### 1 UNITED STATES OF AMERICA DEPARTMENT OF ENERGY PUBLIC HEARING

ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS (ENERGY CONVERSATION STANDARDS FOR THREE TYPES OF CONSUMER PRODUCTS) (Docket No. EE-RM-93-801)

Thursday, January 19, 1995

The public hearing was held in Room 1E245, 1000 Independence Avenue, S.W., Washington, D.C. at 9:30 a.m., Barry Berlin, presiding.

PRESENT:

BARRY BERLIN, Presiding Official MICHAEL J. McCABE MARK FRIEDRICHS EUGENE MARGOLIS HOWARD GRUENSPECHT

SAG

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### 1

# -- UNITED STATES OF AMERICA 

# I::::. DEPARTMENT OF ENERGY PUBLIC HEARING

ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS (ENERGY CONVERSATION STANDARDS FOR THREE TYPES OF CONSUMER PRODUCTS) (Docket No. EE-RM-93-801)

Thursday, January 19, 1995

The public hearingwas held in Room 1E245, 1000 Independence Avenue, S.W., Washington, D.C. at 9:30 a.m., Barry Berlin, presiding.

PRESENT:

(202)797-2525 BARRY BERLIN, Presiding Official MICHAEL J. McCABE MARK FRIEDRICHS EUGENE MARGOLIS HOWARD GRUENSPECHT

SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS2 AGENDA Opening Remarks 3 Rae Cronmiller, NRECA 10 Clifford Porter, Lignite Energy Council 33 Heidi Heitkamp, Attorney General, North Dakota 45 Ed Reid, American Gas Association 58 John Holt, Basin Electric Power 70 Ned Leonard, Western Fuels Association, Inc. 80 Larry Wethje, Air-Conditioning & Refrigeration Institute 94 W. David Montgomery, Charles River Association 110 Mark Perlis, National Electrical Manufacturers

Association 127 Joseph Mattingly, Gas Appliance Manufacturers Association 148 Raymond Suhocki, Pennsylvania Power Light 153 David Lewis, Lennox International 159

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### AGENDA Opening Remarks 3 Rae Cronmiller, NRECA 10 Clifford Porter, Lignite Energy Council 33 Heidi Heitkamp, Attorney General, North Dakota 45 Ed Reid, American Gas Association 58 John Holt, Basin Electric Power 70 Ned Leonard, Western Fuels Association, Inc. 80 Larry Wethje, Air-Conditioning &

### Refrigeration Institute 94 W. David Montgomery, Charles River Association 110 Mark Perlis, National Electrical Manufacturers Association 127 Joseph Mattingly, Gas Appliance Manufacturers Association 148 Raymond Suhocki, pennsylvania Power Light 153 David Lewis, Lennox International 159

(202)797-2525 SAG,CORP 4218LENORE LANE, NW. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 P-R-O-C-E-E-D-I-N-G-S 9:34 a.m. PRESIDING OFFICIAL BERLIN: Good morning. Welcome, everybody. I guess on behalf of the Department of Energy I'd like to welcome you for coming here. This is the appliance efficiency program or appliance conservation program and I'm Barry Berlin and I'll be the presiding official for this meeting.

The purpose of the hearing is to receive oral testimony from the public on the Department's Supplemental Advance Notice of Proposed Rulemaking regarding evaluation and consideration of the environmental and energy security externalities associated with different energy efficiency appliance standards. And we published a notice in the Federal Register on October 7, 1994 giving people some ideas about things they should consider in recommending a methodology to us for determining values.

Now, the issue of attaching monetary values to the environmental and energy security externalities came out of several comments we received on past notices of proposed rulemakings, past Federal Register notices. And with this Supplemental Advance Notice and Hearing we're going to just begin the investigation to see whether there is a sound analytic SAG, CGRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 3 1 P-R-O-C-E-E-D-I-N-G-S 2 9:34 a.m. 3 

### PRESIDING OFFICIAL BERLIN: Goodmorning. 4 

### Welcome, everybody. I guess on behalf of the 5 Department of Energy I'd like to welcome you for 6 cominghere. This isthe applianceefficiencyprogram 7 orapplianceconservationprogramand I'mBarryBerlin 8 and I'll be the presiding official for this meeting. 9 The purpose of the hearing is to receive 10 oral testimony from the public on the Department's 11 Supplemental Advance Notice of Proposed Rulemaking 12 regarding evaluation and consideration of the 13 environmental and energy security externalities 14 associatedwith different energyefficiencyappliance 15 standards. And we published a notice in the Federal 16 Register on October 7, 1994 giving people some ideas 17 about things they should consider in recommending a 18 methodology to us for determining values. 19 Now, the issue of attaching monetary 20 values to the environmental and energy security 21 externalitiescameoutof several commentswe received 22 onpast notices ofproposed rulemakings, past Federal 23 Register notices. And with this SupplementalAdvance 24 Notice and Hearing we're going to just begin the 25 investigationto seewhetherthereis a soundanalytic

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basis for determining values that could be used for evaluating appliance efficiency standards, externalities, and energy security externalities. If we fail to do this, we'll go back to doing what we have been doing, which was to estimate the effects of appliance standards on the physical quantities of certain emissions and oil imports and use those in the economic justification for determining appliance efficiency standards.

I'll go over that specifically. The Supplemental Advance Notice discussed a number of issues that need to be addressed in developing estimates of the monetary values of such external effects, and we'll monetize the values of such external impacts of appliance standards only if we can develop a sound analytic basis. If we can't develop a sound analytic basis for deriving monetary values for externalities, we'll continue to estimate the physical impacts on the environment and energy security and take them into account in determining what efficiency standards are economically justified.

Comments received here today and those submitted during the written comment period will assist the Department in determining the feasibility of pursuing this analytical issue. The written

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### 4 1 basis for determining values that could be used for 2 evaluating appliance efficiency standards, 3 externalities, and energy securityexternalities. If 4 we fail to do this, we'll go back to doing what we 5 have been doing, which was to estimate the effects of 6 appliance standards on the physical quantities of 7 certainemissions andoil imports andusethose inthe 8 economic justification for determining appliance 9 efficiency standards. 10 

### I'll go over that specifically. The 11 Supplemental Advance Notice discussed a number of 12 issues that need to be addressed in developing 13 estimates of the monetary values of such external 14 effects, and we'll monetize the values of such 15 externalimpacts of appliance standardsonlyifwe can 16 develop a sound analytic basis. If we can't develop 17 a sound analytic basis for deriving monetary values 18 for externalities, we'll continue to estimate the 19 physical impacts on the environment and energy 20 security and take them into account in determining 21 what efficiency standards are economicallyjustified. 22 Comments received here today and those 23 submitted during the written comment period will 24 assist the Department in determining the feasibility 25 

### of pursuing this analytical issue.

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### The written

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comment period for this Supplemental Advance Notice ends February 6, 1995.

Al comments submitted on this Supplemental Advance Notice will be considered before we establish a proposed rule on revised energy efficiency standards for central air conditioners and furnaces. We may not print in that proposed rule exactly what our intention is, but we will probably come to some conclusion as to what our intent is. Comments received after the comment period's closed will be considered to the fullest extent possible.

As the presiding official for this hearing, I will set forth guidelines for conducting the hearing and provide other pertinent information. A complete transcript of this hearing will be available for inspection and copying at the Department of Energy's Freedom of Information Reading Room, which as some of you know is right down the hall from here. Anyone wishing to purchase a copy of the transcript may make arrangements with the court reporter.

This will not be an evidentiary or judicial type of hearing. It will be conducted in accordance with Section 553, Title 5, United States Code, and Section 336 of the Energy Policy and Conservation Act, as amended. 

### SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 5 1 comment period for this Supplemental Advance Notice 2 ends February 6, 1995. 3 Alcomments submittedonthisSupplemental 4 Advance Notice will be consideredbeforewe establish 5 a proposedruleonrevisedenergyefficiencystandards 6 for central air conditioners andfurnaces. We maynot 7 print inthatproposedruleexactlywhatourintention 8 is, butwe willprobablycome to some conclusion as to 9 what our intent is. Comments received after the 10 comment period's closed will be considered to the 11 fullest extent possible. 12 

### As the presiding official for this 13 hearing, I will set forth guidelines for conducting 14 the hearing and provide other pertinent information. 15 A complete transcript of this hearing will be 16 availablefor inspectionandcopyingattheDepartment 17 ofEnergy'sFreedomof InformationReadingRoom, which 18 as some of you know is right down the hall from here. 19 Anyone wishing to purchase a copy of the transcript 20 may make arrangements with the court reporter. 21 

### This will not be an evidentiary or 22 judicial type of hearing. It will be conducted in 23 accordance with Section 553, Title 5, united States 24 Code, and Section 336 of the Energy Policy and 25 Conservation Act, as amended.

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3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 6 To provide the Department with as much pertinent information and as many views as can be reasonably obtained and to enable interested persons to express their views, the hearing will be conducted in accordance with the following procedures. These are the standard procedures we have for our hearings.

Speakers will be called to testify based on a schedule of those people who have responded to the notice of this hearing, and there is an agenda available listing the people who have done so. The speakers have been allotted 20 minutes for their oral statements. Speakers are requested to summarize written statements to the maximum extent possible and not read them verbatim, since they will be incorporated in the record in full. Please try to summarize the points you're making. And for speakers who are making essentially the same points as previous speakers, we ask you to simply reference the other speaker 's points and not develop them anew. That will

save us some time here but when we go over the comments and the testimonies, we'll treat them as if they had been developed fully from the beginning.

If time allows, anyone may make unscheduled oral statements after all scheduled speakers have delivered their statements. Persons SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 6 1 To provide the Department with as much 2 pertinent information and as many views as can be 3 reasonably obtained and to enable interested persons 4 to express their views, the hearingwill be conducted 5 in accordance with the following procedures. These 6 are the standardprocedures we have for our hearings. 7 Speakers will be called to testify based 8 on a schedule of those people who have responded to 9 the notice of this hearing, and there is an agenda 10 available listing the people who have done so. The 11 speakers have been allotted 20 minutes for their oral 12 statements. Speakers are requested to summarize 13 written statements to the maximum extentpossible and 14 not read them verbatim, since they will be 15 incorporated in the record in full. Please try to 16 summarize the points you're making. And for speakers 17 who aremakingessentiallythe samepoints as previous 18 speakers, we ask you to simply reference the other 19 speaker'spoints andnotdevelopthem anew. Thatwill 20 save us some time here but when we go over the 21 comments and the testimonies, we'll treat them as if 22 they had been developed fully from the beginning. 23 

### If time allows, anyone may make 24 unscheduled oral statements after all scheduled 25 speakers have delivered their statements.

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interested in making a statement who have not submitted a request in advance should submit their requests to the registration desk. At the conclusion of all presentations, scheduled and unscheduled, each speaker will be given the opportunity to make a rebuttal statement subject to time limitations and will be called in the order in which the initial statements were made.

Questions will be asked only by members of the panel conducting the hearing. However, I will allow any interested person an opportunity to question speakers who have made oral presentations. This opportunity will be afforded after any rebuttal statements to the extent the presiding official determines such question is likely to result in a more timely and effective resolution of the issues.

Persons interested in making use of the opportunity to make rebuttal statements to ask questions of current speakers , have to submit their requests shortly after completion of any rebuttal statements to the Registration Desk. The questions submitted should be identified as to who the author of the question is and to whom the question is being directed. I'll determine if the question is relevant and if the question is allowed, I'll be the one to ask SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 7 1 interested in making a statement who have not 2 submitted a request in advance should submit their 3 requests to the registration desk. At the conclusion 4 of all presentations, scheduledand unscheduled, each 5 speaker will be given the opportunity to make a 6 rebuttal statement subject to time limitations and 7 will be called in the order in which the initial 8 statements were made. 9 Questionswillbe askedonlybymembers of 10 

### the panel conducting the hearing. However, I will 11 allowanyinterestedpersonanopportunitytoquestion 12 

### speakers who have made oral presentations. This 13 opportunity will be afforded after any rebuttal 14 statements to the extent the presiding official 15 determines suchquestionis likelytoresult ina more 16 timely and effective resolution of the issues. 17 Persons interested in making use of the 18 opportunity to make rebuttal statements to ask 19 questions of current speakers, have to submit their 20 requests shortly after completion of any rebuttal 21 

### statements to the Registration Desk. The questions 22 submitted shouldbe identifiedas towho the authorof 23 the question is and to whom the question is being 24 directed. I'll determine if the question is relevant 25 and if thequestion is allowed, I'llbe the one to ask

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it in the behalf of the people who want it asked. Furthermore, I will afford any interested person an opportunity to question employees of the United States who have made written or oral presentations with respect to disputed issues of material fact. This opportunity will also be afforded after any rebuttal statements to the extent I determine such question is likely to result in a more timely and effective resolution of such issues.

And if you want to make advantage of that opportunity, you have to submit your request after the completion of any rebuttal statements to the Registration Desk stating specific justification including why the issue was one of disputed fact and how your proposed question would expedite the resolution. The question should also be identified as to who is the author and to whom the question is being directed. I'll determine if the question is relevant. If it is allowed, I'll ask it.

As mentioned earlier, the close of the comment period is February 6, 1995. All comments received will be available for public inspection at the DOE Freedom of Information Reading Room, which as I noted is just down the hall. Such comments should be addressed to the Department of Energy as noted in SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 8 1 it in the behalf of the people who want it asked. 2 Furthermore, I will afford any interested 3 person an opportunity to question employees of the 4 united States who have made written or oral 5 presentations with respect to disputed issues of 6 material fact. This opportunitywill alsobe afforded 7 after any rebuttal statements to the extent I 8 determine such question is likelyto result in a more 9 timely and effective resolution of such issues. 10 And if you want tomake advantage of that 11 opportunity, youhaveto submityourrequestafterthe 12 

### completion of any rebuttal statements to the 13 Registration Desk stating specific justification 14 including why the issue was one of disputed fact and 15 how your proposed question would expedite the 16 resolution. Thequestion shouldalsobeidentifiedas 17 towho is the author andtowhom the question is being 18 directed. I'lldetermine ifthequestionis relevant. 19 If it is allowed, I'll ask it. 20 

### As mentioned earlier, the close of the 21 

### comment period is February 6, 1995. All comments 22 received will be available for public inspection at 23 the DOE Freedom of Information ReadingRoom, which as 24 I noted is just down the hall. Such comments should 25 be addressed to the Department of Energy as noted in

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the Advance Notice. Ten copies are requested. In addition, if you could provide an electronic copy of your comments, we'd appreciate that. I believe we're still using WordPerfect 5.1.

Any person submitting information which he or she believes to be confidential and exempt by law from public disclosure should submit to the address in the Proposed Rule one complete copy and six copies from which information claimed to be confidential has been deleted.In accordance with the procedures established at 10 CFR 1004.11, the Department will make its own determination as to whether or not the information shall be exempt from public disclosure. In the past we have received much confidential information and we have kept it confidential, and the guidelines are very strict for us.

We appreciate the time and effort you have taken in preparing your statements. We are pleased to receive your comments and opinions and I would now like to introduce the members of the panel.

As I mentioned, I am Barry Berlin, the economist from the Office of Codes and Standards, and I'm largely responsible for the economic justification analysis and the environmental analysis that we do. SAG, CORD 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 9 1 the Advance Notice. Ten copies are requested. 2 In addition, if you could provide an 3 electronic copy of your comments, we'd appreciate 4 that. I believe we're still using WordPerfect 5.1. 5 AnypersonsUbmittinginformationwhichhe 6 or she believes to be confidential and exempt by law 7 frompublic disclosure should submitto the address in 8 the proposed Rule one complete copy and six copies 9 from which information claimed to be confidential has 10 been deleted. 11 In accordance with the procedures 12 established at 10 CFR 1004.11, the Department will 13 make its own determination as to whether or not the 14 information shall be exempt from public disclosure. 15 In the past we have received much confidential 16 information and we have kept it confidential, and the 17 guidelines are very strict for us. 18 We appreciatethetime andeffortyouhave 19 taken inpreparing your statements. We are pleased to 20 receive your comments and opinions and I would now 21 like to introduce the members of the panel. 22 As I mentioned, I am Barry Berlin, the 23 economist from the Office of Codes and Standards, and 24 I'mlargelyresponsiblefortheeconomicjustification 25 analysis and the environmental analysis that we do. SAG,CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 10 Michael McCabe is the Director of the Department's Office of Codes and Standards. From the Department's Office of Policy, Planning and Program Evaluation, Howard Gruenspecht is Director of the Office of Economic Analysis and Competition, and Mark Friedrichs is from the Office of Energy Demand Policy. And Eugene Margolis is staff attorney from the office of General Counsel and he's been the Program Attorney for a number of years.

At this time, I will call the first speaker. For the record, please state your name and who you represent.

Rae Cronmiller. MR. CRONMILLER: My name is Rae Cronmiller and I'm Environmental Counsel for the National Rural Electric Cooperative Association and I appreciate the opportunity to present this brief oral testimony. I submitted written copies a little late. I trust you have them. And my comments won't be 20 minutes. I will try to summarize our views as quickly as possible. First, we do appreciate the opportunity to speak here. On behalf of NRECA and all of our member cooperatives, we do appreciate the opportunity to comment on these Advance Notice of Proposed SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 10 1 Michael McCabe is the Director of the 2 Department's Office of Codes and Standards. From the 3 Department's Office of Policy, Planning and Program 4 Evaluation, Howard Gruenspecht is Director of the 5 Office of Economic Analysis and Competition, andMark 6 Friedrichs is fromthe Officeof EnergyDemandPolicy. 7 And Eugene Margolis is staff attorney from the Office 8 of General Counsel and he's been the ProgramAttorney 9 for a number of years. 10 At this time, I will call the first 11 speaker. For the record, please state your name and 12 who you represent. 13 Rae Cronmiller. 14 MR. CRONMILLER: Myname isRae Cronmiller 15 and I'm Environmental Counsel for the National Rural 16 Electric CooperativeAssociation and I appreciate the 17 opportunity to present this brief oral testimony. I 18 submitted written copies a little late. I trust you 19 have them. And my comments won't be 20 minutes. I 20 will try to summarize our views as quickly as 21 possible. 22 First, we do appreciate the opportunity 23 to speak here. On behalf of NRECA and all of our 24 member cooperatives, we do appreciate the opportunity 25 to comment on these Advance Notice of Proposed

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Rulemaking which entertains the idea of whether to use monetized environmental externalities in the application of certain appliance efficiency standards.

In short, and to summarize our comments, if I could, we don't think it's a good idea. We don't think it's a good idea from a policy perspective. We don't think it's a good idea from an environmental policy perspective and we don't think it's the kind of analysis which Congress envisioned when it asked or required DOE to undertake this review for certain appliance efficiency standards.

NRECA is a national service organization for approximately 1,000 of the nation's not for profit consumer electric systems. Of these, 62 are generation and transmission cooperatives, and the remaining are distribution cooperatives who distribute electricity to approximately 25 million Americans in 46 states and in 2,600 of the 3,100 counties within the United States. Collectively, our members distribute 10 percent of the nation's electric power generation. Most importantly, 80 percent of cooperatively owned generation is coal-fired from steam electric generating units and most of these units were constructed after enactment of the nation's SAG

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### 11 1 Rulemakingwhich entertainsthe ideaofwhethertouse 2 monetized environmental externalities in the 3 applicationofcertainapplianceefficiencystandards. 4 5 In short, and to summarize our comments, 6 if I could, we don't think it's a good idea. We don't 7 think it's a good idea from a policy perspective. We 8 don't think it's a good idea from an environmental 9 policyperspective andwe don'tthink it's the kindof 10 analysis which Congress envisioned when it asked or 11 required DOE to undertake this review for certain 12 appliance efficiency standards. 13 NRECA is a national service organization 14 for approximately 1,000of thenation's not for profit 15 consumer electric systems. Of these, 62 are 16 generation and transmission cooperatives, and the 17 remainingaredistributioncooperativeswhodistribute 18 electricity to approximately 25 million Americans in 19 46 states and in 2,600 of the 3,100 counties within 20 the united States. Collectively, our members 21 distribute 10 percent of the nation's electric power 22 generation. Most importantly, 80 percent of 23 cooperatively owned generation is coal-fired from 24 steam electric generating units and most of these 25 unitswere constructedafterenactmentofthenation's

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Clean Air Act. A disproportionately high number of these units were constructed after the 1978 Fuel Use Act that required coal as a primary fuel and as such, in considering the dates and times that they were constructed, they meet the very highest standards required under the Clean Air Act.

The specific focus of this Advanced Notice is for the development and evaluation of appliance efficiency standards for three categories listed. However, in the Advance Notice we believe DOE makes clear its intent to evaluate whether or how to apply environmental externalities, monetizing environmental externalities in the development of other efficiency standards and potentially in the development of policy in other areas of importance, not only to the electric utilities in general, but particularly important to the rural electric cooperatives because of who we are and the type of fossil fuel and electric generation that we have.

The initial notice in September, 1993 made clear DOE's intent to monetize environmental externality benefits and costs, if a sound analytic basis could be found. The second Advance Notice in October, 1994 effectively took a step back from the initial notice in that DOE now sought additional SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 12 1 Clean Air Act. A disproportionately high number of 2 these units were constructed after the 1978 Fuel Use 3 Act that required coal as a primary fuel and as such, 4 in considering the dates and times that they were 5 constructed, they meet the very highest standards 6 required under the Clean Air Act. 7 The specificfocus ofthisAdvancedNotice 8 is for the development and evaluation of appliance 9 efficiency standards for three categories listed. 10 However, in the Advance Notice we believe DOE makes 11 clear its intent to evaluate whether or how to apply 12 environmentalexternalities, monetizingenvironmental 13 externalities in the development of other efficiency 14 standardsandpotentiallyinthedevelopmentofpolicy 15 inotherareas of importance, notonlytotheelectric 16 utilities in general, but particularly important to 17 the rural electric cooperatives because of who we are 18 and the type of fossil fuel and electric generation 19 that we have. 20 The initial notice in September, 1993 21 made clear DOE's intent to monetize environmental 22 externality benefits and costs, if a sound analytic 23 basis could be found. The second Advance Notice in 24 October, 1994 effectively took a step back from the 25 initial notice in that DOE now sought additional

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information on whether it should apply a monetized environmental externality process in the development of appliance efficiency standards. In yet the third Advance Notice in November, 1994 DOE reiterated that it had not made up its mind regarding whether to propose monetized environmental externalities in the development and evaluation of these appliance efficiency standards and in our view, requested specific comment on the threshold question for the very purpose of evaluating such.

In short, for reasons which I will now state we urge DOE to take a step back from monetized environmental externality consideration, turn around and walk away from it completely. While monetized environmental externalities may be an interesting, indeed provocative economic theory, it is simply a theory that has no practical application in the development or evaluation of appliance efficiency standards. Addressing the threshold question first, of whether externalities, monetized externalities should even be considered, DOE in the Advance Notice relies on Section 325 of the National Energy Conservation Policy Act which outlines seven factors DOE can utilize to practically evaluate the rationale SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 13 1 information on whether it should apply a monetized 2 environmental externality process in the development 3 

### of appliance efficiency standards. In yet the third 4 Advance Notice in November, 1994 DOE reiterated that 5 it had not made up its mind regarding whether to 6 propose monetized environmental externalities in the 7 

### development and evaluation of these appliance 8 efficiency standards and in our view, requested 9 specific comment on the threshold question for the 10 very purpose of evaluating such. 11 In short, for reasons which I will now 12 state we urge DOE to take a step back from monetized 13 environmental externality consideration, turn around 14 and walk away from it completely. While monetized 15 environmental externalities may be an interesting, 16 indeed provocative economic theory, it is simply a 17 theory that has no practical application in the 18 development or evaluation of appliance efficiency 19 standards. 20 Addressing the threshold question first, 21 of whether externalities, monetized externalities 22 should even be considered, DOE in the Advance Notice 23 relies on Section 325 of the National Energy 24 Conservation Policy Act which outlines seven factors 25 DOE can utilize to practically evaluatethe rationale

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of a proposed efficiency standard. Under the Advanced DOE notice, DOE proposes to interpret the last of these seven factors, the factor that allows DOE to consider other factors it considers relevant for the proposed standards to purportedly give it the administrative regulatory discretion it must have to develop and apply monetized environmental externalities in the evaluation of appliance efficiency standards.

Upon review of the record, NRECA does not believe DOE has the administrative discretion under Section 325 to evaluate appliance efficiency standards using a highly abstract, highly controversial, highly ambiguous economic theory of monetizing environmental externalities. Specifically, the United States Congress expressly considered and rejected legislation requiring state public utility commissions to considerincluding environmental externality evaluations leastcost planning process under the Public Utility Regulatory Policies Act. This direct consideration and rejection of environmental externalities occurred during the legislative process which led to the development of the National Energy Policy Act of 1992. If the theory of environmental externalities has any rational application whatsoever, it would be for use SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 14 1 ofa proposedefficiency standard. UndertheAdvanced 2 DOE notice, DOE proposes to interpret the last of 3 these seven factors, the factor that allows DOE to 4 

### consider other factors it considers relevant for the 5 

### proposed standards to purportedly give it the 6 

### administrative regulatory discretion it must have to 7 

### develop and apply monetized environmental 8 

### externalities in the evaluation of appliance 9 efficiency standards. 10 Upon reviewof the record, NRECA does not 11 believe DOE has the administrative discretion under 12 Section325toevaluateapplianceefficiencystandards 13 using a highly abstract, highly controversial, highly 14 ambiguous economictheoryofmonetizingenvironmental 15 externalities. Specifically, the united States 16 Congressexpresslyconsideredandrejectedlegislation 17 requiringstatepublicutilitycommissionstoconsider 18 includingenvironmentalexternalityevaluationsleast19 cost planning process under the Public Utility 20 

### Regulatory Policies Act. This direct consideration 21 andrejectionof environmental externalities occurred 22 during the legislative process which led to the 23 developmentoftheNationalEnergyPolicyActof 1992. 24 If the theory of environmental externalities has any 25 rational application whatsoever, it would be for use

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as one of many factors to evaluate fuel sources of electric generation under a least cost planning process, and not for the development and evaluation of appliance efficiency standards. Yet, Congress even directed and considered and rejected this direct application of externalities.

Stated a little differently, an electrical appliance cannot distinguish between electricity generated from a particular fuel source, therefore, utilizing monetized environmental externalities based on fuel type for use in appliance efficiency standards would, at best, be an indirect and obscure application of the theory of environmental externalities. DOE has failed to demonstrate it has administrative authority to inject monetized environmental externality theory into the evaluation of appliance efficiency standards. To do so would amount to a very awkward application of a controversial theory that the U.S. Congress has clearly rejected under a proposal for direct application. Second, assuming that DOE does have the administrative discretion to evaluate appliance efficiency standards using this controversial theory, we quite frankly question the prudence of doing so because no objective or sound analytic basis exists SAG, CORl 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 15 1 as one of many factors to evaluate fuel sources of 2 electric generation under a least cost planning 3 process, andnotforthedevelopment andevaluationof 4 

### appliance efficiency standards. Yet, Congress even 5 directed and considered and rejected this direct 6 application of externalities. 7 Stateda littledifferently, anelectrical 8 appliance cannot distinguish between electricity 9 generated from a particular fuel source, therefore, 10 utilizingmonetizedenvironmental externalitiesbased 11 onfuel type for useinapplianceefficiency standards 12 would, atbest, be anindirectandobscure application 13 ofthetheoryof environmentalexternalities. DOE has 14 failed to demonstrate ithas administrative authority 15 to inject monetized environmental externality theory 16 intotheevaluationofapplianceefficiencystandards. 17 To do sowouldamountto a very awkward applicationof 18 a controversial theory that the 

### u.S. Congress has 19 

### clearly rejected under a proposal for direct 20 application. 21 Second, assuming that DOE does have the 22 administrative discretion to evaluate appliance 23 efficiency standards usingthis controversial theory, 24 we quite frankly question the prudence of doing so 25 because no objective or sound analytic basis exists

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for its application. According to the October Advance Notice, DOE again reiterated its position in the earlier notice that it would only apply monetized environmental externalities to evaluate appliance efficiency standards if a sound analytic basis could be found. DOE states that regardless of existing environmental regulatory requirements or policies, it would nonetheless prefer to develop monetized externality values for emissions of sulfur dioxide, nitrogen oxides, and carbon dioxide associated with fossil fuel use to generate electricity in order to reflect "residual" environmental damage functions or alternatively, a "willingness to pay" or "cost to control" valuation for emissions if a damage function cannot be found.

From both an environmental and social policy perspective, NRECA deeply questions the objectivity of "residual" environmental damage, "willingness to pay" or "cost to control" approaches. Sulfur dioxide and nitrogen oxides are emissions that are heavily regulated under the numerous Clean Air Act regulatory programs that address both environmental and health concerns. Why does DOE believe it could or should sit in judgment of environmental standards SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 16 1 for its application. AccordingtotheOctoberAdvance 2 Notice, DOE again reiterated its position in the 3 earlier notice that it would only apply monetized 4 environmental externalities to evaluate appliance 5 efficiency standards if a sound analytic basis could 6 be found. 7 DOE states that regardless of existing 8 environmental regulatoryrequirements orpolicies, it 9 would nonetheless prefer to develop monetized 10 externality values for emissions of sulfur dioxide, 11 nitrogen oxides, and carbon dioxide associated with 12 fossil fuel use to generate electricity in order to 13 reflect "residual" environmental damage functions or 14 alternatively, a "willingness to pay" or "cost to 15 control" valuation for emissions if a damage function 16 cannot be found. 17 

### From both an environmental and social 18 policy perspective, NRECA deeply questions the 19 

### objectivity of "residual" environmental damage, 20 "willingness to pay" or "cost to control" approaches. 21 Sulfur dioxide and nitrogen oxides are emissions that 22 areheavilyregulatedunderthenumerous CleanAirAct 23 regulatory programs that address both environmental 24 

### and health concerns. Why does DOE believe it could 25 or should sit in judgment of environmental standards

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developed under the direction of the United States Congress to meet health and environmental concerns to determine residual environmental damage functions?

NRECA believes it is a matter of social and environmental policy fossil fuel electric generating meeting all applicable Clean Air Act standards for the protection of health and the environment has no residual environmental damage functions associated with it. Stated differently, we certainly believe that it is inappropriate for DOE staff to second-guess United States Congress regarding the effectiveness of the nation's Clean Air Act in adequately protecting environment and health concerns as the statute is clearly constructed to do. Such an effort by DOE would be political, hardly objective and not soundly analytical.

Regarding establishing CO2 monetized externality values, we would point out to DOE that CO2 is not a pollutant and accordingly, is not regulated as such. The October Advance Notice discusses establishing a monetized externality value for CO2 emissions because of "the possibility of climate change" due to increasing concentrations of atmospheric greenhouse gases, including carbon dioxide. It must suffice to say, and the notice SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 17 1 developed under the direction of the united States 2 Congress to meet health and environmental concerns to 3 determine residual environmental damage functions? 4 NRECA believes it is a matter of social 5 and environmental policy fossil fuel electric 6 generating meeting all applicable Clean Air Act 7 standards for the protection of health and the 8 environment has no residual environmental damage 9 functions associatedwith it. Stated differently, we 10 certainly believe that it is inappropriate for DOE 11 staffto second-guessunitedStatesCongressregarding 12 the effectiveness of the nation's Clean Air Act in 13 adequatelyprotectingenvironment andhealth concerns 14 as the statute is clearly constructed to do. Such an 15 effortbyDOE wouldbepolitical, hardlyobjective and 16 not soundly analytical. 17 Regarding establishing CO2 monetized 18 externalityvalues, we wouldpoint out to DOE that CO2 19 is not a pollutant and accordingly, is not regulated 20 as such. The October Advance Notice discusses 21 establishing a monetized externality value for CO2 22 emissions because of "the possibility of climate 23 24 25 change" due to increasing concentrations of atmospheric greenhouse gases, including carbon dioxide. It must suffice to say, and the notice

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points this out, the scientists simply cannot predict what effect a buildup of atmospheric greenhouse gases will have on the climate. The October Advance Notice specifically recognizes this vast uncertainty. Thus, any effort to monetize a damage function by DOE would involve nothing but pure speculation, pure hypothesis and therefore, pure subjectivity.

Moreover, as the Advance Notice indicates, if the theory of externalities has any application it should involve both external costs and benefit analysis. We agree with DOE that the application of the theory of externalities must necessarily involve an evaluation of both the costs and benefits, and yet absent from the discussion of carbon dioxide in the Advance Notice is any mention of the potential benefits associated with increasing atmospheric concentrations. DOE submits that the overall benefits on the environment due to increasing atmospheric concentrations due to the "fertilization" effect on the biosphere are certainly no less speculative than any individual scenario hypothesizing problematic climate change. An increase in "fertilization" effect could increase agricultural crop yields as well as increase timber production for example. Therefore, if DOE is going to monetize CO2 emissions under a damage SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 18 1 points this out, the scientists simply cannot predict 2 what effect a buildup of atmospheric greenhouse gases 3 will have on the climate. The OctoberAdvance Notice 4 specificallyrecognizes this vast uncertainty. Thus, 5 any effort to monetize a damage function by DOE would 6 involve nothingbutpure speculation, pure hypothesis 7 and therefore, pure subjectivity. 8 Moreover, astheAdvanceNoticeindicates, 9 if the theory of externalities has any application it 10 should involve both external costs and benefit 11 analysis. We agree with DOE that the application of 12 the theory of externalities must necessarily involve 13 an evaluation of both the costs and benefits, andyet 14 absent from the discussion of carbon dioxide in the 15 Advance Notice is any mention of the potential 16 benefits associated with increasing atmospheric 17 concentrations. DOE submitsthattheoverallbenefits 18 on the environment due to increasing atmospheric 19 concentrations due to the "fertilization" effect on 20 the biosphere are certainly no less speculative than 21 any individual scenario hypothesizing problematic 22 climatechange. An increasein "fertilizationII 

### effect 23 could increase agricultural crop yields as well as 24 increasetimberproductionfor example. Therefore, if 25 DOE is going to monetize CO2 

### emissions under a damage

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### 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 function scenario, sound analysis under its own

guidelines of objectivity would require that it also monetize the environmental benefits.

Alternatively, because climate change is so uncertain, DOE appears to favor a "willingness to pay" or "cost to control" as alternative approaches to monetizing CO2 externalities. This is set forth in the October Advance Notice. To follow any one or a combination of these approaches, is to admit that carbon dioxide damage function simply cannot be ascertained at this time. The two alternative approaches are not "sound analytic" approaches or viable substitute for monetizing CO2 externalities based on environmental costs and benefits. According to DOE, once again finding "sound analytic" approaches to monetizing environmental externality costs and benefits is the entire thrust of these series of Advance Notices.

In conclusion, we support the concept of efficiency standards and appliance efficiency standards. NRECA has played a major and direct role in the development of thermal efficiency for use in the construction of manufactured homes or mobile homes, that is, and has funded research leading to energy and efficiency improvements in factory SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 19 1 function scenario, sound analysis under its own 2 guidelines of objectivity would require that it also 3 monetize the environmental benefits. 4 Alternatively, because climate change is 5 so uncertain, DOE appears to favor a "willingness to 6 pay" or "costto control" as alternative approaches to 7 monetizing CO2 externalities. This is set forth in 8 the October Advance Notice. To follow anyone or a 9 combination of these approaches, is to admit that 10 carbon dioxide damage function simply cannot be 11 ascertained at this time. The two alternative 12 approaches are not "sound analytic" approaches or 13 viable substitute for monetizing CO2 externalities 14 based on environmental costs andbenefits. According 15 toDOE, once againfinding"soundanalytic" approaches 16 to monetizing environmental externality costs and 17 benefits is the entire thrust of these series of 18 Advance Notices. 19 In conclusion, we support the concept of 20 efficiency standards and appliance efficiency 21 standards. NRECA has played a major and direct role 22 in the development of thermal efficiency for use in 23 the construction of manufactured homes or mobile 24 homes, that is, and has funded research leading to 25 energy and efficiency improvements

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installed air source heat pumps for manufactured homes as well. These are just some of the few examples that we're involved in in what we feel is an environmental responsible approach and a pragmatic approach at developing and implementing appropriate standards. But such standards and efficiency improvements are based on sound practical economics and not on controversial subjective, highly political theories. We just simply do not believe DOE would be complying with the statutory mandates for the consideration and development of appliance efficiency standards by injecting the subjective, controversial, highly abstract economic theory of monetized environmental externalities into what otherwise appears to be an objective, sound, rational process.

"Residual" damage functions or "willingness to pay" for emissions reductions or "cost to control" emissions reductions where no environmental damage can be documented, as DOE appears to recommend as an alternative for monetizing CO2 externalities, are just some of the subjective concepts that in our opinion cannot be resolved in a "sound analytic" manner in order to implement monetized environmental externalities into the appliance efficiency standards and development SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 20 1 installedair sourceheatpumps formanufacturedhomes 2 as well. These are just some of the few examples that 3 we're involved in in what we feel is an environmental 4 responsible approach and a pragmatic approach at 5 developing and implementing appropriate standards. 6 But such standards and efficiency improvements are 7 based on sound practical economics and not on 8 controversial subjective, highly political theories. 9 We just simply do not believe DOE would be complying 10 with the statutorymandates for the consideration and 11 development of appliance efficiency standards by 12 injecting the subjective, controversial, highly 13 abstract economic theory of monetized environmental 14 externalities into what otherwise appears to be an 15 objective, sound, rational process. 16 "Residual" damage functions or 17 "willingnesstopay" for emissionsreductions or "cost 18 to control" emissions reductions where no 19 environmentaldamage canbedocumented, asDOE appears 2 0 to recommend as an alternative for monetizing CO2 21 externalities, are just some of the subjective 22 concepts that in our opinion cannot be resolved in a 23 "sound analytic" manner in order to implement 24 monetized 25 appliance

(202)797-2525 environmental externalities efficiency standards SAG, CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 and into the development

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evaluation process. Indeed, the very selection of sulfur dioxide, nitrogen oxides and carbon dioxide emissions for monetized environmental externalities considerations is subjective and based on a political and not a "sound analytic" process. Accordingly, an objective process does not exist that allows for use of this theory and accordingly, under DOE's own test for consideration that an objective "sound analytic" basis must be identified. The use of the theory of monetized environmental externalities for appliance efficiency standards must be unequivocally rejected.

Thank you. PRESIDING OFFICIAL BERLIN: Thank you. One of the purposes of this whole exercise is to try to take as full an account as we can of what's going on with our appliance standards, and we have recognized under the National Environmental Policy Act that one of the things that happens is there should be some improvement to the environment from less electricity generation, from more efficient electrical appliances. The same goes true for some gas equipment, gas-fired equipment and oil-fired. And we've made these calculations in the past in physical quantities. And that's what we propose to do, should we not pick up on monetization. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 21 1 evaluation process. Indeed, the very selection of 2 sulfur dioxide, nitrogen oxides and carbon dioxide 3 emissions for monetized environmental externalities 4 considerations is subjective andbasedon a political 5 and not a "sound analytic" process. Accordingly, an 6 objective process does not exist that allows for use 7 of this theory and accordingly, under DOE's own test 8 for consideration that an objective "sound analytic" 9 

### basis must be identified. The use of the theory of 10 monetized environmental externalities for appliance 11 efficiency standards must be unequivocally rejected. 12 Thank you. 13 

### PRESIDING OFFICIAL BERLIN: Thank you. 14 One of the purposes of this whole exercise is to try 15 to take as full an account as we can of what's going 16 on with our appliance standards, and we have 17 recognizedundertheNationalEnvironmentalPolicyAct 18 that oneof the things thathappens is there shouldbe 19 some improvement to the environment from less 20 electricitygeneration, frommoreefficientelectrical 21 appliances. The same goes true for some gas 22 equipment, gas-fired equipment and oil-fired. And 23 we've made these calculations in the past inphysical 24 quantities. And that's what we propose to do, should 25 we not pick up on monetization.

(202)797-2525 SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 22 What is NRECA's position on our even trying to take an account of this issue?

MR. CRONMILLER: Well, once again, I mean, without seeing your specific recommendation, based on our policies, my comment would be as I stated before we have been very active in the research and development of certain efficiency standards, mobile homes construction being a big example. We've also participated in the development of other standards which have application towards the more efficient use of energy, and in this case it would be the more efficient use of electricity.

However, there is a flip side of it. And in many cases, as far as increased energy efficiency, this can happen through the increase of electrification and there are many electrical appliances out there which either can be improved or which can be used as substitutes for other forms of energy use, which in effect have an overall beneficial effect on any overall emissions scenario. So I guess my initial comment would be if you're going to consider one, you have to consider the other. Certainly we have no problem against conservation. Many of our members are deeply involved in conservation programs for any one or a number of SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 22 1 What is NRECA's position on our even 2 trying to take an account of this issue? 3 MR. CRONMILLER: Well, onceagain, I mean, 4 without seeingyour specific recommendation, basedon 5 our policies, my comment would be as I stated before 6 we have been very active in the research and 7 development of certain efficiency standards, mobile 8 homes construction being a big example. We've also 9 participated in the development of other standards 10 which have application towards the more efficient use 11 of energy, and in this case it would be the more 12 efficient use of electricity. 13 However, there is a flip side of it. And 14 inmany cases, as far as increased energy efficiency, 15 this can happen through the increase of 16 electrification and there are many electrical 17 appliances out there which either can be improved or 18 which can be used as substitutes for other forms of 19 energyuse, which ineffecthave anoverallbeneficial 20 effect on any overall emissions scenario. So I guess 21 my initial comment would be if you're going to 22 consider one, you have to consider the other. 23 Certainly we have no problem against conservation. 24 Many of our members are deeply involved in 25 conservation programs for anyone or a number of

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reasons. However , this is not to say that we don't believe and we can't support evidence that in many

cases the increase of electrification, not only in the rural economy but also throughout the entire economy and throughout America, can in effect result in a more efficient use of energy, as opposed to electricity. And in those cases there would be an overall net reduction benefit.

PRESIDING OFFICIAL BERLIN: Thank you. No further questions.

MR. FRIEDRICHS: Yes, this is actually an extension on that point, perhaps for your benefit and as a note to other speakers, as the Chairman noted under criteria six of the criteria in the Statute that the Department must consider to determine whether or not a standard is economically justified, we are required to consider the extent of benefits to the nation of conserving energy. We have traditionally interpreted that criteria to mean environmental or perhaps other energy security benefits resulting from the energy efficiency standards, and have as a result estimated and considered the quantitative impacts of efficiency standards on the environment. So we have included estimates of SO2 or NO, or CO2 emission reductions resulting from efficiency standards. SACS, CORD 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 23 1 reasons. However, this is not to say that we don't 2 believe and we can't support evidence that in many 3 cases the increaseof electrification, notonlyinthe 4 rural economy but also throughout the entire economy 5 andthroughoutAmerica, canineffectresult in a more 6 efficient use of energy, as opposed to electricity. 7 And in those cases there would be an overall net 8 reduction benefit. 9 PRESIDINGOFFICIALBERLIN: Thankyou. No 10 further questions. 11 MR. FRIEDRICHS: Yes, this is actually an 12 extension on that point, perhaps for your benefit and 13 as a note to other speakers, as the Chairman noted 14 under criteria sixofthe criteriainthe Statutethat 15 the Department must consider to determine whether or 16 not a standard is economically justified, we are 17 required to consider the extent of benefits to the 18 nation of conserving energy. We have traditionally 19 interpreted that criteria to mean environmental or 20 perhaps other energy securitybenefits resulting from 21 the energy efficiency standards, and have as a result 22 estimated and considered the quantitative impacts of 23 efficiency standards on the environment. So we have 24 included estimates of S02 or NOx or CO2 emission 25 reductions resulting from efficiency standards.

(202)797-2525 SAG,CORP 4218 LENORE LANE, NW. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 24 Contrary to the assertion you made in your statement, I believe the basis for our current consideration of monetizing environmental externalities is an effort to better consider this factor, which is mandated by the Statute. The question just posed by the Chairman and the question which we are wrestling with is if we do not monetize these environmental impacts, how should we go about considering these environmental impacts in the appliance efficiency standards process?

Right now we have no easy basis to weight the benefits of projected reductions in CO2 or NO, or SO2 against the economic costs or benefits estimated elsewhere. What we're trying to do is find out a better way of comparing these different kinds of benefits and costs. So any comment on that issue is, I think, of particular import.

MR. CRONMILLER: Well, the way I read the Advance Notice, it certainly appeared to me that you were relying on the seventh factor and not the sixth. And I will go back and read the seventh factor, read into the seventh factor what I think you're trying to do in the various publications addressing the Advance Notice and comment on that.

The whole point that we would make on

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### 24 1 Contrarytotheassertionyoumade inyour 2 statement, I believe the basis for our current 3 consideration of monetizing environmental 4 externalities is an effort to better consider this 5 factor, which is mandated by the Statute. The 6 question just posed by the Chairman and the question 7 which we are wrestling with is if we do not monetize 8 these environmental impacts, how should we go about 9 considering these environmental impacts in the 10 appliance efficiency standards process? 11 Right nowwe have no easybasis to weight 12 the benefits of projected reductions in CO2 or NOx or 13 S02 against the economic costs or benefits estimated 14 elsewhere. What we're trying to do is find out a 15 better way of comparing these different kinds of 16 benefits and costs. So any comment on that issue is, 17 I think, of particular import. 18 MR. CRONMILLER: Well, the way I read the 19 Advance Notice, it certainly appeared to me that you 20 were relying on the seventh factor and not the sixth. 21 And I will go back and read the seventh factor, read 22 into the seventh factor what I think you're trying to 23 do in the various publications addressing the Advance 24 Notice and comment on that. 25 The whole point that we would make on

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 externalities is that there is no right place to begin

and there is no right place to end. The mere fact that you would choose carbon monoxide, sulfur dioxide and nitrogen oxide out of any number of different factors, and the mere fact that it is subjective in and of itself with highly analytical -- it's a political process. And that in and of itself is not "sound analysis."

Now, you know, whatever you're doing now absent monetized environmental externalities, you know, as far as we understand it is okay. When you start talking about evaluating appliance efficiency standards, which once again, according to my statement, assuming we cannot discriminate electricity from it source and you start attaching damage functions which can't be ascertained, willingness to pay, how in the heck are you going to evaluate somebody's willingness to pay? That in and of itself is a subjective decision. You can conduct a national poll. You can go out and try to find figures, but how you construct that model to develop a willingness to pay, I would surmise would involve a preface on the environmental damage function of carbon dioxide.

And that in and of itself is subjective so it's a circular argument. And there is no answer to it SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 25 1 externalities is thatthere isno rightplacetobegin 2 and there is no right place to end. The mere fact 3 that youwould choose carbonmonoxide, sulfur dioxide 4 and nitrogen oxide out of any number of different 5 factors, and the mere fact that it is subjective in 6 

### and of itself with highly analytical it's a 7 political process. And that in and of itself is not 8 "sound analysis." 9 Now, you know, whatever you're doing now 10 absent monetized environmental externalities, you 11 know, as far as we understand it is okay. When you 12 start talking about evaluating appliance efficiency 13 

### standards, which once again, according to my 14 statement, assumingwe cannotdiscriminateelectricity 15 

### from it source and you start attaching damage 16 functions which can't be ascertained, willingness to 17 pay, how in the heck are you going to evaluate 18 

### somebody'swillingness topay? That inandof itself 19 is a subjective decision. You can conduct a national 20 poll. You can go out and tryto find figures, buthow 21 you construct that model to develop a willingness to 22 pay, I would surmise would involve a preface on the 23 environmental damage function of carbon dioxide. 24 And that inandofitself is subjective so 25 it's a circular argument. And there is no answerto it

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### 26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and there is no sound analytical basis to it and

that's the problem that we have. If you could evaluate and internalize all the external factors, we think we would come out just fine with whatever process you guys want to use, but the problem is that you can't monetize all external factors in an internalization process and any effort you pick is biased. It's a means to an end.

If you don't like carbon dioxide, as you seem to refer to in your Advance Notice, you think there is something that we should be concerned about, then you pick carbon dioxide, and you sit there and you would determine a damage function which you really can't ascertain anyway, and then you turn around and inject that process to skew, therefore, I think it would just de facto skew the process.

So there is nothing wrong with subjective evaluations, and I understand that you are certainly required under your statutory mandates to consider various conservation alternatives, but in that process I would urge you, don't count out the advantage of electrification. We've got some numbers and I'm glad you mentioned it, because we've got a number of studies which we'll be glad to submit and we will submit as part of our written testimony, that you guys SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 26 1 and there is no sound analytical basis to it and 2 that's the problem that we have. If you could 3 evaluate and internalize all the external factors, we 4 think we would come out just fine with whatever 5 process you guys want to use, but the problem is that 6 you can't monetize all external factors in an 7 internalization process and any effort you pick is 8 biased. It's a means to an end. 9 If you don't like carbon dioxide, as you 10 seem to refer to in your Advance Notice, you think 11 there is something that we shouldbe concerned about, 12 then you pick carbon dioxide, and you sit there and 13 youwoulddeterminea damagefunctionwhichyoureally 14 can't ascertain anyway, and then you turn around and 15 inject that process to skew, therefore, I think it 16 would just de facto skew the process. 17 So there is nothingwrongwith subjective 18 evaluations, and I understand that you are certainly 19 required under your statutory mandates to consider 20 variousconservationalternatives, butinthatprocess 21 I would urge you, don't count out the advantage of 22 electrification. We've got some numbers and I'm glad 23 you mentioned it, because we've got a number of 24 studies which we'll be glad to submit and we will 25 submit aspartofourwrittentestimony, thatyou guys

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 27

really ought to take a look at. You know, electricity use in many cases is a very, very -- is by far the most efficient use of energy in this country. And by that definition, it would be environmentally sound, even by your tests.

And we will submit that and I will take a look at the sixth factor and comment. And I don't

mean to be antagonistic, I don't mean to be negative, but this is the kind of problem that we have when we get into environmental externalities. Whose externalities are we going to get in now? Who's going to determine the field and who's going to determine when you end and when you begin? And that very determination is the political process, and that's what we have problems with. There is no objective sound basis. As far as other practical economic considerations which you probably use, and we use, in developing appliance efficiency standards or recommending appliance efficiency standards, I think we've been real successful. We'll be more than happy to demonstrate that. We have literally led the way, literally led the way in developing standards for mobile homes. And as you probably know, or if you don't, I can tell you, that mobile homes as they were SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 27 1 reallyought to take a look at. You know, electricity 2 use in many cases is a very, very -- is by far the 3 most efficient use of energy in this country. And by 

### 4 that definition, it would be environmentally sound, 5 even by your tests. 6 And we will submit that and I will take a 7 look at the sixth factor and comment. And I don't 8 mean to be antagonistic, I don't mean to be negative, 9 but this is the kind of problem that we have when we 10 get into environmental externalities. Whose 11 externalities arewe goingto get in now? Who's going 12 to determine the field and who's going to determine 13 when you end and when you begin? And that very 14 determination is the political process, and that's 15 what we have problems with. There is no objective 16 sound basis. 17 As far as other practical economic 18 considerations which you probably use, andwe use, in 19 developing appliance efficiency standards or 20 recommending appliance efficiency standards, I think 21 we've been real successful. We'll be more than happy 22 to demonstrate that. We have literally led the way, 23 literally led the way in developing standards for 24 mobile homes. And as you probably know, or if you 25 don't, I can tell you, that mobile homes as they were

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### 28 1 constructed some years ago were certainly not models 2 of energy efficiency from any perspective, and we 3 think we've played a major and important role in 4 responsibly adding input into those standards 5 d l d d th t d d ll

eve ope an o er s an ar s as we . 6 So this isn't an effort in any way to 7 criticize the process or the need to evaluate and 8 review certain standards. That's not what this is 9 about. This is about we have a problem with the very 10 notion of the concept of monetizing environmental 11 externalities. We think it's flawed from the 12 beginning and we think it's flawed no matter how it's 13 applied and we don't think if there is an objective 14 basis, we don't think there could be a "sound 15 analytical" basis involved, as you've probably judged 16 by our statements. 17 PRESIDING OFFICIAL BERLIN: Thank you. 18 MR. McCABE: You made a comment regarding 19 the Department's quantification of the physical 20 impacts, the times, as we've done in the past and you 21 indicated that you weren't certain as to how that was 22 done and I would ask if you would -- I suspect that 23 some of that was from that you have not looked at it 24 closely. If that is the case, what I would appreciate 25 is if you would provide comments in a written SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 28 1 constructed some years ago were certainly not models 2 of energy efficiency from any perspective, and we 3 think we've played a major and important role in 4 

### responsibly adding input into those standards 5 developed and other standards as well. 6 

### So this isn't an effort in any way to 7 criticize the process or the need to evaluate and 8 

### review certain standards. That's not what this is 9 about. This is about we have a problemwith the very 10 notion of the concept of monetizing environmental 11 externalities. We think it's flawed from the 12 beginning andwe think it's flawed no matter how it's 13 applied and we don't think if there is an objective 14 basis, we don't think there could be a "sound 15 analytical" basis involved, as you'veprobably judged 16 by our statements. 17 

### PRESIDING OFFICIAL BERLIN: Thank you. 18 

### MR. McCABE: You made a comment regarding 19 the Department's quantification of the physical 20 impacts, the times, as we've done in the past andyou 21 indicatedthat you weren't certain as to how that was 22 done and I would ask if you would

-- I suspect that 23 some of that was from that you have not looked at it 24 closely. If that is the case, what I wouldappreciate 25 is if you would provide comments in a written

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### 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 statement as to your opinion with respect to the

methodology in which the physical impacts are calculated, and if you have any comments to that process, any suggestions as far as alternatives.

MR. CRONMILLER: So I gather your question is basically to review what you're currently doing?

MR. McCABE: Yes. MR. CRONMILLER: You're right. I have not. Quite frankly, I've got many functions and I've only read basically the information that's connected around the Advance Notice and in spite of the fact that we're very involved with developing standards, we have research groups and things like that that are very much involved in that process, I really do not have time to network on them but I can get you any and all the comment.

And once again, I want to emphasize that we believe in the evaluation and development of certainly certain standards and we have led the way in the development of certain standards in the electricity use area. That's not what this is about, trashing standards. This is about trashing what we consider to be is a criticizing, not trashing, but criticizing what we think is just a very highly subjective flaw process that you would propose to SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 29 1 statement as to your opinion with respect to the 2 methodology in which the physical impacts are 3 calculated, and if you have any comments to that 

### 4 process, any suggestions as far as alternatives. 5 MR. CRONMILLER: So I gatheryourquestion 6 is basically to review what you're currently doing? 7 MR. McCABE: Yes. 8 MR. CRONMILLER: You're right. I have 9 not. Quite frankly, I've got many functions and I've 10 only read basically the information that's connected 11 around the Advance Notice and in spite of the fact 12 thatwe'reveryinvolvedwithdeveloping standards, we 13 have research groups and things like that that are 14 very much involved in that process, I really do not 15 have time to network on thembut I can get you any and 16 all the comment. 17 And once again, I want to emphasize that 18 we believe in the evaluation and development of 19 certainly certain standards andwe have ledtheway in 20 the development of certain standards in the 21 electricity use area. That's not what this is about, 22 trashing standards. This is about trashing what we 23 consider to be is a criticizing, not trashing, but 24 criticizing what we think is just a very highly 25 subjective flaw process that you would propose to

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inject into what you're currently doing. We probably don't have any problem with it.

MR. McCABE: I would take it from your comments that you don't have any objections to a correct calculation of physical impacts -- changes, reductions in C02, nitrogen oxide and sulfur oxide, as far as the physical quantity?

MR. CRONMILLER: Well, we'd have to see how you would calculate that. I mean, obviously certain -- if you promulgate appliance efficiency standards which on the whole would obviously draw the cost of the appliance up, probably. I mean, it's going to be more expensive to produce and I mean, that probably needs to be considered but nonetheless, if you then extrapolate from that some sort of national mix of energy and you would have to assume, of course, that all those appliances are used or equally dispersed throughout the country or you'd have to match them so I mean, in and of itself you can see where you're developing a very, or somewhat subjective analytical process there. But and if you also, like I say, considered some of the -- to be although secondary important factors of what would be the result of increase in the cost of the appliance and how that relates to the particular emission you're SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 30 1 inject intowhat you're currentlydoing. We probably 2 don't have any problem with it. 3 

### MR. McCABE: I would take it from your 4 comments that you don't have any objections to a 5 correct calculation of physical impacts

-- changes, 6 reductions inCO2, 

### nitrogenoxide and sulfuroxide, as 7 far as the physical quantity? 8 

### MR. CRONMILLER: Well, we'd have to see 9 

### how you would calculate that. I mean, obviously 10 certain

-- if you promulgate appliance efficiency 11 standards which on thewhole would obviously drawthe 12 cost of the appliance up, probably. I mean, it's 13 goingtobemore expensivetoproduce and I mean, that 14 probably needs to be considered but nonetheless, if 15 you then extrapolate from that some sort of national 16 mixof energy andyouwouldhave to assume, of course, 17 that all those appliances are used or equally 18 dispersed throughout the country or you'd have to 19 match them so I mean, in and of itself you can see 20 whereyou'redevelopinga very, or somewhat subjecti ve 21 analytical process there. But and if you also, like 22 I say, considered some of the

-- to be although 23 secondary important factors of what would be the 24 result of increase in the cost of the appliance and 25 how that relates to the particular emission you're

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MR. McCABE: Thank you. PRESIDING OFFICIAL BERLIN: Gene, any questions? MR. MARGOLIS: No comments.

PRESIDING OFFICIAL BERLIN: Howard? MR. GRUENSPECHT: No. PRESIDING OFFICIAL BERLIN: Okay. Thank you very much.

MR. CRONMILLER: Thank you very much. I really want to extend our appreciation. We really do appreciate this opportunity, and gentlemen, I really appreciated your questions and I will respond as best as I can and get back with you in time for the written comments. Thank you.

PRESIDING OFFICIAL BERLIN: Thank you. I'd like to call Clifford Porter to the

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### 31 1 concerned with. 2 I mean, in other words, if it's going to 3 require 10 or 15 percent more in energy use to 4 construct an appliance to meet the standards, which 5 you guys want to propose, then you have to consider 6 that as well andthat's the off-set against, youknow, 7 in our opinion the direct decrease that would result 8 because that particular appliance is more efficient 9 from the electricity viewpoint. 10 MR. McCABE: Thank you. 11 PRESIDING OFFICIAL BERLIN: Gene, any 12 questions? 13 MR. MARGOLIS: No comments. 14 PRESIDING OFFICIAL BERLIN: Howard? 15 MR. GRUENSPECHT: No. 16 PRESIDING OFFICIAL BERLIN: Okay. Thank 17 you very much. 18 MR. CRONMILLER: Thank you very much. I 19 reallywant to extend our appreciation. We really do 20 appreciate this opportunity, and gentlemen, I really 21 appreciatedyour questions and I will respond as best 22 as I can and getbackwith you intime for the written 23 comments. Thank you. 24 25

(202)797-2525 PRESIDING OFFICIAL BERLIN: Thank you. I'd like to call Clifford Porter to the SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 32

podium, please, or the speaker's platform, whatever it is called. MR. PORTER: Thank you. My name is Clifford Porter. I am Director of the North Dakota Lignite Research Development and Marketing Program.

I am here today to present a prepared statement and comments on behalf of John Dwyer. John Dwyer is President of the Lignite Energy Council, whose statement was submitted in advance. I will try to limit my oral presentation to key point in that statement and would like to reserve any of my unused time for North Dakota's Attorney General, Heidi Heitkamp. The Lignite Energy Council is a regional trade organization whose primary interest in Lignite is for its major producers, investor-owned utilities, rural electrical cooperatives, contractors and suppliers of good and services for the industry.

The Council has a number of objections to the Department's proposed monetization of environmental externalities values. I will focus on a few of those objections and point out some major inequities in the proposed scheme.

The members of the council consider these proceedings important. The issues being presented ;AG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 32 1 podium, please, orthe speaker'splatform, whateverit 2 is called. 3 MR. PORTER: Thank you. My name is 4 Clifford Porter. I am Director of the North Dakota 5 Lignite Research Development and Marketing Program. 6 I am here today to present a prepared 7 statement and comments on behalf of John Dwyer. John 8 Dwyer is President of the Lignite Energy Council, 9 whose statement was submitted in advance. I will try 10 to limit my oral presentation to key point in that 11 statement and would like to reserve any of my unused 12 time for North Dakota's Attorney General, Heidi 13 Heitkamp. 14 The Lignite Energy Council is a regional 15 trade organization whose primary interest in Lignite 16 is for its major producers, investor-ownedutilities, 17 rural electrical cooperatives, contractors and 18 suppliers of good and services for the industry. 19 The Council has a number of objections to 20 the Department's proposed monetization of 21 environmental externalities values. I will focus on 22 a few of those objections and point out some major 23 inequities in the proposed scheme. 24 The members of the council consider these 25 proceedings important. The issues being presented

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make it clear this proceeding is being used to develop general departmental policy regarding monetization of externalities. We expect the policies developed will have far-reaching impacts beyond the scope of this proceeding. We believe that the Department's adoption of monetized externalities will be used to encourage states who have not monetized externalities to consider similar values.

The Secretary should not adopt monetized externality values without explicit Congressional authorization.

There are many objections to the use of monetized externalities, both theoretical and practical. And the whole idea remains highly controversial subject. The Council does not believe there is adequate justification, either legally or as a matter of solid public policy for the Department to use monetized externalities in the setting of efficiency standards for appliances or for any other purpose. If Congress had intended the radical use of monetized externalities be considered in developing energy efficiency standards, then Congress would have specifically stated in the authorizing legislation.

The Council believes the issues of monetized externalities must first be developed by SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 33 1 make it clearthisproceedingisbeingusedto develop 2 general departmentalpolicyregardingmonetizationof 3 externalities. We expect thepolicies developedwill 4 have far-reaching impacts beyond the scope of this 5 proceeding. We believethattheDepartment Is adoption 6 of monetized externalities will be used to encourage 7 states who have not monetized externalities to 8 consider similar values. 9 The Secretary should not adopt monetized 10 externality values without explicit Congressional 11 authorization. 12 There are many objections to the use of 13 monetized externalities, both theoretical and 14 practical. And the whole idea remains highly 15 controversial subject. The Council does not believe 16 there is adequate justification, either legallyor as 17 a matter of solidpublic policy for the Department to 18 use monetized externalities in the setting of 19 efficiency standards for appliances or for any other 20 purpose. If Congress had intended the radical use of 21 monetized externalities be considered in developing 22 energy efficiency standards, then Congress wouldhave 23 specifically stated in the authorizing legislation. 24 The Council believes the issues of 25 monetized externalities must first be developed by

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 34

Congress before regulatory efforts are made to define and apply them. We think it is particularly inappropriate for the Secretary to consider a program for the use of monetized externalities without explicit Congressional authorization, whether it be in regard to the setting of standards for appliances or otherwise. It is inappropriate to promulgate generic departmental standards in the context of narrow rulemaking. Most of the crosscutting issues identified in the notice of proposed rulemaking have little to do with the specific appliances identified in that notice. Further, there is nothing intrinsic about those appliances that makes this rulemaking a particularly valid vehicle for resolving fundamental issues concerning monetized externalities. It is inappropriate for the Department to mask this monetized externalities proceeding under the guise of developing conservation standards for appliances. 'e real purpose of this rulemaking is not the development of neutral policies for incorporating costs and benefits of externalities. From all appearances, the real goal of this proposed rulemaking is the development of policies that will result in a major shift in energy resources away from coal. The only 

### SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 34 1 

### Congress before regulatory efforts aremade to define 2 and apply them. We think it is particularly 3 inappropriate for the Secretaryto consider a program 4 for the use of monetized externalities without 5 

### explicitCongressionalauthorization, whetheritbein 6 

### regard to the setting of standards for appliances or 7 

### otherwise. 8 

### It is inappropriatetopromulgate generic 9 

### departmental standards in the context of narrow 10 

### rulemaking. Most of the crosscutting issues 11 

### identified in the notice of proposed rulemaking have 12 

### little to do with the specific appliances identified 13 

### in that notice. Further, there is nothing intrinsic 14 

### about those appliances that makes this rulemaking a 15 

### particularly valid vehicle for resolving fundamental 16 

### issues concerning monetized externalities. It is 17 inappropriate for the Department to mask this 18 monetized externalities proceedingunder the guise of 19 developing conservation standards for appliances.**~** 

### 20 realpurposeofthis rulemakingis notthedevelopment 21 

### of neutral policies for incorporating costs and 22 benefits of externalities. From all appearances, the 23 real goal of this proposed rulemaking is the 24 development of policies that will result in a major 25 

### shift in energy resources away from coal.

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### The only

VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 35

externalities given extended consideration in the notice are those from the burning of coal . There is complete absence of any specific mention of externalities associated with wind or hydro power generation for example. There is not even the mention of externalities associated with the use of nuclear power. If the real goal of this proceeding were to incorporate externalities in decision making on some neutral basis, then an effort would be made to identify and quantify positive as well as negative externalities. We do not see this being done.

However, the inclusion of positive and negative externalities would not eliminate the problem of monetized externalities. Externality values remain highly speculative in nature. Also, this piecemeal application of externalities can result in market distortions. "Cost of control" should not be used as an approach for developing externality values.

The Lignite Energy Council agrees with the position that the "cost of control" approach is theoretically flawed and not a sound basis for developing values. The conclusion reached by FERC is the use of "cost to control" has no underlying SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 35 1 externalities given extended consideration in the 2 notice are those from the burning of coal. There is 3 

### complete absence of any specific mention of 4 externalities associated with wind or hydro power 5 generationfor example. There isnot eventhemention 6 of externalities associated with the use of nuclear 7 power. 8 If the real goal of this proceeding were 9 to incorporate externalities in decision making on 10 some neutral basis, then an effort would be made to 11 identify and quantify positive as well as negative 12 externalities. We do not see this being done. 13 

### However, the inclusion of positive and 14 negativeexternalitieswouldnoteliminatetheproblem 15 ofmonetizedexternalities. Externalityvaluesremain 16 

### highly speculative in nature. Also, this piecemeal 17 application of externalities can result in market 18 distortions. 19 "Costof control" shouldnotbeusedas an 20 approach for developing externality values. 21 TheLigniteEnergyCouncilagreeswiththe 22 position that the "cost of control" approach is 23 theoretically flawed and not a sound basis for 24 developingvalues. The conclusion reachedby FERC is 25 the use of "cost to control" has no underlying SAG,CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 36

economic logic. Only by coincidence would control costs reflect true societal costs of increased pollution. No externalities value should be assigned to carbon dioxide until the threat of global climate change has been scientifically demonstrated and the extent of the damage can be reliably determined.

The threat of global climate change has not been scientifically demonstrated, nor has it been demonstrated that control of anthropogenic carbon dioxide emissions will have any substantial impact on global climate change. The Council makes known its strenuous objection of the development of an externality value for C02-

There is no justification for assigning an externalities value to CO2 . The Secretary cannot simply assume CO2 to be an environmental hazard without specific proofs. If CO2 is not harmful, there is no need for an externality value.

The supplemental notice acknowledges that there does not now exist a sufficient basis for developing estimates of the marginal damages that are alleged to be caused by anthropogenic CO2 emission. The supplement then suggest the Department consider using a willingness to pay and then observes that the SAC, CORI 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 36 1 economic logic. Only by coincidence would control 2 costs reflect true societal costs of increased 3 pollution. 4 No externalities value shouldbe assigned 5 to carbon dioxide until the threat of global climate 6 change has been scientifically demonstrated and the 7 extent of the damage can be reliably determined. 8 The threat of global climate change has 9 not been scientificallydemonstrated, nor has itbeen 10 demonstrated that control of anthropogenic carbon 11 dioxide emissions will have any substantial impact on 12 global climate change. The Council makes known its 13 strenuous objection of the development of an 14 externality value for CO2• 

### 15 Thereisnojustificationforassigningan 16 

### externalities value to CO2 

### The Secretary cannot 17 simply assume CO2 

### to be an environmental hazard 18 without specificproofs. If CO2 

### is not harmful, there 19 is no need for an externality value. 20 The supplementalnotice acknowledges that 21 there does not now exist a sufficient basis for 22 developingestimates of themarginal damages that are 23 alleged to be caused by anthropogenic CO2 

### emission. 24 The supplement then suggest the Department consider 25 using a willingness to pay and then observes that the

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2 3 4

6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 37

"willingness to pay" is at or near zero when federal policy is considered. Notwithstanding this, the notice suggests that it may be possible to look at values that have been adopted by a few states that have monetized externalities for CO2 and utilize some sort of average. We strongly object. A "willingness to pay" is not a valid approach. An average derived from the values of a few states is not a national "willingness to pay." A number of states have explicitly rejected values.

For the few states that have adopted CO2 values, it is not clear the values were adopted based on the conclusion that CO2 is an environmental hazard. For example, Wisconsin adopted externalities values as a hedge against the probability of future regulation. Certainly such a value is not a "willingness to pay." Adoption of values because others have placed a value on the possibility of such regulation is a circular argument from which there is no escape.

The "net damage to the nation" approach does not give adequate consideration to regional diversity and penalizes those states with good records of environmental compliance.

North Dakota generates significant amounts

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### 37 1 "willingness to pay" is at or near zero when federal 2 policyisconsidered. Notwithstandingthis, thenotice 3 suggests that it may be possible to look at values 4 that have been adopted by a few states that have 5 monetized externalities for CO2 

### and utilize some sort 6 of average. 7 

### We strongly object. A "willingness to 8 pay" is not a validapproach. An averagederivedfrom 9 the values of a few states is not a national 10 

### "willingness to pay." A number of states have 11 explicitly rejected values. 12 For the few states that have adopted CO2 

### 13 values, it is not clear thevalues were adoptedbased 14 onthe conclusionthat CO2 

### is an environmental hazard. 15 Forexample, Wisconsinadoptedexternalitiesvalues as 16 a hedge against the probability of future regulation. 17 Certainly such a value is not a "willingness to pay." 18 Adoption of values because others have placed a value 19 on the possibility of such regulation is a circular 20 argument from which there is no escape. 21 The "net damage to the nation" approach 22 does not give adequate consideration to regional 23 diversityandpenalizesthose stateswithgoodrecords 24 of environmental compliance. 25 NorthDakotageneratessignificantamounts

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of electricity from Lignite and is a major exporter of electricity to other states. North Dakota generates approximately 27 million megawatt hours per year. It

consumes approximately 7 million. It exports approximately 70 percent of the energy that it produces. Environmental impacts from the criteria air pollutants are highly site specific. They are not problems in North Dakota. North Dakota is one of only six states that meets all Clean Air standards in the United States.

The primary reason North Dakota is a major exporter of electrical power is because the lignitegenerated power is some of the lowest cost power in the country. Three of North Dakota's lignite-fired power plants ranked in the nation's top ten most economical steam-fired plants. The top 15 most economical steam electric power plants are coal fired and generate electricity for less than 1 and 1/4 cent per kilowatt-hour, including fuel, operating and environmental compliance costs.

North Dakota is the ninth ranked coal producing state with an estimated 35 billion tons. It has enough lignite to last more than 1,000 years at it's present rate of production. Nearly 92 percent of all the coal mined in North Dakota is consumed in SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 38 1 of electricityfromLigniteandis a majorexporterof 2 electricity to other states. North Dakota generates 3 approximately 27 millionmegawatt hours per year. It 4 

### consumes approximately 7 million. It exports 5 approximately 70 percent of the energy that it 6 produces. Environmentalimpactsfromthe criteriaair 7 

### pollutants are highly site specific. They are not 8 problems inNorthDakota. NorthDakota is one of only 9 six states that meets all Clean Air standards in the 10 united States. 11 TheprimaryreasonNorthDakotais a major 12 exporter of electrical power is because the lignite13 generated power is some of the lowest cost power in 14 the country. Three of North Dakota's lignite-fired 15 power plants ranked in the nation's top ten most 16 

### economical steam-fired plants. The top 15 most 17 economical steamelectricpower plants are coal fired 18 and generate electricity for less than 1 and 1/4 cent 19 per kilowatt-hour, including fuel, operating and 20 environmental compliance costs. 21 North Dakota is the ninth ranked coal 22 producing statewith anestimated35 billiontons. It 23 has enough lignite to last more than 1,000 years at 24 it'spresentrateofproduction. Nearly 92 percentof 25 all the coal mined in North Dakota is consumed in

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### 39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 energy conversion facilities located in North Dakota.

Over 76 percent of the electricity produced in North Dakota is generated in coal-fired power plants operating with scrubbers. That's compared with a national average of only 22 percent. The lignite industry has a direct economic impact on the states of the upper Midwest. Employment attributable to the lignite industry and mining companies, utilities, cooperatives and the related goods and service industries accounted for an estimated 18,700 people during 1993. The annual payroll for those directly employed in the industry is over $150 million annually. Industry generates more than $440 million of business activity and has the highest average annual wage of any major industry group in the state.

In 1993 the industry paid over $81 million in state and federal taxes, over $2.50 of ton coal mined. Coal is provided to the power plants in North Dakota for approximately $7.50 a ton, therefore, 1/3 of the total cost of the lignite already is internalized.

More than 90 percent of the state's total lignite production occurs in three counties and in these three counties lignite energy accounts for over 50 percent of the economy. SACS, CORE' 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 39 1 energy conversion facilities locatedinNorth Dakota. 2 Over 76 percent of the electricity produced in North 3 Dakota is generated in coal-fired power plants 4 operating with scrubbers. That's compared with a 5 

### national average of only 22 percent. The lignite 6 industryhas a direct economic impactonthe statesof 7 

### the upper Midwest. Employment attributable to the 8 lignite industry and mining companies, utilities, 9 cooperatives and the related goods and service 10 industries accounted for an estimated 18,700 people 11 during 1993. The annual payroll for those directly 12 employed in the industry is over $150 million 13 annually. Industry generates more than $440 million 14 of business activity and has the highest average 15 annual wage of anymajor industry group in the state. 16 In 1993theindustrypaidover $81million 17 in state and federal taxes, over $2.50 of ton coal 18 mined. Coal is provided to the power plants in North 19 Dakota for approximately $7.50 a ton, therefore, 1/3 20 of the total cost of the lignite already is 21 internalized. 22 More than 90 percent of the state's total 23 lignite production occurs in three counties and in 24 these three counties lignite energy accounts for over 25 50 percent of the economy.

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 40 Air emissions on which externality values have typically been placed are not environmental problems in North Dakota. The application of nationally determined externalities values for consumer products would unjustly and unfairly penalize North Dakota citizens and the lignite industry.

The Lignite Energy Council believes that the use of artificial and speculative use of externality values will distort true environmental costs and benefits. Monetized externality values are a bad idea. They should not be used in the setting and standards for consumer appliances, or for any other purpose.

I thank you for the opportunity to present our testimony.

PRESIDING OFFICIAL BERLIN: Thank you. As I asked the first speaker, if we were to back off from monetizing the -- trying to put monetary values on the externalities but continued to use the physical quantity emission reductions and maybe reductions in oil imports in the setting of standards, how would you respond to that, trying to use the physical quantities for the setting of appliance standards?

MR. PORTER: I think we would be more receptive to that. We'd certainly have to take a more

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### 40 1 Air emissions onwhich externalityvalues 2 have typically been placed are not environmental 3 problems in North Dakota. The application of 4 nationally determined externalities values for 5 consumerproductswouldunjustlyandunfairlypenalize 6 North Dakota citizens and the lignite industry. 7 The Lignite Energy Council believes that 8 the use of artificial and speculative use of 9 externality values will distort true environmental 10 costs andbenefits. Monetized externalityvalues are 11 a bad idea. They should not be used in the setting 12 and standards for consumer appliances, or for any 13 other purpose. 14 I thankyoufortheopportunitytopresent 15 our testimony. 16 PRESIDINGOFFICIALBERLIN: Thankyou. As 17 I askedthe first speaker, ifwe were to backoff from 18 monetizingthe tryingtoputmonetaryvalues onthe 19 externalities but continued to use the physical 20 quantity emission reductions and maybe reductions in 21 oil imports inthe settingof standards, howwouldyou 22 respondtothat, tryingtousethephysical quantities 23 for the setting of appliance standards? 24 MR. PORTER: I think we would be more 25 receptive to that. We'd certainlyhave to take a more

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close look at what you had in mind when you voice that opinion. PRESIDING OFFICIAL BERLIN: Okay. Thank you. Mark?

MR. FRIEDRICHS: Yes, one question. Do you believe that concern in other states around the country regarding climate change has already had any impact on the lignite industry in North Dakota?

MR. PORTER: Yes, it has had an impact. It has already adversely effected the industry.

MR. FRIEDRICHS: Do you think that's restricted to those states that have monetized values for CO2 or do you think that's a problem that's occurred in other areas as well?

MR. PORTER: What comes to mind is those states that have monetized, or those areas where it's been monetized.

MR. FRIEDRICHS: Okay. Thank you. MR. McCABE: No questions. MR. MARGOLIS: No questions. MR. GRUENSPECHT: I appreciated your testimony, particularly the discussion of problems with national averaging. And it would help us perhaps if you could draw a distinction between national SACS

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### 41 1 close look atwhatyouhad inmindwhen youvoice that 2 opinion. 3 

### PRESIDING OFFICIAL BERLIN: Okay. Thank 4 you. 5 

### Mark? 6 

### MR. FRIEDRICHS: Yes, one question. Do 7 you believe that concern in other states around the 8 country regarding climate change has already had any 9 impact on the lignite industry in North Dakota? 10 

### MR. PORTER: Yes, it has had an impact. 11 It has already adversely effected the industry. 12 

### MR. FRIEDRICHS: Do you think that's 13 restrictedto those states that havemonetizedvalues 14 for CO2 

### or do you think that's a problem that's 15 occurred in other areas as well? 16 

### MR. PORTER: what comes to mind is those 17 states that have monetized, or those areas where it's 18 been monetized. 19 

### MR. FRIEDRICHS: Okay. Thank you. 20 

### MR. McCABE: No questions. 21 

### MR. MARGOLIS: No questions. 22 MR. GRUENSPECHT: I appreciated your 23 testimony, particularly the discussion of problems 24 withnational averaging. And itwouldhelpus perhaps 25 if you could draw a distinction between national

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averaging and the problems related to it for purposes of environmental impacts that might be looked at under criteria six, and the national averaging that I think is already done in the consumer cost calculations for the appliance standards themselves. For instance, in looking at the consumer cost of a more efficient appliance, there's typically some residential electricity rate that is used in that calculation that if we make the appliance more efficient, it will cost more but the consumer will save some amount because his or her electricity bill is lower.

And of course, when we look across the nation, one finds a wide range of residential electricity rates, ranging from very high rates in Long Island, New York, close to where I grew up to very low rates in other places, probably including North Dakota from the description that you gave. And I guess it would be helpful if one could distinguish the concerns related to averaging. Do those apply only to the environmental calculation? Do they apply also as well to the consumer calculation? If they apply to one, why only one? If they apply to both, why both? MR. PORTER: Maybe the easiest way to answer that is to answer that from the perspective in SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 42 1 averaglng andthe problems relatedto it for purposes 2 ofenvironmental impacts thatmightbe lookedatunder 3 criteria six, and the national averagingthat I think 4 is alreadydone inthe consumer cost calculations for 5 the appliance standards themselves. For instance, in 6 looking at the consumer cost of a more efficient 7 

### appliance, there's typically some residential 8 electricityratethat isusedinthatcalculationthat 9 if we make the appliance more efficient, it will cost 10 more but the consumer will save some amount because 11 his or her electricity bill is lower. 12 And of course, when we look across the 13 nation, one finds a wide range of residential 14 electricity rates, ranging from very high rates in 15 Long Island, New York, close to where I grew up to 16 very low rates in other places, probably including 17 North Dakota from the description that you gave. And 18 I guess it would be helpful if one could distinguish 19 the concerns related to averaging. Do those apply 20 only to the environmental calculation? Do they apply 21 also as well to the consumer calculation? If they 22 apply to one, why only one? If they apply to both, 23 why both? 24 MR. PORTER: 

### Maybe the easiest way to 25 answer that is to answer that from the perspective in

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North Dakota. You have to consider that North Dakota is a very rural community. In the three counties that I was referring to, where the primary lignite energy conversion facilities are located, one of those counties has a population of 2,000. Two hundred of those people work at one conversion facility. If energy is not the primary center for economy in that county, it's certainly -- agriculture is close behind.

The needs and concerns for energy production are tied very closely to the agricultural needs in the state. Our needs are quite different than those in Rhode Island, I can assure you.

Global climate change does not sell very well in North Dakota when the temperature is minus 40 degrees. It doesn't sell at all.

I don't know that I answered your question. MR. GRUENSPECHT: Not exactly . I mean, you're not concerned that the consumer calculations that underlie in part the appliance standards are themselves based on national averages.

MR. PORTER: They are based on national averaging and they will undoubtedly adversely and unjustly impact rural communities more than they do urban communities. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 43 1 North Dakota. You have to consider that North Dakota 2 is a veryrural community. Inthe three counties that 3 I was referring to, where the primary lignite energy 4 

### conversion facilities are located, one of those 5 

### counties has a population of 2,000. Two hundred of 6 

### those people work at one conversion facility. If 7 energy is not the primary center for economy in that 8 county, it'scertainly

-- agricultureis closebehind. 9 

### The needs and concerns for energy 10 production are tied very closely to the agricultural 11 needs in the state. Our needs are quite different 12 than those in Rhode Island, I can assure you. 13 Global climate change does not sell very 14 well inNorth Dakota when the temperature is minus 40 15 degrees. It doesn't sell at all. 16 

### I don't know that I answered your 17 question. 18 

### MR. GRUENSPECHT: Not exactly. I mean, 19 you're not concerned that the consumer calculations 20 that underlie in part the appliance standards are 21 themselves based on national averages. 22 MR. PORTER: They are based on national 23 averaging and they will undoubtedly adversely and 24 unjustly impact rural communities more than they do 25 urban communities. SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS1

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 44 PRESIDING OFFICIAL BERLIN: Is there some way we could resolve that to try to make them more equitable for the different communities, given that it's a national standard to alter the calculation somehow to account for these differences?

MR. PORTER: No, but we'll be glad to look at that. PRESIDING OFFICIAL BERLIN: Thank you. Thank you very much.

Heidi Heitkamp, please. MS. HEITKAMP: Mr. Berlin and members of the panel, my name is Heidi Heitkamp. I am the Attorney General for the State of North Dakota. As has been expressed by Clifford, North Dakota has numerous concerns and objections about the Department's proposal to monetize externality values for use in setting appliance standards.

Probably first and foremost, from the standpoint of an attorney who currently is engaged in very costly and regrettably a very extensive debate in the State of Minnesota, I would submit to you that this panel discussion today, along with your continued path or trek down the road of externalities is probably misplaced in the role of rulemaking.

I think that this is not a naive panel. I

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### 44 1 

### PRESIDING OFFICIAL BERLIN: Is there some 2 way we could resolve that to try to make them more 3 equitable for the different communities, given that 4 it's a national standard to alter the calculation 5 somehow to account for these differences? 6 

### MR. PORTER: No, butwe'llbe gladto look 7 at that. 8 

### PRESIDING OFFICIAL BERLIN: Thank you. 9 Thank you very much. 10 Heidi Heitkamp, please. 11 

### MS. HEITKAMP: Mr. Berlin and members of 12 the panel, my name is Heidi Heitkamp. I am the 13 Attorney General for the State of North Dakota. As 14 has been expressed by Clifford, North Dakota has 15 

### numerous concerns and objections about the 16 Department's proposal to monetize externality values 17 for use in setting appliance standards. 18 

### Probably first and foremost, from the 19 standpoint of an attorneywho currently is engaged in 20 verycostlyandregrettablya veryextensivedebate in 21 the State of Minnesota, I would submit to you that 22 thispaneldiscussiontoday, alongwithyourcontinued 23 path or trek down the road of externalities is 24 probably misplaced in the role of rulemaking. 25 I think that this is not a naive panel. I

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think you know that there has been over the course of several years a number of states using the public utilities commissions on what we have in North Dakota, the Public Service Commissions, has begun this process of looking at externality values, trying to assign externality values when they're establishing long term projections for rates, long term analysis of what kind of energy source is going to be provided to the public to provide growth in their economy as well as meet consumer energy needs. All of those proceedings, to my knowledge, have been extraordinarily extensive in terms of its testimony, in terms of the debate and in terms of the cost. We're here today on what seems, I'm sure to the people of the State of North Dakota, an unlikely area of concern involving appliances. We are not a major producer of appliances in North Dakota, however, as Clifford has explained to you, we are a major producer of energy. We believe that our energy industry has done the right thing. We are currently in compliance. North Dakota, as Clifford has told you, has no non-attainment areas. We are in fact very proud of our environmental record and one of the things that is most disturbing to me, as someone who has spent some time in the Environmental Protection Agency, a year in Washington, D.C. , is that SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 45 1 think you know that there has been over the course of 2 several years a number of states using the public 3 utilities commissions onwhatwe have inNorthDakota, 4 thePublic ServiceCommissions, hasbegunthisprocess 5 of looking at externality values, trying to assign 6 externalityvalueswhenthey'reestablishinglongterm 7 projections for rates, longtermanalysis ofwhat kind 8 of energy source is goingtobeprovidedto thepublic 9 to provide growth in their economy as well as meet 10 consumer energy needs. Allofthoseproceedings, tomy 11 knowledge, have been extraordinarily extensive in 12 terms of its testimony, in terms of the debate and in 13 terms of the cost. We're here today on what seems, 14 I'm sure to the people of the State of North Dakota, 15 an unlikely area of concern involving appliances. We 16 are not a major producer of appliances in North 17 Dakota, however, as Cliffordhas explained to you, we 18 are a major producer of energy. We believe that our 19 energy industry has done the right thing. We are 20 currently in compliance. North Dakota, as Clifford 21 has told you, has no non-attainment areas. We are in 22 fact veryproud of our environmental recordandone of 23 the things that is most disturbing to me, as someone 24 who has spent some time in the Environmental 25 ProtectionAgency, a year inWashington, D.C., is that

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the process of trying to monetize these values, has in fact put a very serious chilling effect on what we hope will be a path that we need to take in the future which is to develop even further clean coal technologies, a project which this Agency is not unfamiliar with.

If we cannot demonstrate to our private, and really in fact, public investors down the line that we have a solid market in the form of delivery of our energy converted from coal, we will not have the dollars necessary to develop the clean coal technologies that we would like to develop in the State of North Dakota.

I want to explain to you maybe what might be fairly unique, the role of the Attorney General in North Dakota. It's not only as the Chief Legal Officer, but I also sit on the Industrial Commission on the State of North Dakota. It's a three member commission which includes the Governor, the Attorney General and the Ag Commissioner. In our role on the Industrial Commission , we oversee the Lignite Research Development Council.

Now, the Lignite Research Development Council is in fact the intervening party in the Minnesota externality proceeding. Our goal and our SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 46 

### 1 theprocess of tryingtomonetizethesevalues, has in 2 fact put a very serious chilling effect on what we 3 hopewill be a paththatwe needto take inthe future 4 which is to develop even further clean coal 5 technologies, a project which this Agency is not 6 unfamiliar with. 7 If we cannot demonstrate to our private, 8 and really in fact, public investors down the line 9 thatwe have a solidmarket inthe form of deliveryof 10 our energy converted from coal, we will not have the 11 dollars necessary to develop the clean coal 12 technologies that we would like to develop in the 13 State of North Dakota. 14 I want to explainto youmaybe what might 15 be fairly unique, the role of theAttorney General in 16 

### North Dakota. It fS 

### not only as the Chief Legal 17 Officer, but I also sit on the Industrial Commission 18 

### on the State of North Dakota. It's a three member 19 commission which includes the Governor, the Attorney 20 General and the Ag Commissioner. In our role on the 21 IndustrialCommission, we overseetheLigniteResearch 22 Development Council. 23 

### Now, the Lignite Research Development 24 Council is in fact the intervening party in the 25 

### Minnesota externality proceeding.

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### Our goal and our

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task, as public servants for the State of North Dakota, is to enhance our market opportunities for the energy industry. So not only do we have the typical, what you might consider as officials with the Department of Energy, the typical concerns about the political posturing and the political nature of our people, we also have a stated statutory obligation to pursue markets and to pursue fair treatment for our lignite industry. It's in both contexts that I appear before you today.

I am most troubled, I believe, by the externality values that relate to the CO, to carbon dioxide. I have had over the last couple months an opportunity to take what you might consider for an Attorney General, a short course in the science that is currently surrounding the whole issue of global warming, the whole concern about the CO2 emissions and having analyzed and albeit probably not to the same degree that you gentlemen have, having had an opportunity to look at the science behind global warming, I must submit to you that from the standpoint of someone who represents the people and is elected by the people, that I think we are currently in a regulatory climate and a political climate that would not look favorably upon looking at externalities or SAG, CORE' 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 47 1 task, as public servants for the State of North 2 Dakota, istoenhanceourmarketopportunities forthe 3 energy industry. So not onlydo we have the typical, 4 what you might consider as officials with the 5 Department of Energy, the typical concerns about the 6 political posturing and the political nature of our 7 people, we also have a stated statutory obligationto 8 pursue markets and to pursue fair treatment for our 9 lignite industry. It's inbothcontexts that I appear 10 before you today. 11 I am most troubled, I believe, by the 12 externality values that relate to the CO, to carbon 13 

### dioxide. I have had over the last couple months an 14 opportunity to take what you might consider for an 15 Attorney General, a short course in the science that 16 is currently surrounding the whole issue of global 17 warming, thewhole concernaboutthe CO2 

### emissions and 18 having analyzed and albeit probably not to the same 19 degree that you gentlemen have, having had an 20 opportunity to look at the science behind global 21 warming, I must submittoyouthatfromthe standpoint 22 of someonewho represents thepeople andis electedby 23 the people, that I think we are currently in a 24 regulatory climate and a political climatethatwould 25 not look favorably upon looking at externalities or

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### 48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 any other emissions controls as it relates to CO. One thing that I have learned in my experiences as, albeit environmental attorney for a very short period of time, is that the best way to lose the full faith and credit of the people is to pursue drastic regulatory action without appropriate science behind it. And so I would caution you first and foremost to look at the process under which you're engaging. If you intend to carry this beyond this simple process here today, and you will not get the scientific answers you need today. You will not get answer on whether we think you should have a physical calculation in your monetizing of your costs. You won't get those answers because the process that we have today is not conducive. We appear to you today basically to tell you that we believe that this is as far as this process should go, that it is important that you raise the issue. We have no qualms with you raising the issue. We have no qualms with appearing before you, but we do caution you that if this continues, this may in fact be a very, very lengthy process which will further delay your otherwise good work in energy conservation as it relates to appliances. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 48 1 any other emissions controls as it relates to CO. 2 One thing that I have learned in my 3 experiences as, albeit environmental attorney for a 4 very short period of time, is that the best way to 5 lose the full faith and credit of the people is to 6 pursue drastic regulatory action without appropriate 7 science behind it. And so I would caution you first 8 andforemost to lookat theprocessunderwhichyou're 9 engaging. 10 If you intend to carry this beyond this 11 simple process here today, and you will not get the 12 scientific answers you need today. You will not get 13 answer on whetherwe thinkyou shouldhave a physical 14 

### calculation in your monetizing of your costs. You 15 won't get those answers because the process that we 16 have today is not conducive. We appear to you today 17 basicallyto tell you that we believe that this is as 18 far as this process should go, that it is important 19 that you raise the issue. We have no qualms with you 20 raising the issue. We have no qualms with appearing 21 before you, but we do caution you that if this 22 continues, this may in fact be a very, very lengthy 23 process which will further delay your otherwise good 24 work in energy conservation as it relates to 25 appliances.

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 49 I want to also, just because my written testimony provides it and I don't know if you've had an opportunity to review all the written testimony at this point, I appear also on behalf of the Attorney General for the State of Montana and the Attorney General for the State of Wyoming who, both of these gentlemen are deeply concerned, as are their governors, with this whole area, which again, as Clifford has stated, tends to focus on coal as opposed to any other energy sources in terms of calculating externalities. And again, their concerns are surrounded from or are covered by the issues of the process that you're engaging in, the legal background for that process, and I know we have had some discussion this morning about section six, and I'm not sure what the exact cite would be but it appears to me that the overall goal of promoting conservation would not to the people of the American public scream for or scream that they would demand looking at that point at that goal that you embark on the process of analyzing externalities.

And so, it is really at this point, I think important that you move on with the good work that you do in appliance standards and that you leave this concept behind for Congress to adopt in a more SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 49 1 

### I want to also, just because my written 2 testimony provides it and I don't know if you've had 3 an opportunity to review all the written testimony at 4 

### this point, I appear also on behalf of the Attorney 5 

### General for the State of Montana and the Attorney 6 

### General for the State of Wyoming who, both of these 7 

### gentlemen are deeply concerned, as are their 8 governors, with this whole area, which again, as 9 Cliffordhas stated, tends to focus on coal as opposed 10 to any other energy sources in terms of calculating 11 

### externalities. And again, their concerns are 12 surrounded from or are covered by the issues of the 13 process that you're engagingin, the legal background 14 for that process, and I know we have had some 15 discussionthismorningabout section six, and I'mnot 16 surewhat the exact citewouldbebut it appears tome 17 that the overall goal ofpromoting conservationwould 18 nottothepeopleof theAmericanpublic screamfor or 19 screamthattheywoulddemand lookingatthatpoint at 20 that goal that you embark on the process of analyzing 21 externalities. 22 And so, it is really at this point, I 23 think important that you move on with the good work 24 that you do in appliance standards andthat you leave 25 this concept behind for Congress to adopt in a more

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 50

appropriate forum, a more political forum, such as we have or for the states to continue to continue to analyze. And I guess the last comment is the State of Massachusetts has recently rejected in the Supreme Court of Massachusetts has rejected their externality proceedings, sent it back to their Public Utilities Commission. The city of Chicago in the State of Illinois has had a similar experience and North Dakota hopes that Minnesota will have a similar experience come this summer and will also reject the application of this theory.

And my written comments are on file. They contain a great deal more information about the State of North Dakota which I am not sure is exactly germane but I think sometimes when you're in Washington, D.C. in front of a panel of experts, sometimes it doesn't hurt to ask you to think about this audience, not so much as the learned and experienced council and technicians that we have out there, but think about how you can justify this action if this audience was in fact a group of 50 year old housewives and house husbands who want to know what you're going to do to help them make ends meet, to have ends meet in their budget in buying their appliances. Sometimes that can SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 50 1 appropriate forum, a more political forum, such as we 2 have or for the states to continue to continue to 3 analyze. 4 And I guess the last comment is the State 5 ofMassachusetts has recentlyrejected in the Supreme 6 Court ofMassachusetts has rejectedtheir externality 7 proceedings, sent it back to their Public Utilities 8 

### Commission. The city of Chicago in the State of 9 Illinoishas hada similarexperience andNorthDakota 10 hopes that Minnesota will have a similar experience 11 corne this summer andwill also reject the application 12 of this theory. 13 

### Andmywrittencomments areon file. They 14 contain a great deal more information about the State 15 ofNorthDakotawhich I am not sure is exactly germane 16 but I think sometimes when you're inWashington, D.C. 17 in front of a panel of experts, sometimes it doesn't 18 hurt to ask you to think about this audience, not so 19 much as the learned and experienced council and 20 technicians that we have out there, but think about 21 how you can justify this action if this audience was 22 in fact a group of 50 year old housewives and house 23 husbands who want to know what you're going to do to 24 help them make ends meet, to have ends meet in their 25 budgetinbuyingtheir appliances. Sometimesthat can

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help in setting a perspective in what we do as public servants. Thank you very much for this opportunity.

PRESIDING OFFICIAL BERLIN: Thank you. You've raised a number of issues about the difficulty all of this raises, which is why we sort of waded into this in a very tentative way. We recognize that there is a quagmire of problems with this, and from the tone of some of the questions you viewed, I think you've heard that we are expressing some reservations about the whole thing.

And I appreciate the caveat about what this could mean to our schedule for other rulemakings and getting out the appliance efficiency standards that we do have to get out in a reasonable time table. And I thank you for your testimony.

MS. HEITKAMP: Mr. Berlin, I think you can expect, if this goes further, a very vigorous debate an extensive debate, as you can see from just even the audience that you have here today.

PRESIDING OFFICIAL BERLIN: Right. And we've seen a lot of the written record already and we realize just how what this is the tip of the iceberg too, so we are aware of what this is. Thank you.

Mark. SAG, CORP

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### 51 1 help in setting a perspective in what we do as public 2 servants. 3 Thankyouverymuch forthisopportunity. 4 

### PRESIDING OFFICIAL BERLIN: Thank you. 5 You've raised a number of issues about the difficulty 6 all of this raises, which is whywe sort ofwaded into 7 this ina verytentativeway. We recognizethatthere 8 is a quagmire ofproblems withthis, andfromthe tone 9 of some of the questions you viewed, I think you've 10 heard that we are expressing some reservations about 11 the whole thing. 12 And I appreciate the caveat about what 13 this couldmean to our schedule for other rulemakings 14 and getting out the appliance efficiency standards 15 thatwe do have to get out in a reasonabletime table. 16 And I thank you for your testimony. 17 

### MS. HEITKAMP: Mr. Berlin, I thinkyou can 18 expect, if this goes further, a very vigorous debate 19 an extensivedebate, as you can see fromjusteventhe 20 audience that you have here today. 21 PRESIDING OFFICIAL BERLIN: Right. And 22 we've seen a lot of the written record already andwe 23 realize just how what this is the tip of the iceberg 24 too, so we are aware of what this is. Thank you. 25 

### Mark.

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Appliance efficiency standards were identified as one of the many elements of the President's Climate Change Action Plan. And additional appliance efficiency standards were included in the Environmental Policy Act, in part motivated by concerns regarding climate change. So in a number of different ways we are subjectively considering the impact of appliance efficiency standards on climate change at this moment.

The problem is how should one subjectively consider this issue? If one subjectively considers this impact, there is at least as much probability that the decision maker will put greater weight on the expected CO2 benefits associated with appliance efficiency standards than is justified as it is that that decision maker will put less weight. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 52 1 MR. FRIEDRICHS: I'd like you to address 2 this problem which I had raised earlier and perhaps 3 more directly in relationship to climate change, and 4 CO2 

### emissions. As I indicated, we consider ourselves 5 mandated by statute and we have traditionally 6 considered the expected environmental impacts of 7 applianceefficiencystandards. Inthedevelopmentof 8 standards we've estimated environmental impacts 9 including the effect on CO2 

### emissions. 10 

### Appliance efficiency standards were 11 identified as one of the many elements of the 12 President's Climate Change Action Plan. And 13 

### additional appliance efficiency standards were 14 included in the Environmental Policy Act, in part 15 motivatedbyconcernsregardingclimatechange. So in 16 a number of different ways we are subjectively 17 considering the impact of appliance efficiency 18 standards on climate change at this moment. 19 Theproblemishow shouldone subjectively 20 

### consider this issue? If one subjectively considers 21 this impact, there is at least as much probability 22 thatthedecisionmakerwillput greaterweightonthe 23 expected CO2 

### benefits associated with appliance 24 efficiency standards than is justified as it is that 25 that decision maker will put less weight. SAG, CORP 4218LENORE LANE, N.w. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 53 In other words, your presumption is that if we monetize the expected effects on CO2 emissions, that that monetization will in fact lead to more stringent efficiency standards. Whereas in fact, it may lead to less stringent efficiency standards because that factor is already considered subjectively in the process of developing appliance standards.

MS. HEITKAMP: It's difficult to answer your question without agreeing with your assumption that there is some command to you from Congress to actually look at externalities, in particular CO2 and global warming. So my response --

MR. FRIEDRICHS: So you believe that we should not look in any way at those effects?

MS. HEITKAMP: I'm saying that in consideration of your environmental concerns, it is best to leave externality analysis and theory and CO2 analysis and theory all off the table, until that science progresses, until you see a more direct response, a more direct analysis from Congress. I have in the short period of time that I knew I was going to be testifying here, scoured the statutes that are involved here and found no mention of global warming, found no mention of externalities. Although they are highly controversial concepts, and in fact 

### SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 53 1 In other words, your presumption is that 2 if we monetize the expected effects on CO2 emissions, 3 that that monetization will in fact lead to more 4 stringent efficiency standards. Whereas in fact, it 5 may lead to less stringent efficiency standards 6 becausethatfactorisalreadyconsideredsubjectively 7 in the process of developing appliance standards. 8 MS. HEITKAMP: It's difficult to answer 9 your question without agreeing with your assumption 10 that there is some command to you from Congress to 11 actually look at externalities, in particular CO2 and 12 global warming. So my response 13 MR. FRIEDRICHS: So you believe that we 14 should not look in any way at those effects? 15 MS. HEITKAMP: I'm saying that in 16 consideration of your environmental concerns, it is 17 best to leave externality analysis and theory and CO2 18 analysis and theory all off the table, until that 19 science progresses, until you see a more direct 20 response, a more direct analysis from Congress. I 21 have in the short period of time that I knew I was 22 goingtobetestifyinghere, scouredthe statutesthat 23 are involved here and found no mention of global 24 warming, found no mention of externalities. Although 25 they are highly controversial concepts, and in fact

(202) 797-2525 SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 were considered by Congress. I'd like and I don't mean to demean people who are concerned about global warming. I think that there is a great deal of discussion , some of which has been hyped in the media. I think there is a great deal of concern. I also get a great deal of concern from people who no longer have microwaves in their homes because they're concerned that the product will in fact emit some form of radiation that will affect them. There is a great deal of concern about a number of issue currently in America but until the science is there to demonstrate a true public health concern or to demonstrate a true concern which is meaningful for the environment, it is best left to the scientists. It's best left to the Congress to analyze public policy as it relates to those societal and public concerns. It is not, in my opinion, appropriate for your rulemaking on appliances.

MR. FRIEDRICHS: Just let me confirm, you don't believe we should give any consideration to the effects of appliance efficiency standards on CO2 emissions? MS. HEITKAMP: Absolutely, absolutely. 25 11 That is my point of view. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 54 1 were considered by Congress. 2 I'dlike and I don't meantodemeanpeople 3 who are concerned about global warming. I think that 4 there is a great deal of discussion, some ofwhichhas 5 

### been hyped in the media. I think there is a great 6 deal of concern. I also get a great deal of concern 7 from people who no longer have microwaves in their 8 homes because they're concernedthat the productwill 9 in fact emit some form of radiation that will affect 10 them. 11 There is a great deal of concern about a 12 number of issue currently in America but until the 13 science is there to demonstrate a true public health 14 concern or to demonstrate a true concern which is 15 meaningful for theenvironment, itisbest lefttothe 16 scientists. It'sbest lefttotheCongress to analyze 17 public policy as it relates to those societal and 18 

### public concerns. It is not, in my opinion, 19 appropriate for your rulemaking on appliances. 20 

### MR. FRIEDRICHS: Just letme confirm, you 21 don't believewe should give any consideration to the 22 effects of appliance efficiency standards on CO2 

### 23 emissions? 24 

### MS. HEITKAMP: Absolutely, absolutely. 25 That is my point of view.

(202)797-2525 SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 55 MR. FRIEDRICHS: Okay. And other environmental effects of appliance efficiency standards? MS. HEITKAMP: The other environmental standards trouble me from the standpoint of someone who has spent some time being involved in environmental regulation, with an agency that has a task of determining what in fact is the appropriate point of regulation. As we have told you, in North Dakota, we have no non-attainment areas. We are in compliance with the Clear Air Act. The Clean Air Act

was a large point of controversy. Global warming was also considered by Congress in the context of the Clean Air Act, rejected, and not spoken to in the amendments. Why is it, it seems to the industry and it seems to maybe perhaps ordinary citizens, why is it that environmental concerns are being considered after the regulation by rate makers, by people who would establish standards on appliances? It seems to be too far-reaching. And so again, I caution you not just on the CO, which obviously is my largest area of concern, but on the other pollutants and we also have the argument, if you are concerned about these, why not every other externality? I'm sure if you ask the SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 55 1 MR. FRIEDRICHS: Okay. And other 2 environmental effects of appliance efficiency 3 standards? 4 

### MS. HEITKAMP: The other environmental 5 

### standards trouble me from the standpoint of someone 6 

### who has spent some time being involved in 7 environmental regulation, with an agency that has a 8 task of determining what in fact is the appropriate 9 point of regulation. As we have told you, in North 10 

### Dakota, we have no non-attainment areas. We are in 11 compliance with the Clear AirAct. The Clean AirAct 12 was a large point of controversy. Global warmingwas 13 also considered by Congress in the context of the 14 Clean Air Act, rejected, and not spoken to in the 15 amendments. 16 Why is it, it seems tothe industryandit 17 seems to maybe perhaps ordinary citizens, why is it 18 thatenvironmentalconcerns arebeingconsideredafter 19 the regulation by rate makers, by people who would 20 establish standards onappliances? It seems tobetoo 21 far-reaching. And so again, I cautionyounot juston 22 the CO, whichobviouslyismy largest areaof concern, 23 but on the other pollutants and we also have the 24 argument, if you are concerned about these, why not 25 

### every other externality? I'm sure if you ask the

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people what their concern would be on storage of spent fuel, there may be a great deal of concern that the people have, in fact more concern than they have right now about global warming. But that's not an issue before you today in terms of establishing or monetizing a value, in terms of the concern and the long term potential for a catastrophe.

MR. FRIEDRICHS: Just to clarify, I think the issues raised in the Advance Notice apply to any externalities and could well apply to nuclear waste storage and disposal as they might to wind or any other kind of --

MS. HEITKAMP: Mr. Friedrichs, maybe we're just a little -- our sensibilities are heightened by the fact that in almost all states this has exclusively become those emissions which are from coal-fired power plants.

MR. FRIEDRICHS: I understand. MS. HEITKAMP: And so we tend to react when we don't see other known pollutants in the list.

MR. FRIEDRICHS: Right. MR. MARGOLIS: No questions. MR. GRUENSPECHT: No questions. MS. HEITKAMP: Again, thank you, Mr. 25 II Berlin. SAG

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### 56 1 peoplewhattheir concernwouldbeon storageof spent 2 fuel, there may be a great deal of concern that the 3 peoplehave, in factmore concernthantheyhaveright 4 

### now about global warming. But that's not an issue 5 before you today In terms of establishing or 6 monetizing a value, in terms of the concern and the 7 long term potential for a catastrophe. 8 

### MR. FRIEDRICHS: Just to clarify, I think 9 the issues raised in the Advance Notice apply to any 10 externalities and could well apply to nuclear waste 11 storage and disposal as they might to wind or any 12 other kind of

-- 13 MS. HEITKAMP: Mr. Friedrichs, maybewe're 14 just a little

-- our sensibilities are heightened by 15 the fact that in almost all states this has 16 exclusively become those emissions which are from 17 coal-fired power plants. 18 

### MR. FRIEDRICHS: I understand. 19 

### MS. HEITKAMP: And so we tend to react 20 whenwe don't seeotherknownpollutants inthe list. 21 MR. FRIEDRICHS: ,Right. 22 23 24 

### 25 Berlin.

(202)797-2525 

### MR. MARGOLIS: No questions. MR. GRUENSPECHT: No questions. MS. HEITKAMP: Again, thank you, Mr.

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### 57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PRESIDING OFFICIAL BERLIN: Burt Kalish,

please? MR. REID: Good morning. The current form of the agenda lists me and not Burt Kalish as the presenter this morning. Allow me to introduce myself. My name is Edward A. Reid, Jr. I am Vice President of Marketing for the Columbia Gas Distribution Companies headquartered at Columbus, Ohio. Let me begin by assuring you that I will not be reiterating the comments of any of the prior speakers and probably will not be pre-stating the comments of many of the succeeding speakers.

I am here representing both the American Gas Association and the Columbia Gas Distribution companies. AGA is a national trade association with 275 members consisting of natural gas local distribution companies and transmission pipelines in the United States, Canada and Mexico. Our member employ more than 250,000 employees and serve 56 million customers, or more than 56 percent of the U.S. energy market. Ninety percent of the U.S. natural gas customers are served by members of the American Gas Association. The Columbia Gas distribution companies are a group of five natural gas local distribution SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 57 1 PRESIDING OFFICIAL BERLIN: Burt Kalish, 2 please? 3 

### MR. REID: Goodmorning. The current form 4 of the agenda lists me and not Burt Kalish as the 5 presenterthismorning. Allowme to introducemyself. 6 My name is EdwardA. Reid, Jr. I am Vice President of 7 Marketingfor the ColumbiaGas Distribution Companies 8 

### headquartered at Columbus, Ohio. Let me begin by 9 assuring you that I will not be reiterating the 10 comments of any of the prior speakers and probably 11 will not be pre-stating the comments of many of the 12 succeeding speakers. 13 I am here representing both the American 14 Gas Association and the Columbia Gas Distribution 15 companies. AGA is a national trade association with 16 

### 275 members consisting of natural gas local 17 distribution companies and transmission pipelines in 18 

### the united States, Canada and Mexico. Our member 19 employ more than 250,000 employees and serve 56 20 millioncustomers, ormorethan 56 percentof theU.S. 21 energymarket. NinetypercentoftheU.S. natural gas 22 customers are served by members of the American Gas 23 Association. 24 The Columbia Gas distribution companies 25 are a group of five natural gas local distribution

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utility companies serving major portions of the states of Ohio, Pennsylvania, Virginia, Kentucky and Maryland and delivering natural gas service to a total of 1.9 million residential, commercial and industrial customers. To very briefly summarize our position, AGA strongly believes that any analysis by the Department of Energy under the National Appliance Energy Conservation Act or other acts of Congress should be based on the total fuel cycle required to supply that energy from the point of resource extraction and/or production through the point of ultimate end use.

The Federal Government is currently pursuing a range of initiatives to reduce energy consumption by increasing the energy efficiency of appliances and structures to reduce environmental emissions by increasing energy efficiency, improving combustion technology and post-combustion exhaust gas treatment technology, and to enhance energy security by diversifying energy supplies, particularly from domestic resources.

These diverse objectives can best beachieved when pursued comprehensively using marketbased approaches to maximize flexibility, encourage SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 58 1 utilitycompanies servingmajorportionsofthe states 2 ofOhio, Pennsylvania, virginia, KentuckyandMaryland 3 and delivering natural gas service to a total of 1.9 4 

### million residential, commercial and industrial 5 customers. 6 To very briefly summarize our position, 7 AGA strongly believes that any analysis by the 8 Department of Energy under the National Appliance 9 Energy Conservation Act or other acts of Congress 10 should be based on the total fuel cycle required to 11 supply that energy from the point of resource 12 extraction and/or production through the point of 13 ultimate end use. 14 

### The Federal Government is currently 15 pursuing a range of initiatives to reduce energy 16 consumption by increasing the energy efficiency of 17 appliances and structures to reduce environmental 18 emissions by increasing energy efficiency, improving 19 combustiontechnologyandpost-combustionexhaust gas 20 treatment technology, and to enhance energy security 21 by diversifying energy supplies, particularly from 22 domestic resources. 23 

### These diverse objectives can best be 24 achieved when pursued comprehensively using market25 based approaches to maximize flexibility, encourage

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### 59

1 creativity and minimize cost and economic dislocation. 2 We applaud DOE's initiative to treat these issues 3 comprehensively. 4 AGA believes the DOE analyses in support 5 of appliance efficiency standards under NAECA and 6 under EPACT and of building efficiency standards under 7 EPACT and through DOE's HERS initiative, but be based 8 on the total fuel cycle from resource extraction 9 through end use. 10 The energy industry in the United States 11 is a very competitive industry. This is true for all 12 participants, both regulated utilities and unregulated 13 fuel suppliers. Therefore, it is extremely important 14 that DOE and other federal agencies establish 15 regulations which do not distort this competition by 16 establishing higher efficiency requirements or lower 17 emissions requirements for applications of one fuel 18 versus another in this competitive market place, 19 merely because systems using one fuel or the other are 20 capable of achieving those higher efficiencies or 21 er emissions

l th . ose ow 22 Specifically to Dr. Berlin's earlier 23 question to the first two speakers, the resource 24 efficiency and environmental emissions goals could be 25 set in a market based approach, at the common level SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 59 1 creativityandminimizecostandeconomicdislocation. 2 We applaud DOE's initiative to treat these issues 3 comprehensively. 4 AGA believes the DOE analyses in support 5 of appliance efficiency standards under NAECA and 6 underEPACT andofbuildingefficiency standardsunder 7 EPACT and through DOE's HERS initiative, but bebased 8 on the total fuel cycle from resource extraction 9 through end use. 10 The energy industry in the united States 11 is a very competitive industry. This is true for all 12 participants,bothregulatedutilitiesandunregulated 13 fuel suppliers. Therefore, it is extremely important 14 that DOE and other federal agencies establish 15 regulations which do not distort this competition by 16 establishing higher efficiency requirements or lower 17 emissions requirements for applications of one fuel 18 versus another in this competitive market place, 19 merelybecause systems usingone fuel ortheotherare 20 capable of achieving those higher efficiencies or 21 those lower emissions. 22 Specifically to Dr. Berlin's earlier 23 question to the first two speakers, the resource 24 efficiency and environmental emissions goals couldbe 25 set in a market based approach, at the common level

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### 60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 for all fuels required to achieve the desired

efficiency improvement and emissions reductions results for our society with trading available between participants in the market place, to permit users who over comply to sell compliance credits to those who find it more difficult to comply. This is not a unique approach. It is in fact very similar to the emissions allowance trading procedures currently in place under Title IV of the Clean Air Act Amendments of 1990. To do otherwise, we would argue, could be considered to be an unconstitutional taking, as defined in the Fifth Amendment of the United States Constitution.

Of an economic advantage, in this case efficiency or emissions credit, from one competitor in a competitive market place without compensation and giving it to another competitor in that market place at no cost, thus significantly distorting the performance of the market. This, I might point out, is in our perspective the current situation under the National Appliance Energy Conservation Act. As a representative of a local distribution company operating in a very competitive market place, let me provide a specific example directly pertinent to the instant rulemaking. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 60 1 for all fuels required to achieve the desired 2 efficiency improvement and emissions reductions 3 results for our societywithtradingavailablebetween 

### 4 participants in the market place, to permit users who 5 over comply to sell compliance credits to those who 6 find it more difficult to comply. This is not a 7 unique approach. It is in fact very similar to the 8 emissions allowance trading procedures currently in 9 place under Title IV of the Clean Air Act Amendments 10 of 1990. To do otherwise, we would argue, could be 11 considered to be an unconstitutional taking, as 12 defined in the Fifth Amendment of the United States 13 Constitution. 14 Of an economic advantage, in this case 15 efficiencyoremissions credit, fromone competitorin 16 a competitive market place without compensation and 17 giving it to another competitor in that market place 18 at no cost, thus significantly distorting the 19 performance of the market. This, I might point out, 20 is in our perspective the current situation under the 21 National Appliance Energy Conservation Act. As a 22 representative of a local distribution company 23 operating in a very competitive market place, let me 24 provide a specific example directly pertinent to the 25 instant rulemaking.

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 61 The current DOE regulations for space heating appliances under NAECA establish minimum appliance efficiencies at the site of energy consumption, which translate to resource energy efficiencies of approximately 25 percent for electrical resistance furnaces, 50 percent for electric heat pumps, and 70 percent for natural gas furnaces and boilers. That is, the regulations require today different resource efficiencies from different appliances using different fuels.

These requirements are based on end user pay back analyses conducted by DOE in the case of electric heat pumps and gas furnaces and boilers. They are based on the inherent limitations of electric resistance technology in the case of electric furnaces. The pay back analyses do not today include the indirect costs of the full cycle environmental emissions resulting from the use of specific devices except to the extent that those emissions are already controlled and their costs internalized in rates. Consequently, the minimum performance requirements are currently set lower than could be justified if the full, direct and indirect, environmental and other externalities costs were currently included in the calculations. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 61 1 The current DOE regulations for space 2 heating appliances under NAECA establish minimum 3 

### appliance efficiencies at the site of energy 4 consumption, which translate to resource energy 5 

### efficiencies of approximately 25 percent for 6 

### electrical resistance furnaces, 50 percent for 7 electric heat pumps, and 70 percent for natural gas 8 

### furnaces and boilers. That is, the regulations 9 require today different resource efficiencies from 10 different appliances using different fuels. 11 These requirements are based on end user 12 pay back analyses conducted by DOE in the case of 13 electric heat pumps and gas furnaces and boilers. 14 Theyarebasedonthe inherent limitations of electric 15 resistance technology in the case of electric 16 furnaces. The payback analyses do not today include 17 the indirect costs of the full cycle environmental 18 emissions resulting from the use of specific devices 19 except to the extent that those emissions are already 20 controlled and their costs internalized in rates. 21 Consequently, theminimumperformancerequirementsare 22 currently set lower than could be justified if the 23 full, direct and indirect, environmental and other 24 externalities costs were currently included in the 25 calculations.

(202)797-2525 SAG, CORP 4218 LENORE LANE, N.w. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 62 To be even more specific, I believe that the tone of this hearing today would be somewhat different were there a major manufacturer involved in major production of a 50 percent efficient coal-fired residential space heating device burning 3 1/2 percent sulfur coal in neighborhoods throughout the country. However, in the case of a major portion of one of our company's markets in the State of Ohio, that 50 percent efficient coal-fired residential space heating device is in fact in very broad and general use. It is known as the NAECA minimum efficiency electric pump. The only difference is the emissions from that coal-fired space heating device do not occur on my street. They occur predominantly in the Ohio River Valley. They are nonetheless, real, measurable and damaging. In a market based approach, a common minimum resource efficiency and a common emissions level for the full fuel cycle could be established which would permit meeting the national efficiency and emissions goals. If we assume, for example, that the current residential space heating market is served approximately 60 percent by gas furnaces and boilers, 30 percent by electric heat pumps and 10 percent by SAG ,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 62 1 To be even more specific, I believe that 2 the tone of this hearing today would be somewhat 3 differentwere there a majormanufacturer involved in 4 major productionof a 50 percent efficient coal-fired 5 residential spaceheatingdeviceburning3 1/2percent 6 sulfur coal in neighborhoods throughout the country. 7 However, in the case of a major portion of one of our 8 company's markets in the State of Ohio, that 50 9 percentefficientcoal-firedresidentialspaceheating 10 device is in fact in very broad and general use. It 11 is known as the NAECA minimum efficiency electric 12 pump. 13 The onlydifference is the emissions from 14 that coal-fired space heating device do not occur on 15 my street. TheyoccurpredominantlyintheOhioRiver 16 

### Valley. They are nonetheless, real, measurable and 17 damaging. 18 

### In a market based approach, a common 19 minimum resource efficiency and a common emissions 20 level for the full fuel cycle could be established 21 whichwouldpermitmeetingthenationalefficiencyand 22 emissions goals. If we assume, for example, that the 23 current residential space heating market is served 24 approximately 60 percentby gas furnaces andboilers, 25 30 percent by electric heat pumps and 10 percent by

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electric resistance furnaces, and this is merely an example, the current fuel cycle average resource efficiency for this scenario would be approximately 60 percent. If the minimum common resource efficiency were to be set to 70 percent, the current minimum resource efficiency required of gas furnaces and boilers, and if the market share of electric heat pumps and electric resistance furnaces in the example remained unchanged, increasing minimum electric heat pump, HSPF to 11.5 BTUs per watt hour from the current 6.8 would permit achieving the national goals on an energy efficiency standpoint. If this were judged to be too expensive to be economically justifiable, electric furnace sales could be curtailed and efficiency credits could be accrued by selling more high efficiency gas furnaces and transferring those credits, for a price, to those producing devices less efficient. Transferring the efficiency credits in this way would reduce the cost of high efficiency gas equipment and would reduce the overall costs of compliance for all manufacturers and all energy end users. This approach, again is not unique. It is similar in many ways to the corporate average SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 63 1 electric resistance furnaces, and this is merely an 2 example, the current fuel cycle average resource 3 efficiencyfor this scenariowouldbe approximately 60 

### 4 percent. 5 If theminimum common resource efficiency 6 were to be set to 70 percent, the current minimum 7 resource efficiency required of gas furnaces and 8 boilers, and if the market share of electric heat 9 pumps and electric resistance furnaces in the example 10 remained unchanged, increasingminimum electric heat 11 pump, HSPF to 11.5 BTUs perwatthour from the current 12 6.8 would permit achieving the national goals on an 13 energy efficiency standpoint. If this were judgedto 14 be too expensive to be economically justifiable, 15 electric furnace sales could be curtailed and 16 efficiency credits could be accrued by selling more 17 high efficiency gas furnaces and transferring those 18 credits, for a price, to those producing devices less 19 efficient. 20 Transferring the efficiency credits in 21 this way would reduce the cost of high efficiency gas 22 equipment and would reduce the overall costs of 23 compliance for all manufacturers and all energy end 24 users. This approach, again is not unique. It is 25 similar in many ways to the corporate average

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efficiency requirements established for automobile manufacturers in today's society.

This market based approach to energy efficiency improvement and emissions reductions could permit accomplishing national efficiency and emissions goals at the lowest total economic cost for all participants in the chain of energy supply involved in the decision.I'd also like to make reference to a point that was made earlier regarding the issue of residual damage functions. It can be argued that it is very difficult to determine residual damage functions, however, I do not believe it is effective to argue that there are no such things. Arguing that uncontrolled emissions produce no residual damages, would be similar to an argument that could have been made by the U.S. automobile manufacturers in the early 1960s after the implementation of positive crankcase ventilation systems on automobile engines, at which point they might have claimed that there were no residual damages resulting from any of the currently uncontrolled emissions from an internal combustion powered automobile. I think reflecting on the period of time since the early 1960s would suggest that would have been an extremely poor assumption. SAG

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### 64 1 efficiency requirements established for automobile 2 manufacturers in today's society. 3 

### This market based approach to energy 4 efficiencyimprovement and emissions reductions could 5 permitaccomplishingnationalefficiencyandemissions 6 goals at the lowest total economic cost for all 7 participants inthechainofenergy supplyinvolvedin 8 the decision. 9 I'dalso liketomakereferenceto a point 10 that was made earlierregarding the issue of residual 11 damage functions. It can be argued that it is very 12 difficult to determine residual damage functions, 13 however, I do not believe it is effective to argue 14 that there are no such things. Arguing that 15 uncontrolled emissions produce no residual damages, 16 would be similar to an argument that could have been 17 madebythe

### u.S. automobilemanufacturers intheearly 18 1960s after the implementation of positive crankcase 19 ventilation systems on automobile engines, at which 20 point they might have claimed that there were no 21 residual damages resulting from any of the currently 22 uncontrolled emissions from an internal combustion 23 powered automobile. I think reflectingon the period 24 of time sincethe early 1960swould suggestthatwould 25 have been an extremely poor assumption.

(202)797-2525 SAG,CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 65 That concludes my formal comments. There is a full text copy of the comments on file and both the American Gas Association and the Columbia Gas Distribution companies will be filing written comments by the closing date of the procedure.

Thank you very much. PRESIDING OFFICIAL BERLIN: I believe Gene can talk further about this. I believe that we are restricted in our considerations on appliance efficiencies to site specific, rather than source specific calculations and that's one of the reasons we don't get into a fuel cycle, full cycle calculation.

MR. REID: Dr. Berlin, I would question that based on the current Notice of Proposed Rulemaking procedure under NAECA for gas and electric water heaters where in fact DOE has proposed through an ANOPR and in following that through ANOPR that the minimum efficiency standards for electric water heaters be set at a level which calculates to precisely the same resource efficiency level as is required for gas water heaters under the current Phase 1 standards for NAECA.

PRESIDING OFFICIAL BERLIN: Well, the other point about Cafe standards as you may know, this program was part of the same law, Energy Policy and SAG, COR9 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 65 1 That concludes my formal comments. There 2 is a full text copy of the comments on file and both 3 the American Gas Association and the Columbia Gas 4 Distributioncompanieswillbefilingwrittencomments 5 by the closing date of the procedure. 6 Thank you very much. 7 

### PRESIDINGOFFICIALBERLIN: I believeGene 8 

### can talk further about this. I believe that we are 9 

### restricted in our considerations on appliance 10 efficiencies to site specific, rather than source 11 specificcalculations andthat's oneofthereasons we 12 don't get into a fuel cycle, full cycle calculation. 13 

### MR. REID: Dr. Berlin, I would question 14 that based on the current Notice of Proposed 15 Rulemakingprocedure under NAECA for gas and electric 16 water heaters where in fact DOE has proposed through 17 anANOPR and in following that throughANOPR that the 18 minimum efficiency standards for electric water 19 heaters be set at a level which calculates to 20 precisely the same resource efficiency level as is 21 requiredfor gaswaterheatersunderthecurrentPhase 22 1 standards for NAECA. 23 

### PRESIDING OFFICIAL BERLIN: Well, the 24 otherpoint about Cafe standards asyoumayknow, this 25 program was part of the same law, Energy Policy and

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Conservation Act that set up the automobile standards and the Cafe standards in a different part of the law. When they got around to this particular aspect of the law, they specifically excluded the Cafe standards for consideration. This is something we've wrestled with as we've gotten toward increasingly high efficiency appliances where the opportunity to impose such standards would be eased if we had a Cafe type standard, were allowed to impose such standards but we aren't. And this has been a difficult issue to deal with. Thank you.

MR. FRIEDRICHS: No questions. PRESIDING OFFICIAL BERLIN: Michael. MR. McCABE: No questions. MR. MARGOLIS: No questions. PRESIDING OFFICIAL BERLIN: Howard. MR. GRUENSPECHT: Thank you. I found the testimony very interesting. It would be useful, you made mention of the sulfur dioxide trade allowance program under the Clean Air Act as an analogy of the type of thing you're looking for. But as I remember that program, the allowances were only in fact given to plants burning a single fuel and plants, let's say burning gas, which I guess emit very low amounts of

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### 66 1 ConservationAct that set up the automobile standards 2 andthe Cafe standards in a differentpart of the law. 3 When they got around to this particular aspect of the 4 law, they specificallyexcludedtheCafe standards for 5 consideration. This is somethingwe've wrestledwith 6 as we've gotten toward increasingly high efficiency 7 appliances where the opportunity to impose such 8 standards would be eased if we had a Cafe type 9 standard, were allowedto impose such standardsbutwe 10 aren't. And this has been a difficult issue to deal 11 with. 12 Thank you. 13 MR. FRIEDRICHS: No questions. 14 PRESIDING OFFICIAL BERLIN: Michael. 15 MR. McCABE: No questions. 16 MR. MARGOLIS: No questions. 17 PRESIDING OFFICIAL BERLIN: Howard. 18 MR. GRUENSPECHT: Thank you. I found the 19 testimony very interesting. It would be useful, you 20 made mention of the sulfur dioxide trade allowance 21 program under the Clean Air Act as an analogy of the 22 type of thing you're looking for. But as I remember 23 that program, the allowances were only in fact given 24 to plants burning a single fuel and plants, let's say 25 burning gas, which I guess emit very low amounts of

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sulfur dioxide, were not given allowances to start out with to then sell to people who were burning fuels that produce sulfur dioxide. So I guess I found the reference a little bit off point and perhaps you can expand upon that, just so I understand where you're coming from in that regard.

MR. REID: Again, to reiterate I think it is a reasonable question, whether or not that approach represents an unjust taking under the terms of the Fifth Amendment of the United States Constitution from the standpoint that prior to that decision, plants burning natural gas for the production of electricity were in fact doing that with substantially lower emissions and consequently in a broad context, should have been recognized as having a good of economic value which could have been traded.

The procedures were not established that way but I think it's extremely important in this context to note that based on the national average sulfur content of the coal used for the production of electricity in this country, and comparing specifically, let's say an electric resistance furnace and a minimum efficiency natural gas furnace under the current Phase 1 NAECA regulations, the amount of sulfur dioxide emitted to fuel that electric heat pump SAG, C®R® 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 67 1 sulfurdioxide, werenot givenallowances to startout 2 with to then sell to people who were burning fuels 3 that produce sulfur dioxide. So I guess I found the 

### 4 reference a little bit off point and perhaps you can 5 expand upon that, just so I understand where you're 6 coming from in that regard. 7 MR. REID: Again, to reiterate I think it 8 is a reasonable question, whetheror notthat approach 9 represents an unjust taking under the terms of the 10 FifthAmendment oftheunitedStates Constitutionfrom 11 the standpoint that prior to that decision, plants 12 burning natural gas for the production of electricity 13 were in fact doing that with substantially lower 14 emissions and consequently in a broad context, should 15 have been recognized as having a good of economic 16 value which could have been traded. 17 The procedures were not established that 18 way but I think it's extremely important in this 19 context to note that based on the national average 20 sulfur content of the coal used for the production of 21 electricity in this country, and comparing 22 specifically, let's sayanelectricresistance furnace 23 anda minimumefficiencynatural gas furnace underthe 24 current Phase 1 NAECA regulations, the amount of 25 sulfurdioxide emittedto fuel that electricheatpump

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is on the order of 4,000 times the amount of sulfur dioxide emitted to fuel the natural gas furnace.

While the total amount of sulfur dioxide involved in the operation of any specific furnace in any specific residence is relatively modest on a global perspective, that ratio is still dramatic and I guess my key point here is that that difference is not currently being recognized in the setting of regulations under NAECA, to the disadvantage of one competitor or one group of competitors in this very competitive market place to their significant disadvantage in that market place.

PRESIDING OFFICIAL BERLIN: Thank you. MR. REID: Thank you very much for the opportunity to testify at this hearing.

PRESIDING OFFICIAL BERLIN: I have a note that John Holt will be replacing Duane Bye as speaker, the next speaker.

MR. HOLT: Good morning. My name is John Holt. I'm manager of fuels and transportation for the National Rural Electric Cooperative Association, and I thought I had gotten off easy today. I got ready to give my talk for you earlier but Duane Bye, who is here, has come down with a cold and can't talk so he's asked me to read his paper for him. He's also asked

SAG, CRt4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 68 1 is on the order of 4,000 times the amount of sulfur 2 dioxide emitted to fuel the natural gas furnace. 3 While the total amount of sulfur dioxide 4 involved in the operation of any specific furnace in 5 any specific residence is relatively modest on a 6 global perspective, that ratio is still dramatic and 7 I guess my key point here is that that difference is 8 not currently being recognized in the setting of 9 regulations under NAECA, to the disadvantage of one 10 competitor or one group of competitors in this very 11 competitive market place to their significant 12 disadvantage in that market place. 13 PRESIDING OFFICIAL BERLIN: Thank you. 14 MR. REID: Thank you very much for the 15 opportunity to testify at this hearing. 16 PRESIDING OFFICIAL BERLIN: I have a note 17 thatJohnHoltwillbe replacingDuaneBye as speaker, 18 the next speaker. 19 MR. HOLT: Good morning. My name is John 20 Holt. I'mmanagerof fuels andtransportation for the 21 National Rural Electric Cooperative Association, and 22 I thought I had gotten off easytoday. I got readyto 23 give my talk for you earlier but Duane Bye, who is 24 here, has corne down with a coldand can't talk so he's 25 asked me to read his paper for him. He's also asked

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me that if you have questions, he would like to respond to you in writing afterwards, since he really cannot talk very well at this point. So on that basis, let me start. I am speaking for Duane Bye who is manager of Member Services for Basin Electric Power Cooperative, headquartered in Bismark, North Dakota. And we, of course, both Duane and I would like to thank the Department of Energy for the opportunity to be heard on what we see is a very important issue, the possibility of monetized environmental externalities applied to appliance efficiency standards.

Basin Electric is a regional generation and transmission cooperative owned and controlled by 127 rural electric cooperatives located eight states; North Dakota, South Dakota, Minnesota, Nebraska, Colorado, Wyoming, Montana and Iowa.

These 127 consumer systems serve 548,000 rural homes, farms , ranches and businesses , about 1.5 million people in 450,000 square mile service area. This area has wide open spaces , blue sky, green grass and some of the cleanest air in the country.

Basin's member systems have an average of only 1.69 consumers per mile of line compared to 34

consumers per mile of line on a typical urban system. The consumers have invested hundreds of millions of SACS

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### 69 1 me that if you have questions, he would like to 2 respond to you inwriting afterwards, since he really 3 

### cannot talk very well at this point. So on that 4 basis, let me start. I am speaking for Duane Bye who 5 ismanagerofMember Services forBasinElectricPower 6 Cooperative, headquartered in Bismark, North Dakota. 7 And we, of course, both Duane and I would like to 8 thank the Department of Energy for the opportunityto 9 beheardonwhatwe see is a very important issue, the 10 possibility of monetized environmental externalities 11 applied to appliance efficiency standards. 12 Basin Electric is a regional generation 13 and transmission cooperative owned and controlled by 14 127 rural electric cooperatives located eight states; 15 North Dakota, South Dakota, Minnesota, Nebraska, 16 Colorado, Wyoming, Montana and Iowa. 17 These 127 consumer systems serve 548,000 18 rural homes, farms, ranches andbusinesses, about 1.5 19 million people in 450,000 square mile service area. 20 This area has wide open spaces, blue sky, green grass 21 and some of the cleanest air in the country. 22 Basin'smember systems have an average of 23 only 1.69 consumers per mile of line compared to 34 24 consumers per mile of line on a typical urban system. 25 The consumers have invested hundreds of millions of

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dollars to make Basin Electric's coal-fired generating plants some of the cleanest in the nation.

While the generating plants are ranked at the very top in low cost energy production, the inherently higher cost of serving sparsely populated

areas results in power rates to the consumers that are somewhat higher than in urban areas.

Basin Electric and its members are trying very hard to make their rates as competitive as possible and help the consumers realize the benefits of low cost electricity and the benefits it brings to the economy and the environment.

One of the ways Basin Electric has maintained its financial strength and been able to lower its rates is to aggressively market the power the plants produce that is surplus to the member needs. Basin Electric is currently selling power to other utilities in the Midwest and Western United States. These revenues help bring down the wholesale power rates. Basin Electric believes that the surplus power sales could be threatened by imposition of arbitrary monetized environmental externalities. If these sales are lost, it means additional costs will have to be absorbed by the consumers in the eight SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 70 1 dollarstomakeBasinElectric'scoal-firedgenerating 2 plants some of the cleanest in the nation. 3 While the generatingplants are ranked at 4 the very top in low cost energy production, the 5 inherently higher cost of serving sparsely populated 6 areas results inpower rates tothe consumers that are 7 somewhat higher than in urban areas. 8 BasinElectric and itsmembers are trying 9 very hard to make their rates as competitive as 10 possible and help the consumers realize the benefits 11 of low cost electricity and the benefits itbrings to 12 the economy and the environment. 13 

### One of the ways Basin Electric has 14 maintained its financial strength and been able to 15 lower its rates is to aggressively market the power 16 the plants produce that is surplus to the member 17 needs. Basin Electric is currently selling power to 18 other utilities in the Midwest and Western united 19 States. These revenues help bringdown thewholesale 20 power rates. 21 Basin Electric believes that the surplus 22 power sales could be threatened by imposition of 23 arbitrary monetized environmental externalities. If 24 these sales are lost, it means additional costs will 25 have to be absorbed by the consumers in the eight

(202)797-2525 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS71 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 state membership region. They understand that this Supplement Advance Notice of Proposed Rulemaking deals with efficiency standards for three appliances and might not seem to directly affect power sales to other utilities. However, they believe that any action on this proposed rule will have a precedent-setting influence for states and other entities considering applying monetized and environmental externalities that would affect power resource selection and, therefore, Basin's ability to sell coal-fired electricity. They believe that DOE's actions will also serve as a precedent in setting externality values other than for appliances.

Basin believes that the principles that make imposition of monetized environmental externalities are unwise when applied to generation and also as they apply to the proposed rule on appliance standards. Therefore, Basin Electric is opposed to the principles and methodology contained in the proposed rule.

I would like to highlight some of the reasons why Basin objects to the monetized environmental externalities.

First, Basin believes that DOE lacks

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### 71 1 state membership region. 2 They understand that this Supplement 3 Advance Notice of Proposed Rulemaking deals with 4 efficiency standards for three appliances and might 5 not seem to directly affect power sales to other 6 utilities. However, they believe that any action on 7 this proposed rule will have a precedent-setting 8 influence for states and other entities considering 9 applying monetized and environmental externalities 10 that would affect power resource selection and, 11 therefore, Basin's ability to sell coal-fired 12 electricity. They believe that DOE's actions will 13 also serve as a precedent in setting externality 14 values other than for appliances. 15 Basin believes that the principles that 16 make imposition of monetized environmental 17 externalities are unwise when applied to generation 18 and also as they apply to the proposed rule on 19 appliance standards. Therefore, Basin Electric is 20 opposedtotheprinciples andmethodologycontainedin 21 the proposed rule. 22 I would like to highlight some of the 23 reasons why Basin objects to the monetized 24 environmental externalities. 25 First, Basin believes that DOE lacks

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specific authorization in developing these monetized values. There is no direct statutory language to warrant such an extreme approach in developing energy efficiency standards . If Congress wanted that, they believe that such language would have been included.

Looking at the rule, DOE proposes a monetized standard on three emissions , two of which are sulfur dioxide and nitrogen oxide. SO2 and NOX are already controlled by the Clean Air Act and Basin's plants are already meeting strict state and federal standards for emissions . A speculative theory such as environmental externalities is not needed to further protect the environment.

Basin believes that there is a curious parallel in what DOE is proposing to do and what happened some five years ago in connection with acid rain. Back then the Federal Government sponsored a ten-year study, costing $1/2 billion that studied the effects of acid rain. The results of the National Acid Precipitation Assessment Program came out in early 1990. The results clearly indicated much less impact environmentally than had been believed in connection with SO2 and NOX emissions from power plants. In fact, these results came out after the 1990 amendments to the Clean Air Act were passed. Now SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 72 1 specific authorization in developing these monetized 2 values. There is no direct statutory language to 3 warrant such an extreme approach in developingenergy 4 efficiency standards. If Congress wanted that, they 5 believe that such language would have been included. 6 

### Looking at the rule, DOE proposes a 7 monetized standard on three emissions, two of which 8 

### are sulfur dioxide and nitrogen oxide. 9 are already controlled by the Clean Air Act and 10 Basin's plants are already meeting strict state and 11 federal standards for emissions. Aspeculativetheory 12 such as environmental externalities is not needed to 13 further protect the environment. 14 Basin believes that there is a curious 15 parallel in what DOE is proposing to do and what 16 happened some five years ago in connection with acid 17 

### rain. Back then the Federal Government sponsored a 18 ten-year study, costing $1/2 billionthat studiedthe 19 effects of acid rain. The results of the National 20 Acid Precipitation Assessment Program came out in 21 early 1990. The results clearly indicated much less 22 impact environmentally than had been believed in 23 connection with 802 

### and NOx 

### emissions from power 24 

### plants. In fact, these results came out after the 25 1990 amendments tothe CleanAirActwerepassed. Now

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we have a federal agency trying to impose externality values on SO2 and NOx after the study said the impact environmentally was less than we had been led to believe by some scientists. Basin 's question is, shouldn't the results of that study provide a reasonable scientific basis for not imposing monetary externality values for sulfur dioxide and nitrogen oxides? They believe so.

Carbon dioxide is the third emission for which a monetary value is proposed, apparently in the belief that CO2 emissions are threatening global climate change. Basin strongly disputes that theory because all predictions of catastrophic global warming are based on computer simulations which have been shown to be inaccurate.

Environmental externality monetary calculations are subjective and arbitrary and have no rational economic basis. This has been illustrated by state proposals that vary wildly in their evaluations from state to state. The experience of states in looking at such proposals has pointed up the weaknesses in the theory. States such as Colorado, New Mexico , and Illinois have had thorough and extensive formal processes which led them to reject monetized environmental externalities. I would like SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 73 1 we have a federal agency tryingto impose externality 2 

### values on S02 and NOx 

### after the study said the impact 3 environmentally was less than we had been led to 4 

### believe by some scientists. Basin's question is, 5 shouldn't the results of that study provide a 6 reasonable scientificbasis for not imposingmonetary 7 externality values for sulfur dioxide and nitrogen 8 oxides? They believe so. 9 Carbon dioxide is the third emission for 10 

### which a monetaryvalue is proposed, apparently inthe 11 belief that CO2 emissions are threatening global 12 

### climate change. Basin strongly disputes that theory 13 becauseallpredictionsofcatastrophicglobalwarming 14 are based on computer simulations which have been 15 shown to be inaccurate. 16 

### Environmental externality monetary 17 calculations are subjective and arbitrary and have no 18 rational economicbasis. This has beenillustratedby 19 stateproposals that varywildly in their evaluations 20 

### from state to state. The experience of states in 21 

### looking at such proposals has pointed up the 22 

### weaknesses in the theory. States such as Colorado, 23 

### New Mexico, and Illinois have had thorough and 24 

### extensive formal processes which led them to reject 25 

### monetized environmental externalities. I would like

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to quote from the order of the Illinois Commerce Commission rejecting the proposal by the city of Chicago to monetize the environmental externalities. The quote is, "The city presented no credible evidence that the cost of controlling any pollutant is either a reasonable proxy for the environmental damage caused by the pollutant or for the value that society as a whole has placed on eliminating the pollutant. In light of these two flaws the city's proposal (for environmental externalities monetization) provides no rational economic basis for selection among resource alternatives."

If DOE is to consider secondary consequences , externalities, we think it only fair and logical to consider all such effects, both positive and negative, as they affect all energy sources. A list of things that could be considered are job creation or loss, effects on foreign trade and the balance of payment, environmental effects of oil and gas exploration and development, uncontrolled emissions from residential fossil fuel use, delivery costs and effects, public safety, noise and visual pollution, reliability of supply, and bird kills by windmills. The list could go on quite a bit further. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 74 1 to quote from the order of the Illinois Commerce 2 Commission rejecting the proposal by the city of 3 Chicago to monetize the environmental externalities. 4 Thequote is,

..The citypresentedno credibleevidence 5 that the cost of controlling any pollutant is either 6 a reasonableproxyfortheenvironmentaldamage caused 7 by the pollutant or for the value that society as a 8 whole has placed on eliminating the pollutant. In 9 light of these two flaws the city's proposal (for 10 environmental externalitiesmonetization) provides no 11 rational economic basis for selection among resource 12 alternatives." 13 If DOE is to consider secondary 14 consequences, externalities, we thinkitonlyfair and 15 logical to consider all such effects, both positive 16 and negative, as they affect all energy sources. A 17 list of things that could be considered are job 18 creation or loss, effects on foreign trade and the 19 balance of payment, environmental effects of oil and 20 gas exploration and development, uncontrolled 21 emissions from residential fossil fuel use, delivery 22 costs and effects, public safety, noise and visual 23 pollution, reliability of supply, and bird kills by 24 windmills. 25 The list could go on quite a bit further.

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The point is that proposed rule is aimed only at threeexternalities that happen to be associated with coalfired electricity. This seems arbitrary and unfair.

I would also like to emphasize one of the items on the list I just read. Any calculation should take into account the environmental effects at the appliance's point of use. It makes little sense to focus only on emissions from a power plant while ignoring emissions from a fuel-burning appliance at the point of use where many people live. In fact, if the effect of the rule is to discourage clean electric technology at the point of use, there will be a demonstrable effect on the environment, particularly in population centers.

In summary, we believe that DOE proposes to monetize SO2, NO, and CO2 emissions is economically and environmentally self-defeating because:

First, it will increase the price of electricity, resulting in more greenhouse gas emissions from fuel burning at the point of use;

Second, there is no economic justification to support the monetization theory;

Third, the proposal fails to consider the full range of effects in power resource selection;

Fourth, the rationale for reducing CO2



### SACS, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 75 1 The point is thatproposedrule is aimedonly at three 2 externalities that happen to be associatedwith coal3 fired electricity. This seems arbitrary and unfair. 4 I would also like to emphasize one of the 5 items onthe list I just read. Any calculation should 6 take into account the environmental effects at the 7 appliance's point of use. It makes little sense to 8 focus only on emissions from a power plant while 9 ignoring emissions from a fuel-burning appliance at 10 the point of use where many people live. In fact, if 11 the effect of the rule is todiscourage clean electric 12 technology at the point of use, there will be a 13 demonstrable effect on the environment, particularly 14 in population centers. 15 In summary, we believe that DOE proposes 16 to monetize S02' NOx and CO2emissions is economically 17 and environmentally self-defeating because: 18 First, it will increase the price of 19 electricity, resulting in more greenhouse gas 20 emissions from fuel burning at the point of use; 21 Second, thereisnoeconomicjustification 22 to support the monetization theory; 23 Third, the proposal fails to consider the 24 full range of effects in power resource selection; 25 Fourth, the rationale for reducing CO2 SAG,CORP 4218 LENORE LANE, NW. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 76

emissions is not supported by conclusive scientific evidence; and

Fifth, consumers are already paying for the cost to control SO2 and NOx emissions.

Now, what if DOE continues regardless of what we believe are good reasons not to? We believe that it should then proceed with a full environmental analysis encompassing the total fuel cycle and the total range of their impact. In other words, Basin would call on the government to do its own environmental impact statement regarding this proposal. They suggest no action should be taken based on the piecemeal analysis.

In conclusion, Basin believes that monetizing environmental externalities for appliance efficiency standards would set an unfortunate precedent that would reverse recent regulatory decisions that have discredited the theory. Above all, they believe its imposition would only be costly to our consumers and the economy and would have no benefit to the environment.

We thank you. Now, Basin will submit a written letter regarding their comments, and as I said, if you have any questions, please give them to Duane. He is SAG, CORE 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 76 1 emissions is not supported by conclusive scientific 2 evidence; and 3 Fifth, consumers are already paying for 4 the cost to control 802 and NOx emissions. 5 Now, what if DOE continues regardless of 6 what we believe are good reasons not to? We believe 7 that it should then proceedwith a full environmental 8 analysis encompassing the total fuel cycle and the 9 total range of their impact. In other words, Basin 10 would calIon the government to do its own 11 environmental impact statement regarding this 12 proposal. They suggest no action should be taken 13 based on the piecemeal analysis. 14 In conclusion, Basin believes that 15 monetizing environmental externalities for appliance 16 efficiency standards would set an unfortunate 17 precedent that would reverse recent regulatory 18 decisions that have discredited the theory. Above 19 all, theybelieve its imposition would only be costly 20 to our consumers and the economy and would have no 21 benefit to the environment. 22 We thank you. 23 Now, Basin will submit a written letter 24 regarding their comments, and as I said, if you have 25 any questions, please give them to Duane. He is

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sitting in the back and he will respond in writing.

PRESIDING OFFICIAL BERLIN: Thank you, John. Mark, do you have any questions?

MR. FRIEDRICHS: I don't have a question. I just have one point of clarification actually. I want to clarify something that was in the statement. Your statement indicated that DOE only takes account of emissions from power plants and I just wanted to indicate that that's not true, that we do quantify the emission effects of appliance efficiency standards on emissions of NOR, SO2 and CO2 at any point, either end use or power plant, that those emissions occur presently. PRESIDING OFFICIAL BERLIN: Thank you. Michael, any questions?

MR. McCABE: No questions. PRESIDING OFFICIAL BERLIN: Gene? MR. MARGOLIS: No questions. PRESIDING OFFICIAL BERLIN: Howard? MR. GRUENSPECHT: No. PRESIDING OFFICIAL BERLIN: Thank you. Ned Leonard. MR. LEONARD: Good morning . My name is Ned Leonard. I manage communications in governmental affairs for the Western Fuels Association . We are a SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 77 1 sitting in the back and he will respond in writing. 2 PRESIDING OFFICIAL BERLIN: Thank you, 3 John. Mark, do you have any questions? 4 MR. FRIEDRICHS: I don't have a question. 5 I just have one point of clarification actually. I 6 want to clarify something that was in the statement. 7 Your statement indicated that DOE only takes account 8 of emissions from power plants and I just wanted to 9 indicatethat that's not true, thatwe do quantifythe 10 emission effects of appliance efficiency standards on 11 emissions of NOxf S02 and CO2at any point, either end 12 use or power plant, that those emissions occur 13 presently. 14 PRESIDING OFFICIAL BERLIN: Thank you. 15 Michael, any questions? 16 MR. McCABE: No questions. 17 PRESIDING OFFICIAL BERLIN: Gene? 18 MR. MARGOLIS: No questions. 19 PRESIDING OFFICIAL BERLIN: Howard? 20 MR. GRUENSPECHT: No. 21 PRESIDING OFFICIAL BERLIN: Thank you. 22 Ned Leonard. 23 MR. LEONARD: Good morning. My name is 24 Ned Leonard. I manage communications in governmental 25 affairs for the Western Fuels Association. We are a

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fuel supply cooperative to consumer-owned electric utilities primarily in the Great Plains, Rocky Mountains, Southwestern states and in Louisiana.

As Dr. Berlin indicated earlier, this hearing, as it were, represents sort of the tip of the iceberg of what you're seeing come in as written comments, and I guess in that context my oral comments today represents sort of the tip of the iceberg of what we'll submit in terms of written testimony by February 6. Our testimony this morning is intended to dissuade the Department of Energy from any further effort to establish monetary values for environmental externalities in appliance efficiency standards. Our advice to you frankly is, "Don't do this. It's wrong." While externalities are an elegant economic theory, environmental externalities are proving to be a distasteful hash of bad science, misdirected public policy and lousy economics.

You are looking for a sound analytical basis upon which to monetize environmental externalities and we think there is none.

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### 78 1 fuel supply cooperative to consumer-owned electric 2 utilities primarily in the Great Plains, Rocky 3 Mountains, Southwestern states and in Louisiana. 4 As Dr. Berlin indicated earlier, this 5 hearing, as itwere, represents sort of the tipof the 6 iceberg of what you're seeing corne in as written 7 comments, and I guess inthat contextmy oral comments 8 today represents sort of the tip of the iceberg of 9 what we'll submit in terms of written testimony by 10 February 6. 11 Our testimony this morning lS intended to 12 dissuade the Department of Energy from any further 13 effort to establishmonetary values for environmental 14 externalities in appliance efficiency standards. Our 15 advice to you frankly is, "Don't do this. It's 16 wrong." While externalities are an elegant economic 17 theory, environmental externalities are provingto be 18 a distasteful hash of bad science, misdirectedpublic 19 policy and lousy economics. 20 You are looking for a sound analytical 21 basis upon which to monetize environmental 22 externalities and we think there is none. 23 Hearing records available to the 24 Department from various state regulatory proceedings 25 where the issue has been fully adjudicated are SAG,CORP 4218 LENORE LANE, N,W. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 79

testimony to that fact. The Colorado Public Utilities Commission said it most succinctly in their December, 1992 decision:

"...the evidence in the record indicates that the method for quantification of externalities are highly complex, and at this time, still speculative. ...Given this current state of knowledge, it would be premature to mandate utilities to monetize externalities..." (Decision No. C92-1646)

Two years later there has been no fundamental change in the state of knowledge on this issue unless one begins to tally what's been happening in the states where monetized environmental externalities have been considered.

A collaborative process in New Mexico recommended that the Public Utilities Commission there adopt an integrated resource planning rule that does not monetize environmental externalities.

The Illinois Congress Commission considered alternative schemes for calculating the values of various environmental externalities, including carbon dioxide and concluded:

"The cost analysis derived from a guesswork base of un-enacted environmental regulation could result in a seriously faulted resource selection SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 79 1 testimonytothatfact. The ColoradoPublicutilities 2 Commission said itmost succinctly in theirDecember, 3 1992 decision: 4 

### "

...the evidence in the record indicates 5 that the method for quantification of externalities 6 

### are highly complex, and at this time, still 7 

### speculative. ...Given this current state of 8 knowledge, itwouldbepremature to mandate utilities 9 tomonetizeexternalities

..." (DecisionNo. C92-1646) 10 Two years later there has been no 11 fundamental change in the state of knowledge on this 12 issueunless onebegins totallywhat'sbeenhappening 13 

### in the states where monetized environmental 14 externalities have been considered. 15 A 

### collaborative process in New Mexico 16 recommendedthatthePublicutilitiesCommissionthere 17 adopt an integrated resource planning rule that does 18 not monetize environmental externalities. 19 The Illinois Congress commission 20 considered alternative schemes for calculating the 21 values of various environmental externalities, 22 including carbon dioxide and concluded: 23 

### "The cost analysis derived from a 24 guessworkbaseof un-enactedenvironmental regulation 25 couldresult ina seriouslyfaultedresource selection

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driven by speculative environmental quality constraints. Misplaced regulatory action of this kind would work serious injury to the basic purpose of the least cost planning process." (Order 92-0274)

Within the last year, the Texas Public Utility Commission started down this road and beat a retreat. Staff at the Kansas Corporation Commission has revised their draft IRP rule so that it does not monetize environmental externalities. The Arizona Corporation Commission's IRP draft has been subjected to profound changes in the way externalities are treated. Both New York and Massachusetts, which were among the first to monetize externalities have chosen to revisit the issue. And that was until December 22 when the Supreme Judicial Court for the Commonwealth of Massachusetts struck down the Department of Public Utilities original externalities decision. A DOE effort to monetize environmental externalities in the context of appliance efficiency standards blazes a new trail into the same swamp. We don't think you want to go there.

If your concern is pollutants, carbon dioxide should not be on the list. There is no SAG, CO 61 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 80 1 driven by speculative environmental quality 2 constraints. Misplacedregulatoryactionofthiskind 3 wouldwork serious injury to the basic purpose of the 4 

### least cost planning process." (Order 92-0274) 5 

### Within the last year, the Texas Public 6 Utility Commission started down this road and beat a 7 retreat. Staff at the Kansas Corporation Commission 8 has revised their draft IRP rule so that it does not 9 

### monetize environmental externalities. The Arizona 10 Corporation Commission's IRP draft has been subjected 11 to profound changes in the way externalities are 12 treated. 13 

### Both New York and MassachusettsI 

### which 14 were among the first to monetize externalities have 15 

### chosen to revisit the issue. And that was until 16 December 22 when the Supreme Judicial Court for the 17 

### Commonwealth of Massachusetts struck down the 18 Departmentof Publicutilities original externalities 19 decision. 20 A DOE effort to monetize environmental 21 externalities in the context of appliance efficiency 22 standards blazes a new trail into the same swamp. We 23 don't think you want to go there. 24 If your concern is pollutants, carbon 25 

### dioxide should not be on the list.

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### There is no

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9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 81

statute anywhere designating CO2 a pollutant, for a sound scientific reason. Carbon dioxide is not a pollutant. It's a building block of life on this planet. DOE's interest in CO2 appears to have to do with it being the most important greenhouse gas. That itself is a disputable statement, given methane's global warming equivalency potential and the overwhelming importance of water vapor in the greenhouse effect. Let's be candid on this. Everyone looks for a CO2 number because without one, at the end of the day you can't move the needle very much in evaluating the relative social cost of renewable versus fossil-fuel resources in making electricity.

This problem is compounded, as DOE recognizes, when one considers that much of the "cost" of oxides of nitrogen and sulfur dioxide is internalized already by the existence of national caps on their emissions under the Clean Air Act Amendments of 1990. The reason CO2 is on the list is because of the fear of it's potential contribution to catastrophic changes in world climate. But what is the science upholding that view?

It will not be sufficient for DOE to cite, as it has in the Advance Notice of Proposed SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 81 1 statute anywhere designating CO2 a pollutant, for a 2 sound scientific reason. Carbon dioxide is not a 3 pollutant. It's a building block of life on this 4 planet. 5 DOE's interest in CO2 appears to have to 6 do with it being the most important greenhouse gas. 7 Thatitselfisa disputable statement, givenmethane's 8 global warming equivalency potential and the 9 overwhelming importance of water vapor in the 10 greenhouse effect. Let's be candidonthis. Everyone 11 looks for a CO2 number because without one, at the end 12 of the day you can't move the needle very much in 13 evaluating the relative social cost of renewable 14 versus fossil-fuel resources in making electricity. 15 This problem is compounded, as DOE 16 recognizes, whenone considers thatmuch ofthe IIcost II 17 of oxides of nitrogen and sulfur dioxide is 18 internalizedalreadybythe existenceof national caps 19 on their emissions under the CleanAir Act Amendments 20 of 1990. The reason CO2 is on the list is because of 21 the fear of it's potential contribution to 22 catastrophic changes in world climate. But what is 23 the science upholding that view? 24 Itwill notbe sufficientfor DOE to cite, 25 as it has in the Advance Notice of Proposed

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Rulemaking, the writings of Vice President Gore or statements by President Clinton concerning the threat of climate change as the environmental issue having the highest priority for the nation and the world. That's politics. That's opinion. It's not hard science. All predictions of apocalyptic global warming are based on General Circulation Model computer simulations that have been demonstrated to be inaccurate. Whether you call them scenarios, predictions or forecasts, they do not square with real world observation. Global temperature increases experienced in this century cannot have been caused by anthropogenic emissions of CO2. Every temperature reading after the rapid build up of CO2 emissions began in the 1940s is below the warming trend established before then.

And even if the temperature increases that the world has experienced in the last 50 years are caused by human induced greenhouse effect, such temperature increases are likely to be beneficial to mankind, rather than harmful because they appear to occur in polar night or winter, rather than in the summer, and with the result of extending growing seasons. This warming also appears to result in SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 82 1 Rulemaking, the writings of Vice President Gore or 2 statements byPresident Clinton concerningthe threat 3 of climate change as the environmental issue having 4 the highest priority for the nation and the world. 5 

### That's politics. That's opinion. It' s not hard 6 science. 7 

### All predictions of apocalyptic global 8 warming are based on General Circulation Model 9 computer simulationsthathavebeendemonstratedtobe 10 inaccurate. Whether you call them scenarios, 11 predictionsorforecasts, theydonot squarewithreal 12 world observation. Global temperature increases 13 experiencedinthis centurycannothavebeencausedby 14 anthropogenic emissions of CO2 , 

### Every temperature 15 reading after the rapid build up of CO2 

### emissions 16 began in the 1940s is below the warming trend 17 established before then. 18 Andevenifthetemperatureincreasesthat 19 the world has experienced in the last 50 years are 20 caused by human induced greenhouse effect, such 21 temperature increases are likely to be beneficial to 22 mankind, rather than harmful because they appear to 23 occur in polar night or winter, rather than in the 24 summer, and with the result of extending growing 25 seasons.

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### This warming also appears to result in SAG,CORP 4218 LENORE LANE, N,W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 83

increased cloudiness, further undermining predictions of climatological disaster by greenhouse alarmists.

Another reason not to worry about the increasing concentrations of CO2 relates to its beneficial effects on plant life. This statement, in contrast with the forecasts of the computer models is supported by observable, reproducible proof. As many as 1,087 experiments related to this effect have been published in peer reviewed scientific literature between 1980 and 1992 and 93 percent of them showed positive plant response.

So CO2 is not a problem. But if DOE chooses to believe CO2 is a problem, you are already headed in the right direction in your search for a solution. You don't need to incorporate monetized environmental externalities in appliance efficiency ratings.

Western Fuels Association, Edison Electric Institute and the Electric Power Research Institute, among others, have been paying close attention to the role of electrotechnologies in our economy and their impact on the environment. Declining electricity costs and rising electricity use are beneficial for the economy and the environment.

Despite rapidly rising coal use to support

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### 83 1 increasedcloudiness, furtherunderminingpredictions 2 of climatological disaster by greenhouse alarmists. 3 

### Another reason not to worry about the 4 increasing concentrations of CO2 

### relates to its 5 beneficial effects on plant life. This statement, in 6 contrast with the forecasts of the computermodels is 7 supportedbyobservable, reproducible proof. As many 8 as 1,087 experiments related to this effect have been 9 published in peer reviewed scientific literature 10 between 1980 and 1992 and 93 percent of them showed 11 positive plant response. 12 So CO2 

### is not a problem. 13 But if DOE chooses to believe CO2 

### is a 14 problem, you are alreadyheadedintherightdirection 15 

### in your search for a solution. You don't need to 16 incorporate monetized environmental externalities in 17 appliance efficiency ratings. 18 WesternFuelsAssociation,EdisonElectric 19 Institute and the Electric Power Research Institute, 20 among others, have beenpaying close attention to the 21 role of electrotechnologies in our economy and their 22 impact on the environment. Declining electricity 23 costs and rising electricity use are beneficial for 24 the economy and the environment. 25 Despiterapidlyrisingcoaluseto support

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electric and economic growth, total U.S. CO2 emissions have dropped from 4 pounds/$GNP in 1970 to about 2.7 pounds in 1991 and will fall below 2 pounds/$GNP by 2,010. This association of reduced CO2 emissions/$GNP and increasing coal consumption is not coincidental, but causal. Reduced CO2 emissions are a primary consequence of improved overall energy efficiency and energy efficiency gains are a direct result of electrification. Since 1970, for every single kilowatt hour of new demand there has been a net reduction in CO2 emissions of 3.6 pounds.

But hear this, the price of electricity matters. It appears to us from some preliminary work on this question, which will be presented in more detail with our written testimony, that DOE's ostensible goal of improving energy efficiency and reducing various emissions can be achieved at lower cost and with about five times greater results by putting downward, not upward, pressure on the nation's electric rates.

For our purposes here today, WFA will assume that DOE hopes the current 440 million kilowatt hour demand from residential heating and cooling can be reduced by 20 percent using whatever energy efficiency criteria flows from this notice (achievable SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 84 1 electricandeconomic growth, totalU.S. CO2 

### emissions 2 have dropped from 4 pounds/$GNP in 1970 to about 2.7 3 pounds in 1991 and will fall below 2 pounds/$GNP by 4 2,010. This associationofreducedCO2 

### emissions/$GNP 5 and increasing coal consumption is not coincidental, 6 

### but causal. Reduced CO2 

### emissions are a primary 7 consequence of improvedoverall energy efficiency and 8 energy efficiency gains are a direct result of 9 

### electrification. Since 1970, for every single 10 kilowatt hour of new demand there has been a net 11 reduction in CO2 

### emissions of 3.6 pounds. 12 But hear this, the price of electricity 13 matters. It appears to us from some preliminarywork 14 on this question, which will be presented in more 15 

### detail with our written testimony, that DOE's 16 ostensible goal of improving energy efficiency and 17 reducing various emissions can be achieved at lower 18 cost and with about five times greater results by 19 puttingdownward, notupward, pressureonthenation's 20 electric rates. 21 For our purposes here today, WFA will 22 assumethatDOE hopes the current 440millionkilowatt 23 hour demand from residential heating and cooling can 24 be reduced by 20 percent using whatever energy 25 efficiencycriteriaflows fromthisnotice (achievable

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we think in principle by a 20 percent increase in electric rates). It appears the net result would be about a 60 million tons per year CO2 reduction from power plants. In the alternative, what could we expect from a 20 percent increase in electricity demand due to a 20 percent decrease in the cost of electricity? It appears the associated increased use of electrotechnologies would eliminate (net of power plant) about 300 million tons per year CO2 compared to the 60 million tons alluded to above.

In summary then, we think that monetizing environmental externalities is a bad idea. Setting of CO2 values is unwarranted unscientifically. And that if you choose to worry about C02, lowering the real cost of electricity and promoting the implementation of electrotechnologies is the only viable option open to policy makers. The single best energy policy for low and fixed income people, for the economy, and for the environment is based on cheap and abundant electric energy generated by utilizing domestic

resources. Thank you.

PRESIDING OFFICIAL BERLIN: Mark, you have any questions?

MR. FRIEDRICHS: Just a simple request.

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### 85 1 we think in principle by a 20 percent increase in 2 electric rates). It appears the net result would be 3 about a 60 million tons per year CO2 

### reduction from 4 

### power plants. In the alternative, what could we 5 expect from a 20 percent increase in electricity 6 demand due to a 20 percent decrease in the cost of 7 electricity? It appears the associated increaseduse 8 of electrotechnologies would eliminate (net of power 9 plant) about 300 milliontons peryear CO2 

### comparedto 10 the 60 million tons alluded to above. 11 In summarythen, we thinkthatmonetizing 12 environmental externalities is a badidea. Settingof 13 CO2 

### values is unwarranted unscientifically. And that 14 if you choose to worry about CO2, 

### lowering the real 15 cost of electricity and promoting the implementation 16 of electrotechnologies is the only viable option open 17 to policy makers. The single best energy policy for 18 low and fixed income people, for the economy, and for 19 the environment is based on cheap and abundant 20 electric energy generated by utilizing domestic 21 resources. 22 Thank you. 23 PRESIDINGOFFICIALBERLIN: Mark, youhave 24 any questions? 25 

### MR. FRIEDRICHS: Just a simple request.

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If you provide for the record the calculations behind the estimate that you just --

MR. LEONARD: That will be part of our written testimony, yes, sir.

MR. FRIEDRICHS: Thank you. PRESIDING OFFICIAL BERLIN: Michael. MR. McCABE: No questions. MR. LEONARD: That will be a rather detailed study.

PRESIDING OFFICIAL BERLIN: Gene? MR. MARGOLIS: I just would like to make this comment for future speakers who present their testimony. At the beginning of the hearing, Dr. Berlin asked you, asked the people not to read their testimony. The written testimony is part of the record. It doesn't add anything to the record by someone, and I don't mean you, sir, but a number of people, the last few people, who have just read their testimony. The emphasis would be on parts of the testimony that you wish, that you think are very important the panel and the Department should not miss. I wish to congratulate Madam Attorney General, Heidi Heitkamp from North Dakota who did exactly that. She had her written testimony and she talked about SAG, CO ® 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 86 1 If you provide for the record the calculations behind 2 the estimate that you just 3 MR. LEONARD: That will be part of our 4 written testimony, yes, sir. 5 MR. FRIEDRICHS: Thank you. 6 PRESIDING OFFICIAL BERLIN: Michael. 7 MR. McCABE: No questions. 8 MR. LEONARD: That will be a rather 9 detailed study. 10 PRESIDING OFFICIAL BERLIN: Gene? 11 MR. MARGOLIS: I just would like to make 12 this comment for future speakers who present their 13 testimony. At the beginning of the hearing, Dr. 14 Berlin asked you, asked the people not to read their 15 testimony. The written testimony is part of the 16 record. It doesn't add anything to the record by 17 someone, and I don't mean you, sir, but a number of 18 people, the last few people, who have just read their 19 testimony. 20 The emphasis would be on parts of the 21 testimony that you wish l that you think are very 22 important the panel and the Department should not 23 miss. I wish to congratulateMadam Attorney General, 24 HeidiHeitkamp fromNorth Dakotawho didexactlythat. 25 She had her written testimony and she talked about

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parts that she thought were most important and that got a message across to us that that's a point that she wants us to emphasize.

And I hope, I realize I'm taking some amount of time, but we can read. The point that we want you to tell us about, and we know you can read, is to summarize. Tell us what are the major points, the points that you want us to decide on that you think we might have missed. So please, I am not giving this as a lecture or to admonish you, but just to try to help. This is a very technical subject. And we know that you have various points of view, so please emphasize those in the future. Thank you.

MR. GRUENSPECHT: Thank you very much for your testimony. At several points in your testimony the statement discussed the price of electricity, a proceeding which we are a part of today does not have that much to do with the price of electricity. It has to do with appliance efficiency standards so it really raises an issue that I think several other witnesses have raised and I guess after having it raised one more time, I'm going to put the question to you.

You clearly have a concern about this issue, but to what extent does that concern relate, if you had to divide it up between the use of the SAG, CR! 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 87 1 parts that she thought were most important and that 2 got a message across to us that that's a point that 3 she wants us to emphasize. 4 

### And I hope, I realize I'm taking some 5 

### amount of time, but we can read. The point that we 6 want you to tell us about, and we know you can read, 7 is to summarize. Tell us what are the major points, 8 the points that you want us to decide on that you 9 

### think we might have missed. So please, I am not 10 givingthis as a lecture or to admonish you, but just 11 to try to help. This is a very technical subject. 12 And we know that you have various points of view, so 13 please emphasize those in the future. Thank you. 14 

### MR. GRUENSPECHT: Thank you verymuch for 15 your testimony. At several points in your testimony 16 the statement discussed the price of electricity, a 17 proceedingwhich we are a part of today does not have 18 that much to do with the price of electricity. It has 19 todowithappliance efficiency standards so itreally 20 raises an issue that I think several other witnesses 21 have raised and I guess after having it raised one 22 more time, I'm going to put the question to you. 23 

### You clearly have a concern about this 24 issue, buttowhat extent does that concernrelate, if 25 you had to divide it up between the use of the

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treatment of environmental implications in appliance efficiency standards and the what I will call the "precedential value" which seems to be where the discussion of electricity prices is really directed at, since appliance rulemakings don't have much to do with electricity prices. How would you divide that up? We have heard from you and others I guess discussion about the precedential value. Is that the primary concern here or is the concern really related to the way in which appliance efficiency standards are made? I think as Dr. Berlin and Mark Friedrichs have already indicated, there's already a process that quantifies , measures in tons various environmental effects associated with alternative levels of the standard. So in that narrow, narrower field, is it that as preferred to something that tries to put the different economic and environmental effects onto a single metric, or is it really this precedential effect? If we had to divide this up on a scale of 100, how much of it is the precedential effect and how much of it really relates to appliance efficiency standards? MR. LEONARD: I'm going to try to respond to that as best I can . I think the concern that we're SAG, CR® 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 88 1 treatment of environmental implications in appliance 2 efficiency standards and the what I will call the 3 "precedential value" which seems to be where the 4 discussion of electricity prices is really directed 5 at, since appliance rulemakings don't have much to do 6 

### with electricity prices. How would you divide that 7 

### up? We have heard from you and others I guess 8 discussion about the precedential value. Is that the 9 primary concern here or is the concern really related 10 tothewayinwhichappliance efficiency standards are 11 made? 12 I think as Dr. Berlin andMarkFriedrichs 13 have alreadyindicated, there's alreadya processthat 14 quantifies, measures in tons various environmental 15 effects associated with alternative levels of the 16 

### standard. So in that narrow, narrower field, is it 17 that as preferred to something that tries to put the 18 different economic and environmental effects onto a 19 single metric, or is it really this precedential 20 effect? If we had to divide this up on a scale of 21 100, howmuch of itis theprecedential effect andhow 22 much of it really relates to appliance efficiency 23 standards? 24 

### MR. LEONARD: I'm goingto try to respond 25 to that as best I can. I thinkthe concern thatwe're

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expressing here is less for the mechanics of how the environmental externalities standards you are thinking about using will work up front on the appliance, but if it's going to have any goal or objective, it somehow has to work back through the fuel cycle, as it were, back down the power line or back down the gas line, whatever, to the sources.

And if it' s going to have any effect, I mean, if the effect is not to do something to the sources of electricity that have external environmental effects, then why are you doing it? I mean, there is no rationale. So if it's going back down the line, it has an effect and we are concerned about the effect on coal, especially given testimony as expressed earlier about what is stipulated as externalities here.

MR. GRUENSPECHT: I understand the answer. I mean, the object is not to enter into extended debate, but one could -- in the present context, I guess decision makers are faced with some economic information about cost to consumers, life cycle costs of various standards and also provided quantitative information about tons of this or that pollutant which may go beyond the pollutants, typically. I think that was focused in the comments today and I guess the

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### 89 1 expressing here is less for the mechanics of how the 2 environmentalexternalities standardsyouarethinking 3 about using will work up front on the appliance, but 4 if it's going to have any goal or objective, it 5 somehowhas toworkbackthrough the fuel cycle, as it 6 were, back down the power line or back down the gas 7 line, whatever, to the sources. 8 And if it's going to have any effect, I 9 mean, if the effect is not to do something to the 10 sources of electricity that have external 11 environmental effects, then why are you doing it? I 12 mean, there is no rationale. So if it's going back 13 down the line, it has an effect and we are concerned 14 about the effect on coal, especially given testimony 15 as expressed earlier about what is stipulated as 16 externalities here. 17 MR. GRUENSPECHT: I understandtheanswer. 18 I mean, the object is not to enter into extended 19 debate, but one could

-- in the present context, I 20 guess decision makers are faced with some economic 21 information about cost to consumers, life cycle costs 22 of various standards and also provided quantitative 23 informationabout tons of this orthatpollutantwhich 24 may gobeyondthepollutants, typically. I thinkthat 25 was focused in the comments today and I guess the

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issue is for their purposes for making decisions on appliance efficiency standards, would they be better served by some effort to put that information into a single metric?

MR. LEONARD: Well, it may be an inelegant way for them to have to look at that kind of data, but I would say at that point at least the policy maker can weigh on a given day what the relative weight of CO2 maybe ought to be as opposed to having had some model set up that gives it a monetary weight that may or may not reflect what we know on that day.

MR. GRUENSPECHT: I appreciate that answer. That's a fair answer and that's focused on what this is really about. So even in the narrow context of appliance efficiency, you prefer if you want to call it, the multi-basket approach were you provide information on the economics and then on the side you provide information on the environment, if that's indeed to be provided, but you then don't want to make an effort to integrate that information?

Taking apart this other concern about the precedential value, which I do hear is a big concern.

MR. LEONARD: Right. Well, not having given that specific question a lot of thought, I will say this, that if that's your concern and you're SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 90 1 issue is for their purposes for making decisions on 2 appliance efficiency standards, would they be better 3 served by some effort to put that information into a 4 single metric? 5 MR. LEONARD: Well, itmaybe an inelegant 6 way for themto have to look at that kind of data, but 7 I would say at that point at least the policy maker 8 can weigh on a given day what the relative weight of 9 CO2 maybe ought to be as opposed to having had some 10 model set up that gives it a monetary weight that may 11 or may not reflect what we know on that day. 12 MR. GRUENSPECHT: I appreciate that 13 answer. That's a fair answer and that's focused on 14 what this is really about. So even in the narrow 15 context of appliance efficiency, you prefer if you 16 want to call it, the multi-basket approach were you 17 provide information on the economics and then on the 18 side you provide information on the environment, if 19 that's indeed to be provided, but you then don't want 20 to make an effort to integrate that information? 21 Taking apart this other concern about the 22 precedential value, which I do hear is a bigconcern. 23 MR. LEONARD: Right. Well, not having 24 given that specific question a lot of thought, I will 25 say this, that if that's your concern and you're

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trying to find an easier way for the policy makers to make the decision and synthesize the information, we think environmental externalities, as I said, just add distasteful hash. It just isn't going to do what you want without creating lots of other distortions. Better to let them deal with the corned beef and the potatoes and the onions and decide what they're going to do with them in what proportions.

MR. GRUENSPECHT: Well, that was a very eloquent statement.

PRESIDING OFFICIAL BERLIN: Thank you. Larry Wethje.

MR. WETHJE: Good morning, gentlemen. My

name is Larry Wethje. I'm speaking on behalf of the Air Conditioning and Refrigeration Institute, ARI, which represents the manufacturers of central air conditioners and heat pumps that are covered by the proposed rulemaking. And I'm accompanied by our legal counsel, John Hodges, who may assist me in responding to any legal questions that might be raised.

In addition to our comments, ARI has also joined with the Gas Appliance Manufacturers Association, GAMA, the Association of Home Appliance Manufacturers, AHAM, and the National Electrical Manufacturers Association, NEMA, to retain a SAG, COR1 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 91 1 trying to find an easier way for the policymakers to 2 make the decision and synthesize the information, we 3 thinkenvironmental externalities, as I said, justadd 4 distasteful hash. It just isn't going to do what you 5 want without creating lots of other distortions. 6 Better to let them deal with the corned beef and the 7 potatoes and the onions and decide what they're going 8 to do with them in what proportions. 9 MR. GRUENSPECHT: Well, that was a very 10 eloquent statement. 11 PRESIDING OFFICIAL BERLIN: Thank you. 12 Larry Wethje. 13 MR. WETHJE: Good morning, gentlemen. My 14 name is Larry Wethje. I'm speaking on behalf of the 15 Air Conditioning and Refrigeration Institute, ARI, 16 which represents the manufacturers of central air 17 conditioners and heat pumps that are covered by the 18 proposedrulemaking. And I'maccompaniedbyour legal 19 counsel, John Hodges, who may assist me in responding 20 to any legal questions that might be raised. 21 In addition to our comments, ARI has also 22 joined with the Gas Appliance Manufacturers 23 Association, GAMA, the Association of Home Appliance 24 Manufacturers, AHAM, and the National Electrical 25 Manufacturers

(202) 797-2525 Association, NEMA, SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 to retain a

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consultant who will provide testimony in our behalf from an economist's perspective. So the next scheduled speaker, David Montgomery, will be speaking on all of our behalf from an economist's perspective. My comments, I'll be making separate from the other trade associations, represent ARI's views.

Let me start by just summarizing what we feel our position is on this Supplemental Notice. We take great exception and we are adamantly opposed to consideration of externalities in establishing appliance efficiency standards for three main reasons.

First, we believe DOE lacks legal authority to consider externalities in establishing appliance efficiency standards since EPCA, the Energy Policy and Conservation Act, was intended to only consider the end use energy efficiency of appliances. The issue of monetization of externalities has been rejected by Congress. So our first point is that DOE lacks the legal authority.

Second point is we feel this issue is too controversial and there is no consensus amongst experts on an agreeable approach to monetizing externalities.

And our third point, we believe that there is insufficient policy rationale for DOE to introduce SAG, CORe 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 92 1 consultant who will provide testimony in our behalf 2 from an economist's perspective. So the next 3 scheduled speaker, DavidMontgomery, will be speaking 

### 4 on all of our behalf from an economist's perspective. 5 My comments, I'll be making separate from the other 6 trade associations, represent ARI's views. 7 Let me start by just summarizing what we 8 feel our position is on this Supplemental Notice. We 9 take great exception and we are adamantly opposed to 10 consideration of externalities in establishing 11 applianceefficiencystandardsforthreemainreasons. 12 First, we believe DOE lacks legal 13 authority to consider externalities in establishing 14 appliance efficiency standards since EPCA, the Energy 15 Policy and Conservation Act, was intended to only 16 consider the end use energy efficiency of appliances. 17 The issue of monetization of externalities has been 18 rejectedby Congress. So our first point is that DOE 19 lacks the legal authority. 20 Secondpoint is we feel this issue is too 21 controversial and there is no consensus amongst 22 experts on an agreeable approach to monetizing 23 externalities. 24 Andourthirdpoint, webelievethatthere 25 is insufficientpolicy rationale for DOE to introduce

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an unprecedented new criteria into this process. Therefore, ARI requests that the Supplemental ANPR be withdrawn and that externalities not be considered as part of the appliance efficiency program. And I'll elaborate on our three summarization points a little bit here. First DOE lacks the legal authority. We think that you're precluded by EPCA from including this. The regulatory authority for this is for energy efficiency levels for consumer products is explicitly circumscribed by EPCA, which requires that the energy efficiency or energy use of consumer appliance is the focus of standards. Congress has specifically rejected imposition of externalities.

And I need to read a little bit from the text here, just because the development of this argument requires some quotation from EPCA. The scope of the standards program is evident from the title of EPCA, namely Energy Conservation Program for Consumer Products other than automobiles. Now, in this portion of EPCA Congress directed a program for improvement of the energy efficiency of covered products. This policy is re-emphasized in the title of the 1987 appliance efficiency amendment to EPCA, the National Appliance Energy Conservation Act. SAG

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### 93 1 an unprecedented new criteria into this process. 2 Therefore, ARI requests that the Supplemental ANPR be 3 withdrawn and that externalities not be considered as 4 part of the appliance efficiency program. And I'll 5 elaborate on our three summarization points a little 6 bit here. 7 First DOE lacks the legal authority. We 8 think that you're precluded by EPCA from including 9 this. The regulatory authority for this is for energy 10 efficiency levels for consumer products 1S explicitly 11 circumscribedby EPCA, which requires that the energy 12 efficiency or energy use of consumer appliance is the 13 focus of standards. Congress has specifically 14 rejected imposition of externalities. 15 And I need to read a little bit from the 16 text here, just because the development of this 17 argumentrequires some quotation fromEPCA. The scope 18 of the standards program is evident from the title of 19 EPCA, namely Energy Conservation Program for Consumer 20 Products otherthan automobiles. Now, inthis portion 21 ofEPCA Congress directed a programfor improvement of 22 the energy efficiency of covered products. This 23 policy is re-emphasized in the title of the 1987 24 appliance efficiency amendment to EPCA, the National 25 Appliance Energy Conservation Act.

(202)797-2525 SAG,CORP 4218LENORE LANE, N.w. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 94 So we're talking about energy conservation of appliances. Now, let's examine how EPCA defines energy. EPCA states that the energy efficiency standards that DOE is authorized to set must be performance standards which prescribe a minimum level of energy efficiency or a maximum quantity of energy use for covered products. Thus, DOE must set standards based on energy use or energy efficiency. Energy use is defined as "the quantity of energy directly consumed by a consumer product at the point of use. " And that's a quote from EPCA . Energy efficiency is defined in terms of energy use. It means the ratio of the useful output of services from

a consumer product to the energy use of the product.

Now, DOE has always recognized that its authority is restrained by those foregoing arguments. Thus, DOE has consistently rejected setting standards based on the power plant or source energy and has instead properly focused on energy consumed directly by the appliance or site energy. For many years, DOE has explicitly acknowledged that its standards are constrained by the term energy use to standards relating to the products themselves. Thus, over a decade ago, DOE stated:

"Energy use measures the quantity consumed

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### 94 1 

### Sowe'retalkingaboutenergyconservation 2 of appliances. Now, let's examine how EPCA defines 3 

### energy. EPCA states that the energy efficiency 4 standards that DOE is authorized to set must be 5 performance standards whichprescribe a minimum level 6 of energy efficiency or a maximum quantity of energy 7 

### use for covered products. Thus, DOE must set 8 standards based on energy use or energy efficiency. 9 Energy use is defined as "the quantity of energy 10 directly consumed by a consumer product at the point 11 

### of use." And that's a quote from EPCA. Energy 12 efficiency is defined in terms of energy use. It 

### 13 means the ratio of the useful output of services from 14 a consumer product to the energy use of the product. 15 Now, DOE has always recognized that its 16 authority is restrainedbythose foregoing arguments. 17 Thus, DOE has consistentlyrejected setting standards 18 based on the power plant or source energy and has 19 instead properly focused on energy consumed directly 20 by the appliance or site energy. For many years, DOE 21 has explicitly acknowledged that its standards are 22 constrained by the term energy use to standards 23 

### relating to the products themselves. Thus, over a 24 decade ago, DOE stated: 25 "Energyusemeasuresthequantityconsumed

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at the point of use. Thereby avoiding the calculation of inefficiencies of generating and transmitting electricity. The effect of this definition is to forego any appliance standard that would be based on the source energy efficiency of the appliance."

DOE has repeatedly re-emphasized this point by again stating, "the Act defines energy use as the quantity of energy directly consumed by a consumer product at point of use. This is generally called site energy as opposed to source energy."

So here's the key point . If DOE is prevented from using the energy at the power plant in setting standards, it seems to go without saying that it cannot use such factors that are even more external to the appliance, such as environmental factors of power generation or energy security.

Now it's true even though EPCA contains some general language concerning other factors the Secretary considers relevant in determining economic justification of new standards, we think this must be read in the context of the statute as a whole and the specific provisions relating to energy use. DOE cannot rely on an unduly expansive interpretation of a general economic provision in EPCA to gut the specific restrictions relating to energy use. Other SAG, COR® 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 95 1 atthepointofuse. Therebyavoidingthe calculation 2 of inefficiencies of generating and transmitting 3 

### electricity. The effect of this definition is to 4 forego any appliance standard that would be based on 5 the source energy efficiency of the appliance. II 6 

### DOE has repeatedly re-emphasized this 7 pointbyagain stating, "theAct defines energyuse as 8 thequantityof energydirectlyconsumedbya consumer 9 

### product at point of use. This is generally called 10 site energy as opposed to source energy." 11 So here's the key point. If DOE is 12 prevented from using the energy at the power plant in 13 setting standards, it seems to go without sayingthat 14 itcannotuse such factors ·thatare evenmore external 15 to the appliance, such as environmental factors of 16 power generation or energy security. 17 Now it's true even though EPCA contains 18 some general language concerning other factors the 19 Secretary considers relevant in determining economic 20 justificationof new standards, we think this must be 21 read in the context of the statute as a whole and the 22 specific provisions relating to energy use. DOE 23 cannot rely on an unduly expansive interpretation of 24 a general economic provision in EPCA to gut the 25 specific restrictions relating to energy use. Other

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factors are not relevant if they do not relate to the

consumer products covered by the energy efficiency standard and do not relate to those products ' energy efficiency. The thrust of the criteria to be considered in determining justification of new standards concerns energy use of the products, their costs, their manufacturers and consumers of the products. Thus, the DOE Supplemental ANPR proposes factors that are beyond the scope of DOE's regulatory authority under the United States energy conservation program for appliances prescribed by EPCA. So that was point number one, DOE lacks the legal authority.

Our second point is that the economic theory for monetizing externalities is highly controversial, as stated many times this morning. We fail to include such a widely disputed and unsettled methodology in what has been a reasonably sound analytical approach is only asking for serious delay, confusion and probable litigation.

There was an interesting report that's just been put out by the Office of Technology and Assessment in September of 1994. Perhaps you've seen it. If not, I want to read just a couple quotes which we feel are very illuminating to our second point here SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 96 1 factors are not relevant if they do not relate to the 2 consumer products covered by the energy efficiency 3 

### standard and do not relate to those products' energy 4 

### efficiency. 5 

### The thrust of the criteria to be 6 

### considered in determining justification of new 7 

### standards concerns energy use of the products, their 8 

### costs, their manufacturers and consumers of the 9 

### products. Thus, the DOE Supplemental ANPR proposes 10 

### factors that are beyondthe scope of DOE's regulatory 11 authorityunder the united states energy conservation 12 program for appliances prescribed by EPCA. So that 13 

### was point number one, DOE lacks the legal authority. 14 Our second point is that the economic 15 

### theory for monetizing externalities is highly 16 controversial, as statedmany times this morning. We 17 fail to include such a widely disputed and unsettled 18 methodology in what has been a reasonably sound 19 analytical approach is only asking for serious delay, 20 confusion and probable litigation. 21 There was an interesting report that's 22 just been put out by the Office of Technology and 23 Assessment in September of 1994. Perhaps you've seen 24 it. If not, I want to readjust a couple quotes which 25 we feel arevery illuminatingtoour secondpointhere

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 regarding the controversy of this. OTA in this report, it's entitled "The Studies of Environmental Cost of Electricity." Here's a quote. "OTA concludes that no clear consensus exists on quantitative estimates of environmental costs of electricity or on methodologies for making those estimates. Furthermore, OTA finds that generally accepted estimates would be difficult, if not impossible to achieve at this time."

Our economic consultant will elaborate

more fully on the controversial nature of this issue but in our opinion, if the Office of Technology Assessment or the Congress is saying there is no

consensus that exists, I don't see what further testimony DOE needs to be convinced that this is not a good idea. It will only convolute everything and lead to unnecessary controversy and that in essence is what our second point is all about. It's just too controversial to consider.

Our third point is that there is insufficient policy rationale for considering externalities. As I substantiated earlier, DOE has for many years correctly interpreted the appliance energy standards as relating directly to the energy consumption of covered products at the point of use. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 97 1 regarding the controversy of this. 2 

### OTA in this report, it's entitled "The 3 StudiesofEnvironmentalCostofElectricity. II 

### Here's 4 

### a quote. "OTA concludes that no clear consensus 5 exists on quantitative estimates of environmental 6 costs of electricity or on methodologies for making 7 

### those estimates. Furthermore, OTA finds that 8 generally accepted estimates would be difficult, if 9 not impossible to achieve at this time." 10 

### Our economic consultant will elaborate 11 more fully on the controversial nature of this issue 12 but in our opinion, if the Office of Technology 13 Assessment or the Congress is saying there is no 14 consensus that exists, I don't see what further 15 testimony DOE needs to be convinced that this is not 16 

### a good idea. It will only convolute everything and 17 leadtounnecessarycontroversyandthatinessenceis 18 

### what our second point is all about. It's just too 19 controversial to consider. 20 

### Our third point is that there is 21 insufficient policy rationale for considering 22 

### externalities. As I substantiated earlier, DOE has 23 for many years correctly interpreted the appliance 24 energy standards as relating directly to the energy 25 consumption of covered products at the point of use.

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DOE cannot and should not inject irrelevant and controversial factors such as externalities into the standards-making process.

Quoting again from this OTA report, it says that "OTA found that because of the large size and scope of environmental costs, regarding the monetary value of the environmental effects of energy technologies, they necessarily involve a large number of assumptions. These assumptions have been the focus of contentious debate in the analytical and policy communities. While changing a study's assumptions can profoundly affects its results, there is currently no agreement on the most appropriate set of assumptions. This does not imply that all assumptions are valid, but indicates that assumptions often reflect deeply held views of participants in policy debates."

So ARI strongly feels there is insufficient policy rationale for considering externalities in setting appliance efficiency standards and DOE should not subject itself to this added, unnecessary controversy.

Furthermore, just a little over two years ago, DOE itself wrote to the chairman of the New York Public Service Commission, and I quote, "Externality values derived from presently available reports and SAG, C RP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 98 1 DOE cannot and should not inject irrelevant and 2 controversial factors such as externalities into the 3 standards-making process. 4 Quoting again from this OTA report, it 5 says that "OTA found that because of the large size 6 and scope of environmental costs, regarding the 7 monetary value of the environmental effects of energy 8 technologies, they necessarily involve a large number 9 of assumptions. These assumptions havebeenthe focus 10 of contentious debate in the analytical and policy 11 communities. While changinga study's assumptions can 12 profoundly affects its results, there is currentlyno 13 agreement on the most appropriate set of assumptions. 14 This does not imply that all assumptions are valid, 15 but indicates that assumptions often reflect deeply 16 held views of participants in policy debates." 17 So ARI strongly feels there is 18 insufficient policy rationale for considering 19 externalities in setting appliance efficiency 20 standards and DOE should not subject itself to this 21 added, unnecessary controversy. 22 Furthermore, just a little over two years 23 ago, DOE itself wrote to the chairman of the New York 24 Public Service Commission, and I quote, "Externality 25 values derived from presently available reports and

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surveys are based on flawed scientific calculation of damage and are in any case inappropriate for general use because such values can only be accurately calculated for specific localities."

In the same letter, DOE stated that "reliable energy related health and ecological impacts and associated costs and benefits can only be derived on a site-specific basis. Use of general externality values are not appropriate."

ARI agrees with DOE's position that general externality values are not appropriate.

Consideration of externality values in setting appliance standards can only result in unduly burdensome standards which would decrease our country's very favorable balance of trade in the air conditioning markets because of the costs imposed on our domestic manufacturers. This could result in the loss of thousands of jobs, which DOE must consider both the domestic and international trade impacts on competition in establishing efficiency standards.

Including externalities associated with electric power generation in appliance efficiency standards could severely distort the appliance market place. Some of the products covered by this proposed rulemaking can use either electricity or natural gas. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 99 1 surveys are basedon flawed scientific calculation of 2 damage and are in any case inappropriate for general 3 use because such values can only be accurately 4 calculated for specific localities." 5 

### In the same letter, DOE stated that 6 "reliableenergyrelatedhealthandecologicalimpacts 7 and associated costs andbenefits can onlybe derived 8 on a site-specificbasis. Use of general externality 9 values are not appropriate." 10 

### ARI agrees with DOE's position that 11 general externality values are not appropriate. 12 Consideration of externality values in 13 settingappliance standards can only result in unduly 14 

### burdensome standards which would decrease our 15 country's very favorable balance of trade in the air 16 conditioningmarkets because of the costs imposed on 17 our domesticmanufacturers. This could result inthe 18 loss of thousands of jobs, which DOE must consider 19 both the domestic and international trade impacts on 20 competition in establishing efficiency standards. 21 Including externalities associated with 22 electric power generation in appliance efficiency 23 standards could severelydistort the appliancemarket 24 place. Some of the products coveredby this proposed 25 rulemaking can use either electricityor natural gas.

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### 100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Uncertain externality values could result in policies

that promote the wrong fuel, thus applying environmental externalities to appliances may cause unwarranted fuel switching and distort consumer choices in the market place.

So in conclusion, in view of all that I've just said, again I just want to re-emphasize the three main points. We feel that this issue is clearly too controversial. We feel that DOE lacks the legal authority and we feel that there is insufficient policy rationale to include to consider them.

Now, in addition to comments on this supplemental ANPR, we would like to submit in the docket just some end notes regarding the initial proposed rulemaking for these covered products. In response to the original ANOPR that was published back in September of 1993, AIR indicated that we'd keep DOE informed on the status of our industry's progress to develop alternative refrigerants to HCFC-22, which is being phased out under the requirements of the Montreal Protocol. This situation is causing unprecedent change and turbulence in our industry and is by far the most important issue facing our members.

Through AIR's Alternative Refrigerant Evaluation Program, AREP, several alternative SAG, COP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 100 1 Uncertain externalityvalues could result inpolicies 2 that promote the wrong fuel, thus applying 3 environmental externalities to appliances may cause 

### 4 unwarranted fuel switching and distort consumer 5 choices in the market place. 6 So in conclusion, inviewof all that I've 7 just said, again I justwant to re-emphasizethe three 8 main points. We feel that this issue is clearly too 9 controversial. We feel that DOE lacks the legal 10 authority and we feel that there is insufficient 11 policy rationale to include to consider them. 12 Now, in addition to comments on this 13 supplemental ANPR, we would like to submit in the 14 docket just some end notes regarding the initial 15 proposed rulemaking for these covered products. In 16 response to the originalANOPRthatwas publishedback 17 in September of 1993, AIR indicatedthatwe'dkeep DOE 18 informed on the status of our industry's progress to 19 develop alternative refrigerants to HCFC-22, which is 20 being phased out under the requirements of the 21 Montreal Protocol. This situation is causing 22 unprecedent change and turbulence in our industry and 23 isby far themost important issue facing ourmembers. 24 25 Evaluation

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refrigerants to R-22 have been identified but for the record, we want DOE to understand that none of those alternatives have yet proven to be totally satisfactory for replacement of R-22. In fact, field testing of residential central air conditioning equipment with several of the alternatives has revealed some very significant reliability problems.

Much work continues to be done in this area, and our industry is hopeful that by the end of this year satisfactory alternatives will be identified. Therefore, we continue to ask DOE to wait until the manufacturers have the proper data available on R-22 alternatives before attempting to set new efficiency standards. Since the new standards will not take effect until five years after a ruling, R-22 is not going to be the predominant refrigerant used at that time. However, cost and efficiency information on the alternatives isn't known yet and therefore, we are urging DOE to wait until this information is available before proceeding with the standard. It doesn't make any sense to proceed with a rulemaking based on erroneous data. It makes much more sense to begin a new rulemaking early in 1996, when the appropriate data is available.

Manufacturers cannot afford to undergo two

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### 101 1 refrigerants to R-22 have been identifiedbut for the 2 record, we want DOE to understand that none of those 3 alternatives have yet proven to be totally 

### 4 satisfactory for replacement of R-22. In fact, field 5 testing of residential central air conditioning 6 equipment with several of the alternatives has 7 revealed some very significant reliabilityproblems. 8 Much work continues to be done in this 9 area, and our industry is hopeful that by the end of 10 this year satisfactory alternatives will be 11 identified. Therefore, we continue to askDOE towait 12 untilthemanufacturers havetheproperdata available 13 on R-22 alternatives before attempting to set new 14 efficiency standards. Since the new standards will 15 not take effect until five years after a ruling, R-22 16 is not goingto bethepredominant refrigerant used at 17 that time. However, cost and efficiency information 18 on the alternatives isn't known yet and therefore, we 19 are urging DOE to wait until this information is 20 available before proceeding with the standard. It 21 doesn't make any sense to proceed with a rulemaking 22 based on erroneous data. It makes much more sense to 23 begin a new rulemaking early in 1996, when the 24 appropriate data is available. 25 Manufacturerscannotaffordtoundergotwo

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redesigns of their product lines, once with R-22 and then again with an alternative, both meeting the new standards. They can only afford to go through one development cycle with products that meet the new standards and that development cycle will be with an alternative refrigerant.

This concludes my comments. I'd be happy to address any questions you might have.

PRESIDING OFFICIAL BERLIN: I have no questions. Mark? MR. FRIEDRICHS: Yes. I have two questions. One, am I interpreting your comments correctly, do you believe that there is no legal basis for DOE to consider the environmental impacts of appliance efficiency standards?

MR. WETHJE: I'd say you're interpreting what I said correctly, yes. And John, you may want to elaborate on that a little bit.

MR. HODGES: Yes, we feel very strongly that the statute does not provide for the consideration of externalities whether they're monetized or not. There has been some discussion from the panel this morning about somehow that you'retaking these factors into account in some nonmonitorized fashion up until now based upon what has been termed section six. Frankly, I can't find any SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 102 1 redesigns of their product lines, once with R-22 and 2 then again with an alternative, both meeting the new 3 

### standards. They can only afford to go through one 4 development cycle with products that meet the new 5 standards and that development cycle will be with an 6 alternative refrigerant. 7 

### This concludes my comments. I'dbe happy 8 

### to address any questions you might have. 9 

### PRESIDING OFFICIAL BERLIN: I have no 10 

### questions. Mark? MR. FRIEDRICHS: Yes. I havetwo 11 questions. One, am I interpreting your comments 12 correctly, doyoubelievethatthere is no legalbasis 13 for DOE to consider the environmental impacts of 14 appliance efficiency standards? 15 

### MR. WETHJE: I'd say you're interpreting 16 what I said correctly, yes. And John, youmay want to 17 elaborate on that a little bit. 18 

### MR. HODGES: Yes, we feel very strongly 19 

### that the statute does not provide for the 20 

### consideration of externalities whether they're 21 monetizedornot. Therehasbeen some discussionfrom 22 the panel this morning about somehow that you're 23 taking these factors into account in some non24 monitorized fashion up until now based upon what has 25 

### been termed section six. Frankly, I can't find any

(202)797-2525 SAG,CORP 4218LENORE LANE, NW. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS103 1 Section 6 or any other section that would bear on 2 this. 3 I do have the provisions for the criteria 4 for prescribing new or or amended standards and we 5 certainly cannot see it in there, as Mr. Wethje's 6 testimony has already indicated. We think it's not 7 there. The only six that we see is the need for 8 national energy conservation, which does not apply, 9 and the other factors we think are not applicable. 10 MR. FRIEDRICHS: That six is the one that 11 was being referenced, the need for the nation to 12 conserve energy. How would you interpret that 13 section? 14 MR. HODGES: Well, it seems to me that 15 first of all it says nothing about environment in 16 there at all and furthermore, I would say that the 17 need to conserve energy is well -- we need to conserve 18 energy or not, in setting this 19 MR. FRIEDRICHS: What factors would you 20 consider in determining whether or not there was a 21 need to conserve energy? 22 MR. HODGES: Well, whether or not there 23 was an energy shortage, and again, we have to remember 24 that this statute originally was founded back in 1973 25 at the time of the Arab oil embargo. This is an SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 103 1 section 6 or any other section that would bear on 2 this. 3 I do have the provisions for the criteria 4 for prescribing new or or amended standards and we 5 certainly cannot see it in there, as Mr. Wethje's 6 

### testimony has already indicated. We think it's not 7 

### there. The only six that we see is the need for 8 national energy conservation, which does not apply, 9 and the other factors we think are not applicable. 10 

### MR. FRIEDRICHS: That six is the one that 11 was being referenced, the need for the nation to 12 conserve energy. How would you interpret that 13 section? 14 

### MR. HODGES: Well, it seems to me that 15 first of all it says nothing about environment in 16 there at all and furthermore, I would say that the 17 needto conserve energyis well

-- we needto conserve 18 energy or not, in setting this 19 MR. FRIEDRICHS: What factors would you 20 consider in determining whether or not there was a 21 need to conserve energy? 22 MR. HODGES: Well, whether or not there 23 was an energy shortage, and again, we havetoremember 24 that this statute originallywas founded back in 1973 25 

### at the time of the Arab oil embargo.

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### This is an

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energy conservation statute, and so therefore, if there were lines -- I don't see this as providing certainly any discretionary or certainly not a mandate to consider in environmental externalities or externalities of any kind at all, but we don' t see --

MR. FRIEDRICHS: You don 't see a mandate or you don't see any discretion?

MR. HODGES: I don 't see any mandate and I would say that there is no discretion in this at all because we have to take a look at these criteria first of all in the context of the statute itself, and secondly in the context of the very provision itself speaks in terms that these criteria have to be deemed in terms of energy efficiency and again, energy efficiency is defined in terms of site energy itself. And so therefore, we think that these criteria are very substantially circumscribed and we feel further that they cannot override the very specific directions in the statute relating to site energy, which is look at that product at the site and some generalized factors that are laid out there cannot overturn the specific requirements of the statute.

MR. FRIEDRICHS: One final question. I'm sorry. You talked about the potential adverse effects on trade. Could you elaborate how would the added 

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### 104 1 energy conservation statute, and so thereforef 

### if 2 there were lines

-- I don't see this as providing 3 certainlyanydiscretionaryorcertainlynot a mandate 4 

### to consider in environmental externalities or 5 externalities of anykind at all, butwe don't see 6 

### MR. FRIEDRICHS: You don't see a mandate 7 or you don't see any discretion? 8 

### MR. HODGES: I don't see any mandate and 9 I would saythat there is no discretion in this at all 10 becausewe have to take a look atthese criteriafirst 11 of all in the context of the statute itself, and 12 secondly in the context of the very provision itself 13 speaks in terms that these criteria have to be deemed 14 in terms of energy efficiency and again, energy 15 efficiency is defined in terms of site energy itself. 16 And so therefore, we think that these criteria are 17 very substantially circumscribed and we feel further 18 thattheycannotoverridethevery specificdirections 19 in the statute relating to site energy, which is look 20 at that product at the site and some generalized 21 factors that are laid out there cannot overturn the 22 specific requirements of the statute. 23 

### MR. FRIEDRICHS: One final question. I'm 24 sorry. You talkedaboutthepotential adverse effects 25 

### on trade.

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cost of the efficiency standards adversely effect trade or your ability to export products?

MR. WETHJE: Well, right now we're one of the few major appliance industries that enjoys over 30 some manufacturers of central air conditioning and heat pump products. And if these consideration of externalities resulted in what we would consider unduly burdensome standards, which could certainly happen by including more and more factors into economic justification, we feel could easily tend towards raising the standards which would make it much more difficult for all these manufacturers , many of which are small, to be able to achieve those levels. It takes high capital investment. The higher you raise the standards, the more it's going to cost the manufacturers to produce the products, the more manufacturers are going to go out of business.

And also, it's going to hurt their position in a world competitive market place, a global market place . If our products cost more to produce here, they're not going to be as competitive internationally.

MR. FRIEDRICHS: Thank you. MR. McCABE: Somewhat of a follow-up on the trade issue . As I understand it, there has been SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 105 1 cost of the efficiency standards adversely effect 2 trade or your ability to export products? 3 

### MR. WETHJE: Well, right now we're one of 4 thefewmajorappliance industriesthat enjoys over 30 5 some manufacturers of central air conditioning and 6 

### heat pump products. And if these consideration of 7 externalities resulted in what we would consider 8 unduly burdensome standards, which could certainly 9 happen by including more and more factors into 10 economic justification, we feel could easily tend 11 towards raisingthe standardswhichwouldmake itmuch 12 more difficult for all these manufacturers, many of 13 which are small, to be able to achieve those levels. 14 

### It takes high capital investment. The higher you 15 raise the standards, the more it's going to cost the 16 manufacturers to produce the products, the more 17 manufacturers are going to go out of business. 18 

### And also, it's going to hurt their 19 positionina worldcompetitivemarketplace, a global 20 

### market place. If our products cost more to produce 21 here, they're not going to be as competitive 22 internationally. 23 

### MR. FRIEDRICHS: Thank you. 24 

### MR. McCABE: Somewhat of a follow-up on 25 the trade issue. As I understand it, there has been

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a rather substantial increase in the export of the air conditioning products from the United States. And what has been in your opinion the cause of that? MR. WETHJE: Well, I'd have to say it's an improvement on our manufacturing abilities in this country. The manufacturers are making great strides. I just heard one of the manufacturers state yesterday they can now build a furnace in 23 seconds. That's a substantial improvement, I would have to say, over the years on productivity, which would just tend to put us in a very good competitive situation internationally when we can continue to improve our manufacturing processes to that degree.

MR. McCABE: As far as you know, there is no measurable -- there has been no measurable impact of the existing standards on the industry's ability to compete in the international market?

MR. WETHJE: Well, I haven't been involved long enough, Mike, I don't think with the manufacturers to go back on what the ramifications were of the initial rulemaking , so I reserve comment on that. I guess I could say if an unduly burdensome standard does come along, I would anticipate significant burden on the manufacturers to be able to achieve, you know, high levels. SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 106 1 a rather substantial increase inthe export of the air 2 conditioning products from the United States. And 3 what has been in your opinion the cause of that? MR. 4 WETHJE: Well, I'd have to say it's an improvement on 5 our manufacturing abilities in this country. The 6 manufacturers are making great strides. I just heard 7 one of the manufacturers state yesterday they can now 8 build a furnace in 23 seconds. That's a substantial 9 improvement, I would have to say, over the years on 10 productivity, which would just tend to put us in a 11 very good competitive situation internationally when 12 we cancontinueto improveourmanufacturingprocesses 13 to that degree. 14 MR. McCABE: As far as you know, there is 15 no measurable

-- there has been no measurable impact 16 ofthe existing standards onthe industry's abilityto 17 compete in the international market? 18 MR. WETHJE: Well, I haven'tbeeninvolved 19 long enough, Mike, I don't think with the 20 manufacturers to go back on what the ramifications 21 were of the initial rulemaking, so I reserve comment 22 on that. I guess I could say if an unduly burdensome 23 standard does come along, I would anticipate 24 significantburden on the manufacturers to be able to 25 achieve, you know, high levels.

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### 107 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. McCABE: Thank you. PRESIDING OFFICIAL BERLIN: The next speaker is David Montgomery, please.

DR. MONTGOMERY: Good morning. I am David Montgomery. For the record, I am vice president of Charles River Associates, an economic consulting firm. As Mr. Wethje stated, I am here at the request of several trade associations and I won't reiterate all of their names, since he has provided you with that information. It's a pleasure to be back here and have the opportunity to discuss the issue of using monetary values for environmental externalities in appliance efficiency standards with you. Here ANOPR raised issues that have interested me for a long time starting when I was at DOE and involved in the development of some of the early efficiency standards and I've continued to be interested in those through work I've done over the years, including the last few years on issues in the economics of energy conservation.I've submitted a written statement and I will summarize some of the major points now. Mr. Margolis is not here. I apologize that I will probably read some of them but I assure that when I do SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 107 1 MR. McCABE: Thank you. 2 PRESIDING OFFICIAL BERLIN: The next 3 speaker is David Montgomery, please. 4 DR. MONTGOMERY: Goodmorning. I amDavid 5 Montgomery. For the record, I am vice president of 6 CharlesRiverAssociates, aneconomic consultingfirm. 7 As Mr. Wethje stated, I am here at the request of 8 several trade associations and I won't reiterate all 9 of their names, since he has provided you with that 10 information. 11 It's a pleasure to be back here and have 12 theopportunityto discuss Jehe issue of usingmonetary 13 values for environmental externalities in appliance 14 efficiency standards with you. Here ANOPR raised 15 issues that have interested me for a long time 16 starting when I was at DOE and involved in the 17 development of some of the early efficiency standards 18 and I've continued to be interested in those through 19 work I've done over the years, including the last few 20 years on issues in the economics of energy 21 conservation. 22 I've submitted a written statement and I 23 will summarize some of the major points now. Mr. 24 Margolis is not here. I apologize that I will 25 probablyread some of thembut I assure thatwhen I do

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### 108 so, it means that I finish much more quickly than I 2 would if I had tried to paraphrase each of these 3 sentences at greater length. 4 Most economists agree that air pollution 5 has a social cost and that environmental policy should 6 attempt to balance the social costs of pollution in 7 various forms against the cost of controlling 8 emissions . Therefore, economists have generally been 9 sympathetic to estimates to measure the monetary 10 damages from pollution and been involved in those 11 efforts. 12 As an aside, I just might mention that 13 when this kind of cost benefit analysis has been 14 carried out, it has at times led the economists to 15 conclude that the costs of some existing environmental 16 programs exceed their benefits on the margin and that 17 more, not less, emission should be allowed. So there 18 is a certain kind of neutrality to applying this sort 19 of cost benefit analysis. 20 But the fundamental point of my testimony, 21 I think is that these efforts to measure externalities 22 in monetary terms are relevant to setting national 23 policies for controlling emissions at their source. 24 And it's not necessary or appropriate to apply such 25 externality values in programs that regulate uses of SAC, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 108 1 so, it means that I finish much more quickly than I 2 would if I had tried to paraphrase each of these 3 sentences at greater length. 4 Most economists agree that air pollution 5 has a socialcost andthat environmentalpolicy should 6 attempt to balance the social costs of pollution in 7 various forms against the cost of controlling 8 emissions. Therefore, economists have generallybeen 9 sympathetic to estimates to measure the monetary 10 damages from pollu·tion and been involved in those 11 efforts. 12 As an aside, I just might mention that 13 when this kind of cost benefit analysis has been 14 carried out, it has at times led the economists to 15 concludethatthecostsof some existingenvironmental 16 programs exceed their benefits on the margin and that 17 more, not less, emission shouldbe allowed. So there 18 is a certain kind of neutrality to applying this sort 19 of cost benefit analysis. 20 Butthefundamentalpointofmytestimony, 21 I thinkisthat theseeffortstomeasureexternalities 22 in monetary terms are relevant to setting national 23 policies for controlling emissions at their source. 24 And it's not necessary or appropriate to apply such 25 externality values in programs that regulate uses of

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energy or indeed to consider emissions in any way in setting those efficiency standards. And I will try to develop those points.

The first reason I reach this conclusion is that the best place to regulate emissions is at the source. And those regulations and incentives are already in place for the recognized form of pollutants. Using externalities values to set end use efficiency standards injects those values at the wrong regulatory level. When emissions standards and incentives are applied at the source of emissions, they internalize the cost of pollution in market decisions, such as decisions about how much energy to consume further down the line. If they are designed in a way that provides the proper incentives, programs directed at the source of emissions also lead to the choice of the most cost effective forms of pollution control. Regulations and standards that are directed at the source of emissions also raise the price of energy produced by the regulated industry. And this is the fundamental point. By raising that price, the programs directed at the source of emissions themselves give the right price signals to

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### 109 1 energy or indeed to consider emissions in any way in 2 settingthose efficiency standards. And I will tryto 3 develop those points. 4 The first reason I reach this conclusion 5 is that thebestplaceto regulate emissions is at the 6 

### source. And those regulations and incentives are 7 already in place for the recognized form of 8 pollutants. usingexternalitiesvalues to setenduse 9 efficiencystandards injectsthosevalues atthewrong 10 

### regulatory level. When emissions standards and 11 incentives are applied at the source of emissions, 12 they internalize the cost of pollution in market 13 decisions, such as decisions about how much energy to 14 consume further down the line. If they are designed 15 ina waythatprovidestheproperincentives, programs 16 directed at the source of emissions also lead to the 17 choice of the most cost effective forms of pollution 18 control. 19 

### Regulations and standards that are 20 directed at the source of emissions also raise the 21 price of energy produced by the regulated industry. 22 And this is the fundamental point. By raising that 23 price, the programs directed at the source of 24 emissions themselves give the right price signals to 25 consumers of energy.

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5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 110 Adding the cost of pollution a second time in energy costs in setting end use regulations would

seem to be double-counting. Costs of controlling pollution from electric power generation particularly are already included in the cost of electricity and therefore, were taking into account in setting the current efficiency standards. Tighter efficiency standards adopted because of adjustments to energy prices to count these externality values a second time would cause further reductions in electricity consumption beyond what could be justified by comparing on any basis the social costs of pollution against the costs of controlling emissions.

This point implies that even calculating the reductions in physical emissions would be irrelevant to setting efficiency standards. The place to take those things into account is in the policies and programs that are in place for dealing with emissions at the source.

Now, these considerations clearly apply to sulfur oxides and to nitrogen oxides , which are already specifically regulated under the Clean Air Act amendments . The other type of emission that was mentioned in the ANOPR, carbon dioxide, is not regulated under the Clean Air Act but it' s a subject SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 110 1 Addingthe costofpollutiona secondtime 2 in energy costs in setting end use regulations would 3 seem to be double-counting. Costs of controlling 4 pollution from electricpower generationparticularly 5 are already included in the cost of electricity and 6 therefore, were taking into account in setting the 7 current efficiency standards. Tighter efficiency 8 standards adopted because of adjustments to energy 9 prices to countthese externalityvalues a secondtime 10 would cause furt_her reductions in electricity 11 consumption beyond what could be justified by 12 comparing on any basis the social costs of pollution 13 against the costs of controlling emissions. 14 This point implies that even calculating 15 the reductions in physical emissions would be 16 irrelevantto settingefficiencystandards. Theplace 17 to take those things into account is in the policies 18 and programs that are in place for dealing with 19 emissions at the source. 20 Now, theseconsiderationsclearlyapplyto 21 sulfur oxides and to nitrogen oxides, which are 22 already specificallyregulatedundertheCleanAirAct 23 amendments. The other type of emission that was 24 mentioned in the ANOPR, carbon dioxide, is not 25 regulated under the Clean Air Act but it's a subject

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of emerging environmental concern. I think the next two points that I want to make apply to all of these forms of environmental externalities.

The first one is that trying to regulate emissions indirectly through command and control regulations at the end use level is both counter productive and excessively costly compared to dealing with these same emissions at the source , or compared to dealing with end uses of energy in a comprehensive set of economic incentives.

The two important reasons are that the standards which apply only to new equipment design are inefficient compared to broader economic incentives and national standards cannot deal efficiency with local pollution problems. These are both points that are brought up in the ANOPR.

Command and control regulations directed exclusively at new products cause behavioral responses that offset much of the good they might achieve in increased costs relative to an efficient set of economic incentives. Two of these kinds of effects are characteristic of end users. One is a rebound effect. When pieces of end use equipment are made more efficient, it's less costly to operate them, they'll be used more. And there will be greater

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### 111 1 of emerging environmental concern. I think the next 2 two points that I want to make apply to all of these 3 forms of environmental externalities. 4 The first one is that trying to regulate 5 emissions indirectly through command and control 6 regulations at the end use level is both counter 7 productive and excessively costly comparedto dealing 8 with these same emissions at the source, or compared 9 to dealingwith end uses of energy in a comprehensive 10 set of economic incentives. 11 The two import.ant reasons are that the 12 standardswhich applyonlytonewequipmentdesignare 13 inefficient compared to broader economic incentives 14 and national standards cannot deal efficiency with 15 local pollutionproblems. These areboth points that 16 are brought up in the ANOPR. 17 Command and control regulations directed 18 exclusivelyatnewproductscausebehavioralresponses 19 that offset much of the good they might achieve in 20 increased costs relative to an efficient set of 21 economic incentives. Two of these kinds of effects 22 are characteristic of end users. One is a rebound 23 

### effect. When pieces of end use equipment are made 24 more efficient, it's less costly to operate them, 25 they'll be used more. And there will be greater

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consumption of energy. There will be an offsetting increase in the way in which appliances are used, which takes away part of the benefit that comes from making the appliances themselves more efficient.

And second, making appliances more efficient, going beyond the point of minimum life cycle costs, discourages people from buying new appliances and equipment and means there is going to be more of the older stock in place and that stock is made up of less efficient models that were not subject to the efficiency standards.

Neither of these responses eliminate energy savings, but they both reduce energy savings and therefore, the cost effectiveness of regulatory programs that are going after environmental externalities through the indirect route of regulating end use equipment.

Counterproductive responses are also likely at electric utilities because efficiency standards reduce electricity consumption indiscriminately and independently of what type of electric power plant or what type of fuel or what type of emissions is involved. Utilities facing lower demand growth as a result of efficiency standards are likely over the next decade or so to cancel a SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 112 1 consumption of energy. There will be an offsetting 2 increase in the way in which appliances are used, 3 which takes away part of the benefit that comes from 4 making the appliances themselves more efficient. 5 And second, making appliances more 6 efficient, going beyond the point of minimum life 7 cycle costs, discourages people from buying new 8 appliances and equipment and means there is going to 9 be more of the older stock in place and that stock is 10 madeupof less efficientmodels thatwere not subject 11 to the efficiency standards. 12 Neither of these responses eliminate 13 energy savings, bu·t they both reduce energy savings 14 and therefore, the cost effectiveness of regulatory 15 programs that are going after environmental 16 externalitiesthroughtheindirectrouteofregulating 17 end use equipment. 18 Counterproductive responses are also 19 likely at electric utilities because efficiency 20 standards reduce electricity consumption 21 indiscriminately and independently of what type of 22 electricpowerpla.nt orwhat type of fuel orwhat type 23 of emissions is involved. utilities facing lower 24 demand growth as a result of efficiency standards are 25 likely over the next decade or so to cancel a

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disproportionate number of gas-fired power plants because that's what most capacity additions are for the next decade. And this seemed to be a perverse effect of regulations that are nominally being tightened in order to encourage lower emissions.

The second problem is that efficiency standard must by law be uniform nationwide. And that's not the right way to deal with local pollution problems. There are just a few urban areas with severe problems and many, as the Attorney General was pointing out, that are at or near compliance with air quality standards. It's very costly to address these widely varying local problems by tightening a standard that Congress has declared shall be set on a uniform nationwide basis. And it's not a case where gains in some parts of the country are compensated by losses in the others. In fact, everybody loses compared to dealing with pollution problems in an efficient way recognizing regional differences.

The points I've made so far are first that the source of emissions is the appropriate place to apply externality values. And second, that even if reductions in end uses of energy are thought to be an appropriate contributor to reducing emissions, regulatory programs like this one, are the wrong way SACS, C®f-ll4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 113 1 disproportionate number of gas-fired power plants 2 because that's what most capacity additions are for 3 the next decade. And this seemed to be a perverse 4 effect of regulations that are nominally being 5 tightened in order to encourage lower emissions. 6 The second problem is that efficiency 7 standard must by law be uniform nationwide. And 8 that's not the right way to deal with local pollution 9 problems. There are just a few urban areas with 10 severe problems and many, as the Attorney General was 11 pointing out, that are at or near compliance with air 12 quality standards. It's very costly to address these 13 widelyvaryinglocalproblemsbytighteninga standard 14 that Congress has declared shall be set on a uniform 15 nationwide basis. And it's not a case where gains in 16 someparts of the country are compensatedby losses in 17 the others. In fact I everybody loses compared to 18 dealing with pollution problems in an efficient way 19 recognizing regional differences. 20 Thepoints I'vemade so far are first that 21 the source of emissions is the appropriate place to 22 apply externality values. And second, that even if 23 reductions in end uses of energy are thought to be an 24 appropriate contributor to reducing emissions, 25 regulatory programs like this one, are the wrong way

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to go about getting those reductions in the use of energy. That does leave, though, the issue of what is the status of current estimates of externality values and if you were to go ahead despite both of these conclusions to apply externality values, what should you do? I would suggest that the appropriate value to use is close to zero for at least the three types of pollution that I've talked about.

Sulfur oxides are simple, and the ANOPR makes it clear that you recognize this point. With the existing emission cap and trading point on sulfur oxide emissions , nothing that is done in the area of appliance efficiency standards will change the amount of sulfur oxides that are generated and therefore, the appropriate externality value to apply is zero.

I think very close to the same thing is true of nitrogen oxides. Nitrogen oxides are implicated in urban air quality. It's very specific regional question of whether or not reducing nitrogen oxides helps to reduce smog and there are standards already in effect under states under the Clean Air Act for dealing with this, especially to the extent that these emerging NOX programs use emission trading. There is again, no additional externality value that SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 114 1 to go about getting those reductions in the use of 2 energy. 3 Thatdoes leave, thoughI 

### theissueofwhat 4 is the status of current estimates of externality 5 values and if you were to go ahead despite both of 6 these conclusions to apply externality values, what 7 should you do? I would suggest that the appropriate 8 value to use 1S 

### close to zero for at least the three 9 types of pollution that I've talked about. 10 Sulfur oxides are simple, and the ANOPR 11 makes it clear that you recognize this point. with 12 the existingemission cap and tradingpoint on sulfur 13 oxide emissions, nothing that is done in the area of 14 appliance efficiency standards will change the amount 15 of sulfuroxides that aregeneratedandtherefore, the 16 appropriate externality value to apply is zero. 17 I think very close to the same thing is 18 

### true of nitrogen oxides. Nitrogen oxides are 19 implicated in urban air quality. It's very specific 20 regional question ofwhether or not reducingnitrogen 21 oxides helps to reduce smog and there are standards 22 alreadyineffect under statesunder the CleanAirAct 23 for dealing with this, especially to the extent that 24 these emerging NOx 

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needs to be applied in setting end use efficiency standards. Carbon dioxide emissions are reducible through decreases in total energy use or through shifts from high to low carbon fuels. Efficiency standards offer no incentive to reduce high carbon fuels in preference to low carbon fuels and therefore, are inefficient relative to dealing with emissions at the source. Also, the mind boggles at trying to achieve the kind of comprehensive goals that have been enumerated for carbon dioxide emissions through piecemeal standards that have the kinds of high costs in terms of perverse behavior that I just finished describing . If there were commitment to a broad national climate policy such as carbon taxes or emission caps , those policies would preempt consideration of carbon dioxide end use regulations just as the sulfur emissions programs and other existing emissions control programs do.

The point is that externality values should be set at zero no matter what value is put on the damages that might exist from residual pollution whenever there are existing regulatory programs at the source, because those are already imposing costs which SAG, CORe 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 115 1 needs to be applied in setting end use efficiency 2 standards. 3 

### Carbon dioxide emissions are reducible 4 through decreases in total energy use or through 5 

### shifts from high to low carbon fuels. Efficiency 6 standards offer no incentive to reduce high carbon 7 fuels inpreferenceto lowcarbon fuels andthereforeI 

### 8 are inefficient relative to dealingwith emissions at 9 the source. 10 

### Also, the mind boggles at trying to 11 achievethekindof comprehensivegoals thathavebeen 12 enumerated for carbon dioxide emissions through 13 piecemeal standards that have the kinds of high costs 14 in terms of perverse behavior that I just finished 15 

### describing. If there were commitment to a broad 16 national climate policy such as carbon taxes or 17 

### emission caps, those policies would preempt 18 consideration of carbon dioxide end use regulations 19 just as the sulfur emissions programs and other 20 existing emissions control programs do. 21 The point is that externality values 22 should be set at zero no matter what value is put on 23 the damages that might exist from residual pollution 24 wheneverthere areexistingregulatoryprograms atthe 25 source, becausethoseare alreadyimposingcostswhich

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find their way through in the price of energy and that it's double counting to add anything more in the setting of end use efficiency standards.

I didn't use the phrase residual emissions in my testimony but it came up and I want to point out that my comments, I think apply to that concept as they stand. The idea of adding some form of incentive to existing regulations on sources of emissions is based on the recognition of some regulatory gaps, like our foolish failure prior to the Clean Air Act amendments to give incentives for use of low sulfur coal by electric utilities. Using externality adders for end use programs has no such rationale. It will not make utilities pay attention to neglected opportunities to reduce emissions or to equate the marginal cost of control across alternative ways of reducing emissions. I think that's the idea of going after residual emissions and simply this proceeding has nothing to do with that.

The final point: that I want to address is how one might go about thinking about estimating the social costs of pollution in considering programs that do -- let me stop for a second.. I think in trying to summarize I am getting slightly ahead of myself.

There is a remaining question that is

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### 116 1 findtheirway through intheprice of energy andthat 2 it's double counting to add anything more in the 3 setting of end use efficiency standards. 4 I didn'tusethephraseresidualemissions 5 inmy testimonybut it carne up and I want topoint out 6 that my comments, I think apply to that concept as 7 they stand. The ideaof adding some form of incentive 8 to existing regulations on sources of emissions is 9 basedontherecognitionof some regulatorygaps, like 10 our foolish failure prior to the Clean Air Act 11 amendments to give incentives for use of low sulfur 12 coal by electric utilities. Using externality adders 13 

### for end use programs has no such rationale. It will 14 not make utilities pay attention to neglected 15 opportunities to reduce emissions or to equate the 16 marginal cost of control across alternative ways of 17 reducing emissions. I think that's the idea of going 18 after residual emissions and simply this proceeding 19 has nothing to do with that. 20 The final point that I want to address is 21 how one might go about thinking about estimating the 22 social costsofpollutioninconsideringprogramsthat 23 do

-- let me stop for a second. I think in trying to 24 summarize I am getting slightly ahead of myself. 25

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addressed in the ANOPR of what do we know about the social costs of pollution that's relevant, that's about the cost of residual emissions. I think the point that I've tried to make throughout is that question should be addressed not here, but in thinking about regulating the source of emissions. But I do want to make a couple of comments on that since it's brought up. The first is that estimates of social costs should be based on the marginal damages from pollution at the low levels of pollution that will come about because of existing regulatory programs. This is particularly important for nitrogen oxides because nitrogen oxides will be controlled under the Clean Air Act, under a set of ambient air quality standards that are set on the basis of getting rid of adverse impacts on human health. That's the level at which residual damages ought to estimate and it's probably going to be a very low level once those existing regulations take effect.

As far as carbon dioxide emissions go, I think that I agree with several of the previous speakers that the science is not yet at the stage that allows a calculation of what the damages are that would be avoided by reducing carbon dioxide emissions. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 117 1 addressed in the ANOPR of what do we know about the 2 social costs of pollution that's relevant, that's 3 about the cost of residual emissions. I think the 4 point that I've tried to make throughout is that 5 question shouldbe addressednot here, but inthinking 6 about regulating the source of emissions. But I do 7 want to make a couple of comments on -that since it's 8 brought up. 9 The firs·t is that estimates of social 10 costs should be based on the marginal damages from 11 pollution at the low levels of pollution that will 12 come about because of existing regulatory programs. 13 This is particularly important for nitrogen oxides 14 because nitrogen oxides will be controlled under the 15 Clean Air Act, under a set of ambient air quality 16 standards that are set on the basis of getting rid of 17 adverse impacts on human health. That's the level at 18 which residual damages ought to estimate and it's 19 probably going to be a very low level once those 20 existing regulations take effect. 21 As far as carbon dioxide emissions go, I 22 think that I agree with several of the previous 23 speakers that the science is not yet at the stage that 24 allows a calculation of what the damages are that 25 wouldbe avoidedbyreducingcarbondioxide emissions.

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There is a long train of reasoning that has to be gone through from estimating what happens to concentrations of carbon dioxide, what that does to temperature forcing, what that does to average temperatures, what that does to regional temperatures, what that does to geophysical effects like storms and weather and sea level, what that means for ecosystems, what that means for human activity, what kind of adaptation might occur -- a long, long chain of reasoning.

Science is back at the stage of not really being able to get the regional temperature patterns right. There is a long, long way to go before any of these calculations, I think can be made for carbon dioxide. Similarly, looking at estimates of health costs of pollution, which are a primary part of most estimates of the residual damages from pollution, I have seen estimates that range in terms of the cost of damages that were avoided by the Clean Air Act amendments , when they're fully implemented. They range from like $300 million annually to $30 billion annually, which is a factor of 100. That' s a very wide range to try to make any choice within that's not arbitrary. This testimony makes three points. I'll SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 118 1 There is a longtrain of rea.soningthat has tobe gone 2 throughfromestimatingwhathappenstoconcentrations 3 of carbon dioxide f 

### what that does to temperature 4 forcing, what that does to average temperatures, what 5 that does to regional temperatures, what that does to 6 geophysical effects like storms and weather and sea 7 level, whatthatmeans for ecosystems, whatthatmeans 8 for human activityf 

### what kind of adaptation might 9 occur -- a long, long chain of reasoning. 10 Scienceisbackatthe stageofnotreally 11 being able to get the regional temperature patterns 12 right. There is a long, longway to go before any of 13 these calculations, I think can be made for carbon 14 dioxide. 15 Similarly, lookingat estimates ofhealth 16 costs of pollution, which are a primary part of most 17 estimates of the residual damages from pollution, I 18 have seen estimates that range interms of the cost of 19 damages that were avoided by the Clean Air Act 20 

### amendments, when they're fully implemented. They 21 range from like $300 million annually to $30 billion 22 annually, which is a factor of 100. That's a very 23 wide rangeto trytomake any choicewithinthat's not 24 arbitrary. 25

(202)797-2525 

### This testimony makes three points. I'll SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 119

just make this my conclusion,. First, externality values should be used at the appropriate regulatory level. And end use regulations is not the appropriate regulatory level. That even if further reductions in certain types of emissions are desirable, it's not cost effective to try to achieve them through a command and control program that applies nationwide standards to a limited group of new appliances. Finally, there is a great deal of uncertainty about the damages from air pollution but for the most part, it's irrelevant because these estimates pertain to programs directed at the source of emissions . When we look in the case of the major criteria pollutants at the programs that are already in effect, they already raise the cost of energy and there is no need to double-count those environmental issues again in a proceeding like this.

I'll be happy to answer your questions at this point either on points I've raised or anything else that I put into my prepared statement. Thank you. PRESIDING OFFICIAL BERLIN: Thank you, David. Do you see any role for_ our counting the physical emission reductions that we estimate will

accrue with appliance standards and using those as a SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 119 1 just make this my co:r..clusion" First, externality 2 values should be used at the appropriate regulatory 3 level. And enduse regulations isnotthe appropriate 4 regulatory level. That even if further reductions in 5 certain types of emissions are desirable, it's not 6 cost effective to try to achieve them through a 7 command and control program that applies nationwide 8 standards to a limited group of new appliances. 9 Finally, there is a great deal of uncertainty about 10 the damages from air pollution but for the most part, 11 it's irrelevant because these estimates pertain to 12 programs directed atthe source of emissions. When we 13 look in the case of the major criteria pollutants at 14 the programs that are already in effect, they already 15 raise the cost of energy and there is no need to 16 double-count those environmental issues again in a 17 proceeding like this. 18 I'llbe happy to answer your questions at 19 this point either on points I've raised or anything 20 

### else that I put into my prepared statement. Thank 21 you. 22 PRESIDING OFFICIAL BERLIN: Thank you, 23 David. Do you see any role for our counting the 24 physical emission reductions that we estimate will 25 accrue with appliance standards and using those as a

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decision variable in considering future standards or do you not see a role for that?

DR. MONTGOMERY: No, I do not see a role for considering the physical emissions. I think it's even worse to consider physical emissions in a haphazard way than it is to think about them systematically and in either case, I think that exactly the same arguments about why externality values are not appropriate applied to consideration of the physical emissions themselves. If it's dealt with at the source, it doesn't need to be dealt with at the end use level.

PRESIDING OFFICIAL BERLIN: Mark, questions? MR. FRIEDRICHS: Yes. I found your testimony very interesting. A couple of questions. One, regarding SO2, although you're quite correct, I think as generally recognized, that the appliance efficiency standards are not going to have any effect on SO2 emissions , at least for power plants, there has been some speculation about the, say the inability of the current methodology for calculating the price effects or let's say the cost impacts of the standards to reflect the marginal benefits associated with SO2 control. SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 120 1 decision variable in considering future standards or 2 do you not see a role for that? 3 DR. MONTGOMERY: No, I do not see a role 4 for considering the physical emissions. I think it's 5 even worse to consider physical emissions in a 6 haphazard way than it is to think about them 7 systematically and in either case, I think that 8 exactly the same arguments about why externality 9 values arenot appropriate appliedto considerationof 10 thephysical emissions themselves. If it's dealtwith 11 at the source, it doesn't need to be dealt with at the 12 end use level. 13 PRESIDING OFFICIAL BERLIN: Mark, 14 questions? 15 MR. FRIEDRICHS: Yes. I found your 16 testimony very interesting. A couple of questions. 17 One, regarding 

### 8°21 although you're quite correct, I 18 think as generally recognized, that the appliance 19 efficiency standards are not going to have any effect 20 on 802 emissions, at least for power plants, there has 21 been some speculation about the, say the inability of 22 the current methodology for calculating the price 23 effects or let's saythe cost impacts of the standards 24 to reflect the marginal benefits associated with S02 25 control.

(202)797-2525 SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 121 If demand for electric power is reduced, then presumably there will be additional SO2 credits available that then will have a market value. And this market value is already partially reflected in rates but probably not largely reflected in average

rates. It would be observed by utilities on the margin but not fully reflected in average rates. So there is some discrepancy between the marginal effects of appliance standards and what we normally consider, which is the average cost impacts on consumers.

Do you think we should take this into account? DR. MONTGOMERY: No, I don't. To the extent that I have followed all the pieces of your question because it's kind of a complex scenario you've laid out and there is an issue of the regional distribution of sulfur emissions and that's one that I really think is beyond your capability to deal with in this proceeding because it's not clear it's within anybody's capability of dealing with it under the trading system. The trading system was set up to deal with things on a nationwide basis and I think that degree of trying to fine tune emissions is not appropriate for a standard that you can't fine tune locally in any event. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 121 1 

### If demand for electric power is reduced, 2 then presumably there will be additional 802 

### credits 3 

### available that then will have a market value. And 4 this market value is already partially reflected in 5 

### rates but probably not largely reflected in average 6 

### rates. It would be observed by utilities on the 7 

### margin but not fully reflected in average rates. 80 8 

### there is somediscrepancybetweenthemarginal effects 9 

### of appliance standards andwhat we normally consider, 10 

### which is the average cost impacts on consumers. 11 

### Do you think we should take this into 12 

### account? 13 

### DR. MONTGOMERY: No, I don't. To the 14 extent that I have followed all the pieces of your 15 question because it f

### s kind of a complex scenario 16 you've laid out and there is an issue of the regional 17 distribution of sulfur emissions and that's one that 18 I really think is beyond your capabilityto deal with 19 inthis proceedingbecause it's not clear it's within 20 anybody's capability of dealing with it under the 21 

### trading system. The trading systemwas setup todeal 22 with things on a nationwide basis and I think that 23 degree of trying to fine tune emissions is not 24 appropriate for a standard that you can't fine tune 25 locally in any event.

(202)797-2525 SAG,CORP 4218LENORE LANE, N.w. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 122 I think that taking the notion, assuming that the purpose of this ANOPR is to do some good, that is to look for ways in which emissions could be reduced in a cost effective way, I cannot see a way in which total sulfur dioxide emissions would be changed by anything you did with this program because as you described, an emission credit is generated if the utility doesn't generate electricity because it's not burning coal. That emission credit would be bought by someone and that someone will bring their emissions of sulfur dioxides back up. So I cannot see a way in which you reduce the emissions because of anything you do. MR. FRIEDRICHS: No, there wouldn't be any impact on emissions, there simply would be a value associated with the value of credit now available to the utility. And that value is incorporated in the costs borne by the utility and ultimately in rates, but it's not clear that the marginal impact is reflected in average rates.

DR. MONTGOMERY: I think what you're getting at is that there a balance between, if you like demand side management, fuel switching, installation of scrubbers, lots of different techniques that can be used to change -- lots of different techniques that can be used to control SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 122 1 I think that taking the notion, assuming 2 that the purpose of this ANOPR is to do some good, 3 that is to look for ways in which emissions could be 

### 4 reduced in a cost effectiveway, I cannot see a way in 5 which total sulfur dioxide emissions would be changed 6 by anything you did with this program because as you 7 described, an emission credit is generated if the 8 utility doesn't generate electricitybecause it's not 9 burning coal. That emission creditwouldbeboughtby 10 someone andthat someonewillbringtheiremissions of 11 sulfur dioxides back up. So I cannot see a way in 12 whichyou reduce the emissions because of anythingyou 13 do. MR. FRIEDRICHS: No, therewouldn't be any 14 impact on emissions, there simply would be a value 15 associated with the value of credit now available to 16 the utility. And that value is incorporated in the 17 costs borne by the utility and ultimately in rates, 18 but it's not clear that the marginal impact is 19 reflected in average rates. 20 DR. MON'fGOMERY: I think what you're 21 getting at is that there a balance between, if you 22 like demand side management, fuel switching, 23 installation of scrubbe:.:-s, lots of different 24 techniques that can be used to change lots of 25 different techniques that can be used to control

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### 123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 sulfur emissions. There are so many other ways in

which we're trying to get at this complicated question. I don't see that it -- I cannot see a way in which it would help by having the efficiency standards adjusted.

In any event, if you were dealing with that question, you would be dealing with an entirely different set of issues. I mean, it 's almost irrelevant. It is irrelevant what the externality values are to how you should go about getting that balance because what you're really getting at there, I think is the other question you raised in the ANOPR, what is the right price of electricity?

MR. FRIEDRICHS: Right. DR. MONTGOMERY: And there as you pointed out, it may be that right now the price of electricity is too high across the board and you want to balance a way to produce less DSM ---

MR. FRIEDRICHS: Any views on that? DR. MONTGOMERY: I think the proposition that's written in the ANOPR is quite correct. If on balance the average cost sold to consumers exceeds the marginal cost of generation because of everything from advertising, high cost power plants, and stranded assets, to existing costs of DSM and environmental and SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 123 1 sulfur emissions. There are so many other ways in 2 which we're trying to get at this complicated 3 question. I don't see that it I cannot see a way 4 in which it would help by having the efficiency 5 standards adjusted. 6 In any event, if you were dealing with 7 that question, you would be dealing with an entirely 8 different set of issues. I mean, it's almost 9 irrelevant. It is irrelevant what the externality 10 values are to how you should go about getting that 11 balance because what you're really getting at there, 12 I think is the other questionyou raised in theANOPR, 13 what is the right price of electricity? 14 MR. FRIEDRICHS: Right. 15 DR. MONTGOMERY: And -there as you pointed 16 out, itmaybe that right nowthe price of electricity 17 is too high across the board and you want to balance 18 a way to produce less DSM

-- 19 MR. FRIEDRICHS: Any views on that? 20 DR. MON'I'GOMERY: I think the proposition 21 that's written in the ANOPR is quite correct. If on 22 balancethe average cost soldto conSUIT.ers exceeds the 23 marginal costof generationbecause of everythingfrom 24 advertising, high cost power plants, and stranded 25 assets, to existingcosts of DSM and environmental and

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 124

alternative fuels programs that have been levied by local regulators, if that average price is higher than the cost of generating the marginal cost of generation, then a negative adder is appropriate.

I think there is some pretty good evidence that that's the case. For one thing, if we look at forecasts of the increase in the price of electricity, EIA's forecast have been for a very long time for very little increase in the price of electricity. That suggests that marginal costs and average costs are not very far apart from each other and may well be that the current price is higher than what it costs to add generating capacity.

MR. FRIEDRICHS: Okay. One other question. This I'm not sure you were here earlier when Howard Gruenspecht asked about this sort of difficult effect of national efficiency standards which by their very nature must be based on some assessment of average national costs and benefits and so forth, and the reality that these costs and benefits vary by region, by locality. Now, the real economic benefits and costs vary because utility rates vary and for a variety of other reasons, usage patterns vary, but the environmental effects, as you've already pointed out vary a great deal. SAG, CORE 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 124 1 alternative fuels programs that have been levied by 2 local regulators, ifthat averageprice is higherthan 3 the cost of generating the marginal cost of 4 generation, then a negative adder is appropriate. 5 I thinkthere is someprettygoodevidence 6 that that's the case. For one thing, if we look at 7 forecasts of the increase inthepriceof electricity, 8 EIA's forecast have been for a very longtime for very 9 little increase in the price of electricity. That 10 suggests thatmarginal costs and average costs are not 11 very far apart from each other and may well be that 12 the current price is higher than what it costs to add 13 generating capacity. 14 MR. FRIEDRICHS: Okay. One other 15 question. This I'm not sure you were here earlier 16 when Howard Gruenspecht asked about this sort of 17 difficult effec-t of national efficiency standards 18 which by their very nature must be based on some 19 assessment of average national costs and benefits and 20 so forth, and the reality that these costs and 21 benefits vary by region, by locality. NOw, the real 22 economicbenefits andcosts varybecauseutilityrates 23 vary and for a variety of other reasons, usage 24 patterns vary, but the environmental effects, as 25 you've already pointed out vary a great deal.

(202)797-2525 SAG,CORP 4218 LENORE LANE. NW. WASHINGTON. D.C.20008 VIDEO;TRANSCRIPTIONS4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 125 How do you think we should handle the fact that we have an obligation to implement a national efficiency standards program that must or that many argue should take greater consideration of the variations in local or regional impacts?

DR. MONTGOMERY: I can't see any virtue in trying to come up with a regionalized set of appliance efficiency standards. I can't see any virtue in that at all. I think that for the purposes of ANOPR, what you ought to ask what should be done about the efficiency standards to deal with environmental externalities? I think you should take advantage of the fact that there is an alternative, that environmental programs, pollution control programs can be constructed at. regional levels to deal with regional programs in ways that provide exactly the right incentives for consumers in those regions and for manufacturers to produce the appliances that are best suited for those regions as well as to do everything else that fits best.

If we see the costs, if we see that if environmental -- that dealing with California's pollution problems in California, looking at the sources of emissions, motor vehicles and electric power plants and all that, producing hopefully well SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 125 1 How doyouthinkwe shouldhandlethe fact 2 that we have an obligation to implement a national 3 efficiency standards program that must or that many 4 argue should take greater consideration of the 5 variations in local or regional i.mpacts? 6 DR. MONTGOMERY: 

### I can't seeanyvi.rtue in 7 tryingto come upwith a regionalized setof appliance 8 efficiency standards. I can't see any virtue in that 9 at all. I think that for the purposes of ANOPR, 

### what 10 you ought to ask what should be done about the 11 efficiency standards to deal with environmental 12 externalities? I ·think you should take advantage of 13 

### the fact that there is an alternative, that 14 environmentalprograms/pollutioncontrolprogramscan 15 be constructed at regional levels to deal with 16 regional programs in ways that provide exactly the 17 right incentives for consumers in those regions and 18 for manufacturers to produce the appliances that are 19 best suited for those regions as well as to do 20 everything else that fits best. 21 If we see the costs, if we see that if 22 environmental that dealing with California's 23 pollution problems in California, looking at the 24 sources of emissions f 

### mO'cor vehicles and electric 25 power plants and all that, producing hopefully well

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 designed programs of economic incentives that allow

for emissions trading, for nitrogen oxides and hydrocarbons and such things, that that will produce changes in the cost of electricity in California. Manufacturers can observe that and decide whether to go beyond the NAECA standards in providing more efficient appliances in California because it's such a high cost state and energy costs so much because California is dealing with its pollution problems.

I think you're much better off leaving it to those alternative ways of dealing with problems that really aren't -- I mean, you have a legislative mandate to do something on the nationwide uniform basis and maybe there are just some things we can't deal with that way, and we should just stay out of them. There are alternatives and they don't won't go unaddressed. MR. FRIEDRICHS: Thank you very much.

PRESIDING OFFICIAL BERLIN: Mark? MR. McCABE: No questions. PRESIDING OFFICIAL BERLIN: Howard, would you like --

from NEMA.

(202) 797-2525 MR. GRUENSPECHT: No.

PRESIDING OFFICIAL BERLIN: Mark Perlis,

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### 126 1 designed programs of economic incentives that allow 2 for emissions trading, for nitrogen oxides and 3 hydrocarbons and such things, that that will produce 4 changes in the cost of electricity in California. 5 Manufacturers can observe that and decide whether to 6 go beyond the NAECA standards in providing more 7 efficient appliances in California because it's such 8 a high cost state and energy costs so much because 9 California is dealing with its pollution problems. 10 I thinkyou're much better off leaving it 11 to those alternative ways of dealing with problems 12 that really aren't

-- I mean, you have a legislative 13 mandate to do something on the nationwide uniform 14 basis and maybe there are just some things we can't 15 deal with that way, and we should just stay out of 16 

### them. There are alternatives andtheydon'twon't go 17 unaddressed. 18 19 20 

### 21 22 you like

-- 23 24 

### 25 from NEMA.

(202)797-2525 

### MR. FRIEDRICHS: Thank you very much. PRESIDING OFFICIAL BERLIN: Mark? MR. McCABE: No questions. PRESIDING OFFICIAL BERLIN: Howard, would

MR. GRUENSPECHT: No. PRESIDING OFFICIAL BERLIN: Mark Perlis,

SAG, CORP 4218LENORELANE, N.w. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 127 MR. PERLIS: Good morning. My name is Mark Perlis. I'm counsel to the National Electrical Manufacturers Association, and I'm here today to speak on their behalf as an association representative of three major industries that have products covered under the energy appliance program. Let me also add that we subscribe to an join in the testimony just presented to you by Dr. Montgomery and also by the other trade associations that joined with us in subscribing to Dr. Montgomery's testimony.

I know that I didn't give you this statement in advance so you haven't had a chance to read it, but rather than my reading it to you now, I'll cover the major points in the course of my presentation. I would like to address some of the issues that I've heard raised from the panel this morning, as I think those are excellent questions and probably bring out the major impediments or defects in the proposed monetization of externalities.

Let me start with what has, I gather, been presented principally as a legal issue as to whether or not the department has authority under the Energy Policy and Conservation Act to take account of -- to monetize externalities in setting alternative appliance efficiency standards. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 127 1 MR. PERLIS: Good morning. My name is 2 Mark Perlis. I'm counsel to the National Electrical 3 ManufacturersAssociation, andI'mheretodayto speak 

### 4 on their behalf as an association representative of 5 three major industries that have products covered 6 under the energy appliance program. Let me also add 7 that we subscribe to an join in the testimony just 8 presented to you by Dr. Montgomery and also by the 9 other trade associations that joined with us in 10 subscribing to Dr. Montgomery's testimony. 11 I know that I didn't give you this 12 statement in advance so you haven't had a chance to 13 read it, but rather than my reading it to you now, 14 I'll cover the major points in the course of my 15 presentation. I would like to address some of the 16 issues that I've heard raised from the panel this 17 morning, as I think those are excellent questions and 18 probablybringoutthemajorimpediments ordefects in 19 the proposed monetization of externalities. 20 Letme startwithwhathas, I gather, been 21 presented principally as a legal issue as to whether 22 or not the department has authority under the Energy 23 Policy and Conservation Act to take account of

-- to 24 monetize externalities in setting 25 appliance efficiency standards.

(202)797-2525 SAG,CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 alternative

VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 128 I don't mean to disavow the arguments that I think were ably presented by ARI and ARI's counsel previously to the effect that DOE's own prior position has in fact made clear that you don't have the authority to consider anything other than site use -- or, anything other than the end use of electricity rather than the source costs of generating the electricity. But let's consider for a minute, arguendo if I may, that the Department has given consideration in the past to quantities of pollution that are associated with levels of electricity consumption. It is true that in many of your technical support documents you have attempted to measure those items. And arguably, you have done so under the authority of this Paragraph 6 that has been previously referred to.

I would suggest that even if that has been permissible, that that does not authorize the department to monetize externalities as is contemplated in the advance notice of proposed rule making. I think there are two major reasons why there is a -- why the current practice, the prior practice of measuring emission levels doesn't justify monetization of externalities.

The first reason for that is that I don't

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### 128 1 I don'tmeantodisavowthe arguments that 2 I think were ably presented by ARI and ARI's counsel 3 previouslyto the effectthatDOE's ownpriorposition 4 has in fact made clear that you don't have the 5 authority to consider anything other than site use -- 6 or, anything other than the end use of electricity 7 rather than the source costs of generating the 8 electricity. 9 But let's consider for a minute, arguendo 10 if I may, that the Department has given consideration 11 in the past to quantities of pollution that are 12 associatedwith levelsof electricityconsumption. It 13 is true that in many of your technical support 14 documents you have attempted to measure those items. 15 And arguably, you have done so under the authority of 16 this Paragraph 6 that hasbeenpreviouslyreferredto. 17 I would suggestthat even if thathas been 18 permissible, that that does not authorize the 19 department to monetize externalities as is 20 contemplated in the advance notice of proposed rule 21 making. I thinkthere are two major reasons whythere 22 is a -- why the current practice, the prior practice 23 of measuring emission levels doesn't justify 24 monetization of externalities. 25 The first reason for that is that I don't

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believe that in any of your prior rule makings the Department has relied upon as a determinative fact the level of emissions associated with the electricity consumption. I would, at least in my reading of those technical support documents and proposed regulations, and final regulations that the Department has issued in this area, the analysis has tended to rely almost exclusively upon a very objective, highly quantified analysis of the costs and benefits to consumers and manufacturers or adopting different efficiency standards. And that you look both to the technological feasibility of attaining higher efficiency standards through different technologies for the different appliances and then you estimate what the costs and benefits would be to the consumers from the adoption of those standards. I'm not aware of any proceeding in which the fact that X tons of SO2 are associated with particular levels of energy consumptions have been at all determinative.

And so I would suggest that while, yes, it's an appropriate -- it may, arguendo, be an appropriate characteristic for you to try to measure, the fact that you haven't factored it in to the decisive equations that your models have been

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### 129 1 

### believe that in any of your prior rule makings the 2 Departmenthas reliedupon as a determinativefact the 3 level of emissions associated with the electricity 4 

### consumption. I would, at least inmy readingofthose 5 

### technical supportdocuments andproposedregulations, 6 

### and final regulations that the Department has issued 7 

### in this area, the analysis has tended to rely almost 8 

### exclusively upon a very objective, highly quantified 9 

### analysis of the costs and benefits to consumers and 10 

### manufacturers or adopting different efficiency 11 

### standards. 12 

### And that you look both to the 13 

### technological feasibility of attaining higher 14 efficiency standards through different technologies 15 for the different appliances and then you estimate 16 what the costs andbenefits wouldbe to the consumers 17 from the adoption of those standards. I'm not aware 18 of anyproceeding inwhich the fact that Xtons of 802 

### 19 are associated with particular levels of energy 20 consumptions have been at all determinative. 21 

### And so I would suggest that while, yes, 22 it's an appropriate it may, arguendo, be an 23 appropriate characteristic for you to try tomeasure, 24 the fact that you haven't factored it in to the 25 decisive equations that your models have been

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developed for is to me strong evidence that it is a, at most, a subjective factor rather than an objective

one. And I might add that the whole purpose of monetizing externalities is to try to present the costs or benefits of reducing pollution into the price of electricity for inclusion in the fundamental central equations that your models use in performing the cost benefit analysis. And I suggest that it is that leap that is not justified by Paragraph 6 in the statute. That the needs for energy conservation, a vague general standard, doesn't necessarily justify the Department factoring in a monetized price of those emissions into the price of electricity for purposes of doing all the cost benefit analysis, the pay back period analysis, the manufacturer's analysis, et cetera, that you perform to determine whether or not it's technologically feasible to mandate a higher efficiency level and whether or not it's economically justified. And I think that's really the fundamental flaw in the proposed regulation, if I can characterize the ANOPR as a proposed regulation. That the proposed monetization. It's not a proposed regulation. That there's no clear authority for you to include it in SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 130 1 developed for is to me strong evidence that it is a, 2 atmost, a subjective factor rather than an objective 3 one. 4 And I might add that thewhole purpose of 5 monetizing externalities is to try to present the 6 costs orbenefits ofreducingpollutionintotheprice 7 of electricity for inclusion in the fundamental 8 central equations that your models use in performing 9 the cost benefit analysis. And I suggest that it is 10 that leap that is not justifiedby Paragraph 6 in the 11 statute. That the needs for energy conservation, a 12 vague general standard, doesn't necessarily justify 13 theDepartmentfactoringina monetizedpriceofthose 14 emissions into the price of electricity for purposes 15 of doing all the cost benefit analysis, the pay back 16 period analysis, the manufacturer's analysis, et 17 cetera, that you perform to determine whether or not 18 it's technologically feasible to mandate a higher 19 efficiency level andwhether or not it's economically 20 justified. 21 And I thinkthat's reallythe fundamental 22 flaw intheproposedregulation, if I can characterize 23 theANOPR as a proposedregulation. Thattheproposed 24 monetization. It's not a proposed regulation. That 25 there's no clear authority for you to include it in

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the price of electricity that is included in the fundamental cost benefit formulas that you've relied upon. And I would suggest that before the Department undertake to fundamentally alter this basic equation that has been prevalent under the appliance efficiency program, that you should require clear statutory guidance, far clearer than is implied in Paragraph 6 before you embark on that activity.

And let me suggest as an analog, as it were, for this legal caution that I'm suggesting you exercise. The experience in Massachusetts, a state whose recent experience with externalities has been in large part influenced by one of the current holders of an assistant secretary position in your department. The state of Massachusetts attempted to monetize externalities at the source of electricity generation where Doctor Montgomery has ably demonstrated monetization of externalities should properly be performed in the resource allocation decision that is required to be made by utilities in choosing the different levels of generation and the technologies for generation, and the supply of generation of electricity. And the Supreme Judicial Court of Massachusetts just last month struck down the proposed -- the monetization of externalities in the state of SAG, CORD 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 131 1 the price of electricity that is included in the 2 fundamental cost benefit formulas that you've relied 3 upon. And I would suggest that before the Department 4 undertake to fundamentally alter this basic equation 5 thathasbeenprevalentundertheapplianceefficiency 6 program, that you should require clear statutory 7 guidance, far clearer than is implied in Paragraph 6 8 before you embark on that activity. 9 And let me suggest as an analog, as it 10 were, for this legal caution that I'm suggesting you 11 exercise. The experience in Massachusetts, a state 12 whoserecentexperiencewithexternalitieshasbeenin 13 largepartinfluencedbyoneof the currentholders of 14 an assistant secretary position in your department. 15 The state of Massachusetts attempted to monetize 16 externalities at the source of electricitygeneration 17 

### where Doctor Montgomery has ably demonstrated 18 monetization of externalities should properly be 19 performed inthe resource allocation decision that is 20 required to be made by utilities in choosing the 21 different levels of generation and the technologies 22 for generation, and the supply of generation of 23 

### electricity. And the Supreme Judicial Court of 24 Massachusettsjustlastmonth struckdowntheproposed 25 -- the monetization of externalities in the state of

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Massachusetts. Now, they did so on statutory grounds and obviously the statute that governs the public utilities commission, the Department of Public Utilities in Massachusetts, is very different from the Energy Policy and Conservation Act. But they struck it down -- Let me suggest that if you read that opinion and if you give some thought to it, it's very clear that the statutory authority that the Department of Public Utilities had in Massachusetts, when they clearly had regulatory authority to govern and regulate the provision in the generation of electricity and the means by which the state's utilities produced electricity, and the resource -- the integrated resource allocation decision, nonetheless, despite that statutory authority well recognized, the state -- the highest state court in Massachusetts held that on -- to undertake something as controversial, as complex, with as many ramifications as monetization of externalities, the state agency needed clear and precise authority from the state legislature.

Your statutory authority is far more attenuated than the state commission statutory authority was to monetize externalities in SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 132 1 Massachusetts. Now, they did so on statutory grounds 2 and obviously the statute that governs the public 3 utilities commission, the Department of Public 4 utilities inMassachusetts, is verydifferent fromthe 5 Energy Policy and Conservation Act. But they struck 6 it down

-- 7 Let me suggest that if you read that 8 opinion and if you give some thought to it, it's very 9 clearthatthe statutoryauthoritythatthe Department 10 of Public utilities had in Massachusetts, when they 11 clearly had regulatory authority to govern and 12 regulate the provision in the generation of 13 electricity and the means by which the state's 14 utilities produced electricity, and the resource -- 15 the integrated resource allocation decision, 16 nonetheless, despite that statutory authority well 17 recognized, the state

-- the highest state court in 18 Massachusetts held that on -- to undertake something 19 as controversial, as complex, with as many 20 ramifications as monetization of externalities, the 21 state agency needed clear and precise authority from 22 the state legislature. 23 Your statutory authority is far more 24 attenuated than the state commission statutory 25 authority was to

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Massachusetts. And I suggest that most courts would be likely to take the position that the state -- the Supreme Judicial Court took in Massachusetts. And that is to demand a clear express intent of Congress that a federal agency monetize externalities for any purpose let alone the purpose of determining what the efficiency standards or what the energy costs ought to be deemed to be for one or a few selective uses of electricity. And it's not so much a question of whether there's a clear prohibition here. Lawyers can argue both ways on this point. But I think that the -- that the experience in Massachusetts ought to give this Department great caution before embarking upon something as controversial and as attenuated as what is proposed. Let me suggest, and then the point that I made first in my prepared remarks, that I think is also important here. Is that the attempt to monetize externalities is so inherently uncertain as to be both arbitrary and wholly inappropriate to be incorporated into the appliance efficiency program. It might be appropriate for other regulatory purposes, for either this department or other federal agencies such as the Environmental Protection Agency. But it's wholly SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 133 1 Massachusetts. And I suggest that most courts would 2 be likely to take the position that the state

-- the 3 

### Supreme Judicial Court took in Massachusetts. And 4 that is to demand a clear express intent of Congress 5 that a federal agency monetize externalities for any 6 purpose let alone the purpose of determiningwhat the 7 efficiency standards orwhattheenergycostsoughtto 8 be deemed to be for one or a few selective uses of 9 electricity. 10 Andit'snot somucha questionofwhether 11 there's a clear prohibition here. Lawyers can argue 12 bothways on this point. But I thinkthat the

-- that 13 the experience in Massachusetts ought to give this 14 Department great caution before embarking upon 15 something as controversial and as attenuated as what 16 is proposed. 17 Let me suggest, andthen the point that I 18 made first in my prepared remarks, that I think is 19 also important here. Is that the attempt to monetize 20 externalities is soinherentlyuncertainas tobeboth 21 arbitrary andwholly inappropriatetobe incorporated 22 into the appliance efficiency program. It might be 23 appropriate for other regulatorypurposes, for either 24 this department or other federal agencies such as the 25 

### Environmental Protection Agency.

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### But it's wholly

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inappropriate for the appliance efficiency program. And for this reason.

The appliance efficiency program sets mandatory manufacturer's standards. And it prescribes your own test procedure regulations just as one example, as well as all the technical support analysis that has been performed for you by your outside contractors, have always looked at very low tolerances for statistical deviations from those standards. There's very tight tolerances imposed on the manufacturers. In that --

In the context of such a program it would be highly inappropriate for the Department to now take a count of a significant factor, the monetization value of externalities, which everyone would agree is highly, highly uncertain by orders of magnitude more uncertain than any of the other factors that you take into account currently in the program. And so highly uncertain compared to the degree of statistical accuracy that you require of manufacturers. So much more highly uncertain than any of the other criteria for which you do sensitivity analysis in your current technical support documents as to render it wholly useless as an evaluative criteria.

And that's really the principal reason why

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### 134 1 inappropriate for the appliance efficiency program. 2 And for this reason. 3 

### The appliance efficiency program sets 4 mandatorymanufacturer's standards. Anditprescribes 5 your own test procedure regulations just as one 6 example, aswell as allthetechnical support analysis 7 that has been performed for you by your outside 8 contractors, havealways lookedatverylowtolerances 9 for statistical deviations from those standards. 10 

### There's very tight tolerances imposed on the 11 manufacturers. In that

-- 12 In the context of such a program itwould 13 behighlyinappropriatefortheDepartmenttonowtake 14 a count of a significant factor, the monetization 15 value of externalities, which everyonewould agree is 16 highly, highly uncertain by orders of magnitude more 17 uncertain than any of the other factors that you take 18 into account currently in the program. And so highly 19 uncertain compared to the degree of statistical 20 accuracy that you require of manufacturers. So much 21 more highly uncertain than any of the other criteria 22 for which you do sensitivity analysis in your current 23 technical support documents as to render it wholly 24 useless as an evaluative criteria. 25 Andthat'sreallytheprincipalreasonwhy

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 135

Section 6 of your statute doesn't really give you sufficient authority to monetize externalities in the appliance efficiency program. The other provisions of the program, the technological feasibility, the economic justification, the cost on manufacturers, the benefit to consumers, the pay back analysis, all have been developed quite sensibly with very specific quantification methods. They've been highly developed. They've been tested, both through public comment period and several court cases, and will continue to be so tested. And that whole process mandates a degree of specificity and certainty that will be wholly lacking from any undertaking to monetize externalities.

And that's really the central flaw in any proposal to monetize externalities as part of the appliance efficiency programs. I suggest it would not pass the statutory, the judicial review standard of NRDC v. Harrington. Admittedly, it's not an issue that was before the court in that case but I think you would have substantial doubt as -- there ought to be substantial doubt as to the likelihood that you would be able to sustain any determination, any monetization of externalities, that you could in fact demonstrate that there is substantial evidence for any particular SACS, C R 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 135 1 Section 6 of your statute doesn't really give you 2 sufficient authoritytomonetize externalities inthe 3 applianceefficiencyprogram. Theotherprovisionsof 4 the program, the technological feasibility, the 5 economicjustification, thecostonmanufacturers, the 6 benefit to consumers, the payback analysis, all have 7 been developed quite sensibly with very specific 8 

### quantification methods. They've been highly 9 developed. They've been tested, both through public 10 comment period and several court cases, and will 11 continue to be so tested. And that whole process 12 mandates a degree of specificity and certainty that 13 will be wholly lacking from any undertaking to 14 monetize externalities. 15 And that's reallythe central flaw in any 16 proposal to monetize externalities as part of the 17 applianceefficiencyprograms. I suggestitwouldnot 18 pass the statutory, the judicial review standard of 19 

### NRDC v. Harrington. Admittedly, it's not an issue 20 thatwas beforethe court inthat casebut I thinkyou 21 would have sUbstantial doubt as -- there ought to be 22 substantial doubt as to the likelihoodthat you would 23 beableto sustainanydetermination, anymonetization 24 of externalities, that you could in fact demonstrate 25 that there is substantial evidence for anyparticular

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One, it is a big step between saying that establishing energy higher appliance efficiency standards for one or all the products that you regulate will lead to any freeing up of any credits whatsoever. I'd suggest in fact that if you cut the energy consumption, electricity consumption, from all the regulated covered products by 50 percent, that you still wouldn't be affecting enough electricity consumption that you would affect the number of credits that would be tradeable on the market. That's an empirical point. I haven't researched it yet. But I suggest that even if you cut 50 percent from all your products, you probably wouldn't affect the level of credits that are sold on the market. And therefore SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 136 1 value or range of values that you might select. 2 Letme justcoveroneotherpointthatMr. 3 

### Frederichs raised in the question of Doctor 4 Montgomery. And that was that you suggested that

-- 5 some have suggested that although 802 

### emissions are 6 capped under the current statutory regime, that 7 establishing appliance efficiency standards might 8 reduce the electricity consumption freeingup credits 9 that have a marginal cost or marginal benefit. And 10 that it would be appropriate to take that into 11 account. I'd make two points. 12 One, it is a big stepbetween sayingthat 13 establishing energy higher appliance efficiency 14 standards for one or all the products that you 15 regulate will lead to any freeing up of any credits 16 whatsoever. I'd suggest in fact that if you cut the 17 energy consumption, electricityconsumption, from all 18 theregulatedcoveredproductsby50 percent, thatyou 19 still wouldn't be affecting enough electricity 20 consumption that you would affect the number of 21 credits thatwouldbetradeableonthemarket. That's 22 an empiricalpoint. I haven't researched ityet. But 23 I suggest that even if you cut 50 percent from all 24 your products, youprobablywouldn't affect the level 25 of credits that are soldonthemarket. Andtherefore

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it's not -- perhaps wouldn't be appropriate to assign any marginal cost.

But even if it were appropriate to assign a marginal benefit to a freed up credit, I think your question suggest, and your other questions have also suggested that that's a marginal cost and a marginal benefit. And the appliance efficiency program doesn't work off of marginal costs and marginal benefits. Appropriate regulation of externalities and if pollution does work off of marginal costs and marginal benefits, that's why monetization of externalities is as appropriately done at the source of the pollution where it can be factored in to the market and economic decisions that are undertaken. And the monetization value can be reflected in prices and affects resource allocation in the most efficient manner.

But the appliance efficiency program simply takes an average price of electricity and makes complicated determinations over whether or not we're better off or worse off as a society to impose a higher mandatory standard on everyone.

(A) There's no marginal decision allowed to the manufacturers. They have to comply with the standards wherever you set them.

And (B) it's done on average prices, not

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### 137 1 it's not

-- perhaps wouldn't be appropriate to assign 2 any marginal cost. 3 But even if itwere appropriate to assign 4 a marginal benefit to a freed up credit, I think your 5 question suggest, and your other questions have also 6 suggested that that's a marginal cost and a marginal 7 benefit. Andtheapplianceefficiencyprogramdoesn't 8 work off of marginal costs and marginal benefits. 9 Appropriate regulation of externalities and if 10 pollutiondoesworkoffofmarginal costs andmarginal 11 benefits, that's whymonetization of externalities is 12 as appropriately done at the source of the pollution 13 where it canbe factored into themarket and economic 14 decisions that are undertaken. And the monetization 15 value canbe reflected inprices and affects resource 16 allocation in the most efficient manner. 17 

### But the appliance efficiency program 18 simplytakes an averagepriceof electricityandmakes 19 complicated determinations over whether or not we're 20 better off or worse off as a society to impose a 21 higher mandatory standard on everyone. 22 (A) There's no marginal decision allowed 23 

### to the manufacturers. They have to comply with the 24 standards wherever you set them. 25 And (B) it's done on average prices, not

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on marginal prices. And so there's this fundamental gap between the economic theory of monetizing externalities which is appropriate applied in theory, we would emphasize, at the level of the source of pollution on a marginal cost basis, to the appliance efficiency standards that result in these mandatory standards, command and control standards, that are based on average prices.

There's simply this fundamental difference that I think is totally lost if you proceed.

I would like to end with one final point. Mike McCabe I'm sure has heard this from me before. I think Gene has as well.

I believe that, and NEMA believes, that it is highly inappropriate for this Department to consider the monetization of externalities as part of a pending rulemaking that applies to a particular, or in this case, three particular covered products. If the Department intends to proceed in considering the monetization of externalities, it should recognize by the extreme interest in this hearing from representatives of various manufactured products as well as various other sectors of the energy industry that it is an issue of generic significance to the industry as a whole. And therefore the consideration SAG, C1 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 138 1 on marginal prices. And so there's this fundamental 2 gap between the economic theory of monetizing 3 externalities which is appropriate applied in theory, 4 we would emphasize, at the level of the source of 5 pollution on a marginal cost basis, to the appliance 6 efficiency standards that result in these mandatory 7 standards, command and control standards, that are 8 based on average prices. 9 There'ssimplythisfundamentaldifference 10 that I think is totally lost if you proceed. 11 I would like to endwith one final point. 12 Mike McCabe I'm sure has heard this from me before. 13 I think Gene has as well. 14 I believethat, and NEMAbelieves, that it 15 is highly inappropriate for this Department to 16 consider the monetization of externalities as part of 17 a pendingrulemaking that applies to a particular, or 18 in this case, three particular covered products. If 19 the Department intends to proceed in considering the 20 monetization of externalities, it shouldrecognize by 21 the extreme interest in this hearing from 22 representatives of various manufactured products as 23 well as various other sectors of the energy industry 24 that it is an issue of generic significance to the 25 industry as a whole. And therefore the consideration

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of monetization of externalities should be established as a generic rulemaking, as a policy of the Department, separate from any pending rulemaking relating to the efficiency standards for those specific products. That's number one.

But number two, and far more significantly, is that the procedures that the Department currently follows of putting out an ANOPR, of hiring independent contractors to do complex studies in private, then publishing those studies and allowing a single public hearing at which seriatim comments are provided by members of the public is a wholly inappropriate procedural method for this department to tackle the highly complex technical issue of establishing externalities.

And I would strongly urge the Department that if it proceeds, which we of course would suggest that you don't do, but if you decide to proceed in pursuing the monetization of externalities, that you sever it from this rulemaking. You renotice it. And you adopt an entirely new procedural format for developing the necessary data, model, and analytical basis that will be required. Most importantly, that you not rely on an independent contractor that is hired to perform a study over a one or two year period SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 139 1 ofmonetizationofexternalities shouldbeestablished 2 as a generic rulemaking, as a policy of the 3 Department, separate from any pending rulemaking 

### 4 relating to the efficiency standards for those 5 

### specific products. That's number one. 6 

### But number two, and far more 7 significantly, is that the procedures that the 8 Department currently follows ofputtingout anANOPR, 9 of hiring independent contractors to do complex 10 studies inprivate, thenpublishingthose studies and 11 allowing a single public hearing at which seriatim 12 comments are provided by members of the public is a 13 wholly inappropriate procedural method for this 14 department to tackle the highly complex technical 15 issue of establishing externalities. 16 And I would strongly urge the Department 17 that if itproceeds, whichwe of coursewould suggest 18 that you don't do, but if you decide to proceed in 19 pursuing the monetization of externalities, that you 20 sever it from this rulemaking. You renotice it. And 21 you adopt an entirely new procedural format for 22 developing the necessary data, model, and analytical 23 basis that will be required. Most importantly, that 24 you not rely on an independent contractor that is 25 hiredtoperforma studyover a one ortwoyearperiod

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### 140 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 entirely in secret. That instead you provide for a series of scheduled public meetings. That you allow all interested parties to present their own models, their own data, and their own assumptions long before you produce a proposed rulemaking. Long before you produce a proposed set of monetized values. Only if you undertake that type of rulemaking process are you going to avoid highly protracted and highly unnecessary litigation over whatever values you choose to prescribe at some future date.

That would conclude my remarks. Gene, they were not my prepared remarks. And I'd be happy to answer any questions that any of you may have.

PRESIDING OFFICIAL BERLIN: Thank you for a very well thought out, I believe, suggestion on how we should proceed with this if we decide to go forward. I don't have any questions.

Mark, do you? MR. FRIEDRICHS: No, I don't. PRESIDING OFFICIAL BERLIN: Michael? MR. McCABE: No questions. MR. MARGOLIS: Mark, you were saying that the externalities should be looked at where the source SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 140 1 entirely in secret. 2 That instead you provide for a series of 3 

### scheduled public meetings. That you allow all 4 interestedparties to present their own models, their 5 own data, and their own assumptions long before you 6 

### produce a proposed rulemaking. Long before you 7 produce a proposed set of monetized values. Only if 8 you undertake that type of rulemakingprocess are you 9 

### going to avoid highly protracted and highly 10 unnecessarylitigationoverwhatevervaluesyouchoose 11 to prescribe at some future date. 12 That would conclude my remarks. 13 Gene, theywere notmy preparedremarks. 14 And I'd be happy to answer any questions 15 that any of you may have. 16 

### PRESIDING OFFICIAL BERLIN: Thankyou for 17 a verywell thought out, I believe, suggestion on how 18 we should proceed with this if we decide to go 19 forward. I don't have any questions. 20 

### Mark, do you? 21 MR. FRIEDRICHS: No, I don't. 22 PRESIDING OFFICIAL BERLIN: Michael? 23 

### MR. McCABE: No questions. 24 

### MR. MARGOLIS: Mark, youwere sayingthat 25 theexternalities shouldbe lookedatwherethe source

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is. Well, in our appliance rulemaking we have about 12 appliances before EPACT added a number of others. And I don't know what the count is from that. But what about let's take a look at furnaces, gas furnaces or, say, oil furnaces. In our rulemaking for furnaces, we break out, say, gas, electric, oil. Would it be proper, then, to look at externalities for oil furnaces where you would be using the oil coming right from the source?

MR. PERLIS: My association does not represent those products and I'm sure you appreciate that. MR. MARGOLIS: Yes.

MR. PERLIS: And so you put me in an uncomfortable position in responding to it. But as an individual, let me say that most of my remarks and moist of the remarks presented today are presented in the context of monetizing externalities as part of the price of electricity, not as a -- as the relative prices of oil -- of fuels, oil versus gas . And I've not thought through the issues as to whether or not at the level of a home appliance that the considerations of resource allocation between alternative fuels are ones that are -- that would justify monetization of externalities. SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 141 1 lS. 

### Well, in our appliance rulemaking we have about 2 12 appliances before EPACT added a number of others. 3 

### And I don't know what the count is from that. But 4 what about let's take a lookat furnaces, gas furnaces 5 

### or, say, oil furnaces. In our rulemaking for 6 furnaces, we break out, say, gas, electric, oil. 7 Woulditbeproper, then, to lookat externalities for 8 oil furnaces where you would be using the oil coming 9 right from the source? 10 

### MR. PERLIS: My association does not 11 represent those products and I'm sure you appreciate 12 that. 13 

### MR. MARGOLIS: Yes. 14 

### MR. PERLIS: And so you put me in an 15 

### uncomfortablepositioninrespondingto it. But as an 16 individual, let me say that most of my remarks and 17 moist of the remarks presentedtoday are presented in 18 thecontextofmonetizingexternalities aspartof the 19 price of electricity, not as a -- as the relative 20 prices of oil

-- of fuels, oil versus gas. And I've 21 notthought throughthe issues as towhetherornot at 22 the level of a home appliance that the considerations 23 of resource allocation between alternative fuels are 24 ones that are -- that would justify monetization of 25 externalities.

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And that's really the fundamental flaw with the proposal and would be the source, I believe, SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 142 1 But it is clear to me that for the 2 products that NEMA manufacturers manufacture, which 3 are fluorescent lamp ballasts, electric lamps, and 4 electric motors, the only issue is whether or not 5 monetization of externalities is appropriate in the 6 priceof electricity. And the casethat I'vetriedto 7 make to you today is that it is wholly inappropriate 8 to be incorporated into the analysis that this 9 

### Department has always applied when met when 10 determining and using the price of electricity for 11 purposesofperformingthecostbenefitanalysiswhich 12 it undertakes. And that should remain the focus of 13 the Department's rulemaking in setting

-- in amending 14 efficiencystandardsandtheproposedconsiderationof 15 

### monetizing externalities is irrelevant. And the 16 various other reasons that I've presented in my 17 remarks to you this morning I think suggest that 18 should give you reason to believe that you don't even 19 have legal authorityorifyouhavehypothetical legal 20 authority, you should exercise discretion and not 21 choose to expand a questionable statutory provision 22 into so far reaching a technical and scientific 23 undertaking as monetizing externalities. 24 And that's really the fundamental flaw 25 with the proposal andwouldbe the source, I believe,

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endless litigation. And I think the result would be the same as in Massachusetts where the courts would strike down that Congress ever intended the Department in this area, when it hasn't given you the authority to do it explicitly in so many other areas, far --

Let me just say one other thing, if I might, Gene. That is closer to your Department's own experience with electricity, the cost of electricity generation. It has proven to be highly controversial for both the Federal Energy Regulatory Commission and the Department of Energy in considering whether or not under the PERPA statute passed in 1978 it is feasible to determine with any tolerable accuracy the long run avoided costs of producing electricity. That whole exercise which was mandated quite clearly under a federal statute and it has been the subject of endless litigation that will continue to go on for some time even if Congress completely remakes the electricity markets. Concerned the measurement of tangible costs of generating electricity and the comparison of alternative means of generation that electricity.

The monetization of externalities focuses on a highly intangible cost of generating electricity. And I think the Department's and the federal SAG, CRP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 143 1 of endless litigation. And I think the result would 2 bethe same as inMassachusettswherethe courtswould 3 strikedown thatCongress everintendedtheDepartment 4 in this area, when it hasn't given you the authority 5 to do it explicitly in so many other areas, far

-- 6 

### Let me just say one other thing, if I 7 might, Gene. That is closer to your Department's own 8 experience with electricity, the cost of electricity 9 generation. 10 It has proven to be highly controversial 11 for boththe Federal Energy RegulatoryCommission and 12 theDepartmentofEnergyinconsideringwhetherornot 13 under the PERPA statutepassed in 1978 it is feasible 14 to determine with any tolerable accuracy the longrun 15 

### avoided costs of producing electricity. That whole 16 exercise which was mandated quite clearly under a 17 federal statute andithas beenthe subject of endless 18 litigation that will continue to go on for some time 19 even if Congress completely remakes the electricity 20 markets. Concernedthemeasurement of tangible costs 21 of generating electricity and the comparison of 22 alternative means of generation that electricity. 23 Themonetizationof externalities focuses 24 ona highlyintangiblecostofgeneratingelectricity. 25 And I think the Department's and the federal

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government's experience under PERPA ought to give you a strong sense of caution before you rush out and try to now measure the intangible costs of generating electricity where there has been so much controversy attendant to the federal government's effort regulating a system that depends on determinations of tangible costs of generation. And that's a further reason, I would suggest, of why you should not latch on to this highly ambiguous and amorphous phrase of the needs for energy conservation as sufficient statutory authority to monetize externalities of this appliance efficiency program.

MR. MARGOLIS: I have no further questions, Mr. Chairman.

MR. GRUENSECHT: I noticed in your testimony you address this issue of marginal and average. And it's a very interesting issue. And it's an issue that I think is one of the issues posed for discussion in the ANOPR. And I am looking forward to your written comments, I guess, on this marginal and average issue.

The discussion of -- Because I think you're correct in pointing out that the externalities or the economic theory of externalities coming out of, I guess, PAGU, is sort of a marginal concept as you SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 144 1 government's experience under PERPA ought to give you 2 a strong sense of caution before you rush out and try 3 to now measure the intangible costs of generating 

### 4 electricity where there has been so much controversy 5 attendant to the federal government's effort at 6 regulating a systemthat depends on determinations of 7 tangible costs of generation. And that's a further 8 reason, I would suggest, of why you should not latch 9 on to this highly ambiguous and amorphous phrase of 10 the needs for energy conservation as sufficient 11 statutory authorityto monetize externalities of this 12 appliance efficiency program. 13 MR. MARGOLIS: I have no further 14 questions, Mr. Chairman. 15 MR. GRUENSECHT: I noticed in your 16 testimony you address this issue of marginal and 17 average. And it's a very interestingissue. And it's 18 an issue that I think is one of the issues posed for 19 discussion in the ANOPR. And I am looking forward to 20 your written comments, I guess, on this marginal and 21 average issue. 22 The discussion of Because I think 23 you're correct inpointingout that the externalities 24 orthe economictheoryof externalities comingoutof, 25 I guess, PAGU, is sort of a marginal concept as you

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measure the cost of what I (not a good), the cost of producing it good, but the cost of producing it bad. And it's a marginal cost that's appropriately in theory taken into account in influencing the efficiency of resource allocation of how much of those goods and bads are produced and in what manner they're produced. And that's the way in which the federal government is going at the problem of, at least of environmental externalities.

While in the case of sulphur dioxide, they imposed a cap on limitations, the fundamental objective was to create economic incentives to internalize into market decisions the values at stake from sulphur dioxide emissions. It was to internalize into the market but they did so at the only level at which it makes sense to internalize where marginal decisions are actually made. So utilities now have to make a marginal decision of what technology, what fuels they use. What technologies for pollution control they use. Whether they use old facilities or new facilities, et cetera. And the price that is associated with emission allowances that traded on the market, whether they're freed up or not, is a signal SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 145 1 point out. 2 MR. PERLIS: 

### It's a marginal concept to 3 measure the cost of what I (not a good), the cost of 4 producing it good, but the cost of producing it bad. 5 And it's a marginal cost that's appropriately in 6 theory taken into account in influencing the 7 efficiencyofresourceallocationofhowmuchofthose 8 goods andbads areproducedandinwhatmannerthey're 9 

### produced. And that's the way in which the federal 10 government is going at the problem of, at least of 11 environmental externalities. 12 Whileinthecaseof sulphurdioxide, they 13 

### imposed a cap on limitations, the fundamental 14 objective was to create economic incentives to 15 internalize intomarket decisions the values at stake 16 from sulphurdioxideemissions. Itwas to internalize 17 into the market but they did so at the only level at 18 which it makes sense to internalize where marginal 19 decisions are actuallymade. So utilities now haveto 20 make a marginal decision of what technology, what 21 fuels they use. What technologies for pollution 22 control they use. Whether they use old facilities or 23 

### new facilities, et cetera. And the price that is 24 associatedwithemissionallowances thattradedonthe 25 market, whether they're freed up or not, is a signal

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And as to the question that was asked, if I can just digress for one second here, as to whether you should do it locally or national. I mean, the issue on -- We're getting to the point in this country where we have a national energy market. We're going to be increasingly headed in that direction. Pollution, though, remains in many respects a local problem. Some of the pollution, like CO2. NO, is much more a local problem. SO2 is somewhere in between. But the price of electricity is a national SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 146 1 to that resource allocation decision. 2 

### The appliance efficiency program works 3 exactlythe otherway. It is anold fashioned command 4 and controlprogramwhich is not at all suited for, or 5 and it would be highly ironic actually for this 6 department for the first timemonetize externalities, 7 not in a market orientedprogram like at the S02' but 8 

### in a command and control program. A command and 9 control program that makes no effort whatsoever to 10 

### ever measure marginal costs or to factor it into 11 decisions by anyone, consumers, manufacturers, orthe 12 

### producers of electricityandtheproducers ofthebad. 13 And where all the analysis is performed at the level 14 of average cost. 15 And as to the question thatwas asked, if 16 I can just digress for one second here, as to whether 17 

### you should do it locally or national. I mean, the 18 issue on -- We're gettingtothepoint inthis country 19 where we have a national energy market. We're going 20 

### to be increasingly headed in that direction. 21 

### Pollution, though, remains in many respects a local 22 

### problem. Some of the pollution, like CO2, 23 

### much more a local problem. S02 is somewhere in 24 

### between. 25 

### Butthepriceofelectricityis a national

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price of electricity and that's the way you've always approached it. And it strikes me that that's just a further reason why it's wholly inappropriate to be thinking about monetizing externalities, introducing marginal cost pricing concepts in a command and control program that is far removed from the point of decision at which resource allocation decisions are made based on those marginal costs.

And that's really the fundamental flaw in -- another fundamental flaw in the proposed monetization of externalities here.

Thank you very much. PRESIDING OFFICIAL BERLIN: Thank you. Well, we're almost on schedule. Why don't we break for lunch and adjourn -- reconvene at, oh, 1:50. That will give us a little over an hour.

(Whereupon, the hearing was recessed at 12:47 p.m. to reconvene at 1:50 p.m. this same day.)

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### 147 1 price of electricity and that's the way you've always 2 approached it. And it strikes me that that's just a 3 further reason why it's wholly inappropriate to be 4 

### thinking about monetizing externalities, introducing 5 

### marginal cost pricing concepts in a command and 6 

### control program that is far removed from the point of 7 

### decision at which resource allocation decisions are 8 

### made based on those marginal costs. 9 

### And that's reallythe fundamental flaw in 10 another fundamental flaw in the proposed 11 monetization of externalities here. 12 Thank you very much. 13 

### PRESIDING OFFICIAL BERLIN: Thank you. 14 Well, we'realmoston schedule. Why don't 15 we break for lunch and adjourn

-- reconvene at, oh, 16 1:50. That will give us a little over an hour. 17 (Whereupon, the hearing was recessed at 18 12:47 p.m. to reconvene at 1:50 p.m. this same day.) 19 

### 20 21 22 23 

### 24 25

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### 148

1

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### 148

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### 149 1 A-F-T-E-R-N-O-O-N S-E-S-S-I-O-N 2 1:52 p.m. 3 MR. McCABE: The next speaker is Joseph 4 Mattingly of the Gas Appliance Manufacturers 5 Association. 6 MR. MATTINGLY: I'm Joseph Mattingly, 7 Director of Government Affairs and General Counsel for 8 the Gas Appliance Manufacturers Association. 9 The Gas Appliance Manufacturers 10 Association (GAMA) represents manufacturers of 11 furnaces, boilers, water heaters, room heaters and 12 other products. In the October 7, 1994, Federal 13 Register, DOE requested public comment on whether and 14 how the agency should consider and evaluate 15 environmental and energy security externalities in 16 this "three products" rulemaking. For legal and 17 policy reasons, GAMA urges DOE not to pursue 18 consideration of externalities in this proceeding. If 19 DOE persists in doing so, the likely results will be 20 further substantial delay in revising the federal 21 efficiency standards for the subject products, and the 22 consumption of substantial agency staff time and 23 resources by litigation. 24 It appears to GAMA that the Clinton 25 Administration's Climate Change Action Plan is what SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 149 1 A-F-T-E-R-N-O-O-N S-E-S-S-I-O-N 2 1:52 p.m. 3 MR. McCABE: The next speaker is Joseph 4 Mattingly of the Gas Appliance Manufacturers 5 Association. 6 MR. MATTINGLY: I'm Joseph Mattingly, 7 DirectorofGovernmentAffairs andGeneral Counsel for 8 the Gas Appliance Manufacturers Association. 9 The Gas Appliance Manufacturers 10 Association (GAMA) represents manufacturers of 11 furnaces, boilers, water heaters, room heaters and 12 other products. In the October 7, 1994, Federal 13 Register, DOE requestedpublic comment onwhether and 14 how the agency should consider and evaluate 15 environmental and energy security externalities in 16 this "three products" rulemaking. For legal and 17 policy reasons, GAMA urges DOE not to pursue 18 considerationof externalities inthisproceeding. If 19 DOE persists in doing so, the likely results will be 20 further substantial delay in revising the federal 21 efficiencystandards forthe subjectproducts, andthe 22 consumption of substantial agency staff time and 23 resources by litigation. 24 It appears to GAMA that the Clinton 25 Administration's Climate Change Action Plan is what

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has motivated DOE to propose to factor environmental externalities into the economic justification of new appliance efficiency standards. The Plan specifies DOE's "three products" rulemaking as one action to be taken to reduce greenhouse gas emissions and even states that "upcoming appliance standards will consider the environmental effects of carbon dioxide emissions." And we would note that the Climate Change Action Plan does not give DOE any new legal authority. DOE is still an energy conservation agency. It is not an environmental protection agency. Some of the speakers this morning made the point that DOE lacks legal authority to consider externalities in appliance standards rulemaking. We agree wholeheartedly with that and we see no express or implied statutory authority for DOE to consider externalities. And it isn't just a case of authority to monetize externalities. It's a lack of legal authority to factor in environmental benefits of standards at all.

PRESIDING OFFICIAL BERLIN: Can you hold

on one sec. MR. MATTINGLY: As some of us have written in our comments, we've addressed is one of the economic justification criteria is other factors the SAG, COB-It4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 150 1 has motivated DOE to propose to factor environmental 2 externalities into the economic justification of new 3 

### appliance efficiency standards. The Plan specifies 4 DOE's "threeproducts" rulemaking as one action to be 5 taken to reduce greenhouse gas emissions and even 6 states that "upcoming appliance standards will 7 consider the environmental effects of carbon dioxide 8 emissions." 9 Andwe wouldnote that the Climate Change 10 ActionPlandoes not give DOE anynew legal authority. 11 DOE is still an energyconservation agency. It is not 12 

### an environmental protection agency. Some of the 13 speakers this morning made the point that DOE lacks 14 legalauthoritytoconsiderexternalitiesinappliance 15 

### standards rulemaking. We agree wholeheartedly with 16 that and we see no express or implied statutory 17 authority for DOE to consider externalities. And it 18 

### isn't just a 

### case of authority to monetize 19 

### externalities. It's a lack of legal authority to 20 factor in environmentalbenefits of standards at all. 21 

### PRESIDING OFFICIAL BERLIN: Can you hold 22 on one sec. 23 

### MR. MATTINGLY: As someofus havewritten 24 in our comments, we've addressed is one of the 25 economic justification criteria is other factors the

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Secretary considers relevant. And frankly, I thought that was what you all were hanging your hats on for your legal authority and we've made the points in our comments that that is not -- does not give you legal authority to gut the other specific economic justification criteria which we believe restrict DOE to regulation of appliance energy use, not emissions. And energy use at the point of end use.

It was sort of a relief to hear that your presumed authority is actually this subsection 6, the need of the energy to -- the need of the nation to save energy. Frankly, I think it's a long stretch of the imagination to get legal authority to deal with emissions reductions out of that provision. In fact, I would think that if someone came to you and said, gee, DOE, you ought to factor in emissions reductions into your standards rulemaking, you might well point to subsection 6 and say, no, no, that's not our mandate. Our mandate in fact is to help the nation save energy, and that's it.

We also make a point -- we give an example in our comments that if you attempt to convert EPCA into an environmental protection statute, you're going to raise novel questions about other applications of the statute that you may not have considered, such as SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 151 1 Secretary considers relevant. And frankly, I thought 2 that was what you all were hanging your hats on for 3 your legal authority and we'vemade the points in our 4 comments that that is not

-- does not glve you legal 5 authority to gut the other specific economic 6 justification criteria which we believe restrict DOE 7 to regulationof appliance energyuse, not emissions. 8 And energy use at the point of end use. 9 Itwas sort of a relief to hear that your 10 presumed authority is actuallythis subsection 6, the 11 need of the energy to

-- the need of the nation to 12 save energy. Frankly, I think it's a long stretch of 13 the imagination to get legal authority to deal with 14 emissions reductions out of that provision. In fact, 15 I would think that if someone came to you and said, 16 gee, DOE, you ought to factor in emissions reductions 17 into your standards rulemaking, you might well point 18 to subsection 6 and say, no, no, that's not our 19 

### mandate. Our mandate in fact is to help the nation 20 save energy, and that's it. 21 We alsomake a point

-- we give an example 22 in our comments that if you attempt to convert EPCA 23 intoanenvironmentalprotectionstatute, you'regoing 24 to raise novel questions about other applications of 25 the statute that you may not have considered, such as

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For example, how can you place value on carbon monoxide -- carbon dioxide emissions when there's not even any consensus right now on the likely physical consequences or health effects of carbon dioxide emissions.

If you consider externalities, you're going to create substantial additional delay. And more than that, you're going to make your -- any amended standards based on this much more vulnerable to legal challenge.

And those are all of our comments for today and we appreciate the opportunity to comment.

MR. McCABE: Thank you. One question that I have with respect to-- it touches on the comments that most of you -- everybody has offered as to whether or not we have the SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 152 1 federal preemption provisions. 2 The last point is that you all have had a 3 great deal of difficulty keeping up with your NAECA 4 

### standards schedule. And it is a complex job. We 5 realize it's a tough job. And factoring

-- trying to 6 factor externalities is going to make it impossibly 7 

### difficult. You ought to be looking for ways to add 8 precision to your analysis. And this wouldbe a step 9 in the wrong direction. 10 For example, how can you place value on 11 carbon monoxide carbon dioxide emissions when 12 there's not even anyconsensus right now onthe likely 13 physical consequences or health effects of carbon 14 dioxide emissions. 15 

### If you consider externalities, you're 16 

### going to create substantial additional delay. And 17 more than that, you're going to make your -- any 18 amended standards based on this much more vulnerable 19 to legal challenge. 20 

### And those are all of our comments for 21 today and we appreciate the opportunity to comment. 22 MR. McCABE: Thank you. 23 

### Onequestionthat I havewithrespectto-- 24 it touches on the comments that most of you 25 everybodyhas offeredas towhether ornotwe havethe

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authority to consider externalities and it's more of a broad question as to whether or not any factor that we consider, does it have to be explicitly mentioned in the legislation?

MR. MATTINGLY: Well, the -- you do have that one section in there, subsection, that says any other factors the Secretary considers relevant. I have -- I must say, I haven't sat down and tried to imagine all what that might be but I think whatever it is, it's still got to relate to regulation of the energy use of appliances and it can't be -- it can't deal with source energy consumption, for example.

If you had the authority to consider emissions at whatever the source, I would agree with AGA that you can't -- you should do it on a full cycle basis and consider source energy emissions. But the fact of the matter is, you don't have the legal authority to do that. So your statute hamstrings you in that respect.

MR. McCABE: There are other guiding statutes, however, are there not, such as the National Environmental Policy Act which directs us to look at the environmental impacts of regulations?

MR. MATTINGLY: I think you have to deal with what your authority is under this statute. And SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 153 1 authority to consider externalities and it's more of 2 a broad question as to whether or not any factor that 3 we consider, does it have to be explicitly mentioned 4 in the legislation? 5 

### MR. MATTINGLY: Well, the

-- you do have 6 that one section in there, subsection, that says any 7 

### other factors the Secretary considers relevant. I 

### 8 have

-- I must say, I haven't sat down and tried to 9 imagine allwhatthatmightbebut I thinkwhatever it 10 is, it's still got to relate to regulation of the 11 energy use of appliances and it can't be

-- it can't 12 deal with source energy consumption, for example. 13 

### If you had the authority to consider 14 emissions at whatever the source, I would agree with 15 AGA that you can't

-- you shoulddo iton a full cycle 16 basis and consider source energy emissions. But the 17 fact of the matter 1S, 

### you don't have the legal 18 authorityto do that. So your statute hamstrings you 19 in that respect. 20 

### MR. McCABE: There are other guiding 21 statutes, however, aretherenot, suchas theNational 22 Environmental Policy Act which directs us to look at 23 the environmental impacts of regulations? 24 

### MR. MATTINGLY: I think you have to deal 25 with what your authority is under this statute. And

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### 154 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 you don't have it here. MR. McCABE: Mr. Margolis, do you have a question? MR. MARGOLIS: I have no questions.

MR. McCABE: Thank you, Mr. Mattingly. The next scheduled speaker is Mr. Raymond Suhocki of Pennsylvania Power and Light.

MR. SUHOCKI: Suhocki. MR. McCABE: Suhocki. Okay. MR. SUHOCKI: Thank you. My name is Ray Suhocki. I'm the Vice President of Marketing and Economic Development at Pennsylvania Power and Light. We serve about 1.2 million customers in central eastern Pennsylvania and I'm here to discuss the issue of externalities on the several pieces of equipment as denoted in your ANOPR.

For several reasons, I'll not obviously discuss my total prepared oral testimony. Not the least of which is the temperature in the room.

MR. MARGOLIS: I agree with you. MR. SUHOCKI: It's very warm. But there are -- the speaker -- as the last speaker said, a lot of issues have already been discussed very eloquently and very much in depth. There are a few points that I would like to reiterate SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 154 1 you don't have it here. 2 MR. McCABE: Mr. Margolis, do you have a 3 question? 4 

### MR. MARGOLIS: I have no questions. 5 

### MR. McCABE: Thank you, Mr. Mattingly. 6 The next scheduled speaker is Mr. Raymond 7 Suhocki of Pennsylvania Power and Light. 8 

### MR. SUHOCKI: Suhocki. 9 

### MR. McCABE: Suhocki. Okay. 10 

### MR. SUHOCKI: Thank you. 11 My name is Ray Suhocki. I'm the Vice 12 President of Marketing and Economic Development at 13 

### Pennsylvania Power and Light. We serve about 1.2 14 million customers in central easternPennsylvania and 15 I'mhere to discuss the issue of externalities on the 16 several pieces of equipment as denoted inyourANOPR. 17 

### For several reasons, I'll not obviously 18 

### discuss my total prepared oral testimony. Not the 19 least of which is the temperature in the room. 20 

### MR. MARGOLIS: I agree with you. 21 MR. SUHOCKI: It's very warm. 22 But there are -- the speaker

-- as the 23 last speaker said, a lot of issues have already been 24 discussed very eloquently and very much in depth. 25 There are a few points that I would like to reiterate

(202)797-2525 SAG,CORP 4218LENORE LANE, NW. WASHINGTON, D.C.20008 VIDEO;TRANSCRIPTIONS155 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and perhaps reinforce. The first is that we definitely feel that the monetization of externalities for appliances absolutely cannot be achieved in practice without introducing significant price distortions and imposing unfair burdens. And we've thought a lot about it. How would you in practice impose -- how would you monetize externalities. And it may help to look at an application. Let's say we were going to do it with a window air conditioner. How would we do that in a practical aspect?

A window air conditioner is manufactured and could be used anywhere in the United States. And it could be powered by electric ranging in prices from, let's say, 3 cents to 12 or 13 cents. It could be in anywhere from a barber shop to the dining room of a home for a family of six, eight people. It could be used maybe only off hours. The family's working during the day. It may be used in the barber shop eight hours a day, not used the rest of the day or the weekend. It could be in Florida working 10, 12 hours a day. It could be New York state working a few hours out of the season. How do you apply, how do you monetize externalities to reflect the impact that particular piece of equipment has on the

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### 155 1 and perhaps reinforce. 2 The first is that we definitely feel that 3 the monetization of externalities for appliances 4 absolutely cannot be achieved in practice without 5 introducingsignificantpricedistortionsandimposing 6 unfair burdens. And we've thought a lot about it. 7 How would you in practice impose how would you 8 monetize externalities. And itmay help to look at an 9 application. Let's say we were going to do it with a 10 window air conditioner. How would we do that in a 11 practical aspect? 12 A window air conditioner is manufactured 13 and could be used anywhere in the united States. And 14 it could be powered by electric ranging in prices 15 from, let's say, 3 cents to 12 or 13 cents. It could 16 be in anywhere from a barber shop to the dining room 17 of a home for a family of six, eight people. It could 18 be used maybe only off hours. The family's working 19 during the day. It may be used in the barber shop 20 eight hours a day, not used the rest of the day or the 21 weekend. It could be in Florida working 10, 12 hours 22 a day. It couldbe New York stateworking a few hours 23 out of the season. How do you apply, how do you 24 monetize externalities to reflect the impact that 25 particular piece

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externalities? The practice seems to be very difficult to put into place.

Second, the ANOPR proposes efforts that will allow --

MR. MARGOLIS: Excuse me. Can you go on further and give us, in your opinion, one way that externalities can be used in that example of the air conditioner?MR. SUHOCKI: I guess my point is I wouldn't do it.

MR. MARGOLIS: Okay. MR. SUHOCKI: Personally. The point source, and I'll talk about that in a couple of minutes. Second, the ANOPR proposes efforts that will overlap and duplicate other actions already underway to force internalization of the externalities, including requirements imposed by the federal and state environmental health and safety agencies. A lot of the work that has been done on looking at monetizing externalities has demonstrated clearly, and some of the correspondence I've seen from DOE reinforces that, that the externalities are a very complex issue to deal with. And to move to monetizing externalities in theory is extremely difficult. In SACS, CORl 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 156 1 externalities? The practice seems to be very 2 difficult to put into place. 3 Second, the ANOPR proposes efforts that 4 will allow 5 MR. MARGOLIS: Excuse me. Can you go on 6 further and give us, in your opinion, one way that 7 externalities can be used in that example of the air 8 conditioner? 9 MR. SUHOCKI: I guess my point is I 10 wouldn't do it. 11 MR. MARGOLIS: Okay. 12 MR. SUHOCKI: Personally. The point 13 source, and I'll talk about that in a couple of 14 minutes. 15 Second, the ANOPR proposes efforts that 16 will overlap and duplicate other actions already 17 underway to force internalization of the 18 externalities, including requirements imposed by the 19 federal and state environmental health and safety 20 agencies. A lot of the work that has been done on 21 looking at monetizing externalities has demonstrated 22 clearly, and someofthe correspondence I've seen from 23 DOE reinforces that, thattheexternalities are a very 24 complexissueto dealwith. And tomove tomonetizing 25 externalities in theory is extremely difficult. In

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### 157 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 practice, it's probably impossible. Third, it would be impossible to make changes in the values that would be needed as environmental agencies changed their requirements and actions are taken to reduce adverse environmental impacts. If you think about it, if you impose standards on appliances based on a snapshot today of the situation that we have with certain regulations on sources and certain standards on appliances, end use appliances, and then the equation changes, do you then revisit the whole situation and restate or revise the standards? Do you continue to do that on an ongoing basis? It would seem to be an impossible situation to try to accommodate.

A fourth, incorrect externality values would distort appliance efficiency standards and impose unfair costs on many consumers, particularly in light of the proposed use of national values or averages . If you take the example I talked about in the beginning and consider the vast number of situations that equipment could be used in, to use an average or end use national values would seem to be, again, impractical or impossible.

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### 157 1 practice, it's probably impossible. 2 Third, it would be impossible to make 3 changes in the values that would be needed as 4 environmental agencies changedtheirrequirements and 5 actions are taken to reduce adverse environmental 6 

### impacts. If you think about it, if you impose 7 standards on appliances based on a snapshot today of 8 the situationthatwe havewith certainregulations on 9 sources and certain standards on appliances, end use 10 appliances, andthentheequationchanges, doyouthen 11 revisit thewhole situation and restate or revise the 12 standards? Do you continue to do that on an ongoing 13 basis? Itwould seemtobe an impossible situationto 14 try to accommodate. 15 

### A fourth, incorrect externality values 16 would distort appliance efficiency standards and 17 imposeunfaircostsonmanyconsumers, particularlyin 18 light of the proposed use of national values or 19 averages. If you take the example I talked about in 20 the beginning and consider the vast number of 21 situations that equipment couldbe used in, to use an 22 average or end use national values would seem to be, 23 again, impractical or impossible. 24 Six, identifyingenvironmentaldamagesand 25 appropriateexternalityvaluesisanextremelycomplex

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task in theory. Probably impossible in practice. As I mentioned before, as demonstrated by DOE's own studies and work supported by others.

I would, in going back to Mr. Margolis' comment or question reinforce what I said in response to him, that I believe the only way to adequately handle externalities is to do it at the origination. To do it at the power plant where it's most easy to control and where, of course, it covers all the possible exposures that you may have in the end use.

With that, I have no other comments. PRESIDING OFFICIAL BERLIN: Thank you. I apologize for returning late.

I have no questions. Mark? MR. FRIEDRICHS: I have no questions. PRESIDING OFFICIAL BERLIN: Michael? MR. McCABE : You made -- your comment with respect to the use of national values which we have used in our cost calculations for example, the net present value uses national energy prices. Though I am digressing from the subject of today's hearing, but going into one that has been raised on many occasions on the notices that we publish as well as issues that we have asked for comment on. And that is the use of SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 158 1 task in theory. Probably impossible in practice. As 2 I mentioned before, as demonstrated by DOE's own 3 studies and work supported by others. 4 I would, in going back to Mr. Margolis' 5 comment or question reinforce what I said in response 6 to him, that I believe the only way to adequately 7 handle externalities is to do it at the origination. 8 To do it at the power plant where it's most easy to 9 control and where, of course, it covers all the 10 possible exposures that you may have in the end use. 11 with that, I have no other comments. 12 PRESIDING OFFICIAL BERLIN: Thank you. I 13 apologize for returning late. 14 I have no questions. 15 Mark? 16 MR. FRIEDRICHS: I have no questions. 17 PRESIDING OFFICIAL BERLIN: Michael? 18 MR. McCABE: Youmade

-- your commentwith 19 respect to the use of national values which we have 20 used in our cost calculations for example, the net 21 present value uses national energy prices. Though I 22 amdigressingfromthe subjectof today'shearing, but 23 going into one that has been raised onmany occasions 24 on the notices that we publish as well as issues that 25 we have asked for comment on. And that is the use of SAG,CORP 4218 LENORE LANE, N.w. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS1

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regional values, marginal values, looking at variables where usage might be lower, energy prices might be varied by parts of the country, and would you care to offer any comment as far as a change in the approach for the analysis from a national perspective to one that tries to divide the country into cohorts and look at those industry cohorts?

MR. SUHOCKI: It certainly would be an improvement. I don't think there's any question. As you make the --

MR. MARGOLIS: Excuse me. I just want to clarify this in my own mind.

Your answer is on externalities? MR. McCABE: No, more generally. MR. SUHOCKI: No. More generally. More generally rather than going to sector rather than national average.

MR. MARGOLIS: Okay. MR. SUHOCKI: But even on a regional basis, and I'll use the example of what we are trying to do in -- and I'm sure you're familiar with it, in the ozone transport region we're trying to deal with ozone on a regional basis, 13 states along the 95 corridor, and trying to understand externalities and how externalities and pricing, and a number of other SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 159 1 regionalvalues, marginalvalues, lookingatvariables 2 where usage might be lower, energy prices might be 3 variedby parts of the country, and would you care to 4 offer any comment as far as a change in the approach 5 for the analysis from a national perspective to one 6 thattries to divide the countryinto cohorts and look 7 at those industry cohorts? 8 MR. SUHOCKI: It certainly would be an 9 improvement. I don't think there's any question. As 10 you make the 11 MR. MARGOLIS: Excuse me. I just want to 12 clarify this in my own mind. 13 Your answer is on externalities? 14 MR. McCABE: No, more generally. 15 MR. SUHOCKI: No. More generally. More 16 generally rather than going to sector rather than 17 national average. 18 MR. MARGOLIS: Okay. 19 MR. SUHOCKI: But even on a regional 20 basis, and I'll use the example of what we are trying 21 to do in

-- and I'm sure you're familiar with it, in 22 the ozone transport region we're trying to deal with 23 ozone on a regional basis, 13 states along the 95 24 corridor, and trying to understand externalities and 25 how externalities and pricing, and a number of other

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### 160

2 issues should be looked at just looking at that small region and a relatively small boundary considering the 3 rest of the country. 4 Extremely difficult. There are very many 5 variables even within the region that to have a, what 6 we'll call a fair accommodation or a fair resolution, 7 makes it extremely difficult. But there is no 8 question and, I think that's what you're saying, is 9 you go to a small sector. Certainly your chance of 10 being, I'll call it correct, improves. 11 MR. McCABE: Thank you. 12 PRESIDING OFFICIAL BERLIN: Gene? 13 MR. MARGOLIS: I have no further 14 questions. 15 PRESIDING OFFICIAL BERLIN: Thank you. 16 The next speak will be Joseph Mattingly. 17 MR. McCABE: No, he's already spoken. 18 PRESIDING OFFICIAL BERLIN: I'm sorry. 19 I'm really late. 20 James Lee. 21 MR. FRIEDRICHS: That presentation was d 22 a.

removed from the agen 23 PRESIDING OFFICIAL BERLIN: David Lewis. 24 MR. LEWIS: We'd like to thank you for the 25 opportunity to address the panel today. Lennox SACS, COP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 160 1 issues should be looked at just looking at that small 2 regionanda relativelysmallboundaryconsideringthe 3 rest of the country. 4 Extremely difficult. There are verymany 5 variables even within the region that to have a, what 6 we'll call a fair accommodation or a fair resolution, 7 makes it extremely difficult. But there is no 8 question and, I think that's what you're saying, is 9 you go to a small sector. Certainly your chance of 10 being, I'll call it correct, improves. 11 MR. McCABE: Thank you. 12 PRESIDING OFFICIAL BERLIN: Gene? 13 MR. MARGOLIS: I have no further 14 questions. 15 PRESIDING OFFICIAL BERLIN: Thank you. 16 The next speak will be Joseph Mattingly. 17 MR. McCABE: No, he's already spoken. 18 PRESIDING OFFICIAL BERLIN: I'm sorry. 19 I'm really late. 20 James Lee. 21 MR. FRIEDRICHS: That presentation was 22 removed from the agenda. 23 24 25 PRESIDING OFFICIAL BERLIN: David Lewis. MR. LEWIS : We'd liketothankyou for the opportunity to address the panel today. Lennox

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International is a company that owns both Lennox Industries and Armstrong. They are both producers of heating and air conditioning product that are directly affected by this rulemaking. We have manufacturing facilities located in the U.S., Canada, and Europe. And we basically, from a marketing standpoint or sales standpoint sell product that is virtually covers the globe. The comments already made by ARI and GAMA, and the expert witness, Doctor David Montgomery, all basically cover the specific 18 points that were addressed in the supplemental ANOPR. So we would just like to underscore a few items that we feel are very important. The major issue here that we would like to stress is we believe that the direction that DOE may be intending on going for considering environmental security and externalities would be inappropriate. We do not believe that there is a foundation for you to pursue in this direction. And we believe that there's two basic areas. One, just from the standpoint of reasonableness. And secondly, from the standpoint of the legal basis.

The first issue that we're concerned with is we feel like the regulations for environmental areas are already adequately covered. They're covered SAG, COR9- 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 161 1 International is a company that owns both Lennox 2 Industries and Armstrong. They are both producers of 3 heatingandair conditioningproductthat aredirectly 4 affected by this rulemaking. We have manufacturing 5 facilities located in the U.S., Canada, and Europe. 6 Andwe basically, from a marketing standpointor sales 7 standpoint sell product that is virtually covers the 8 globe. 9 The comments alreadymadebyARI andGAMA, 10 and the expert witness, Doctor David Montgomery, all 11 basically cover the specific 18 points that were 12 addressedinthe supplementalANOPR. Sowe wouldjust 13 like to underscore a few items that we feel are very 14 important. The major issuehere thatwe would liketo 15 stress is we believe that the direction that DOE may 16 be intending on going for considering environmental 17 securityandexternalitieswouldbeinappropriate. We 18 do not believe that there is a foundation for you to 19 pursue inthis direction. Andwe believethat there's 20 two basic areas. One, just from the standpoint of 21 reasonableness. And secondly, from the standpoint of 22 the legal basis. 23 The first issue that we're concernedwith 24 is we feel like the regulations for environmental 25 areas are alreadyadequatelycovered. They're covered

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very specifically by the Environmental Protection Agency in the Clean Air Act. And that working on those issues within NAECA would represent what we would term as a double dipping from a standard sampling. The example we give in our statement is that of a seafood restaurant. If all of a sudden you were to put in place some kind of a tax on seafood restaurants to clean up the American waterways, I think that the basic citizen today would be outraged with that thought. Since there is already clear regulation and, for that matter, financial capabilities for revenue raising outside of that to clean up the waterways, and in fact the EPA cleans up -- has a regulation to do that, if you were to put an added tax on seafood restaurants just because they sell fish that are -- that live in the U.S. tributary systems, that would just -- that would be inappropriate and unwise to do.

And I think similarly you would have the situation with our industry where if you were to tax emissions through an increase in appliance standards, that would be duplicative of what already exists within the EPA Clean Air Act. There is the goal of clean air by the year 2000. It's very clear that that SAC, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 162 1 very specifically by the Environmental Protection 2 Agency in the Clean Air Act. And that working on 3 those issues within NAECA would represent what we 4 would term as a double dipping from a standard 5 sampling. 6 The example we give in our statement is 7 that of a seafood restaurant. If all of a sudden you 8 were to put in place some kind of a tax on seafood 9 restaurants to clean up the American waterways, I 10 think that the basic citizen today would be outraged 11 with that thought. Since there is already clear 12 regulation and, for that matter, financial 13 capabilities for revenue raising outside of that to 14 clean up the waterways, and in fact the EPA cleans up 15

-- has a regulation to do that, if you were to put an 16 added tax on seafood restaurants just because they 17 sell fish that are -- that live in the u.S. tributary 18 systems, that would just that would be 19 inappropriate and unwise to do. 20 And I think similarly you would have the 21 situation with our industry where if you were to tax 22 emissions through an increase in appliance standards, 23 that would be duplicative of what already exists 24 within the EPA Clean Air Act. There is the goal of 25 clean airbythe year 2000. It's very clearthat that

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### 163 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 is in process. To now come back and say well, because

an American homeowner heats their home with electricity or gas that there will be an additional tax applied to them through an increase in efficiency standards, that this whole line of reason is without any foundation.

We further feel that from a national energy standpoint that it would be virtually impossible to come down to the point of saying that a homeowner heating their home or cooling their home is a national security risk. And yet that is the conclusion that would have to be drawn by the American homeowner who would be forced to purchase product that would be more expensive than what their geographical

area would appropriately allow for a minimum standard. I don't think that Congress intended for the standard to be applied just on an average basis. Because if one were to do so and look at the climatological studies that exist today, you can see that most of homeowners today would be penalized by a higher standard if that particular homeowner could not receive benefit or added value from the higher efficiency product being applied to their home. S o consequently, we feel like that would be an inappropriate direction for the Department of Energy SACS, COP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 163 1 is inprocess. To now comeback and saywell, because 2 an American homeowner heats their home with 3 electricity or gas that there will be an additional 4 tax applied to themthrough an increase in efficiency 5 standards, that this whole line of reason is without 6 any foundation. 7 

### We further feel that from a national 8 energy standpoint that it would be virtually 9 impossible to come down to the point of sayingthat a 10 homeowner heatingtheir home or coolingtheir home is 11 a national security risk. And yet that is the 12 conclusionthatwouldhavetobedrawnbytheAmerican 13 homeownerwho wouldbe forcedtopurchaseproductthat 14 would be more expensive than what their geographical 15 areawouldappropriatelyallowfor a minimum standard. 16 I don't think that Congress intended for the standard 17 

### to be applied just on an average basis. Because if 18 one were to do so and look at the climatological 19 studies that exist today, you can see that most of 20 homeowners today would be penalized by a higher 21 standard if that particular homeowner could not 22 receive benefit or added value from the higher 23 efficiency product being applied to their home. S 0 24 

### consequently, we feel like that would be an 25 inappropriate direction for the Department of Energy

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### 164 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to focus on. To look at national security risk, you

would have to look at the basic power generation source. Obviously solar, wind, and cogen would not be a national security risk. Natural gas and coal are prevalent within the U.S. and North America. Therefore, they wouldn't represent a national security risk. It would come down to oil burning plants. And if that were to be isolated, one would have to look at each particular plant and the contribution of power that they represent to the regional grid system as to whether they are a base load generation or peaking requirements. One would have to look at the purchasing of oil when it is used in those peaking or basic load plants and take into consideration the amount of foreign oil contribution. And that would have to be discounted from overall energy component of that particular energy need. And when the analysis is completed, one would still have to conclude that purchasing foreign oil is in fact a national security risk which I think is far less than conclusive.

We feel like the -- there are additional issues that cloud this review if such a review were undertaken. American power generation is broadly diversified, both in plant location raw energy source SAG, C ® 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 164 1 to focus on. 2 To look at national security risk, you 3 would have to look at the basic power generation 4 source. Obviously solar, wind, and cogenwouldnotbe 5 

### a national security risk. Natural gas and coal are 6 

### prevalent within the U.

## s. and North America. 7 Therefore, theywouldn'trepresenta national security 8 risk. It would come down to oil burningplants. And 9 ifthatwere to be isolated, onewouldhave to look at 10 each particular plant and the contribution of power 11 that they represent to the regional grid system as to 12 whether they are a base load generation or peaking 13 

### requirements. One would have to look at the 14 purchasing of oil when it is used in those peakingor 15 basic load plants and take into consideration the 16 

### amount of foreign oil contribution. And that would 17 havetobediscountedfromoverall energycomponentof 18 thatparticularenergyneed. Andwhen the analysis is 19 completed, one would still have to conclude that 20 purchasingforeign oil is in fact a national security 21 risk which I think is far less than conclusive. 22 We feel like the

-- there are additional 23 issues that cloud this review if such a review were 24 

### undertaken. American power generation is broadly 25 diversified, both inplant location rawenergy source

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used as well as plant peaking and load factor characteristics. And I am going to, even though I heard your suggestion as far as not reading, I am going to read a specific paragraph or two from my report. And that is, if you would look at the 1993 national reliability council, or NERP report, which provides a composite picture of power generation in the U.S., we took that particular report and produced four graphs that show the kind of diversity that exists throughout the U.S. The diversity is very great and in fact, not only on the regional level but at the subregions there is also significant variation. As an example, in the western state's coordinating council, hydro supply is 25.7 percent of KwH. Yet in the northwest power pool subregion, 51.2 percent of the Kw produced is from hydro. Any kind of analysis that would be performed would have to look at the regional penalty that a consumer would realize if environmental externalities were applied to these particular situation.

With such dynamic national diversity, some areas using virtually no foreign oil or power -- for power generation and with vast population centers throughout the U.S. being supplied by non-oil plants, SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 165 1 used as well as plant peaking and load factor 2 characteristics. And I am going to, even though I 3 heard your suggestion as far as not reading, I am 4 going to read a specific paragraph or two from my 5 report. 6 And thatis, ifyouwould look atthe 1993 7 national reliability council, or NERP report, which 8 provides a composite picture of power generation in 9 the U.S., we took thatparticular report andproduced 10 four graphs that show the kind of diversity that 11 exists throughout the U.S. The diversity is very 12 great and in fact, not only on the regional level but 13 atthe subregionsthereis also significantvariation. 14 As an example, in the western state's coordinating 15 council, hydro supply is 25.7 percent of KwH. Yet in 16 the northwest power pool subregion, 51.2 percent of 17 the Kw produced is from hydro. Any kind of analysis 18 that would be performed would have to look at the 19 regional penalty that a consumer would realize if 20 environmental externalities were applied to these 21 particular situation. 22 withsuchdynamicnationaldiversity, some 23 areas using virtually no foreign oil or power -- for 24 power generation and with vast population centers 25 throughout the U.S. being suppliedbynon-oil plants,

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the task of developing and providing a fair

dissemination of foreign oil penalty is truly ludicrous. Even if the improbable was performed, how could the resultant penalty adder be fairly applied within a DOE financial analysis to justify a further escalation of appliance efficiency levels?

Finally, and this was the point I was making just a few minutes ago, that the public justification of this efficiency increase I think would be a tremendous headache. While you can argue that no arbitrary value or externalities, security externalities exist, if you are to look at the individual comfort system product, even if a value could be set and obvious conflict surfaces concerning the inequity that over 50 percent of the nation's citizens would experience by being forced to buy higher priced equipment than what the geographic weather conditions would allow them to effectively purchase. The next area is from a statute standpoint. We believe that the plain language within NAECA clearly directs DOE to look at the energy that is directly consumed by a consumer product at the point of use. And we cite that example and there are four points under that. The first are the definition SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 166 1 

### the task of developing and providing a fair 2 dissemination of foreign oil penalty is truly 3 ludicrous. Even if the improbable was performed, how 4 

### could the resultant penalty adder be fairly applied 5 

### within a DOE financial analysis to justify a further 6 

### escalation of appliance efficiency levels? 7 

### Finally, and this was the point I 

### was 8 

### making just a few minutes ago, that the public 9 

### justification of this efficiency increase I 

### think 10 

### would be a tremendous headache. While you can argue 11 

### that no arbitrary value or externalities, security 12 

### externalities exist, if you are to look at the 13 

### individual comfort system product, even if a value 14 

### couldbe set and obvious conflict surfaces concerning 15 

### the inequity that over 50 

### percent of the nation's 16 

### citizens would experience by being forced to buy 17 

### higher priced equipment than what the geographic 18 

### weather conditions would allow them to effectively 19 

### purchase. 20 

### The next area is from a 

### statute 21 

### standpoint. We believethattheplainlanguagewithin 22 NAECA clearly directs DOE to look at the energy that 23 is directly consumed by a consumer product at the 24 point of use. And we cite that example and there are 25 four points under that. The first are the definition

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of energy conservation standard and that definition and the cite is called out in the report. "A performance standard which prescribes a minimum level of energy efficiency or a maximum quantity of energy use by the covered product." Clearly there's no evidence there of power plant considerations.

Next, the definition of energy efficiency is defined as "the ratio of useful output of services from a consumer product to the energy use of such product." Once again, nothing beyond the product as far as its specific use.

And then finally, energy use is defined as "the quantity of energy directly consumed by a consumer product at the point of use." Once again, to go miles away to a power plant would indeed be stretching the limits of what Congress intended.

Each of these definitions shows that Congress intended appliance standards to be established under NAECA to be based upon only the energy directly consumed by the appliance at the location where the product is used by the consumer, not upon vague, far removed externalities such as SO2, NON, and CO2 emissions from a power generating plant. Actually, those issues are already clearly covered under the Clean Air Act and other environmental SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 167 1 of energy conservation standard and that definition 2 and the cite is called out in the report. "A 3 performance standardwhich prescribes a minimum level 

### 4 of energy efficiency or a maximum quantity of energy 5 use by the covered product." Clearly there Is no 6 evidence there of power plant considerations. 7 Next, the definitionof energy efficiency 8 is defined as "the ratio of useful output of services 9 from a consumer product to the energy use of such 10 product." Once again, nothing beyond the product as 11 far as its specific use. 12 Andthenfinally, energyuseisdefinedas 13 "the quantity of energy directly consumed by a 14 consumerproduct at thepoint of use." Once again, to 15 go miles away to a power plant would indeed be 16 stretching the limits of what Congress intended. 17 Each of these definitions shows that 18 Congress intended appliance standards to be 19 established under NAECA to be based upon only the 20 energy directly consumed by the appliance at the 21 location where the product is used by the consumer, 22 not upon vague, far removed externalities such as S02f 23 NOx' and CO2 emissions from a power generating plant. 24 Actually, those issues are already clearly covered 25 under the Clean Air Act and other environmental SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS168

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 statutes. The analysis is further supported by seven

criteria for DOE to prescribe new and amended standards under NAECA. In fact, the third criteria of determining whether a standard is economically justified is "the total projected amount of energy savings likely to result directly from the imposition of the standard."

The seventh criteria is that other factors as DOE considers relevant. This would appear to provide broad discretion to DOE in considering other areas but it would be inconsistent to go beyond the rest of NAECA that shows the word "directly" used. Congress could not have intended DOE to include such vague, complicated, or far removed criteria as environmental and energy security externalities prescribed in the supplement. Congress clearly intended NAECA to establish appliance energy standards directly related to covered product and the energy directly consumed by those products at their point of

use. We filed some specific comments a few months back concerning source versus site. And we believe that the arguments that are contained in that in our attachment 6 add to this issue. And that is SAG, CORI 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 168 1 statutes. 2 Theanalysisisfurther supportedbyseven 3 criteria for DOE to prescribe new and amended 4 standards underNAECA. Infact, the thirdcriteriaof 5 determining whether a standard is economically 6 justified is "the total projected amount of energy 7 savings likelyto result directlyfrom the imposition 8 of the standard." 9 The seventhcriteriaisthatotherfactors 10 

### as DOE considers relevant. This would appear to 11 provide broad discretion to DOE in considering other 12 areas but it would be inconsistent to go beyond the 13 rest of NAECA that shows the word "directly" used. 14 Congress could not have intended DOE to include such 15 vague, complicated, or far removed criteria as 16 environmental and energy security externalities 17 

### prescribed in the supplement. Congress clearly 18 intendedNAECAtoestablishapplianceenergystandards 19 directly related to covered product and the energy 20 directly consumedby those products at theirpoint of 21 use. 22 We filed some specific comments a few 23 

### months back concerning source versus site. And we 24 believe that the arguments that are contained in that 25 in our attachment 6 add to this issue. And that is

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### 169 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that the focus needs to be the product and its use

where it's installed. Not some distance away at a power plant. Once again, the earlier point we made of the double dipping of the standards effect and then, secondly, that Congress did not intend that to be place. We're also very concerned about a statement that was underscored by GAMA in that we feel like DOE does not have the jurisdiction in this area just because Clinton publishes a climate action plan to analyze these issues. The climate action plan is not something that Congress has endorsed but instead a wish list that the current administration has published on theoretical issues that has not had the source or power that would be vested by the authority of Congress' passing on this particular issue. Therefore, looking at NAECA to take care of the issues that this current administration is requesting to be solved would be inappropriate. And in fact, would be looking at the formulation of policy based on the current wind that would be existing on Capital Hill or at the White House.

The real issue is not that. The real issue that we brought a year ago to this panel was that our industry is an industry in transition. We SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 169 1 that the focus needs to be the product and its use 2 where it's installed. Not some distance away at a 3 powerplant. Once again, the earlierpointwe made of 

### 4 the double dipping of the standards effect and then, 5 secondly, that Congress did not intend that to be 6 place. 7 We're also very concerned about a 8 statement thatwas underscoredby GAMA inthatwe feel 9 like DOE does not have the jurisdiction in this area 10 just because Clinton publishes a climate action plan 11 to analyze these issues. The climate action plan is 12 not something that Congress has endorsed but instead 13 a wish list that the current administration has 14 published on theoretical issues that has not had the 15 source or power that would be vested by the authority 16 of Congress' passing on this particular issue. 17 Therefore, looking atNAECA to take care of the issues 18 that this current administration is requesting to be 19 solvedwould be inappropriate. And in fact, would be 20 looking at the formulation of policy based on the 21 currentwindthatwouldbe existingon Capital Hill or 22 at the White House. 23 The real issue is not that. The real 24 issue that we brought a year ago to this panel was 25 that our industry is an industry in transition. We

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believe very emphatically that this rulemaking going on from its current place would be inappropriate because the product that you're looking at an analyzing will not be in the market place when the standard goes into effect.

The rest of the world realizes the effect that is going on today because of the Montreal protocol. Our industry is investing millions of dollars to transition out of the current refrigerants. Now, we are a little bit different than the refrigerator -- home refrigerator industry or the automobile industry in this area because they have already made that transition. However, there's a lot of difference between their products and ours. Ours are a combination of components put together to provide the comfort that the consumer desires.

When you put these added components together, what you have is added complexity. And our industry right now is focused on making that transition. And we requested last year that this particular rulemaking be put on hold until 1996 to take into consideration the product that will exist in the market place then.

Moving forward with the rulemaking as currently is planned will cause no only loss of SACS, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 170 1 believe very emphatically that this rulemaking going 2 on from its current place would be inappropriate 3 because the product that you're looking at an 4 analyzing will not be in the market place when the 5 standard goes into effect. 6 The rest of theworld realizes the effect 7 that is going on today because of the Montreal 8 

### protocol. Our industry is investing millions of 9 dollarstotransitionoutofthecurrentrefrigerants. 10 Now, we are a little bit different than the 11 refrigerator

-- home refrigerator industry or the 12 automobile industry in this area because they have 13 alreadymade that transition. However, there's a lot 14 of difference between their products and ours. Ours 15 are a combination of components put together to 16 provide the comfort that the consumer desires. 17 

### When you put these added components 18 together, what you have is added complexity. And our 19 industry right now 1S 

### focused on making that 20 

### transition. And we requested last year that this 21 particular rulemaking be put on hold until 1996 to 22 take into considerationtheproductthatwill existin 23 the market place then. 24 

### Moving forward with the rulemaking as 25 currently is planned will cause no only loss of

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American jobs but specific loss in international trade because our product will not be able to be sold at the levels that DOE we understand is considering. We feel like the most appropriate process right now for DOE to take is to on the heating -- on the HVAC product, heating/air conditioning product, that's under consideration, covered product under NAECA, that that particular product would be place don hold until the new product is available in the market place. At that time, our industry would like to cooperate with DOE in making sure that the right standard is set for that product that consumers would be buying beyond the year 2000. We would hope that a leadership position would be established by DOE in taking this stand. We believe it's totally appropriate and most beneficial from the competitive standpoint in the global market that exists today.

There was a comment that was earlier asked concerning trade by Mr. McCabe and I would like to address that very quickly. The question that was asked was do you have any -- and please, if I get it wrong, rephrase it for me. But as I understood, are there any examples where the national standard is actually having a deterrent affect in trade. And SACS, COR! 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 171 1 Americanjobsbut specificlossininternationaltrade 2 becauseourproductwill notbe able tobe soldat the 3 levelsthatDOE we understand is considering. We feel 4 likethemost appropriateprocess rightnow forDOE to 5 take is to on the heating

-- on the HVAC product, 6 

### heating/air conditioning product, that's under 7 consideration, coveredproductunderNAECA, that that 8 particular product would be place don hold until the 9 newproduct is available inthemarketplace. At that 10 time, ourindustrywouldliketo cooperatewithDOE in 11 making sure that the right standard is set for that 12 productthat consumerswouldbebuyingbeyondtheyear 13 

### 2000. 14 We would hope that a leadership position 15 would be establishedby DOE in taking this stand. We 16 believe it's totally appropriate and most beneficial 17 from the competitive standpoint in the global market 18 that exists today. 19 Therewas a commentthatwas earlierasked 20 concerning trade by Mr. McCabe and I would like to 21 address that very quickly. The question that was 22 asked was do you have any -- and please, if I get it 23 wrong, rephrase it for me. But as I understood, are 24 there any examples where the national standard is 25 

### actually having a deterrent affect in trade. And

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there are very, very, very clear examples of that and I'll cite one.

The largest product today that is sold internationally, and I'm saying internationally outside of North America, is what is called a mini split system. The mini split system is inherently inefficient compared to product that is installed in residences and condominiums, and multiple family housing in North America. Our product manufactured here is much higher efficient due largely to the impact that the national standards has had on us as manufacturers.

But internationally the picture is quite different. The largest product sold or the largest category of product sold in the residential area are these mini split systems. Those products are not sold in any quantity within the U. S. There are some sold in some specific applications. But the full line of product internationally that's sold in the mini splits aren't sold here in the U.S. because they don't meet the national standards that the U.S. has imposed. For us to take our product now internationally and try to compete against that product, we have been basically inept, ineffective, unable to compete because the product that is sold internationally is much less in SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 172 1 there are very, very, very clear examples of that and 2 I'll cite one. 3 The largest product today that is sold 4 internationally, and I'm saying internationally 5 outside of North America, is what is called a mini 6 split system. The mini split system is inherently 7 inefficient compared to product that is installed in 8 residences and condominiums, and multiple family 9 housing in North America. Our product manufactured 10 here is much higher efficient due largely to the 11 impact that the national standards has had on us as 12 manufacturers. 13 But internationally the picture is quite 14 different. The largest product sold or the largest 15 category of product sold in the residential area are 16 thesemini split systems. Thoseproducts are not sold 17 in any quantity within the U.S. There are some sold 18 in some specific applications. But the full line of 19 productinternationallythat's soldinthemini splits 20 aren't sold here in the U.S. because they don't meet 21 thenational standards thattheU.S. has imposed. For 22 us to take our product now internationally and try to 23 compete against that product, we have been basically 24 inept, ineffective, unable to compete because the 25 product that is sold internationally is much less in

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cost and much less in efficiency. Therefore, our product, with a higher price tag, just can't compete against the Asian mini split system.

That is a direct example of how we are impacted and how a market place has been taken away from us. The biggest growth area for us potentially would be that global market, not North American market. Yes sir?

MR. FRIEDRICHS: Did the -- was there significant demand for mini split systems before the standards went into effect here in North America?

MR. LEWIS: The mini split system was basically in transition. It was in a growth or production mode in or around the time where national standards were first being considered. They have since -- MR. FRIEDRICHS: So you think there might have been a demand in North America even some time in the early '80s?

MR. LEWIS: We think there would have been more demand had there not been a national standard. We also believe we would have been able to compete with a product that we were producing at that time in a much greater way than we currently are able to do SAG

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### 173 1 

### cost and much less in efficiency. Therefore, our 2 product, with a higher price tag, just can't compete 3 against the Asian mini split system. 4 That is a direct example of how we are 5 impacted and how a market place has been taken away 6 from us. The biggest growth area for us potentially 7 would be that global market, not North American 8 market. 9 Yes sir? 10 MR. FRIEDRICHS: Did the -- was there 11 significant demand for mini split systems before the 12 standards went into effect here in North America? 13 MR. LEWIS: The mini split system was 14 basically in transition. It was in a growth or 15 production mode in or around the time where national 16 

### standards were first being considered. They have 17 since -- 18 MR. FRIEDRICHS: So you thinkthere might 19 have been a demand in North America even some time in 20 the early '80s? 21 MR. LEWIS: We thinktherewouldhavebeen 22 more demand had there not been a national standard. 23 We also believe we would have been able to compete 24 with a product that we were producing at that time in 25 a much greater way than we currently are able to do

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because of the product level of efficiency that's imposed upon us.

MR. FRIEDRICHS: There's nothing in the law that prohibits you from manufacturing mini split systems here and exporting those?

MR. LEWIS: Well, that's a good concept but the issue that was discussed earlier by -- the major area of savings that has been produced has been from manufacturability. We've closed several plants just because we can manufacture greater quantities with less bricks and mortar than we were able to 20 years ago. Our capability of manufacturing has really grown tremendously.

And the way that you're able to compete in a global market is mass production. I mean, you can't be making -- It's kind of like the Model T. As long as it was black, you could sell it very easily. If you had a request for a pink Model T, Ford just didn't produce it. Consequently today it's the same way. In manufacturing you cannot afford to have multiple, very unique, separate designs of product. You have to produce a product that you can mass sell throughout the market place. That's not the case. We don't have that capability of competing directly with a mini split system. SAG, CO ®B 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 174 1 because of the product level of efficiency that's 2 imposed upon us. 3 MR. FRIEDRICHS: There's nothing in the 4 law that prohibits you from manufacturing mini split 5 systems here and exporting those? 6 MR. LEWIS: Well, that's a good concept 7 but the issue that was discussed earlier by

-- the 8 major area of savings that has been produced has been 9 from manufacturability. We've closed several plants 10 just because we can manufacture greater quantities 11 with less bricks and mortar than we were able to 20 12 years ago. Our capabilityofmanufacturinghas really 13 grown tremendously. 14 Andthewaythatyou're ableto compete in 15 a globalmarket ismass production. I mean, you can't 16 be making

-- It's kind of like the Model T. As long 17 as it was black, you could sell it very easily. If 18 you had a request for a pinkModel T, Fordjust didn't 19 produce it. Consequentlytoday it's the sameway. In 20 manufacturingyoucannot affordtohavemultiple, very 21 unique, separate designs of product. You have to 22 produce a product that you can mass sell throughout 23 themarket place. That's not the case. We don't have 24 that capability of competing directly with a mini 25 split system.

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PRESIDING OFFICIAL BERLIN: I have no questions. Mark?

MR. FRIEDRICHS: Your comment on source versus site energy, do you believe -- I was unclear. Do you believe that we can examine the environmental effects of energy use at the site but not at the source? MR. LEWIS: The four cites that we have within our statement, one is that "direct from a consumer product to the energy use of such product." Once again has nothing to do with power plants and this is directly out of the standard, directly consumed by a consumer product at the point of use.

MR. FRIEDRICHS: Right. MR. LEWIS: That would have no consideration of power plants.

MR. FRIEDRICHS: Right.

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### 175 1 So we feel like the major issue before us 2 is the issue of the transition that's occurring. We 3 think the timing of the standards need to take that 

### 4 into consideration. And for sure, not get tied up in 5 environmental externalities that really would

-- are 6 not appropriate, either from the legal standpoint or 7 from the practical standpoint of just being logical. 8 PRESIDING OFFICIAL BERLIN: I have no 9 questions. 10 Mark? 11 MR. FRIEDRICHS: Your comment on source 12 versus site energy, do you believe

-- I was unclear. 13 Do you believe that we can examine the environmental 14 effects of energy use at the site but not at the 15 source? 16 MR. LEWIS: The four cites that we have 17 within our statement, one is that "direct from a 18 consumer product to the energy use of such product." 19 Once again has nothing to do with power plants and 20 this is directly out of the standard, directly 21 consumed by a consumer product at the point of use. 22 MR. FRIEDRICHS: Right. 23 MR. LEWIS: That 24 consideration of power plants. 25

(202)797-2525 MR. FRIEDRICHS: Right. SAG,CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 would have no

VIDEO;TRANSCRIPTIONS1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 176 MR. LEWIS: The next one, "A performance standard which prescribes a minimum level of energy efficiency of maximum quantity of energy use for a covered product." That has nothing to do with a power plant. And also, "The ratio of useful output of services from a consumer product to the energy use of such product." Once again, nothing to do with power plants. MR. FRIEDRICHS: My question was, though, do you believe that we can examine the environmental effects of energy use on-site?

MR. LEWIS: I guess the question would be on what basis could you do that? We don't know of any. We don't see anything within the enabling legislation that allows those issues to be into consideration on covered product for appliant standards. MR. FRIEDRICHS: I see. So, regardless of whether or not it's site or source, you don't think we can take into account any environmental effects?

MR. LEWIS: That's correct. As far as I understand the enabling legislation has nothing to do with the environmental issues. Has all to do with the energy use of the products where its installed. SAG, COP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 

### 176 1 MR. LEWIS: The next one, "A performance 2 standard which prescribes a minimum level of energy 3 efficiency of maximum quantity of energy use for a 4 coveredproduct." Thathas nothingto do with a power 5 plant. 6 And also, "The ratio of useful output of 7 services from a consumer product to the energy use of 8 such product." Once again, nothing to do with power 9 plants. 10 MR. FRIEDRICHS: My questionwas, though, 11 do you believe that we can examine the environmental 12 effects of energy use on-site? 13 MR. LEWIS: I guess the question would be 14 on what basis could you do that? We don't know of 15 any. We don't see anything within the enabling 16 legislation that allows those issues to be into 17 consideration on covered product for appliant 18 standards. 19 MR. FRIEDRICHS: I see. So, regardless of 20 whether ornot it's siteor source, you don't thinkwe 21 can take into account any environmental effects? 22 MR. LEWIS: That's correct. As far as I 23 understand the enabling legislation has nothing to do 24 with the environmental issues. Has all to dowiththe 25 energy use of the products where its installed.

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 177 PRESIDING OFFICIAL BERLIN: There are some environmental emissions for a gas furnace, for example, in a residence.

MR. LEWIS: Does that have to do with the energy use? MR. FRIEDRICHS: Well, it's certainly a result of the energy use.

MR. LEWIS: But, is that the quantity of the energy used of the product where it's installed?

MR. FRIEDRICHS: Yes, exactly. MR. LEWIS: I don't agree with you. I feel very strongly that the energy use of the product, the intention of that, is that directly related to the consumer's operation of that product.

MR. FRIEDRICHS: But the emissions of NOX for example, from a gas furnace in a home would be directly related to the consumer's use of that product. MR. LEWIS: Now, if we were talking about the Clean Air Act, I would have agreement with you. And if this was the South Coast Air Quality Management District, we'd have a lot of good areas that we could discuss. But when we're talking about the energy efficiency, energy consumed versus the amount of energy produced that's useful, if that is our

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### 177 1 

### PRESIDINGOFFICIALBERLIN: Therearesome 2 environmental emissions for a gas furnace, for 3 example, in a residence. 4 

### MR. LEWIS: Does that have to do with the 5 energy use? 6 

### MR. FRIEDRICHS: Well, it's certainly a 7 result of the energy use. 8 

### MR. LEWIS: But, is that the quantity of 9 the energy used of the product where it's installed? 10 

### MR. FRIEDRICHS: Yes, exactly. 11 

### MR. LEWIS: I don't agree with you. I 

### 12 feel very stronglythatthe energyuseof theproduct, 13 the intentionof that, isthatdirectlyrelatedto the 14 consumer's operation of that product. 15 

### MR. FRIEDRICHS: But the emissions of NOx 

### 16 for example, from a gas furnace in a home would be 17 directly related to the consumer's use of that 18 product. 19 

### MR. LEWIS: Now, ifwe were talking about 20 the Clean Air Act, I would have agreement with you. 21 And if thiswas the SouthCoastAirQualityManagement 22 District, we'd have a lot of good areas that we could 23 

### discuss. But when we're talking about the energy 24 efficiency, energy consumed versus the amount of 25 energy produced that's useful, if that is our

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discussion which is my understanding NAECA is considering, that would be only the area where our discussion would correlate.

MR. FRIEDRICHS: That was my only question. PRESIDING OFFICIAL BERLIN: Michael?

MR. McCABE: No questions. MR. MARGOLIS: No questions. PRESIDING OFFICIAL BERLIN: Thank you. MR. LEWIS: Will we ever be hearing comment back from the letter that we sent and requested comment back on source versus site? At -- if you could review attachment 6, we would certainly appreciate being -- having some response to our request from last December.

Thank you. PRESIDING OFFICIAL BERLIN: Thank you. Joseph Loper? MR. McCABE: Is there a representative from the Alliance to Save Energy in place of Mr. Loper? PRESIDING OFFICIAL BERLIN: Are there any unscheduled speakers that signed up?

I guess the next thing is rebuttal statements. Does anyone have a rebuttal statement he

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### 178 1 discussion which is my understanding NAECA is 2 considering, that would be only the area where our 3 discussion would correlate. 4 MR. FRIEDRICHS: That was my only 5 question. 6 PRESIDING OFFICIAL BERLIN: Michael? 7 MR. McCABE: No questions. 8 MR. MARGOLIS: No questions. 9 PRESIDING OFFICIAL BERLIN: Thank you. 10 MR. LEWIS: will we ever be hearing 11 comment back from the letter that we sent and 12 requested comment back on source versus site? At-- 13 if you could review attachment 6, we would certainly 14 appreciate being having some response to our 15 request from last December. 16 Thank you. 17 PRESIDING OFFICIAL BERLIN: Thank you. 18 Joseph Loper? 19 MR. McCABE: Is there a representative 20 from the Alliance to Save Energy in place of Mr. 21 Loper? 22 PRESIDING OFFICIAL BERLIN: Are there any 23 unscheduled speakers that signed up? 24 I guess the next thing is rebuttal 25 statements. Does anyone have a rebuttal statement he

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### 179 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 or she would like to make in order of speaking? Any audience questions of speakers? Sandy? No. Well, I guess we'll recess until tomorrow at 9:30 then. Thank you for coming.

(Whereupon, at 2:31 p.m., the hearing in the above-entitled matter was concluded, to reconvene at 9:30 a.m. the following day.)

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### 179 1 or she would like to make in order of speaking? 2 Any audience questions of speakers? 3 Sandy? No. 4 Well, I guess we'll recess until tomorrow 5 at 9:30 then. Thank you for coming. 6 (Whereupon, at 2:31 p.m., the hearing in 7 the above-entitledmatterwas concluded, to reconvene 8 at 9:30 a.m. the following day.) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SAG,CORP 4218LENORE LANE, N.W. WASHINGTON, D.C.20008 (202)797-2525 VIDEO;TRANSCRIPTIONS180 CERTIFICATE

This is to certify that the foregoing transcript in the matter of: Public Hearing: Energy Conservation Program for Consumer Products, Docket No. EE-RM-93-801

Before: U.S. Department of Energy

Date: January 19, 1995

Place: Washington, DC

represents the full and complete proceedings of the aforementioned matter, as reported and reduced to typewriting.

SAG, CORP 4218 LENORE LANE, N.W. WASHINGTON, D.C. 20008 (202) 797-2525 VIDEO; TRANSCRIPTIONS 180 CERTIFICATE

This is to certifythat the foregoing transcript in the matter of:

Before:

Date:

Place: Public Hearing: Energy Conservation ProgramforConsumerProducts, Docket No. EE-RM-93-801



## u.s. Department of Energy January 19, 1995 Washington, DC

represents the full and complete proceedings of the aforementioned matter, as reported and reduced to typewriting.

(202)797-2525 

# II

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### "

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