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DISCUSSION DRAFTS CONCERNING

ENERGY EFFICIENCY, SMART

ELECTRICITY GRID, ENERGY POLICY

ACT OF 2005 TITLE XVII LOAN

GUARANTEES, AND STANDBY LOANS

FOR COAL-TO-LIQUIDS PROJECTS

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY AND AIR QUALITY

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MAY 24, 2007

Serial No. 110–50

(

Printed for the use of the Committee on Energy and Commerce

energycommerce.house.gov
COMMITTEE ON ENERGY AND COMMERCE

JOHN D. DINGELL, Michigan, Chairman

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, JR., New Jersey

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

DIANA DEGETTE, Colorado

Vice Chairman

LOIS CAPPS, California

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

TOM ALLEN, Maine

JAN SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

G.K. BUTTERFIELD, North Carolina

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

BARON P. HILL, Indiana

JOE BARTON, Texas

Ranking Member

RALPH M. HALL, Texas

J. DENNIS HASTERT, Illinois

FRED UPTON, Michigan

CLIFF STEARNS, Florida

NATHAN DEAL, Georgia

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

TIM MURPHY, Pennsylvania

MICHAEL C. BURGESS, Texas

MARSHA BLACKBURN, Tennessee

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff

GREGG A. ROTHSCHILD, Chief Counsel

SHARON E. DAVIS, Chief Clerk

BUD ALBRIGHT, Minority Staff Director

(II)
(III)

SUBCOMMITTEE ON ENERGY AND AIR QUALITY

RICK BOUCHER, Virginia, Chairman

G.K. BUTTERFIELD, North Carolina,

Vice Chairman

CHARLIE MELANCON, Louisiana

JOHN BARROW, Georgia

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

ALBERT R. WYNN, Maryland

MIKE DOYLE, Pennsylvania

JANE HARMAN, California

TOM ALLEN, Maine

CHARLES A. GONZALEZ, Texas

JAY INSLEE, Washington

TAMMY BALDWIN, Wisconsin

MIKE ROSS, Arkansas

DARLENE HOOLEY, Oregon

ANTHONY D. WEINER, New York

JIM MATHESON, Utah

JOHN D. DINGELL, Michigan (ex officio)

J. DENNIS HASTERT, Illinois,

Ranking Member

RALPH M. HALL, Texas

FRED UPTON, Michigan

ED WHITFIELD, Kentucky

JOHN SHIMKUS, Illinois

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

STEVE BUYER, Indiana

MARY BONO, California

GREG WALDEN, Oregon

MIKE ROGERS, Michigan

SUE WILKINS MYRICK, North Carolina

JOHN SULLIVAN, Oklahoma

MICHAEL C. BURGESS, Texas

JOE BARTON, Texas (ex officio)

PROFESSIONAL STAFF

SUE D. SHERIDAN, Senior Counsel

JOHN W. JIMISON, Counsel

RACHEL BLESHMAN, Legislative Clerk

DAVID MCCARTHY, Minority Counsel

(V)

C O N T E N T S

Page

Hon. Rick Boucher, a Representative in Congress from the Commonwealth

of Virginia, opening statement ............................................................................ 1

Hon. John Shimkus, a Representative in Congress from the State of Illinois,

opening statement ................................................................................................ 3

Hon. Edward J. Markey, a Representative in Congress from the Commonwealth of Massachusetts, opening statement .................................................... 4

Hon. Mike Rogers, a Representative in Congress from the State of Michigan,

opening statement ................................................................................................ 5

Hon. Mike Doyle, a Representative in Congress from the Commonwealth

of Pennsylvania, opening statement ................................................................... 6

Hon. Joe Barton, a Representative in Congress from the State of Texas,

opening statement ................................................................................................ 7

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 8

Hon. J. Dennis Hastert, a Representative in Congress from the State of

Illinois, opening statement .................................................................................. 9

Hon. Jane Harman, a Representative in Congress from the State of California, opening statement ........................................................................................ 10

Hon. Tom Allen, a Representative in Congress from the State of Maine,

opening statement ................................................................................................ 11

Hon. Jay Inslee, a Representative in Congress from the State of Washington,

opening statement ................................................................................................ 12

Hon. Tammy Baldwin, a Representative in Congress from the State of Wisconsin, opening statement ................................................................................... 13

Hon. Albert R. Wynn, a Representative in Congress from the State of Maryland, opening statement ...................................................................................... 14

Hon. Mike Ross, a Representative in Congress from the State of Arkansas,

opening statement ................................................................................................ 15

WITNESSES

David Rodgers, Deputy Assistant Secretary, Energy Efficiency, U.S. Department of Energy ..................................................................................................... 16

Prepared statement .......................................................................................... 19

Kateri Callahan, president, Alliance to Save Energy ........................................... 28

Prepared statement .......................................................................................... 30

Jay Birnbaum, vice president and general counsel, Current Group, LLC ......... 41

Prepared statement .......................................................................................... 44

Submitted material .......................................................................................... 113

Katharine A. Fredriksen, Principal Deputy Assistant Secretary, Policy and

International Affairs, U.S. Department of Energy ............................................ 73

Prepared statement .......................................................................................... 76

Dan Maley, vice president, Leucadia International Corporation ........................ 81

Prepared statement .......................................................................................... 82

Daniel A. Lashof, science director, Climate Center, National Resources Defense Council ........................................................................................................ 96

Prepared statement .......................................................................................... 98
(1)

DISCUSSION DRAFTS CONCERNING ENERGY

EFFICIENCY, SMART ELECTRICITY GRID,

ENERGY POLICY ACT OF 2005 TITLE XVII

LOAN GUARANTEES, AND STANDBY LOANS

FOR COAL-TO-LIQUIDS PROJECTS

THURSDAY, MAY 24, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY AND AIR QUALITY, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC.

The subcommittee met, pursuant to call, at 10:10 a.m., in room

2123 of the Rayburn House Office Building, Hon. Rick Boucher

(chairman) presiding.

Members present: Representatives Butterfield, Barrow, Markey,

Wynn, Doyle, Harman, Allen, Gonzalez, Inslee, Baldwin, Ross,

Weiner, Matheson, Dingell, Hastert, Hall, Upton, Whitfield,

Shimkus, Shadegg, Pickering, Buyer, Bono, Rogers, Burgess, and

Barton.

Staff present: Sue Sheridan, John Jimison, Chris Treanor, Laura

Vaught, Margaret Horn, David McCarthy, Kurt Bilas, and Matt

Johnson.

OPENING STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH

OF VIRGINIA

Mr. BOUCHER. Earlier this year, the Speaker announced that in

July the House will debate a comprehensive measure to reduce

U.S. reliance on petroleum, 60 percent of which is imported. That

importation comes from some of the world’s least politically stable

nations. To enhance our economic health and our national security

simultaneously, there is a broad consensus that we should develop

domestically produced alternatives to petroleum in order to power

transportation and reduce energy consumption broadly across our

economy for water, energy, efficiency, and conservation measures.

A number of House committees are currently developing legislation for the July energy independence measure, and this committee

is making a major contribution to that effort. This morning the

subcommittee is conducting a legislative hearing on four titles that

will be a portion of our contribution to the Speaker’s energy independence July agenda. In June, we will conduct a second legislative

hearing on additional titles that are presently being constructed.

For purposes of subcommittee mark-up, we will combine the subject matter from today’s hearing with the additional titles so that
2

our entire contribution to the Speaker’s Energy Independence

Measure will be subject to a single mark-up in subcommittee and

then will be marked up in the full Committee on Energy and Commerce.

The titles that we are discussing this morning address four objectives. We propose to reduce energy consumption through the adoption of 29 separate new energy efficiency measures. They range

from new consensus appliance standards to requirements for improvements in lighting efficiency, green building provisions, industrial waste energy recovery, and new processes under which DOE

will expedite the approval of future energy efficiency standards.

A second title will promote the development of a smart electricity

grid so that consumers can elect to save money by shifting electricity consumption to off-peak hours, a step that will help maximize the capacity of power-generating stations. Many exciting uses

for the smart grid lie ahead, including using plug-in vehicles as

storage units for electricity generated by utilities during non-peak

hours which then can be drawn back from the vehicle batteries

during times of higher electricity demand. Our provisions that are

contained in the second title will help to promote the deployment

of that smart grid.

Our other two titles are designed to promote domestic alternatives to petroleum. In EPACT 2005, we enacted loan guarantee

authority for DOE to help bring innovative technologies and

biofuels to the commercial market. To date, loan guarantees have

not been awarded, and DOE has misconstrued congressional intent

by refusing to offer guarantees equal to the full 80 percent of the

project cost that the statute contemplates. Consequently, commercial scale cellulosic ethanol production in the United States has

been held back. Our loan guarantee language corrects that misinterpretation and upon its passage and the award of guarantees,

we can expect commercial scale ethanol production from cellulose

to commence in at least one site in the United States and future

plants in other States are also now under consideration also pending the award of DOE granted loan guarantees.

The final title will offer a Federal price guarantee for six coalto-liquids facilities resolving uncertainties in the long-term outlook

for world oil prices that have inhibited the flow of private capital

into coal-to-liquids facilities.

If we truly want to substantially lessen our reliance on petroleum, cellulosic ethanol from biomass and coal-to-liquids from our

single, most-abundant resource which is coal offer the promise for

success. The developers of these new liquid fuel resources have signaled a willingness to construct plants if our provisions become

law.

Finally, in this opening statement, let me re-emphasize that the

primary purpose of the legislation that we are developing for the

Speaker’s July floor action is energy independence. That is in accordance with the Speaker’s direction to various committees that

are currently constructing legislation that will contribute to that

energy independence agenda. The primary purpose of our action

that we are considering today and will consider in the legislative

hearing to follow this one in June is not greenhouse gas controls.

We have adopted a ‘‘do no harm’’ principle for this legislation and
3

what we will consider in our next legislative hearing with regard

to greenhouse gas emissions. Nothing that we are doing here will

worsen greenhouse gas emissions. But the primary purpose of the

legislation we are processing in this timeframe, hearing today and

also hearing in June and then marking up in June, in this subcommittee and on the full committee, will be achieving a greater

American energy self-sufficiency.

In September, this subcommittee and the full Energy and Commerce Committee will process a mandatory greenhouse gas measure, and I want to stress again that that will happen in the fall

of this year. We will be processing a mandatory greenhouse gas

control measure through this subcommittee and full committee. We

have conducted 10 days of hearings in this subcommittee this year

on the subject of climate change, and immediately following the

July passage of the energy independence bill that we are now processing, we will return our attention in this subcommittee to climate

change and the construction if our mandatory legislation for consideration in this subcommittee and the full committee during September.

I want to thank all of the members of the subcommittee who

have shared their suggestions with us for the measure that we are

having our hearing regarding today and for the legislation we will

be considering in a second legislative hearing in June. Members

have shared ideas with regard to alternative fuels and energy efficiency, and many of the Members’ recommendations are reflected

in the legislation that is before the subcommittee at the present

time.

This has been a broad, bipartisan process, and I want to say

thank you to Members on both sides of the aisle for their participation and for sharing ideas and recommendations with us. That concludes my opening statement.

I am pleased at this time to recognize the gentleman from Michigan, Mr. Upton, for 5 minutes.

Mr. UPTON. I am going to defer my time, the 3 minutes. But I

might ask unanimous consent to put in Mr. Hastert’s opening

statement as I know he is on his way.

Mr. BOUCHER. Without objection, opening statements submitted

by all Members will be made part of the record. And the Chair

would note that pursuant to the rules of the committee, any Member who waives an opening statement will have the time allotted

for that statement and to that Member’s question period for the

first panel of witnesses.

The gentleman from Illinois, Mr. Shimkus.

OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. SHIMKUS. Thank you, Mr. Chairman. I will be brief. I want

to commend you on the movement on energy security legislation.

I think it builds on what we did in EPACT 2005, and the basic efficiency, smart grid, loan guarantees, CTL, I can’t think for all my

colleagues on this side but I do think you are going to have a lot

of support on this provision, and you can count me as an ally as

we move this piece of legislation forward.
4

The best thing we can do on energy security and high prices is

have more supply. We started that with EPACT 2005 with the renewable fuel standard. We are going to do that in this bill with

using a great resource of coal. And when you have more supply, especially internally, the coal-to-liquid applications, you not only

have the commodity product, but you will build refineries. I mean,

that is what we are missing. We are missing the commodity product and we are missing refinery capacity, and with this we can get

both. And everybody is worried about high prices, but the best

thing you can do is get more competitive fuels into the mix. So I

really applaud you on that. Thanks for working with me, and I

yield back my time.

Mr. BOUCHER. Thank you very much, Mr. Shimkus. The gentleman from Massachusetts, Mr. Markey, is recognized for 3 minutes.

OPENING STATEMENT OF HON. EDWARD J. MARKEY, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH

OF MASSACHUSETTS

Mr. MARKEY. Thank you, Mr. Chairman. Thank you for the excellent series of oversight hearings which you have had on this legislation of the energy efficiency and smart grid drafts inside of your

proposal. Both move in the right direction, and I commend you and

your staff for all the work that went into these provisions. On appliance efficiency, you have built on the foundation laid out by the

committee in 1987, 1992, and 2005 when we gave to you the power

to issue National Appliance Efficiency Standards and then expand

those powers. You have responded to some of the concerns raised

by efficiency advocates, about problems with DOE’s management of

this program. And I look forward to working with you and the committee members on additional ideas to strengthening these provisions.

For example, today I will be introducing companion legislation to

Senator Pryor’s bill to strengthen the Federal Government’s Energy Efficient Buildings Program and the Federal Government’s

ability to use energy savings performance contracts.

At the same time, I do have some real concerns about the coalto-liquids bill before us today. At the subcommittee hearing 2

weeks ago on alternative fuels, EPA confirmed that without sequestration, coal-to-liquids would increase carbon dioxide pollution by

118 percent compared to diesel fuel made from petroleum. EPA

also said they were only assuming only 85 percent capture in the

sequestration models, meaning that there would be a 15 percent

leakage in their estimates for carbon capture and sequestration

systems. Rather than subsidize transportation fuel that at best

fails to reduce carbon emissions, and at worst increases carbon pollution substantially, it seems to me that a much better way for coal

as well as the rest of the electric power sector, is to get into the

business of providing electricity for the transportation sector that

not would be to accelerate efforts to develop plug-in electric hybrid

vehicles. And for coal, we should accelerate efforts to demonstrate

carbon capture and sequestration on a commercial scale.

The discussion draft before us does however omit the most important and easy step we can take to reduce our dependence on for-
5

eign oil and that is a CAFE standard, an increase in the fuel economy by 4 percent per year, up to 35 miles per gallon. The draft also

omits an energy efficiency resource standard. Today I am introducing a bill which would call for a 10 percent improvement in electric

utility efficiency, and a 5 percent improvement in natural gas utility efficiency by 2020. Then I might also add that the legislation

also does not include a renewable energy standard, renewable portfolio standard, which is the single most important thing which

would drive green, renewable energy generation standards. And I

think as we move forward, it would be important for us to find

ways to include all of these in any final legislation.

I thank the chairman for all of his great work, and I yield back

the balance of my time.

Mr. BOUCHER. Thank you very much, Mr. Markey. The gentleman from Indiana, Mr. Buyer, is recognized for 3 minutes.

Mr. BUYER. I will waive.

Mr. BOUCHER. The gentleman waives an opening statement. The

gentleman from Michigan, Mr. Rogers is recognized for 3 minutes.

OPENING STATEMENT OF HON. MIKE ROGERS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Mr. ROGERS of Michigan. Thank you. Mr. Chairman, I appreciate

your efforts here and look forward to working with you for a successful conclusion here. And I want to highlight just the loan guarantee section of the bill, and I agree with Mr. Markey. We need to

do something. But I think there is a better way we can get there,

and I hope to use the section that maybe we can come up with a

proposal that rewards innovation and rewards our Big 3 for

unleashing intellectual capital on the problem of alternative fuel

vehicles.

A great example is General Motors announced the Volt at the

last auto show which gets 540 miles to the tank. It is a gasoline

engine that recharges lithium ion batteries, but after several million dollars, it is not quite ready to go yet. They still have some

technical difficulties that will cost a lot of money. If we just allow

them to have access to capital, specifically for research and development on these vehicles, they are going to get us to where we

want to go, and I think there is some room here to work together

so that we can find an alternative. Rather than a big, heavy regulatory scheme, let us let them unleash this lithium ion battery or

maybe it is a more efficient ethanol engine or maybe it is a more

efficient biodiesel fill-in-the blank. I think there are places that we

can go where we all can agree that meets the chairman’s understanding of how we do better at domestic alternatives to petroleum,

as he says.

I look forward to working with the committee. Hopefully we can

talk about this section, and I really applaud the chairman’s efforts

on the bill. I yield back my time.

Mr. BOUCHER. The gentleman from Pennsylvania, Mr. Doyle, is

recognized for 3 minutes.
6

OPENING STATEMENT OF HON. MIKE DOYLE, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

Mr. DOYLE. Mr. Chairman, I am pleased to be here today as we

take these first critical steps toward making America more energy

secure while also beginning our fight against global warming. It is

a testament to you and this committee that the bill before us

achieves both of these critical goals.

As we all know, our Nation’s dependence on foreign oil not only

results in hard times at home when we fill our tanks, but it leads

to difficult foreign policy decisions as we pursue our national interests within the world community. It is simply not strategically acceptable for the United States to be in a position where we import

more than 60 percent of the crude oil our citizens consume. However, while we achieve the goal of energy independence, it is critical that it is attained in a manner consistent with our dual goal

of combating global warming. The bill achieves this balance. As we

work to meet these challenges, it is important to remember there

is no silver bullet that will solve them. It will take an economywide balanced approach that sets a clear path that is both ambitious and attainable. This path must recognize the situation on the

ground and set goals that can be advanced through the development of new and innovative technologies as well as improvements

in production and efficiency. We must look toward all fuel sources

and find ways to create new forms of power while further developing a means to use the current fuels in a more environmentally

supportive way.

I have never seen a time during my years in Congress where we

have such a real opportunity to work together from the environmental community to our industrial base, from our home towns to

distant shores, and from Democrat to Republican to make tremendous advances on both our critical goals. The question is no longer

if we will act, the question is how long will it take. I stand ready

to work with every option on the table to find a solution that will

not only move us forward in the near term but will achiever our

mutual goals in the long term. After all, there isn’t anybody on this

planet that believes that the question of global warming, or for that

matter energy independence, is just a 5-year problem. This is a 50-

year-plus goal, a goal that we are putting our Nation on a path to

achieve. The question is not if we are going to reduce our emissions

by 80 percent, it is how we are going to do this and how long it

takes. Today is the first step. I hope my colleagues and all stakeholders on each side of this debate will join me on this step. While

this bill does not have everything every member of this committee

would like to see in it, I think this bill is our Nation’s first down

payment toward achieving energy independence and fighting global

warming. I look forward to working with you, Mr. Chairman, and

the members of this committee and all the various stakeholders to

ensure that we are successful at meeting these critical national

goals. I thank you, and I yield back the balance of my time.

Mr. BOUCHER. The gentleman from Texas, Mr. Barton, the ranking member of the full Energy and Commerce Committee, is recognized for 5 minutes.
7

OPENING STATEMENT OF HON. JOE BARTON, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. BARTON. Well, thank you, Mr. Chairman. I want to compliment you for the number of hearings that you have held. The

fact that you have actually circulated a discussion draft and have

held a legislative hearing on it, accepting comments from us on the

minority side. We may surprise you. We may have a few suggestions for improvement. It is good to know that there is at least one

subcommittee that is actually trying to use the process, so I am extremely pleased. And I must say, in looking through the draft, the

staff briefing on it yesterday, there are quite a few items in it that

I think we can work together on. So I am very pleased that we are

in the process that you are using and hope that we will have an

outcome later this summer that results in legislation that might actually make it to the President’s desk. So I am extremely positive

about what you are undertaking.

I do think there are some priorities as we go through this process

that we ought to keep in mind. First, let us make sure that we

keep the lights on in America. Let us make sure we keep our cars

and trucks on the road, and with a choice of fuels that are affordable, and let us try to do no harm to the economy. Let us try in

whatever we do make sure that we keep the economy going as

strongly as possible.

There are a number of things that are before us today in your

discussion draft that I believe could be helpful in meeting those

goals. Your energy efficiency title and your smart grid technology

certainly should be able to help keep our electricity grid strong and

help keep the lights on. If we reduce the need to build additional

power plants, that is obviously something that is a positive thing;

and we may be able to utilize some of the promises of some of the

new technologies that are coming down the road.

There are some things that give me pause. You have a number

of mandates in the discussion draft. It would seem to me that before we begin to mandate various actions, no matter how beneficial

they may appear on the surface, we should give those potential

mandates special attention. I know it is tempting to direct that

there be a beneficial outcome and just close our eyes and close off

our ears that no bad things will happen, but I think we need to

really look at the cost and the benefits on the mandates. As the

FTC economist said yesterday, the test should be put to every proposal. Does it increase supply or decrease demand? Because that is

the only way to truly lower energy prices. I hope that we will buy

some insurance against unintended consequences by sunsetting

any mandates that we decide should be attempted. We should recognize the technology involving technology that is developed in the

marketplace oftentimes provides more efficient solutions than statutory mandates.

On your smart grid proposal, I am very positive about that. I do

believe, though, that we ought to be careful that we don’t end up

bureaucratizing the deployment of it so that it actually slows it

down. I am very interested in working with you and others in

doing things that speed it up as opposed to just bogging it down

in bureaucratic timetables and things like that.
8

I am very pleased with the discussion draft provision on the loan

guarantee program that was established under title XVII of the

Energy Policy Act of 2005. This is a program that needs to get up

and running as soon as possible. It is an amazement to me that

plain language, 80 percent, has somehow been interpreted by the

Department of Energy and the Office of Management and Budget

to be 80 percent of 80 percent or 72 or 90 percent or whatever their

latest definition is. It is also a puzzlement to me that Internal

Counsel’s Office in the Department of Energy has been put in

charge of that program. That makes absolutely no sense to me.

Your coal-to-liquid proposal is worthy of serious consideration. As

we all know, coal is our most abundant natural resource in the

United States, and in spite of some of the ads that have been popping up around Capitol Hill in some various periodicals, I do believe that we can work with the technologies and that resource to

find a way to make that a reality.

So Mr. Chairman, in closing, let me simply say that it is very refreshing to have a discussion draft circulating. It is very positive

you are holding a legislative hearing, and it is very commendable

of you that you are willing to take suggestions from both sides of

the aisle on how to improve it. With that, Mr. Chairman, I yield

back.

Mr. BOUCHER. Well, thank you very much, Mr. Barton, and we

very much look forward to working with you as we take further

steps on this measure. The gentleman from Michigan, Mr. Dingell,

chairman of the full committee, is recognized for 5 minutes.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Chairman DINGELL. Mr. Chairman, I thank you, and I commend

you for your diligence and for the extremely competent way in

which you have been pursuing energy legislation and bringing this

subcommittee to this point in the legislative process.

Over the years, energy legislation has been a major concern of

this committee but remains a continuing focus and challenge. Less

than 2 years ago, Congress enacted the Energy Policy Act of 2005

which touched on matters ranging from electricity markets to oil

and gas policy to renewable energy. Today, the committee proposes

and prepares to take the next by holding legislative hearings on

our discussion draft as circulated by you last week.

I commend you, Mr. Chairman, for your efforts in identifying

areas that will improve our Nation’s energy policy, help consumers,

and buffer our country from market instability. Today’s hearing

will receive testimony from witnesses on the substance of the discussion drafts that address several of the areas in the committee’s

jurisdiction.

The Speaker has asked the committees with energy-related jurisdiction to report legislation before the Independence Day district

work period. These four discussion drafts represent a solid beginning and as you, Mr. Chairman, have indicated, will be followed by

drafts on other significant matters. Today’s hearing will help Members define areas of concern and areas of potential agreement regarding energy efficiency, smart electricity grid, DOE loan guaran-
9

tees, and coal-to-liquids programs. This will take us one step closer

toward reporting legislation which will build upon our past work

and which will we hope benefit our Nation’s future.

I look forward, Mr. Chairman, working with you and all members of this subcommittee and the committee in the coming weeks

and to the testimony of today’s witnesses. Thank you, Mr. Chairman.

Mr. BOUCHER. Thank you very much, Chairman Dingell. The

ranking member of this subcommittee, the gentleman from Illinois,

Mr. Hastert, is recognized for 5 minutes.

OPENING STATEMENT OF HON. J. DENNIS HASTERT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. HASTERT. I thank you, Mr. Chairman, for holding this hearing on draft legislation for energy efficiency, smart grid, the Title

XVII Loan Guarantee Program under the Department of Energy

and coal-to-liquids. I also want to thank the witnesses for being

here today. We have already held hearings on many of these topics,

so we have some background to help us and to evaluate the discussion drafts. Some of it is new and may lead to added questions. I

hope our witnesses will be able to provide us with the background

we need.

I look forward to working on this legislation as it moves through

the regular order in the committee process. The draft legislation includes a section on lighting, a topic that I am very interested in.

I understand that the industry and efficiency advocates are working on consensus language regarding incandescent bulbs. They

have been working at this for a while, and hopefully their efforts

will come to a fruition.

I would like to be able to include language that has been arrived

at a consensus rather than dictating a result. Advances in lighting

technology will help the United States reduce significantly the

amount of energy it uses. I support that, and I also support good,

low-energy use lighting that is also green without the use of mercury, and we need to continue to look at that as well.

The draft legislation also includes a fix for the Title XVII Loan

Guarantee Program that was established by the Energy Policy Act

of 2005. It is unfortunate that we even have this piece of legislation

because I think the language in title XVII is clear. However, if this

draft language gets the loan guarantee program moving now, then

I support it. We need these loan guarantees to help finance the

next generation of nuclear power plants and alternative fuel facilities like cellulosic ethanol and coal-to-liquid. The discussion draft

also contains a title to provide support for six coal-to-liquid

projects. I wholeheartedly support coal-to-liquids. The U.S. has

more coal than anyone else in the world, and hence, we have the

ability to have more energy than anybody else in the world. We

should use those abundant coal resources to increase our energy security and reduce our reliance on imported oil by using coal to

make transportation fuel. The technology exists, we just need to be

able to economically deploy them in the United States, and we

should all work toward that goal.

This is the first step in getting this legislation ready for the floor.

I understand that other parts of potential legislation dealing with
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alternative fuels and infrastructure is still under development.

Those sections may be controversial. I will judge the proposed legislation on the full package, not just on individual pieces. It is the

full package that will be voted on eventually. That is what must

be evaluated in this committee.

I look forward to working with the members of this committee

and the full committee as the full legislative package goes through

regular order. Mr. Chairman, again I thank you, and I look forward

to today’s testimony.

Mr. BOUCHER. Thank you very much, Mr. Hastert. The

gentlelady from California, Ms. Harman, is recognized for 3 minutes.

OPENING STATEMENT OF HON. JANE HARMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. HARMAN. Thank you, Mr. Chairman. As is evidenced, our

districts are very diverse. Yours obviously is a coal-dependent district, and I think that coal is part of our future; but like Mr. Markey, I would much prefer to stress carbon capture and sequestration than coal-to-liquid. Some come from Michigan, the home of the

Big 3. I would point out that my district is home to Toyota and

Honda, and Toyota is now No. 1 at least in terms of sales in the

United States and has been highly innovative with respect to hybrid vehicles. My district also has an enormous amount of energy

efficiency technologies, and each of us can tell a different story. You

have a hard job to put all of this in a bill that moves us forward

and does what Al Gore told us to do, which is to expand the limits

of what is possible. And I just want you to know that I will try to

do my part.

I want to thank you specifically for including my light bulb bill

in this draft as a placeholder. As you well know, I am working with

Mr. Upton to see if we can find standards that are mutually agreeable, and I appreciate the comments that Mr. Hastert just made

about light bulb efficiency. We need to push the industry and recognize that many parts of the country and the world are banning

the incandescent bulb because it is inefficient. That is not what my

bill would do. My bill would push it to meet standards that fluorescent bulbs can already meet by 2012. So I think that at least is a

good starting place.

I also want to commend you for the smart grid title of the bill.

I think it is very important. An issue there that interests me a lot

is adding some language on technology or demonstration projects

for plug-in technology. As we heard from a witness a few weeks

ago, at least in a State like California, there is the possibility that

70 percent of our cards could be retrofitted with plug-in hybrid

technology. And that could use excess power from the grid at night,

and a smart grid format could make that possible.

So there are many exciting options. Your bill is beginning to capture some of them, and as one member of your team, I hope we will

all be successful and feel good about the result. Thank you, Mr.

Chairman.

Mr. BOUCHER. Thank you very much, Ms. Harman. The gentleman from Texas, Mr. Hall, is recognized for 3 minutes. The gen-
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tleman from Texas waives his opening statement, and the gentleman from Maine, Mr. Allen is recognized.

OPENING STATEMENT OF HON. TOM ALLEN, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF MAINE

Mr. ALLEN. Mr. Chairman, thank you for holding this hearing

and for your work on the legislation before us. I welcome the witnesses today. I am pleased that the draft legislation increases energy efficiency standards for appliances, buildings, and lighting,

the proposals for which I have long advocated. I strongly support

the portion of the proposal that would encourage the deployment

of smart grid technology. Smart grid systems will make our electricity transmission network more energy efficient and allow consumers greater control of their energy use.

I also support the section of the draft that improves the Title

XVII Loan Guarantee Program. This language has been worked out

on a bipartisan basis and will significantly improve the program.

However, I do have grave concerns about providing Federal support

for the construction of coal-to-liquid plants. Making liquid fuel from

coal is the least efficient way to utilize coal as an energy resource.

Under the best case scenario, coal-to-liquid plants would be carbon

neutral. At the worst case, coal-to-liquid plants would increase carbon emissions. Under no circumstances will we achieve rapid reductions. But there are to my knowledge no significant reductions

in carbon emissions from vehicles that use fuel from coal.

I have another concern. Subsidizing coal-to-liquid plants may

well undermine the development of biofuel technologies. We need

to investigate whether or not the low cost of coal will cripple the

development of a vibrant market for cellulosic ethanol which can

reduce our use of oil and significantly reduce carbon dioxide emissions at the same time. The development of a global coal-to-liquids

industry is truly troubling for the future of carbon emissions. I prefer plug-in hybrids. I think if we encourage plug-in hybrids, together with coal plants that deploy the latest technology for carbon

capture and sequestration, plus state-of-the art technology to scrub

the stacks with SOx, NOx, and mercury. We could achieve cleaner

air, carbon dioxide reductions, and energy independence all at once.

Coal-to-liquids takes us in the wrong direction. Further, any true

energy independence factors should contain a renewable energy

standard as well as language similar to Mr. Markey’s CAFE proposal so we can get serious about making our automobiles more efficient.

Finally, Mr. Chairman, cleaner air and a comprehensive strategy

to combat global climate change go hand in hand with energy independence but in my opinion must be part of this subcommittee’s

long-term strategy. I look forward to working with you to achieve

this goal, and I yield back the balance of my time.

Mr. BOUCHER. Thank you very much, Mr. Allen. The gentleman

from Kentucky, Mr. Whitfield is recognized for 3 minutes.

Mr. WHITFIELD. Mr. Chairman, I waive my opening statement.

Mr. BOUCHER. Thank you very much, Mr. Whitfield. The gentleman from Texas, Mr. Burgess, is recognized for 3 minutes. Mr.

Burgess is not here at the moment. The gentleman from Texas, Mr.

Gonzalez, is recognized for 3 minutes.
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Mr. GONZALEZ. I waive.

Mr. BOUCHER. Mr. Gonzalez waives his opening statement. The

gentleman from Washington State, Mr. Inslee, is recognized for 3

minutes.

Mr. INSLEE. Wait.

Mr. BOUCHER. The gentleman waives his opening statement.

Mr. INSLEE. I will be there in just a moment.

Mr. BOUCHER. He is sending me an e-mail.

OPENING STATEMENT OF HON. JAY INSLEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON

Mr. INSLEE. Actually, what I was trying to do is first I wanted

to express my appreciation to the Chair’s handling of this in such

an open and comprehensive manner, and I really do appreciate it.

What I was looking for is a release from Speaker Pelosi, who is

addressing sort of our charge to our committee for this summer,

and I want to make clear that it is my understanding our charge

is to produce bills this summer that address not only energy independence for the United States but also global warming. And as

soon as I get my BlackBerry in the right file, I can read that.

She made it very clear to us that we have a twin charge this

summer, is to address the twin challenges of energy independence

and global warming. And I think it is very important for us to

make that point now because we cannot solve either unless we

solve both.

I am just reading her language. She says, ‘‘Our committees are

already working hard on hearings of legislation designed to meet

our June timetable in taking crucial legislative steps to achieve energy independence and reduce activities that contribute to global

warming.’’ It would be a huge mistake for us to take a policy this

summer that would harm or retard the ability to solve either one

of those challenges. Many folks have talked about the coal-to-liquid

issue. I want to suggest that despite the considered efforts to draft

this bill to not shoot ourselves in the foot. In fact, coal-to-liquid

would inevitably harm our ability to move forward on global warming. And the reason I think was made even clearer to me when I

was talking to a gentleman who is involved in efforts to develop a

cellulosic ethanol industry in the United States which would reduce

CO2 by over 50 percent compared to gasoline. Why would we ever

establish an industry that would at best be equivalent to gasoline

and essentially retard the development of an industry that can reduce CO2 emissions by 50 percent? That is cellulosic ethanol.

And I want to address my colleagues from the farm community

States that have a tremendous potential with cellulosic ethanol. My

colleagues who want to develop the farm industry are going to be

hurt if they get on this train of coal-to-liquid because coal-to-liquid

would be a direct competitor to cellulosic ethanol. And those who

want to see a future for rural America with biofuels are going to

have to make a decision whether they want to shoot themselves in

the foot and to develop that by trying to support these coal-to-liquids which is never going to be a significant reduction in CO2. I

think that is important.

With that being said, I hope Mr. Chairman that we will address

this summer some of the other issues that will address global
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warming including a renewable portfolio standard, an advanced

low-carbon fuel standard, incentives for plug-in hybrids, additional

incentives for the solar to wave energy industry, healthcare for hybrids, and our green building standards which should include green

building standards for residences as well as commercial construction.

So I will look forward to dealing with two problems this summer,

not just one, Mr. Chairman. Thank you.

Mr. BOUCHER. Thank you, Mr. Inslee. And let me just note that

the Speaker’s office indicated some time ago that, to use the phrase

of the Speaker’s office, cap and trade would not be a part of the

July agenda, meaning that a comprehensive greenhouse gas control

program would be considered later, and we intend to take that

charge seriously and produce it later this year in this committee.

The gentlelady from Wisconsin, Ms. Baldwin is recognized for 3

minutes.

OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN

Ms. BALDWIN. Thank you, Mr. Chairman. I want to begin by

thanking you for your dedication and your efforts in drafting the

legislation that we have before us. There are many provisions in

this text that will take significant steps towards reducing our Nation’s energy consumption and putting us on a path to energy independence. For instance, I am excited about the potential provisions

in the energy efficiency title that would require EPA to survey the

quantity and quality of industrial waste energy, heat, from major

industrial combustion sources. Estimates reveal that there is potentially as much as 60 to 90 gigawatts of heat that are currently

wasted from industrial sources. This is heat that can be converted

into energy, reducing the need for the equivalent of 60 to 90 nuclear power plants.

I understand that there are concerns about particular provisions

in the industrial energy subtitle. I hope through continued discussions we can reach a satisfactory outcome that enables us to prevent waste, increase efficiency, and improve grid reliability.

I am also pleased that this bill takes significant steps towards

facilitating smart grid technologies. Smart grid is technology of the

future. It is the ability to manage peak loads and mitigate peak

prices, and it provides consumers with the knowledge and the

means to make sound energy choices. But for a smart grid to succeed, substantial investment is required to trigger nationwide deployment, and this bill provides the incentives to jumpstart such an

investment.

Mr. Chairman, while I have expressed my pleasure with certain

sections of the bill, in my opinion, it is not perfect. As mentioned

in earlier hearings, I have a strong concern about coal-to-liquid

projects. As we embrace the challenge of making our Nation energy

independent, I believe we must do so in a manner that reduces our

greenhouse gas emissions, in other words, a more ambitious standard than do no harm in this bill. And coal-to-liquid, while it may

be a domestic fuel source, has greenhouse gas emissions that could

be as much as twice as high as petroleum-based fuels.
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I am hopeful that you will be open to working with Members so

that this committee can pass legislation that addresses our concern

about increasing energy independence while reducing greenhouse

gas emissions.

Finally, Mr. Chairman, I want to highlight negotiations that are

ongoing between industry and advocates. On the issue of stand-by

power, each and every one of us has electronic equipment in our

homes operating in standby mode, our televisions, or modems, battery chargers, any device with a continuous digital display. The

problem is that for many of these devices, they draw as much energy in standby mode as they do when they are turned on. Recent

estimates of standby use reveal that it accounts for as much as 10

percent of household power consumption. I will continue to work

with energy efficiency advocates in affected industries on language

to reduce standby power consumption, and I am hopeful that we

will reach consensus that can be inserted into this bill. Thank you,

Mr. Chairman.

Mr. BOUCHER. The gentleman from Utah, Mr. Matheson, is recognized for 3 minutes. The gentleman from Utah waives his statement. The gentleman from Maryland, Mr. Wynn, is recognized for

3 minutes.

OPENING STATEMENT OF HON. ALBERT R. WYNN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MARYLAND

Mr. WYNN. Thank you very much, Mr. Chairman. I want to join

my colleagues in expressing my appreciation for the work that you

have done. You have worked very hard on this issue, and you have

also been very thorough and comprehensive in holding a lengthy

series of hearings.

I am generally pleased with the draft bill before us on a number

of fronts. First in terms of energy efficiency, I think it is very important that we address this issue. It is pretty well-recognized that

our footprint here in America in terms of energy consumption is

much greater than that of Europe and suggest we can do better,

and the provisions relating to appliances and lighting and better

standards and more efficient standards I think make perfect sense.

A lot of people have been saying we can’t do better.

I want to note that in one of our hearings we heard from the National Conference of Mayors that this is not just a Federal responsibility, it is also a local responsibility and in keeping with their

suggestions, I introduced a bill for energy independence, energy efficiency block grants which is basically Federal funds sent to the

local level for projects at the local level to address energy efficiency,

and I hope we can consider this as we move forward.

Second, I would note that the smart grid provisions are also very

significant. A lot of people, quite frankly, have been waiting for us

to get smart. This bill begins that process, particularly with respect

to providing for matching grants for the investment costs associated with the initial smart grid cost. I think this is what we have

to do, shift financial resources to areas that we want to promote.

I think this makes perfect sense, also the promotion of demand response by consumers involving the American public in this process.

Like many of my colleagues, I also support the title XVII adjust-
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ment that would provide for full costs or loan guarantees for the

full cost of new technologies. It provides a clarification that many

people have been seeking with respect how we can financially support new technologies such as sequestration, such as hydrogen fuel

cells. So I think that makes sense.

I would say in closing that I have concern as do many of my colleagues about coal-to-liquid, but if we can utilize sequestration to

address this concern, it must be in the context of lowering emission

levels below that which would come from burning petroleum. So I

know that there has been discussion with do no harm, but I think

we have to try to do better than do no harm with respect to coal

if we are to consider coal-to-liquid in this plan. But ultimately, we

have got a long way to go but I think we have made a good start;

and I appreciate your leadership. Thank you.

Mr. BOUCHER. Thank you very much, Mr. Wynn. The gentleman

from Arkansas, Mr. Ross, is recognized for 3 minutes.

OPENING STATEMENT OF HON. MIKE ROSS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ARKANSAS

Mr. ROSS. Thank you, Chairman Boucher, for holding today’s

hearing and all the witnesses who have come before the subcommittee to testify. I want to first commend our chairman and

subcommittee for all their hard work on these drafts. I especially

want to thank the staff.

This legislation is a step in the right direction for increased energy efficiency and security for our Nation. I am particularly glad

to see a title that addresses the Energy Policy Act of 2005 Loan

Guarantee Program. This program can help finance projects involving, among other things, cellulosic ethanol, nuclear energy facilities

and clean coal projects. I represent part of the delta region of this

country, one of the poorest in America; and I believe we can see

an economic revival in the delta as a result of investing in cellulosic ethanol.

Alternative and renewable fuels like cellulosic ethanol, biodiesel,

and nuclear energy must be part of our Nation’s comprehensive

plan to combat climate change and increase our energy security. I

believe that the loan guarantee programs in the 2005 EPACT can

and should aid in that process. However, there have been numerous concerns about the DOE guidelines that cap loan guarantees

at 80 percent for an eligible project, and I am pleased to see that

this legislation addresses those concerns.

I am also pleased to see titles in this draft that would help to

modernize America’s electric transmission through a smart grid

and a provision to assist coal-to-liquid projects. Let me be clear. We

have over a 200-year supply of coal here in this country that can

help us reduce our dependence on foreign oil. This is not the 1950s

or 1960s. We can utilize 21st century technology and use this valuable natural resource to lessen our reliance on foreign oil, and we

can do it utilizing 21st century technology in an environmentally

friendly manner.

These sections I believe are extremely important components to

putting our Nation on the path to energy independence. I am

happy to see their inclusion in this draft.
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Finally, I am pleased to see a strong energy efficiency section of

the bill that addresses building and appliance efficiency standards

in the section that reauthorizes funds through 2012 for LIHEAP,

the Weatherization Assistance Program, and the State energy program. With energy and electricity use projected to grow over the

next 20 years, enacting legislation that promotes energy efficiency

in buildings and appliances is crucial to our country’s energy independence and security. The future energy needs in this country

must be met by a number of ways including nuclear, clean coal

technology, coal-to-liquid technology, cellulosic ethanol, and other

forms of alternative and renewable fuels.

Once again, I want to thank the chairman for his work on this

legislation, and I look forward to hearing today’s testimony and the

benefits of this bill as well as possible ways to improve on these

drafts, and I yield back the balance of my time.

Mr. BOUCHER. Well, thank you very much, Mr. Ross, and that

completes the opening statements from members of the subcommittee, and I want to say welcome to our panel of witnesses who will

address the first set of subjects that we are conducting our hearing

regarding today, and I want to thank you for your patience. We

have spent about an hour talking to you, and now we would like

to give you an opportunity to talk to us.

Our first witness is Mr. David Rodgers, the Deputy Assistant

Secretary for Energy Efficiency at the U.S. Department of Energy.

Ms. Kateri Callahan is president of the Alliance to Save Energy,

and Mr. Jay Birnbaum is the vice president and general counsel of

the CURRENT Group which is deploying broadband over power

line in a variety of locations around the Nation. And we welcome

each of our witnesses on the first panel. Without objection, your

prepared opening statement will be made a part of the record, and

we would welcome your oral summary and would ask that you keep

that to approximately 5 minutes.

Mr. Rodgers, we will be happy to hear first from you.

STATEMENT OF DAVID RODGERS, DEPUTY ASSISTANT SECRETARY, ENERGY EFFICIENCY, U.S. DEPARTMENT OF ENERGY, WASHINGTON, DC

Mr. RODGERS. Thank you, Mr. Chairman, members of the committee. Thank you for the opportunity to testify before you today

on the energy efficiency discussion draft that was circulated for

comment. While the administration has not had sufficient time to

coordinate interagency views of the draft legislation, I am pleased

to offer some preliminary comments. This means the administration has no formal position on the bill and may take a position at

a later date based on the entirety of the legislative package.

In addition I would note the administration looks forward to

working with this committee to craft an ambitious alternative fuel

standard for the President’s signature before the end of the summer driving season.

Discussion draft title I addresses a fundamental question: how

can the United States find more ways to successfully promote energy efficiency? The draft legislation makes valuable contributions

to our national discussion on energy efficiency addressing key areas

of energy consumption, energy waste, energy training, and the resi-
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dential, commercial, industrial, and public sectors. While there are

many elements of the draft that appear consistent with the administration’s energy policy objectives, some sections could benefit from

further review, discussion, and modification. The Department looks

forward to working with the committee to fine tune these proposals.

The discussion draft begins with the important area of energy

conservation standards for appliances and equipment. Assistant

Secretary Karsner testified earlier this month before this committee and discussed the schedule by which the Department has committed to clearing backlog of standards rulemaking and strategies

for expediting the rulemaking process. This draft would augment

the schedule and the process, and the Department supports many

of the sections presented today and the tools they employ.

Secretary Bodman sent legislation to Congress in February requesting authorization that would significantly speed up the standards process and ultimately bring more efficient products to the

market sooner. Our fast-track legislative proposal would streamline

the rulemaking process, allow the Department to go to a direct

final rule for certain products when a clear consensus for a standard exists among manufacturers, efficiency advocates, the Government, and other stakeholders. This process could shorten the time

to a completed standard by nearly one-third. The Department looks

forward to working with this committee to have that language included in this legislation.

Section 109 of the discussion draft would require DOE to periodically review and update all standards, an objective the DOE can

support. However, the draft sets a schedule for the Department to

evaluate the need for further updates to standards that would require rulemakings for some products to begin before the effective

date of the existing standard. In those circumstances, DOE would

not have updated information on the cost and other attributes of

the energy efficient improvement options. We have similar concerns

regarding the maximum 3-year delay between DOE issuance of a

new standard and its effective date, and concerns about the immediate lifting of Federal preemption of State standards if one of the

statutory deadlines was missed, regardless of cost. The end result

of some of these provisions is likely to be a substantial increase

and a burden on manufacturers and consumers.

The Department supports improving energy-efficient practices

government-wide including in the construction, renovation, routine

maintenance of Federal facilities. The discussion draft would direct

the installation of energy efficient lighting fixtures and bulbs in

GSA facilities. We are prepared to assist GSA and all Federal

agencies with the latest developments in lighting technologies practices including providing energy cost-saving data. Our Federal Energy Management Program provides direct technical assistance and

training to Federal agencies on lighting and other efficient technologies. Lighting improvements at Federal agencies are frequently

performed as part of the Comprehensive Energy Audit and retrofit

utilizing an energy saving performance contract or utility energy

services contract as appropriate, allowing them to maximize energy

savings at little or not cost to the government.
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Moving on to the area of building codes, the framework and basic

objectives of this subtitle in the discussion draft appear to be consistent with the goals of our building technology program. We have

supported the building code and standards activity of ASHRAE and

the IECC, the major voluntary code bodies. However, the Department has several specific concerns related to the flexibility and implementation and looks forward to further discussion with the committee.

Subtitle F would expand the types of projects that can be funded

by Energy Saving Performance Contracts. Broadening the scope of

this provision may serve as a significant incentive for Federal

agencies to implement more diverse projects, demonstrate the significant role that private financing can play in Federal energy

management projects. In addition, the Department supports permanent authorization of Energy Saving Performance Contracts

which is not included in this discussion draft.

An essential complement to increased energy efficiency in industry, manufacturing, and the built environment is a national effort

to reduce petroleum use, especially in the transportation sector. In

his 2007 State of the Union Address, the President challenged our

country to reduce gasoline consumption by 20 percent in 10 years,

the Twenty in Ten plan. The President called for a robust alternative fuel standard requiring the equivalent of 35 billion gallons

of renewable and alternative fuel in 2015. The Twenty in Ten plan

holds a promise of diversifying the sources and the volumes of fuels

we use, while reducing our vulnerabilities and dependence on oil.

The administration looks forward to working with Congress on

these initiatives.

Mr. Chairman, this concludes my prepared remarks. I will be

pleased to answer any questions the committee members may

have.

[The prepared statement of Mr. Rodgers follows:]
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Mr. BOUCHER. Thank you very much, Mr. Rodgers. Ms. Callahan,

we will be happy to hear from you.

STATEMENT OF KATERI CALLAHAN, PRESIDENT, ALLIANCE

TO SAVE ENERGY, WASHINGTON, DC

Ms. CALLAHAN. Thank you, Mr. Chairman, and I thank the members of the committee for the opportunity to appear before you

today to discuss the energy efficiency provisions of the draft legislation.

As an organization that has dedicated itself over the last three

decades to advancing energy efficiency, to tackle the country’s

linked problems of growing energy demand, increasing prices and

volatility, and global warming, we think that what you are undertaking here today is very important. We stand ready to support

your efforts in any way that we can.

I also would like to thank two of the members of the subcommittee in particular for their leadership on energy efficiency and their

service as Alliance board members, and that is Mr. Hall from

Texas and Mr. Markey from Massachusetts, and we have enjoyed

their support.

Energy efficiency has proven to be our country’s greatest energy

resource over the past 30 years, and that has happened from good,

strong public policies like you are looking at today, appliance

standards, building codes, better Federal energy management. Energy efficiency is currently contributing more to meeting our country’s energy demand than, pardon me, Mr. Chairman, but even

than King Coal. Our studies at the Alliance indicate that if we

hadn’t taken all the efficiency measures that we have over the past

30 years, we would need 40 percent more energy today to power

our economy than we are currently using. So we have made good

progress and we all should be proud of that. However, there is

much more to do.

The committee’s draft continues this important tradition, and

while we support the efficiency provisions that are in the draft currently, we also urge the committee to consider including additional

measure that can deliver even greater energy savings. I am only

going to highlight a couple of the key provisions because as the

chairman indicated, there are 29 efficiency provisions. So I will

highlight a couple that we consider most important and suggest a

few additions. All of these, along with a number of others, are included in detail in my written testimony.

First, we support the many strong provisions on appliance standards in the bill. Appliance standards has proven to be one of the

most effective efficiency programs this country has undertaken.

Through the appliance standards we have in place today, by the

year 2010, we estimate that we will save 7 percent of U.S. electricity use, and greenhouse gas emissions will be 65 million metric

tons lower. And that also translates into savings for American consumers of $234 billion in avoided energy costs. New performance

standards for general service light bulbs that many of the Members

have mentioned today could be the single most important energy

savings measure in the bill. We estimate that these technologyneutral standards could save as much as 65 billion kilowatt hours

of electricity. That is the equivalent output of 80 coal-fired power
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plants. It represents $18 billion in avoided energy costs and 158

million tons of avoided CO2 emissions annually.

Mr. Chairman, many have mentioned that there is a coalition

working on negotiating consensus standards. The Alliance is

pleased to be hosting those, and I am actually leaving here today

to conclude we hope successfully the standards. We would suggest

and ask that the committee consider these negotiated standards if

we are able to deliver them as a substitute for the language that

is currently in the draft.

Second, we strongly support the innovative building code provisions that are included in the draft. About 40 percent of all the energy we consume in the United States and two-thirds of the electricity is gobbled up by the building sector, and the potential for

energy savings here is enormous. Making efficiency improvements

at the time of construction is by far the most cost-effective way to

lock in energy savings for the 30 to 50 to even longer life buildings.

Progressive building efficiency codes like you have articulated in

this draft ensure that these efficiency measures are taken. And

third, while we strongly support the provisions of the bill designed

to reduce energy use by the Federal Government, we ask the committee to consider additional provisions that will create a new paradigm and a new structure to ensure that Federal agencies are aggressive in pursuing efficiency upgrades. The bill that was mentioned by Mr. Markey that he is going to introduce today and was

introduced in the Senate by our chairman, Senator Mark Pryor

from Arkansas, is one that we would commend to this committee

to consider including in the bill.

And finally, we ask the committee to consider including provisions that foster utility efficiency programs which are a proven and

cost-effective means of delivering energy efficiency. The Senate energy efficiency bill requires State utility commissions to at least

consider energy efficiency as a resource and to look at structuring

rates as to not encourage greater sales of electricity. We support

these provisions and ask the committee to consider them. We also

support creation of a Federal energy efficiency resource standard

that would require utilities to implement programs that result in

a specified amount of electricity or natural gas savings. Like a renewable portfolio standard, energy efficiency resource standard, or

EERS as they are called, represent a flexible or performance-based

and market-based regulatory mechanism that can ensure that energy efficiency is treated by utilities as other fuel supply resources.

In conclusion, I reiterate our offer to work with the committee as

you develop this important legislation that will reduce energy

waste and price volatility and will address global warming in a

meaningful way. Through energy efficiency, we believe that you

can transform our current energy crisis into economic opportunities

and a win-win for both Americans and our environment.

[The prepared statement of Ms. Callahan follows:]
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Mr. BOUCHER. Thank you very much, Ms. Callahan. Mr.

Birnbaum.

STATEMENT OF JAY BIRNBAUM, VICE PRESIDENT AND GENERAL COUNSEL, CURRENT GROUP, LLC, GERMANTOWN, MD

Mr. BIRNBAUM. Thank you, Mr. Chairman. Good morning. Good

to see you again. I would like to thank the committee for the opportunity to speak this morning about the smart grid initiatives. I

would like to commend the subcommittee for actually elevating

smart grid to the national debate. CURRENT has been doing this

with electric utilities for several years now. We believe that the development of a smart grid is vital for national security, economic

stability and development, as well as energy policy in general.

The draft appropriately focuses on utilities using advanced technologies to improve reliability, security, and efficiency of their local

distribution grids. And we would submit that it actually is a Federal responsibility to improve the reliability and security of the

grids given the potential impact on homeland security and our

economy. We support a number of the provisions in the bill which

I will discuss.

Although well-intended, I do believe there are some provisions

that actually would have the unintended consequence of delaying

smart grid deployments, and I would like to discuss those as well.

I think it is first important to understand that smart grid exists

today. This is a technology that we are deploying presently in the

State of Texas as well as elsewhere. Mr. Chairman, I know you

have been to our facility we have just outside the Capital Beltway

where we demonstrate the smart grid capabilities. What we are

doing in Texas will be a deployment covering 2 million homes and

businesses with full smart grid functionality. So this is not a technology of tomorrow that needs study or demonstration projects. We

can actually demonstrate whether it is hybrid powered vehicles or

any other applications, on a system we are building today.

What is needed is to remove the regulatory constraints that utility companies have and the disincentives they have for deploying

smart grid technologies and to create some affirmative incentives,

which the bill does address, for rapid action.

First I would like to just clarify what we mean at CURRENT by

smart grid. We are referring to a high-speed, two-way communication system that has sensors that provide real-time monitoring,

diagnostics, and control for electric distribution companies so they

can manage and monitor their substations, transformers, all the

crucial points between the substation and our homes and businesses. Right now utility companies for the most part are deaf,

dumb, and blind as to what is going on inside our distribution grid.

Hence, we have brownouts, we have storm-related power outages

that take many days and sometimes longer to fully restore. A

smart grid enables electric utilities to maintain stable, self-healing

networks pursuant to which operators can immediately address

problems, often before they result in noticeable problems to consumers such as outages, and often take automated corrective action.

Unfortunately, significant Federal guidelines intervention are required. As I mentioned, CURRENT has been working with utilities
42

to develop smart grids for several years now. We have found that

utilities generally are reluctant to make discretionary technology

investments, and we find several reasons for that. Their concern

that regulatory rate recovery will be denied after they spend their

money on new infrastructure. They have other investment opportunities that bear larger returns, such as generation and transmission facilities. And utilities actually have a disincentive to

spend on an initiative that would reduce consumption or that

would improve their own efficiencies since they would reduce their

profits for any increase in efficiencies have to be passed onto the

rate payer.

Some of the problems in the draft bill do address these provisions. Providing for certainty that utility companies would have

with respect to cost recovery on a smart grid, any intrastructure

deployments we think that is an important Federal guideline. Similarly, utility companies should be able to continue to recover costs

during any depreciable life on equipment that is rendered obsolete

by smart grid investments. The utility companies have, unfortunately, an incentive to use inefficient equipment out on the wires

as long as it is working a little bit. A totally full, depreciable life

is eliminated.

Some of the things we would urge the subcommittee to consider

actually are enhanced returns. Because of the competing investment opportunities utilities have and restraints on capital, having

an enhanced return for capital investments on smart grid initiatives including potential returns on operating and maintenance expenses for smart grid investments is something that could induce

utilities to deploy smart grids, and we would urge the subcommittee to consider.

As an alternative to a return on operating expenses, utilities

when they create savings in their network create efficiency, they

are expected to pass those savingsonto their rate payers. Utilities

could instead be permitted to retain a proportion of those savings

as a result. Getting a return on efficiency spending without actually having to build structure actually results in a less expensive

way of developing a smart grid, and the bill does reflect some of

these provisions in the proposed Federal guideline for becoming,

which several States have started to employ.

We think that regulatory reform is important at the State level.

States need to be prohibited from impeding utilities’ ability to deploy smart grid, whether directly or inadvertently. The draft bill

does have a policy statement to this effect, and we would actually

recommend that the subcommittee consider turning that into a

Federal guideline an actual statutory requirement.

Finally, Mr. Chairman, there are some provisions of the bill that

I think, although well-intended, might actually have the effect of

delaying smart grid deployments. As I mentioned, we are doing

this today with several utilities. There are other technology companies out there that have developed smart grid components. Utility

companies have the capability to do so today. They understand

what the effects are on making them more reliable and how to do

so. As a result, creating additional commissions and further development studies or demonstration programs, although more useful

for untested and underdeveloped technologies actually in this case
43

would probably serve to delay deployments since utility companies

would more likely wait for the outcome of those studies and not deploy in the immediate future. With the strain and the

vulnerabilities in the electric grids today, we would want to see

smart grid deployments expedited rather than having a sort of wait

and see approach for Federal studies. Thank you.

[The prepared statement of Mr. Birnbaum follows:]
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Mr. BOUCHER. Thank you very much, Mr. Birnbaum, and thanks

to each of our witnesses for sharing your thoughts with us this

morning.

Ms. Callahan, let me compliment you on the work that the Alliance to Save Energy is doing under your leadership in order to develop a consensus among a variety of interested parties on performance standards for lighting. I think we all appreciate the work that

you have undertaken.

You indicated that even today you have a meeting following this

hearing among those stakeholders and that you are optimistic

about a consensus on those standards being not developed by those

conversations. We would welcome that, and we hope that you can

come forward with it. You understand, of course, that we are operating on a pretty short timeframe.

Ms. CALLAHAN. Right.

Mr. BOUCHER. And we will be having markups in June on this

subcommittee on the energy efficiency title as well as the other

three titles and other material that will be forthcoming shortly, all

of which will be marked up together. And that doesn’t leave us a

lot of time. So my question to you is how quickly do you really

think that you are going to be able to develop this consensus and

present it to us?

Ms. CALLAHAN. Thank you, Mr. Chairman. You are asking me to

look into a crystal ball, but I will for whatever that is worth. First

of all, let me say that I think the energy behind the negotiations

is really coming in trying to meet your timeframe. Everyone is very

aware of that, as well as the Senate, so we are working very hard.

It is a face-to-face meeting today between manufacturers. People

actually changed their plans and are flying into town from literally

all across the United States to do this. We met last week face to

face as well. I am optimistic. I think we will get there. There are

significant challenges, effective dates, what the standards need to

look like, what preemption is going to look like at the Federal level.

These are tough issues to tackle. We are committed to staying late

tonight. People are changing their Memorial Day weekend plans.

We have committed to go through tomorrow. I am hopeful that we

will deliver something to you all by early next week. I can’t guarantee it, but that is our goal.

Mr. BOUCHER. Just lock them in the room until they come to an

agreement. Well, thank you. We all appreciate the work that you

are doing on that.

Mr. Birnbaum, let me compliment you personally and CURRENT

Technologies for setting forth in such broad and eloquent terms the

vision for what a smart grid can accomplish. The leadership you

have demonstrated and your company has over the years is much

appreciated. We have tried to respond as best we can to the effort

to deploy the smart grid through the provisions in that title of this

bill. Understanding that the regulatory authority over retail electricity rates resides at the State level, and most of these issues

really fall within the advent of retail electricity regulation. We are

necessarily somewhat limited with what we can do from the Federal standpoint in order to facilitate smart grid deployment. So

given that inherent limitation, beyond the provisions that you have

discussed that we have in our draft legislation, do you have rec-
53

ommendations for us on other steps that we could be taking on this

subcommittee or perhaps through regulatory action at one of the

agencies or through grant or loan programs of some kind that

would aid in the effort to deploy smart grid?

Mr. BIRNBAUM. Thank you, Mr. Chairman. With respect to the

last part, being the loan or grant programs, they would probably

be most useful in the rural areas or the other underserved, more

difficult to serve areas where the electric distribution network

tends to get technology and developments last and usually you are

not served by investment from utilities and as a result they have

a more difficult time raising capital to make those investments.

The concern we have with those types of programs vis-a-vie industrial utilities, large municipal utilities, is generally the capital is

available. The utility understands what is necessary to make the

grid more reliable, but because of the limitations in the State regulatory environment, as you point out, they tend to have disincentives to do things the way they did the day before as opposed to

what we want them to do tomorrow. Providing for some of these

initiatives, and I understand you can’t do rate making at the Federal level for each State utility, but providing guidelines at the

Federal level for how State commissions should regulate for the

provision or the deployment of smart grids we think is something

that is similar to what Congress has done in other industries as

well as industry including in 2005.

Mr. BOUCHER. So some sort of model guideline is what you are

suggesting?

Mr. BIRNBAUM. Yes.

Mr. BOUCHER. Where would you suggest that that guideline be

developed?

Mr. BIRNBAUM. As opposed to this subcommittee?

Mr. BOUCHER. Well, should it be in a statutory form? That would

be somewhat unusual I would think. Generally this is something

that an agency would put forward. Have you had any discussions

with the DOE about the possibility of DOE undertaking that kind

of mission?

Mr. BIRNBAUM. We have begun to have the conversation with the

Department of Energy.

Mr. BOUCHER. Let me ask this. Do you think DOE needs a statutory directive to do something like that?

Mr. BIRNBAUM. I would defer to DOE on whether they think they

need that, Mr. Chairman.

Mr. BOUCHER. Mr. Rogers, do you have any comment on that?

Mr. RODGERS. Thank you, Mr. Chairman. I am not in a position

to comment on our statutory authorities in the area of electricity,

but I would be happy to submit for the record in coordination with

the Office of Electricity Delivery.

Mr. BOUCHER. OK. Well, the question precisely stated as I comprehend Mr. Birnbaum is would you have sufficient authority

under existing law to develop a model of State regulatory program

that would be in aid of deploying the smart grid, and I presume

that would include, and Mr. Birnbaum, you can supplement this if

you like, but I presume that would include things such as time of

use pricing and also a regime for smart meter deployment. Mr.

Birnbaum, what else?
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Mr. BIRNBAUM. Those are important aspects of a smart grid, Mr.

Chairman, but we would also provide for automation of the network so utilities can do remote outage management, outage prevention. A lot of the technology that we deploy along the electricity

grid tells the utility company before something is so wrong that it

results in an outage. It provides for higher efficiency, roughly 10

to 20 percent of electricity is actually lost before it ever reaches the

end user. So by making the networks more efficient, we can actually do more than just smart——

Mr. BOUCHER. So in the interest of time, let me ask you this.

First, Mr. Birnbaum, why don’t you submit to us your proposal for

what that model for regulatory program at the State level should

look like, and then we are going to send it to you, Mr. Rogers; and

once you have seen that, perhaps you can comment to us on what

additional statutory authority you might need in order to adopt a

program that roughly has those characteristics.

Mr. RODGERS. We look forward to that work with the committee.

Mr. BOUCHER. And we are going to need to do this pretty quickly.

So Mr. Birnbaum, by next week perhaps?

Mr. BIRNBAUM. Yes, we will do that.

Mr. BOUCHER. That is great. Thank you to each of these witnesses, and I am pleased to recognize the gentleman from Illinois,

Mr. Hastert for 5 minutes.

Mr. HASTERT. Thank you, Mr. Chairman. Mr. Rogers, Section

104 provides for regional variations for heating and cooling equipment. Common sense says cooling, air-conditioning equipment

across southern California and Arizona is different from the cooling

equipment that you would find in Georgia because of humidity you

have coolers instead of air-conditioners, dehumidifiers. And up in

the north it is a different situation. They probably only use maybe

400 hours a year as opposed to maybe 4,000 hours. I am pulling

numbers off the top of my head but you understand. I think it is

a common-sense thing to do, but for your regulation, can you do

this?

Mr. RODGERS. Thank you for the question. Under the current

statutory authority, the Department is limited to one national

standard for each product.

Mr. HASTERT. So what if we change the standard or we change

the authority?

Mr. RODGERS. A change of authority would be required for regional standards. We have a strong preference for national standards, but there are some products for which regional variations

may allow additional energy savings.

Mr. HASTERT. So let me re-ask this question. Can you do this

common-sense thing because there are products such as air-conditioners and coolers that have different geographical needs so thus

geographical standards across the country. Can you do it without

us changing your authorization?

Mr. RODGERS. Without changes to the authorization, the only

way that we can allow States to use standards other than the national standards is through the statutorily approved waiver process

where the States submit an application to adopt a different standard.
55

Mr. HASTERT. Would you provide to this committee the authorization changes that you think need to be done in order for you to

do this on a regional basis?

Mr. RODGERS. We would look forward to working with the committee on what might be needed in order to do this.

Mr. HASTERT. Thank you. Mr. Birnbaum, you said something at

the very end of your discussion, your statement. You said the discussion draft would delay the implementation of the smart grid as

it is now. Why?

Mr. BIRNBAUM. Utility companies tend to take a wait-and-see attitude. They are economically conservative, they are very, very risk

adverse, and that is the regulatory environment in which they have

existed for decades. So we believe that demonstration programs in

addition to being unnecessary since technology is already here and

being built would simply give utility companies an opportunity to

test on a very small basis, test the technology and then all the

other utilities would wait around and see how that test comes out,

rather than actually going to deploy themselves. And having

worked with utility companies now for several years, we have seen

that one thing they will do is they will do pilot upon pilot upon

pilot before actually implementing the technology, and usually

these are the economic and regulatory disincentives I mentioned

earlier that are a cause for their delay.

Mr. HASTERT. Mr. Birnbaum, in your work obviously, can you

demonstrate to utility companies that through use of your programs that there is not only an efficiency of moving generation

product through their grid, but also across the country so it is an

economic-driver?

Mr. BIRNBAUM. Absolutely. The utility companies operate networks that they have no idea what is going on inside their networks. So when there are outages, they spend many more times

than they should have to spend to detect where those outages occur

to figure out what the cause is and how to repair that. A fully automated system, for instance which is one of the things a smart grid

provides, the utility company can avoid lots of outages by detecting

any irregularities in the network and as a result not have to spend

time——

Mr. HASTERT. Well, let me follow up then. Because most utilities

are regulated by a State public utility corporation, PUC’s, commissions, they are given a rate of return on investments, correct?

Mr. BIRNBAUM. Yes.

Mr. HASTERT. And that is how they get their income basically?

Mr. BIRNBAUM. Yes.

Mr. HASTERT. So cost efficiency then isn’t necessarily the goal?

Mr. BIRNBAUM. That is correct. That is one of the problems the

utilities have. The more efficient they get, the more they either

make less profit or no more profit, so they have a disincentive to

take risk on efficiency spending because if it doesn’t result in——

Mr. HASTERT. Mr. Chairman, I am going to ask your indulgence.

I want to ask him one question. I went on a little bit, but in your

estimate, in your opinion, what do we have to do, do you have

something that is a guideline to State utilities or is there some

type of economic incentive that we can write into this bill? How do

you get public utilities to adapt to this type of change?
56

Mr. BIRNBAUM. I think it would be Federal guidelines that tell

the utilities themselves that they can—smart grid technologies.

These are infrastructure projects and as a result that they are rate

making regulatory bodies cannot deny them the recovery for those

expenses.

Mr. BOUCHER. Thank you very much, Mr. Hastert. The gentleman from Massachusetts, Mr. Markey, will be recognized for 3

minutes.

Mr. MARKEY. Thank you, Mr. Chairman. Ms. Callahan, on page

5 of your testimony, you recommend that we make it clear that

Federal law doesn’t preempt the State appliance efficiency standards if the Energy Department fails to actually exercise the authority that Congress had granted it by failing to issue any standard

or by issuing a no standard. Now, the Department of Energy was

forced to sign a consent decree last year in which they pledged to

meet the deadlines set forth in the report submitted to Congress

in response to the Markey amendment to the 2005 Energy Policy

Act. If DOE misses any of these deadlines, should we clarify in the

law that the States would no longer be preempted?

Ms. CALLAHAN. I think that, yes. If you look at the other provisions then that require periodic review or the appliance standards

that are there and updating, one of the things that is included currently is that if that effort isn’t undertaken, then a preemption

would lift and States could take action. I think it is very important

if the Federal Government does not take action or takes action to

establish what is in essence a no standard, States should not have

their hands tied to that. California, New York, places that want to

go forward should be allowed to.

Mr. MARKEY. OK. I thank you. Disgracefully, the Bush administration’s Department of Energy has missed 34 consecutive mandated deadlines for appliance efficiency standards, and it is about

as great a disgrace as I have ever seen agency or given the greenhouse gas threat and energy dependency. Mr. Rogers, if DOE fails

to meet these deadlines, should the States be able to step in and

act?

Mr. RODGERS. Thank you. It is a very complicated question. Federal preemption goes to the heart of the standards program that

Congress has established, and I think the number of deadlines that

we face, we do not plan to miss any deadlines as you have seen

from the plans that we have been submitted.

Mr. MARKEY. I know but you have missed 34 in a row, so as my

mother says, no, you missed 34 times in a row, and you say, I have

plans to meet it from now on. So what should we do if you don’t

meet the standards, if you don’t meet the deadlines?

Mr. RODGERS. I think we feel that the Federal preemption is a

critical part of the program that Congress has established, and it

should only be changed with very careful clarification.

Mr. MARKEY. OK. I am not inclined to give you that latitude. I

think it has been just absolutely disgraceful.

Ms. Callahan, in your testimony you also call for some reforms

in the laws relating to energy service performance contracts. First,

you say the authorization for Federal agencies to enter into ESPC’s

should be permanently extended. Why is that so important?
57

Ms. CALLAHAN. Well, the extensions were allowed to lapse and

were then put back in place in the Energy Policy Act, and when

that happened, the agencies became reluctant, even though they

were reinstated to go forward and enter into those contracts. And

so you have companies, energy savings companies, that are out

there that are working to provide energy efficiency upgrades at no

upfront cost to the Federal Government, and they have to have certainty that that business is going to continue. We can’t let it just

continue to lapse and wane as it did before EPACT 2005.

Mr. MARKEY. But you say that Congress should end any self-imposed agency caps on the duration of the ESPC’s. There is statutory limit of 25 years and on total obligations under ESPC’s, what

are the self-imposed agency caps that you are referring to, and

what can we do to fix them?

Ms. CALLAHAN. Well, we understand some agencies are effectively saying they are not going to use more than a certain threshold dollar amount on ESPC’s but again, we don’t see the rationale

behind that because there are no upfront cost to the Federal Government. The efficiency upgrades are made and then there is guaranteed energy savings that are used to pay for those over a period

of time. Part of the savings revert to the agency and then the other

to the ESCO until the efficiency upgrade is completely paid for.

Then all the savings revert.

Mr. MARKEY. Finally, Mr. Rogers, Ms. Callahan’s prepared testimony calls for an adoption of an energy efficiency resource standard. Does the DOE support that legislation?

Mr. RODGERS. I am not familiar with the specific proposal, and

I would like some time to analyze it but we do agree in spirit that

energy efficiency is our lowest cost, most accessible access to energy

savings.

Mr. MARKEY. I think you may believe it but you haven’t acted on

it. That is why obviously this committee is extremely, extremely

dubious about the commitment that your agency has had to that.

Thank you, Mr. Chairman.

Mr. BOUCHER. Well, thank you very much, Mr. Markey, and let

me just note that I share the gentleman from Massachusetts’ dismay that the Department of Energy has missed so many deadlines

for issuing these applied standards going back several decades.

However, under Assistant Secretary Karsner I am personally very

encouraged with the progress that is being made, and I wouldn’t

want to leave Mr. Rogers with the impression that we are not appreciative of the current efforts that are now being made in order

to correct those very serious problems from the past.

The gentleman from Michigan, Mr. Upton, is recognized for 5

minutes.

Mr. UPTON. Thank you, Mr. Chairman. I appreciate this hearing,

and I also want to say I appreciate your very good bipartisan spirit

as we look to put together a very strong bill which the American

public is going to support, and I am convinced frankly that at the

end of the year and also the end of this Congress that the legislation that we move out of this committee will be looked at as one

of the very top issues that the 110th Congress deals with. And it

is obviously certainly appropriate as we look at these high energy

costs today.
58

Ms. Callahan, I certainly welcome your appearance here and appreciate your hard work as we work to put legislation together as

it relates to energy savings with light bulbs and efficiencies across

the country. And I know that as you work through this weekend

knowing that we are going to pick up the baton very quickly when

we return after Memorial Day, we have been working hard at trying to find out where different players in the private sector may be

on the standard for light bulbs. And we are a little frustrated in

terms of looking and seeing what signals we can get from outside

sources.

I want to compliment Mrs. Harman for her good work, and the

two of us, along with Mr. Hastert and a few others have been sitting down looking for legislative language, and I just would like to

suggest that if you are unable to reach some type of agreement

over the next week knowing that we come back on Tuesday the

5th, that we may see your, you may share with us the last offers

by the different parties so that we can, in fact, make a decision,

knowing full well that at least under Mr. Boucher we have a

placeholder that is there, but we know that we can do better in

terms of where we are at.

Ms. CALLAHAN. Mr. Upton, I certainly will take that back to the

manufacturers and the advocates, and we will see if they, if we

can’t reach agreement, which we are hopeful that we can, if we can

give you the last round of negotiations. I can’t commit to that without checking with all the others, though.

Mr. UPTON. Because we are absolutely committed to having a

title on this bill that is going to include some of those provisions,

and we are working with the Senate to try and see that done.

One of the things that you indicated in your testimony, I just

want to get the timeframe and knowing that you are limited on

your time, you said that you expected 65 billion kilowatt hour savings, and is that per year or over 5 years?

Ms. CALLAHAN. Per year.

Mr. UPTON. And that is the equivalent of the 80 coal fire plants

per year?

Ms. CALLAHAN. Yes. The output from the coal-fired power plants

or 30 nuclear plants if you want to take it nuclear.

Mr. UPTON. Wow. Thank you. I appreciate those numbers.

Mr. Rogers, where is the Department of Energy in terms of looking at where we might go on light bulb standards and new efficiencies? Have you all looked at anything?

Mr. RODGERS. Yes, sir. We are currently conducting rural maintenance on lighting as required by the Congress, and as the consensus process moves forward with the stakeholders, we will make

sure that they know that the full resources of the Department and

our national laboratories are available to them if there is any technical assistance that we can provide as we have done so in the past

with home appliances.

Mr. UPTON. And are you ahead of schedule or behind schedule

in terms of where you wanted to be at this point?

Mr. RODGERS. Since the publishing of the 5-year plan submitted

to Congress in January 2006, we are, have met all the deadlines

for all of our appliance standards.

Mr. UPTON. And that includes lighting?
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Mr. RODGERS. Includes lighting. Yes, sir.

Mr. UPTON. OK. One of the things that I just might note is that

one of the things that Mrs. Harman and I are working on, and I

think we are very close to having legislative language on is an

amendment that we will be putting on each of the appropriation

bills as they pass the House, indicating that the Federal Government itself will be buying these new energy equivalent light bulbs

beginning in the next fiscal year, fiscal year 2008, as we feel that

that will help generate a market, where, in fact, to encourage the

manufacturers to know that, in fact, there is going to be a buyer

out there. So not only will the Federal Government give tremendous amounts of money from the energy that it uses with the new

bulbs as we replace the ones that they built, that they burnt out,

but obviously provide the basis that individual consumers, both

business and private sector families will be able to purchase as

well.

Do you have any comment on that, proposal of that magnitude,

Mr. Rogers?

Mr. RODGERS. Thank you. It is an excellent question, and I would

be happy to share with the committee current requirements placed

on the Federal agencies by statute and through executive order

that encourage all agencies to purchase very efficient fixtures and

lighting, including Energy Star products. And I can, would be

happy to submit that information.

Mr. UPTON. Great.

Ms. Callahan.

Ms. CALLAHAN. We are very, very supportive of having not just

GSA but all Federal buildings move toward and purchase only

those Energy Star labeled and efficient lighting.

Mr. UPTON. You know what we might do is, we might share with

you the language. I don’t have it with me this moment, but in the

next week maybe we will get the language to you. Maybe if you can

write a letter of support that we can use during the debate on the

House floor, it will come at the end of each one of these appropriation bills. No funds shall be used to purchase the old stuff and be

able to get the—but a support letter might help us, particularly as

we approach the leaders on the Appropriation Committees to get

that done.

Ms. CALLAHAN. We would be happy to do that, sir.

Mr. UPTON. Mr. Rogers. Same thing?

Mr. RODGERS. We look forward to working with the committee as

it moves forward on this provision.

Mr. UPTON. Great, and I appreciate that.

Mr. Rogers, I have a question as it relates to the regional efficiency standards, and I just want to know what your sense is. We

have talked about enforcement and how easy is it for the manufacturers and the retailers to comply with a regional efficiency standard and specific comments on that issue.

Mr. RODGERS. It is an excellent question. I think enforcement

gets to the heart of the issue concerning regional standards. Under

the current program we have one national standards, and that is

enforced upon the manufacturers. If regional standards are produced, manufacturers would be responsible in some way, but it is

unclear how they could in all cases enforce their supplier, the chain
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retailers if those different products were marketed in different

areas of the country. That would be an area we would look forward

to working with the committee to better understand how regional

variations could be enforced.

Mr. UPTON. Thank you. Mr. Chairman, I yield back.

Mr. BOUCHER. Thank you very much, Mr. Upton.

The gentleman from Pennsylvania, Mr. Doyle, is recognized for

5 minutes.

Mr. DOYLE. Thank you, Mr. Chairman.

Mr. Rogers, the draft legislation calls for creation of a new commission which has the role, amongst other things, to encourage

progress on smart grid protocols in the development of the smart

grid. Is the creation of another entity the most expedient means to

accomplish this task, given that when Congress passed PURPA and

the Energy Policy Acts of 1992, and 2005, the Congress set forth

the national policy, and then directed the States, Federal entities

with jurisdiction and the industry itself to meet those goals. Could

we follow this model rather than create a new commission?

Mr. RODGERS. I really appreciate the question. We have only

begun our analysis of the discussion draft, and I don’t, I am not

in a position to comment on specific provisions. Let me just say

that we know that smart grid technologies are fundamental to the,

increasing the market uptake the energy efficient technologies and

maximizing energy savings.

Mr. DOYLE. I would be interested when you do get time if you

could tell us whether you think we need a new commission or

whether we can do this as we have in the past.

Also, the draft reflects there is a need for the creation of national

protocols to assure that there is two-way communication needed all

along the grid, from appliances in the home to the large generating

plant. And since this is a standard setting exercise, should we consider the existing agencies such as NIST to be charged with this

task rather than creating another commission?

Mr. RODGERS. That is a very good question, and, again, I would

like to work with the committee on the specific details of those provisions.

Mr. DOYLE. And finally, just one last question, and I will close.

The draft requires the development of specific data that consumers

are entitled to, but that only seems to encourage progress on the

development of technology and regulatory reforms needed to insure

that the information can be realistically provided to consumers.

There seems to me to be a disconnect between the information requirements and the steps needed to insure that real time information can be timely provided.

If the draft were adopted, how could we be assured that the infrastructure is in place to insure that the information which the

legislation says consumers are entitled to can actually be provided?

Mr. RODGERS. The, again, we have just begun our review of the

draft. I would like some additional time to get back to you on that.

I do think that consumers have a growing body of information

available to them, that that is one of the most critical parts. And

I do hope that in the next panel there will be some additional opportunities to, for the DOE witnesses to talk about these issues, including the smart grid.
61

Mr. DOYLE. Thanks. Just one more question. The legislation also

provides training for State and local officials to implement energy

codes, and it also provides for training for Federal contracting officers for energy performance contracts and related energy efficiency

services associated with those agreements.

Now, the effective way to make sure these codes and performance contracts are successful, I think is to make sure we have a

skilled workforce to assist us in implementing these programs.

Shouldn’t worker training be a part of any comprehensive approach

to making America an energy-efficient Nation?

Mr. RODGERS. That is a very good question. I don’t think in my

position at the Department of Energy I can speak to the issue of

worker training. I would say that the Department’s existing program in the area of building codes we find education training of

code officials to be extremely beneficial and important, and the materials that we provide in that area are very, very popular.

Mr. DOYLE. In your opinion do you think it would be appropriate

to have training funds in this legislation to make sure that workers

are properly trained to meet the legislative objections of this bill?

Mr. RODGERS. I would like to work with the committee on whether or not we need additional authorizations. Our current billing

codes program as renewed under the Energy Policy Act gives us

tremendous flexibility to work with the State and local code officials in that area.

Mr. DOYLE. Thank you, Mr. Rogers.

Mr. Chairman, thank you. I yield back.

Mr. BOUCHER. Thank you very much, Mr. Doyle.

The gentleman from Illinois, Mr. Shimkus, is recognized for 5

minutes.

Mr. SHIMKUS. Thank you, Mr. Chairman. I also want to highlight

the frustration that the committee has when agencies don’t meet

guidelines, and of course, when it is the Republican administration

and they can attack the DOE for that. It, as Republican I take

great offense. So these two questions deal with some of the draft.

Section 109 requires a precise schedule for DOE to update its

rulemaking and findings. Can DOE make the schedule in this section, or is it likely that DOE standards will sunset because dates

were not met?

Mr. RODGERS. We have just begun our analysis of section 109,

but I would say that we would like to work with the committee,

because I am concerned that some of the deadlines are, and the durations are so close together that it might impair our ability.

Mr. SHIMKUS. My follow-up was going to be: can you give us

some information how we can modify that? Because we want to set

attainable standards, but we don’t want to delay it. I mean, we

would rather set standards that you can reach versus unreachable

standards and then have delays and all this frustration, and I, if

you would work with us, I think we would have some receptivity,

as long as it is not an issue of delay.

What about the, do you have the resources to accomplish the

standards updated in section 131? I know, you are going to work

with the committee, and we will receive great information and help

and assistance from you to look at those provisions.

Mr. RODGERS. I would, well, I couldn’t have said it better myself.
62

Mr. SHIMKUS. You have. A couple times.

Mr. RODGERS. I would say that we believe very strongly in building codes and have moves forward on that aggressively since the

Energy Policy Act of 2005, and in 2007, under the continuing resolution we were able to allocate additional resources to the building

codes effort. The section language in the discussion graft does set

a new bar, very high, and we would look forward to working with

the committee on what it might take to implement that section.

Mr. SHIMKUS. Great. As you know the committee’s going to move

rapidly, so we are going to need pretty quick movement from the

Department.

Mr. Birnbaum, quickly if you could comment on the DOE study

on homeland security benefits of the smart grid.

Mr. BIRNBAUM. Congressman, the problem with Department

studies is they tend to serve further delay. The homeland security

implications of having wide-scale power outages in Los Angeles and

New York, other large cities in small areas, so we don’t necessarily

see a large need for further study, rather trying to incent the utilities to deploy smart grid where they think the focus should be.

Mr. SHIMKUS. And let me follow up with the issue of is a smart

meter and a smart grid, are they complimentary, or could they be,

can you promote one over the other and that whole debate?

Mr. BIRNBAUM. They are different. A smart grid would include

smart meters and load control devices in consumer homes, but it

is much more than just smart metering. It is, again, a fully-automated distribution network, so the utilities can do real-time monitoring and maintenance and preventive maintenance on its network, just the way the total medications network works today.

Mr. SHIMKUS. But the smart metering would have some energy,

I mean, cost benefit analysis as you look at cost and deployment

and time, smart metering is probably a way to be very successful.

Mr. BIRNBAUM. Smart metering is part of the solution. Yes.

Mr. SHIMKUS. And finally, Ms. Callahan, the, we know that when

the automobile came, the people who made the buggy whips went

out of business.

Ms. CALLAHAN. Yes.

Mr. SHIMKUS. We know that when the first light bulbs arrived,

the candle makers were, had a great loss of jobs. Will there be any

job losses in the lighting industry associated with phasing out or

banning incandescent light bulbs? How many, and which States?

Ms. CALLAHAN. That is, I appreciate the question. I am not sure

I can give you a detailed answer, but we will provide it. There are,

from what I understand from the manufacturers, there are maybe,

and this is just a ballpark figure, maybe 3,000 jobs by two different

manufacturers in the United States making light bulbs and derivative products to use in the assembly of the light bulbs. Whether or

not those jobs are lost I think is a question that will get answered

over time, because we are not going to stop making light bulbs. We

are only going to stop making the inefficient junk that is on the

market. So they are going to be made, and right now CFLs are

largely manufactured outside the United States. You probably

know that.

Mr. SHIMKUS. Yes.
63

Ms. CALLAHAN. But we are looking at LED lighting and efficient

halogen lighting, and those are going to need to be made somewhere. So the hope would be that we can work with manufacturers

and try to keep those jobs in the United States.

Mr. SHIMKUS. Yes, and I hope that you do that, and just my final

comment because my time has expired, is that there is concern that

you can’t retrofit these old plants.

Ms. CALLAHAN. Right.

Mr. SHIMKUS. And there will be job loss, and that whole debate

of capital formation, taking assumption of the risk, what happens

to these jobs. I think the job training issue was part of this whole

debate, too, and that is why I want to throw that in the arena for

discussion.

Ms. CALLAHAN. If I could just also say that when you look at deploying energy efficiency, there is investment into the economy,

and there are new jobs created from that. So if you look at the Energy Star, for example, for every dollar we invest in Energy Star,

the savings show that that results in about $20 of energy savings

for consumers, but it also sparks investment of about $15 into the

economy.

Mr. SHIMKUS. You said that right when Inslee was walking in,

too, and I bet you he appreciated that, because that is kind of what

he says all the time.

I yield back my time.

Mr. BOUCHER. Thank you very much, Mr. Shimkus.

The gentleman from Washington State, Mr. Inslee, is recognized

for 5 minutes.

Mr. INSLEE. Well, I appreciate that because some people haven’t

listened. Maybe they will now when someone else said it. I don’t

know.

I was unable to hear your testimony. I am sorry. I was in another committee, so if I repeat this, my apologies. I want to ask you

in the discussion draft there is a proposal to essentially create a

price mechanism for coal to liquids that would give presumably investors confidence that there will be a price that will be worthy of

their investment and therefore, spur development of that technology. And I don’t want to argue that issue whether it is good or

bad at the moment, but if, is that idea, should it be equally applicable to other emerging technologies? In other words, if we are going

to create price supports for emerging technologies, would it make

sense to also do it for emerging solar thermal plants, which have

new methods of heating liquids to 1,100 degrees and running steam

turbines to new thin cell photo technology that perhaps a gridbased electricity in a few years, to wave power generation that we

now have the first buoy going off the west coast of the United

States, going to create electricity, to advanced forms of cellulosic

ethanol, which I personally think has a bright future but has some

technological advancements, and of course, we want to see. I guess

the question is if we are going to have a price guarantee signal for

one fuel, doesn’t it make sense to have it for several of these

emerging technologies? And all of the ones that I just listed have

the added benefit of at least 50 percent reduction of CO2 compared

to their competitor, fossil fuels. Would that make sense?
64

Mr. RODGERS. That is a very good question, sir, and I believe

that the second panel will get more into the details of the coal-toliquids issue and the price and the signals that you are talking

about. As a manager of our technology development programs I can

tell you research and development can deliver breakthroughs in

technology, but those technologies then need to be adopted in significant quantities in the marketplace. And as Congress considers

who to move forward on these important issues, I think you will

have to look at all of those issues.

Mr. INSLEE. Obviously we need to commercialize these technologies.

My review of these various technologies that I just listed, I think

all of them are very promising, and I think have in my view probabilities of commercial application and commercial success. Can

you make any comments about that relative to coal to liquid, coal

to liquid has some challenges. You got to figure out how to sequester the CO2 in the production process.

If you were going to compare this emerging solar thermal, thin

cell, photo tag, wind energy technology, cellulosic ethanol, and

plug-in hybrids, I just drove the first car that gets 150 miles a gallon, I think those technologies are at least as well developed and

at least as promising as coal to liquid.

Do you have any comments on that?

Ms. CALLAHAN. It is not my area of expertise.

Mr. BIRNBAUM. Same here, Congressman.

Mr. RODGERS. Well, I will tell you. I am a big fan of all the energy efficiency and alternate fuel technologies. I think we need a

balanced portfolio. I believe the next panel will get into some of the

issues related to coal to liquids, and I would say any time we introduce a new, higher-performing technology that delivers national security, energy security, environmental and economic benefits, we

also have to address how those technologies are brought to the

marketplace and provide it at reasonable costs to the consumers.

Mr. INSLEE. Now, you may have heard some discussion about

what we are going to try to do this summer and what we are going

to try to do later in the year. Later in the year this committee is

going to have under the great leadership of our Chair a discussion

of how to develop a carbon system to have a price on carbon dioxide, which will help in the commercialization of these technologies

because it would make them economically competitive. But some of

us believe there are many, many things we need to do in addition

to that to help these emerging technologies, solar, wave, several

others. Along the lines potentially of this price signal that has

bound with discussion draft about coal to liquids, along the lines

of renewable portfolio standards, along the lines of low carbon fuels

standards, along the lines of incentives for consumers and producers.

I am just going to ask you for any comment about that, whether

it makes sense to consider those now, even independently of a cap

and trade system. I guess the question is do those ideas make

sense even independent of a cap and trade system?

Ms. CALLAHAN. I will make a comment from the perspective of

energy efficiency. It is, in my mind that is a no-regrets policy. So

all of the provisions, the 29 or so provisions that are in here, are
65

going to have a significant impact on greenhouse gas emissions,

and we need to go forward and take those actions.

With respect to, because that gets us down the road and gets us

toward the goal that we all want to see. With respect to a cap and

trade program, it is not necessarily going to drive energy efficiency

particularly in the end-use sector. There are going to need to be

complementary policies or you are going to need to look at how you

best advantage both energy efficiency and I would argue renewable

energy, too.

Mr. INSLEE. And I was very pleased that the Chair had commercial building standards, rebuilding standards we are going to hold

to to include residential standards as well.

Thank you.

Mr. BOUCHER. Thank you very much, Mr. Inslee.

The gentleman from Mississippi, Mr. Pickering, is recognized for

5 minutes.

Mr. PICKERING. Thank you, Mr. Chairman. I appreciate this

hearing and the panel.

Let me ask Mr. Birnbaum first. As we heard from Ms. Callahan

that the context of the savings if we adopted more efficient standards on light bulbs, what that would mean from an energy capacity

and efficiency, what savings do you see with smart grid and smart

technology, smart metering technologies? What is the equivalent if

we were to broadly adopt these technologies from saved production

of energy and cleaner consequences?

Mr. BIRNBAUM. Several fold, Congressman. As far as the distribution facilities themselves, cannot be officially managed today

if the utility company doesn’t have any insight as to how well everything is performing. So the fact that the utility company can

then measure every device in its network and replace them only

when necessary——

Mr. PICKERING. Has there been any study of how much we are

talking about as far as more efficient energy production? Like the

equivalent of 80 coal-fired plants, I guess is what I am asking.

Mr. BIRNBAUM. I don’t think there were such specific studies. We

do know that energy of roughly 10 to 20 percent of energy is lost

before it ever even gets to the end user. You have had testimony

before the committee previously of over $100 billion in financial

loss in the country due to averages each year.

So these are the things that smart——

Mr. PICKERING. That you can quantify.

Mr. BIRNBAUM. Yes.

Mr. PICKERING. The language has, of our current draft, has, the

issue that you addressed as far as making sure that our States

allow the recoverable costs for these investments. Do you support

that language? Is it sufficient? Do you need to strengthen it, modify

it?

Mr. BIRNBAUM. We do support it. I had made some suggestions

earlier about strengthening the language to try to provide for either added incentives or increased returns for utility companies or

returns on other types of expenditures as well.

Mr. PICKERING. Are there other things that we can do that may

not be under this committee’s jurisdiction would be accelerated depreciation? We discovered in Mississippi after Katrina that if we
66

accelerate depreciation, it will allow the doubling of expensing.

This serves as a tremendous incentive for that capital investment.

Would that also be something that you would support?

Mr. BIRNBAUM. Absolutely, Congressman.

Mr. PICKERING. Mr. Rogers, do you believe that incentives work,

whether it is grants, long guarantees, accelerated depreciation,

monetary incentives, would help us adopt these new technologies

and efficiencies?

Mr. RODGERS. It is an excellent question. I think evidence is in

that in many cases consumers, industrial purchasers do not always

see the life-cycle cost benefits of adopting energy efficiency technologies and best practices. And so we have seen in many cases

where in the Energy Policy Act of 2005, or at the State level or at

the utility level, that incentives can help consumers and businesses

overcome those first thoughts and yielding net savings to the economy from the adoption of the energy efficiency.

Mr. PICKERING. Do you think incentives can help the Department

of Energy meet its deadlines if we were to adopt a number of deadlines in this? And by that, for example, I know each agency has

bonus performance payments that we give from Senior Executive

Service all the way through the lower ranks. What are the bonuses

at the Department of Energy? Do you know? Can you quantify

what the bonuses are?

Mr. RODGERS. I am not in a position to respond to those questions which are primarily in the personnel department, but on the

subject of bonuses, I have already said this before, I really want

to work with the committee on this subject for Federal employees.

Mr. PICKERING. But, Mr. Rogers, what we like to do, I don’t always agree with Mr. Markey. Many times we disagree, but I think

it is a legitimate issue that there are 34 deadlines that have come

and gone without being met, and to be honest, we are seeing this

across bureaucracies across the Government. And maybe it is time

for this committee to say that bonuses will be tied to the compliance with congressional deadlines of doing their work, because

maybe if incentives work for the private sector, I think incentives

as part of human nature, it works in the Government sector as

well.

And, Mr. Chairman, I would like to work with you to possibly tie

bonus performances to comply with congressional deadlines. That

is one way to make sure that all of us do our job.

And in closing, Mr. Birnbaum, would you want any definition in

this legislation of what a smart grid would be?

Mr. BIRNBAUM. Yes, Congressman. We think that the definition

should be broader than just smart metering or low-control devices,

but a fully-automated network. As I mentioned during my testimony a full, two-way, high-speed communications network through

which the utility can monitor and manage the devices all along the

grid.

Mr. PICKERING. And would you want that to be competitively and

technologically neutral?

Mr. BIRNBAUM. Yes.

Mr. PICKERING. Thank you very much.

Mr. BOUCHER. Thank you very much, Mr. Pickering.
67

The gentlewoman from Wisconsin, Ms. Baldwin, is recognized for

5 minutes.

Ms. BALDWIN. Thank you, Mr. Chairman.

I am going to start on the provisions in the draft on industrial

energy efficiency, waste energy. Ms. Callahan, in your written testimony you commend the committee on its draft provisions on industrial energy efficiency. You don’t go into a lot of detail, and so

I am wondering if we can get you to elaborate a little bit on the

benefits of creating a database that quantifies the industrial waste

energy for major industrial combustion services, and also we ware

aware that concerns have been raised about language in the subsection that would allow industrial sites to sell their excess power.

Ms. CALLAHAN. Yes.

Ms. BALDWIN. And so I am wondering if the Alliance to Save Energy supports the language as it currently stands, or if you have

suggestions for the committee of any alternative ways we can provide a use for the excess power, make sure that it is not wasted,

and address the concerns that have been raised.

Ms. CALLAHAN. We haven’t taken a position yet as an organization on what to do with the excess power. It is just not something

that has been raised or considered. We have on our board of directors competing interests that do have great concerns; utility representatives as well as environmental representatives. So it is

something that we will need to take to them and work with.

With respect to a database, though, one of the things that we

have found is information is key to getting people to take action on

energy efficiency, so the more that is there, the more readily available it is, the more action that will be taken. And what we are seeing particularly on the industrial side when you have leaders like

Dow Chemical, and you have Wal-Mart and others taking action,

other businesses take notice, and then they in turn, that leadership

engenders more activity.

So the database, I think, is a very important tool for making sure

that the information is made available.

Ms. BALDWIN. Mr. Rogers, you note in your written testimony

that the discussion draft only covers a small part of a wider industrial energy efficiency need and opportunity. And I wonder if you

could elaborate on some of the things we haven’t addressed that

are opportunities out there.

Mr. RODGERS. I very much appreciate the question. As a former

manager of our industrial technologies program, it is easy to sometimes be ignored because buildings are everywhere, everyone lives

in a building, everyone drives a car, not everyone operates a steel

facility or another facility, but it provides currently 30 percent of

our energy consumption, equal share of our greenhouse gas emissions. There are significant opportunities to apply energy-saving

technologies and best practices. We continue to invest heavily in research and development on new energy technologies, and I would

be very welcome to work with the committee and brief you on some

of our existing activities such as the Save Energy Now audits that

found more than 10 percent savings on 200 industrial facilities in

the last year, our industrial assessment centers, and our existing

regional assessment centers that promote combined heat and

power.
68

Ms. BALDWIN. On the issue, I raised the issue in my opening

statement of standby power and estimates that it accounts for as

much as 10 percent of our household power consumption. We had

a hearing earlier on the appliance efficiency standards, and at that

hearing the Consumer Electronics Association testified that they

supported an expedited process for creating standby standards for

external power supplies.

And so the first question is do you agree that it is possible to expedite the standard? I place that question to Ms. Callahan.

Ms. CALLAHAN. We would hope that the standard would go as

quickly as possible. I mean, whether or not it is expedited through

DOE is really a question for Mr. Rogers, but we would work on

that, and I just note, it is 10 percent, but it also is a growing share.

Ms. BALDWIN. Right.

Ms. CALLAHAN. So we really need to tackle it.

Ms. BALDWIN. Mr. Rogers, any comment?

Mr. RODGERS. I agree that the standby power, consumer electronics, very important and growing part of our energy consumption—mandated under the statute and the administrative procedures, it could be awhile, and we would urge consideration of the

Secretary’s fast-track legislative proposal for consensus

rulemakings, and we would look forward to working with all the

stakeholders to see if the consensus approach might work for those

type of products.

Ms. BALDWIN. Then I just want to end with standby power

crosses certainly hundreds of, if not thousands, of appliances and

not just those with external power supplies. So it is difficult to

keep a list of all appliances using standby power up to date.

And I wonder if, Ms. Callahan, would you support an across-theboard standard, for instance, a 1 watt standard that includes exceptions for certain products where it is not feasible to reduce the

standby power consumption, for instance, medical devices?

Mr. CALLAHAN. I am sorry, but I am not prepared to answer that

today. We need to look at it, and I apologize for that, but we certainly will get back to you. In general, we support all standards

that are shown to be cost effective and are technically doable. I

don’t see a real problem with it, but I would want to ask our experts in-house as to exactly what the proposal is and whether or

not we can endorse it.

Ms. BALDWIN. Thank you.

Mr. BOUCHER. Thank you very much, Ms. Baldwin.

The gentleman from Arizona, Mr. Shadegg, is recognized for 5

minutes.

Mr. SHADEGG. Thank you, Mr. Chairman, and I want to thank

you for this entire series of hearings. I think they have been very

educational, I think the witnesses have been superb. I certainly

have learned a great deal. I want to thank our witnesses today.

I believe there is a lot of good, reasonable, and sound proposals

in the draft, discussion drafts and I am encouraged by the fact that

I think we can do some good things. I would hope that at some

point we can look at the issue of transmission line siting which is

one of the issues that was raised here with discussion about windmill energy being able to be produced in Texas but not being able

to get it to market. And I would hope we could also at least con-
69

sider the issue of new source review, because new source review

was cited as another example of where we might make energy production more efficient but for reasons of, I guess, bureaucratic fear

or regulatory fear, we aren’t going to do that. So I hope those will

be on the table in the future.

Mr. Rodgers and Ms. Callahan, I would like to ask you each in

pursuing my education on energy and energy efficiency, I commented to a paper home in Arizona, you show me a politician that

is not interested in efficiency, and I will show you a politician that

is not interested in staying in office very long. So I commend you

for your efforts.

One of those discussions or a number of those discussions have

led me back home to a kind of an inconsistency, and that is most

of the large buildings built in America are built and owned by one

entity.

Ms. CALLAHAN. Yes.

Mr. SHADEGG. Operated by a second entity.

Ms. CALLAHAN. Right.

Mr. SHADEGG. And builders seem or builders/owners seem not to

have that incentive to care about the efficiency of the building.

Ms. CALLAHAN. Right.

Mr. SHADEGG. Somebody else is operating it, they pass the costs

onto the tenants, the tenants eat the cost, and pass them onto their

customers. Now, obviously, one way and Mr. Rogers, I apologize for

missing part of your testimony and being late but I had other

things going on, one of the options for that, of course, is building

codes, looking at the future building codes which might make these

buildings more efficient. That I think is at least one option, though

sometimes I worry about political agendas being advanced in building codes.

I guess my question of you, for you is No. 1, do you agree that

that is an issue, kind of the advertence between the incentives, between the tenants and operator using a building and the builders

who build the building, and second, have you looked at other incentives that this Congress might be including in this legislation

which would incentivise builders both to produce efficient buildings

in the future but also to retrofit the buildings we have at the moment?

Mr. RODGERS. That is a very good question, sir, and our laboratories and scientists even have a name for the problem. It is the

problem of agency, in that the owner and the operator are different

from the builder. Certainly the Energy Policy Act of 2005, and the

incentives provided to the commercial builders for adopting energy

efficiency have made a dramatic impact. We also believe that the

current promotional efforts by many to adopt green building standards such as the U.S. Green Building Council, are having a demonstrable affect. Energy Star Program—those programs, as well as

codes, are going to be critical to address the problem that you have

identified.

Mr. SHADEGG. Have you looked at——

Ms. CALLAHAN. Can I do to——

Mr. SHADEGG. Sure.

Ms. CALLAHAN. We call it split incentives, and it is a critical concern, and there are two ways at least that you can attack it. One
70

is building codes. We are very supportive of the progressive or advanced building code that is in this bill that would require the code

setting bodies to improve the building codes for both house and

commercial buildings by 30 percent by 2010, and 50 percent by I

think it is 2030. I am not familiar with that.

The second way is to provide incentives for the builders to build

the buildings correctly the first go around, and EPACT 2005, has

a set of very important incentives for both commercial buildings

that give $1.80 a square foot for efficiency improvements. That is

for new construction and for existing buildings, and then there are

an additional set of incentives for new homes and then for existing

homeowners. We are hopeful, it is outside the jurisdiction of this

committee, but we are working with the Ways and Means Committee to both extend those and expand those tax incentives, because

I think it is going to take both. You need the building codes to continue to improve, but you also need to provide the incentives to get

people to go beyond that threshold.

Mr. SHADEGG. I would certainly encourage that.

In the time I have left I want to go to you, Mr. Birnbaum. I had

a load controller on my house in Phoenix, Arizona. We face a heat

problem. It occurs late in the day, and say 8 years ago, maybe 15,

10 years ago, our local utility pushed very aggressively load controllers, and it makes a lot of sense. If you look at Phoenix, Arizona, and we have a huge peak demand at 3:00, 4:00, 5:00, 6:00,

7:00 p.m. before it begins to cool off in the evening, you do not want

to be doing your laundry or running a dryer, clothes dryer, and

other multiple appliances at the same point in time.

Well, regrettably, that has literally disappeared. At the home

that I lived in at the time it got to where nobody bothered to adjust

their load controllers anymore. They did not seem to produce savings, and there are thousands, I think, of load controllers in Arizona on homes that may not be used. And I guess I am curious why

that is, and have you examined that, because it seems to make a

lot of sense to me to encourage that kind of the intelligent use of

electricity through the day, so that we don’t have to build to the

highest possible peak and so that people use electricity or energy

wisely.

Mr. BIRNBAUM. Yes, Congressman, that is actually a common

problem. I had the same thing 20 years ago. I was living in Washington, DC. The problem is twofold.

One, most of us don’t have the time to really go program those

devices. Two, what you need is a network, a smart grid if you will,

that can communicate with those devices, therefore, all we have to

do on one day is assign it to a program that says when the peak

pricing gets this much or if load constraints hit this level, I give

you authority to turn off my air conditioner or my pool pump or

my dishwasher, whatever the case may be, for this amount of time

or during these hours of the day. And as a result now a utility,

rather than you and I trying to do it one device at a time, one

home at a time, when we are not home, the utility now can do that

by hundreds of thousands or millions of devices in homes. And that

is the most effective way to use load controllers. That is why we

think the smart grid is so important.
71

Mr. SHADEGG. My time has expired, but the chairman is busy

with another conversation, so let me ask you a question.

What happens if they try to turn, let us say they decide, OK. I

am going to turn off your air conditioning, but it just so happens

that is the day you invited people over for a party.

Mr. BIRNBAUM. Absolutely.

Mr. SHADEGG. Does the smart grid allow you to override that as

the consumer?

Mr. BIRNBAUM. Yes, it would. I mean, obviously the smart grid

wouldn’t know you were having a party, but you would have effectively an override button, and you have a consumer control device,

a display or LED in your house where you can control all of those

appliances.

Mr. SHADEGG. I think we need to stop this conversation. Thank

you.

Mr. BOUCHER. Thank you very much, Mr. Shadegg, for your

thoughtful and extensive questions.

The gentleman from Utah, Mr. Matheson, is recognized for 8

minutes.

Mr. MATHESON. Well, thank you, Mr. Chairman, and since I

waived my opening statement, I do want to acknowledge your work

and the process as well. It has been substantive, and it has been

orderly, and as a new member of the committee, I really appreciate

the fact that we are moving through this legislation the way we

have with the discussion draft and a lot of input from other people.

So I want to acknowledge that and your efforts in that regard.

Mr. Rogers, I had, want to ask you a question about commercial

buildings and efficiency. It is my understanding that within DOE

currently it is a rather limited R&D program right now for commercial buildings. What do you think would be the reaction of DOE

to a proposal for public, private partnership that would be designed

to measure energy performance of commercial buildings to assemble new ideas, the solutions, packages that could help address that?

You know, examples would be big bucks retail, different climate regions.

How do you think DOE would respond to that type of proposal?

Mr. RODGERS. I appreciate the question very much, and not

knowing the details of the specific proposal, I would just like to

share with you that we are extremely supportive of public, private

partnerships, and we see them as vital to allowing us to deliver an

energy efficient technologies especially in the commercial sector

which is so diverse. We have had partnerships with Wal-Mart,

Home Depot, Lowe’s, Petco, and other companies as they try to understand how to better apply energy efficient technologies. And I

can’t imagine us proceeding without public, private partnerships.

Mr. MATHESON. And one of the characteristics I just want to emphasize would be it would include creating abilities, it is the old

thing I learned at business school. If you can’t measure it, you can’t

monitor it, and right now I think that there is a real lack of the

ability to measure energy use in the commercial building sector.

The industrials have a big enough economic interest there doing it,

but I don’t know that it is happening in commercial.

So that would kind of be a component of this. It is creating a way

to really be, upgrade our ability to measure energy use. Once we
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can measure it, more rational decisions could be made, and I think

that is, I assumed DOE would be comfortable.

Mr. RODGERS. If I understand where you are headed, I think so.

I would just point out that energy service companies do a big, big

business in the commercial buildings already, and they know what

they are doing, and capital is available, and I think a part of what

we are seeing is that we need to get building owners, operators,

and developers aware of everything that is on the table that they

can adopt to improve energy efficiency.

Mr. MATHESON. Right. Ms. Callahan, do you have any reaction

to that type of proposal?

Ms. CALLAHAN. We have put together a proposal for a public, private partnership. We call it the Commercial Building Initiative and

would love to come talk to you about it. We have been talking to

the Department of Energy. It is actually included in the Senate

version of the bill, and I think we may have gotten some appropriations yesterday in the House. So, we are very supportive of it.

Mr. MATHESON. OK. I appreciate that.

Mr. Rogers, one other question I wanted to ask you. In your testimony you mentioned DOE opposition to the removal of advanced

rulemaking notices because these notices sometimes lead to better

or faster rulemakings. Do you think, are there examples where the

applied standards for that has resulted in faster rulemaking?

Mr. RODGERS. If I understand the question, we are not opposed

to having the flexibility to skip the advanced notice.

Mr. MATHESON. OK.

Mr. RODGERS. What, one concern that can arise is during the advanced notice phase is where a significant amount of technical

analysis is presented to the stakeholders to the public process. One

issue that we want to make sure that we deal with appropriately

and we look forward to working with the committee, is how can we

continue to make that technical analysis available to the public

even as we try to accelerate our rulemaking through the elimination of the steps.

Mr. MATHESON. OK. I appreciate the clarification on that.

Mr. Chairman, I yield back.

Mr. BOUCHER. Well, thank you very much, Mr. Matheson. That

completes questions to this panel by all of the members of the subcommittee, and I, again, want to thank you for sharing your information with us today.

We will, as indicated, these questions have follow-up questions

on several matters and would appreciate your prompt response to

those.

And without objection there will be included in the record statements that have been submitted to the subcommittee by several organizations on the topics that have been addressed here today.

With that this panel is excused, and we thank you very much for

your participation.

Mr. BIRNBAUM. Thank you, Mr. Chairman.

Mr. BOUCHER. And we welcome now the second panel to testify

before the subcommittee this afternoon, and that is comprised of

three witnesses: Ms. Katherine Fredriksen is the Principal Deputy

Assistant Secretary for Policy and International Affairs at the U.S.

Department of Energy, Mr. Don Maley is the vice president of
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Leucadia International Corporation, and Mr. Daniel Lashof is the

science director at the Climate Center of the National Resources

Defense Council. We welcome each of our witnesses. Without objection your prepared written statements will be made a part of the

record, and we would ask that your oral summaries be kept to approximately 5 minutes.

And I am just looking at who is ready. Ms. Fredriksen, are you

prepared to deliver your statement to us?

Ms. FREDRIKSEN. Yes, sir.

Mr. BOUCHER. We will be happy to begin with you.

STATEMENT OF KATHARINE A. FREDRIKSEN, PRINCIPAL DEPUTY ASSISTANT SECRETARY, POLICY AND INTERNATIONAL

AFFAIRS, U.S. DEPARTMENT OF ENERGY, WASHINGTON, DC

Ms. FREDRIKSEN. Thank you, Mr. Chairman and members of the

committee for the opportunity to appear before you today to comment on the discussion drafts that you asked for us to look, to examine.

While we have not had sufficient time to coordinate our agency

views on the legislation, I am prepared to offer some preliminary

comments today.

Most of my remarks today will focus on the discussion drafts that

are related to the Energy Policy Act of 2005, the title XVII loan

guarantees, and a standby loan for coal to liquid projects.

First I am going to focus on the discussion draft to amend title

XVII of EPACT, which contains a provision that would direct DOE

to guarantee a loan amount that would likely attract non-guaranteed investments that are adequate to capitalize a project.

It further states that DOE may guarantee up to 100 percent of

any loan or debt obligation for an eligible project and prevents

DOE from issuing a rule or regulation of establishing a lower percentage limit.

The Department does oppose these requirements for several reasons. First, the provision which would direct DOE to establish a

guarantee likely to attract non-guaranteed investments is vague

and difficult to implement for the agency. The borrower working

with its lenders we believe is in a better position to determinate

the amount for which a guarantee is to be sought consistent with

its business plan, its credit and capitalization requirements.

Second, the Department likewise opposes a limitation on its authority for rulemaking set forth in the provision. As reflected in our

proposed rule published in the Federal Register on May 16, 2007,

the Department believes that it should guarantee no more than 90

percent of any debt instrument in order to limit the risk being

borne by taxpayers. We believe this is a found prudent in addition

to require the parties responsible for taking the financing to relieve

some of the risk for the success of the project.

Federal credit policy states that the level of guarantee should be

no greater than that required to achieve the policy goals. I note

that some of the pre-applications we received in response to our

first title XVII solicitation requested guarantees of less than 80

percent. The Department also notes that the greater the guarantee

percentage for that instrument, the greater the subsidy costs that
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must be paid by the borrower up front to secure a title XVII guarantee.

Next, I will turn to the discussion draft on standby loans for

qualifying coal to liquid projects. We believe it makes valuable contributions to our national discussion to reduce consumption of petroleum and increase the availability of alternative fuels. A domestic coal-to-liquid industry would provide strategic and potential economic benefits to the United States.

CTL production using best available emission control technology

would diversify our transportation fuel sources, reduce U.S. dependence on imported petroleum, and provide fuel with other benefits including potential easier control of nitrous oxide and particular emissions from vehicles that use those fuels.

Coal-derived liquid contains essentially zero sulfur and requires

minimal upgrading to produce commercial grade premium fuels.

They are also fungible with petroleum products. They can be distributed through existing fuel infrastructure.

Some recent studies have concluded that a commercially-mature

coal-to-liquid plant could be competitive at today’s high-world oil

prices. CTL facilities would produce emissions comparable to modern, state-of-the-art coal gasification plants and could be configured

to cost effectively capture carbon dioxide emissions, which if further sequestered would help address climate change concerns evaluations at the plant.

At the same time CTL can provide an added source of domestic

supplies of liquid fuels to mitigate our country’s dependence on foreign oil imports. Some of the captured CO2 could potentially be

used to enhance oil recovery fields, thus increasing our domestic

fuel supply.

The Department’s portfolio of research and development on CTL,

biofuels, and other advanced technologies supports the prominence

alternative fuel standard that will replace 15 percent of the projected gasoline use by 2017. This is an important element of the

President’s 20 in 10 Program to reduce gasoline use by 20 percent

in 10 years.

The Department’s efforts are focused on overcoming the barriers

to adopting biofuels and other advanced fuels such as CTL through

forging strategic, cost-shared benefits with private industry and

collaborating with other agencies and State and local Governments.

Combined with the financial tools already in place in the Energy

Policy Act of 2005, we believe that this is a multi-pronged effort to

help expand domestically-produced alternative fuels.

While we know that CTL plants have not been built today in the

United States because of high volatility of world oil prices, high

capital costs, and long lead time to associate with permitting and

construction, we nonetheless believe that CTL has a viable role in

our Nation’s fuel infrastructure, and we have worked to bring those

financial incentives, to bring down those technology costs and risks.

Regarding the proposed standby loans for CTL, the Department

does believe that the Title XVII Loan Guarantee Program is a more

cost-effective means of encouraging the development of CTL

projects. The provisions included in the discussion draft provide a

price floor for the producers, which could potentially provide enor-
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mous liability for taxpayers and cause unwarranted distortions in

the marketplace.

While we have significant concerns with the draft provisions, we

would like to work with the committee to see incentives to support

the domestic CTL industry. We believe the discussion drafts are a

very good starting point and that all could benefit from further review and discussion and collaboration.

Mr. Chairman, I reiterate this was only a preliminary view, and

we look forward to working with you to fine tune the proposed legislation to build on the success of EPAC 2005.

This will conclude my prepared remarks, and I will be happy to

answer any questions.

[The prepared statement of Ms. Fredriksen follows:]
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Mr. BOUCHER. Thank you very much, Ms. Fredriksen.

Mr. Maley.

STATEMENT OF DON MALEY, VICE PRESIDENT, LEUCADIA

INTERNATIONAL CORPORATION, NEW YORK, NY

Mr. MALEY. Thank you very much, Mr. Chairman. I appreciate

the opportunity to come and talk to you today about your coal-toliquids legislation. I consider it a bold and responsible plan to help

kick start the development of a coal-to-liquids industry in the

United States.

When we look at the specifics of the legislation, as I have testified before, we believe the floor price mechanism will provide the

required assurance that the investment community will need in

order to develop and invest in these projects. We look at the repayment mechanisms in the package as an appropriate measure to

mitigate the cost of the program and ultimately to have no costs

of the program for the Federal Government because the project will

pay the upfront Government costs.

With respect to the CO2 sequestration plan, which is prominent

on everybody’s mind today, we view the plan as a significant challenge for the industry but one that we are prepared to commit to

and one that we are prepared to implement as part of any investment that we might make to the program.

One point that I would like to make in that regard is that there

seems to be a broad interest in the development of sequestration

technology, and one of the prerequisites for implementing a sequestration technology is the actual capture of CO2. The only plant that

I am aware of today in the United States that actually captures its

CO2 in a pure form is the North Dakota Gasification Project that

sells its CO2 quite profitably for enhanced oil recovery. If we are

going to advance the whole question of sequestration, we need to

actually build some projects that capture CO2 and that allow us to

then take that CO2 and implement it in the sequestration plan.

The projects that Leucadia is developing in this area, all have a

sequestration plan as part of the conception, and we will be actively developing that as part of our overall development of the

project.

The other thing specific to the coal-to-liquids technology is that

it does have environmental benefits with regards to the emissions

of criteria pollutants. We are developing a project in Illinois and

working with the city of Chicago, that has zero sulfur emissions

and the lower particulate emissions which have an immediate

health benefit to that market. Chicago is a serious non-attainment

market, and they see the introduction of coal-to-liquids project

manufacturing transportation fuels as an immediate benefit to

their local community. The city of Chicago is actively encouraging

the development of our project.

[The prepared statement of Mr. Mr. Maley follows:]
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Mr. BOUCHER. Thank you very much, Mr. Maley.

Dr. Lashof.

STATEMENT OF DANIEL A. LASHOF, SCIENCE DIRECTOR, CLIMATE CENTER, NATIONAL RESOURCES DEFENSE COUNCIL,

WASHINGTON, DC

Mr. LASHOF. Thank you, Mr. Chairman. It is a privilege to appear before the committee again.

As you know, Speaker Pelosi has committed to passing

groundbreaking legislation that addresses global warning and energy independence in this Congress, and while I recognize as you

stated earlier that the primary goal of the legislation we are hearing today is the energy security component of that. I believe that

it is nonetheless essential to evaluate the proposals we are considering in light of this longer-term objective.

In particular the U.S. Climate Partnership, which as you know,

is a broad diverse group of leading companies, environment, and

other public interest organizations has called on the Congress to

pass legislation as quickly as possible and reducing emissions of

greenhouse gases by 60 to 80 percent by 2050.

Any energy legislation enacted in this Congress should in my

view at a minimum be consistent with and make a down payment

on achieving that goal, even if its primary purpose is to reduce dependence on petroleum.

Before turning to the primary subject of this panel on the coalto-liquids legislation, I would just like to echo the comments of Ms.

Callahan in the previous panel. NRDC strongly supports the work

they are doing on energy efficiency and particularly the energy efficiency standards, and I would just note that in particular the forcing function to insure that DOE meets its statutory deadlines is

particularly important given their shameful record in missing

deadlines as has been brought out previously in this hearing.

Unfortunately, I can’t say the same thing about the coal-to-liquids provisions as you know. I would like to call your attention to

two recent studies that have concluded that even if coal-to-liquids

plans fully employed carbon capture storage, full lifecycle greenhouse gas emissions from using the fuels will still be worse than

conventional diesel fuel, in particular Michael Wang of Argonne

National Laboratory is the developer of the model that has been

used by EPA and others to analyze different fuels on a consistent

basis. He presented his findings to the Society of Automotive Engineers this week, and his study shows that without carbon capture

the emissions could be as much as two and a half times as much

as diesel fuel, but even assuming a high efficiency conversion process and carbon capture and storage, lifecycle greenhouse gas emissions from coal-to-liquid would still be 19 percent higher than using

conventional diesel fuel.

Given that result it is not surprising that another recent study

by Battelle found that a significant coal-to-liquids industry is simply not a good investment in the context of a program that is limiting greenhouse gas emissions to prevent the concentration from rising above twice pre-industrial levels or to a lower level, which I believe is needed.
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Battelle found that, in fact, if there were no constraints on greenhouse gas emissions, a significant coal-to-liquids industry would

make sense and would grow to replace conventional oil during the

next several decades. But in the context of the need to significantly

reduce greenhouse gases in their economic models coal-to-liquids

does not develop, and instead, we would need to rely much more

heavily on biofuels and efficiency to meet our transportation needs.

There has been some discussion on plug-in hybrid vehicles today.

I just would reiterate my view that to use coal in the transportation sector the best pathway is through making electricity to go

into plug-in hybrids. There is a huge potential there, and in fact,

a ton of coal used for that, in that way could displace twice as

much oil as using a ton of coal to produce liquid fuel. And the emissions on a graduate mile basis could be one-tenth as much as with

liquid fuels.

As you know, Mr. Chairman, and I know you were none too

pleased to receive a letter from NRDC and nine other environmental organizations opposing the provisions we are looking at

today, we noted a number of things. I would highlight that in addition to reducing oil use, renewable fuels on the market today generate on average 20 percent lower greenhouse gas emissions than

conventional fuels. And we urge that Congress adopt fuel alternatives that should be held to at least that standard.

Let me comment a little bit on the specifics of the legislative proposal you have out. I appreciate the fact that you put in the greenhouse gas performance standard.

Mr. BOUCHER. Well, Dr. Lashof, your time is almost expired, and

we have votes pending on the floor, which will require our going

over there. So could you wrap up in maybe 15 or 20 seconds,

please?

Mr. LASHOF. I will do that. You authorized the use of CO2. We

have no objection to using CO2, but an environmental benefit

should only be assigned if CO2 is demonstrated to be permanently

stored and kept out of the atmosphere.

The other point I would like to make is that your legislation calls

on plants to have a plan certified by EPA. We believe it is essential

to insure that the plan is actually carried out and that plants actually implement carbon capture and store it to be eligible for any

program.

I will conclude there. Thank you.

[The prepared statement of Mr. Lashof follows:]
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Mr. BOUCHER. Thank you very much, Dr. Lashof, and thanks to

each of our witnesses.

We have 7 minutes remaining to respond to the roll call votes on

the floor, and there are four votes pending. Experience tells us that

it will take approximately 45 minutes to complete these votes, and

so I am going to declare a recess in these proceedings until we have

finished. And we would appreciate your patience in remaining here

until we can pronounce some questions to you.

So the subcommittee stands in recess for 45 minutes or until

about 5 minutes after the last roll call vote is completed.

[Recess.]

Mr. BUTTERFIELD [presiding]. The committee will reconvene.

It is now time for each one of the committee members to ask

questions of the witnesses. We are going to ask each of the Members to hold their questions and answers to no more than 5 minutes.

I was not here during the testimony, and I regret that I was not

in place, but we were multi-tasking this morning, and I am sure

all of you have an appreciation for that. We can solve a lot of problems on Capitol Hill, but one thing we cannot do is to be in two

places at one time. So I apologize for my absence, but the staff has

summarized your testimony, Mr. Maley, and I want to thank you

very much for the preparation that you made, and thank you for

coming forward today for this purpose.

Before I recognize Shimkus I want to simply ask two questions,

and the first one will be to Mr. Maley. I believe in your testimony

you mentioned price guarantees, and I guess my question to you

is why would a price guarantee for coal-to-liquids be preferable to

the traditional loan guarantees?

Mr. MALEY. What we like about this legislation is that we believe

it puts the proper incentives on the owner and the investment community to make the project perform properly. A loan guarantee tied

together with a tax incentive package for the equity investor to induce people to invest basically puts a project structure in place

where the lender really has no risk whether or not the project ever

works and even the equity investor really has no risks whether or

not the project ever works because if it doesn’t work, he has gotten

his tax incentives and can recover his investment that way.

In this program with the cap and the ceiling, the ultimate performance of the plant, whether it actually generates the barrels

that it is projected to produce and does it at a cost that works with

the economics, really resides with the investor and the financial

community. So we think it keeps the proper incentives and keeps

the parties aligned to make the project a long-term success.

Mr. BUTTERFIELD. We have worked very hard on this legislation.

Hopefully we are going to get it out in pretty short order, and if

that happens will Leucadia be willing to build a coal-to-liquids facility if the bill passes?

Mr. MALEY. Yes, we will. We think this is the legislation that we

would need. We have been actively developing a coal-to-liquids

project in Illinois. It has been on a relatively low-scale effort at this

point, but we are quite ready to accelerate that effort and commit

very significant dollars to the development of one of these projects.

Mr. BUTTERFIELD. Thank you very much.
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The Chair recognizes the gentleman from Illinois, Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. This is one of the

charts that I brought out about 2 years ago when we first drew up

the legislation, and I think it is important to just highlight the benefits based upon some of the debate.

You have U.S. coal underground, not in the Gulf Coast areas,

which are highly at risk for hurricanes as we know. You build a

plant hopefully somewhere in the Midwest, in the coal fields of the

Midwest. You have a pipeline facility already established, centralized in the Midwest to be able to do a lot of things. To be able to

fund our fighter planes in the military, to create cleaner fuel than

currently is available for diesel engines today.

And I have, we had a chart in one of our hearings that talked

about low diesel fuel, and everybody agrees that is a great advancement. When you compare to what this technology can do on SOx,

NOx, particular matter with respect to low diesel fuel, it is incomprehensible why the environmental community will not work with

us to try to make this happen. And we are going to keep fighting

for these provisions for national security.

And I want to keep highlighting the aviation fuel aspect and the

diesel fuel aspect because you are going to have folks talk about,

as my friend talked about cellulosic debated ethanol and no one

can out ethanol me I don’t think on this committee, but that is gasoline. That is for automobiles, and we are talking about liquid fuel

competition across the board. So I just wanted to highlight that.

The last is a thousand jobs, in fact, in the first hearing we had

a lot of, I saw a lot of my friends from Morgan Heights. They were

building trades, good building trade jobs to create these refineries,

these pipelines, a lot of construction jobs, 15 million tons of coal per

year and up to 500 coal mining jobs. That is why I am obviously

very excited for all those reasons.

So my follow-up questions deal with this as I am sure no one

would be surprised. First, Kathy, if you would talk about the recently released feasibility study that DOE just a couple days ago,

and it talked about a barrel of oil, $60, a 20 percent return on that

investment. So essentially this study the plant is breaking even at

$48 per barrel, and really the question is does this include investment in CCS?

Ms. FREDRIKSEN. You are referring to the NETK study that we

just released on May 21, and it looked at the feasibility of a commercial, 50,000 barrel per day coal-to-liquids facility in the Illinois

coal basin. Based on its use of approximately 24,000 ton per day

of coal we got an output of around 28,000 barrels per day of diesel

fuel, 22,000 barrels per day of naphtha, and 124 megawatts of net

electricity that could be returned to the grid after the production

was used for the generation of the plant itself.

It did incorporate our recapture. It used carbon capture. It accounted for the carbon capture and then actual compression into a

pipeline, so if you injected, there would be a little different configuration, but it did look at commercial reuse or sale of CO2. And that

feasibility study, as you pointed out, showed a 20 percent return

on investment, oil being at around $60 a barrel, with a net present

value of $1.5 billion and a payback period of 5 years. That did not

incorporate any loan guarantee from the Federal Government.
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If you do put a Federal loan guarantee into the mix, you could

raise your return to almost 30 percent, which is a pretty hefty return on investment for an investor.

Mr. SHIMKUS. And I think our proposal is obviously if they apply

to this price provision, they are not going to be applicable for other

loan guarantee provisions. But it is a good point well taken.

Now, we have Mr. Maley from Leucadia. I appreciate all the

work you are doing. We have been following to date. I know your

excitement in the process.

We know CCS, and we have talked about that, but can you talk

to me about the use of biomass and how that can be involved in

having refinery emissions that are in essence equal to or less than

regular petroleum refinery locations today?

Mr. MALEY. I am not an engineer or an expert in that area, but

just in discussions with some of the technology firms, there has

been discussion about biomass either as an add on to a coal-to-liquids project or as a blend. Using biomass as part of that process

helps achieve very significant reductions.

Mr. SHIMKUS. And Mr. Chairman, if I just may end on this line,

equal-opportunity questioner here, for my friends at the NRDC,

you came before the committee before when we were kind of talking about this proposal, and your testimony, I don’t have it in front

of me, but we were very optimistic or at least presently kind of excited about your support that if CCS was used, again, this is a

statement that is in the record if I wanted to get the quote, but

it made it a little bit more doable than if it wasn’t. And it was

qualified, I think. I think Chairman Boucher would agree, qualified

at least, I can’t say the word support, but you are less adamant in

opposition if CCS were used. Is that still your position?

And then in the follow up because I am running over time would

just be the whole issue of, and I asked this in the last time you

all came before us, the ability to, do you believe that there is an

ability to sequester now, and would you be involved in any litigation to deny the ability to a long-term geological store? Have you

in the past and do you foresee the ability of your organization to

take this issue to the Courts?

Mr. LASHOF. Thank you, Mr. Shimkus. Fewer emissions are better than more emissions, so to the extent that carbon is being captured and instead of going into the atmosphere, that is better. I

think what I suggested in today’s testimony and what I think some

other members of the subcommittee suggested is we need to be

looking at how this might or might not fit into a long-term reduction in global warming emissions.

And the conclusion I reach is that it doesn’t fit into that strategy.

If you compare it to some of the other alternatives, yes, ethanol is

more applicable to a light-duty market but biodiesel obviously is

applicable, and that part of the EPA’s analysis produces about a 60

percent, 66 percent reduction in lifecycle greenhouse gas emissions

compared with conventional diesel.

We believe that fundamentally, I would like to see the committee

move away from focusing on any particular feedstock or technology

and focus instead on our goals, which I think we share, which is

reducing global warming emissions and reducing oil consumption.
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I think if we can work in that way we may be able to cut through

some of this controversy.

And to your last point just quickly, we are not as far as I know

involved in any litigation related to carbon capture and storage. We

actually are urging EPA to move quickly to set regulations so that

everybody would have an understanding of what is required to license and operate a carbon capture project.

Mr. SHIMKUS. Thank you. Mr. Chairman, just, I know it will be

just a short response.

Mr. BUTTERFIELD. Certainly.

Mr. SHIMKUS. I appreciate my friend’s waiting.

Do you, back to Mr. Lashof, do you agree that at least the analysis of the technology on coal-to-liquids refineries has less emissions

than a conventional petroleum refinery? Do you, if they are CCS?

I mean, CCS is greenhouse gas. I am talking about the NOx and

the SOx and the particular matter. Do you agree with those analysis?

Mr. LASHOF. Fisher Tropes fuel regardless of the feedstock at end

use does provide some benefits in terms of NOx, SOx. Yes. I reviewed analysis, and I agree with that.

Mr. SHIMKUS. Thank you very much. Thank you, Mr. Chairman.

Mr. BUTTERFIELD. Thank you, Mr. Shimkus.

The gentleman from Utah. Looks like we are going to have a vote

in about 10 minutes.

Mr. MATHESON. OK.

Mr. BUTTERFIELD. Yes.

Mr. MATHESON. Well, I don’t think I will take 10 minutes.

I just want to, Mr. Shimkus mentioned hoping the plant would

be built in the Midwest. I want to remind him there is some coal

further out west, too.

Mr. SHIMKUS. Real coal?

Mr. MATHESON. Just a little bit. Yes.

Ms. Fredriksen, just to follow up, you mentioned that with the

study that was just issued in the last couple of days and the 20

percent return and you said if you assume a loan guarantee that

bumps up the return to 30 percent. Is that, I think this is straightforward, but is that based on the loan guarantee will provide

cheaper financing costs through lower interest rates?

Ms. FREDRIKSEN. Yes, which is the goal of the Loan Guarantee

Program as you——

Mr. MATHESON. I want to make sure people understood that. I

think that in Mr. Maley’s testimony I just think the committee

ought to note that you went through a discussion of the strengths

and weaknesses of loan guarantee and the price guarantee where

you said it is a price band so the price moves inside or outside of

a range. It affects it different ways. And also the strengths and

weaknesses of just the production payment, if you will, a sense,

pre-allen type payment, and I think that that reflected a good discussion how I think this legislation has thought that through a little more carefully than past Government programs on price support and loan guarantee. I just want to acknowledge that, because

I think that was a helpful discussion in your testimony to go

through that.
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One question I, change the topic now for Ms. Fredriksen, I noted

that DOE is supportive of the coal-to-liquid provisions included in

the discussion draft. Does, has DOE looked at how comparable provisions might work relative to a different resource? In this case it

would be the oil shell or tar sands would fit into this type of model.

Do you know where the administration is on that?

Ms. FREDRIKSEN. We have looked at that, sir. We still believe

that a title XVII program is going to help defray a lot of that new

technology. I mean, that is what we are fundamentally getting to

here is not off-the-shelf technology. It is very new, it is very

unproven, and that is what the investors are a little afraid of. And

so we are trying to help buy down that technology risk with a loan

guarantee program. We did, however, look at other options and explored other options in an analysis of whether or not this collar approach would work. We have considered things such as a variable

production tax credit that does float with a price index but is sort

of term limited to a production capacity to get production where

you need it to be, and then you can get out, the Government can

get out of the way and let the market take over.

Mr. MATHESON. Right.

Ms. FREDRIKSEN. So there are a lot of options that we can consider, and I think they would be applicable to all technologies.

Mr. MATHESON. So other fuel stocks as well that I mentioned

there?

Ms. FREDRIKSEN. Yes.

Mr. MATHESON. OK. That is all I got, Mr. Chairman. Thanks. I

yield back.

Mr. BUTTERFIELD. Thank you very much.

All right. Do we need a second round? Do you have any other

questions?

Mr. SHIMKUS. No, sir.

Mr. MATHESON. No, sir.

Mr. BUTTERFIELD. All right. Do you have any other questions?

All right. Thank you once again for your testimony. I apologize for

the disruption in our schedule, but I am certain all of you understand.

The hearing is concluded. Thank you.

[Whereupon, at 2:00 p.m., the subcommittee was adjourned.]

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