 

businesses are expected to see these savings continue for an average of 13 years. 

Moreover, the cumulative lifetime economic value of efficiency investments in 

Vermont totals more than $445 million. Preliminary results are that 2008 efficiency 

programs in Vermont reduced statewide electricity sales by 2.5%. When combined 

with savings from measures installed in earlier years that are still in place, total 

savings in 2008 were about 9% of sales with savings in the past two years exceeding 

Vermont’s 1.5% per year historic load growth (see figure on the next page). 
38 

Reaching continually increasing energy savings targets requires more than simply 

providing customers with incentives and rebates, as these states have shown. Outreach, training and education, customized programs, and increasing access to all 

customer classes have helped California, Connecticut, Hawaii, Nevada, Texas, and 

Vermont become the leaders in EERS implementation at the state level. These 

states have employed combinations of a variety of energy efficiency programs to 

achieve their success. 

Impacts of S. 548 

According to ACEEE’s recent analysis (Furrey, Nadel and Laitner), the energy 

saved through S. 548 could power almost 48 million households in 2020, accounting 

for about 36% of the households in the United States. Moreover, this level of energy 

savings will save American consumers and businesses almost $170 billion, create 

over 220,000 jobs and reduce greenhouse gas pollution by 262 million metric tons 

while eliminating the need to build 390 power plants. These and other impacts are 

summarized in the table below. These impacts are all over and above savings from 

state EERS’s that have already been adopted—our calculations include current 

EERS’s as part of the base case. 

According to the study, customers will have invested $78.5 billion in energy efficiency upgrades by 2020 through the help of utility or state-run energy efficiency 

programs. As a result of such measures, consumers will save $247 billion gross, or 

a net savings of about $169 billion on their utility bills. 

As a result of the energy savings under S. 548 about 17 jobs are gained per $1 

million spent, while 7 jobs are lost per $1 million in lost revenue in the electricity 

and natural gas sectors. At the national level, ACEEE estimates that an EERS will 

create over 220,000 net jobs by 2020. Moreover, unlike other resources such as renewable energy and coal, which are geographically limited, significant energy-saving 

opportunities are available in all 50 states. As such, local jobs supporting energy 

efficiency—jobs that cannot be outsourced—are available in all 50 states. 

Implementation of S. 548 can also significantly reduce carbon dioxide emissions. 

Energy efficiency measures reduce energy consumption so that less fossil fuel is 

burned for energy generation. As fossil fuel use decreases, carbon dioxide emissions 

are avoided. ACEEE estimates that the proposed EERS stands to reduce carbon dioxide emissions by 262 million metric tons in 2020—the equivalent of removing 48 

million automobiles from the road for that year. This represents more than a 4% 

reduction in projected annual carbon dioxide emissions for 2020. 

About 90 percent of electricity in the United States is generated by coal, natural 

gas, and nuclear power. If the United States meets increased energy needs with 

power from new power plants, at a cost of up to 13 cents per kilowatt-hour, U.S. 

consumers could expect significant increases in their utility bills. At about onefourth of that cost, or 3 cents per kilowatt-hour, energy efficiency measures are a 

more cost-effective option for meeting and ultimately reducing U.S. energy needs. 

In addition to being cheaper than conventional energy resources, energy efficiency 

is the only resource that can actually reduce a customer’s overall energy usage, 

thereby reducing their energy bills for years to come. As the targets slowly increase 

over the compliance period, consumers will be investing in more energy efficiency 

each year, leading to greater savings and reduced energy bills. 
39 

The EERS will also place downward pressure on natural gas prices. Since natural 

gas prices are determined by the interactions of supply and demand, as demand is 

reduced, natural gas prices will decline somewhat. The general trends are illustrated in the figure below from a 2005 ACEEE study on the effect of energy efficiency on natural gas prices. In this study, electricity and natural gas savings 

through energy efficiency programs averaged 10.7% electricity savings and 9.8% 

natural gas savings in 2020. The impacts on natural gas markets vary from year 

to year depending on how tight world markets are so the data in the graph below 

are only indicative of general trends and not a prediction of the exact impact on natural gas prices in the future. 

Relationship of an EERS to an RES 

An EERS and a Renewable Energy Standard (RES) are fully complementary to 

each other. An EERS reduces electricity use through use of energy efficiency measures. An RES then helps meet a portion of remaining load with renewable resources. 

The EERS and RES are much more effective as independent mechanisms working 

in tandem, rather than combined as an RES that can partially be met with energy 

efficiency, as passed the House in 2007. Adding efficiency as an option for meeting 

an RES is usually done as a ‘‘safety valve’’ for utilities by weakening requirements 

for renewable energy. But such an approach results in much less efficiency investment than is cost-effective, leaving substantial unharvested benefits. As shown in 

the table below, a 2007 analysis by ACEEE found that combining an RES and 

EERS would not take full advantage of the emissions reductions, electricity savings, 

job creation, and consumer savings potential that could result from having a separate RES and EERS. 

In addition, energy efficiency and renewables are unique resources with unique 

characteristics. An RES would apply to the entity supplying power—sometimes a 

competitive load serving entity—which in some cases is not the local distribution 

company that would be regulated under an EERS; attempting to merge an RES and 

EERS could create unnecessary regulatory complications. 

Furthermore, having both a stand-alone RES and EERS as opposed to either one 

alone (or just pursuing business as usual) provides lower electricity prices by 2025 

even in the Midwest and the South, regions that are more heavily dependent on 

coal. This is illustrated in the figures below, which shows what regional wholesale 

prices would be under business-as-usual compared to what they would be under the 

2007 House RES (15% by 2020, though 4 of the 15 can be met with efficiency), a 

stand-alone EERS (10% reduction in electricity usage and 5% in natural gas usage 

by 2020), or a combination of a 15% RES (with no efficiency option) and a 15% 

EERS by 2025. 

An EERS actually makes achieving an RES easier and less expensive, since an 

RES requires a percentage of total electricity sold to be from renewables, and energy 

efficiency reduces the total amount of electricity sold. If sales go down 15% in 2020 

due to an EERS, a utility will need to generate 15% fewer renewable kilowatt-hours. 

Relationship of an EERS to Climate Legislation 

Energy efficiency is an essential ingredient of a cap and trade program as efficiency investments help to keep the costs of carbon regulation down. An EERS reduces the costs of a cap because it guarantees minimum investments in efficiency, 

which reduces energy demand and bills. When demand is down, money is saved be-
40 

cause less new power plants need to be built and fewer existing power plants need 

to be upgraded. Energy efficiency is the least-cost (often no-cost or negative-cost) 

means of reducing heat-trapping emissions, and the potential reductions from efficiency are immense. 

Explicitly promoting efficiency and renewables through an EERS and an RES in 

conjunction with a carbon cap makes the cap more affordable. The figure on the 

next page shows what wholesale electricity prices would be with just a climate 

framework, as compared to a combined climate-RES framework, a combined climate-EERS framework (with the EERS requiring a 10% reduction in electricity 

usage and 5% in natural gas usage by 2020), and a ‘‘Three Pillars’’ climate-RESEERS framework. The ‘‘Three Pillars’’ approach yields lower prices by 2025 than 

any other combination. 

Responses to Questions and Concerns About a Federal EERS 

Can’t we just rely on the market? 

Some have argued that we should rely strictly on the market to adopt efficiency 

measures and do not need regulation. Related to this argument, others suggest that 

a carbon price alone will spur sufficient investment in energy efficiency and no further regulation is needed. However, these arguments ignore the substantial market 

barriers that impede energy efficiency investments including limited information on 

and stocking of efficient equipment, lack of capital to finance up-front efficiency investments, and third-party decision makers such as builders and landlords who purchase inexpensive equipment, since they do not pay equipment operating costs. 

Much higher energy prices will eventually spur efficiency investments, but with the 

economic dislocations that much higher energy prices can bring. With an EERS and 

other efficiency policies, efficiency investments are made without having to first 

drive energy prices sky-high. 

Why not just leave to states to decide? 

Currently, nineteen states are implementing a state-based EERS. Policy actions 

at the federal level are necessary to strengthen the continued development and implementation of energy efficiency at the state level and expand this policy to all 50 

states. In some of the states that currently have an EERS, little to no direct electricity savings would be realized under the federal proposals. This is because the 

state EERS calls for greater energy savings than the federal 15% electricity savings 

target. Nearly all of these states do, however, stand to achieve increased natural 

gas savings as a result of the federal EERS. These states further benefit because 

the federal EERS will promote savings in nearby states, helping to reduce demand 

and energy prices throughout the region. On a regional basis, a federal EERS 

stands to reduce energy bills, increase jobs, and reduce carbon emissions far beyond 

what any individual state can achieve on its own. Furthermore, even in states with 

an EERS, businesses will benefit from a federal EERS, through increased business 

for energy-saving equipment and services as companies in one state provide efficient 

goods and services in neighboring states. 

Is cap & trade, an RES and an EERS together too much? 

Energy efficiency and renewable energy investments can help lower the cost of 

electricity under cap and trade legislation, saving consumers money. In tandem, the 

benefits of both an efficiency and renewable energy standard are magnified because 

they help reduce the cost to consumers of cutting emissions. Energy efficiency helps 

reduce energy demand while cleaner, renewable energy replaces other, higher carbon-emitting sources, further reducing carbon dioxide emissions. Energy efficiency 

reduces the cost of cap-and-trade because less new energy facilities are needed and 

also because a smaller portion of existing facilities need to be upgraded to help meet 

emissions ceilings. As such, electricity prices under cap-and-trade legislation will be 

approximately 15 percent less if an EERS and RES are also in place (refer to National Wholesale Electric Prices graph on page 17). 

Are the targets in S. 548 achievable? 

The proposed savings targets build on various studies that demonstrate significant available cost-effective savings at the state level and on actual savings targets 

being achieved in states with experience implementing an EERS. A summary of the 

results of state-level studies is provided on the next page and shows a median 

achievable energy efficiency potential of 18% electric savings, which is higher than 

the targets in S. 548. 

Furthermore, these studies rarely include new energy-saving technologies such as 

LED lighting and advanced microprocessor controls. As new efficiency technologies 
41 

and practices are invented and brought to market, the amount of cost-effective efficiency savings available will increase. 

Utilities and states are showing that these targets can be achieved in practice. 

On the next page is a chart showing energy efficiency achievements and targets in 

leading states, indicating quite a few states achieving or targeting more than 1% 

per year efficiency savings, putting them on a clear path to reach the S. 548 targets. 

Is the federal EERS administrable? Will it create a large federal bureaucracy? 

We believe the EERS will not be difficult to administer and will not require a 

large federal bureaucracy. DOE will have to develop initial implementing rules, but 

it has experienced contractors who can help, and can build on existing state implementation rules. In terms of regulatory oversight, the proposed federal EERS has 

been set up similar to the proposed RES, with administration to happen at the state 
42 

4Kushler, York, and Witte. 2004. Five Years In: An Examination of the First Half-Decade of 

Public Benefits Energy Efficiency Policies. Report U042. Washington, D.C.: American Council 

for an Energy-Efficient Economy. ACEEE is now collecting updated data on the cost of efficiency 

programs and preliminary findings are that costs per lifetime kWh saved are still about 3 cents. 

level if the Secretary approves a state’s request. We expect most states to administer the program at the local level, preferring not to ‘‘trust the bureaucrats in 

Washington.’’ The utility reporting requirements for achieved savings, as specified 

in the law, are designed to mimic standard practice in many states, so that current 

procedures can largely be followed. The federal proposal has DOE reviewing state 

implementation every four years, with half the states to be reviewed every two 

years. This will require some DOE staff and contractors, but not a large bureaucracy. 

Will an EERS penalize utilities who promote use of electric and natural gas 

vehicles and cost-effective fuel switching? 

The Energy Information Administration projects electricity use for electric transportation to grow from 0.2% of electric sales in 2006 to 0.3% of electric sales in 2030. 

In the event this growth speeds up, DOE should factor it into decisions setting post2020 standards. This slight increase in electric sales due to electric plug-in hybrids 

should not affect a utilities ability to meet the EERS targets. We support an amendment to S. 548 making clear that DOE should factor in growth in electric and natural vehicle sales when setting post-2020 savings targets. Suggested wording is attached to my testimony. 

Switching from one fuel to another, to the extent such switching saves consumers 

money, is something that both the electric and natural gas industries seek (e.g. 

switching to some industrial electro-technologies or switching to natural gas use for 

space and water heating). However, we are not aware of instances where fuel 

switching has occurred to a degree that this would have a significant impact on 

sales and savings targets. If fuel-switching were to become more common in the future, DOE can and should factor this in when setting future efficiency savings targets. 

Should we provide credit for early action? 

Some progressive utilities that have run efficiency programs for decades are worried that the proposed federal EERS target will be much more difficult and costly 

for them to meet since they have already picked the ‘‘low-hanging fruit’’ that remains available to other utilities that have yet to act on efficiency. 

States that have been implementing energy efficiency programs for a long time 

have the experience of knowing what types of programs work for their customers. 

Additionally, it has been a good business model for these early players, saving them 

money. In some cases though, it is true that the next kWh saved will be more costly, 

as the availability of ‘‘low-hanging fruit’’ decreases (although our research shows energy efficiency programs continue to cost, on average, 3 cents per kWh)4. When we 

look at plans from such utilities as Massachusetts Electric, Narragansett Electric, 

Seattle City Light, and Austin Energy, it appears to that they should be able to 

meet the S. 548 targets by following their current plans, plus factoring in codes and 

standards. We will continue to research these issues further. 

At the same time, those states that have a lot of potential energy savings (since 

they haven’t reaped the low-hanging fruit) stand to achieve the easier savings at 

low cost but they do not have the experience of operating programs. This lack of 

experience at the utility as well as the regulatory level may act as a hurdle to getting successful programs running. For these states it is like going from 0 to 60 mph 

while the experienced states are already going 55 mph. To address these states and 

utilities, the savings targets in S. 548 start slowly, with significant savings delayed 

to the latter years. Also, S. 548 has a provision permitting a utility to miss the initial targets and make up the lost savings during the second reporting period. 

Should an EERS and an RES be combined? 

We prefer a separate EERS and RES because energy efficiency is too important 

to just leave as a safety valve for an RES, a safety valve that would save far less 

energy than a separate EERS. If the proposed EERS targets in S. 548 were added 

to whatever RES target Congress proposes, this objection goes away. Still, such legislation would need to include an EERS on natural gas utilities. One other consideration is that the proposed EERS and RES apply to slightly different entities. The 

EERS applies to distribution utilities, the RES to load serving entities. While these 

two are often the same, in the case of retail sales by independent power providers, 

the independent power provider is subject to the RES, while the electric distributor 

is subject to the EERS. This means that the distribution utility would likely offer 
43 

the primary energy efficiency programs in a region, but independent power providers would either need to operate separate programs for their customers, or would 

need to contract with the distribution utility for efficiency services. Either option 

could work, but both are more complicated than just putting the obligation on the 

distribution utility. 

Conclusion 

ACEEE has been estimating the energy savings from potential energy legislation 

since the 1980s. We’ve conducted detailed analyses on the energy savings from the 

Energy Policy Act of 2005 (EPAct) and from the Energy Independence and Security 

Act of 2007 (EISA). We have done similar analyses for the pending provisions in 

2009 energy legislation in both the House and Senate. The EERS in S. 548 will save 

more energy in 2020 than all of the efficiency provisions in EPAct combined and 

nearly as much in 2020 as all of the efficiency provisions in EISA combined (e.g. 

4.5 quadrillion Btu’s of energy from the EERS, 4.7 ‘‘quads’’ from all of EISA). The 

EERS is the ‘‘800 pound gorilla’’ of energy efficiency policy. It is time to move federal energy efficiency policy into the big leagues by adopting a federal EERS. 

A federal EERS along the lines of S. 548 will substantially reduce U.S. electricity 

and natural gas use, save consumers and businesses billions of dollars (nearly $170 

from investments made through 2020), create more than 220,000 new jobs, and 

serve as a key policy for moderating the cost of federal climate change legislation. 

These benefits will not occur if energy efficiency is just a safety valve to a renewable 

energy standard. Energy efficiency is important enough in its own right that the 

U.S. deserves and needs an EERS with savings targets like those in S. 548. ACEEE 

strongly recommends that the next federal energy bill include such an EERS as a 

centerpiece. 

This concludes my testimony. I am happy to answer any questions you may have. 

References 

Furrey, Laura, Steven Nadel, and John Laitner. 2009. Laying the Foundation for 

Implementing a Federal Energy Efficiency Resource Standard. ACEEE Report E091. 

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

Prindle, William, Maggie Eldridge, John Laitner, Neal Elliott, and Steven Nadel. 

2007. Assessment of the House Renewable Electricity Standard and Expanded 

Clean Energy Scenarios. ACEEE Report E079. Washington, D.C.: American Council 

for an Energy-Efficient Economy. 

Nadel, Steven. 2006. Energy Efficiency Resource Standards: Experience and Recommendations. ACEEE Report E063. Washington, D.C.: American Council for an 

Energy-Efficient Economy. 

Elliott, R.N. and Anna M. Shipley. 2005. Impacts of Energy Efficiency and Renewable Energy on Natural Gas Markets: Updated and Expanded Analysis. ACEEE Report E052. Washington, D.C.: American Council for an Energy-Efficient Economy. 

The CHAIRMAN. Thank you very much. 

Mr. Wells. 

STATEMENT OF RICH WELLS, VICE PRESIDENT, ENERGY, THE 

DOW CHEMICAL COMPANY, MIDLAND, MI 

Mr. WELLS. Thank you, Mr. Chairman, and members of the committee. We appreciate the opportunity to provide you our views on 

energy-efficiency resource standards and their role in future energy 

and climate change polices of our country. 

First, I would like to address the critical role energy plays for 

Dow Chemical. As a leading specialty chemicals and advanced materials company, Dow uses the equivalent of 850,000 barrels of oil 

every day in global operations. Of this total, approximately half is 

here in the United States. 

The energy used by Dow is converted into a wide variety of products essential to our economy and our citizens’ qualify of life, including pharmaceuticals, insulations, electronic materials, and 

much more. 

With energy being the key enabler for all our products, it is no 

surprise that the volatility of energy prices over the last 6 years 
44 

has had a dramatic on our company. In 2002, our annual energy 

and feedstock bill was $8 billion. Last year that number climbed 

to over $26 billion. 

Because of that, we have energy efficiency and conservation program which has been refined over the last two decades. This program—through its energy savings of $8 billion and CO2 reductions 

of 86 million metric tons over the past 15 years—has helped us to 

sustain our operations and retain the ability to invest in our future 

despite these rising energy costs. 

We are not done. We have set a corporate goal to further improve 

energy efficiency by an additional 25 percent by the year 2015. If 

the United States was to accomplish a similar goal, we could eliminate the oil equivalent of all imports from the Middle East. 

We believe the promotion of both energy-efficiency and renewable 

energy should be at the heart of any energy security and climate 

change strategy. 

A national energy-efficiency resource standard would be a tangible way to assure that energy-efficiency becomes the tool of choice 

for achieving early and effective reductions in energy costs, natural 

gas demand and greenhouse gas emissions. 

Currently, new conventional base-load production sources generate electricity at a rate between seven and 14 cents per kilowatthours. At a cost of three cents per kilowatt-hour saved, the efficiency improvements are significantly less expensive than building 

new generation and transmission capacity. Implementing a national EERS would commit every State to utilize this least-cost resource, establish a baseline level of cost-effective and achievable energy savings, and reduce CO2 emissions far beyond the level possible by those States acting alone. 

As already mentioned, the ACEEE estimates that by 2020, a 

Federal EERS would reduce peak electrical demand by over 

110,000 megawatts, cut carbon dioxide emission by approximately 

260 million metric tons and create 220,000 net jobs. Furthermore, 

utility customers would save a net $168 billion. When it’s all added 

up, the benefits of an EERS outweigh the costs by a factor of three 

to one. 

An EERS would also reduce natural gas demand, particularly 

during peak periods, thereby reducing both its price and volatility. 

US Manufacturers, long the shock absorber for high domestic natural gas prices, would benefit from a competitive and more predictable natural gas supply. 

Under an EERS, utilities would offer a variety of programs to 

help customers reduce their energy usage. This could take the form 

of rebates for the purchase of energy-efficient equipment, conducting energy audits and insulating homes. 

As an example, our Dow Building Solutions business is 

partnering with utilities to help them develop cost-effective energyefficient retrofit programs aimed at addressing the energy performance of our Nation’s existing building stock. 

We are currently working with the State of Michigan and its two 

largest utilities to shape that State’s new EERS program. We have 

also recently launched a residential and commercial effort with another major utility aimed at quantifying the energy-efficiency of air 
45 

sealing packages for homes, as well as exploring ways to provide 

incentives for new construction to go beyond existing energy codes. 

There is one important fact about energy-efficiency—opportunities exist throughout our economy and throughout the country. 

As the committee considers this legislation, we urge the following 

considerations: 

First, assure that the standard is applied to utilities and not to 

industrial users of energy. 

Second, if Congress decides to enact a Renewable Electricity 

Standard (RES) rather than an EERS, Congress should allow a 

large part of the renewable mandate to be met through energy-efficiency. 

In conclusion, energy-efficiency and renewable energy are essential elements of a comprehensive energy policy—and must be deployed cost effectively if any climate change policy is to be workable. EERS can be an effective tool to assure that these objectives 

are achieved at the lowest possible cost. 

I appreciate the opportunity to speak today and I will be happy 

to entertain any questions you may have. 

[The prepared statement of Mr. Wells follows:] 

PREPARED STATEMENT OF RICH WELLS, VICE PRESIDENT, ENERGY, THE DOW

CHEMICAL COMPANY, MIDLAND, MI 

Chairman Bingaman, Senator Murkowski and members of the committee, thank 

you for the opportunity to provide our views on the energy efficiency resource standard and its role in the future energy and climate change policies of our country. 

First, I would like to address the critical role energy plays for Dow. As a leading 

specialty chemicals and advanced materials company, Dow uses the equivalent of 

850,000 barrels of oil every day in its global operations. Of this total, approximately 

half is in the U.S. 

Energy used by Dow is converted into a wide variety of products essential to our 

economy and our citizens’ quality of life, including pharmaceuticals, insulation, electronic materials, and much more. 

With energy being the key enabler for all of our products, it is no surprise that 

the volatility of energy prices over the last six years has had a dramatic impact on 

Dow. In 2002, our total annual energy and feedstock bill was $8 billion. For 2008, 

that number climbed to $27 billion. 

Dow has an energy efficiency and conservation program which has been refined over the past two decades. This program—through its energy savings of $ 8 billion 

and CO2 emission reductions of 86 million metric tons over the past 15 years—has 

helped us to sustain our operations and retain the ability to invest in our future 

despite these rising energy costs. 

And we are not done; Dow has set a corporate goal to further improve energy efficiency by an additional 25% by the year 2015. If the United States was to accomplish a similar goal, it could save the oil equivalent of all imports from the Middle 

East. 

We believe the promotion of both energy efficiency and renewable energy should 

be at the heart of any energy security and climate change strategy. 

A national energy efficiency resource standard would be a tangible way to assure 

that energy efficiency becomes the tool of choice for achieving early and effective reductions in energy costs, natural gas demand, and greenhouse gas emissions. 

Currently, new conventional base-load production sources generate electricity at 

a rate between 7 and 14 cents per kilowatt-hour. At a cost of 3 cents per kilowatthour saved, efficiency improvements are significantly less expensive than building 

new generation and transmission capacity. Implementing a national EERS would 

commit every state to utilize this least-cost resource, establish a baseline level of 

cost-effective and achievable energy savings, and reduce carbon dioxide emissions 

far beyond the level possible by those states acting alone. 

The American Council for an Energy-Efficient Economy estimates that by 2020, 

a federal EERS could reduce peak electrical demand by about 90,000 megawatts, 

cut carbon dioxide emissions by approximately 260 million metric tons and create 

260,000 net jobs. Furthermore, utility customers would save a net $144 billion. 
46 

When it is all added up, the benefits of the proposed EERS outweigh the costs by 

a factor of 3 to 1. 

An EERS will also reduce natural gas demand, particularly during peak periods, 

thereby reducing both its price and volatility. US Manufacturers, long the shock absorber for high domestic natural gas prices, would benefit from a competitive and 

more predictable natural gas supply. 

Under an EERS, utilities would offer a variety of programs to help customers reduce their energy usage. This could take the form of rebates for the purchase of energy efficient equipment, conducting energy audits, and insulating homes. 

For example, our Dow Building Solutions business is partnering with utilities to 

help them develop cost-effective energy efficient retrofit programs aimed at addressing the energy performance of our nation’s existing building stock. 

We are currently working with the State of Michigan and its two largest utilities 

to shape the state’s new EERS program. We have also recently launched a residential and commercial effort with another major utility aimed at quantifying the energy efficiency of air sealing packages for homes, as well as exploring ways to provide incentives for new construction to be built above existing energy codes. 

One important fact about energy efficiency—-opportunities exist throughout our 

economy and throughout the country. 

As the committee considers this legislation, we urge the following considerations. 

1. Assure that the standard is applied to utilities and not to industrial users 

of energy. 

2. If Congress decides to enact a Renewable Electricity Standard (RES) rather 

than an EERS, Congress should allow a large part of the renewables mandate 

to be met through energy efficiency. 

In conclusion, energy efficiency and renewable energy are essential elements of 

a comprehensive energy policy—and must be deployed cost-effectively if any climate 

change policy is to be workable. EERS can be an effective tool to assure that these 

objectives are achieved at the lowest possible cost. 

Thank you for the opportunity to speak with you today, and I will be happy to 

answer your questions. 

The CHAIRMAN. Thank you very much. Thank you all for your 

testimony. We will start and ask questions and then call on your 

colleagues. 

One obvious first question is whether or not if we did anything 

like this by way of legislation, should we also apply it to natural 

gas? 

Mr. Nadel, you say we should, and you cite the 19 States that 

currently have EERS. How many of those States have applied it to 

natural gas? 

Mr. NADEL. I would have to do an exact count. I believe it is 

about three. I would get back to you to be sure, but I know Minnesota has it, Michigan has it, and New York is developing it. Let 

me double check. There are a couple of—maybe—— 

The CHAIRMAN. Because it does seem that there are some different objectives we are trying to achieve here. I think Mr. Manning points out that they are trying to move some of their customers, if I understand it, away from use of fuel oil and to natural 

gas, and at the same time they’re suggesting that there ought to 

be additional requirements put on natural gas companies. So Mr. 

Manning, do you have a comment? 

Mr. MANNING. If I could just speak to that. New York City, for 

instance, buildings within New York City alone, still running on 

having oil, and they would like to move away from that, obviously. 

Only 1800 of those buildings were in our service area. They would 

like to pursue a very aggressive conversion program. Ultimately a 

program to disallow oil heat within the—— 
47 

The CHAIRMAN. Do you have suggestions as to what we should 

do to encourage that shift from heavy oils to natural gas? I would 

be anxious to hear those. 

Mr. MANNING. Absolutely. Of course, there is a lot of work that 

we are doing with biofuels. For instance, connecting captures. We 

have been capturing methane and putting it right into our gas distribution system for decades. It was one of the first projects. 

We installed the first fuel cell in 1972 in Staten Island. So we 

do already encourage a lot of technology development of the gas 

line, so I have to support my colleagues there, but I do think 

though, in terms of the implementation of an EERS, we have to be 

sensitive to the opportunities for growth through conversion and 

the opportunities for advanced technologies in terms of efficiency. 

So we are of the view that you can, in fact, facilitate gas conversions through an EERS practice, which of course, gives credit for 

and requires increased efficiency. 

So part of the natural gas conversion opportunity is a 40 percent 

reduction in emissions. 

So there would be clear opportunities if we get the rules right, 

that people could select the fuel like natural gas to bring in under 

compliance. So what we have to do as staff is to make sure that 

those conversions and new growth, and new technologies, such as 

the electrification of valve sites, there are those out there that believe we have done a tremendous amount of work in natural gas 

for years. We have been working on that for 20 years. 

The CHAIRMAN. We have a couple other questions, just to change. 

Does anyone want to comment? 

Mr. SKAINS. Yes, Senator, I do. Thank you. The principle that 

you raise is an important one and it doesn’t just apply to fuel oil. 

It applies to all fuels that are higher emitting than natural gas. It 

could be fuel oil. It could be propane. It could be electric use in 

homes. That the gas appliances could serve that use more efficiently, more cost effectively with less CO2 emissions. For example, 

an electric water heater emits two to three times the amount of 

CO2 as a natural gas water heater. 

We think any energy-efficient measurement standard should 

take into account and promote the conversion of higher ended fuel 

sources to lower ended fuel sources. So I agree with Mr. Manning 

wholeheartedly and I would expand it to include the prospect of 

many energy sources. This legislation as it is currently drafted, 

doesn’t get there, but we think we can work with your staff and 

the other participants to do so. 

The other thing we are concerned about, too, is economic growth 

and development. We don’t think that this bill should deter the addition of new natural gas customers, whether they be new homes 

and businesses, new manufacturing in the United States. We want 

to encourage economic growth development and jobs here, so we 

think there should be a credit, not just during the base period calculations, but during the compliance years for new growth in conversions, and that means utilities aren’t penalized by adding customers with an efficient fuel. 

The CHAIRMAN. Let me ask Mr. Centolella, your point here that 

we should clarify that States may consider energy-efficiency to be 

a resource or a reduction to forecast load for purposes of zoning and 
48 

planning and procurement. Why would we have to do that? That’s 

something that every State, public utility, presumably, I assume 

that every utility would do that to the extent that they felt they 

could improve efficiency, they would want to put that in their forecast, and that would be something we could recognize. What is the 

point there? I am not understanding. 

Mr. CENTOLELLA. In referencing a section of S. 548, which directs 

States to consider energy-efficiency as a resource, it’s a model that 

is commonly used in practices that have gone on in States for some 

time in resource planning, but it is a model that we have seen create problems when we get to the level of RTO and RTO advocacy 

requirements. 

At the RTO level, something that is called a resource typically 

requires the ability to be dispatched by a system operator. Things 

like energy-efficiency, particularly where we run into this is price 

responsive, predictable responses of consumers dynamic retail 

prices. 

Those are not dispatchable by the system operator in the sense 

that, Midwest, for example, is not going to send a dispatch to the 

plant on the air conditioner, even though my air conditioner might 

have a chip in it and responds to dynamic retail pricing. 

So we want to make sure that States aren’t obligated by this law 

to use a framework that may not be the appropriate framework, 

particularly as go forward in more and more Smart Grid type of application. 

The CHAIRMAN. So you are saying that if we are going to use— 

referring to this as a resource could cause some problems elsewhere? 

Mr. CENTOLELLA. Yes. 

The CHAIRMAN. My time is up. Let me see, Senator Menendez 

was the first one here. 

Senator MENENDEZ. Thank you, Mr. Chairman. Thank you all for 

your testimony. 

Mr. Nadel, let me ask you, the latest draft of the committee’s 

RES bill allows a one-quarter of the RES to be met through energyefficiency. That amounts to a 15 percent RES and a 5-percent 

EERS. If we were to add up the 19 States EERS currently in place, 

how would that compare to the 5-percent national RES? 

Mr. NADEL. It would equal or slightly exceed national level and 

get just over 5 percent from existing EERS by 2020. 

Senator MENENDEZ. So really if we have a 5-percent EERS, there 

is not much of an improvement by 2012? 

Mr. NADEL. Correct. 

The CHAIRMAN. Let me just ask for clarification. Is that just in 

the 19 States or you are saying nationally there is little or no improvement by having a requirement, a national 5 percent requirement? 

Mr. NADEL. Right. The 19 States together will have enough efficiency to equal 5 percent of the whole Nation, of all 50 States. 

Senator MENENDEZ. Second, Mr. Manning, let me ask you. You 

said in your testimony that a significant expansion of combined 

heat and power technology utilizing natural gas would offer a leading opportunity to generate electricity more efficiently and reduce 

our carbon footprint, as I recall your testimony. 
49 

Mr. MANNING. Yes, that is correct. 

Senator MENENDEZ. I couldn’t agree more. You know, we looked 

at the report recently by the Oak Ridge National Laboratory that 

estimates that combined heat and power has already reduced emissions equivalent of taking 45 million cars off the road and would 

provide policies, we could easily triple that by 2030. Unfortunately 

this seems to be severe regulatory barriers in the form of tariffs 

and difficulty in interconnecting CHP projects in many States. 

Do you agree that in order to meet an aggressive national EERS 

that these barriers to combine heat and power have to be removed? 

Mr. MANNING. Yes, that’s a personal position and a corporate position. We do believe that proliferation of combined heat and power, 

both as distributors in terms of baseline. We have a lot of plants, 

Senator, that are 29 percent efficient. The old single-cycle, where 

you are basically boiling water and generating electricity. 

I would like to give a quick comparison as to whether or not that 

we have created, based on natural gas, combined cycle, to displace 

the dam of the Columbia River. The steam, after it’s run down— 

the power is generated by a jet turbine, right off of a DC–10—heat 

goes out and generates—instead of going out the stack, generates 

water. The second turbine is a combined cycle. Then the steam goes 

out the back end into a MacDonald’s French Fry factory, and that 

steam blows the skin off, runs the cutters, runs the fryers, runs the 

freezer and cycles back in the plant. This is a million pounds a day 

of MacDonald’s French Fries. The trucks are driving by. 

So there’s an example of how combined cycle becomes cogeneration and your efficiency level goes up at every opportunity. That, 

of course, within the business of a home, you’ve got the opportunity, as my friends will point out from AGA, natural gas for the 

home delivers a much higher efficiency level than if you are generating from large plant sources. 

So the combined cycle in the home ranks as the best example for 

the free market for generating power and heat simultaneously. 

Senator MENENDEZ. so just for the record, steam that went into 

the French Fries was in the machinery, right? 

Mr. MANNING. So in summary, real potatoes are used. 

[Laughter.] 

Senator MENENDEZ. So finally, Ms. Hoffman, if I think that Mr. 

Manning’s answer is the answer of many experts who agreed that 

expanded use of combined heat and power will be a key part of 

making an aggressive EERS, and based upon that Oak Ridge Laboratory report that talked about lack of uniform standards and how 

such CHP projects can act through the grid as a significant barrier 

to this market, do you think it’s time for a National Interconnection Standard? 

Ms. HOFFMAN. The Department of Energy helped develop the 

Voluntary Standard, IEEE 1547, which is an interconnection 

standard that has been adopted by a number of different States. 

I think we should look at that standard and see how we can improve on it as it currently exists. 

Senator MENENDEZ. Thank you very much. 

The CHAIRMAN. Thank you, very much. 
50 

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

having this important hearing. A couple of witnesses mentioned 

Smart Grid and I want to talk a little bit about that. 

Mr. Nadel, thank you very much for your leadership in the area 

in general, for your abdication of the efficiency standard. 

I want to focus on the issue of peak demand on this disproportionate cost that we have to the system, and the fact that Congress 

ought to be looking at ways to decrease the peak demand in addition to energy-efficiency. So Mr. Centolella, would you want to comment on that? 

Mr. CENTOLELLA. Sure. Thank you, Senator. Let me comment on 

both Smart Grid and peak demand reductions. 

In terms of Ohio State statute, we have both an energy saving 

standard and we also have peak demand reduction standard. 

Our rules are designed to pursue and facilitate utilities having 

demand response programs that may be price based or incentive 

based, as well as on traditional demand reduction programs to 

meet that standard. One of the things that we are very interested 

in is how to encourage cost-effective Smart Grid investments. We 

have already approved two utility scale AMI and Smart Grid 

projects for Renew Energy Ohio and America Electric Power. Duke 

Energy in 2009, will put in 50,000 advanced leaders and service 

carriers and then build it out for 5 years. American Electric Power, 

in its first phase, as we improve, will put in 110,000 advanced meters. We expect to follow that up with looking at how we can create 

some dynamic retail pricing, so that, in fact, consumers can benefit 

from being able to manage their energy use in relationship to what 

it actually costs to produce energy at any given point in time. 

As I mentioned briefly with the Chairman, we are also working 

with the two RTOs that are active in our State, modified to those 

RTO tariffs, to make sure that the benefits of that demand reduction actually flow back to consumers and that the investments that 

are made in Smart Grid have benefits to consumers in terms of dynamic pricing. 

Of course, Smart Grid is much broader than just reducing peak 

demand through demand response. The way we view it is, it is an 

architectural view, which you are creating an overlay of information and communication systems that is both secure, and also open 

that provides a platform for distribution, innovation, generation 

and storage, plug-in electric vehicles and a whole range of applications that we are just now beginning to imagine, many of which 

could help consumers significantly in terms of energy-efficiency, as 

well as making this system more reliable, increasing power quality 

and helping us to integrate new technology. 

Senator CANTWELL. Isn’t it a case that peak demand response is 

to distribute storage and other ways help to foster this development. 

Mr. NADEL. Yes, there are many ways to reduce peak demand. 

You just mentioned several. Also, response programs, feedback programs, where people get feedback on their energy use of their previous use and reduce their demand. 

But also the traditional energy-efficiency programs, on average, 

if you a 10-percent savings or better, you get about a 10-percent 

reduction on peak demand. 
51 

Mr. MANNING. One further point, Senator, through many of the 

regions, your power source is staged in. This will of course, stage 

in the power which is actually used on peak, you are often using 

the least efficient sources of energy. So that’s just another benefit 

in these savings. You not only take the pressure off of your distribution system, but you are also probably also idling some of your 

inefficient energy sources. 

Senator CANTWELL. I am trying to figure this out for your ratepayers. What do we do when this credit market is frozen, we have 

this dilemma of making these investments obviously on a rate of 

return, and balancing ratepayer based issues as well? What do you 

think we need to do to move more expeditiously? 

Mr. MANNING. That is a real challenge. We, fortunately, are a 

larger company, so we still have access to the credit lines ourselves. 

But it really puts us—— 

Senator CANTWELL. Mr. Manning, that is the issue. We are working with utility commissions for all ratepayers. 

Mr. MANNING. That is the issue, is in working with State utility 

commissions, if you want to drive energy efficiency aggressively, 

and this is certainly in the areas that they can contribute to that 

issue, but in other words, another way to do it, of course, is to 

spread the cost of some of these innovative technologies within the 

rate base so that they become more affordable. So it does require 

a new conversation in terms of the regulatory compact between 

utilities. Decoupling is a first set. I believe it’s decoupling that gets 

the utility onsite, but it also, of course, requires some opportunity 

for rate recovery to drive the implementation and costs will come 

down as a result. 

Senator CANTWELL. Is there time for one more question? 

The CHAIRMAN. Yes, sure. Let me ask, and start with you, Ms. 

Hoffman, one of the points you make is that we should find a way 

that people who have, or utilities that have pursued energy-efficiency in a serious way should be given credit for that. We should 

not be assuming that everyone is starting in the same place. How 

do we do that? Do you have a suggestion for us, and maybe Mr. 

Nadel, you have some ideas on how States that have adopted the 

EERS; if any of you know how to solve that problem, I would interested to hear it. 

Ms. HOFFMAN. Look at the baseline and allow some of the States 

that have implemented energy-efficiency measures to modify that 

baseline accordingly. 

The CHAIRMAN. Do you have a comment? 

Mr. CENTOLELLA. Yes, this is part of the reason why we have 

suggested exempting States that have meet criteria from the Federal standard. What you see as you look across states, and these 

are States that are in different positions for a whole range of reasons. One of which may be that some States have done all more 

already in energy-efficiency than others. 

But they have different customer bases, they have different levels of load growth, different rates of technology options, and different attitudes in price on consumers, and so we think that it is 

appropriate to have essentially the same decision criteria that this 

bill would ask the secretary to use in terms of defining on a uniform and national level what is maximum, achievable cost effective 
52 

potential, to take that decisionmaking down to the States that are 

prepared to move forward with their own standards, and have 

them apply the same decision criteria about what is maximum 

achievable cost effective potential. But to do it in a way that reflects their States’ conditions, engages the stakeholders, engages 

the public in a review process in those States, so that you get a 

standard that reflects where each individual State is at. 

I think if we do that and set this national goal by engaging the 

States and the thousands of consumers that participate in our regulatory proceedings in that process, we will end up with better 

standards. We will end up with standards that are more likely to 

take effect sooner and not be subject to litigation and delay. I think 

we will end up with standards that reflect the differences between 

the States. 

The CHAIRMAN. Mr. Nadel, do you have a thought on how we 

solve this problem of fair treatment of people who have done the 

right thing? 

Mr. NADEL. We like the concept of banking so that if the States 

are already doing it, they are saving right now. They come bank 

a lot of savings that will make it easier. 

We have looked at even the utilities that are doing a lot. There 

are opportunities for at least 10 percent more saving beyond what 

they are saving. So we think they could achieve it. 

The CHAIRMAN. Presumably the banking suggestion and the description that Mr. Centolella gave about Ohio where they allow 

banking, the banking starts when the requirement is imposed, so 

you’ve got to still meet the—whatever it is, 15 percent, 10 percent 

reduction or improvement in efficiency from that day forward, and 

I’m concerned that perhaps there are States that have already—not 

States, but utilities, for example, that have already dramatically 

improved efficiency, and we are now saying to them, ‘‘OK. We are 

imposing the same requirement on you that we are imposing on the 

utility.’’ 

Mr. NADEL. OK. Banking is giving them a partial credit, if you 

will, because the targets ramp up so slowly, these more active 

States will easily exceed the targets in the early years and they can 

bank those extra. Alternatively, you can give them credit for early 

action, if you will, but that does reduce the target. 

The CHAIRMAN. Are there States that have done that and been 

given credit for early action? 

Mr. NADEL. I mean the States usually, they give credit as of 

when the law passes. I can’t think of any, but I have to check back 

for anybody who has done early action before the law got passed. 

Mr. SKAINS. Senator, I think it’s a broader, more difficult question, too. It just doesn’t apply to States that have gone to the EERS 

standards. Our industry, the natural gas industry is leading the 

way with efficiency in the markets without these standards and 

without penalties, and as Steve mentioned, there are only three 

States that have natural gas standards in place today. 

The residential natural gas consumer has reduced its consumption of natural gas per degree by 30 percent from 1980 to 2006. In 

North Carolina, that’s 34 percent from 1980 to 2008. We don’t have 

any the EERS standards. So these actions have taken place even 

without these types of laws in place and without the threat of pen-
53 

alties, and we are very troubled about the penalty aspect of the legislation. 

The CHAIRMAN. Senator Cantwell, go right ahead. 

Senator CANTWELL. Thank you, Mr. Chairman. I actually know 

that the Northwest has done a lot in this area. I want to figure out 

how to create an equitable baseline, I guess, if you will. I want to 

go back to the Smart Grid element and all of this and the efficiencies. You have all done a great deal of articulating on how important efficiency is. So I hope we are also sold on this as well. But 

the efficiency savings from the Mackenzie report, basically saying— 

basically negating the future production of coal power plant. They 

are huge CO2 reductions, but we are still stymied by this effort of 

trying to move forward. 

So I want to ask, why don’t we look at this issue from the utility 

commission perspective and the utility investment perspective? So 

we would be, the Federal Government, would be willing to put a 

low interest, long amortized periods, 30-year periods of funding of 

these sufficiency and Smart Grid projects on the table as a way to 

help in the economics of getting the projects implemented, and everyone can benefit. The ray payers would benefit from this. We are 

doing this all the time with other areas of government, where we 

are getting financing for projects in a cost affordable rate to try to 

pass on the savings. So either of the panel? 

Mr. MANNING. I can start. Certainly this is part of the discussion 

around renewables because there is great enthusiasm for renewables. Renewable capacity is not always located in the center of 

law. So not only is it Smart Grid, but you are also looking at a new 

and additional transmission. There are two issues around that, 

one, which is cost. Who pays? The other, of course, is siding. 

I would argue the only way to get this done is for Federal action, 

perhaps on both counts. The lack of long-term contracts, which 

used to exist years ago, makes financing more difficult. 

So the availability to financing will certainly be a great benefit 

there, and of course the McKinsey study demonstrates that there 

is so much that we can do, which is very affordable, without changing our lifestyle. 

What it’s not doing is it’s not addressing the challenge of driving 

additional renewables in terms of the solution. It just indicates 

there is much more that can be done in terms of reducing the carbon intensity generation. It also points out, Mr. Chairman, in 

terms of your earlier question, it’s quite a good analysis. It entertains in terms of the cost in the various regions of the country, it 

demonstrates how much CO2 abatement you could achieve at a set 

price across the country. It’s highest in the Northeast and it’s lowest in the South. So that would be helpful to your staff. 

There is some analysis which helps you documents the early action issue, which has to be addressed. But we can’t let that prevent 

us from striving toward great efficiency. 

Senator CANTWELL. So how about it, if we drive down the cost 

of financing, will that help get the green light for these projects approved? 

Mr. CENTOLELLA. Senator, I believe that any kind of Federal financing or co-funding is helpful. We have certainly worked with 

our utilities and encourage them to go after some of the funding 
54 

that is in the Recovery Investment Act with respect to their Smart 

Grid contract. That is very helpful in terms of getting that issue 

on the table with some of our utilities and moving forward. So certainly additional financial help from the Federal Government, additional incentives, I think would be quite valuable. 

I do want to pick up just a moment on what Mr. Manning said 

about transmission and just offer a couple of cautions about how 

you may proceed with transmission sections of the energy legislation. 

It’s important to realize—— 

Senator CANTWELL [continuing]. You should know that we have 

separate hearing on that and will probably have at least ten more 

hearings on that. Go ahead. 

Mr. CENTOLELLA. OK. I will keep this very short. Just two overall things to recognize is that there are substitution for transmission in terms of what we do with energy-efficiency, demand response generation—— 

Senator CANTWELL [continuing]. Distributed generation—— 

Mr. CENTOLELLA [continuing]. Even a central station plant is located near a city or another load center. I mean, those are all, in 

effect, substitutes for building long line transmission. So it’s important that we look at that in an integrated context to decide what 

is cost-effective. What makes economic sense? 

This is why States do integrated resource planning in order to 

consider those kind of tradeoffs and back that kind of information 

to a regional level. 

Second, as you look at this, I think you need to understand that 

there is an essential element to planning a transmission system. 

An AC electric transmission system is very different than a gas 

pipeline, because the AC system is not a switch network. It runs 

on a contingency basis. It is possible, in fact, to build a 765 KV AC 

line that actually may reduce the transfer capability between the 

two points that it connects, and you have to be very careful to 

make sure that what you’re building in terms of transmission fits 

into a broader regional plan, that it is actually accomplishing the 

objective that you want to accomplish. 

So if you go forward in this area, it become important to set criteria about how that the transmission is, in fact, improved. 

Senator CANTWELL. I agree, but I think that we shouldn’t allow 

more argument on transmission, which is important to negate the 

fact that there are efficiencies in Smart Grid technology that can 

be implemented on existing corridors, and that that savings is a 

huge potential in saying you don’t have to build this coal-fired 

power plant, and not only that, but the United States has to be a 

leader of this. This is technology that we could get to world leaders 

that would use it, and get China to reduce their CO2 emissions, if 

they build a plant in a week. Now it’s critically important. 

Mr. Chairman, I thank you. I know we are going to have a hearing on the finance side that will be included in this, so I need to 

introduce legislation to really—I think you’re looking at the efficiency goal and thinking about this with the RES and all that, but 

I think it’s important that we think about Smart Grid in this mix 

as well, and that it is part of the efficiency goal that we reach, that 

it has a role to play here in helping us get there in that par-
55 

ticular—whatever it is, whatever the number is that we come up 

with. I actually think the administration has hit on a very good 

number. 

Mr. MANNING. Just very briefly, I think a lot of discussion on renewables is capacity. Some States don’t feel that they have the capacity for renewables that other States enjoy, and that I would suggest is a transmission opportunity. So with all due respect to my 

friend, I do think there is great opportunity, a lot of technology, a 

lot of innovation going on in terms of materials, in terms of 

diagnostics. 

So there are transmission opportunities which will not negate a 

tremendous effort in terms of energy-efficiency. 

The CHAIRMAN. Thank you, Ms. Hoffman, let me ask you. You 

make a point about we need these good evaluation measurement 

and verification protocols. If we were to enact a renewable electricity standard that says you can meet part of the standard, 45 

percent or so, through efficiency, we need those protocols; do we 

not? 

Ms. HOFFMAN. Yes. 

The CHAIRMAN. So the development of the protocols, would be required regardless, and I guess I would like to know, is this a significant obstacle? I guess 19 States already have these. Presumably 

they have some protocols in place. 

Mr. Centolella, is there any a big disagreement about whether or 

not people are fudging the books here? In Ohio you adopted this 

very aggressive requirement for improvements in efficiency, are 

you confident that you can measure and verify what the people are 

meeting? 

Mr. CENTOLELLA. We are. We have included in our rules as part 

of the compliance statute that each of them must file. They must 

a report by an independent measurement and evaluation contractor 

that verifies the savings that they have achieved. 

The CHAIRMAN. You think that does the job? 

Mr. CENTOLELLA. Yes. 

The CHAIRMAN. You are confident that it does as well, Mr. 

Nadel? 

Mr. NADEL. Yes. There are a number of folks that work at the 

State level. There are small differences. It will be similar to getting 

uniform national protocol that people argue out of the points of difference, but it’s not a dramatic amount of work. I mean, not a dramatic amount of work. 

The CHAIRMAN. Again, Ms. Hoffman, as I understood Mr. 

Centolella’s comments, he is suggesting that we give more decisionmaking to the States, that is allow States to actually determine 

what is the maximum achievable cost-effective level for energy-efficiency improvements, as I understand, instead of setting a national 

standard, we should essentially direct the State to set that standard and comply with it once the commission of that State determines what they think that is. What is your reaction to that? 

Ms. HOFFMAN. The Department doesn’t have an official position 

but the legislation itself does give flexibility to the States if they 

want to implement the program within their States. Regardless of 

the standard, I think the objective should be to encourage more energy-efficiency at the State level. The actual standard could prob-
56 

ably be debated, but the legislation does allow flexibility for the 

States to take over implementation. 

The CHAIRMAN. I think his suggestion is not just the States 

would be allowed to implement it, his suggestion was States be allowed to set the standard. Mr. Nadel, did you have a reaction to 

that? 

Mr. NADEL. Yes, I do. I think States should be permitted to set 

higher targets, but I worry that if we allow them to set lower target, many of the States that are not doing much just set very low 

targets. 

My home State of Maryland, the utility argued that there was 

no money to be saved because it no longer owned power plants. The 

commission said, ‘‘Sure, and for 10 years you didn’t do any programs.’’ 

These are often political decisions. I worry if we give the States 

flexibility, we will decimate the program. 

The CHAIRMAN. What’s your reaction to that, Mr. Centolella? 

Mr. CENTOLELLA. I think that is a more cynical attitude toward 

State regulation than perhaps I do. 

The CHAIRMAN. That comes from living in Washington. 

Mr. CENTOLELLA. We have States that are very committed to 

doing energy-efficiency. I look around my region, for example. A little over a year ago we had nine State Governors sign a greenhouse 

gas platform that said that they supported, 2 percent annual improvements in energy efficiency in their State, starting in 2015 and 

every year thereafter. 

There are many, many States out there that are ready to be very 

aggressive on this, and I think that the benefit of engaging State 

regulators and engaging stakeholders and consumers that would 

participate in the State process outweighs any risk that some 

States might fall behind. 

I will also note that I think that where there are typically differences among the States, it is because they apply a different 

standard about what is cost-effective, and I think it would be appropriate for the legislation to define cost effectiveness in a way 

that embodies Congress’ intent to achieve significant energy-savings. 

Mr. NADEL. He and I agree that many States will do an excellent 

job. I worry about those other ten or 20 States, not all 50 of them. 

The CHAIRMAN. OK. I think all of this has been very useful testimony. We appreciate you all coming, and we will try to understand 

the issue with and figure out what to do. Thanks. 

[Whereupon, at 11:35 a.m. the hearing was adjourned.] 
(57) 

APPENDIX 

RESPONSES TO ADDITIONAL QUESTIONS

RESPONSES OF DAVID J. MANNING TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1a. The push to enact a separate RES and EERS calls into question the 

goals of these standards—is to promote certain technologies, or to reduce greenhouse gas emissions? 

If energy efficiency is incorporated into an RES, it would seem to me that utilities 

would have a much better chance of meeting their requirements instead of facing 

penalties for noncompliance. Wouldn’t it be better to give them greater flexibility 

to succeed by adopting a single standard? 

Question 1b. If Congress decides to enact an RES instead of an EERS, should we 

allow an unlimited amount of the renewables mandate to be met through energy 

efficiency measures? 

Answer. National Grid believes that the U.S. needs a balanced approach to energy 

overall—all options must be on the table. We need more expansive, robust energy 

efficiency programs. We need significant new sources of renewable energy: wind, 

solar, biomass and geothermal. We need a comprehensive strategy to address our 

transmission infrastructure, including policies that will enable us to bring renewable energy resources, which are often isolated, to dense urban areas and other load 

centers. We need smart grid technology and smart meters to maximize the potential 

of current and future energy efficiency technologies to automate the most efficient 

use of energy and to remotely scale back energy use during peak use and pricing 

periods. These actions, combined with clean, no-or low-emitting base-load power 

generation such as nuclear, hydroelectric, natural gas and emerging clean coal technologies, will lower emissions, lower customers’ bills and play an important role in 

an effective national energy policy. 

Three energy policies currently under discussion—climate change cap-and-trade, 

RES and EERS—each emphasize a different aspect of what we need for a balanced 

energy policy. While an EERS will undoubtedly produce significant climate change 

benefits, its unique value is spurring investment in technologies and practices that 

reduce overall energy consumption and result in benefits beyond reducing greenhouse gases, as outlined in my written testimony. For that reason, we appreciate 

the efforts of Senator Schumer and others to shine the spotlight directly on energy 

efficiency with EERS legislation. 

At the same time, cap-and-trade, EERS and RES policies are rightly viewed as 

mutually reinforcing tools for achieving a balanced national energy policy. This may 

present opportunities to combine elements of the policies, such as including energy 

efficiency as a resource under a federal RES. National Grid could support such an 

approach if it is designed in a way that adequately addresses the need to provide 

appropriate investment incentives for both renewable energy and energy efficiency. 

Question 2. This bill appears to provide only penalties, and no incentives, to facilitate compliance with the proposed federal standard. Please describe what other 

measures, if any, you think should be incorporated to encourage distributors to 

reach energy savings goals. 

Answer. Incentives are an important mechanism to encourage utilities to deliver 

high quality efficiency programs that consistently meet customers’ needs and maximize benefits. The incentives should be tied to the achievement of established goals 

such as energy savings, cost-effectiveness and comprehensiveness of the range of installed measures in customers’ facilities. 

Question 3. I am concerned that requiring distribution utilities to develop and administer new energy efficiency programs, or obtain new technology will be expensive—especially for consumer-owned non-profits. The penalty payments called for by 

this legislation are very high, and there is also the likelihood of ‘‘layered’’ costs from 

an EERS, RES, and climate change legislation. How can we implement cost control 
58 

mechanisms to keep costs for distributors—and therefore businesses and consumers—as low as possible? 

Answer. National Grid believes that adequately addressing consumer cost is a 

critical aspect of designing workable energy legislation, and we support mechanisms 

that will fund consumer rebate and energy efficiency programs. Accordingly, we support distributing a significant share of the overall allowances under a federal capandtrade program to local distribution companies (LDCs) and requiring them to auction the allowances in a transparent, timely manner. LDCs would be required to use 

the proceeds to provide rebates to low-and middle-income consumers and small business as well as offer consumers incentives for energy efficiency upgrades and distributed generation resources. These mechanisms will offer immediate financial support to consumers as well as a long-term reduction in consumer energy costs. Similarly, we support returning any alternative compliance payments made under an 

RES or and EERS to LDCs with a requirement that the funds be used for consumer 

rebates and efficiency programs. 

Additionally, several mechanisms may be adopted to control costs to both utilities 

offering efficiency programs and to participating customers. First, all services and 

products delivered through the programs should be secured through a competitive 

bid process. Second, caps can be placed on the administrative costs for programs to 

ensure the majority of costs are incurred for the purchase of energy efficiency equipment and services for customers. Third, financing options for the customer’s copayment for efficiency projects can spread costs out over a number of years, thereby 

reducing costs in any one year. 

Question 4. The proposed EERS legislation would calculate a utility’s ‘‘businessas-usual’’ energy use by averaging its consumption levels in the 2 years prior to enactment. Utilities that are already making great efforts to reduce energy consumption—whether through a state-level EERS or their own initiative—may have a 

tougher time complying with the federal mandate due to their early action on energy efficiency. Should a federal EERS be designed to avoid disadvantaging those 

utilities, particularly compared to those who have taken no action? 

Answer. A national policy should recognize that many utilities, like National Grid, 

have already invested heavily in energy efficiency and no longer have the low-hanging fruit available in other parts of the country. To address this disparity and avoid 

punishing forward-looking companies, an EERS should be designed to equitably 

credit early actors. Among the options to consider are the following: 

• Changing the start date for when electricity savings can begin counting toward 

a company’s compliance obligation. The current EERS bills only allow measures 

implemented after the date of enactment to count. This could be easily modified 

to allow credit for prior year activities, e.g. any measure implemented after January 1, 2005. This could be combined with an option to ‘‘bank’’ forward excess 

electricity savings above-and-beyond the level of their goal. 

• Specify a standard conversion factor for energy efficiency spending (e.g., $50/ 

MWh). Utility companies would calculate their average annual energy efficiency 

spending in 2006-2008 (this is actually reported to EIA). The spending levels 

would then be converted to MWh savings using the standard conversion factor. 

These ‘‘early action’’ savings could then be counted toward your annual compliance obligation. 

• Cap the standard based on a company’s per capita electricity consumption. A 

company that has driven down its customers’ energy use to a very low level 

should not be subject to the same standards that apply to a company that has 

done little to reduce its customers’ energy use. 

Question 5. Under Senator Schumer’s bill, the federal EERS would require electricity savings of 15 percent, and natural gas savings of 10 percent, over the course 

of a decade. For the sake of comparison, can any of you provide the percentage savings that were achieved by these distributors over the course of the past ten years? 

Answer. Over the past ten years (ending in 2008), the cumulative savings from 

National Grid’s energy efficiency programs in New England have decreased electricity usage by seven percent. Our gas energy efficiency programs are newer, so we 

do not have ten years worth of data. Our longest running gas program, in Massachusetts, has been in place for five years and to date the cumulative savings from 

this program are approximately three percent. 

Question 6. You caution that creating the right baseline for measuring energy savings can often raise difficult design issues. Baseline certainty is critical to both the 

planning and the success of a program. S. 548 directs DOE to issue regulations 

based on ‘‘Business As Usual’’ forecast and to use a rolling baseline. What are the 

issues associated with using a ‘‘Business As Usual’’ approach and do you believe 

DOE has the expertise to properly measure a rolling baseline and verify savings? 
59 

Answer. Establishing a ‘‘business as usual’’ baseline is an inexact science but is 

required to set the benchmark against which energy savings can be reasonably 

measured. Baselines are most often set at levels of standard practice for the installation of efficient equipment. For example, T-8 lighting with electronic ballasts is 

now standard practice for lighting in commercial buildings and is often required by 

state building codes. Lighting equipment with efficiencies greater than this standard is used to calculate incremental energy savings. The challenge with baselines 

is that they often vary across different regions of the country, change frequently and 

are difficult to calculate for some end-uses such as more complex HVAC and industrial equipment. 

National Grid has extensive experience in developing baselines and believes there 

is sufficient information in the marketplace to determine reasonable baselines for 

an EERS. DOE’s experience establishing efficiency standards for specific end-uses 

in recent years provides a strong foundation for setting baselines. 

Question 7. You note that a ‘‘one-size-fits-all’’ approach to an EERS could unfairly 

penalize early actors like National Grid, which have already invested heavily in energy efficiency and no longer have the ‘‘low-hanging fruit available in other parts 

of the country.’’ Am I correct in interpreting this statement to mean that higher levels of energy efficiency have diminishing returns? How difficult would it be for National Grid to achieve the savings required by this legislation? 

Answer. As explained in my answer to Question 4, National Grid believes that 

an EERS should equitably credit the work done by early actors. For utilities such 

as National Grid that have implemented energy efficiency programs over the past 

20 years, much of the low cost energy savings has been achieved. However, there 

remains substantial energy savings to be achieved at lower costs such as lighting 

in commercial buildings that will represent a significant portion of the additional 

savings that must be achieved under an EERS. At the same time, to meet EERS 

goals, all cost-effective efficiency must be tapped which will naturally lead to higher 

cost savings associated with more costly measures such as heating, cooling and ventilation equipment. Utilities must work with customers to pursue more complex efficiency measures to ensure no opportunities are overlooked. 

Question 8. You state that the EERS should be combined with appropriate ratesetting mechanisms such as decoupling to address the inherent tension between a 

utility’s financial interest in encouraging energy efficiency measures, which results 

in less energy sold, and the consumer’s desire to lower their bills via energy efficiency actions. Please elaborate. 

Answer. National Grid believes that decoupling utility revenues from volumetric 

sales is essential to support and expand investment in energy efficiency for all consumers—and in so doing, help them reduce how much they pay in their overall energy bills. 

Without revenue decoupling, there is an inherent tension between utility companies’ financial interest in encouraging their customers to use more energy and those 

customers’ own interest in lowering their utility bills through energy efficiency actions. Decoupling benefits customers by alleviating this tension and it works in combination with energy efficiency programs to help consumers lower their monthly 

utility bills. 

How does ‘‘decoupling’’ accomplish this? Decoupling changes an important element 

in the way that utility rates have traditionally been set. Without decoupling, traditional utility ratemaking creates financial incentives for utilities to discourage—or 

at least not to encourage or support—energy efficiency. Under the more traditional 

way that rates are regulated, when a utility sells less of its product (e.g., electricity 

or gas), it typically means lower utility revenues. Utilities have historically depended on these revenues to fund investment in needed infrastructure between rate 

cases. Decoupling is a rate mechanism that removes this link between sales and revenues. Decoupling allows companies to be financially indifferent as to whether to 

sell electricity to customers or to rely on energy efficiency as a tool to help consumers lower their own energy bills. 

Decoupling is not about charging ‘‘low income consumers more’’ so that ‘‘utility 

companies can maintain their profit margins.’’ In fact, when consumers, including 

low income consumers, have access to and participate in energy efficiency programs, 

their overall bills will be lower and they can actually save money. Therefore, the 

weatherization and other efficiency programs introduced by the American Recovery 

and Reinvestment Act, combined with decoupling, provide power support to consumers, workers, and the economy overall. 

Customers benefit from lower utility bills, more stable rates (as a result of less 

frequent rate cases) and the utility’s ability to fund investment needed to serve 

them well. While decoupling potentially increases the utility’s delivery charge in the 

near term, it lowers total customer bills in the long term, as reduced energy usage 
60 

can reduce the need to investment in infrastructure than would otherwise be the 

case in the absence of energy efficiency programs. In fact, for customers who participate in energy efficiency programs of delivery-only utilities (like National Grid), decoupling can result in immediate bill reductions. These customers avoid paying the 

larger portion of their bills (60%-70%) related to power supply, which more than offsets the slight increase in the part of the customer bill (30%-40%) that makes up 

the delivery charge. 

Question 9. I want to clarify a figure in your written testimony. You state that National Grid has spent $1.5 billion on efficiency technologies. Can you provide an 

estimate of the total cost of those improvements, including any local, state, and federal funding that was provided in the form of incentives, grants, and so forth? 

Answer. The savings achieved through National Grid’s programs have been funded solely with funds provided by the on-bill energy efficiency charge or systems benefit charge. The company takes credit only for efficiency measures for which it has 

paid a rebate from the above funds. 

Question 10. You list the Regional Greenhouse Gas Initiative as one impetus for 

energy efficiency improvements in the northeast. How do you think these efforts in 

those states would fare without that initiative? At the federal level, how effective 

do you think an EERS can be without climate change legislation? 

Answer. Funds generated through the sale of allowances resulting from the Regional Greenhouse Gas Initiative will enable National Grid to accelerate its efficiency programs beyond what is possible under the existing energy efficiency charge 

or systems benefit charge. RGGI funds help minimize the increase in customers’ 

electric rates that would otherwise result from an increase in budgets required to 

fund the ramp up anticipated for National Grid’s programs. Significantly increasing 

the magnitude of efficiency budgets would be difficult without RGGI funds because 

of the likely opposition resulting from specific customer segments such as the large 

commercial/industrial sector. 

RESPONSES OF DAVID J. MANNING TO QUESTIONS FROM SENATOR SHAHEEN

Question 1. As today’s witnesses have noted, energy efficiency measures are incredibly important to address our nation’s energy challenges. I think it is important 

to craft federal policies that incentivize investments in energy efficiency. 

One of the concerns that I am aware of with an EERS, however, is that of market 

manipulation. Under an energy efficiency credit trading program, we may be giving 

credit for actions that would have already been taken regardless of an EERS mandate. 

Many NE states are implementing policies to require utilities to procure all 

costeffective energy efficiency. These least cost procurement policies, for example, require that a distribution company obtain all cost effective energy efficiency up to the 

electric supply cost. The goals seem the same as an EERS, with an emphasis on 

cost-effective measures, and seem to avoid some of the issues of market manipulation. 

Would you care to comment on least cost procurement policies and how they compare to an EERS? 

Answer. Least cost procurement of energy efficiency can be an effective tool for 

achieving savings under an EERS. The least cost procurement legislation that dictates the level of energy savings National Grid must achieve in Massachusetts and 

Rhode Island will likely result in energy savings levels comparable to or greater 

than those required under a federal EERS. 

Question 2. In New Hampshire, we are addressing efficiency and energy conservation by taking auction revenues from RGGI, the United States’ first cap-and-trade 

program for greenhouse gases, and investing those revenues in these energy saving 

and conservation efforts. In your view, is it more cost effective and efficient to establish an EERS mandate or invest auction revenues in efficiency and conservation 

measures? What are the trade-offs? 

Answer. National Grid views a cap and trade program as a means to fund additional energy efficiency that may be required through an EERS. A cap and trade 

program and an EERS are not mutually exclusive and can work closely in tandem 

to achieve both carbon reduction and energy savings goals. 

Question 3. It has often been said by those seeking to address climate change that 

the single most important thing we can do to address climate is put a price on carbon. A price on carbon will, in turn, incentivize renewable electricity and energy 

conservation measures. Is a national EERS necessary to deploy energy conservation 

and efficiency improvements if we enact a cap-and-trade program in the US? 

Answer. National Grid agrees that the single most important thing we can do to 

address climate change will be to put a price on carbon. However, we must also pro-
61 

1http://www.epa.gov/climatechange/economics/economicanalyses.html#wax 

mote technologies and business practices that will enable consumers and businesses 

to meet greenhouse gas reduction goals cost effectively in both the short-term and 

the long-term. Complementary policies—like an EERS, RES, CAFE standards, or 

CCS incentives—are justified in order to promote technologies with broader societal 

benefits and to address market failures that discourage households or businesses 

from responding to a price signal and adopting cost-effective reduction measures like 

energy efficiency. 

Question 4. There have been some who suggest an EERS will reduce the cost of 

a cap-andtrade program. A report by ACEEE states that, ‘‘energy efficiency reduces 

the cost of cap-and-trade because less new energy facilities are needed and also because a smaller portion of existing facilities need to be upgraded to help meet emissions ceilings.’’ By some estimates, electricity prices under cap-and-trade legislation 

may be 15 percent less if an EERS as well as an RES are also in place. Do you 

agree with this assessment? 

Answer. Energy efficiency investments offer some of the most cost-effective options for reducing greenhouse gas emissions. For example, U.S. EPA’s preliminary 

analysis of the Waxman-Markey Discussion Draft1 forecasts reduced allowance 

prices and reduced energy prices by dedicating a portion of allowance value to energy efficiency programs. EPA evaluated a scenario in which energy efficiency programs reduced electricity demand from reference case values by 4 percent in 2020, 

5 percent in 2030, and 4 percent in 2050. These investments resulted in an average 

10 percent reduction in allowance prices and a 2 percent reduction in electricity 

prices. EPA has not yet completed a full evaluation of the Waxman-Markey Discussion Draft, including the EERS and RES. Its preliminary analysis was limited to 

the cap-and-trade proposal. So while we can not comment specifically on the degree 

to which an EERS might reduce electricity prices, we do believe that energy efficiency investments and programs to promote energy efficiency investments will generally reduce the impacts of meeting a GHG emissions cap. 

Question 5. A key goal of U.S. energy policy is lessening our dependence on foreign oil. One way to achieve this goal would be a conversion of the transportation 

sector from petroleum to electricity through the phased-in and widespread use of hybrid cars, plug-in hybrid cars and fully electric cars. While this will lessen our dependence on foreign oil, it may put additional strains on our electricity system 

which may require additional generation investments. 

I am interested to hear your thoughts on how does the EERS will affect en electrification of the transportation sector? How would these two important policy goals 

work together? 

Answer. An EERS should be designed to promote beneficial technologies, such as 

smart meters which could assist vehicle electrification, that will shift energy consumption towards lower carbon options. Analysis by EPA indicates that if 10 percent of all passenger vehicles were plug-in hybrids and other electric vehicles, electricity demand could increase by over 1 percent. Although beneficial, this shift to 

electric vehicles would make it marginally more difficult to meet an EERS. The simplest way to accommodate the growth of electric vehicles in an EERS would be to 

net out electricity used to power vehicles from a utility’s EERS baseline. If actual 

vehicle consumption data were unavailable, utility baselines could be credited based 

on the number of customers reporting ownership of an electric vehicle or electric vehicle sales within the utility’s service territory. 

Question 6. How are other countries addressing energy efficiency and conservation? Have other countries adopted an EERS, or a similar mandate? 

Answer. National Grid’s international experience is focused in the United Kingdom, where we own and maintain the high-voltage electricity transmission system 

in England and Wales and operate the entire system across Great Britain. On the 

gas side, National Grid owns and operates the National Transmission System 

throughout Great Britain and owns and operates a significant gas distribution network throughout the heart of England. Presently, the UK does not have an EERS, 

but has adopted an ‘‘Energy Efficiency Action Plan,’’ which has a target to reduce 

energy consumption by nine percent by 2016. The full plan can be accessed at http:// 

ec.europa.eu/energy/demand/legislation/doc/neeap/uklen.pdf. National Grid’s UK 

energy efficiency efforts are largely directed towards its low-income assistance programs, such as our award winning ‘‘Affordable Warmth Programme,’’ which addresses fuel poverty by integrating a range of overlapping stand-alone funded energy efficiency programs and activities. 
62 

RESPONSES OF STEVEN NADEL TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1a. The push to enact a separate RES and EERS calls into question the 

goals of these standards—is to promote certain technologies, or to reduce greenhouse gas emissions? 

If energy efficiency is incorporated into an RES, it would seem to me that utilities 

would have a much better chance of meeting their requirements instead of facing 

penalties for noncompliance. Wouldn’t it be better to give them greater flexibility 

to succeed by adopting a single standard? 

Answer. On the one hand, energy-efficiency is widely available in all 50 states, 

and is also generally less expensive than renewable energy. Based on these considerations, yes utilities would have a better chance of meeting requirements if energy 

efficiency is included. But on the other hand, there are problems with combining the 

EERS and RES. First, the RES regulates ‘‘load serving entities’’ while the EERS 

regulates ‘‘distribution utilities’’. While these are often the same, where independent 

power companies supply power, they are different. We think that distribution utilities can generally do a better job delivering energy efficiency services than independent power companies. Second, most proposals to combine the RES and EERS 

use energy efficiency as a small ‘‘safety valve’’ with efficiency capped at 4-5% of 

sales by 2020. Energy efficiency can and should do much more than that and should 

not be capped at such a low percentage. We are much more open to combining an 

EERS and RES if efficiency targets of 10-15% are added to appropriate RES targets. 

Third, most proposals to combine the RES and EERS deal only with electricity; we 

think that natural gas needs to be addressed as well through its own EERS. Finally, 

the purpose of an RES is to promote use of renewable energy. We leave it to renewable energy advocates to comment on this further, but we know that they are concerned that the renewable targets would be too low if an EERS and RES are combined. 

Question 1b. If Congress decides to enact an RES instead of an EERS, should we 

allow an unlimited amount of the renewables mandate to be met through energy 

efficiency measures? 

Answer. Allowing unlimited efficiency in an RES would be good for efficiency, but 

depending on the overall target, could undermine the goal of promoting use of renewable energy. We think a combined EERS-RES is generally better than no EERS, 

but such a combination needs meaningful targets so that both efficiency and renewables are promoted beyond business-as-usual levels. 

Question 2. This bill appears to provide only penalties, and no incentives, to facilitate compliance with the proposed federal standard. Please describe what other 

measures, if any, you think should be incorporated to encourage distributors to 

reach energy savings goals. 

Answer. ACEEE believes that incentives have an important complementary role 

to play. We hope that energy legislation will also include incentives, such as some 

of the programs included in S. 661 as well as incentives for comprehensive retrofits 

to homes and commercial buildings, along the lines of the program in H.R. 1778. 

We also support allocating a portion of cap and trade emissions allowances to local 

distribution companies for the explicit purpose of helping to fund energy efficiency 

programs. Provisions along these lines were included in the Boxer-Liberman-Warner 

and Dingell-Boucher bills from the last Congress. Furthermore, S. 548 counts efficiency savings from codes and standards and we support several bills that would 

increase these savings such as S. 598 on appliance standards (sponsored by Senators Bingaman and Murkowski) and building code provisions and incentives that 

are now being developed by Committee staff. 

Question 3. I am concerned that requiring distribution utilities to develop and administer new energy efficiency programs, or obtain new technology will be expensive—especially for consumer-owned non-profits. The penalty payments called for by 

this legislation are very high, and there is also the likelihood of ‘‘layered’’ costs from 

an EERS, RES, and climate change legislation. How can we implement cost control 

mechanisms to keep costs for distributors—and therefore businesses and consumers—as low as possible? 

Answer. From our analyses, an EERS is an important cost control mechanism, 

helping to moderate energy cost increases and also reducing the cost of carbon emissions allowances, if cap and trade legislation is enacted. This is illustrated by the 

graphs on p. 16 of my written testimony. A similar finding is made in a just-released study by the National Renewable Energy Laboratory which found that the 

combination of an EERS and RES results in lower electricity prices than the 

basecase or an RES alone (see http://www.nrel.gov/docs/fy09osti/45877.pdf ). 

Furthermore, to ensure that costs are not too high, S. 548 includes alternative 

compliance payments of 5 cents per kWh or 50 cents per therm of natural gas. The 
63 

1Derived by ACEEE from: http://www.efficiencyvermont.com/stella/filelib/ 

EVTl2008lSavingslClaimlFinal.pdf. 

intent of these payments is to encourage utilities to operate energy efficiency programs that cost less than the alternative compliance payment. Preliminary results 

from ACEEE research now underway indicates that the average electric efficiency 

program costs about 3 cents per lifetime kWh saved, while natural gas programs 

cost an average of 29 cents per therm saved. If the ACP is reduced to be less than 

the average cost of programs, then many utilities will choose to pay the ACP and 

not operate programs. In addition, under S. 548, money from the ACP generally 

goes to the states to operate energy efficiency programs, so these funds will remain 

in-state. However, since the average cost of programs is about 2 cents per kWh and 

20 cents per therm higher than the ACP, there may be room to lower the ACP a 

little, but we would recommend going no lower than 4 cents per kWh and 40 cents 

per therm. 

One other point regarding ACP’s is worth mentioning—the ACP for an RES and 

for an EERS should probably be different, with the EERS ACP higher than that for 

the RES. This is the case because with energy efficiency investments, when energy 

is saved, less power needs to be purchased, so even 5 cents per kWh energy efficiency saves money when power costs 6 or more cents per kWh. With renewable energy, the ACP is in addition to the underlying cost of power, so if conventional 

power costs 6 cents per kWh, utilities will be willing to pay up to 11 cents per kWh 

to avoid a 5 cents per kWh ACP (6+5=11). A 5 cents per kWh ACP for efficiency 

saves consumers money, unlike a similar ACP for renewable which costs money. 

Question 4. The proposed EERS legislation would calculate a utility’s ‘‘businessas-usual’’ energy use by averaging its consumption levels in the 2 years prior to enactment. Utilities that are already making great efforts to reduce energy consumption—whether through a state-level EERS or their own initiative—may have a 

tougher time complying with the federal mandate due to their early action on energy efficiency. Should a federal EERS be designed to avoid disadvantaging those 

utilities, particularly compared to those who have taken no action? 

Answer. On the one hand, utilities that have active programs have already picked 

some ‘‘low hanging fruit’’ and will have to dig a little deeper to achieve the necessary savings. On the other hand, utilities with active programs already have the 

infrastructure in place and will not have to ramp-up as much, permitting them to 

achieve more savings in the early years than is required. We favor an approach 

whereby these utilities can ‘‘bank’’ extra savings achieved in early years and apply 

these to savings targets in later years. We think this is fair way to address this 

issue. 

I should also note that our studies find that there is a cost-effective opportunity 

for about 30% electricity savings throughout the country, and so if some states have 

already achieved 10% savings, they still have about another 20% savings left, leaving a 15% savings target very feasible. Furthermore, the pool of available savings 

keeps increasing as new technologies are developed, such as LED lighting and improved heating/cooling controls. 

Question 5. Under Senator Schumer’s bill, the federal EERS would require electricity savings of 15 percent, and natural gas savings of 10 percent, over the course 

of a decade. For the sake of comparison, can any of you provide the percentage savings that were achieved by these distributors over the course of the past ten years? 

Answer. Energy efficiency savings achieved by electric and natural gas distributors range enormously from essentially zero to fairly significant savings. For example, Efficiency Vermont, which operates statewide programs under contract with the 

Vermont utility commission, has achieved approximately 9% electricity savings over 

the 2000-2008 period.1 While I do not have the exact figures, my understanding is 

that savings in California and the Pacific Northwest have been even higher on a 

cumulative basis, but they have needed a longer period of time. For natural gas utilities, data ACEEE has compiled from utilities for a forthcoming report indicates 

that savings from Vermont Gas programs total 7.8% of 2006 sales. Vermont Gas 

began programs in 1999. Similarly, Iowa gas utilities have saved 8.2% of 2006 sales 

from programs operated over the 1996-2006 period. 

Question 6. You support an amendment to S. 548 to make clear that DOE should 

factor in growth in electric and natural gas vehicle sales when setting post-2020 targets. Does the bill, as drafted, make any allowance for an increase in economic activity? I’m concerned that while this bill claims to mandate ‘‘efficiency,’’ it really focuses on reducing total ‘‘consumption,’’ and these are two different things. Increases 

in energy consumption can result from an increase in economic activities, especially 

in manufacturing, even when new use is highly efficient. 
64 

Answer. The bill requires that a specific level of energy savings be demonstrated 

relative to a rolling baseline. It does not use a fixed baseline, such as sales in 2008. 

By using a rolling baseline, in rapidly growing areas, sales can still grow with an 

EERS, they just grow a little more slowly. This is illustrated by the graph on p. 

6 of my written testimony. Under the bill, there is no cap on consumption, just a 

requirement to demonstrate efficiency savings through program evaluations. 

Question 7. In March 2005, ACEEE submitted a statement to the record after this 

committee held a hearing on ‘‘Power Generation Resource Incentives and Diversity 

Standards.’’ At that time, your organization endorsed a credit trading system to help 

utilities meet their requirements. In this Congress, however, that credit trading 

compliance option has been replaced by a different option—bilateral agreements— 

that appear much more limited. Please explain. 

Answer. We worked with many other organizations to develop this year’s legislation. Some of these organizations were concerned about the time and resources 

needed to establish and oversee a national trading market. They were also concerned about opportunities for markets leading to some perverse results, as has happened recently in some financial markets (e.g. derivatives). Bilateral trades are simpler and can be overseen by state regulators. Also, our studies show that large efficiency opportunities are available in all regions, and therefore there is less need for 

trading with efficiency credits than with other types of credits now being discussed 

in Congress (e.g. emissions allowances and renewable energy credits). 

Question 8. In that same statement, your organization also noted that an EERS 

could be combined with a Renewable Portfolio Standard. ACEEE also offered several 

suggestions for how a ‘‘Clean Energy Resource Standard’’ could be enacted—a standard that could have included energy efficiency, renewable energy, combined heat 

and power, and even clean coal and nuclear. Does your organization no longer support the enactment of such a standard? 

Answer. The proposed EERS does include combined heat and power. We are neutral on whether other clean resources are added to an EERS and RES provided that 

as additional resources are included, the targets need to increase so that they still 

promote substantial cost-effective efficiency investments. However, we note that 

adding additional resources increases support by some members but loses support 

from other members. We leave it to Congress to find the ‘‘sweet spot’’ where support 

is maximized. 

Question 9. Your organization released two reports on the federal EERS last month. The first projects consumer savings of $168 billion over the standard’s lifespan. The second lists decoupling as one of the most important factors in achieving 

‘‘future higher’’ energy efficiency goals. Does your $168 billion estimate take into account the need for—and spending that could be associated with—decoupling? 

Answer. ACEEE believes that decoupling is a useful complement to an EERS. 

However, there are also other ways to improve the business case for utility investments in energy efficiency. The EERS bill deliberately leaves decisions on how best 

to handle these issues to state utility commissions. Therefore, we did not include 

any costs associated with decoupling in our savings estimates. That said, our savings projections use very conservative estimates of future electricity costs prepared 

by EIA. Most other forecasts predict higher electricity prices, which would increase 

the value of savings relative to our forecast. So even if decoupling were to modestly 

reduce savings, this would be compensated by the fact that electricity savings are 

likely to be more valuable than EIA predicts. 

Question 10. This bill appears to provide only penalties, and no incentives, to facilitate compliance with the proposed federal standard. Please describe what other 

measures, if any, you think should be incorporated to encourage distributors to 

reach their energy savings goals. 

Answer. This is the same question as question # 2. 

Question 11. I’m intrigued by ‘‘Efficiency Vermont,’’ which is the non-profit, statewide provider of energy efficiency services in Vermont. This is a very different structure than what S. 548 calls for, but I understand it’s has been very successful so 

far—the savings being achieved in Vermont are now among the highest levels of any 

state. Can any of you discuss ‘‘Efficiency Vermont’’ in greater detail, and what the 

pros and cons of a similar approach at the federal level would be? 

Answer. Efficiency Vermont is a statewide program coordinated by the Vermont 

Public Service Commission, and operated by a private non-profit organization—the 

Vermont Energy Investment Corp. (VEIC). VEIC was selected through a competitive 

request for proposals. The Efficiency Vermont budget is funded through a charge on 

electric bills by participating utilities. Efficiency Vermont began operations in 2000 

and has developed a broad range of efficiency programs to serve many different submarkets, which is illustrated in the graphic on p. 11 of my written testimony. Their 

programs have been well received, and in recent years, the Commission has in-
65 

creased their budget. This in turn has allowed them to dramatically increase their 

annual savings, as shown in the graph on p. 12 of my written testimony. Additional 

information can be found in their annual report, available at: http:// 

www.efficiencyvermont.com/stella/filelib/AR07RevisedlExec%20SummlMW.pdf 

The Efficiency Vermont model works very well due to their excellent staff, good 

planning and management, substantial budget, statewide operation, and a good 

working relationship with regulators. While this model has worked very well in 

Vermont, and a variation on this model is working in Oregon, it may not work everywhere. For example, Delaware has been trying to replicate the Vermont model 

but has been having difficulty due to a limited budget and the lack of a good instate organization to run the programs. From our review of the different states, 

other models for operating programs can also work. For example, Connecticut, Iowa, 

Massachusetts and Rhode Island have achieved very good results with utility-run 

programs. And in New York a state ‘‘authority’’ (a quasi-independent state agency) 

does a good job running programs. In all these cases, the successful program operators are well managed, believe in what they are doing, have good in-state staff, have 

had strong budgets for multiple years, are not impeded by too many bureaucratic 

rules, and have good regulatory support. These criteria can be met under a variety 

of models and we don’t believe any single model is ‘‘the answer’’ in all states. Based 

on these findings, we believe the decision on whether to follow the Vermont model, 

or whether to use another model, should be made at the state level and not the federal level. 

RESPONSES OF STEVEN NADEL TO QUESTIONS FROM SENATOR SHAHEEN

Question 1. As today’s witnesses have noted, energy efficiency measures are incredibly important to address our nation’s energy challenges. I think it is important 

to craft federal policies that incentivize investments in energy efficiency. 

One of the concerns that I am aware of with an EERS, however, is that of market 

manipulation. Under an energy efficiency credit trading program, we may be giving 

credit for actions that would have already been taken regardless of an EERS mandate. 

Many NE states are implementing policies to require utilities to procure all costeffective energy efficiency. These least cost procurement policies, for example, require that a distribution company obtain all cost effective energy efficiency up to the 

electric supply cost. The goals seem the same as an EERS, with an emphasis on 

cost-effective measures, and seem to avoid some of the issues of market manipulation. 

Would you care to comment on least cost procurement policies and how they compare to an EERS? 

Answer. Least-cost procurement policies can work well where the utilities do a 

good job considering energy efficiency as a resource and where regulators have the 

skills and interest to oversee these analyses. These factors generally apply in New 

England, where many states are using least-cost procurement. But in some other 

regions, utilities are not very interested in considering energy efficiency on a par 

with other resources, and utility commissions may lack the staff, skills or interest 

to hold these utilities accountable. In my home state of Maryland, in the 1990s the 

utilities claimed that there was no efficiency resource that was cost-effective for utilities to pursue and the Commission did not challenge this. It took a new Governor 

and a legislated EERS to change the situation and only now are programs beginning. Furthermore, planning processes take time, delaying the start of programs by 

several years. An EERS can be enacted and programs quickly begun. Such an EERS 

should be based on levels of energy efficiency found to be achievable and cost-effective in a variety of states. States can then conduct planning processes to see if higher savings are achievable and cost-effective. For example, Connecticut has an EERS 

requiring 1% additional electricity savings each year, and they then conducted a 

planning process which is recommending much higher levels of efficiency savings. 

Question 2. In New Hampshire, we are addressing efficiency and energy conservation by taking auction revenues from RGGI, the United States’ first cap-and-trade 

program for greenhouse gases, and investing those revenues in these energy saving 

and conservation efforts. In your view, is it more cost effective and efficient to establish an EERS mandate or invest auction revenues in efficiency and conservation 

measures? What are the trade-offs? 

Answer. The two policies are complimentary. An EERS sets savings targets. Use 

of auction revenue can help fund programs to reach those targets. Ideally both will 

be done. We believe it is important to set savings targets, so that progress can be 

monitored and programs encouraged to maximize savings per dollar invested. The 

goal is achieving savings, and spending money is just a means toward that end. If 
66 

2 Information on many of the European programs can be found at: http://re.jrc.ec.europa.eu/ 

energyefficiency/events.htm 

just funds are provided, it is unclear how much savings will be achieved and whether cost-effectiveness will be maximized. 

Question 3. It has often been said by those seeking to address climate change that 

the single most important thing we can do to address climate is put a price on carbon. A price on carbon will, in turn, incentivize renewable electricity and energy 

conservation measures. Is a national EERS necessary to deploy energy conservation 

and efficiency improvements if we enact a cap-and-trade program in the US? 

Answer. There are many market barriers that impede energy efficiency investments, as discussed in my written testimony. Due to these market barriers, many 

cost-effective efficiency investments are not being pursued today. Adding a carbon 

price will modestly increase energy prices and modestly increase efficiency investments. To more dramatically increase efficiency investments, supportive programs 

and policies are needed. In our view, an EERS is probably the most important of 

these policies. 

Question 4. There have been some who suggest an EERS will reduce the cost of 

a cap-and-trade program. A report by ACEEE states that, ‘‘energy efficiency reduces 

the cost of cap-and-trade because less new energy facilities are needed and also because a smaller portion of existing facilities need to be upgraded to help meet emissions ceilings.’’ By some estimates, electricity prices under cap-and-trade legislation 

may be 15 percent less if an EERS as well as an RES are also in place. Do you 

agree with this assessment? 

Answer. Yes, we wrote that assessment and we agree with it. I assume this question is more for the other witnesses and therefore will not elaborate further. 

Question 5. A key goal of U.S. energy policy is lessening our dependence on foreign oil. One way to achieve this goal would be a conversion of the transportation 

sector from petroleum to electricity through the phased-in and widespread use of hybrid cars, plug-in hybrid cars and fully electric cars. While this will lessen our dependence on foreign oil, it may put additional strains on our electricity system 

which may require additional generation investments. 

I am interested to hear your thoughts on how does the EERS will affect en electrification of the transportation sector? How would these two important policy goals 

work together? 

Answer. Electrification of the transportation sector is in its infancy and therefore 

will have little effect on EERS targets in the early years. As noted in my written 

testimony, we recommend that DOE monitor the success of efforts to electrify the 

transportation sector, and consider increased electricity sales from transportation, 

and opportunities for efficiency improvements in transportation, when setting future 

EERS targets. If efforts to electrify the transportation sector are effective, we would 

expect this to have a significant effect on future targets. 

Question 6. How are other countries addressing energy efficiency and conservation? Have other countries adopted an EERS, or a similar mandate? 

Answer. EERS-like policies are becoming common in Europe. These policies are 

often called ‘‘white certificates’’ in Europe, while renewable energy standards are 

generally called ‘‘green certificates’’. The United Kingdom has had residential energy savings targets since 2002 and is now in their third three-year implementation 

period. Utilities exceeded targets for the first two implementation periods. Italy, 

France, Denmark and the Flanders region of Belgium are all implementing white 

certificate programs and our understanding is that targets are being met. For example, in Italy the targets apply to electric and gas utilities and are expressed in tons 

of oil equivalent (TOE). In Italy, the 2005-2007 target was 1.1 TOE, but utilities 

and third-party providers together achieved 2.0 TOE of savings. In addition, Poland 

is now developing a program. Furthermore, the entire European Union (EU) has 

adopted the ‘‘Energy Services Directive’’ which directs all member states to develop 

policies to achieve 20% energy efficiency savings by 2020. The various memberstates have prepared initial plans and are now refining their plans and starting to 

implement them.2

RESPONSES OF PAUL A. CENTOLELLA TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1a. The push to enact a separate RES and EERS calls into question the 

goals of these standards—is to promote certain technologies, or to reduce greenhouse gas emissions? 

If energy efficiency is incorporated into an RES, it would seem to me that utilities 

would have a much better chance of meeting their requirements instead of facing 
67 

penalties for noncompliance. Wouldn’t it be better to give them greater flexibility 

to succeed by adopting a single standard? 

Question 1b. If Congress decides to enact an RES instead of an EERS, should we 

allow an unlimited amount of the renewables mandate to be met through energy 

efficiency measures? 

Answer. Ohio has an aggressive Energy Efficiency Standard which is separate 

from our Renewable Energy Standard. Such a separate efficiency standard is appropriate because it addresses a failure of the market to produce an economically efficient outcome and improves overall economic productivity independent of concerns 

related to greenhouse gas emissions. There is compelling evidence that utility efficiency programs can reduce the total cost of providing energy services. Ohio’s electricity law includes a strong Energy Efficiency Standard and provides flexibility 

with respect to the use of surplus energy efficiency savings, in excess of those required to meet annual Energy Efficiency Standard benchmarks. In addition to its 

Energy Efficiency and Peak Demand Reduction Standards, Ohio has an Alternative 

Energy Standard. By 2025, twenty-five percent of electricity sales must be provided 

by Alternative Energy Resources. Alternative Energy includes both Renewable Energy and Advanced Energy Resources. A minimum of fifty percent of Ohio’s Alternative Energy Standard, or 12.5% of 2025 retail sales, must come from Renewable 

Energy Resources. Additionally, there are escalating annual Renewable Energy and 

Solar Energy Resource benchmarks. The remaining portion of the Alternative Energy Standard, up to fifty percent, can be met using either Advanced Energy Resources or Renewable Energy Resources. Utilities may elect either to bank surplus 

energy savings and apply them to meet future Energy Efficiency Standard benchmarks; or they may elect to apply energy savings in excess of their Energy Efficiency benchmarks to their Advanced Energy requirement, that is the non-renewable portion of Ohio’s Alternative Energy Standard. Energy efficiency savings cannot be double counted for purposes of complying with more than one standard. 

If Congress decides to provide additional flexibility for RES compliance, it should 

do so directly, not by combining the RES and an Energy Efficiency Standard. For 

example, Ohio’s RES authorizes reductions in a utility’s RES benchmark if the total 

expected cost of generation to consumers while satisfying the requirement exceeds 

the comparable cost to consumers without meeting the benchmark by more than 

three percent. 

Current proposals, which address energy efficiency only as a means to meet Renewable Energy Standards, are unlikely to significantly increase energy savings. 

Other witnesses have testified that existing state Energy Efficiency Standards could 

produce an amount of energy savings equal to or greater than the ceiling on the 

use efficiency to comply with the RES in such proposals. 

If Congress were to adopt an RES, without an Energy Efficiency Standard, and 

allow the unlimited participation of energy efficiency for meeting RES requirements, 

the effects would be different in different states depending on state energy efficiency 

standards, the impact of different market structures on utility incentives to support 

energy efficiency, and state Commission policies related to utility efficiency programs. This approach would not provide the same catalyst to increasing energy savings as would be provided under a separate Energy Efficiency Standard. 

Removing limits on the extent to which energy efficiency can be used to comply 

with an RES also could mean less renewable energy development in some regions. 

In deciding whether to adopt such an approach, Congress should consider the potential economic benefits of an RES. The key economic arguments for an RES include 

that: 

• In some cases, an RES may tend to reduce the costs to consumers of achieving 

greenhouse gas reductions and may mitigate the impact of greenhouse gas regulation on competitive electric prices. This result can occur, in part, because most 

renewable energy resources have very low operating costs, reduce the need to 

run generating units with higher variable operating costs, and allow energy 

prices in organized electricity markets to be set by lower cost units. Other strategies for reducing carbon emissions based on changes in generating capacity 

have significant costs. 

• An RES could allow manufacturers to achieve economies of scale and drive 

down the cost of clean, renewable energy. 

The Ohio General Assembly enacted separate energy efficiency and renewable energy standards and gave the Ohio Commission flexibility to administer the standards in a reasonable manner without unduly penalizing utilities and consumers or 

compromising the achievement energy efficiency and renewable energy benchmarks. 

This is a sound model for structuring such standards. 
68 

Question 2. This bill appears to provide only penalties, and no incentives, to facilitate compliance with the proposed federal standard. Please describe what other 

measures, if any, you think should be incorporated to encourage distributors to 

reach energy savings goals. 

Answer. Utility regulation inherently involves a combination of both rules, which 

must be backed by penalties for non-compliance, and, insofar as may be possible, 

aligning utility incentives with public policy objectives. 

Congress has on several occasions directed the States to consider regulatory policies that would better align utility incentives with encouraging distribution utilities 

to promote energy savings. For example, in the Public Utility Regulatory Policies 

Act, 16 U.S.C. §2601(d) (8) and (9), Congress required State Commissions to hold 

hearings and consider adoption of the following standards: 

(8) Investments in conservation and demand management.—The rates allowed to be charged by a State regulated electric utility shall be such that the 

utility’s investment in and expenditures for energy conservation, energy efficiency resources, and other demand side management measures are at least as 

profitable, giving appropriate consideration to income lost from reduced sales 

due to investments in and expenditures for conservation and efficiency, as its 

investments in and expenditures for the construction of new generation, transmission, and distribution equipment. Such energy conservation, energy efficiency resources and other demand side management measures shall be appropriately monitored and evaluated. 

(9) Energy efficiency investments in power generation and supply.—The rates 

charged by any electric utility shall be such that the utility is encouraged to 

make investments in, and expenditures for, all cost-effective improvements in 

the energy efficiency of power generation, transmission and distribution. In considering regulatory changes to achieve the objectives of this paragraph, State 

regulatory authorities and nonregulated electric utilities shall consider the disincentives caused by existing ratemaking policies, and practices, and consider 

incentives that would encourage better maintenance, and investment in more 

efficient power generation, transmission and distribution equipment. 

Congress took further action in the Energy Independence and Security Act of 

2007, requiring the States to consider the following standard: 

(17) Rate Design Modifications to Promote Energy Efficiency Investments. 

(A) In General—The rates allowed to be charged by any electric utility 

shall— 

(i) align utility incentives with the delivery of cost-effective energy efficiency; and 

(ii) promote energy efficiency investments. 

(B) Policy Options—In complying with subparagraph (A), each State regulatory authority and each nonregulated utility shall consider— 

(i) removing the throughput incentive and other regulatory and management disincentives to energy efficiency; 

(ii) providing utility incentives for the successful management of energy 

efficiency programs; 

(iii) including the impact on adoption of energy efficiency as 1 of the goals 

of retail rate design, recognizing that energy efficiency must be balanced 

with other objectives; 

(iv) adopting rate designs that encourage energy efficiency for each customer class; 

(v) allowing timely recovery of energy efficiency-related costs; and (vi) offering home energy audits, offering demand response programs, publicizing 

the financial and environmental benefits associated with making home energy efficiency improvements, and educating homeowners about all existing 

Federal and State incentives, including the availability of low-cost loans, 

that make energy efficiency improvements more affordable. 

And, the American Recovery and Reinvestment Act of 2009 made the receipt of 

certain energy efficiency grants conditioned upon the Governor in each state obtaining necessary assurances that: 

The applicable State regulatory authority will seek to implement, in appropriate proceedings for each electric and gas utility, with respect to which 

the State regulatory authority has ratemaking authority, a general policy 

that ensures that utility financial incentives are aligned with helping their 
69 

1 American Recovery and Reinvestment Act of 2009, §410(a)(1) 

2 ‘‘Total resource cost test’’ means an analysis to determine if, for an investment in energy 

efficiency or peak-demand reduction measure or program, on a life-cycle basis, the present value 

of the avoided supply costs for the periods of load reduction, valued at marginal cost, are greater 

than the present value of the monetary costs of the demand-side measure or program borne by 

both the electric utility and the participants, plus the increase in supply costs for any periods 

of increased load resulting directly from the measure or program adoption. Supply costs are 

those costs of supplying energy and/or capacity that are avoided by the investment, including 

generation, transmission, and distribution to customers. Demand-side measure or program costs 

include, but are not limited to. the costs for equipment, installation, operation and maintenance, 

removal of replaced equipment, and program administration, net of any residual benefits and 

avoided expenses such as the comparable costs for devices that would otherwise have been installed, the salvage value of removed equipment and any tax credits. In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-EL-ORD, Opinion and Order (April 

15, 2009) at Section 4901:1-39-01(W). 

customers use energy more efficiently and that provide timely cost recovery 

and a timely earnings opportunity for utilities associated with cost-effective 

measurable and verifiable efficiency savings, in a way that sustains or enhances utility customers’ incentives to use energy more efficiently.1

Many States based on their own State policies and in response to these Federal 

standards have taken actions to align electric distribution utility incentives with the 

achievement of energy savings objectives. 

One of the lessons from Congress’ past efforts to address this issue is that it is 

not possible to legislate an effective incentive mechanism that will be applicable in 

all states. For example, in the recent past, some proposed requiring States to ‘‘decouple’’ a utility’s recovery of fixed costs from sales levels. While this can be a valuable reform, some utilities have rate structures that are not cost based and others 

have already adopted rate designs which appropriately recover fixed costs through 

fixed charges. And, in the case of a utility holding company that is selling generation at FERC approved market-based rates, it may not be possible to fully align the 

company’s incentives with achieving energy savings targets. For such a company, 

energy savings, at least in the short run, could mean lower prices for all of its generation sales. This issue can be addressed, in some cases, through third party program administration. However, as these examples illustrate, there is no single way 

in which utility incentives become aligned with reaching energy savings goals. 

Question 3. I am concerned that requiring distribution utilities to develop and administer new energy efficiency programs, or obtain new technology will be expensive—especially for consumer-owned non-profits. The penalty payments called for by 

this legislation are very high, and there is also the likelihood of ‘‘layered’’ costs from 

an EERS, RES, and climate change legislation. How can we implement cost control 

mechanisms to keep costs for distributors—and therefore businesses and consumers—as low as possible? 

Answer. An Energy Efficiency Standard that is based on achieving the maximum 

cost effective potential under a Total Resource Cost test2 will reduce costs to consumers and businesses. Additionally, it will significantly reduce the costs of achieving reductions in greenhouse gas emissions. This is why it is important to adopt a 

national energy efficiency standard which will either provide a catalyst for the remaining States to adopt comparable state standards or take effect in the absence 

of appropriate State action. 

As indicated in my prepared testimony, States should have the flexibility to opt 

out of a Federal efficiency standard by adopting a State standard with an equivalent 

basis, where: 

• The State has set, in any form, clearly defined energy efficiency benchmarks; 

• Utilities or the State periodically assess the maximum achievable cost-effective 

level of energy efficiency improvements and that assessment is subject to public 

review; 

• The State certifies to the Secretary of Energy that the State has implemented 

energy efficiency standards and policies designed to achieve maximum achievable cost effective energy efficiency improvements; and 

• The state periodically reports progress toward achieving its benchmarks. 

For purposes of the exemption, cost effective measures and programs may be defined by Federal statute as based on a total resource cost or societal test. 

Ohio has adopted a total resource cost test for purposes of identifying cost-effective energy efficiency improvements. We would be happy to work with the Committee to craft an opt-out provision for States that have implemented or will imple-
70 

3 Incremental energy savings are the effects caused by new program participants and new demand-side programs during a specific year. They do not reflect the total impact of given year’s 

program expenditures as energy savings can persist for many years based on the life of the efficiency measure. 4 U.S. Energy Information Administration, U.S. Electric Utility Demand-Side Management: 

Trends and Analysis (1995), available at: http://www.eia.doe.gov/cneaf/pubslhtml/featldsm/ 

contents.html 5 U.S. Energy Information Administration, 2007Electric Power Annual (January 21, 2009). 

ment standards consistent with achieving maximum cost-effective energy efficiency 

improvements. 

To further reduce any negative cost impact, I also have recommended: 

• To the extent that a State does not develop its own benchmarks, but adopts and 

administers the proposed Federal standard, Federal legislation should authorize 

the State commission to modify a utility’s benchmarks where the utility is unable to meet the benchmark due to regulatory, economic, or technological reasons beyond its reasonable control and has exhausted all reasonable compliance 

options. 

• A national standard authorizing the banking of surplus energy savings for use 

in meeting any subsequent year’s savings benchmark. 

Many consumer-owned non-profit utilities have been leaders in promoting energy 

efficiency. Cost-effective energy savings should have comparable benefits for consumers and businesses served by these utility cooperatives. 

Question 4. The proposed EERS legislation would calculate a utility’s ‘‘businessas-usual’’ energy use by averaging its consumption levels in the 2 years prior to enactment. Utilities that are already making great efforts to reduce energy consumption—whether through a state-level EERS or their own initiative—may have a 

tougher time complying with the federal mandate due to their early action on energy efficiency. Should a federal EERS be designed to avoid disadvantaging those 

utilities, particularly compared to those who have taken no action? 

Answer. There are many factors, including but not limited to past initiatives, 

which can impact a utility’s maximum achievable cost-effective energy savings. It 

is precisely these differences which can be effectively addressed by the modifications 

to S. 548 proposed in my prepared testimony. 

Question 5. Under Senator Schumer’s bill, the federal EERS would require electricity savings of 15 percent, and natural gas savings of 10 percent, over the course 

of a decade. For the sake of comparison, can any of you provide the percentage savings that were achieved by these distributors over the course of the past ten years? 

Answer. The U.S. Energy Information Administration collects and publishes data 

on energy savings from electric utility energy efficiency and other demand-side management programs. I am not aware of comparable data on gas utility energy savings. 

Incremental energy savings3 from electric utility demand-side management programs peaked in 1993 at 8,980 gigawatt hours or 0.3% of annual retail sales. In 

1993, electric utilities spent $2.74 billion implementing demand-side management 

programs. With an increased focus on retail competition policy, demand-side management spending by electric utilities and the resulting annual energy savings fell 

in the mid-to late-1990s and the early part of this decade.4 Utility expenditures and 

savings began to recover in 2005. In 2007, the most recent year for which national 

figures are available, U.S. electric utilities spent $2.53 billion on demand-side management programs and incremental energy savings from electric utility programs 

equaled 7,821 gigawatt hours or 0.2% of total retail sales.5

Question 6. The Ohio law gives your Commission the flexibility to address changing and unanticipated conditions. For example, the law allows a utility to file an 

application to amend the standard if they cannot meet it due to regulatory, economic, or technological reasons beyond reasonable control. The law further allows 

the PUC to reduce a utility’s baseline to account for new economic growth. Shouldn’t 

any federal EERS program have similar flexibilities built into it? 

Answer. As indicated in my prepared testimony, where a State adopts and administers the proposed Federal standard, S. 548 should be modified to authorize the 

State commission to modify a utility’s benchmarks where the utility is unable to 

meet the benchmark due to regulatory, economic, or technological reasons beyond 

its reasonable control and has exhausted all other reasonable compliance options. 

This is consistent with the provision in Ohio’s efficiency standard. It ensures that 

utilities are required to pursue only cost-effective and reasonably achievable efficiency improvements. 
71 

6 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Opinion and Order (April 15, 2009). 

The provision in Ohio’s law permitting the Commission to adjust a utility’s baseline for new economic growth provides an additional element of flexibility, but is expected to have limited application. As the Commission stated in adopting its Rules 

on the efficiency standard: 

We expect that any baseline adjustments made to account for economic 

growth typically will be temporary, and will address circumstances in which 

unanticipated increases in the overall rate of growth have made full compliance infeasible. We also expect that any adjustments will account not only 

for positive economic growth, but also negative economic growth. This is 

clearly pertinent to the economic conditions that have developed since SB 

221 went into effect.6

The Commission has interpreted this provision of the statute in a manner consistent with provisions on baseline normalization which require any proposed adjustments to be made in a consistent manner from year to year. 

Question 7. According to a recent article in the Wall Street Journal, ?customers 

of Duke Energy in Cincinnati will see a monthly fee for gas service jump to more 

than $25 in June from $6 in 2008, in addition to a charge based on the amount 

of gas consumed, to make up for reduced gas usage.? Other utilities in Ohio are also 

assessing fees on their customers. Can you discuss the importance of decoupling, 

from the perspective of a utility, and the ultimate impact that it could have on the 

level of ‘‘savings’’ projected by ACEEE? 

Answer. It is important to note that volumetric rates are being reduced along with 

the increase in the fixed charge such that the average customer is paying no more 

than under a more traditional rate design. The distribution rate increase is being 

phased in over two years. An average Duke residential customer using 810 hundred 

cubic feet (ccf) of gas each year will see their total bill increase $3.40 per month 

in year one and another 60 cents per month in year two. The increase on the average customer’s bill is a result of the rate increase, not the change to a levelized rate 

structure. The PUCO redesigned the rates so that most of the fixed costs will be 

charged in a flat monthly rate. There will be a significant reduction in the part of 

the bill that varies with the amount of gas used. After accounting for the higher 

flat rate and the lower usage-based rate, the total increase is minimal. The Commission also directed Duke to undertake a program that mitigates impacts of the increased fixed charge for low income, low use consumers. 

So, while an average residential customer using 810 ccf of gas a year will see a 

small increase in rates due to the overall rate increase, that customer will see no 

impact from the change in rate design. That’s because the decrease in the usagebased part of the rate offsets the increase in the flat monthly charge over the course 

of the year for the average consumer. This has the added benefit of spreading out 

the delivery costs more evenly throughout the year, so customers aren’t paying more 

of the fixed costs during the winter months, when bills are already the highest. 

It is wrong to characterize the move to more recovery through the fixed charge 

as an additional ‘‘monthly fee’’. From a natural gas utility’s perspective, it is not realistic for that utility to undertake investments in energy efficiency without addressing the impact that investment will have on the Company’s recovery of its largely 

fixed distribution and administrative costs. Historically, utilities such as Duke recovered a large portion of their fixed costs for gas distribution through rates charged 

on a volumetric (per ccf) basis. We have seen reductions in per customer gas usage 

in recent years as a response to increasing commodity prices. One cannot expect a 

utility to actively accelerate a decline in its ability to recover fixed costs through 

energy efficiency programs without mitigating the revenue erosion that would result 

from the Company’s prior rate design. That decoupling can be done through a Decoupling Rider, through directly compensating the utility for the energy efficiency 

program impacts (i.e. ‘‘lost revenues’’), or through appropriate rate design as Ohio 

has chosen to do in this case. 

Question 8. That same article also states that ‘‘Duke’s electricity business implemented a program that allows it to get reimbursed by the state if it loses revenue 

for encouraging energy efficiency.’’ How much does the State of Ohio expect to spend 

on that program? At the federal level, could a similar program put the government 

on the hook for unprecedented new levels of spending? 

Answer. The Wall Street Journal article is not entirely accurate in that there will 

be no expenditure of State funds associated lost revenues for Duke Energy Ohio’s 

energy savings programs. The article appears to be referring to a provision, which 
72 

7 In the Matter of the Application of Duke Energy Ohio, Inc., for Approval of an Electric Security Plan, Public Utilities Commission of Ohio Case No. 08-920-EL-SSO, Opinion and Order (December 17, 2008). 8 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Opinion and Order (April 15, 2009). 

was stipulated to by a broad range of parties and adopted by the Commission, permitting Duke to recover from ratepayers the lost margin associated with rate designs that recover a portion of fixed distribution costs through rates based on kWh 

sales. This provision does not change the utility’s total allowed revenue requirements. It allows the utility to adjust rates based on verified energy savings only to 

the extent that some of the Company’s fixed distribution costs are being recovered 

through charges based on kWh sales. This provision will have a small impact on 

rates. Our Order further provided, consistent with the agreement of the parties, 

that, ‘‘if the Commission adopts a decoupling or straight fixed variable rate design, 

Duke will discuss and implement an appropriate adjustment to its recovery of lost 

margins. . . ’’7

Question 9. Last Congress, Senator Schumer’s EERS legislation included a provision to establish a system of tradable credits to help facilitate compliance. You’ve 

indicated your support for that type system, but it isn’t part of the legislation we’re 

currently considering. Can you describe the differences you see between tradable 

credits and their replacement in this bill, bilateral transactions? 

Answer. In certain circumstances, S. 548 permits bilateral transfers of savings 

among utilities in a single state or electric utilities in a single power pool. As a condition of using purchased savings under S. 548, the State commission that regulates 

the purchasing utility would have to oversee the measurement and verification of 

savings achieved by the transferring party. And, S. 548 permits the Secretary of Energy to limit the proportion of energy savings benchmarks that can be met by such 

purchases. 

The development of a well designed energy efficiency credit program could lead 

to a more open and transparent market for energy savings. It could help ensure that 

the most cost-effective efficiency improvements are undertaken first. 

A more flexible energy efficiency credit trading program would require the independent application of standard measurement and verification protocols and provisions to ensure that savings are not inappropriately double counted toward meeting 

multiple requirements. However, State or power pool limitations on trading, requirements that measurement and verification be overseen by the regulatory authority 

in the purchasing State, and potential limits on the proportion of savings that can 

be met by purchases are not necessary terms of an energy savings credit trading 

program. A more precise comparison would depend on the terms and conditions of 

any authorized energy efficiency credit trading program. 

The Ohio Commission has not had the opportunity to review detailed proposals 

for energy efficiency credit trading. In adopting the rules governing Ohio’s efficiency 

standard, our Commission stated that, ‘‘While the Commission is open to the construct of energy efficiency credits, we are unaware of any accreditation regime currently operating in Ohio. The energy efficiency rules adopted herein do not prevent 

or preclude the use of energy efficiency credits and should such a regime be created, 

we may reconsider [this] suggestion.’’8

Question 10. Can you describe, in greater detail, the importance of allowing excess 

savings to be ‘‘banked’’? What will happen if an EERS is passed without a ‘‘banking’’ 

provision for retail distributors? 

Answer. First, banking provides an incentive for early reductions that might not 

otherwise be implemented. In the absence of banking, utilities could have an incentive to plan programs that will meet, but not exceed, annual benchmarks or to suspend programs each year when benchmarks have been met. Program suspensions 

undermine the ability of consumers and trade allies, such as contractors and equipment vendors, to rely on programs and will tend to make programs more costly and 

less effective. 

Second, banking will provide utilities additional flexibility in complying with the 

standards in later years. Early surplus energy savings will permit utilities, if necessary, to stretch the transition to meeting increasingly aggressive annual benchmarks. 

Third, the availability of banking will tend to deter litigation designed to delay 

the application of the standards, as such litigation will also defer or eliminate the 

opportunity to bank early surplus energy savings. 
73 

9 In the Matter of the Adoption of Rules for Alternative and Renewable Energy Technology, 

Resources, and Climate Regulations, Public Utilities Commission of Ohio Case No. 08-888-ELORD, Opinion and Order (April 15, 2009). 10Section 4928.143(B)(2)(b) and (c), Ohio Revised Code. 

RESPONSES OF PAUL A. CENTOLELLA TO QUESTIONS FROM SENATOR SHAHEEN

Question 1. As today’s witnesses have noted, energy efficiency measures are incredibly important to address our nation’s energy challenges. I think it is important 

to craft federal policies that incentivize investments in energy efficiency. 

One of the concerns that I am aware of with an EERS, however, is that of market 

manipulation. Under an energy efficiency credit trading program, we may be giving 

credit for actions that would have already been taken regardless of an EERS mandate. 

Many NE states are implementing policies to require utilities to procure all costeffective energy efficiency. These least cost procurement policies, for example, require that a distribution company obtain all cost effective energy efficiency up to the 

electric supply cost. The goals seem the same as an EERS, with an emphasis on 

cost-effective measures, and seem to avoid some of the issues of market manipulation. 

Would you care to comment on least cost procurement policies and how they compare to an EERS? 

Answer. Least cost procurement policies are a valuable complement to an Energy 

Efficiency Standard. The annual benchmarks in Ohio’s Energy Efficiency Standard 

are the minimum levels of energy savings that electric utility efficiency programs 

must achieve. Our Commission’s rules require Ohio electric utilities to evaluate the 

technical, economic, and achievable potential for energy savings and to propose a 

comprehensive portfolio of energy efficiency and demand reduction programs.9 The 

provisions of Ohio’s electricity law on cost recovery for new generating facilities require a prior determination of need by the Commission, which finding would be 

made in an Integrated Resource Planning proceeding.10

In proposing an exemption from the proposed Federal standard for States meeting 

specific requirements, my prepared testimony recommended, among other conditions, that the State certifies it has implemented energy efficiency standards and 

policies designed to achieve maximum achievable cost effective energy efficiency improvements. This recommendation is intended to help ensure that States would both 

adopt efficiency standards and pursue procurement policies designed to achieve any 

additional efficiency savings that are cost-effective. 

Question 2. In New Hampshire, we are addressing efficiency and energy conservation by taking auction revenues from RGGI, the United States’ first cap-and-trade 

program for greenhouse gases, and investing those revenues in these energy saving 

and conservation efforts. In your view, is it more cost effective and efficient to establish an EERS mandate or invest auction revenues in efficiency and conservation 

measures? What are the trade-offs? 

Answer. First, this is not necessarily an either / or choice. One could have an efficiency standard and choose to fund some efficiency programs through auction revenues. 

Second, auction revenues may fall short of or exceed optimal investment levels in 

energy efficiency. A better approach is to incorporate the price of greenhouse gas 

emissions set by the auction in the benefit / cost equation governing investment in 

energy efficiency. Because we have observed market failures in achieving economically efficient levels of investment in energy efficiency, mandated investments by 

utilities based on an appropriate benefit / cost test will achieve a more efficient result than relying on an external mechanism such as auction revenues to set the 

level of investment. 

Third, the question of who should administer efficiency programs is potentially related, but can be separated from a decision to use of auction revenues versus a more 

broadly applied utility charge to fund efficiency programs. In some instances, planning and administration of utility funded efficiency programs has been delegated to 

independent third party administrators. Utilities tend to approach efficiency programs with greater knowledge about consumer energy usage and established relationships with their customers. Third party administrators, in some instances, can 

achieve state-wide coordination and scale that would not be available through individual utility programs. And, third party administration may be appropriate option 

where it is not possible to readily align utility incentives with the achievement of 

cost-effective energy savings. 

Finally, whether it would be more economically efficient and fair to fund efficiency 

programs through auction revenues or a charge on utility bills depends largely on 
74 

11For a detailed analysis of the appropriate allocation of efficiency program costs, see: P. 

Centolella, et al., Cost Allocation for Electric Utility Conservation and Load Management Programs (Washington, D.C.: National Association of Regulatory Utility Commissioners, 1992). 

how auction revenues otherwise would be used. Utilities typically fund efficiency 

programs through broadly based charges to energy consumers.11 Allowance auction 

revenues could be used to mitigate the impacts of greenhouse gas regulation on 

businesses and consumers, compensate for the impacts of such regulation on international trade, reduce economically inefficient or regressive taxes, cut the Federal 

deficit, or pay for a range of public investments, including investments in energy 

efficiency. Energy efficiency improvements will provide a foundation for growth in 

the U.S. economy. However, given the many demands on federal revenues, significant reliance on utilities to support energy efficiency programs through the enactment of an Energy Efficiency Standard is a reasonable policy choice. 

Question 3. It has often been said by those seeking to address climate change that 

the single most important thing we can do to address climate is put a price on carbon. A price on carbon will, in turn, incentivize renewable electricity and energy 

conservation measures. Is a national EERS necessary to deploy energy conservation 

and efficiency improvements if we enact a cap-and-trade program in the US? 

Answer. Experience has shown that price signals alone have not led to the adoption of all cost-effective efficiency measures. Increasing energy efficiency is the single most important step that can be taken to lower the cost of reducing greenhouse 

gas emissions for businesses and consumers. A cap and trade program designed to 

achieve meaningful reductions in greenhouse gas emissions would provide an additional incentive for States to pursue more aggressive energy efficiency policies. However, a national Energy Efficiency Standard, with the modifications proposed in my 

prepared testimony, could provide a significant further catalyst for State and utility 

actions, particularly where utilities face inherent market pricing disincentives to reducing demand or have not seen improving the efficiency with which consumers use 

energy as part of their core business. 

Question 4. There have been some who suggest an EERS will reduce the cost of 

a cap-and-trade program. A report by ACEEE states that, ‘‘energy efficiency reduces 

the cost of cap-and-trade because less new energy facilities are needed and also because a smaller portion of existing facilities need to be upgraded to help meet emissions ceilings.’’ By some estimates, electricity prices under cap-and-trade legislation 

may be 15 percent less if an EERS as well as an RES are also in place. Do you 

agree with this assessment? 

Answer. While I have not reviewed the details of the ACEEE estimates cited in 

this question, I would agree that cost-effective utility energy efficiency programs 

could significantly lower the costs of achieving greenhouse gas reductions. 

Question 5. A key goal of U.S. energy policy is lessening our dependence on foreign oil. One way to achieve this goal would be a conversion of the transportation 

sector from petroleum to electricity through the phased-in and widespread use of hybrid cars, plug-in hybrid cars and fully electric cars. While this will lessen our dependence on foreign oil, it may put additional strains on our electricity system 

which may require additional generation investments. 

I am interested to hear your thoughts on how does the EERS will affect en electrification of the transportation sector? How would these two important policy goals 

work together? 

Answer. Increased electricity use by vehicles will increase the base quantity, as 

defined in Section 610(a)(4)(A) of S. 548, to which a savings percentage is applied 

when calculating the required energy savings under the bill. However, S. 548 proposes a rolling, rather than an historical, baseline for calculating utility efficiency 

savings. As a result, the proposed standard does not require a MWh-for-MWh offset 

of energy savings for increases in electricity usage by vehicles. Ohio’s efficiency 

standard takes a similar approach using a three year rolling average baseline. 

My prepared testimony includes recommendations that would provide States and 

utilities additional flexibility, consistent with achieving cost-effective energy efficiency improvements. These proposed modifications could alleviate any remaining 

concern regarding the potential for conflicts between vehicle electrification and an 

Energy Efficiency Standard. 

Electric vehicles may represent a source-to-wheels efficiency improvement over 

conventional vehicles. Whether and how to recognize this potential improvement is 

an issue that has not been addressed by the Ohio Commission. 

Policies to promote energy efficiency and electrification of the transportation sector work together in two important ways. First, energy efficiency will reduce electricity usage and electricity prices, freeing up additional generating capacity to support electrification of transportation at a lower cost to consumers. Second, both en-
75 

ergy efficiency and electric vehicles will benefit from the development of a smart 

power grid. The foundation of a smart grid is an open-architecture communications 

system which, first, provides a common platform for implementing distribution automation, advanced metering, time-differentiated and dynamic pricing, home area networks, advanced building energy management systems that continuously improve 

building performance, systems to manage electric vehicle charging, and other applications and, second, integrates these applications with existing systems to improve 

reliability, reduce costs, and enable consumers to better control their electric bills. 

The Ohio Commission has approved smart grid deployment plans for American Electric Power and Duke Energy Ohio. Smart grid proposals for Ohio’s other electric 

utilities are currently pending before the Commission. 

Question 6. How are other countries addressing energy efficiency and conservation? Have other countries adopted an EERS, or a similar mandate? 

Answer. It is my understanding that there are energy efficiency standards in 

place for retail suppliers or distributors in a number of European countries, including Italy, France, and Great Britain. Additionally, the European Union Directive on 

Promotion of Energy Efficiency and Energy Services obligated E.U. countries to develop national energy efficiency action plans with specific savings targets. We have 

not looked at these standards or plans in sufficient detail to permit me to offer an 

opinion regarding the similarities and differences with the standards proposed in S. 

548. 

RESPONSES OF THOMAS E. SKAINS TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1a. The push to enact a separate RES and EERS calls into question the 

goals of these standards—is to promote certain technologies, or to reduce greenhouse gas emissions? 

If energy efficiency is incorporated into an RES, it would seem to me that utilities 

would have a much better chance of meeting their requirements instead of facing 

penalties for noncompliance. Wouldn’t it be better to give them greater flexibility 

to succeed by adopting a single standard? 

Answer. Proposals for a Renewable Energy Standard (RES) would require electric 

load serving entities to purchase a certain proportion of their electric supply from 

renewable sources. To our knowledge, none of these proposals would seek to impose 

similar requirements upon natural gas utilities. Nevertheless, I do believe that as 

a general matter when government creates a mandate for the energy industry we 

are best served by providing for maximum flexibility and simplicity in compliance 

options. 

Question 1b. If Congress decides to enact an RES instead of an EERS, should we 

allow an unlimited amount of the renewable mandate to be met through energy efficiency measures? 

Answer. Please see the answer to the preceding question. 

Question 2. This bill appears to provide only penalties, and no incentives, to facilitate compliance with the proposed federal standard. Please describe what other 

measures, if any, you think should be incorporated to encourage distributors to 

reach energy savings goals. 

Answer. As indicated in my testimony before the Committee, one of our primary 

concerns with the Energy Efficiency Resource Standard (EERS) proposal is its focus 

on after-the-fact penalties for natural gas utilities if their customers do not meet 

designated energy savings targets. Emphasis should instead be placed on providing 

tools and incentives to customers to help them reduce their energy consumption. 

Utilities have a demonstrated record of helping customers access the tools necessary 

for them to change their energy consumption habits. Over the last thirty years, natural gas utilities have worked with their residential and commercial customers to 

reduce their overall consumption by approximately one-third. 

This impressive trend has principally resulted from increased appliance efficiency 

standards, improved building codes, and efficiency programs. Energy efficiency programs administered by utilities, local governments, non-profits and third party service companies provide refunds, rebates, low-cost loans, and other incentives for customers to increase the efficiency of their energy use. These programs are often funded by surcharges on utility rates or by general governmental revenues (sometimes 

received by state and local government from the federal government). Enhancing the 

resources available for these types of programs would be a far more effective means 

of meeting energy efficiency objectives than relying on penalties. 

As we move forward, we believe that state regulators should also consider programs that permit their utilities to earn a return on effective energy savings programs as well as to offer energy services to homes and businesses—installing and 
76 

operating natural gas-powered combined heat and power, district energy or solar 

powered energy solutions. 

Finally, building codes and standards are important in this regard. Some areas 

have very outdated requirements, while some have none at all. Modernizing building codes and standards which integrate a full fuel cycle assessment of the efficiency 

and green house gas emissions of energy use is a relatively low cost means to 

achieve significant energy reductions. 

Question 3. I am concerned that requiring distribution utilities to develop and administer new energy efficiency programs, or obtain new technology will be expensive—especially for consumer-owned non-profits. The penalty payments called for by 

this legislation are very high, and there is also the likelihood of ‘‘layered’’ costs from 

an EERS, RES, and climate change legislation. How can we implement cost control 

mechanisms to keep costs for distributors—and therefore businesses and consumers—as low as possible? 

Answer. The penalty payments called for by the EERS are indeed very high, and 

I find that a cause for concern. Unfortunately, under the EERS the utility will not 

know until after the fact whether its actions have led to compliance with the targets 

set by EERS. Should a utility not be deemed to be in compliance with the EERS 

requirements, it will be assessed a penalty of $10 or $5 per MMBtu. For a large 

utility these penalties could be measured in millions of dollars. These costs would, 

necessarily, be passed on to the customers of the utility. 

Although I wholeheartedly endorse the goals of maximizing energy efficiency and 

minimizing carbon emissions, adopting a cap-and-trade carbon regulation program 

together with an EERS would be ‘‘layered’’ as you have indicated. Indeed, the government would be layering one program aimed at reducing consumption on top of 

another. This may lead to unintended consequences. Moreover, it could readily lead 

to utilities and their customers being assessed twice for the same failure in reducing 

energy consumption. 

Residential and commercial natural gas customers have demonstrated during the 

past four decades that they can and will use natural gas with increasing efficiency— 

resulting in reduced greenhouse gas (GHG) emissions. For example, while the number of homes served with natural gas increased from 38 million in 1970 to more 

than 65 million today, the overall energy use and GHG emissions for these customers is virtually the same today as it was nearly 40 years ago. This startling statistic is the result of very effective programmatic measures that have been utilized— 

tighter homes, more efficient natural gas appliances and a variety of conservation 

and efficiency related utility-sponsored programs and practices. Federal policy 

should recognize this demonstrated success and focus on supporting these programmatic measures for residential and commercial natural gas. 

A programmatic approach—ramping up building codes, appliance standards, and 

customer incentives—can provide the same emission reductions as would a cap-andtrade approach and similar energy efficiency as intended by a federal EERS, while 

shielding consumers from the extraordinary cost of emissions allowances and penalties for failure to meet EERS targets. We are convinced that even without the cost 

of allowances, consumer costs will be pushed upward by the legislation as more and 

more natural gas is used to produce electricity, particularly in the first two decades 

of a control program when other generating options—including coal with carbon capture, nuclear power, solar and wind—are not available in sufficient quantities. Federal funding for a programmatic approach is crucial. 

Question 4. The proposed EERS legislation would calculate a utility’s ‘‘businessas-usual’’ energy use by averaging its consumption levels in the 2 years prior to enactment. Utilities that are already making great efforts to reduce energy consumption—whether through a state-level EERS or their own initiative—may have a 

tougher time complying with the federal mandate due to their early action on energy efficiency. Should a federal EERS be designed to avoid disadvantaging those 

utilities, particularly compared to those who have taken no action? 

Answer. The ‘‘business as usual’’ concept at the core of the EERS provision is particularly troublesome. It will essentially require every utility to forecast energy 

prices, market penetration, economic growth, future efficiency programs, and a host 

of other variables as well. At some point, after the fact, this forecast will be reviewed either by Department of Energy or state officials. The utility will be measured against this ‘‘business as usual’’ forecast (unless these officials opine after the 

fact that the business as usual forecast was flawed) in determining whether a utility 

has served a ‘‘significant role’’ in meeting the EERS-mandated energy efficiency targets. If it is determined that the utility has not done so, it will be assessed a penalty 

of $10 or $5 per MMBtu. This prospect causes me great concern, and it is at the 

heart of my difficulty with the EERS construct. 
77 

Question 5. Under Senator Schumer’s bill, the federal EERS would require electricity savings of 15 percent, and natural gas savings of 10 percent, over the course 

of a decade. For the sake of comparison, can any of you provide the percentage savings that were achieved by these distributors over the course of the past ten years? 

Answer. Total consumption of all U.S. residential, commercial, and industrial natural gas consumers declined by 8 percent from 1999 through 2008. Residential and 

commercial natural gas customers reduced their consumption per customer by over 

9 percent from 1998 through 2007. (Data through 2008 is not yet available for this 

measure.) We do not track data on industrial consumption per customer. I would 

further note that, unlike the draft carbon cap and trade legislation, natural gas utilities would be responsible for the consumption practices of large industrial customers under the proposed EERS bill. We oppose this construct and suggest that 

the industrial market should be treated separately under any energy efficiency 

standards and should not be the responsibility of local distribution companies. 

Question 6. In your testimony, you noted that ‘‘approximately 90% of the energy 

value of natural gas is delivered to consumers.’’ From the perspective of a natural 

gas utility, how difficult would it be to achieve energy savings of 10% over the 

course of a decade? Should a federal program recognize the savings already achieved 

by ‘‘early actors’’? 

Answer. We see such a target as achievable if framed with proper incentives for 

utilities and their customers. However, because of energy efficiency achieved to date, 

it will be increasingly difficult to achieve further reductions. As a consequence, continuation of this trend, as noted in my testimony before the committee and in answers to questions above, will require a significant commitment of resources. Moreover, a federal approach to increasing energy efficiency and reducing greenhouse gas 

emissions should recognize the significant reductions achieved by natural gas utilities and their customers to date, particularly relative to their electric counterparts. 

As noted in my testimony before the committee, residential natural gas customer 

have reduced their average annual consumption by 38% since 1970 while the average electric customer’s consumption increased by 59% over the same time period. 

Natural gas customers will need access to new technologies to allow them to continue their current efficiency trend. Federal support for developing and commercializing high-efficiency, low-emissions natural gas end-use technologies will be important. 

Question 7. At the root of this new mandate is an incongruous requirement—utilities must convince their customers to use less of their product, or else be subject 

to penalties. While utilities can educate consumers, perform energy audits and provide incentives like rebates for efficient appliances, they simply cannot get ‘‘behind 

the meter’’ and control consumers’ actions. Is the structure of an EERS inherently 

unfair? 

Answer. There appears to be some very elemental and irreconcilable tension between expectations that utilities will be effective proponents for energy efficiency 

and the reality that utilities do not actually make the ultimate decisions impacting 

energy use, consumers do. 

Question 8. This bill appears to provide only penalties, and no incentives, to facilitate compliance with the proposed federal standard. Please describe what other 

measures, if any, you think should be incorporated to encourage distributors to 

reach energy savings goals. 

Answer. Natural gas utility managers are increasingly aligning their businesses 

to help customers meet their energy needs by making increasingly efficient energy 

choices. This realignment is facilitated to a great degree by the progress that has 

been made to align natural gas utility shareholder and consumer financial interests 

through state regulator-approved rate mechanisms that separate the fixed cost revenue recovery from the volume of energy provided to customers—37 natural gas 

utilities in 21 states are serving 26 million residential customers under either decoupled or flat monthly fee rate designs, both of which make natural gas utilities 

indifferent to the amount of energy their customers consume. 

Increasingly, state regulators are implementing policies that prioritize energy efficiency and encourage natural gas utilities to move beyond ‘‘indifference’’ by providing opportunities to recover program costs and earn on the delivery of energy efficiency programs and services. Currently 19 utilities in 10 states receive either a 

return on investments in energy efficiency programs or a reward for exceeding energy efficiency program goals. Companies in these states may earn a financial reward for meeting program performance targets, have a shared savings incentive, or 

have the opportunity to earn a rate of return on their energy efficiency investments 

equal to other capital investments. These incentive structures vary from state to 

state as they reflect the policy goals set forward by governments and regulators in 

each jurisdiction. 
78 

Finally, we know that customers will purchase more efficient appliances if the initial cost of more expensive high efficiency appliances is lowered and potential savings are communicated to customers. This can be done by rebates or tax credits. 

Without such tools it is very difficult to convince customers to purchase more expensive appliances with long payback periods. 

RESPONSES OF THOMAS E. SKAINS TO QUESTIONS FROM SENATOR SHAHEEN

Question 1. As today’s witnesses have noted, energy efficiency measures are incredibly important to address our nation’s energy challenges. I think it is important 

to craft federal policies that incentivize investments in energy efficiency. 

One of the concerns that I am aware of with an EERS, however, is that of market 

manipulation. Under an energy efficiency credit trading program, we may be giving 

credit for actions that would have already been taken regardless of an EERS mandate. 

Many NE states are implementing policies to require utilities to procure all costeffective energy efficiency. These least cost procurement policies, for example, require that a distribution company obtain all cost effective energy efficiency up to the 

electric supply cost. The goals seem the same as an EERS, with an emphasis on 

cost-effective measures, and seem to avoid some of the issues of market manipulation. 

Would you care to comment on least cost procurement policies and how they compare to an EERS? 

Answer. This question appears to be geared more toward the electricity-related 

aspects of EERS, so we do not believe we are best qualified to answer. 

Question 2. In New Hampshire, we are addressing efficiency and energy conservation by taking auction revenues from RGGI, the United States’ first cap-and-trade 

program for greenhouse gases, and investing those revenues in these energy saving 

and conservation efforts. In your view, is it more cost effective and efficient to establish an EERS mandate or invest auction revenues in efficiency and conservation 

measures? What are the trade-offs? 

Answer. There is a demonstrated record of success of natural gas utilities and 

their customers in achieving significant gains in the efficiency of energy use that 

spans four decades. For example, while the number of homes served with natural 

gas increased from 38 million in 1970 to more than 65 million today, the overall 

GHG emissions from these homes is virtually the same today as it was nearly 40 

years ago. This startling statistic is the result of very effective programmatic measures that have been utilized—tighter homes, more efficient natural gas appliances 

and a variety of conservation and efficiency related utility-sponsored programs and 

practices. Federal policy should recognize this demonstrated success and focus on 

supporting these programmatic measures for residential and commercial natural 

gas. Although it is a bit difficult to generalize across so many customers and so 

many years, we believe that these savings have been the result of incentives rather 

than mandates. 

Question 3. It has often been said by those seeking to address climate change that 

the single most important thing we can do to address climate is put a price on carbon. A price on carbon will, in turn, incentivize renewable electricity and energy 

conservation measures. Is a national EERS necessary to deploy energy conservation 

and efficiency improvements if we enact a cap-and-trade program in the US? 

Answer. In many ways, it appears that the goals of a national approach to regulating greenhouse gas emissions and those of a federal EERS are overlapping, and 

the implementation mechanisms might produce conflicting results. For this reason, 

along with other concerns raised in this response and my testimony before the Committee, we recommend addressing natural gas end-use efficiency through programmatic means within a federal greenhouse gas emissions reduction framework 

rather than through a separate EERS structure. 

Residential and commercial natural gas customers have demonstrated during the 

past four decades that they can and will use natural gas with increasing efficiency 

and resulting in reduced GHG emissions. A programmatic approach can provide the 

same emission reductions as would a cap-and-trade approach, but it would not subject these small users to the extraordinary cost of emissions allowances. Natural gas 

utilities and other interested stakeholders would work with state public utility commissions to develop both the goals and programmatic mechanisms that would deliver real GHG emission reductions while taking advantage of the lower carbon 

emissions associated with the direct use of natural gas. 

Question 4. There have been some who suggest an EERS will reduce the cost of 

a cap-and-trade program. A report by ACEEE states that, ‘‘energy efficiency reduces 

the cost of cap-and-trade because less new energy facilities are needed and also be-
79 

cause a smaller portion of existing facilities need to be upgraded to help meet emissions ceilings.’’ By some estimates, electricity prices under cap-and-trade legislation 

may be 15 percent less if an EERS as well as an RES are also in place. Do you 

agree with this assessment? 

Answer. While we are not aware of similar estimates of cost-effectiveness that 

would support an EERS applied to natural gas, we fully recognize, as do state utility commissions, the impact that increased efficiency of energy use can have in lowering the portion of consumer utility bills related to the cost of the natural gas commodity. Continuing the efficiency gains already realized by natural gas consumers 

will require investments in higher efficiency appliances and equipment. Ramping up 

the full potential in this area is a near-term, cost-effective option for getting at the 

‘‘low hanging’’ fruit many efficiency advocates suggest. However, progress will depend directly on the resources (e.g., increased funding for incentives and rebates) 

allocated. 

Question 5. A key goal of U.S. energy policy is lessening our dependence on foreign oil. One way to achieve this goal would be a conversion of the transportation 

sector from petroleum to electricity through the phased-in and widespread use of hybrid cars, plug-in hybrid cars and fully electric cars. While this will lessen our dependence on foreign oil, it may put additional strains on our electricity system 

which may require additional generation investments. 

I am interested to hear your thoughts on how does the EERS will affect en electrification of the transportation sector? How would these two important policy goals 

work together? 

Answer. As a representative of natural gas utilities, I do not have experience or 

expertise in this area. 

Question 6. How are other countries addressing energy efficiency and conservation? Have other countries adopted an EERS, or a similar mandate? 

Answer. We have no expertise to offer on the topic of implementation of international energy efficiency performance standards in other countries. 

RESPONSE OF THOMAS E. SKAINS TO QUESTION FROM SENATOR BURR

Question 1. North Carolina is a growing area. Piedmont Gas is growing to meet 

the demand of customers. The direct use of natural gas is currently one of the most 

environmentally beneficial options to heat a home. Under an EERS program, would 

your company be able to meet growing demand while complying with required reductions in total consumption? 

Answer. I am concerned that the proposal as structured would not allow natural 

gas utilities to effectively meet the energy needs of what we hope will be a vibrant 

and expanding economy—not only in the Southeast but for the nation as a whole. 

As a starting point, goals measured on a use per customer basis (rather than on 

total energy consumption) may better allow for utilities to partner with policymakers to encourage greater efficiency in energy use overall while allowing for the 

growth in use necessary to meet the needs of a growing economy. Natural gas utilities and the customers they serve should not be penalized for facilitating economic 

expansion, growth and job creation by attracting and serving new customers (whether industrial, commercial or residential) in their service areas with a fuel that is 

lower carbon emitting than other energy sources. We believe the proposed EERS 

program as currently drafted would do just that. 

RESPONSES OF RICH WELLS TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1a. The push to enact a separate RES and EERS calls into question the 

goals of these standards—is to promote certain technologies, or to reduce greenhouse gas emissions? 

If energy efficiency is incorporated into an RES, it would seem to me that utilities 

would have a much better chance of meeting their requirements instead of facing 

penalties for noncompliance. Wouldn’t it be better to give them greater flexibility 

to succeed by adopting a single standard? 

Answer. We don’t have an expressed preference for one standard or two. We do 

have a preference for emphasizing energy efficiency in any standard Congress chooses to endorse. 

Question 1b. If Congress decides to enact an RES instead of an EERS, should we 

allow an unlimited amount of the renewables mandate to be met through energy 

efficiency measures? 

Answer. If Congress were to enact an RES, we would recommend that it allow 

energy efficiency to meet a certain percentage of the total obligation that represents 

a better than ‘‘business as usual’’ scenario for energy efficiency. 
80 

Question 2. This bill appears to provide only penalties, and no incentives, to facilitate compliance with the proposed federal standard. Please describe what other 

measures, if any, you think should be incorporated to encourage distributors to 

reach energy savings goals. 

Answer. Dow believes that addressing climate change through a cap and trade 

program would, coupled with an EERS, provide significant incentives for energy efficiency. Other policies to promote energy efficiency in buildings and homes include 

tax incentives for homeowners to increase the energy efficiency, labeling programs 

for buildings and homes, and improved model building codes to emphasize energy 

efficiency. 

Question 3. I am concerned that requiring distribution utilities to develop and administer new energy efficiency programs, or obtain new technology will be expensive—especially for consumer-owned non-profits. The penalty payments called for by 

this legislation are very high, and there is also the likelihood of ‘‘layered’’ costs from 

an EERS, RES, and climate change legislation. How can we implement cost control 

mechanisms to keep costs for distributors—and therefore businesses and consumers—as low as possible? 

Answer. It will be necessary to have a penalty that is higher than the cost of energy efficiency measures. ACEEE believes that energy efficiency measures can be 

implemented at a cost of $0.03 per kWh. The penalty provision in legislation should 

exceed this amount. 

Question 4. The proposed EERS legislation would calculate a utility’s ‘‘businessas-usual’’ energy use by averaging its consumption levels in the 2 years prior to enactment. Utilities that are already making great efforts to reduce energy consumption—whether through a state-level EERS or their own initiative—may have a 

tougher time complying with the federal mandate due to their early action on energy efficiency. Should a federal EERS be designed to avoid disadvantaging those 

utilities, particularly compared to those who have taken no action? 

Answer. The answer depends on the meaning of the phrase ‘‘disadvantaging those 

utilities’’. If utilities compete against each other for the same customers, then there 

would be a need to design the program so as not to penalize utilities for early action. 

Question 5. Under Senator Schumer’s bill, the federal EERS would require electricity savings of 15 percent, and natural gas savings of 10 percent, over the course 

of a decade. For the sake of comparison, can any of you provide the percentage savings that were achieved by these distributors over the course of the past ten years? 

Answer. We do not have data to be able to answer this question. However, Dow 

is a large energy user (and electricity producer), and we have exceeded these savings over the past ten years. Furthermore, our actions have saved us money as well 

as energy. Since 1994, Dow’s energy efficiency and conservation program has resulted in significant cumulative energy, financial and GHG savings—approximately 

1,600 trillion Btus, $8.6 billion and 86 million metric tons of CO2. 

Question 6. According to the materials you provided with your testimony, Dow 

Chemical sells energy efficiency products. Does your company stand to profit from 

the enactment of a stand-alone federal EERS mandate? 

Answer. A portfolio standard will potentially benefit some Dow products through 

increased consumer demand. Such a standard will also likely increase the cost of 

purchased electricity and natural gas. Indirectly, an EERS will reduce demand for 

natural gas and help to lessen US natural gas prices, which is good for US manufacturers. Overall, we believe an EERS will be good for Dow. More importantly, an 

EERS is good for the country, as improving energy efficiency will help promote energy security, reduce GHG emissions, and lessen the price of energy for all Americans. 

Question 7. Do you believe an EERS should be combined with appropriate ratesetting mechanisms such as decoupling to address the inherent tension between a 

utility’s financial interest in encouraging energy efficiency measures, which results 

in less energy sold? 

Answer. Dow believes it is important to align utility incentives to promote energy 

efficiency. We do not, however, know how decoupling can be implemented to best 

align utility incentives toward energy efficiency. 

Question 8. You state than an EERS should not apply to industrial users of energy. But Dow has made great strides in the energy efficiency arena. Why do you 

believe an exemption for industrial users is necessary? 

Answer. It is up to Congress to decide on the scope of any EERS. Because of the 

way certain state electricity markets are structured, a bill that focuses on retail 

electricity providers may impose a mandate beyond public utilities. We think it is 

important to point this out. 

If the focus on public utilities is to leverage their expertise and resources to help 

residential customers improve energy efficiency, then the bill should focus on public 
81 

utilities. We note that industrial consumers of electricity and natural gas have every 

incentive to improve their energy efficiency, as Dow has done. 

Question 9. In your written testimony, you urge Congress to incorporate energy 

efficiency into the RES. Does Dow Chemical support a single, unified standard that 

includes both renewable energy and energy efficiency, or do you prefer separate 

standards? 

Answer. We have stated that if Congress were to enact only a single RES, we 

would prefer that energy efficiency be allowed to meet as much of the requirement 

as practicable, and that such an efficiency standard go beyond ‘‘business as usual’’. 

RESPONSES OF RICH WELLS TO QUESTIONS FROM SENATOR SHAHEEN

Question 1. As today’s witnesses have noted, energy efficiency measures are incredibly important to address our nation’s energy challenges. I think it is important 

to craft federal policies that incentivize investments in energy efficiency. 

One of the concerns that I am aware of with an EERS, however, is that of market 

manipulation. Under an energy efficiency credit trading program, we may be giving 

credit for actions that would have already been taken regardless of an EERS mandate. 

Many NE states are implementing policies to require utilities to procure all costeffective energy efficiency. These least cost procurement policies, for example, require that a distribution company obtain all cost effective energy efficiency up to the 

electric supply cost. The goals seem the same as an EERS, with an emphasis on 

cost-effective measures, and seem to avoid some of the issues of market manipulation. 

Would you care to comment on least cost procurement policies and how they compare to an EERS? 

Answer. Dow does not have particular knowledge of procurement policies and how 

they might compare to an EERS. 

Question 2. In New Hampshire, we are addressing efficiency and energy conservation by taking auction revenues from RGGI, the United States’ first cap-and-trade 

program for greenhouse gases, and investing those revenues in these energy saving 

and conservation efforts. In your view, is it more cost effective and efficient to establish an EERS mandate or invest auction revenues in efficiency and conservation 

measures? What are the trade-offs? 

Answer. Dow supports legislation to impose a price on carbon through an economy-wide program, the centerpiece of which is cap and trade. We have testified in 

support of an EERS as a complementary policy to an economy-wide program. We 

recommend this complementary policy in order to ensure significant emission reductions through energy efficiency in the early years of a cap and trade program. We 

don’t view EERS as antithetical to a cap and trade program. 

Question 3. It has often been said by those seeking to address climate change that 

the single most important thing we can do to address climate is put a price on carbon. A price on carbon will, in turn, incentivize renewable electricity and energy 

conservation measures. Is a national EERS necessary to deploy energy conservation 

and efficiency improvements if we enact a cap-and-trade program in the US? 

Answer. A cap and trade program will provide incentives for meeting the compliance obligation in cost-effective ways, but it will not determine where emission reductions occur or how much reduction will be achieved by energy efficiency. Furthermore, there are features of current markets that discourage energy efficiency (asymmetric information, split incentives) to be deployed cost-effectively. For these reasons, an EERS can be an effective complementary policy to cap and trade as it will 

ensure significant emission reductions through improved energy efficiency in energy 

distribution and in buildings and homes. 

Question 4. There have been some who suggest an EERS will reduce the cost of 

a cap-and-trade program. A report by ACEEE states that, ‘‘energy efficiency reduces 

the cost of cap-and-trade because less new energy facilities are needed and also because a smaller portion of existing facilities need to be upgraded to help meet emissions ceilings.’’ By some estimates, electricity prices under cap-and-trade legislation 

may be 15 percent less if an EERS as well as an RES are also in place. Do you 

agree with this assessment? 

Answer. The answer depends on the degree to which energy efficiency and other 

low-cost GHG emission-reduction options are chosen by those who have a compliance obligation under a cap and trade program versus a cap-and-trade program with 

an EERS. 

Question 5. A key goal of U.S. energy policy is lessening our dependence on foreign oil. One way to achieve this goal would be a conversion of the transportation 

sector from petroleum to electricity through the phased-in and widespread use of hy-
82 

brid cars, plug-in hybrid cars and fully electric cars. While this will lessen our dependence on foreign oil, it may put additional strains on our electricity system 

which may require additional generation investments. 

I am interested to hear your thoughts on how does the EERS will affect en electrification of the transportation sector? How would these two important policy goals 

work together? 

Answer. This is an interesting and important question. To the extent that retail 

electric providers subject to an EERS would provide electricity for the transportation sector, then an EERS will encourage efficiency above and beyond what would 

otherwise occur in transportation from the use of electricity. 

Question 6. How are other countries addressing energy efficiency and conservation? Have other countries adopted an EERS, or a similar mandate? 

Answer. The UK Government imposed a similar mandate on utilities and this resulted in utilities supplying their customers hundreds of millions of Compact Fluorescent Light Bulbs (CFLs). One drawback, however, was the absence of a system 

for checking that the bulbs were used. 

There has been much more experience with an EERS from various state programs. It may be useful for Congress to consider lessons learned from individual 

states. 

RESPONSES OF PATRICIA HOFFMAN TO QUESTIONS FROM SENATOR MURKOWSKI

Question 1. The push to enact a separate RES and EERS calls into question the 

goals of these standards—is to promote certain technologies, or to reduce greenhouse gas emissions? 

a. If energy efficiency is incorporated into an RES, it would seem to me that utilities would have a much better chance of meeting their requirements instead of facing penalties for noncompliance. Wouldn’t it be better to give them greater flexibility 

to succeed by adopting a single standard? 

b. If Congress decides to enact an RES instead of an EERS, should we allow an 

unlimited amount of the renewables mandate to be met through energy efficiency 

measures? 

Answer. The Administration is currently reviewing its position on EERS and RES 

legislation and thus the Department does not have an official position. In general, 

any given GHG reduction target can be achieved most efficiently by providing the 

maximum flexibility to States and producers to meet the cap using the most costeffective measures, which may include a mix of energy efficiency, renewable energy, 

carbon sequestration, and other measures. 

Question 2. This bill appears to provide only penalties, and no incentives, to facilitate compliance with the proposed federal standard. Please describe what other 

measures, if any, you think should be incorporated to encourage distributors to 

reach energy savings goals. 

Answer. S. 548 does not appear to prevent a state from adopting incentive policies. Therefore, for example, a state would be able to adopt different approaches to 

address lost revenue and profit opportunities for its private utilities, as some states 

have done, that can occur from reduced utility sales resulting from delivering efficiency measures to electric and gas ratepayers. Further a state may chose to implement improved building codes or equipment standards, as some have done for products that are not covered by Federal law. Language to make clear that states may 

continue to adopt these kinds of incentive policies could be considered. As the President has made clear, the core of a plan to encourage energy savings should be a 

cap-and-trade program that puts a price on GHG emissions, thus creating incentives 

for energy efficiency and the development of low-carbon energy sources. 

Question 3. I am concerned that requiring distribution utilities to develop and administer new energy efficiency programs, or obtain new technology will be expensive—especially for consumer-owned non-profits. The penalty payments called for by 

this legislation are very high, and there is also the likelihood of ‘‘layered’’ costs from 

an EERS, RES, and climate change legislation. How can we implement cost control 

mechanisms to keep costs for distributors—and therefore businesses and consumers—as low as possible? 

Answer. S. 548 and the RES discussion draft both exempt the majority of small 

utilities from their provisions, most of which are consumer-owned. For example, 

about 360 of the Nation’s 3,200 distribution electric utilities would be subject to S. 

548. Utility-administered energy efficiency programs do have direct costs, but utility 

and customer costs are at least partially offset by avoided energy supply costs. 

In general, the greater the flexibility to use the lowest-cost measures to achieve 

the standard, the lower the cost burden on utilities and their customers. It is noted 
83 

that S. 548 provides other measures to increase flexibility and reduce costs. These 

include savings targets that can be met through a wide variety of different types 

of measures and policies, not just utility programs. Many states may opt to rely on 

a portfolio approach to achieve the EERS standard targets which includes energy 

efficiency programs, codes and standards, and distribution system savings. 

Question 4. The proposed HERS legislation would calculate a utility’s ‘‘businessas-usual’’ energy use by averaging its consumption levels in the 2 years prior to enactment. Utilities that are already making great efforts to reduce energy consumption—whether through a state-level HERS or their own initiative—may have a 

tougher time complying with the federal mandate due to their early action on energy efficiency. Should a federal EERS be designed to avoid disadvantaging those 

utilities, particularly compared to those who have taken no action? 

Answer. A DOE-sponsored review of recent resource plans of utilities (or state energy plans) that have been among the ‘‘leaders’’ in energy efficiency suggests that 

these utilities and states are planning to continue to rely heavily on energy efficiency in the future, but to the extent that these utilities have already implemented 

some of the ‘‘low hanging fruit,’’ it may be more costly for them to achieve continued 

improvements in efficiency should new methods for achieving efficiency improvements no longer become evident. However, it would be technically challenging to design an EERS that allows states to claim savings from early action when the evaluation measurement and verification protocols required for the national HERS have 

not been developed or adopted. 

Question 5. Under Senator Schumer’s bill, the federal EERS would require electricity savings of 15 percent, and natural gas savings of 10 percent, over the course 

of a decade. For the sake of comparison, can any of you provide the percentage savings that were achieved by these distributors over the course of the past ten years? 

Answer. There is limited historical data available, at the level of individual electricity and gas distributors, on the combined energy savings achieved by utilityfunded programs, as well as codes and standards, combined heat and power, and 

reduced distribution system losses, proposed by S. 548. If 2008 spending levels (i.e. 

in those states with their own HERS or similar policies, and absent a national 

EERS) on just electric utility-funded efficiency programs were extended over ten 

years, roughly 11 states could be expected to achieve cumulative savings of ten percent or more, and roughly 19 states could be expected to achieve cumulative savings 

of five percent or more. Added to these cumulative savings numbers would be any 

energy savings achieved through building energy codes, appliance efficiency standards, combined heat and power, and reduced distribution system losses that typically are not included in state EERS policies, but are included in S. 548 as options. 

Many of those states that have EERS or similar policies conducted ‘‘achievable potential studies’’ before enacting their requirements. Those studies showed that statelevel efficiency targets similar to those in the proposed national EERS are achievable. Similar studies at the national level have reached similar conclusions. 

Question 6. If a federal mandate is put in place, ACEEE believes that most states 

will choose to administer their own EERS programs. Should that happen, the Department would only be responsible for drafting regulations and providing general 

oversight. But I’m curious as to what would happen if some states—for example, the 

31 states that have not enacted an EERS—do not choose to do this due to cost or 

some other factor. 

a. Is the Department capable of implementing and administering a federal EERS? 

b. Would your answer change if Congress also passed a stand-alone RES? 

c. And, finally, what if both of those standards AND climate change legislation 

all pass—is the Department ready to meet its responsibilities under all three of 

those measures? 

Answer. The Department will be able to implement its responsibilities under any, 

or all, of the three measures that may be enacted. How the legislation defines the 

interaction between the measures is important for implementation. Also important 

is how each enacted measure interacts with comparable existing state requirements. 

The Department has gained considerable expertise from technical assistance it and 

its national labs provide states on the design and implementation of both state-level 

energy efficiency and renewable energy resources standards, including interactions 

between the different types of standards within and between states. 

Question 7. As we’ve learned from Commissioner Centolella, the Ohi o law provides the flexibility to address changing and unanticipated conditions. For example, 

the law allows a utility to file an application to amend the standard if they cannot 

meet it due to regulatory, economic, or technological reasons beyond reasonable control. The law further allows the FUC to reduce a utility’s baseline to account for 

new economic growth. Shouldn’t any federal EERS program have similar flexibilities 

built into it? 
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Answer. In S. 548, the energy savings requirements for a retail electric or gas distributor in each year are based on its ‘‘base quantity’’, which is defined as the average retail sales delivered to customers in the two preceding years. The proposed approach has the advantage that it is a straight-forward, consistent, and administratively traceable approach to defining the base quantity from which savings targets 

are calculated, which can be applied across all states. The issues raised by Commissioner Centolella may provide additional flexibility, but are technically and administratively complex and introduce subjective judgment. One option is to allow DOE 

to address these issues as part of a rulemaking process, where the policy intent can 

be balanced against feasibility and workability. 

RESPONSES OF PATRICIA HOFFMAN TO QUESTIONS FROM SENATOR SHAHEEN

Question 1. As today’s witnesses have noted, energy efficiency measures are incredibly important to address our nation’s energy challenges. I think it is important 

to craft federal policies that incentivize investments in energy efficiency. 

One of the concerns that I am aware of with an EERS, however, is that of market 

manipulation. Under an energy efficiency credit trading program, we may be giving 

credit for actions that would have already been taken regardless of an EERS mandate. 

Many NE states are implementing policies to require utilities to procure all costeffective energy efficiency. These least cost procurement policies, for example, require that a distribution company obtain all cost effective energy efficiency up to the 

electric supply cost. The goals seem the same as an EERS, with an emphasis on 

cost-effective measures, and seem to avoid some of the issues of market manipulation. 

Would you care to comment on least cost procurement policies and how they compare to an EERS? 

Answer. An EERS can be implemented with or without tradeable energy savings 

credits, and S. 548 does not include a provision for energy efficiency credit trading. 

The bill does allow utilities to contract with other entities for energy savings; however, this provision does not appear to create any specific opportunities for gaming 

or market manipulation. In fact, adding an opportunity for tradeable credits as one 

compliance approach could allow national efficiency gains to be achieved at lower 

cost. 

With respect to a comparison between EERS and least-cost procurement policies, 

one establishes a quantity constraint and the other a price constraint. Which is better depends on the goal. If the goal is to ensure that a specific level of energy efficiency is achieved, then a quantity constraint (EERS) is more suitable. This can be 

made more efficient by allowing trading among utilities with different costs of 

achieving energy efficiency gains. If the goal is to ensure that only cost-effective 

measures are adopted, least cost procurement policies can provide a cap on the costs 

of the adopted measures. 

Question 2. In New Hampshire, we are addressing efficiency and energy conservation by taking auction revenues from RGGI, the United States’ first cap-and-trade 

program for greenhouse gases, and investing those revenues in these energy saving 

and conservation efforts. In your view, is it more cost effective and efficient to establish an EERS mandate or invest auction revenues in efficiency and conservation 

measures? What are the trade-offs? 

Answer. Either approach could result in the implementation of cost-effective policies and programs that support improvements in energy efficiency. The actual costeffectiveness of such programs, however, is determined by factors such as program 

design, the commitment to rigorous program evaluation, including the use of sound 

techniques for measuring and verifying the resulting energy savings, and the willingness to use evaluation results to redesign policies and programs so as to maximize cost-effectiveness. The most cost-effective strategies for improving energy efficiency will generally be a mix of market mechanisms, such as cap and trade, and 

well focused policies and programs designed to overcome market barriers to cost-effective efficiency improvements. Such policies and programs could include efficiency 

standards, training and education, voluntary commitments, improved consumer information, and focused incentives for investment. A cap-and-trade program creates 

incentives to increase energy efficiency and conservation because of the carbon price 

signal that it sends to consumers, but market barriers often inhibit or prevent energy users from effectively responding to such signals. For this reason, the President 

has proposed to strengthen a broad range of other measures to encourage or require 

cost-effective efficiency improvements, including the use of a portion of cap-andtrade revenue for investments in clean energy technology and efficiency. An EERS 

mandate that allows varied responses by government agencies, as well as utilities, 
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may be another way of producing similar benefits. An EERS mandate that allows 

varied responses by government agencies, as well as utilities, may be another way 

of producing similar benefits. 

Question 3. It has often been said by those seeking to address climate change that 

the single most important thing we can do to address climate is put a price on carbon. A price on carbon will, in turn, incentivize renewable electricity and energy 

conservation measures. Is a national EERS necessary to deploy energy conservation 

and efficiency improvements if we enact a cap-and-trade program in the US? 

Answer. Ensuring that electricity rates reflect the environmental and other costs 

of greenhouse gas emissions by putting a price on carbon would incentivize renewable electricity and energy conservation measures, but as a result of a wide range 

of market barriers, prices alone will not result in the implementation of many costeffective efficiency measures. For this reason, other policies and programs have been 

developed and implemented to help remove or overcome the barriers to cost-effective 

efficiency investments. A Federal EERS might be one way of helping to spur such 

cost-effective efficiency investments in concert with a cap and trade program, however, such a mandate, if poorly designed or implemented, might also result in the 

adoption of energy efficiency measures that were not the most cost-effective means 

of meeting a specified greenhouse gas emissions cap. 

Question 4. There have been some who suggest an EERS will reduce the cost of 

a cap-and trade program. A report by ACEEE states that, ‘‘energy efficiency reduces 

the cost of cap-and-trade because less new energy facilities are needed and also because a smaller portion of existing facilities need to be upgraded to help meet emissions ceilings.’’ By some estimates, electricity prices under cap-and-trade legislation 

may be 15 percent less if an EERS as well as an RES are also in place. Do you 

agree with this assessment? 

Answer. Cost-effective improvements in energy efficiency would help minimize the 

costs of achieving a greenhouse gas emissions cap, as well as reducing the costs of 

achieving a specific Renewable Energy Standard (RES). An Energy Efficiency Resource Standard (EERS), such as that proposed in S. 548, could provide a strong 

incentive for states and utilities to increase their support for a wide range of policies 

and programs that could lead to significant efficiency gains, though these might not 

always be the most cost-effective measures for meeting the cap. The effect that an 

EERS mandate would have on electricity prices and on the costs of achieving a 

greenhouse gas emissions cap depends on a number of different factors, such as the 

cost-effectiveness of the policies and programs undertaken, the cost of the generating capacity or fuel avoided because of the reduced demand, and the way in which 

these costs and savings are reflected in utility rates. If the efficiency measures undertaken are very cost-effective and the generating capacity and fuel costs avoided 

are substantially higher than average costs, then a EERS mandate could reduce the 

price impacts of achieving a greenhouse gas emissions cap. The impact of an RES 

on electricity prices and the costs of achieving a greenhouse gas emissions cap will 

be determined by the comparative costs of the renewable and non-renewable options 

for reducing greenhouse gas emissions. If a RES spurs the rapid development of less 

costly renewable energy generation technologies, it could also help reduce the overall costs of achieving greenhouse gas emission caps. 

Question 5. A key goal of U.S. energy policy is lessening our dependence on foreign oil. One way to achieve this goal would be a conversion of the transportation 

sector from petroleum to electricity through the phased-in and widespread use of hybrid cars, plug-in hybrid cars and fully electric cars. While this will lessen our dependence on foreign oil, it may put additional strains on our electricity system 

which may require additional generation investments. 

I am interested to hear your thoughts on how does the EERS will affect en electrification of the transportation sector? How would these two important policy goals 

work together? 

Answer. Encouraging the use of plug-in electric vehicles to reduce our dependence 

on oil, while simultaneously making significant reductions in total carbon dioxide 

emissions, will require new policies and technologies. While electric vehicles are 

more efficient at using energy than internal combustion engine vehicles, they will 

nonetheless place additional demand on electricity generation, transmission and distribution. Meeting this demand, while also reducing total greenhouse gas emissions, 

will require new, low-or no-carbon-emitting generation. Cost-effective improvements 

in the efficiency of electricity use would likely make meeting these dual challenges 

somewhat easier and less costly. EERS is one of several possible strategies for spurring further improvements in the end-use efficiency of electricity. 

Question 6. How are other countries addressing energy efficiency and conservation? Have other countries adopted an EERS, or a similar mandate? 
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Answer. Other countries have pursued policies such as utility demand side management, building energy codes, appliance efficiency standards, and appliance labeling programs. Three European countries—England, Italy, and France—have enacted 

EERS policies that apply to retail electricity and natural gas distributers. 

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